Financial Investments

8/2/2019 Financial Investments

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FINANCIAL INVESTMENTS

INVESTMENT

Introduction:

Investment is an economic activity. It refers to acquisition of assets which

generates income. It means the diversification of money towards investment and

there by increasing productivity of a nation.

Meaning:

Investment means the use of money to earn more money by way of interest,

dividend or Capital appreciation. Investment involves proper cash management and

asset management.

Investment is the diversion of money from savings to production activity.

Investment is the process of sacrificing something now for the prospect of gaining

something later. It implies that there are three dimension to an investment; time,

todays sacrifice and prospective gain. Investment involves long term commitment.

Definition:

Commitment of funds made in the expectation of some the rate of return. If

the investment is properly undertaken, the return will commensurate with the risk the

investor assumes.

- Fisher & Jordan

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Concepts of Investments

A) Economic Investment: Economic Investment means the net additions to

capital stock of the society which consists of goods and services that are used

in the production of other goods and services.

B) Commitment Investment: It refers to money commitment to satisfy personal

desires. Since no rate of return is involved in such investment nor capital

growth is expected.

C) Financial Investment : It involves the investment of funds in various assets,

such as stock, bonds, real estate and mortgages etc.,

OBJECTIVE OF THE INVESTMENT:

All investors want their investments to be safe and they would like to see that

it must grow with an increased rate of growth or at least compensate the rate of

inflation.

For choosing right investments, the investor must follow the following

principles of investment.

Safety of Investment: Generally every investor would be primarily

concerned with safety of his investment. Adequate protection should exist against the

risk of loss of capital. However a highly safe investment will generate relatively low

return.

Liquidity: A liquid investment would enable the investor to en cash his

investment whenever the need arise. It would also permit to sell off an un-

remunerative investment, there by minimizing the loses and switch over to a more

promising investment.

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Profit: The main reason we invest our idle funds is for earning profits. So

there should be some profit on the investment.

INVESTMENT ENVIRONMENT :

The investment environment must be favourable so that the investors can

invest their savings properly. While making a decision regarding investment the

investor should observe the economic environment of the country.

Generally, the following are the basic considerations to be made for a sound

investment strategy.

Stable Government : Investors will be willing to invest their savings if they

have the assurance for the safety of principal and expected return. A strong

government can alone provide this facility.

Stable Currency: A proper monetary policy will give a better direction to the

investment out less. A well systemized monetary policy is necessary to encouragethe investment among the people. A reasonable stable price level attracts a huge

amount of capital investment by both Indian and foreign investors.

Presence of Public Financial Institution: Financial institutions are very

much essential as they encourage good amount of savings and direct them to

productive purpose which help the investment market to grow rapidly.

INTRODUCTION TO INDIAN RAILWAYS

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Indian railway is working like arteries of the nation. Established in the year

1853 when the first train was flagged from Bombay to Thane, a distance of 34kms, it

has now grown to dizzy heights and covering more than 62, 484km across the

country, making it one of the largest networks in the world. The Indian railways have

a fleet of 8682 stem locomotives, 1702 diesel locomotives and 729 electric

locomotives. The formal inauguration ceremony was performed on 16th April 1853,

when 14 railways carrying about 400guests left Beribboned at 3.30pm admits the

loud applause of a vast multitude and to the salute of 21guns.

Indian railways has taken the responsibility of transporting men, defense

personnel, animal stock, agricultural and industrial products, essential commodities,

form place across the country. It importance is self explanatory on the said

commitments made. It is the only organization of its kind in the country and totally

nationalized covered by parliamentary act under the ministry of railways. It is the

biggest setup in Asia.

It is subsidizing the road transport corporation under provincial government, to

fulfill the above commitments from and to the places where railways are not available

and also by ferry services to the places remote and isolated due to natural topography

with in the country.

Earlier to independence to India the railways were in small systems confined

to provincial areas, like MSM, BNR, HEH NIZAMS state railway, GIP, MARTIN

BERG LIGHT RAILWAY etc. consequent on independence to India, it is planned to

bring all these private groups by nationalizing the system under one roof to have

effective and consolidated uniform management. Thus Indian railway congress is

formed later was known as Indian railways.

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Indian railways due to its vast network and high commitments it has become

one of the biggest business entrepreneur with service motivation. As such turning out

bulk volume of income, expenditure and profits, thus became the second biggest

bread earner after the income tax department. Since the lion share of income is from

railways, the government has utilized these funds for other departments. This has

resulted in limitations for allocating more money to the developments, passenger

amenities. The major chunk of it was diverted to other expenditures. So it is felt

necessary to secure money to railways from the general budget and handle separately

as an autonomous system.

Accordingly the Acworth committee 1927, wedge wood committee 1937,

based on author Loews Dickinson recommendations finalized to have separate

financial organizations headed by financial commissioner, assisted by financial

advisor and chief accounts officer on the zonal railways for effective development,

control over expenditure and investments etc. This has resulted in very fast growth

and excellent result out and made the base for todays expertise and got the laudles ofother countries.

Later a railway board was formed headed by chairman, assisted by members

of different disciplines, answerable to the minister for railways and intern to the

parliament the peoples house.

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To achieve the customer satisfaction from grass root level railway has

committed for its operation in safety, punctuality and reliability. To achieve this goal

railways have developed its own production centers for rolling stock, developed the

repair and maintenance facilities at various locations in the country. They have

chosen preventive maintenance method against break down maintenance. Though it

is very costly, but due to the crisis prevailing in financial front instead of replacement

based on time, replacement on condition basis is thought of. This will lead to

breakdown maintenance which railway cannot afford. Based on the expertise gained

a concept is developed where in replacement on condition and time matrix is adopted.

Every care is taken to control the expenditure by rationalizing, cannibalizing

materials reclamations, variety reduction, and reduction in annual consumption by

inducting the global development in technology front also; control is achieved on

man power for their dedication quality output and proficiency.

Summing up all the said factors the entire railway is made into small units

with in which number of quality checks are inducted including systematizing under

ISO-9002. Though it is cumbersome and consuming more number of man hours,consistent in saving the expenditure is achieved besides high reliability and safety.

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For operational convenience, the Indian railways are covered by a separate

ministry headed by railway minister assisted by two ministers for state. A separate

railway board is setup at the national level headed by chairman assisted by members.

ESTABLISHMENT

FINANCE

ENGINEERING

MECHANICAL

ELECTRICAL

COMMERCIAL along with additional and assistant members.

In each branch, directors, joint directors, additional and assistant directors with

sizeable ministerial staff back the system in day total day work. The railways are

subdivided into number of zones. Each zone is headed by general manager assisted

by additional general manager, heads of the departments in all corresponding

branches setup in railway board. They are further assisted by junior administrative

senior scale, assistant officers and required sub-ordinate staff.

For further convenience, the zones are divided into divisions headed by

divisional manager, assisted by additional divisional railway manager, junior

administrative railway officers of various branches followed by senior scale assistant

officers and sub ordinate staff.

All the requirements in the operation and maintenance of various rolling stock,

signal telecommunication equipments, track and bridges, operating equipment,

number of repair and maintenance shops, production workshops totally; cater their

needs are established in every zone. Thus, every effort is made to achieve self

sufficiency.

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INDIAN RAILWAYS, the premier transport organization of the country is the

largest rail network in Asia and the worlds second largest under one management.

Indian Railways is a multi-gauge, multi-traction system covering the following:

Track

Kilometers

Broad Gauge

(1676mm)

Metre Gauge

(1000 mm)

Narrow Gauge

(762/610mm)

Total

86,526 18,259 3,651 108,706

Route

Kilometers

Electrified Total ------------ ---------------

16,001 63,028 --------------- ----------------

Other Interesting facts of Indian Railways

Indian Railways runs around 11,000 trains everyday, of which 7,000 are

passenger trains

7566

Locomotives

37,840

Coaching

Vehicles

222,147

Freight Wagons6853- Stations

300- Yards 2300- Good Sheds 700- Repair Shops 1.54 million

Work force

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C.M.E. = Chief Mechanical Engineer

C.M.P.E. = Chief Motive Power Engineer

DSL = Diesel

Sr.D.M.E. = Senior Divisional Mechanical Engineer

D.M.E. = Divisional Mechanical Engineer

A.C.MT = Assistant Chemist & Metallurgical

A.CO.S = Assistant Controller & Stores

C.O.S. = Chief Office Superintendent

C.M.S. = Chemist & Metallurgical Superintendent

S.S. = Senior Superintendent

D.S.K. = Depot Store Keeper

J.E. = Junior Engineer

JE/D = Junior Engineer/Drawings

H.Cl. = Head Clerk

Sr.Cl. = Senior Clerk

Jr.Cl. = Junior Clerk

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OBJECTIVES OF THE STUDY

The following are the objectives of the study.

1. To study the origin and development of the study.

2. To find out the present Capital budgeting position in Diesel Loco Shed.

3. To analyze the variation between actual grant and budgeted grant for the

capital projects in Diesel Loco Shed.

4. To examine the capital expenditure in Diesel Loco Shed.

5. To draw conclusion from the study and offer suitable suggestions.

RESEARCH METHODOLOGY :

In order achieve the objectives of my project i.e., study the origin and growth

of Diesel Loco Shed, Kazipet and to analyze its financial investment position the

necessary data and information required for study were collected from the following

sources.

Primary Sources:

The Primary data was collected through formal discussion with the managerial

staff of the Diesel Loco Shed, Kazipet.

Secondary Data:

1. The main source for the study in the secondary data which includes capital

budget manual of Diesel Loco Shed.

2. Data collected from documents and records of the company.

3. Library books and other in house journals.

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LIMITATIONS OF THE STUDY:

Financial analyze can be very useful tools for understanding a firms

performance and condition, however there are certain problems are issues encounted

in such analyses, which call for care, circumstances and judgment in such an exercise.

1. It is difficult to find suitable bench marks for evaluating their capital budgeting

performances positions.

2. It is some what difficult to judge whether a certain budget position is god or

not.

3. Financial investment statement over the years does not take in account the

price level changes.

4. Budgets are based on only the information which is recorded in the financial

investment statements.

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DIESEL LOCO SHED IN A NUT SHELL

To attend the repair and maintenance needs of railway rolling stock especially

engines, diesel loco sheds are established at various vulnerable locations amounting

to 22 numbers scattered al over India. One among such is the diesel loco shed,

kazipet. It has holding 140engines consisting of WDM2, WDG3 and WDG3A types

of locomotives meant to haul passengers and goods requirements. It is one of the

biggest of its kind and is linking the traffics from south to north and east to west. It

has a set up of infrastructure worth Rs.17crores in the year 1973 when the shed is

opened with 30 locomotives holding for repair and maintenance work. In the course

of time, numbers of locos were added n phases to the present status of one party

holding. Accordingly, the infrastructure is also enhanced in phases. The original

setup is shown in the chart adding the hackles on to the hat, shed had laurels for its

best performance from time to time.

Railways being the oldest setup, sufficient standards have been established in

maintaining human relations, workmen welfare, Quality control and customer

satisfaction front. Enough care has been taken to prevent failures by the introduction

of preventive maintenance schedules as against to breakdown, following the time and

condition matrix for the replacement of spares keeping in view of the financial

limitations.

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GENERAL DATA

Date of Opening : 21-04-1973

Total Area : 6.01 Hectares

Length of track in shed : 4.5 km

Track condition : Level track

Area of service building : 2964 Sq.m

Cost of installation : Rs.1,32,54,492 as on 1973

Area of stores : 728 Sq.m as on 1973

Area under EOT crane : 7200 Sq.m as on 1973

Total staff : 842

A good and sound setup is noticed in the shed equipped with highly and

technically qualified staff in various sections, the literacy level is 33.33% more than

the average staff in such similar sheds. It has well equipped infrastructure to do every

hard job. The expertise is so developed that this shed could able to retain and

maintain the rolling stock involved in without sending to POH workshop like golden

rock, charbagh, parale which are far away and thus save the light engine movement

and enhanced availability of loco for earning with in the shed and available

infrastructure. So far 13 locomotives involved in accidents requiring lakhs of spares

and heavy repairs have been under taken here and successfully performed the safety

tests etc.

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The yearly schedule locos are to develop 2350 HP out of, rated 2400 which is

100% achieved in the shed after. As many as 57 express trains are handled by these

locomotives in addition to the line share of goods hauling covering the adjoining coal

belt.

DIESEL LOC SHED AT A GLANCE

All the systems that track and rolling stock will be the share of Railways there

are required to be very sound. As such their maintenance, repairs and up keeping has

as more importance for which the Diesel Loco Shed are established at various places

having traffic demand. This Diesel Loco Shed at Kazipet is one of its kind its 26

such sheds established in the country. The salient features of this unit are given

below:

WORKING ENVIRONMENT

To ensure and fulfill the commitment it is necessary to inculcate the habit of

work consciousness supported by legislature the Loco Sheds are exempted from

factory act.

It is a responsibility of concerned staff to ensure the quality of output of their

work. It should frame positive results at the schedule repairs there should not be a

failure. Every failure is analyzed and the responsibility is fixed upon the concerned

staff is taken up by giving minor or major punishments in consistent with quantum of

failure. Hence it is to be ensure for the quality inventory and inputs skills of work

and application of mind co-ordination of other staff will pronounce to bring more

quality output and with the customer satisfaction.

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CLASSIFICATION OF REVENUE EXPENDITURE

All General Abstracts

The Revenue working expenses of the Railways are classified under 13 sub-

major heads with a separate abstract for each sub-major head.

1. Abstract A - General superintendence and services

2. Abstract B - Repairs and maintenance of permanent way and works

3. Abstract C - Repairs and maintenance of motive power

4. Abstract D - Repairs and maintenance of carriages and wagons

5. Abstract E - Repairs and maintenance of plant and equipment.

6. Abstract F - Operating expenses Rolling stock and equipment

7. Abstract G - Operating expenses Traffic

8. Abstract H - Operating expenses Fuel

9. Abstract J - Staff welfare and amenities

10. Abstract K - Miscellaneous working expenses

11. Abstract L - Provident fund, pension and other retirement benefits

12. Abstract M - Appropriation to funds

13. Abstract N - Suspense.

The sub major heads are divided into minor, sub and detailed heads.

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The introduction or abolition or change of nomenclature of any minor or sub-

head, the transfer of a sub-head or detailed head from one minor head or sub head to

another and any rearrangement of abstracts are not with in the competence Railway

administration. But the financial advisor and Chief Accounts Officer of a Railway

may with the approval of the General Manager introduce a new detailed head with in

a sub-head except when the necessity arises of a new class of expenditure in which

case the orders of the Railway Board should be obtained as to the sub-head under

which the detailed head should appear. When, however, a new detailed head is

opened by Railway Administration, the Railway Board should be informed.

The structure of the accounts classification is such that it corresponds to and is

in line with the revised classification of the demands for grants. While the alpha (i.e.,

the letter of Abstract) corresponds to the demand head, the minor, sub head and

detailed heads of accounts, represent classification of the activity from a broad

grouping into its details. The classification of the activity from a broad grouping into

its details. The classification lends itself to computerization and its utility from the

point of view of analysis of costs will be greater when the completion is taken on the

computer is due course of time. On computerization of the accounting system, the

alpha of the abstract classification. Will be substituted by a numerical code as

follows:

A-03, B-04, C-05, D-06, E-07, F-08,

G-09, H-10, J-11, K-12, L-13, M-14,

N & N 12

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Which will be the same as for demands for grants. Under the manual system

however it is preferable to retain the alpha character of the Abstract classification in

view of its age long familiarity. In this connection, a summary of the revised demand

structure demand for grants for expenditure on Railways is given below.

S.No. Group S.No.Demand

Name of the Demand

I. Policy formulation and

services common to all

Railways

1.

2.

Railway Board

Miscellaneous Expenditure

(General)

II. General Superintendence and

services on Railways

3.

4.

5.

6.

General superintendence and

services on Railways.Repairs and maintenance of

permanent way and works

Repairs and maintenance of

motive power.

Repairs and maintenance of

plant and equipment.

III. Operation 8.

9.

10.

Operating expenses- Rolling

stock and equipmentOperating expenses Traffic

Operating expenses Fuel.

IV. Staff welfare retirement

benefits and miscellaneous

11.

12.

13.

Staff welfare and amenities

Miscellaneous working

expenses

Provident fund, pension and

other retirement benefits.

V. Railway funds and payment

to General Revenues.

14.

15.

Appropriation to funds.

Dividend to General Revenues

and amortization of overcapitalization

CLASSIFICATION OF CAPITAL AND OTHER WORKS EXPENDITURE

Explanatory Memorandum

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The Revised Classification of expenditure on works irrespective of whether

they are charged to capital DRF, DF, Revenue (OLWR) or ACF will come under a

single demand 0 16 namely Assets Acquisition, Construction and Replacement.

The Accounting classification for works expenditure is in the form of a 7 digit

-------------- 4 module alphabetical code.

The first module which is the alpha indicates the source of fund viz., capital,

DRF, DF, Revenue (OLWR) or ACF as the case may be. The second module of 2

digits which is numerica will represent the standard plan heads. The third module

which is also numerical will represent the 2 digits corresponding to the sub and

detailed head of classification giving the details of the assets acquired, constructed or

replaced. The last module which is of two digits will indicate the primary unit i.e.,

object of the expenditure.

For the purpose of link with the accounts of the Central Government the plant

heads will of the Minor Heads of Railway Capital under the Major Heads. 546-

Capital out lay on Indian Railways strategic lines. 547---- Capital out lay on Indian

Railways Strategic lines. The Minor Heads classifications are as follows:

11. New lines (Construction)

12. Purchase of New lines

13. Restoration of dismantled lines

14. Gauge conversion

15. Doubling

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16. Traffic facilities yard remodeling and others

18. Railway Research

21. Rolling Stock

29. L.C. gates

30. ROB/ RUB

31. Track renewals

32. Bridge work

33. Signaling and Telecommunication works

34. Taking over of line wires from P & T Dept

35. Electrification projects.

36. Other Electrical works

41. Machinery and plant

42. Workshops including production units

51. Staff quarters

52. Amenities for staff

53. Passenger Amenities

54. Other Railway User Amenities

61. Investment in Government commercial under takings Road services.

62. Investment in Government commercial under taking Public Undertaking.

64. Other specified works

71. Stores suspense

72. Manufacturing suspense

73. Miscellaneous Advances

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81. Metropolitan Transport Projects

The sub and detailed heads give the break up of the expenditure on assets in its

details such as Preliminary Expenses, Land, Formation, Permanent Way, Bridges,

Stations and Building etc. In the classification given in the following pages the

details of sub-heads and details heads which have been given for the minor heads

1100 new lines will be adopted for the other minor heads depending upon the nature

of the asset being created or replaced to the extent indicated againt the respective

head.

For example hen track renewals are undertaken the allocation of expenditure

will be given as 3141 or 3142 for renewal of rails and fastenings or sleepers and

fastening as the case may be. To these 4 digit will, however, be added the code for

primary unit of expenditure viz., wages or materials etc., to complete the allocation

e.g., 3141 04 will indicate the pay and allowances of departmental establishment

engaged or renewals of rails and fastenings. The cost of permanent way materials

etc., directly supplied for this work will be allocated to 3141-04 and so on.

If a work construction of workshop alone is undertaken the workshop

buildings will be represented by 4263 and the workshop equipment by 4274

(assuming the equipment is for Mechanical Department). The primary unit (or

object) code will be added as the last 2 digits according to the object of expenditure.

The classification of the assets will be indicated by these 6 digits in all the

cases irrespective of whether the expenditure on the asset is chargeable to capital,

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DRF, DF, Revenue (OLWR) or ACF. The source of financing will be indicated in

the beginning in the following alphabets:-

P - - Capital 20

Q - - DRF 21

R - - Revenue (OLWR) 22

S - - DF, I-23, II-33, III-43, IV-53

V - - Safety fund 26

U - - Capital fund 25

This classification thus lends itself to computerized system being adopted for

the compilation. Wherever the compilation is not computerized the source of

financing may be indicted by the terms such as CAP for capital, DRF for

Depreciation, Reserve Fund etc., as at present.

As the plan heads of classification coincide with the sub-heads of demands for

grants the compilation of budget is also rendered easy and direct.

The detailed explanatory hotel follows the classification to facilitate the

correct booking of the expenditure.

CLASSIFICATION OF EARNINGS

Explanatory Memorandum

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The earnings of Railways are classified under three sub major heads with a

separate abstract for each sub major head viz.,

Abstract X - Earnings form coaching traffic

Abstract Y - Earnings from Goods traffic

Abstract Z - Sundry other earnings.

The sub major heads are divided into Minor, Sub and detailed heads are

shown below:

It is not with in the competence of Railway Administration to introduce,

abolish, change the nomenclature or rearrange any of the sub major, minor and sub-

heads. They may, however, introduce or abolish any of the detailed heads under any

of the sub-heads.

The various heads of classification will be referred to by the numbers allotted

to them prefixed by the letter of the Abstract under which they occur. Thus the

detailed head season and zone tickets will be referred to as x-122 (x-one-two-

two).

FINANCIAL IMPLICATIONS IN INCURRING EXPENDITURE

In any industry money plays vital role in securing the inventory, infrastructure,

manpower etc. In Railways Finance is made good by earning by the following ways:-

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Passenger traffic,

Goods traffic

Sundry earnings

The funds are given by Railway board after the demands and grants. This

money being pertaining to the citizens its expenditure requires critical examination

before incurring.

STANDARDS OF FINANCIAL PROPRIETY

In the exercise of their financial powers, the sanctioning authorities must pay

due regard to the following principles:

1. The Expenditure should not prima facie be more than the occasion demands,

and that every Government servant exercise the same Vigilance in respect of

expenditure incurred from public moneys as a person of ordinary prudence

would exercise in respect of the expenditure of his own money.

2. No authority should exercise its powers of sanctioning expenditure to pass an

order which will be directing or indirectly to its own advantage.

3. Public moneys should not be utilized for the benefit of a particular person or

section of the community unless.

The amount of expenditure involved is in significant ; (or)

A claim for the amount could be enforced in a court of law; (or)

The expenditure is in pursuance of a recognized policy or custom.

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The amount of all allowances, such as traveling allowances, granted to meet

expenditure of a particular type should be so regulated that the allowances are

not on the whole sources of profit to the recipients.

PROVISION OF ROLLING STOCK

Investment proposals for purchase / manufacture of additional rolling stock

are to be justified on the basis of a general increase in the level of traffic which may

or may not require line capacity works being taken up at the same time for the

anticipated level of traffic, and also in the case of proposals for new lien construction,

the initial cost estimate should, for the purpose of project appraisal, invariably include

the cost of the rolling stock and the financial return on the project should be measured

with reference to the overall initial cost of the project including the cost of rolling

stock.

ASSESSMENT OF WORKING EXPENSES

In relation to any capital expenditure proposal, the working expenses will

consist of:

a) Average annual cost of operation;

b) The average annual cost of maintenance and repairs of the assets;

c) The annual depreciation charges.

No. Mechanical AssetsAvg. Life in

years

12. Tool room and testing laboratory equipment 15

13. Lather, planners, drilling and boring machines etc. 15

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14. High precision and special purposes machines 15

15. Foundry and forge equipment 15

16. Heat treatment equipment 15

17. Power generation, machinery and switches 15

18. General purpose light machinery E.g., band sawsnibing, air compressor, floor grinders etc.,

15

19. Other miscellaneous machines including sheds, sicklines, civil engineering department which or not

included elsewhere.

20

20. Cranes: EOT

Steam

Diesel

30

30

20

21. Light mobile machinery (tractors for lifts, portable

compressors and welding sets marshalling yards and

shed mobile machinery).

10

22. Construction machinery and track maintenance

equipment

15

23. Station machinery excluding sheds signaling equipment

and machinery

25

24. Miscellaneous machinery and equipment (e.g. Trolleys

hospital equipment, office equipment etc)

10

25. Steam locomotives 40

26. Boiler and tender 20

27. Diesel electric / hydraulic loco 36

28. Diesel Engine 1829. Shunting locomotives 36

30. Steel bodied coaches 25

31. Light utilization categories of coaches 40

32. I.R.S. coaches 30

33. 4 wheeler wagons 35

34. Bogie wagons 35

35. Tank wagons 45

TECHNIQUE OF FINANCIAL APPRAISAL OF PROJECTS

The following methods of appraisal of capital expenditure proposals are

commonly used in industrial and commercial undertakings:-

a) Accounting rate of return

b) Pay back period, and

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The proposals for replacement of an existing asset (whether involving

improvement or otherwise) should be examined critically with a view to seeing

whether it would not be possible to avoid, or at least postpone such replacement by

suitably repairing or reconditioning the asset at cost that could be comparatively

justified financially;

RECONDITIONING

When an asset is repaired at a comparatively high cost in preference to its

being replaced, it is referred to as being reconditioned. The cost of such

reconditioning is chargeable to ordinary repairs and maintenance for which no

detailed estimates or ordinarily necessary.

SCRAPPING, CONDEMNING AND ABANDONING ASSETS

An asset may be scrapped, condemned or abandoned without replacement,

when the service rendered by it is no longer required. If the service render by its is

still necessary and it is proposed to make other arrangement for such service it should

be definitely established that it is more economical to scrap, codemn or abandon the

existing asset and obtain the required service from the new arrangement than to

continue to obtain the required service from the existing asset.

SECOND HAND VALUE

The second-hand value of an asset is what it is presently worth and has often

to be distinguished form its scrap value. For the purpose of financial justification of

transfer, purchases or sales, the second-hand value of assets may except in certain

cases.

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i. The first cost of an asset (based on which its second-hand value has to be

computed should be taken as the value of a similar asset at present day prices

and not the value actually paid for the asset when it was originally purchase.

ii. The second-hand value of an asset that does not depreciate is the same as the

first cost.

iii. The second-hand value of a depreciating asset should be so appraised that the

average annual cost of service or the average cost per unit of service.

OPEN LINE WORKS

For the purpose of applying the productivity tests to open time works, i.e.,

works undertaken with the definite object of increasing earnings or reducing

expenditure and to which such tests can be applied with in five to seven years of their

completion, selection will be made out of these works sanctioned on (and/or charged

to capital) grounds or remunerative ness.

RAILWAY BUDGET

A Constitutional And Management Document Article 112 (1) of the

constitution of India prescribes that The president shall in respect of every financial

year cause to be laid before both the houses of parliament as statement of the

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forecast in the budget is related to the performance targets set for Railway

Administrations, and it is the responsibility of the Railway managements to ensure

the achievement of these associated targets.

DEMANDS FOR GRANTS

The proposals of Government in respect of sums required to meet

expenditure from the consolidated fund of India or to be submitted in the form of

Demands for Grants to the Lok Sabha. The demands shall be for gross

expenditure. The credits for recoveries being shown in the from of footnotes to

demands.

The salient features of restructured demands for grants are as Under:-

(i) Expenses are broadly grouped by activities as an aid to developed budgets and

analyzing actual expenses against budgeted expenses.

(ii) The demands No.1, 2 & 3 are in the nature of general on-cost, demand 1 & 2

covering all railway and demand 3 individual Railway Administrations.

(iii) There is a single works demand for all works expenditure irrespective of

sources of financing.

(iv) Each demand has two-way classification by activity and by primary units of

expenditure. The activity classification identifies why an expense item is

incurred. The primary unit of the expenditure on the other hand identifies

what the expense item denotes, i.e., by way of labour, material, etc.

(v) The Budget classification have been completely aligned with the accounting

classifications.

(vi) The demands for grants are to be presented in two parts.

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For the preparation of the budget by the Railway Board. The Railway

Administration and other authorities empowered to in our expenditure are required to

submit tot the Railway Board their revised estimates for the current year and budget

estimates for the following year on the dates prescribed below.

Estimated of earnings - - 20th December

Revenue demands 2 to 15 - - 1st December

Civil estimates - - 15th December

Works demand 16 - - 23rd December

There revised estimates are required in respect of the current year and budget

estimates for the following year. The forms in which the estimates should be

prepared are each year by the Railway Board to the authorities concerned and the

instructions for the filling up of the forms are printed on the back thereof.

PREPARATION OF BUDGETS BY RAILWAY ADMINISTRATIONS

RESPONSIBILITY FOR FRAMING THE ESTIMATES

Preparation of the revised and budget estimates should commence at the

grass root level i.e., Division, Workshop, Stores Depot etc. The entire responsibility

for framing the estimates develops upon the spending/earning authorities concerned,

thought he actual work of compilation and scrutiny would rest with the financial

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REPAIRS AND MAINTENANCE EXPENDITURE OF ROLLING STOCK

The budget and revised estimates of expenditure on repair and maintenance

of rolling stock (separately by locomotives (steam, diesel and electric), carriages,

wagons and other coaching vehicles included in demand No.5 and 6 should be

supported by separate statements (sec. item 19 in Annexure 19c) showing in detail the

estimated number of rolling stock proposed for repairs in the current years budget

and revised estimates and the budget of the ensuring year with corresponding unit

cost.

COST OF FUEL:

Two statements, one showing the quantity and cost of coal, diesel, oil and

electricity and another showing the quantity and freight of coal carries by sea should

be submitted along with the revised and budget estimates for demand No.10 operating

expenses fuel.

MISCELLANEOUS EXPENDITURE:

This includes expenditure budgeted under demands 1, 2 and 14 for

transactions with company Railway under demand No.2 separate estimates should be

prepared for payment of subsidiary / rebate and / or share of earnings to worked lines

in keeping with the terms of contract with each Railway.

LIST OF CREDITS OR RECOVERIES:

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(a) The following items of credits or recoveries shall be excludes from the scope

of the demands presented for vote of parliament.

(i) Commission on account of internal check of military warrants and credit notes

in connection with the military traffic.

(ii) Hire and haulage charges of rolling stock from port trust Railways or other

non-budget lines.

(iii) Service contributions from other department / ministries on account of staff on

deputation.

(iv) Credits for released material relating to renewal and replacement works and

also those released from repair and maintenance works.

(v) Credits for electrical energy supplied to outsiders other Railways, Government

Departments and consumed for purposes other than traction.

(vi) Sale proceeds in canteens, state government grants to schools, fees from

students etc.

(vii) Credits under Suspense heads:-

a) Issue from stores suspense

b) Issue under manufacture suspense

c) Credits under Miscellaneous Advances.

(viii) Credits on account of unconnected loco coal wagons.

(ix) Credit for freight charges on Railway materials including fuel.

(x) Deficit in the net earnings pertaining to worked lines recoverable from state

government.

(xi) Write back of cost of military sidings initially charged to capital.

(xii) Cost of cinders and coal ashes sold and utilized for departmental purposes.

(xiii) Credits on account of inspection charges on coal.

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(xiv) Miscellaneous receipt under classification of works expenditure.

(b) The following items of credits or recoveries shall be taken in reduction of

demands and only net figures (minus or plus) shall be shown under the

respective detailed heads of the demands.

(i) Credits and on account of accounting adjustments such as:

a) Credits realized from surplus stock, fund in stock verification etc.,

b) Credit on account of surplus transferred form one work to another

chargeable to same or another grant or to stock.

c) Credits to capital or depreciation reserve fund or other heads on

account of write back adjustments etc.,

(ii) Credits on account of the rebate for purchases mode through supply and

disposals department.

(iii) Credits under Demands Payable and Upaid Wages.

PAYMENTS TO GENERAL REVENUE :

Payments to General Revenue arise in respect of.

a) Dividend on capital at -charge

b) Contribution for grants to states in lieu of passenger fare tax.

c) Contribution for assisting the states for financing safety works.

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d) Repayment of loans and interest there on, borrowed on temporary basis form

General Revenues to finance development fund and

e) Repayment of loans and interest thereon borrowed on a temporary basis form

general revenues to finance the revenue reserve fund and payment towards

amortization of over capitalization.

Payments to General Revenues are based largely on the recommendations of

the successive Railway convention committees dividend payable to the general

revenues is calculated only in respect of dividend bearing capital-at-charge and also

takes into account the concession/ reliefs on dividend payable in respect of such

capital assets and capital works-in-progress as may be specified by the Railway

convention committee and losses on strategic lines. The contribution for grants/

assistance to the states in lieu of passenger fare tax and for financing expenditure on

safety works is usually a fixed sum of money as may be determined by the Railway

convention committee taking into account, inter alias, the recommendation of the

finance commission.

MACHINERY AND ROLLING STOCK BUDGET:

The revised and budget estimates for expenditure on acquisition, and

replacement of assets are prepared in the form of the works machinery and rolling

stock programmes.

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There is one single demand for grant for budget viz., demand No.16- Assets,

acquisition and replacement and expenditure whether met out of loan obtained form

the general exchequer or inter that resources of Railways viz., Revenue the

Depreciation fund the Development fund and accident compensation, safety and

passenger amenities fund in the case of last named fund, expenditure on safety.

Code number of Plan Head Description of Plan Head

21 Rolling Stock

41 Machinery and plant

42 Workshops including production units

51 Staff quarters52 Amenities for staff

64 Other specifies works

71 Stores suspense

The source of financing is indicates by the following alphabets while booking

of works expenditure under the revised classification.

P - Capital

Q - DRF

R - OLWR

S - DF

T - ACF

Expenditure under (OLWR) is financed from Railway revenues i.e., it is

treated as apart of the miscellaneous revenue expenditure of Railways.

Works Expenditure of the Railways is thus financed form revenue, Railway

funds (DRF, DF and ACSPF) and capital provided by the General Revenues. In the

event of the Railways revenue surplus not being adequate to fully meet the

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requirements of development fund expenditure, the budgetary support from the

general revenues would also include temporary loans to finance expenditure from

development fund.

Within this allocation of resources, the Railway Administrations are required

to make out their programmes, duly vetted by the financial advisor and chief accounts

officer for submission to the railway board by the specified date. The programmer

are examined by the railway board and discussed. Where necessary with the General

Manager before finalizing the revised and budget estimated in respect of the works

machinery and rolling stock programmes.

COMPILATION AND SCRUTINY OF BUDGET IN THE RAILWAY BOARD

The estimates of working expenses submitted by individual railways are

subjected to a critical examination by the railway board and Railway board frame

their own estimate of the expenditure likely to be incurred during the year.

The estimates of expenditure on rolling stock, plant and machinery and other

engineering works submitted by the railways board as to be necessity and justification

of the works included therein are discussed with the Railway administrations and the

works to be undertaken during the budget year decided upon.

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SUBMISSION TO THE MINISTER:

The estimated amount required for plan expenditure during the next year is

intimated to the planning commission / ministry of finance for necessary provision

being made in the ways and means budget of the government of India after it has

been ascertained form planning commission / finance ministry that funds will be

available to meet the estimated expenditure, the programmes are submitted to the

minister for approval.

The rolling stock and plant and machinery programmes, as approved by the

minister.

(1) If any item of rolling stock and plant and machinery ordered for delivery in

the current year is not delivered before the end of the year and remains

unpaid, it becomes necessary to provided money in the programmed for the

next year for such items as will be delivered in that year.

(2) Later information may suggest alternations in the estimated prices at which

the stock can be purchases.

(3) When, owing to the early date on which the programmes are prepared, other

modifications may be found necessary during the course of the year.

Of the proposed modifications, the important ones, if any, are, however,

specifically brought to the notice of the minister before the presentation of the budget

to the parliament.

PRESENTATION TO THE PARLIAMENT:

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The complete budget that is the demands for grants and the other budget

papers, viz., the explanatory memorandum to the budget and the detailed estimates of

each railway along with a summary will be presented to the Lok Sabha and the Rajya

Sabha. Before the demands for grants are presented to the parliament the

recommendations of the president should be obtained under article 113 (3) of the

constitution.

APPROPRIATION BILL:

Pursuant to Article 114 (1) of the constitution, after the demands for grants

have been voted by the Lok Sabha, there shall be introduced a bill to provide for the

appropriation out of the consolidated fund of India of all moneys required to meet the

grants so made by the lok sabha.

The appropriation bill as passed by the parliament and assented to by the

president forms the basis for budgetary allocations to the railways.

ADMINISTERING THE BUDGET

Distribution of funds by Railway Board :

The grants are voted by parliament and the appropriated charged expenditure

of sanctioned by president or distributed by the Railway board among the railway

board and other authorities subordinate to them immediately after the budget is

sanctioned the distribution sums at called allotments and order which then made are

called budget order. The allotments made out of funds voted by the parliament and

those fixed by president are shown of voted and charged respectively.

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Budget orders are accompanied by final issues of demands for grants and

works; Machinery Rolling Stock Programmes containing the detailing of the

distributing budget the allotment should also cover all charges includig of the liability

past year to be paid in to the current year and shall be operative until the financial

year. Under the doctrine of labs unspent balance shall laps and shall not be available

for utilization in the following year pending the received of the budget order Railway

administration can incur expenditure on works which were in progress at the end of

financial year. If railway board shown in the budget order prompt measures should

be taken to the limit expenditure to amounts allotment and distribute the railway

board.

The General Manager distribute the funds placed add his disposal as he may

consider suitable not exceeding the total of the grant placed at his disposal, at his

discretion he can also keep a sum allotted as reserve for emergencies.

With respect to expenditure on works the allotment made by the General

Manager to lower authorities shall, as far as possible, follow the lines of the works,

machinery and rolling stock progrmames issued by the railway board that is.

(i) A specific sum shall be allocated by him for each item of rolling stock and

for each individual work estimated to cost over lakh of rupees. The General

Manager may also allot specific sums for other works for which the considers

desirable to keep separate accounts, i.e., above a certain minimum to be

prescribed by him.

(ii) A pump sum shall be allotted by him for all works which are individually

estimated to cost less than the minimum limit prescribed by him.

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mechanism has lost geometry. The chassis, trough floor corroded, upholding is in

bad condition. The performance characteristics are showing high consumption of

fuel and lube oils, and km expenditure is in up-trend. Release of smoke is high deter

mental to environmental pollution control. It has completed 3 lakhs kms run and

heading into rendering un-economical expenditure.

STATISTICAL PERFORMANCE OF JEEP NO. AAO-5605

S.No. CharacterYear

2006-07 2007-08 2008-09

1. L/Oil consumption 16 Liters 13 Litres 17 Litres

2. F/Oil consumption 2626 Litres 2820 Litres 1556 Litres3. Break down time 6 days 8 days 12 days

4. Kms run 22,546 18,571 13,373

5. Exp. Incurred on repairs &

maintenance

19,245 4,920 14,910 (for

9m)

INFERENCE ON PERFORMANCE

A Lube/ consumption in

Litres / 1OOliters of HSDConsumption

0.61 0.46 0.09

B. Fuel consumption 8.6 6.56 8.60C. Exp. / Annum 19,245 4,920 19,830

(Prop. Fig.)

(A) Cost of reconditioning the Vehicle

1. Cost of engine 1,60,000

2. Chassis, floor, frame etc. 75,000

3. Upholstry, Seats & Cushions 25,0004. Painting, putties etc., 8,000

5. Floor mats, running year, moulding 12,000

6. Elec., Wiring ignition system batteries etc., 5,000

Total 2,85,000

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(B) Assessment of second hand value as described in para 2, 41, 242 of

finance code Voi-I, Annexure-4, Page-75.

Basic Data

N : Normal life of asset

C : The first cost

S : The scrap value

N : Life of second hand asset

O : The annual cost of operation, maintenance repairs etc.,

of the asset as new.

01 : The annual cost of operation, maintenance repairs etc., in the

second hand condition.

Dn : Sinking fund payment to be paid annually at ht end of N year.

Dn : Sinking fund payment to be paid at the end of n year.

X : The second hand value of asset.

Cr+(C-S)dN+O+sdn 01

r+dn

N = 10 yrs. (Vide ALs, code)

C = 1,47,422 (from asset register)

S = 14,742 (10% of principle value assumed)

N = O (As life of asset has superannuated)

o = Rs.64,3827-

r = 7% (As per prevailing procedure)

01 = Rs.1,08,3787

dN = 0.07238

dn = 0

COST ASSESSMENT OF R& M, OPERATING & RUNNING

EXPENDITURE

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S.No. Content New Assets 2nd Hand Asset

1. Average Kms/years 19,814 19,814

2. Oil consumption Kms/Litres (12 for

new, 8 for old)

1,652 Litres 2,478 Litres

3. Cost of Oil @36 Litres 59,472 89,268

4. Cost bf lube 14 & 657- 910 1,170

5. R&M cost 4,000 18,000

Total Winning Cost: 64,382 1,08,378

1,47,422x0.07 + (1,47,422-14,742) 0.07238 + 64,382 + 01,08,378 0.07 + 03,48,428

The value in negative and obscured for 10 has no useful life, and has only scrap

value.

Estimation & Economics of Renewal / Reconditioning of Jeep (Vide Para 240,

Annexure G, Page -72 of finance code)

i) Basic Data:

S.No. Context Old New

1. Cost of Jeep 0 (Second hand

Value)

5,50,000

(As new)

2. Cost of reconditioning 2,85,000 -

3. Rate or interest 7% 7%

4. Life 5 yrs (assumed) 10yrs

(Vide code)

5. Scrap value (from Annexure II) 14,742 55,0006. Maintenance, Operation & repair charges 1,08,372 64,382

ii) Average Annual cost of existing Jeep after reconditioning would be

Rs.1,77,787 made up of following.

a) Cost of maintenance, operation & repair charges etc Rs.1,08,378

b) Interest @ 7% on second Charge Rs.2,15,0007- Rs.19,950

c) Sinking fund payment 0.1/389x2,85,000 Rs.49,459

Total Rs1,77,787

ii) Average Annual cost of the new Jeep would be Rs.1,34,860 made up of

the following.

a) Cost of Repair charges, operation maintenance etc. Rs.64,382

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b) Interest @ 7% on (c-s) r Rs.34,650

c) Sinking fund payment (c-s) dN Rs.35,828

Total Rs.1,34,860

Hence, It is economically viable to go in for replacement with new vehicle

FINANCE FINDING

This requires the sanction of DRM/ADRM.

Ensuring that all reclaimable items are removed before the disposal of the

asset.

Reporting the loss to Railway Board in items of provisions of para 110 of

financial code Vol-I:

JUSTIFICATION FOR THE PROCUREMENT OF INJECTOR NOZZLE

VALVE GRINDING MACHINE

Diesel Loco Shed, Kazipet is homing 139 diesel electric locomotives for

maintenance. The maintenance work is involved with periodical attention and over

hauling of various diesel parts used in locomotives.

As part of it Nozzles are required for spraying fuel oil in atomized state in to

engine cylinder at the end of compression stroke needs attention. It is a precision

equipment as it resolution is to the order of 300 for accurate and perfect atomization.

The conical angle of Nozzle needle changes while functioning any deviation

over the size of the conical angle will result in improper combustion consequently

reflects on hauling power.

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Wither to these Nozzle needless are cleaned and polished manually to remove

any carbon deposits, with the help of a portable vice and emery paper this work is

taken up to reduce the consumption of Nozzles as otherwise would have been

condemned vide the DEMs guide lines. In all these cases approximations, visual

observation using the direction with naked eye is being done before fitment back after

over hauling.

In view of the cost of these Nozzles with 540 nos. AAL @ Rs.1,9357-

Nozzles and in order to keep the quality levels to the recommendations of the DEM/

designer it is preferred to go in for an injector Nozzle needle grinding machine which

will suffice the needs of the fitments. Also the loss due to replacement of the Nozzles

can be capitalized by initialing the said grinding machine.

Economics on Procurement Of Injector Nozzle Valve Grinding Machine I.

Expenditure/year on Procurement of New Machine

A. Basic cost of machine Rs.1,54,336

B. Scrap value assuming 15years of life @5% of Basic cost Rs.7,717C. Net value of machine Rs.1,46,619

D. Elec. Energy consumption

0.25x746x8x25x12x3/1000 Rs.1,343

E. R &M cost @ 2% per annum on basic cost Rs.3,086

F. Interest on capital investment @ 7% per annum on basic cost Rs. 10,803

G. Depreciation cost per annum assuming @7%

And life as 15years

(1,54,336-7,717) x 0.03979 Rs.5,834

Total cost of New Machine Per Year Rs.31,355

II. Expenditure it continued in conventional manual Method:

I. Cost of one Nozzle assembly Rs.1,935

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J. Reduction in AAL by 50 Nos. Rs.

K. Reduction in cost by reduced AAL of 50 Nos. Rs.96,750

Hence proposal I is economical.

A MODEL OF CAPITAL EXPENDITURE EVALUATION

In order to know the practice of evaluating capital expenditure projects in

diesel loco shed, we have collected a model of capital expenditure evaluation report

including financial viability and economical returns reports and presented here under.

A) Capital cost and phasing of expenditure

i) Diesel

Year Total Loco Shed Loco Motives

1974-1975 295 25 270 (10WDM two

Loco at Rs.27 Lakhs

each

1975-1976 320 50 270-do-

1976-1977 311 - 270-do-

1977-1978 270 - 270-do-1978-1979 270 116 1350

Scrap value of loco (atRs.100.000 per loco)

(-50)

1300

ii) Steam (Replacement of existing Locos)

1974-1975 : 145

1975-1976 : 145 (2.5 Steam taken as equivalent to one WDM)1976-1977 : 145 2. cost per steam loco assumed at Rs.5.8

1977-1978 : 145 Lakhs

1978-1979 : 145

725

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Estiamted scrap value

(at Rs.23000 per loco)

(-) 29

696

ESTIMATED ECONOMIC LIFE:

Even though 40 year per steam and 30 years per diesel, the life is assumed to

be 30 years in both cases, (Discount factor after 30years is negligible)

B) OPERATING AND MAINTENANCE COSTS:

i) Basic Data

Steam Diesel

a) KM per day for good services

(for steam & all Railway B.G.

for diesel loco)

83 323

b) Average grass load per train

(excluding loco)

1329 159t

c) Loco in use daily (with 17.6%

repairs allowance for steam or

15% of total hiding & 11.1712% for diesel).

--- 43.75 WDM2

d) Steam loco and line

equivalent to 50 WDM2 Loco

vide (a) to (c) above (thisgives a ration of 4.68 steam

equal to me diesel, however in

appraisal the computation for

this appraisal, theconservative & generally

accepted ration of 2.5 steam to

one diesel has been adopted.

234. 43.75x323x159x100

85x1329x85

e) KM per loco per annum(Derrived from diesel loco

operation)

103,158x15911329x2.5

=49,398

323x365x7/8-103,158

f) Cost of fuel per 100 GTKM Rs.2.94 Rs.2.31

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g) Cost of repairs & maintenance

per Engine KM

Rs.0.71 Rs.0.45

00 Consumption of lubricatingoil per 100 engine KM

4.50 Litres 11.2 Litres

(i) Cost of lubricant per liter (in

terms of latest purchase rate

etc.)

Rs.1.71 Rs.2,42

II. Cost Data

a) Repairs & Maintenance per

annum

0.71x49.398=35.073 0.45x1,03,158=Rs.46,421

b) Cost 1329x49398x2.94x.001

Rs.1,93,011

1591x1,03,158x2.31x001=

3,79,127

c) Cost of lubricating oil per

annum

49,398x1.5x1.7

100

103158x11.2x2.42=Rs.27960

100d) Wages of running staff per

annum (estimated for staff

requirement )

Rs.23493 Rs.28458

e) Kilometerage allowance per

annum

Rs.8052 Rs.13,411

f) Total cost per locomotive per

annum

Rs.2,63,430 Rs.95,377

g) Equivalent cost at 2.5 seam 1desel

Rs.6,58,575 Rs.4,95,377

h) Saving in diesel operation per

low per annum

Rs.1,63,193 say

Rs.1.63 Lakhs

----

Financial Analysis (DCF) (Cash Out flow)

Year Index

Interest /

Discount

factor

@10%

Steam Diesel

Saving (+)

Additional (-)

Absolute

Discount

1974-1975 -2 1.21 (145+66) (295+49) -133 -161

1975-1976 -1 1.10 (145+132) (320+98) -141 -155

1976-1977 0 1 (145+198) (311+245) -115 -115

1977-1978 1 .91 (145+329) (270+245) -41 -34

1978-1979 2 .83 (145+329) (270+245) -41 -34

1979-1980 3 to 30 6.93 329 245 84 582

Upto

2009-10

30 .057 29 50 2 1

Residual +23

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Valve

Captial & revenue cash outflows are shown separately for easy reference.

This analysis shows that the proposed diesel shed to home 50 WDM2s is

fianncailly justified the stead under DCF being a little over 10%.DEPRECIATION REVENUE FUND

(1) Renewal of Locomotive

(i) Whether to recondition or to renew a locomotive, given the following data.

Particulars Old locomotive New locomotive

Cost of locomotive Rs.50,00,000

(Second-hand cost)

Rs.5,00,00,000

(New Cost)

Cost of reconditioning Rs.50,00,000 -

Rate of Interest 6% 6%

Life 10 Years 40years

Scrap value Rs.10,00,000 Rs.20,00,000

Maintenance, operation

and repair charges

Rs.50,00,000 a year Rs. 40,00,000 a year

(ii) The average annual cost of the existing locomotive after reconditioning would

be Rs.62,83,100 made up the following:

(a) Cost of maintenance, operation, repairs etc 50,00,000

(b) Interest at 6% on Rs.1,00,000 6,00,000

(Rs.50,00,000+ 50,00,000)

(c) Sinking fund payment at 7% (90,00,00x0.0759) 6,83,100

Total : 62,83,100

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(iii) The average annual cost of the new locomotive would be

Rs.75,52,000 made up the following

(a) Cost of maintenance, operation, repairs etc 40,00,000

(b) Interest at 6% on Rs.5,40,000

(i.e. new cost 5,00,000+the second hand cost

Of the old locomotives Rs.50,00,000 the scrape

Value of old locomotives Rs.10,00,000) 32,40,000

(c) Sinking fund payment at 6% (4,80,00x0.0065) 3,12,000

Total : 75,52,000

(iv) It follows from the above figures that with the data assumed, it is cheaper to

recondition the old locomotive than to replace by a new one.

(v) Applying the DCF method also, it is observed that for an initial investment of

Rs.5 Crores the NPV for 40 years on the basis of the saving of RS.10,00,000/-

revoked at 10% p.a. adds up to Rs.1,02,21,000 only (10,00,000x9.779) +

(20,00,000 x 0.22). The purchase of new locomotive is therefore not justified.

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COMPUTATION AND INTERPRETATION

SUMMARY OF FINAL MODIFICATION (2006-07)

Budgetgrant

BG

Revisedestimate

RE

FinalModific

ation

FM

Variationbetween

FM-BG

Variation

between

FM-RE

Reasons forvariation

between FM-

BG

Reasonsvariation

between

FM-RE06-07 06-07 06-07 06-07 06-07 06-07 06-07

5C 260212 284109 292334 32122 8225 Storesanticipated

Storesanticipated

7E 18375 31745 27705 9330 -4040 Variation istrival

Less storesanticipated

8F 35000 77500 77500 42500 Nil L/Oil drawl are

realistically

Draw of L/ Oil

is pruneddown

12K 1504 1229 728 -776 -801 As per actualstrength

As per actualstaff strength

INTERPRETATION:

1. Diesel loco shed estimated the budget grant of Rs.2601212crores for repairs

and maintenance of motive power. Revised estimated for this was recorded at

Rs.284109crores during the (2006-07) which is given 5C code of demand for

grants. But the final modification to this is accounted for Rs.292334crores

which is to the extent of Rs.32122 crores the reason for variation between final

modification and budget grant is because of stores anticipated by the company.

The reason for this is because stocks.

2. Diesel loco shed estimated the budget grant of Rs.18375crores for repairs and

maintenance of plant equipment. Revised estimate for this was recorded at

Rs.31745crores during the (2006-07) which is given 7E of demand for grants.

But the final modification to this is accounted for Rs.27705 crores.

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Which is to the extent of Rs.9330 crores stores. The reason for variation

between final modification and budget grant is stores anticipated by the

company. The reason for this is because stores.

3. Diesel loco shed estimated the budget grant of Rs.35000crores for operating

expenses- rolling stock and equipment. Revised estimated for this was

recorded at Rs.77500crores during the (2006-07). Which is given 8F code of

demand for grants. But the final modification to this is accounted for

Rs.77500crores which is to the extent of Rs.42500crores. The reason for

variation between final modification and budget grant is because of less oil

drawl are realistically estimated by the company. The reason for this is

because of drawl of less oil is pruned down.

4. Diesel loco shed estimated the budget grant of Rs.1504crores for

miscellaneous working expenses. Revised estimate for this was recorded at

Rs.1229crores during the (2006-07). Which is given 12K code of demand

for grants. But the final modification to this is accounted for Rs.728crores

which is decline to the extent of Rs.776crores. The reasons for variation

between final modification and budget grant is because of as per actual staff

strength by the company. The reason for this is because as per actual staff

strength.

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INTERPRETATION


and maintenance of motive power. Revised estimated for this was recorded

at Rs.278405crores during the (2007-08). Which is given 5C code of


Rs.258063crores which is decline to the extent of Rs.23573crores the reason

for variation between final modification and budget grant is because of less

stores anticipated by the company. The reason for this is because less stocks.

2. Diesel loco shed estimated the budget grant of Rs.17842crores for repairs and

maintenance of plant equipment. Revised estimated for this was recorded at

Rs.22860crores during the (2007-08). Which is given 7E code of demand for

grants. But the final modification to this is accounted for Rs.17332crores

which is decline to the extent of Rs.510croresores. The reason for variation

between final modification and budget grant is because less stores

anticipated. The reason for this is because of less stores.

3. Diesel loco shed estimated the budget grant of Rs.77682croroes for operating

expense rolling stock and equipment. Revised estimate for this was recorded

at Rs.51000crores during the (2007-08) which is given 8F code of demand

for grants. But the final modification to this is accounted for Rs.41000crores

which is decline to the extent of Rs.23573croroes. The reason for variation

between final modification and budget grant is because of less oil drawl are

realistically estimated by the company. The reason for this is because of

drawl of less oil is pruned down.

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expenses fuel revised estimate for this was recorded at Rs.1748crores during

the (2007-08) which is given 10H code of demand of grants. But the final

modification to this is accounted for Rs.1458crores. Which is to the extent of

Rs.178crores. The reason for variation between final modification and

budget grant is because of due to increase salaries and DA of workers of the

company. The variation between final modification and revised estimate was

observed at Rs.290crores the for this is because of as per actual staff strength.

5. Diesel loco shed estimated the budget grant of 1014 crores for miscellaneous

working expenses. Revised estimate for this was recorded at 1301crores

during the 2007-08 which is given 12K code of demand for grants. But the

final modification to this is accounted for 756crores which is decline to the

extent of 258crores. The reason for variation between final modification and

budget grant is because of as per actual staff strength by the company. The

reason for this is because as per actual staff strength.

SUMMARY OF FINAL MODIFICATION (2008-09)

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Budget

grant

BG

August

Review

AR

Revised

estimate

RE

Final

Modific

ation

FM

Variation

between

FM-BG

Variatio

n

between

FM-RE

Reasons for

variation

between FM-

BG

Reasons

variation

between

FM-RE

08-09 08-09 08-09 08-09 08-09 08-09 08-09 08-095C 279217 290449 27822 269786 -9431 -8436 Less stores

anticipatedLess Storanticipated

7E 11234 24150 25775 27088 15852 1311 Variation istrival

storesanticipated

8F 3375 40300 34408 34108 -3267 -300 L/Oil drawl arerealistically

estimated

Draw of L/ Ois prun

down

INTERPRETATION


and maintenance of motive power. Revised estimated for this was recorded

at Rs.27822crores during the (2008-09). Which is given 5C code of demand

for grants. But the final modification to this is accounted for

Rs.269786crores which is decline to the extent of Rs.9431crores the reason


stores anticipated by the company. The reason for this is because less stocks.


and maintenance of plant equipment. Revised estimated for this was

recorded at Rs.25775crores during the (2008-09). Which is given 7E code of


Rs.27086crores which is to the extent of Rs.15852corroesores. The reason

for variation between final modification and budget grant is stores

anticipated. The reason for this is because of stores.


expense rolling stock and equipment. Revised estimate for this was recorded

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at Rs.34408crores during the (2007-08) which is given 8F code of demand

for grants. But the final modification to this is accounted for

Rs.34108croroes which is decline to the extent of Rs.3207crores. The reason


oil drawl are realistically estimated by the company. The reason for this is

because of drawl of less oil is pruned down.

REASONS FOR EXCESS EXPENDITURE

Cost inflation

Modification of design

Aged Locomotives.

Accident Involvement

REASONS FOR UNSPENT BUDGET

Induction of capital spares

Reduction in over time works.

Unpaid arrears of pay and allowances

Scrap disposal and capital credits

SUMMARY

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BIBLIOGRAPHY

GANGADHAR FINANCIAL INVESTMENT

HIMALAYA PUBLISHERS PVT.

LTD.,

KHAN AND P.K. JAIN FINANCIAL MANAGEMENT

TATA MC GRAW HILLPUBLISHING COMPANY LTD.,

NEW DELHI.

PRASANNA CHANDRA FINANCIAL MANAGEMENT

THEORY & PRACTICE

TATA MC GRAW HILL

PUBLISHING COMPANY.

SP JAIN & KL NARANGA COST ACCOUNTING 12TH

EDITION

KALYANI PUBLISHERS, NEW

DELHI, LUDIANA

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Financial Investments