﻿<?xml version="1.0" encoding="utf-8"?><Search><pages Count="124"><page Index="1"><![CDATA[THE JOURNAL FOR CMAs  THE MANAGEMENT


                   ACCOUNTANT








                   ISSN 0972-3528                              May 2017    VOL 52    NO. 5    Pages - 124        100
         ACTIVITY







         BASED COSTING









  THE MANAGEMENT ACCOUNTANT
         & ITS APPLICATIONS









  MAY  2017









  VOL. 52    NO. 5





 ` 100















                   THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
                   (Statutory body under an Act of Parliament)                          www.icmai.in   1

         www.icmai.in                                    May 2017 l  The Management Accountant       1]]></page><page Index="2"><![CDATA[website:www.icmai.in
                                                                                   email:info@icmai.in




                  THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

                                     (Statutory body under an Act of Parliament)
                                Headquarters: CMA Bhawan, 12 Sudder Street, Kolkata - 700016
                                          Ph: 091-33-2252 1031/34/35/1602/1492
                          Delhi Office: CMA Bhawan, 3 Institutional Area, Lodhi Road, New Delhi - 110003
                                                 Ph: 091-11-24666100
                               THINK BIGGER













                  BE


                  A


                  CMA



                  BE A


                  PROUD


                  INDIAN








                                                                              Follow us on


                            Behind Every Successful Business Decision, there is always a CMA
               Toll Free:1800 345 0092/1800 110 910






          2    The Management Accountant  l   May 2017 22                                www.icmai.in]]></page><page Index="3"><![CDATA[The Institute of Cost

                                                              Accountants of India



         PRESIDENT
         CMA Manas Kumar Thakur                            THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
         president@icmai.in                              (erstwhile The Institute of Cost and Works Accountants
         VICE PRESIDENT                                  of India) was first established in 1944 as a registered
         CMA Sanjay Gupta                                company under the Companies Act with the objects of
         vicepresident@icmai.in                          promoting, regulating and developing the profession of
         COUNCIL MEMBERS                                 Cost Accountancy.
         CMA Amit Anand Apte,   CMA Ashok Bhagawandas Nawal,    On 28 May 1959, the Institute was established by a
         CMA Avijit Goswami,  CMA Balwinder Singh, CMA Biswarup Basu,
         CMA H. Padmanabhan, CMA Dr. I. Ashok,           special Act of Parliament, namely, the Cost and Works
           CMA Niranjan Mishra, CMA Papa Rao Sunkara, CMA P. Raju Iyer,    Accountants Act 1959 as a statutory professional body for
         CMA Dr. P V S Jagan Mohan Rao, CMA P. V. Bhattad,    the regulation of the profession of cost and management
         CMA Vijender Sharma, Shri  Ajai Das Mehrotra, Shri  K.V.R. Murthy,   accountancy.
         Shri Praveer Kumar, Prof. Surender Kumar, Shri Sushil Behl
                                                           It has since been continuously contributing to the
         Secretary                                       growth of the industrial and economic climate of the
         CMA Kaushik Banerjee                            country.
         secy@icmai.in                                     The Institute of Cost Accountants of India is the only
         Sr. Director (Studies, Admin. & HR)             recognised statutory professional organisation and
         CMA Arnab Chakraborty                           licensing body in India specialising exclusively in Cost
         studies.director@icmai.in, admin.director@icmai.in
         Sr. Director (CAT & Admin)                      and Management Accountancy.
         CMA L Gurumurthy
         cat.director@icmai.in, admin.hod@icmai.in
         Sr. Director (Technical)
         CMA J K Budhiraja
          technical.director@icmai.in                                   MISSION STATEMENT
         Director (PD & CPD)                                                The CMA
         CMA S C Gupta                                                 Professionals would
         pd.director.@icmai.in
         Director (Research & Journal) & Editor                  ethically drive enterprises globally
         CMA Dr. Debaprosanna Nandy                              by creating value to stakeholders
         rnj.director@icmai.in                                 in the socio-economic context through
         Director (Membership & Finance)                    competencies drawn from the integration of
         CMA A S Bagchi
          finance.director@icmai.in,  membership.director@icmai.in  strategy, management and accounting.
         Director (Discipline) & Jt. Director (Advanced Studies)
         CMA Rajendra Bose
         discipline.director@icmai.in, advstudies@icmai.in             VISION STATEMENT
         Additional Director (IT)
         Smt. Anita Singh                                   The Institute of Cost Accountants of India
         it.hod@icmai.in                                         would be the preferred source of
         Joint Secretary & Head (International Affairs)        resources and professionals for the
         CMA Nisha Dewan                                              financial leadership of
          secretariat.delhi.js1@icmai.in, intlaffairs@icmai.in
         Joint Director (Infrastructure)                               enterprises globally.
         CMA Kushal Sengupta
          finance.jd1@icmai.in
         Joint Director (President’s & Vice President’s office)
         CMA Tarun Kumar                                           IDEALS THE INSTITUTE STANDS FOR
          presidentoffice@icmai.in
         Joint Director (Internal Control)                  •  to develop the Cost and Management Accountancy profession
         CMA Dibbendu Roy                                 •  to develop the body of members and properly equip them for functions
         intcontrol.hod@icmai.in                                     •  to ensure sound professional ethics
         Editorial Office
         CMA Bhawan, 4th Floor, 84, Harish Mukherjee Road, Kolkata-700 025   •  to keep abreast of new developments
         Tel: +91 33 2454-0086/0087/0184 , Fax: +91 33 2454-0063
         Headquarters
         CMA Bhawan, 12, Sudder Street, Kolkata 700016
         Tel: +91 33 2252-1031/34/35 , Fax: +91 33 2252-7993/1026  Behind every successful business decision,
         Delhi Office
         CMA Bhawan, 3, Institutional Area, Lodi Road, New Delhi-110003   there is always a CMA
         Tel: +91 11 24622156, 24618645 ,Fax: +91 11 4358-3642
         WEBSITE
         www.icmai.in
         www.icmai.in                                    May 2017 l  The Management Accountant       3]]></page><page Index="4"><![CDATA[HR                                                 Indian Partnership Act


                                                                                   MAY 2017                              Rewarding Talents:                                 Section 49 of the                      86
                                                                                                                         Recognizing, Positioning and          54           Indian Partnership Act, 1932
                                                                                                                         Showing up results


                                                                                                                                                                              Audit
                                                                                                                           Companies Act

                                                                                                                                                                            Aftermarket audit                      91
                                                                                                                                                                            to gain Competitive Leadership
                                                          CONTENTS                                                       Internal Financial Controls:          59
                                                                                                                         Some Observations

                                                                                                                                                                              Capital Market
            May 2017    VOL 52    NO.5     100
                                                                   INSIDE                                                  Financial Management                             Reflection of Firm’s Performance through   96



                                                                                                                                                                            Companies in India
                              Activity Based             COVER STORY                                                     Motivation and Concern for Use of     63           Return on Equity – A study on Sensex
                                Method for                                                                               Financial Derivatives
                              Purely Financial
                                   Items                                                                                                                                      GST
                                           22

                                                                                                                           Skill Development                                GST - Electronic-Way Bill             102

                    Application of                                                                                                                             74           Major Hurdle in Ease of Doing Business
                    Activity Based         Pivoting Business                                                             Skill Development for Nation Building
                      Costing in             Growth with          Activity Based
                  Indian Railways -          Activity Based      Costing in Indian
                  “Mission beyond             Budgeting               Banks
                   Book-keeping”                      37                     42
                               28                                                                                          Case Study



                                                                                                                         Analysis of Financial Statements      76
                                                                                                                         in the Sugar Industry
         The Management Accountant, official organ of The Institute of Cost Accountants of India, established in 1944 (founder member of IFAC,
         SAFA and CAPA)
         EDITOR - CMA Dr. Debaprosanna Nandy
         on behalf of The Institute of Cost Accountants of India, 12, Sudder Street, Kolkata - 700 016. e-mail: editor@icmai.in

         PRINTER & PUBLISHER - CMA Kaushik Banerjee                                                                      Editorial                              06
         on behalf of The Institute of Cost Accountants of India, 12, Sudder Street, Kolkata - 700 016                                       President's Communiqué            08
                                                                                                                         Chairman's Communiqué                  13
                                                                                                                         ICAI-CMA Snapshots                     14
         CHAIRMAN                                                                                                        Institute News                        104
         RESEARCH, JOURNAL & IT COMMITTEE - CMA Avijit Goswami                                                           Tax Updates                           111
                                th
         EDITORIAL OFFICE - CMA Bhawan, 4  Floor, 84, Harish Mukherjee Road, Kolkata -700 025                            From the Research Desk                116
         Tel: +91 33 2454-0086/0087/0184, Fax: +91 33 2454-0063
         The Institute of Cost Accountants of India is the owner of all the written and visual contents in this journal. Permission is necessary to re-
         use any content and graphics for any purpose.
                                                                                                                                                                                  The Management Accountant Journal is Indexed
         DISCLAIMER - The views expressed by the authors are personal and do not necessarily represent the views of the Institute and therefore                                   and Listed at: Index Copernicus and J-gate
         should not be attributed to it.                                                                                                                                          Global Impact and Quality factor (2015):0.563

                                                                                         www.
                                                                                         www.
          4 4 4 4  The Management Accountant  lgement Accountant  l Ma                   www.icmai.inicmai.inicmai.in
                                              May 2017y 2017
               The Mana
               The Management Accountant  l]]></page><page Index="5"><![CDATA[HR                                                 Indian Partnership Act


 MAY 2017  Rewarding Talents:                                Section 49 of the                      86
          Recognizing, Positioning and          54           Indian Partnership Act, 1932
          Showing up results


                                                               Audit
            Companies Act

                                                             Aftermarket audit                      91
                                                             to gain Competitive Leadership
 CONTENTS  Internal Financial Controls:         59
          Some Observations

                                                               Capital Market
 May 2017    VOL 52    NO.5     100
 INSIDE     Financial Management                             Reflection of Firm’s Performance through   96



                                                             Companies in India
 Activity Based   COVER STORY  Motivation and Concern for Use of   63  Return on Equity – A study on Sensex
 Method for   Financial Derivatives
 Purely Financial
 Items                                                         GST
 22

            Skill Development                                GST - Electronic-Way Bill             102

 Application of                                 74           Major Hurdle in Ease of Doing Business
 Activity Based   Pivoting Business   Skill Development for Nation Building
 Costing in   Growth with   Activity Based
 Indian Railways -   Activity Based   Costing in Indian
 “Mission beyond  Budgeting  Banks
 Book-keeping”  37  42
 28         Case Study



          Analysis of Financial Statements      76
          in the Sugar Industry
 The Management Accountant, official organ of The Institute of Cost Accountants of India, established in 1944 (founder member of IFAC,
 SAFA and CAPA)
 EDITOR - CMA Dr. Debaprosanna Nandy
 on behalf of The Institute of Cost Accountants of India, 12, Sudder Street, Kolkata - 700 016. e-mail: editor@icmai.in

 PRINTER & PUBLISHER - CMA Kaushik Banerjee   Editorial  06
 on behalf of The Institute of Cost Accountants of India, 12, Sudder Street, Kolkata - 700 016                      President's Communiqué            08
          Chairman's Communiqué                   13
          ICAI-CMA Snapshots                      14
 CHAIRMAN   Institute News                      104
 RESEARCH, JOURNAL & IT COMMITTEE - CMA Avijit Goswami  Tax Updates  111
 EDITORIAL OFFICE - CMA Bhawan, 4  Floor, 84, Harish Mukherjee Road, Kolkata -700 025  From the Research Desk    116
 th
 Tel: +91 33 2454-0086/0087/0184, Fax: +91 33 2454-0063
 The Institute of Cost Accountants of India is the owner of all the written and visual contents in this journal. Permission is necessary to re-
 use any content and graphics for any purpose.
                                                                    The Management Accountant Journal is Indexed
 DISCLAIMER - The views expressed by the authors are personal and do not necessarily represent the views of the Institute and therefore   and Listed at: Index Copernicus and J-gate
 should not be attributed to it.                                    Global Impact and Quality factor (2015):0.563

         www.
         www.                                            May 2017 l  The Management Accountant  l  The Management Accountant  l  The Management Accountant    5 5 5
         www.icmai.inicmai.inicmai.in
                                                         May 2017]]></page><page Index="6"><![CDATA[EDITORIAL



                               Greetings!!!                         processes and then to products, services
                                                                    and  customers.  In  this  way  managers  have
                               Cost is the key to enterprise product pricing   obtained a clearer picture of the economics
                             and the foundation to achieve product pricing   of their operations and could improve their
                             strategy. At present, while enterprises choose   decisions. ABC and ABM have brought about
                             the most basic pricing method which is   radical changes in cost management systems.
                             called cost-plus method to pricing  product,   The principles and philosophies of  activity
                             the effect of  cost is more marked. The key   based thinking apply equally to service
                             to reasonable pricing is to determine a cost   companies, government agencies, process
                             accounting method, which provides accurate   and manufacturing industries. Management
                             cost information for enterprise and can be   practices and methods have changed over
                             the scientific basis in pricing.  ABC activities   the last decade and will continue to change.
                             have been around for more than two decades   Organizations have moved from managing
                             and many companies in a variety of sectors   vertically to manage horizontally. There has
                             have  implemented  activity  based  thinking.   also been a move from a function orientation
                             Activity based costing  is a method for assigning   to a process orientation. ABC technique
                             costs to products, services projects, tasks,   mirrors the functioning of an organization
                             or acquisitions based on activities that go   and contributes to strategic decision-making
                             into them and resources consumed by these   processes. It identifies the relation of  the
                             activities.                            product within the business activity and the
                               Companies implement activity based costing   resources it requires.
                             in order to:                             In a business organization, the ABC
                              Identify individual products that are not   methodology assigns an organization’s
                                profitable.                         resource costs through activities to the
                              To find the true costs of products so as to   products and services provided to its customers.
                                support pricing policy.             It is generally used as a tool for understanding
                              Reveal unnecessary costs to eliminate.  product and customer’s cost and profitability.
                                                                      Familiarity with and adoption of ABC has
                               Product cost plays an important foundation   been found to be comparable across both the
                             role in pricing. With the high development of   manufacturing and service sectors. Both
                             new technology, traditional cost accounting   service and manufacturing firms are benefitted
                             methods cannot meet the industry's need for   with the applications of ABC mechanism.  ABC
                             accurate cost information. Activity Based   also focuses management to ensure that cost
                             Costing, which focuses on activity and its cost   effective methods are used to produce current
                             driver, can determine the cost of the product   products to current customers at a price that
                             to arrive at a reasonable price much more   generates the maximum positive ABM Product
                             accurately. Cost and Management Accountants   and Customer Contributions and also to ensure
                             know that traditional cost accounting can   that the ABM Contributions are used effectively
                             hide or obscure information on the costs of   to generate new products and services to new
                             individual products and services, especially   markets such that the return on the investment
                             where local cost allocation rules misrepresent   in sustaining costs is greater than that which
                             actual resource usage. As a result, the move to   would be achieved by shareholders investing
                             ABC is usually driven by a need to understand   elsewhere.
                             the  "true  costs"  of  individual  products  and   This issue presents a good number of articles
                             services more accurately.              on the cover story theme ‘Activity Based Costing
                               Activity-based cost (ABC) and activity-based   & its Applications’ by distinguished experts
                             management (ABM) systems have emerged to   and authors. We look forward to constructive
                             meet the need for accurate information about   feedback from our readers on the articles and
                             the cost of resource demands by individual   overall development of the journal. Please send
                             products, services and customers and these   your mails at editor@icmai.in. We thank all the
                             systems also enable indirect and support   contributors to this important issue and hope
                             expenses to be driven first to activities and   our readers enjoy the articles.




                                                                                         www.icmai.inicmai.in
          6    The Management Accountant      May 2017                                   www.
               The Management Accountant  ll]]></page><page Index="7"><![CDATA[-: PAPERS INVITED :-
                  Cover stories on the topics given below are invited for

            ‘The Management Accountant’ for the four forthcoming months.



    Theme      Global Economic Sustainability             Theme      Ease of Doing Business in India


      Subtopics           June 2017                        Subtopics           July 2017
       Prospective Cost Competitiveness                    Business regulations in India
       Sustainable Cost Leadership strategies              Entrepreneurship & Skill development
       New regulatory frameworks and smart policies        Business environment
       Strengthening International Cooperation             Make in India & GOI initiatives
       Global trends and challenges to sustainable development   Benchmarking & Economy rankings
       Government initiatives for business success         Role of World Bank, ADB and other International agencies
       Business Models for Sustainability                  Role of CMAs
       Role of CMAs in Economic sustainability





    Theme       Key Driver of Competitiveness             Theme  Integrated Reporting: Going beyond the Financial
                      Competition Act:
                                                                                Results
                          August 2017                                      September 2017
      Subtopics                                            Subtopics
       The MRTP Act: Predecessor of the Competition Act (2002)   Challenges of embedding IR in India
       Consumer Protection Act v/s Competition Act          Relationship between IR, Sustainability reporting and
                                                              Sustainability accounting
       Competition Advocacy                                 Relevance of IR in SME
       Cartelization: Recent Trends                         Guiding principles of IR in Global context
       Corporate Leniency and Corporate Efficacy            GRI compliance and prerequisites of IR
       Per se Illegality in respect of Anti-competitive Agreements   Role of SEBI
       Impact of Competition Act on Cross-border Mergers    CMAs in the next era of reporting
       Pricing Competition - Role of CMAs
                                                             Case studies




     The above subtopics are only suggestive and hence the articles may not be limited to them only.
        Articles on the above topics are invited from readers and authors along with scanned copies of their recent passport-size
      photograph and scanned copy of declaration stating that the articles are their own original and have not been considered for
       publication anywhere else. Please send your articles by e-mail to editor@icmai.in latest by the 1st of the previous month.
                                            Directorate of Research & Journal
                             The Institute of Cost Accountants of India (Statutory body under an Act of Parliament)
                                 CMA Bhawan, 4th Floor, 84 Harish Mukherjee Road, Kolkata - 700 025, India
                                     Board: +91-33- 2454 0086 / 87 / 0184, Tel-Fax: +91-33- 2454 0063
                                                       www.icmai.in


         www.icmai.in                                    May 2017 l  The Management Accountant  l  The Management Accountant    7 7]]></page><page Index="8"><![CDATA[PRESIDENT’S COMMUNIQUÉ

















                                                       If we have to succeed in the globalized
                                                       world, we have to enlarge the scope of Cost
                                                       Audit to cover all aspects of manufactur-
                                                       ing and service sector activities including
                                                       healthcare and education.
                                                                              - Dr. APJ Abdul Kalam
















           CMA MANAS KUMAR THAKUR                        Modi Ji for clearing the way for smooth implementation
                          President                      of GST in India from July 1, 2017. GST is one of India’s
          The Institute of Cost Accountants of India     most significant economic reforms, which is expected
                                                         to erase barriers between states to create a common
                                                         market that will lower costs and increase efficiencies and
           My Dear Professional Colleagues,              potentially boosting growth. The significance of GST is
                                                         obvious in the Prime Minister’s statement that “GST
           Namaskar;                                     reflects the spirit of ‘One nation, One aspiration, One
                                                         determination.’” The consensus on GST will go down in
           Friends, as we celebrate Labour Day, we honour the  history as a great illustration of cooperative federalism.
          men and women who fought tirelessly for workers’  I appreciate the conviction of Prime Minister, a Great
          rights, which are so critical to our strong and successful  visionary of our times,that the vision of “New India”
          labour force. Labour Day is a celebration of labourers  can only be realised through the combined effort of all
          and working classes. It is celebrated to promote the  States and CMs. This shows the policy of consensus
          social and economic achievements of  the working  adopted by the Government to achieve all-inclusive
          group people.The persons,who labour, to build this   development of society and growth of economy.
          world a better place to live, are no ordinary labourers.
          Often we turn a blind eye towards labourers and workers   The inspiring role of Hon’ble Finance Minister
          who toil to make our lives better. On this Labour Day, let  Shri Arun Jaitely was instrumental in gathering
          us acknowledge and appreciate their effort and join the  consensus on the issue of GST. This is the evidence of
          initiatives taken by the Government to make the lives of  his great Leadership quality. I on behalf of the Cost
          these people liveable.                         and Management Accounting fraternity and also on
                                                         my own behalf convey our sincere gratitude to the
          GST Implementation                             Finance Minister and his team for getting the stage
           I congratulate Prime Minister Hon’ble Shri Narendra  clear for GST. The Institute pledges its all-out support to




                                                                                         www.icmai.inicmai.inicmai.in
                                                                                         www.
          8 8 8  The Management Accountant  l MaMa                                       www.
                                              May 2017y 2017y 2017
               The Mana
               The Management Accountant  lgement Accountant  l]]></page><page Index="9"><![CDATA[the Government in smooth implementation of GST all   our students but also enhance the capacity building
          across the Country.                                of our members. For continued capacity building
                                                             I seek your co-operation and support because
           The Institute is also geared up for dissemination of   together we can make a lot of difference.
          knowledge on GST to its members and all stakeholders
          at large. We have planned a number of seminars and  Career Gap Analysis of CMAs qualified in 2015 & 2016
          interactive workshops on GST. Some webinars on GST   I am pleased to inform you that the Institute has
          are also lined up. We are also planning to introduce a  taken a new initiative to promote / facilitate young
          post qualification course on GST for members. I urge  CMAs for their further professional growth. First of
          all the members to improve competencies in the all-  its kind interactive motivational  session was held on
          important area of GST as CMAs have to play a very  4thApril 2017 at Kolkata which was attended by the
          important role in smooth implementation of the GST.  qualified CMAs of eastern region for December 2015 &
                                                         June 2016 terms.38 young CMAs actively participated
          National Regional Council and Chapters Meet    & closely interacted with the Directors / HODs of the
           I wish to inform that the Regional Council and  Institute who guided them how to overcome the fears
          Chapters Co-ordination Committee organised the  &teething problems. The initiative was appreciated a lot
          “National Regional Council and Chapters Meet” on  by the participating CMAs. Inspired by the success of
          22ndand 23rdApril 2017 at Hotel KC Crossroad,  this event, I hope to replicate the same in other regions
          Chandigarh which was attended by representatives  also. I am also planning to conduct an orientation
          of  50 Chapters and all 4 Regional Councils. CMA  programme to guide and support the Young CMAs who
          Sanjay  Tandon, President, BJP, Chandigarh and  are into Practice and facing various problems.
          Mrs. KirronKher, Hon’ble Member of  Parliament,
          Chandigarh graced the occasion by their august  Felicitation of Padma Shri Bipin Ganatra
          presence. On the eve of National Regional Council   I had the privilege to felicitate Shri Bipin Ganatra,
          and Chapters Meet, Best Chapters Award in different  Padma Shri Awardee towards social service and for
          categories was presented to the winning Chapters.On  being a valiant fire fighter and saving numerous lives
          23rdApril 2017 “Program on GST” was organised for  in various fire incidents. Shri Sushil Behl, Government
          Regional Councils and Chapters.                Nominee, Vice President of the Institute and executives
                                                         of  Delhi Office of  the Institute were present at the
          MoU with Prananath College                     felicitation at New Delhi office on 11th April 2017.
           I wish to inform members that the Institute signed  Padma Shri Bipin Ganatra, 60, is not a professional
             an MOU for Capacity building and also brand   fireman but has chased fires all over Kolkata for over
             Building of the CMA Profession on 11thApril2017  40 years. He has attended to more than 100 fires –
             with Prananath College (Autonomous), Khordha,  helping douse the flames, rescuing people and cleaning
             Odisha. I am pleased to inform that the college has  up debris. We should take some inspiration from the life
             shown its interest for opening of CMA Extension  and achievements of Bipin Da.
             Centre under Bhubaneswar Chapter in its premises.
             This initiative will help the college students in  Partnering with African Countries
             pursuing CMA Course with their degree Course.   I am pleased to inform that I met Ms. Ebyan Mahamed
                                                         Salah, Hon’ble Ambassador of  Federal Republic  of
           One Joint National Seminar on the theme “GST-Recent   Somalia to India on 11thApril 217 and offered her the
             Developments” was organised on 28th April 2017  Institute’s Proposal to be partner of Socio-Economic
             at Prananath College. More than 200 participants  Developmental Activities of African Countries.
             including Professors/Lecturers/Students/Guests/
             Invitees attended the seminar. Many dignitaries  Meeting with Chairman, UGC
             and eminent speakers from the region deliberated   I got an opportunity to meet Dr. VS Chauhan,
             on the recent developmentrelating to GST. It is my  Chairman, University Grants Commission (UGC) on
             sincere request to members of CMA family to take  21stApril 2017 and discussed about the role we can
             such initiatives which may not only be beneficial to  play to enhance the employable skills of graduate and




         www.icmai.in                                    May 2017 l  The Management Accountant  l  The Management Accountant  l  The Management Accountant    9 9 9
         www.icmai.inicmai.in
         www.
                                                         May 2017
                                                         May 2017]]></page><page Index="10"><![CDATA[PRESIDENT’S COMMUNIQUÉ








          under graduate students.                       & Frauds above INR 50 crores in the Banking Industry.
          Initiatives by various departments of the Institute   Recognition of CMAs by Government, PSUs, Banks
                                                         and Other Organizations:
          International Affairs Department                 On representations made by the PD Directorate,
           I am happy that the WTO, International Affairs &  PEC Ltd. and Noida SEZ Authority have included Cost
          Sustainability Committee of the Institute has taken up  Accountants in EOIs. Further, the eminent organizations
          the task of dissemination of information on relevant   like Air Force Station – Pune, MSTC Limited, Odisha
          topics through organising the webinars to be taken  Mining Corporation Limited, Alcock Ashdown (Gujarat)
          up by the domain experts. I am told that the feedback  Limited, THDC India Limited, SJVN Thermal Pvt. Ltd.,
          of participating members is very encouraging. The  Dakshin Gujarat Vij Company Limited, Karnataka
          participation of large number of members in these  Handloom  Development  Corporation  Limited,
          webinar sessions is also appreciated.In continuation to  India Trade Promotion Organization  (ITPO), Power
          the efforts of the committee to connect with the CMA  Transmission Corporation of Uttarakhand Limited and
          professionals across the globe the committee organised  Rural Electrification Corporation (REC) recognized CMA
          following webinars for the members:            profession in their Tenders/EOIs.
           On ‘Implementing Integrated Reporting’ by CMA
             (Dr.) SK Gupta in two parts on 10th and 11thApril    Full Day Seminar on Co-operative audit in
             2017                                        Maharashtra
                                                           I am pleased to inform that the PD Directorate
           On ‘Breaking the National barrier and becoming  conducted a Full Day Seminar on Co-operative audit in
             Global CMA’ by CMA Chandrashekhar S Adawadkar  Maharashtra on 14thMarch, 2017 which was very well
             on 24thApril 2017                           received by the members.

           I urge the members to take advantage of  this  Research and Journal Department
          opportunity and enhance the skillset to excel in the   I was invited to participate in the 4thPHD Global Rail
          challenging environment.                       Convention-2017 on the theme ‘Indian Railways-“Gati
                                                         se Pragati in the Climate of Change” on April 26, 2017
          Placement Department                           at PHD House, New Delhi. We are proud to be associated
           As informed through my previous communiqué, the  as the Knowledge Partner of  the Convention and
          Institute organized campus placement program for the  released a knowledge report on the said topic prepared
          CMAs qualified in December 2016 term examination.   by our research team which was highly acclaimed.
          I truly thank the corporate leaders on their faith in  This Convention was the maiden attempt to create an
          our qualified students. I would again like to thank the  ideal platform for deliberating on crucial issues and
          industry partners for collaborating with the Institute  to  determine  the performance  objectives  in  Indian
          over the years. I congratulate all the qualified CMAs  Railways with showcasing of the best international
          who got placed during this season. I am sure that the  practices that can be adopted in the Indian Scenario.
          CMAs placed through this campus placement, would   Eminent dignitaries from relevant fields attended the
          contribute towards the growth of  their respective  Convention and yielded a plethora of thought provoking
          organization and raise the stature of our profession in  sustainable solutions for the progress of this Railway
          their career.                                  sector.

          Professional Development Department            Technical Directorate
            Recognition by Indian Bank’s Association for    Cost Accounting Standards Board
          Forensic Audit:                                  I am happy to inform that the “Limited Revision of
           I am  pleased  to inform you  that  based  on  the  Cost Accounting Standards (CASs)” showing clause
          representation and follow-up by the PD Directorate  by clause changes in the Cost Accounting Standards
          Indian Bank’s Association (IBA) has considered the Cost  having the impact of IndAs is now available on the
          Accountants for empanelment to take up assignments  Institute website that can be downloaded. The Limited
          relating to forensic audit of Frauds uptoINR 50 crores  Revision of Cost Accounting Standards (CAS-6, CAS-




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               The Management Accountant  l May 2017
                                              May 2017y 2017
               The Management Accountant  l]]></page><page Index="11"><![CDATA[7, CAS-12, CAS -16 and CAS 17) and consequential   I am happy to inform that the IPA of the Institute has
          changes in other Cost Accounting Standards (CAS-8,  released its first edition of the Fortnightly Newsletter
          CAS-9, CAS-10, CAS-11, CAS-12, CAS-13, CAS-14,   in the month of April 2017 which is available on the
          CAS-20, CAS-21, CAS-23 and CAS-24) that shall be  IPA website. The next issue is being released shortly.
          effective for the cost statements prepared on or after 1st  The newsletter from IPA gives gist of developments
          April 2017.                                    and updates of Insolvency Profession such Rules and
                                                         Regulations issued by Insolvency and Bankruptcy Board
            Cost Auditing and Assurance Standards Board  of India (IBBI), cases of insolvency admitted by various
           The last date for receipt of suggestions on the draft  benches of NCLT, important news having bearing on the
          “Practical Guide to the Standard on Cost Auditing (SCA)   Insolvency Profession etc. I am sure that this initiative
          101 Planning an Audit of Cost Statements” has been   will help our members and the Insolvency professionals
          extended till 7th May 2017. I urge members to send  enrolled with the Agency.
          their suggestions to the Institute so that this Guidance
          Note can be further improved.  The suggestions of    Webinars
          stakeholders will also enable the Secretariat of CAASB to   A webinar on “Practical Aspects of Insolvency and
          consider them in the comprehensive Practical Guide to  Bankruptcy 2016” was conducted by the CEO of IPA
          the Standards on Cost Auditing (SCAs 101-119), which   of the Institute on 26th April 2017. Another national
          is under preparation.  I further urge Regional Councils  webinar on “How to prepare for limited Insolvency
          and Chapters to arrange study circles meetings or form  Examination” is scheduled to be held on 8th May 2017.
          smaller groups and discussed this draft Practical Guide  The webinar is specially designed to assist the members
          to the Standard on Cost Auditing (SCA) 101 Planning  of the Institute to prepare for the limited insolvency
          an Audit of Cost Statements and send the suggestions  examination. I noted that many of the Cost Accountants
          made by the members in such forums.            who had registered under limited period scheme for a
                                                         period of 6 months are yet to qualify the examination.
          IPA of ICAI                                    Their registration as Insolvency Professionals with
            Seminar for Bankers                         Insolvency and Bankruptcy Board of India (IBB) shall
           I am thankful to Dr. M.S. Sahoo, Chairperson   expire on completion of 6 months from the date of their
          of  Insolvency and Bankruptcy Board of  India for  registration with IBBI. I urge them and other members
          being Chief Guest in a “Seminar on Insolvency and  to attend the said webinar in large numbers as it would
          Bankruptcy Code 2016- Practical Aspects for Bankers”  immensely help them in qualifying the exam thus enter
          held  on  21stApril  2017  at  Kolkata  jointly  by  Head  into this profession of IPs and explore the benefits
          Quarters and EIRC of the Institute. I am also thankful to  offered by it.
          Shri V.P. Singh, Judicial Member of NCLT Kolkata Bench,
          Smt. Rekha Warriar, Regional Director of  Eastern    International Conference on “New Corporate
          Region Reserve Bank of India were Guests of Honor.  Insolvency Regime”
          The CEO, IPA of the Institute and Dy. General Manager,   I happy to inform that the IPA of Institute was associated
          IBBI were eminent speakers in this program. Dr. M.S.  with ASSOCHAM for the International Conference on
          Sahoo, Chairperson, IBBI also released the Institute’s  “New Corporate Insolvency Regime”Ushering an Era
          publication on “Insolvency and Bankruptcy Code 2016-   of Change, supported by Insolvency and Bankruptcy
          Practical Aspects for Bankers”. The program was very  Board of India and the UNCITRAL, and partners of the
          well received and appreciated by the Bankers. Many  conference were INSOL India, the leading insolvency
          such programs may be arranged by Regional Councils   industry advocacy body and SIPI – the newly set up
          and Chapters for Bankers to make them familiarize  think tank on insolvency. The International Conference
          with the provisions of  Insolvency and Bankruptcy  was held on 28th and 29th April, 2017 at Hotel The
          Code affecting the Banks and also with the skills and   Ashok, New Delhi. The conference was an effort to
          capabilities of Cost Accountants who are working as   sensitize the Corporate India about the principles of the
          Insolvency Professionals.                      IBC; share global best practices with them and obtain
                                                         market feedback on regular basis. The Chief Guest of the
            Fortnightly Newsletter of IPA               Conference was Shri Arjun Ram Meghwal, Minister of




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            State for Finance & Corporate Affairs, GOI. The international conference were addressed by eminent national
            and international speakers having expertise in Insolvency and bankruptcy regime, Judges of Supreme Court
            of India and Supreme Court of  Singapore, Chairperson- National Company Law Appellate Tribunal (NCLAT),
            President- National Company Law Tribunal (NCLT), Chairperson and Whole Time Member of Insolvency
            and Bankruptcy Board of India, bankers, three professional institutes etc. Vice President of the Institute was
            one of the speakers in the conference. More than 300 delegates attended the conference and it was received
            very well by all.

              Programs on IBC
             I deeply appreciate the efforts made by the Regional Council/Chapters for creating awareness about the
            Code by conducting programs/seminars on PAN India basis. There were 6 programs conducted in the month
            of April 2017 at places like Hyderabad, New Delhi, Kolkata, Nasik and Pune.

            Initiatives by Regions &Chapters
             Navi Mumbai Chapter organised a Workshop on “Goods & Services Tax (GST)” on 8th&9thApril 2017
               at Navi Mumbai. I congratulated the chapter for taking up this very important initiative for capacity
               building of the members of the Institute in the all-important area of GST.

             I was invited by the WIRC for felicitationof the recently qualified students in the felicitation Function
               organised by the WIRC at Mumbai on 8th April 2017.

             The Chandigarh-Panchkula Chapter organised a “Members Meet” with President, Vice President and
               Central Council Members on 22ndApril, 2017 at Panchkula. Chandigarh-Panchkula Chapter also
               organised a Seminar on “Corporate Accounting, Auditing and Board Matters” on 22ndApril 2017. I
               was invited to inaugurate the seminar.

             The inaugural function of Bharuch Ankleshwar CMA Chapter was held on 25thApril, 2017. A GST
               Seminar was organised to mark the occasion. I was the chief guest of the function which was also
               attended by many dignitaries and my council colleagues along with senior members of the profession. I
               announced a CMA Lab for Bharuch Ankleshwar chapter as it is the industrial hub of Gujarat.

             I congratulate the Managing Committee of Rajpur Chapter for organising seminar on GST on 30th April
               2017 at Kolkata where technical aspects of GST were discussed. To mark the occasion a Bengali Book on
               GST published by Rajpur Chapter was also released.

            I wish prosperity and happiness to members, students and their families on the occasion of May Day, Rabindra
            Nath Tagore Jayanti, Budh Purnima & Rana Pratap Jayanti and pray for the success in all of their endeavours.

            With warm regards






            (CMA Manas Kumar Thakur)
            1st May 2017










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               The Management Accountant  l May 2017gement Accountant  l]]></page><page Index="13"><![CDATA[CHAIRMAN'S COMMUNIQUÉ






















                                                         the National Action Plan on Climate Change (NAPCC).
           Greetings!!!                                  It  aims  at  protecting,  restoring  and  enhancing  India’s
                                                         diminishing forest cover and responding to climate change
           On the eve of World Earth Day on 22 April, the Research &   by a combination of adaptation and mitigation measures.It
          Journal Committee of the Institute has initiated a landmark   envisages a holistic view of greening and focuses on multiple
          drive by introducing e-journal facility to support Digital   ecosystem services, especially, biodiversity, water, biomass,
          and  Green  initiatives  of   the  Government  of   India  and   preserving mangroves, wetlands, critical habitats etc. along
          hence reducing infructuous expenditure that impacts the   with carbon sequestration as a co-benefit. This mission has
          environment as trees are the major source of paper pulp   adopted an integrated cross-sectoral approach as it will be
          production. From the month of May 2017, the monthly   implemented on both public as well as private lands with a key
          journal, “The Management Accountant” would hereafter   role of the local communities in planning, decision making,
          be circulated in the form of e-journal mode to all members,   implementation and monitoring. Now it’s time to join hands
          students and readers.                          to create quality environment for sustainable development
                                                         and to ensure a better future for our forthcoming generations
           Every year printing of books and journals costs heavily on   to come.
          the environment. Production and use of paper have adverse
          effect on our environment, accounting to about 35% of   So,  as  responsible  citizens  and  proud  members  of   the
          municipal solid waste, causing toxicity to biochemical oxygen.   great profession, let us be sensible to our Mother Earth and
          Waste water discharges for a pulp and paper mill contains   let us back our Institute’s GO-GREEN agenda to preserve
          solids, nutrients and dissolved organic matter such as lignin,   our environment.Let us agree to minimize the hard copy
          which is dangerous for aquatic life too. Globally, around 40%   publication of the Institute’s Journal to become an active
          of the annual industrial wood is processed for paper industry,   agent to this noble initiative. E-Journal is available in PDF
          destroying several trees and damaging the ecosystem heavily.   and user-friendly e-magazine formats, it becomes easier and
                                                         comfortable to access and read any point anywhere anytime
           In the past 40 years, global paper consumption has risen by   via laptops, tablets, mobiles, PCs etc.If any member still wishes
          400%, with more than 35% of all the harvested trees being   to get the printed physical copy, he/she may send a request
          used only for paper production. Paper manufacturing mills   mail to us.
          also emit large amounts of nitrogen dioxide (NO2), Sulphur
          dioxide (SO2) and carbon dioxide (CO2). Paper manufacturing   We look forward to your whole-hearted cooperation to
          also adds its share to waste production and water pollution.   make this noble GREEN endeavour successful.
          Production of one ton of printing paper costs our planet nearly
          24 trees. A recent UN report on climate change claims that
          India is among the few counted nations that will be witnessing   Warm regards
          abrupt climate changes in coming years. The drastic change
          in climate cycle brings with it a greater risk of food and water
          shortage which will cause malnutrition in those living below
          poverty line. We need to bring dramatic changes in our habits
          and attitude as the given deadline is not far away than the   CMA Avijit Goswami
          middle of present century. India outlined National Mission   Chairman, Research, Journal & IT Committee
          for Green India (GIM) as one of the eight missions under   The Institute of Cost Accountants of India




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              Glimpses of  National Conference on “Sustainable Infrastructure”
                                held at New Delhi on March 23, 2017




                                                                    Lamp lighting by Hon’ble Shri Suresh
                                                                  Prabhakar Prabhu, Union Minister of Railways
                                                                  along with President, Vice-President of  the
                                                                  Institute & other dignitaries


















           Shri Piyush Goyal, Hon'ble Union Minister of
         State (IC) of New & Renewable Energy, Power &
         Coal addressing the participants through video
         conferencing.













                                                                    Hon’ble Shri Suresh Prabhakar Prabhu,
                                                                  Union Minister of Railways being felicitated by
                                                                  the President and Council members















          Hon’ble Shri Arjun Ram Meghwal, Minister
        of State for Finance and Corporate Affairs being
        facilitated by the President and Vice-President








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               The Management Accountant  l]]></page><page Index="15"><![CDATA[Release of Publications : “The Indian Railways
                                                               will become the growth engine of the Nation’s
                                                               VikasYatra”, “Sustainable Infrastructure” &
                                                               “Impact of Goods & Services Tax (GST) on Indian
                                                               Infrastructure Sector”by Hon’ble Ministers &
                                                               Dignitaries



















       Presidential  address  by  CMA  Manas  Kumar
     Thakur, President of the Institute














                                                                Welcome address by CMA Sanjay Gupta,
                                                                Vice-President of the Institute



















          Shri BB Verma, Financial Commissioner,
        Indian Railways receiving memento from
        CMA Dr. I. Ashok, Council Member of the Institute








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              Glimpses of  National Conference on “Sustainable Infrastructure”
                                held at New Delhi on March 23, 2017


                                                                  Group Picture of  (L to R) CMA Ravi Sahni,
                                                                 Chairman & RCM of  NIRC of  ICAI-CMA,
                                                                 Shri  Rajeev  Mehrotra, CMD  Rites  Limited,
                                                                 CMA Manas Kumar  Thakur, President &
                                                                 CMA Sanjay Gupta, Vice President of the Institute
                                                                 and Shri B.B. Verma, Financial Commissioner of
                                                                 Ministry of Railways
















          Shri S. Machendranathan, Chairman, AERA
        (Chairman & Moderator of the Session)  receiving
        memento from CMA P. Raju Iyer, Council Member of
        the Institute













                                                                  Shri Vinod Hejmadi, Director (Finance),
                                                                Air India Limited receiving  memento  from
                                                                Shri S. Machendranathan, Chairman, AERA












        From L to R: CMA P. Raju Iyer, Council Member of the
      Institute, Shri Vinod Hejmadi, Director (Finance), Air India
      Limited, Shri S. Machendranathan, Chairman, Airports
      Economic Regulatory Authority of India  Shri V.P. Agrawal,
      Former Chairman, Airport Authority of India and CMA
      Rajendra Singh Bhatti, Regional Council Member of NIRC
      of the Institute





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               The Management Accountant  l]]></page><page Index="17"><![CDATA[Shri A.K. Sharma, Director (Finance), Indian Oil
                                                                Corporation Ltd. giving answers to participants
                                                                during questionnaire session

















         From L to R:  CMA Balwinder Singh, Council
       Member of  the Institute, Shri A.K. Sharma,
       Director (Finance), Indian Oil Corporation Ltd.,
       Mr. George Johnston, Vice President – Finance,
       (Barclays) ACCA, Shri Anil Kumar Sahni, General
       Manager (F&A), GAIL (India) Limited, CMA Ravi
       Sahni, Chairman & RCM of NIRC of the Institute













                                                                 Smt. Aruna Sethi, Addl. Chief Adviser (Cost),
                                                               Ministry of Finance (Chairman & Moderator of the
                                                               Session)receiving memento from CMA Amit Anand
                                                               Apte, Council Member of the Institute











          Shri M Nagaraj, Chairman-cum-Managing
        Director, PEC Limited receiving memento from
        CMA H. Padmanabhan, Council Member of the
        Institute








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              Glimpses of  National Conference on “Sustainable Infrastructure”
                                held at New Delhi on March 23, 2017





                                                                 CMA P.V. Bhattad, immediate past president
                                                               and Council Member of  the Institute receiving
                                                               memento from CMA H. Padmanabhan &
                                                               CMA Dr. I. Ashok, Council Members of the Institute















         Dr. S.K. Gupta, CEO, AIHP Limited receiving
       memento from CMA H. Padmanabhan, Council
       Member of the Institute










                                                                From L to R: CMA Amit Anand Apte, Council
                                                              Member of the Institute, Shri B. Poiyyamozhi, Former
                                                              – Development Advisor (Ports), Ministry of Shipping,
                                                              Dr. S.K. Gupta, CEO, AIHP Ltd., Smt. Aruna Sethi, Addl.
                                                              Chief Adviser (Cost), Ministry of Finance (Chairman
                                                              & Moderator of the Session), CMA H. Padmanabhan,
                                                              Council Member of the Institute, CMA P.V. Bhattad,
                                                              immediate past president & Council Member of  the
                                                              Institute, Shri M. Nagaraj, CMD, PEC Ltd. and CMA Dr. I.
                                                              Ashok, Council Member










       Shri Piyush Goyal, Hon'ble Union Minister of State (IC)
      of New & Renewable Energy, Power & Coal addressing
      the participants through video conferencing










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          18   The Management Accountant  l May 2017                                     www.icmai.in
                                              May 2017
               The Management Accountant  l]]></page><page Index="19"><![CDATA[From L to R:  CMA Dr. I. Ashok, Council Member
                                                              of the Institute, CMA S.K. Bhatt, immediate past
                                                              chairman & RCM of NIRC of the Institute, CMA K.
                                                              Narasimha Murthy, Practising Cost Accountant,
                                                              Prof. Surender Kumar, Govt. Nominee of  the
                                                              Institute & CMA Bibekananda Mukhopadhyay,
                                                              Chairman, EIRC of the Institute


























                 CMA Manas Kumar Thakur, President of the Institute, lighting the lamp at the Students’ Felicitation
               Function to felicitate students who passed Foundation, Intermediate and Final examination in
               December 2016 organized by WIRC. Others seen are CMA Harshad Deshpande, Regional Council
               Member WIRC, Mr. V. Ramaswamy Global Head, Tata Consultancy Services, CMA Manas Kumar
               Thakur, President, CMA Manish Gangwal, CFO, Gulf Oil Ltd, CMA Debasish Mitra, Chairman
               Students Members and Chapters Co-ordination Committee, WIRC  CMA Kailash Gandhi – Vice-
               Chairman, WIRC, CMA Shriram Mahankaliwar, Treasurer, WIRC ,  CMA Pradip H Desai, Chairman,
               WIRC . CMA Manas Kumar Thakur, President ICAI addressing the students during the Felicitation
               Function held at WIRC on Saturday 8th April 2017




                                                                  Shri  R. Bandyopadhyay, IAS (R) Former
                                                                Secretary, Ministry of  Corporate Affairs, Govt.
                                                                of India Former Secretary, Department of Public
                                                                Enterprises, Govt. of  India Former Member,
                                                                Central Administrative Tribunal (CAT) – Guest
                                                                of  Honour inaugurating the PD Meeting on
                                                                ‘Investor’s Awareness & Protection’ by lighting the
                                                                traditional lamp.  Also seen: From (L – R): Mr. P.S.
                                                                Vasudevan, International Corporate Trainer & Life
                                                                Coach, CMA V. Murali, Chairman, SIRC of ICAI,
                                                                Mr. S. Santhanakrishnan, Chairman, CSB Ltd.
                                                                (formerly Catholic Syrian Bank Ltd. ) & Chairman,
                                                                Tata Housing Ltd – Guest of Honour and CMA T.G.
                                                                Suresh, Direct Tax Consultant


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                                                                MOU signing between the Institute &
                                                              PN College , Khordha on April 11, 2017. Seen in the
                                                              photo are Council Member CMA Niranjan Mishra,
                                                              Regional Council Members CMA Shiba Prasad Padhi,
                                                              CMA Sushil Pattanaik, CMA Sibaprasad Kar, CMA
                                                              Damodar Mishra.














                                                        Shri Khalid Aizaz Anwar, Sr. Joint Commissioner,
                                                       Commercial  Tax, WB being felicitated by CMA
                                                       Manas Kr. Thakur, President and CMA Mrityunjay
                                                       Acharjee, Associate Vice President (Internal Audit &
                                                       Taxation),Balmer Lawrie  & Co Ltd













                                                                CMA Niranjan Mishra (Chairman, Regional Council
                                                               & Chapters Co ordination Committee and Council
                                                               Member) addressing the group of representatives
                                                               from Western India Regional Council and Chapters
                                                               under WIRC at the “Regional Council and Chapters
                                                               Co ordination Meet” organised at Ahmedabad on
                                                               26th February 2017.
                                                                (From Left to Right) CMA Ashok B. Nawal (Council
                                                               Member), CMA Amit Anand Apte (Council Member),
                                                               CMA P. V. Bhattad (Council Member & Immediate
                                                               Past President), CMA Niranjan Mishra (Chairman,
                                                               Regional Council & Chapters Co ordination Committee
                                                               and Council Member), CMA P.H. Desai (Chairman,
                                                               WIRC), CMA Debasish Mitra (Member, WIRC), CMA
                                                               Vinod H. Savaliya (Chairman - Ahmedabad Chapter)







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                                              May 2017y 2017
               The Management Accountant  l]]></page><page Index="21"><![CDATA[Mrs. Kirron Kher, Hon’ble MP, Chandigarh
                                                                  being felicitated by CMA Manas Kumar Thakur,
                                                                  President, and CMA Sanjay Gupta, Vice President
                                                                  at Chandigarh during the National Regional
                                                                  Council & Chapters Meet on April 22, 2017
















         CMA  Manas Kumar  Thakur,  President  of   the
       Institute inaugurating the National Regional Council
       & Chapters Meet on April 22, 2017 at Chandigarh













                                                                  CMA Sanjay Tandon, President, BJP, Chandigarh
                                                                being felicitated by CMA Manas Kumar Thakur,
                                                                President, and CMA Sanjay Gupta, Vice President
                                                                at Chandigarh during the  National Regional
                                                                Council & Chapters Meet on April 22, 2017












       CMA Sanjay Gupta, Vice President of the
     Institute in the technical session 'Hear no evil;
     see no evil; speak no evil' in the International
     Conference New Corporate Insolvency Regime
     Ushering an Era of Change, April 29, 2017 at
     New Delhi organized by ASSOCHAM & IPA of
     ICAI





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          ACTIVITY BASED




          METHOD FOR PURELY




          FINANCIAL




          ITEMS








        T













                                                         adoption of  various tools
                            he estimation of the cost of product or

          service yields innumerable benefits, as it facilitates to  and techniques will finally
          improve the efficiency and economy of the operations  result in to get the goods and
          of the entity. The identification and removal of the   services at the acceptable lower price and
          ineptitude activities will enable to identify and remove  thus facilitate to improve the general standard of living
          the unprofitable products or services by applying the  of the general public.
          various doctrines of costing. The inappropriate costing   There are many techniques to determining the cost of
          of products or services may lead to erroneous fixation of   the product as well as services. At the time of evolution of
          price and result in fall in demand and consequent loss to  costing, cost of commodities or services was determined
          the entity.                                    by summing up of  materials, labor and overheads
           The techniques of costing assists management to   incurred.  During  those  times  the  apportionment
          formulate proper planning and control of  various   of   overheads  was  made  with  reference  to  labor
          scare resources and also to take various decisions   hours or materials consumed, which was decided by
                            such as make or buy, dispose   management. Robert Kaplan invented a new technique
                            or retain, expand or shrink etc   Activity Based Costing, which created a big bang among
                            at the appropriate time.  The   Industries. It shows a new spectrum of  costing of



                              CMA Dr. L. Kailasam
                              Deputy Accountant General
                              Office of Principal Accountant General
                              Thiruvanathapuram




          22   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="23"><![CDATA[products and services wherein the   or services.               and making the product viable.
          overhead was apportioned based on   The present methodology adopted
          the activities involved. This major   for determination of cost did not
          invention has resulted in the new   permit to consider these items for   What could be done if the reduction
          fixation of price and hence shaking   the reasons that they are purely   of  cost  reached  irreducible
          the entire market of  the various   financial in nature. While making   minimum
          goods as well as services.     in-depth                          If the cost reduction has reached
                                                                         to irreducible minimum, the
                                                                         alternative way has to increase
                                                                         the selling price of  the products
                                                                         or services to the maximum
                                                                         possible level subject to absorption
                                                                         of   demand of   the product or
                                                                         services in the market. Even at the
                                                                         maximum possible selling price, if
                                                                         the products or services leads to loss,
                                                                         there is no alternative way except to
                                                                         discontinue the product or services.
                                                                           The proposed method facilitates
                                                                         the identification of  the loss
                                                                         making products and to take
                                                                         various measures on cost reduction
                                                                         of  the loss making products
                                                                         and also re-fixing of  the prices
                                                            analysis it is   of  the products if  required, by
                                              found that the expenditure   incorporating the purely financial
                                           incurred or apportionment made   items  by  appropriating  by  using
                         Necessity of    were met from the profit earned   the activity based method and also
                      considering Purely   by the various  commodities  sold   considering the dynamics of supply
                 Financial items         or services rendered by the entity.   and demand of the produces in the
           Traditionally it was believed that   As an example, the apportionment   market. The objective of the new
          certain items are necessarily to be   made to general reserve created   method is to demonstrate how
          excluded for the determination of   might have met from the profits   much maximum money could be
          cost of product as well as services.   earned by the products and services.     earned either by reducing the cost
          As an example, the profit or losses   These purely financial items   or re-fixing the selling price at the
          arising on sale of fixed assets are   were no doubt, not at all required   optimum level and also to take
          treated as purely financial in nature   for the determination of cost, but   decision on the discontinuance of
          and not included in determination   it has to be considered for taking   the products, if the loss incurred
          of  the cost. Advertisement,   various decisions such as pricing   could not prevented by either of the
          preliminary expenses, Share    of the commodities sold or services   methods.
          transfer fee, interest received on   rendered and also to identify the
          bank deposits, dividend, brokerage,   areas of cost reduction  Proposed Model
          discount and commission received   The money generated, which    The following model will assist
          are never to be considered for   has direct nexus with the     not only the identification of the
          costing of goods or services. The   products and services and have   non-profitable  products  but  also
          appropriation of profits for specific   re-appropriated into general reserve   suggest the ways for preventing
          purposes such income tax paid,   and apportionment to taxes etc are   loss generated by such products
          dividend paid, and transfer to   necessarily to be reconsidered for   or services in order to improve the
          reserve was also not considered for   the determination of profitability of   overall profitability of  the entity.
          the determination of cost of goods   products or services for segregating   The various steps involved in the




         www.icmai.in                                    May 2017 l  The Management Accountant      23]]></page><page Index="24"><![CDATA[COVER ST OR Y





          model are given below.                         Example
          Step 1:  Determination of  Cost of  all products and   The example explained below reveals the steps
                 services                                mentioned. In order to make easy understanding the
          Step 2:   The determination of  the Profit of  each   example is restricted to only two products i.e. Product
                                                         A and Product B and only profit earned by the purely
                 products and services                   financial items during the account period under
          Step 3:  Apportionment of Purely Financial items    consideration. The model could be extended to more
          Step 4:  Determination of overall profit.      products and services and purely financial items for
          Step 5: The identification of loss making products or   the previous years also. In the model both Traditional
                 services and exploration of  cost reduction   costing method and Activity Based Costing method
                 techniques.                             were demonstrated.
                                                           Let us presume the present selling prices of  the
          Step 6:  Explore the possibility of revising the Selling   product is Rs 13 for the product A and Rs 27 for the
                 Price                                   product B and there is sufficient demand in the market
          Step 7: Determination of discontinuance of produce  for the both products.
                 and services.                             The cost incurred for producing the Product A and
                                                         Product B are given below:-

          Step 1:  Determination of cost of all products and services
                                Determination of cost of products under Traditional Method
                                                    Table No 1
                                                                                            Overall
                Particulars             Unit cost                     Total
                                                                                           Total  Cost
          No of Units                                          2000          3000                 5000
                                    A             B             A              B

          Direct material           8             2                16000         6000             22000
          Labour                    4             5                8000          15000            23000

          Direct Cost               12            7               24000          21000            45000
          Overhead*                 4             5              19555.56      24444.44           44000

          Total cost                16            12             43555.56      45444.44          89000
          *(Apportioned in accordance with Labour rate)
          (A)    ACTIVITY BASED COSTING METHOD -ALLOCATION OF OVERHEAD

                                                    Table No 2
                                  A           B         Total   Allocation A  Allocation B  Total

          Purchase orders (No)    40         60         100           4000       6000             10000

          Machine setup (No)      20         80         100           2000       8000             10000
          Product packing (No)  10000       20000      30000          1000       2000             3000
          Machine testing (no)    50         100        150           2000       4000             6000

          Cleaning               100         150        250           6000       9000             15000

          Total Indirect cost                                        15000      29000            44000


          24   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="25"><![CDATA[DETERMINATION OF COST OF PRODUCTS UNDER ACTIVITY BASED COSTING METHOD
                                                    Table No 3
                                                                                            Overall
               Particulars              Unit cost                     Total
                                                                                          Total  Cost
          No of Units                                          2000          3000            5000

                                    A             B             A             B

          Direct material           8             2               16000          6000            22000
          Labour                    4             5                8000          15000           23000

          Direct Cost               12            7               24000          21000           45000
          Indirect cost*           7.5*         9.67**             15000        29000            44000

          Total cost               19.5          16.67            39000         50000            89000
           *15000/2000 = 7.5
           **29000/3000 =9.67

          Step 2:  The determination of the profit of each products and services
           Based on the above information the profitability under traditional and ABC costing method was determined and
          given below.
                                                    Table No 4

                                     Per Unit                                 Total

                          Traditional Cost                       Traditional            ABC Costing
            Particulars                  ABC Costing Method
                            Method                              Cost Method              Method
                           A       B        A       B        A       B              A      B

          Selling Price   13       27      13       27      26000   81000 107000  26000   81000  107000

          Cost incurred   16       12      19.5    16.67   43555.5  45444.4  89000  39000  50000  89000
          Profit/ (Loss)   -3      15      -6.5    10.33  -17555.5  35555.6  18000  -13000  31000  18000
          Earned



          Step 3: Apportionment of Purely Financial items  apportionment of these items for the determination of
           The purely financial items which have close nexus  real profit of the products and services.
          with the products and services are to be identified.   In the example it is presumed that the sum of
          The next important and pertaining question is how  purely financial items works out to Rs 9000/-.  These
          to apportion these purely financial items among the   purely financial items are to be apportioned to the
          various products. The traditional costing method of   products A and B. The traditional costing method the
          allocating the overhead by the labor rate etc could be  apportionment could be made based on the method
          adopted in the apportionment of the purely financial  earlier adopted (in this case labor rate  method).
          items among the products or services of the entity.  Robert Kaplan’s ABC Method could be applied for the
          However, the golden gift given by Robert Kaplan i.e.   apportionment of purely financial items, taking cost
          Activity Based Method could be effectively used in the  driver as the profit already earned by the products.




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                                                    Table No 5

                                          Per Unit                             Total

                               Traditional Cost   ABC Costing    Traditional          ABC Costing
                Particulars
                                  Method        Method          Cost Method             Method
                                 A     B       A       B       A     B             A        B

          Profit  from purely   2.00*  1.67*  -7.63**  8.09**             9000   -15260.8  24260.8  9000
          financial items                                     4000  5000

          *Apportionment made based on cost of labor (4*9000/9)/2000 =2.00 and (5*9000/9)/3000 =1.66
           ** Apportionment made based on the normal profit (-) 6.5*9000/ (-6.5+10.33)/2000 = - 7.63 and  10.33*9000/
          (-6.5+10.33)/3000 = 8.09

          Step 4:  Determination of overall profit
           The overall profit i.e. the summation of the profit determined in Step 2 and Step e are to be evaluated and given
          for the present example.
                                                    Table No 6

                                      Per Unit                               Total

                           Traditional Cost   ABC Costing      Traditional            ABC Costing
              Particulars
                              Method         Method           Cost Method               Method

                             A      B      A       B       A       B     Total    A        B     Total

          Profit/ (Loss) Earned  -3  15   -6.5    10.33  -17555.5  35555.6  18000  -13000  31000  18000

          Profit  from purely
          financial items    2     1.6    -7.63   8.09    4000    5000   9000   -15260.8  24260.8  9000

          Total profit /(Loss)  -1  16.6  -14.13  18.42  -13555.5  40555.6  27000  -28260.8  55260.8  27000

          Step 5: The identification of loss making products or  component of the product will be relooked into to identify
          services and exploration of cost reduction techniques  the potential areas of cost reduction. It is necessary to
           In the above example it is found that product A is  discuss with the workers on the shop floor, as they have
          incurring loss even after inclusion of the profit already  valuable insight to tell the scope of cost reduction. The
          earned. In the above model Product A is incurring a loss  previous cost savings ideas if any available necessarily to
          of Rs 13,555.6 (Under Traditional costing method) and  be considered again for the present its implementation
          Rs -28260.8 (Under ABC method).  The corresponding  in the present environment. The energy consumption
          unit cost lost for the product A is Rs 1 (Under Traditional  techniques are to be considered for the confirmation
          costing method) and Rs 14.1 (Under ABC method). By  that  the  available  energy  was  properly  used.  The
          selling the product A, our hard earned resources are  necessities of automation are to be considered wherein
          diminished to that extent mentioned above.     the repetitive manual process occurred. The negotiation
           Therefore it is necessary to re-evaluate the Product  with the suppliers and carriers and by re arranging the
          A and confirm that the cost incurred by the product ‘A’  schedule etc may lead to reduction of the cost. The
          are really attributable to it and explore the possibility of  value engineering and benchmarking and other cost
          reduction there for. The complete assessment of each   reduction techniques may be considered for reducing




          26   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="27"><![CDATA[The technique  explored  will facilitate  the  cost auditor  to  identify  the

          unprofitable products and services and for taking adequate action to the

          extent required either by reducing cost by adopting cost reduction doctrines

          or revise the selling price after apportionment of purely financial items by

          adopting Activity Based Method





          the cost incurred by the Product A.   Market Oriented Pricing Method  Method for the purely financial
                                         consists Perceived value pricing,  items.  The appropriate decision
          Step 6:  Explore the possibility of  Going-rate pricing, Premium  could be taken such as taking cost
          revising the Selling Price     pricing, Discount pricing, Sealed-  reducing measures, revising the
           After exploring the possibility of  bid pricing, Differentiated pricing.  selling price etc at the appropriate
          reduction of cost the next step is  The appropriate pricing of  the  time. This article will facilitate to
          to consider the revision of price. It  product may reduce the loss to the  guide us when to discontinue of the
          is necessary revise the price of the  maximum possible extent.  products. However for the simplicity
          Produce A to the maximum possible                              the example is restricted to only two
          level subject to absorption in the  Step 7: Determination of  products and the consideration
          market. The fixation of  the price  discontinuance of produce and  of  the purely financial item for
          of  the commodities and services  services                     the accounting period.  This could
          depends not only on costing but   From the Table 6, it is found that  be extended for more number of
          also on several factors such as  the unit cost lost for the product   products and previous accounting
          demand for the products, price  A Rs 14.13 per unit under ABC  period also. The concepts of bye-
          of  competing firms, purchasing  method.  This ABC method is  product, joint product was also
          power of customers, Government  more appropriate to apply as the  not considered. The readers may
          regulation, marketing method  appropriation of indirect cost and  explore the possibility of extending
          used etc.  There are numerous  purely financial items are done  the  concept  mentioned  to  those
          methods of pricing methods for the  scientifically.            situations too.
          determination of price of products   It is necessary to reduce the
          or services.  The factors which  cost of  product A by Rs 14.1 or
          are normally considered for the  increase the price by Rs 14.13.
          determination of the price includes   The combination of cost reduction    lkailasam@yahoo.co.in
          product/service,  competition,  method or increasing the selling
          target audience, product’s life cycle,  price may also be considered so that
          firm’s vision of expansion, etc. The   the product A should not be burden
          method of pricing could be broadly  to the entity. In both method or by
          classified into two categories i.e.  the combination, if it is not possible,
          Cost Oriented Pricing Method and  there is no alternative except  to
          Market Oriented Pricing Method.  discontinue the Product A.
          Cost-oriented  methods  or  pricing
          includes Cost plus pricing, Mark-up  Conclusion
          pricing, Break-even pricing, Target   The primary objective of  the
          return  pricing  and  early  cash  article is to demonstrate the
          recovery pricing. On the other hand  effective use of  Activity Based




         www.icmai.in                                    May 2017 l  The Management Accountant      27]]></page><page Index="28"><![CDATA[COVER STORY







          Application of Activity Based Costing in



          Indian Railways-


                       “MISSION BEYOND






                                  BOOK-KEEPING”




















































                              CMA Kalyani Karna
                              Kalyani & Co
                              Cost Accountant
                              Delhi


                                                                                         www.
          28
          28   The Management Accountant  l Ma                                           www.icmai.inicmai.in
                                              May 2017y 2017
               The Management Accountant  l]]></page><page Index="29"><![CDATA["                                                 system. The Indian railway is also pursuing to build the

                    B

                                                         highest railway track in the world overtaking current
                                                         record of Beijing-Lhasa Railway line. Cost reduction
                                                         and cost control stand imperative for all industries
                                                         irrespective of the nature of market like monopoly or
                                                         perfect competition. This article provides the reader an
                                                         insight of activity based costing and application of ABC
                                                         costing in Indian Railways as an effective tool for cost
                                                             eyond Book-keeping”  control.
          is  one  of  the seven missions of Indian  Railways  as
          depicted in the Rail budget 2016-17. In the National  Meaning of Activity Based Costing:
          Conference of Indian Railways held on 20th December   CIMA defines Activity Based Costing as, ‘cost
          2016, Minister of Railways Shri Suresh Prabhakar  attribution to cost units on the basis of benefit received
          Prabhu mentioned that accounting system is like   from indirect activities e.g. ordering, setting up, and
          a health card of  an organization which reflects its  assuring quality.’
          financial health and accounting reform is an integrated   The concept of  ABC was developed in the
          project on management accounting, cost accounting   manufacturing sector of the United States during the
          and management information systems. And, Indian  1970’s and 1980’s. During this time, the consortium for
          Railways should adopt a cost centre and profit centre   advanced manufacturing (CAM) was formalized which
          approach to ensure correct allocation and utilization of  become known as Activity Based Costing. This model
          resources. (Source: Press release of National conference   was formulated by Robert Cooper and Kaplan which
          on accounting reforms). Indian Railway is a crown jewel  focussed on discarding the deficiencies of traditional
          of India and makes Indian feel proud at global arena   costing system. ABC costing traces the indirect costs
          as Indian rail network is the fourth longest network  associated with different types of activities consumed.
          in the world with operating route length more than  The focus is made on the activities performed during
          65,000 km. The United States has the world’s longest  the production or rendering of services. Activity based
          railway network (over 250,000km), followed by China  costing is applied with an objective to identify non
          (100,000km) Russia (85,500) and India (65,000)   value adding activities in the manufacturing processes
          [Source: Railway-technology.com]. Indian Railways   or services provided and it can help in the elimination
          has been enlisted in the Guinness book of world records  of non core activities. It enables to improve product
          by offering the steepest rise in altitude in the space of  costing. Here, the costs are first traced to activities and
          96 kilometres. The railway station of capital of India,  then to products or services. The cost of the product or
          New Delhi has been entered in Guinness Book of world  service will be computed in the following manner with
          records  for world’s  largest route relay  interlocking  the help of activity based costing
                             Figure 1: Cost determination with Activity Based Costing






                                 Direct material + direct   Allocation of overheads
                                labour + direct expenses   with the help of cost drivers
                                                          to activities





                                                    Cost of
                                                    Activities

                                              Cost of product/service




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          Cost determination under traditional costing:
           Under the traditional absorption costing, costs are not traced to the activities. The overheads are allocated to
          production and service cost centres with the help of primary distribution then the overheads of service cost centres
          are absorbed by the production cost centres.

                                Figure 2: Cost determination under traditional costing




























          Application of activity based costing in railways:
           Railway has been considered as lifeline of economic growth of India and connecting the length and breadth of
          India. The rail services can be broadly classified under rail freight services and passenger services. The revenue from
          freight services accounts for two third of total revenue of railways. More than 1,000 million tonnes of freight is
          carried by Indian Railways per year and nearly 5,000 freight trains are operating daily. Indian Rail freight services
          mainly carries the commodities like coal, iron ore, food grains, steel, cement, petroleum products, and fertilizers.
          The number of passengers and goods carried by Railways and revenue earned there from during the five years can
          be seen as follows:

             Year     Passenger (Million)  Earnings from passenger  Loads of  goods (million  Earnings from goods
                                        carried (Rs. Millions)  tonnes)              carried (Rs. Million
                                                                                     tonnes)
            2009-10         7,246              2,34,144                 886               5,69,,115
            2010-11         7,651              2,57,056                 922               6,06,870
            2011-12         8,224              2,82,464                 969               6,77,436
            2012-13         8,421              3,13,228                1,008              8,34,788
            2013-14         8,397              3,65,323                1,052              9,15,708

          (Source: Ministry of Railways)

           Vision 2020 of Indian railways targets to earn the revenue of Rs. 80 billion by the year 2019-2020. The estimated
          contribution of rail freight services to gross domestic product of India under different five year plans can be seen
          as follows:





          30   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="31"><![CDATA[Rail freight traffic growth:

          Plan                      Estimated contribution to GDP  Ratio of  rail and road freight transport


          12  Five year plan (2012-17)         6.9%                              35:65
             th
          13  Five year plan (2017-22)          8%                               39:61
             th
          14  Five year plan (2022-27)         8.5%                              45:55
             th
          15  Five year plan (2027-32)          9%                               50:50
             th
          (Source: Report of National Planning Commission of India)

          Rail passenger service growth:                 following steps:
           The rail passenger traffic has been expected to grow
          at the rate of 15 percent per annum. The growth in   Figure 3: Steps of  Activity Based Costing
          passenger kilometre under several five year plans has
          been estimated as follows:

              Year       Passenger kilometres in billions

            2011-12                 1,047

            2016-17                 1,509

            2021-22                 2,300

            2026-27                 3,596

            2031-32                 5,765

          (Source: NTDPC, Report of Working group on Railways)

           Activity Based Costing is important for monopoly firm
          as their pricing policy is based on product cost rather
          than any influence by market price. ABC is a costing
          model that identifies the cost pools and activity centres
          in an organization. It assigns costs to products and
          services (cost drivers) based on the number of events
          or transactions involved in the process of providing a
          product or a service. Hence, the shareholders value
          can be maximised and performance can be improved
          with the help of ABC model. In order to set up Activity
          Based Costing, the resource cost should be identified and
          classified in direct and indirect costs. Direct costs can be
          allocated directly to the services. However, the indirect
          costs will be identified and it can be allocated by specific
          cost distribution procedure.
           This ABC model operates with the help of




         www.icmai.in                                    May 2017 l  The Management Accountant      31]]></page><page Index="32"><![CDATA[COVER ST OR Y




          Step 1: Identification of resource cost:       Step 2: Identification of activities:
           The first step in ABC costing is the identification of   After the identification of manufacturing processes
          resource cost. The resource cost can be obtained from  and services, different activities involved with the
          the general ledger of railways. It will be segregated  manufacturing and the services are identified. The
          into direct costs and indirect costs. The manufacturing  activities can be of basically four types:
          processes and services provided and the various stages   (1) Unit level activities:  These are activities
          of manufacturing and services will be identified for   for which the consumption of resources can be
          the purpose of  identification of  resource cost. The   identified with the number of units produced.
          direct resource cost will be directly allocated to the   (2) Batch level activities:  The costs of  some
          particular service of  rail and the indirect resource   activities are driven by the number of batches of
          cost will be allocated to activities with the help of cost   units produced or services produced in batch.
          drivers.  Hence, different kind of services provided by   (3) Product level activities: The costs of some
          the railways will be identified to obtain the resource   activities are driven by the creation of a new product
          cost. The services of railways can be divided into three   line or service or maintenance of  product and
          broad categories, freight services, passenger services,   service.
          and parcel business.                              (4) Facility Level Activities: Facility level
           For the rail freight system the different resources are   activity relates to the activities necessary for the
          Rolling stock, Organizational structure, Infrastructure,   maintenance of sustaining the product or services
          Train operation and other resources like energy. These   provided. For example, human resource activities,
          resources can be grouped under activities like train load,   security services in rail.
          wagon load, combined traffic and high speed rail freight,   Generally, the activities identified in railways are
          dedicated freight corridor and others.         batch level and facility level activities.

          Activities for Rail passenger services:
           The services provided by railways can be broadly classified under passenger transport, parcel business and
          rail freight. The activities involved in passenger transport services will be identified as ticketing, boarding, ticket
          examination, catering, cleanliness, repair and maintenance, human resources, account and finance, etc.
                            Figure 4: Identification of  activities for rail passenger services



                                       Passenger transport service activities






                    Ticketing  Scheduling  Ticket    Catering  Cleanliness  Maintenance  Others
                                         examination



           Activities for Rail Freight Services:
           The different activities for the rail freight system can be train load, wagon load, unit train, combined traffic, high
          speed rail freight, dedicated freight corridor and others.
           Train load activity serves to transport raw materials in bulk and the transportation time is less than one day.
          Wagon load is the oldest and traditional form of rail freight transport. It transports raw material and semi finished
          goods. The whole wagon is loaded or unloaded by the customer at loading platform. The loading or unloading can
          be for single wagon or group of wagons. Wagon load traffic serves the base market.
           Unit train is the freight train where the rail acts as a conveyor belt to transport the freight in bulk. Unit train
          serves the specified customer as per the time table of customer. Generally, the unit trains carry iron ore, timber,
          steel, and oil.




          32   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="33"><![CDATA[High speed freight trains are used to carry parcels and mails. The transportation of high speed train usually takes
          place overnight with late departure and early arrival with some terminals before destination.
                              Figure 5: Identification of  activities of  rail freight service


                                            Rail freight service activities







                     Booking/     Unit   Wagon/Train   Combined   RORO     Maintenance  Others
                    Scheduling    train      Load      traffic    Service




           Activities for Rail Parcel services:
           The data of Indian Railways for 2011-12 revealed that railways transported approximately 7 million tonnes of
          parcels, causing revenue of nearly Rs 16 billion. However, parcel business is a loss-making activity for railways.
          The parcel business of Railways involves three major activities, booking, loading and unloading.
                              Figure 6: Identification of  activities for rail parcel services


                                           Rail Percel service activities






                              Scheduling  Tracking   Loading   Unloading  Maintenance  Others
                    Booking




          Step 3: Pooling of cost
          Cost pool is defined by CIMA as, ‘the point of focus for the costs relating to a particular activity in an activity based
          costing system.’ It refers to the assignment of total costs to an activity. For example, the total cost incurred on the
          train ticket examiners will be ascertained. The total cost here will comprise of direct and indirect costs. The direct
          cost can be easily ascertained like total emoluments to the ticket checkers in a particular train on particular path.
          The example of indirect cost here will be the expense on water by railway in that coach on the staffs of catering,
          ticket checkers, cleaning staffs, security staffs and others. The indirect costs will be pooled and can be allocated on
          the basis of cost drivers.
          Step 4: Determination of cost driver
          According to CIMA, ‘cost driver is any factor which causes a change in the cost of an activity, e.g. the quality of
          parts received by an activity is a determining factor in the work required by that activity and therefore affects the
          resources required. An activity may have multiple cost drivers associated with it.’ In other words, cost driver means
          the factors which determine the cost of an activity. The cost drivers are the connecting link between the activities
          and the cost. The cost driver can be selected on appropriate basis. The cost drivers can be the following for different
          activities:




         www.icmai.in                                    May 2017 l  The Management Accountant      33]]></page><page Index="34"><![CDATA[COVER ST OR Y





          Services            Activity cost centres             Cost drivers

          Passenger Transport  Ticket booking                   Number of ticket booked


                              Catering                          Number of servings

                              Finance and accounts              Number of employees

                              Marketing                         Number of employees

                              Ticket examination                Number of employees, Number of ticket examined

                              Administration                    Number of employees
                                                                Number of employees, Number of activities and re-
                              Research
                                                                searches
                              Public relation                   Number of employees

                              Human resource department         Number of employees

                              Cleaning                          Number of employees

                              Repair                            Number of repairs made during the period

                              Track maintenance                 Number of trains, kilometres

                              Information technology system     Number of computers
          Freight transport and   Traffic planning              Kilometres
          parcel business
                                                                Number of employees, Number of activities and re-
                              Research
                                                                searches
                                                                Number or weight of cargo loaded, number of wag-
                              Wagon loading
                                                                ons
                              Repair and maintenance            Number of wagons repaired, kilometres

                              Traction services                 Kilometres gauge

                              Wagon services                    Number of wagon

                              High speed freight train          Weight of cargo, kilometres

                              Administration                    Number of employees

                              Warehousing                       Number of employees, weight of parcel or freight

                              Loading and unloading             Number of parcels, weight of freight

                              Booking of parcel                 Number of parcels




          34   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="35"><![CDATA[Step 5: Determination of cost driver rate
           The cost driver rate will be computed with the help of suitable cost driver. Find total expense of a particular
          activity. Divide it with the help of cost driver. The value obtained will be the cost driver rate.

                                     Total   cost  of of   activity
            Activity  cost  driver  rate =
                                      Activity  cost  driver

          Step 6: Assignment of cost with the product or service
           The final step in Activity Based Costing is to identify the cost with the final products which can also be called as
          cost objects. Now, the total indirect costs incurred can be distributed to each activity with the help of rate find by
          dividing the indirect cost with appropriate cost driver.
            Cost =  Activity  cost  driver  rate × Resources   consumed

           For example, the expense on maintenance of railway track can be apportioned to different rail on the basis of
          number of rails going through that particular track during particular period of time or on basis of kilometres. Then
          that indirect cost can be allocated to the particular train.
                                 Figure 7: Activity Based Costing Model for Railways

                                                  Resource Cost

                            Direct Cost ( Direct Allocation)  Indirect Cost (Allocation by cost driver)


                                             Good Transport Service

                                Manag  Human   Personal  Finance/  Traffic   Infras  Vehicle  Traction
                       Research
                                ement   Reso   Relat  Account  Planning  tructure  Service  Service
                                           Passenger Transport System


          Example of cost computation of passenger transport service  3.  The cost driver for the apportionment of  track
          with Activity Based Costing:                      maintenance cost can be the kilometre or number of
           The cost computation for a particular passenger   trains, or number of train runs. However, the number
          train between the two destinations for the year can be   of train runs during the period will be more suitable.
          computed with the help of ABC costing in the following  4. Then divide the total cost of track maintenance with
          manner:                                           the cost driver. This will be the cost driver rate.
          1. Find the direct costs associated with that particular  5. Now, multiply the cost driver rate with the number
            train. The direct cost will be directly allocated to each   of runs made by a particular train for which cost
            train. The direct costs can be traced as the amount   is computed. It will be the track maintenance cost
            of store supplies issued to the train during the year,   allocated to the train. It will help to identify the high
            catering materials issued, salaries paid to the staffs   maintenance cost associated with the train.
            working for that specific train during the year and  6. Similarly, all the indirect costs can be allocated to a
            other direct expenses.                          particular train with the help of suitable cost drivers.
          2. The indirect costs can be the maintenance of railway  7. The direct costs and allocated indirect costs will be
            track for which the exact cost cannot be identified for   added to find the total cost incurred.
            the specific train. It can be allocated in ABC costing  8. It will help to decide the passenger fare per kilometre.
            suitably. The total maintenance cost during the year   The costing can be suitably made with the help of
            or given period for the track will be identified and   Activity based costing model.
            pooled.




         www.icmai.in                                    May 2017 l  The Management Accountant      35]]></page><page Index="36"><![CDATA[COVER ST OR Y




          Feasibility analysis of Activity Based Costing Model for   l Collection of realistic data.
          Railways:                                      l Selection of suitable cost drivers.
          The application of activity based costing can bring the   l Introduction of information technology software for
          following advantages to Indian railways:          the implementation of activity based costing system.
          l The cost can be viewed not in terms of aggregate   l Training of employees for the application of activity
            value rather it can be viewed in exhaustive form for   based costing approach.
            each activity.                               l Proper communication network for effective data
          l The activities bearing more cost can be identified and   processing.
            the activity based management system for the cost   l Introduction of activity based management for the
            control can be applied for that activity.       efficient implementation of activity based costing.
          l Activity Based Costing helps to identify the value   l  Integration of  activity based management with
            adding and non value adding services. The focus can   management information system.
            be made on value adding services and the expenses
            on non value adding services can be eliminated.  Conclusion:
            For, example, in the passenger transport activity,   Reduction of  cost and controlling of  cost is a
            the food services, and cleanliness is value adding   continuous process. Activity Based Costing is a costing
            activities. However, the ticket examination by train   system which tries to charge the indirect costs to the
            ticket examiner (TTE) is done twice or thrice and  products and services fairly and suitably. However, it can
            ticket checking by two or three TTE can be avoided.  be effectively implemented with the collective effort of
            This  is  non-value  adding activities  and expenses  employees by imparting training. The working system
            incurred on two or more train ticket examiners can   would be reviewed at regular interval to ensure the
            be saved. The train ticketing examination should be   application of the model. The estimated expenditure
            strictly followed at once. The rationale behind activity  on passenger operation of Indian Railways for the year
            based costing is that the attention can be focused on  2017-18 has been budgeted as is Rs 77,000 crore while
            the value adding activities services while non value   the receipt has been estimated as Rs 44,000 based on
            adding activities can be eliminated in the future.  previous year data. The operational loss of Rs 33,000
          l Activity based costing approach acts as a more  should be efficiently administered to convert it into
            suitable costing system for service companies  profit else the loss will reel off to the public at large in
            providing services at large scale.           the form of hike in rail fare. Hence, the techniques of
          l It helps to determine appropriate costing.   cost reduction and cost control can prove as a boon
          l The appropriate  costing  method  will  pass  on the  for the crown of our country. Activity Based costing
            benefits to public at large and railway intends to serve   system can be an effective tool for product or service
            public.                                      costing. It will be helpful to identify the non productive
          l Activity based costing helps to analyse the cost in   activities and elimination of cost being incurred on
            detail for each activity which helps the management  those non value adding activities. Peter F. Drucker in his
            to take necessary decisions.                 book Management Challenges for 21st century quoted
          l The services offered by the railway companies have   “Traditional cost accounting focuses on cost of doing
            to meet today’s customer requirements and the  something whereas Activity Based Costing also records
            services have to be produced efficiently to make them  cost of not doing something...”
            cost competitive. Higher productivity combined with
            greater attractiveness can improve profitability for  References:
            rail freight.                                  1.  www.cjournal.cz
          Measures to be taken before the application of Activity   2.  www.pib.nic.in
          Based Costing Model for Railways:                3.  www.indiatoday.in
                                                           4.  www.businesstoday.in
           There are certain points which should be borne by   5.  www.icmai.in
          railways before the implementation of Activity Based   6.  www.kth.se
          Costing model:                                   7.  www.planningcommission.nic.in
          l Systematic identification of different activities of
            railways.                                                                 cwakalyani@gmail.com




          36   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="37"><![CDATA[COVER STORY







          Pivoting Business Growth With



         ACTIVITY BASED BUDGETING
         ACTIVITY BASED BUDGETING































































                             CMA Sreenivas Garimella
                             Director  FP&A, CSS Corp
                             Chennai



         www.                                            May 2017 l  The Management Accountant   37
         www.icmai.inicmai.in
                                                                                                    37
                                                         May 2017 l  The Management Accountant]]></page><page Index="38"><![CDATA[COVER ST OR Y

           A                             that each year, is prepared as if last  targeting the same output and



                                         year’s financials did not exist. It was  outcomes.
                                                                           Broadly, ABBwould involve the
                                         no more benchmarking last year’s
                                                                         following:
                                         financial resources to be good for
                                         the current year. All assumptions
                                                                            Activity Identification
                                                                            Activity Analysis
                                         have to rethought from scratch and
                                         need to be justified to factor in for
                                                                            Calculate Activity rates
                                     n outgrowth  the current year. Several question
          of  activity framework, linking  of how the activity be performed,    Assignment of costs
                                                                            Assign costs to cost objects
          workload and costs leads to Activity  should the activity be undertaken,    Prepare and distribute ABB
          based budgeting (ABB). With a  how well the task has to be       Leveraging the knowledge
          comprehensive  activity  based  performed, should it be in-house  of  ABB, the applications have
          budgets, executives are able to create  or outsourced etc have helped to  been phenomenon and has been
          clear nexus to exercise control.  identify  inappropriate activities   directional to business growth.
          Appropriation battles are common  thereby costs are assigned only to
          among functions during budgeting,  value added activities.     Application in Railways:
          challenging  the methodology to   Criticism of ZBB focusses on its   Business Standard in June 2015,
          benefit their respective functional  difficulties of implementation and  publishedthat Indian railways
          cost is not new. Contrasting the  being a time consuming process.  despite overall operating ratio of
          budget methodologies will help to  It was not spared to be susceptible  91% yet it is running many of its
          make a right choice and to align to  to political  influences  and  premium trains at a loss. An adhoc
          the objectives and business goals.  pressures within and outside of the  cost allocation made by the officials
           Traditionally, incremental  organizations.                    had a shocking result-major trains
          budgets have been in the public   Quite often ZBB has been synonym  are not even recovering   their
          corporations until, US President  with activity based budgeting.  operating expenses, for example the
          Jimmy Carter introduced Zero-based  While there are conceptual  Calcutta metro system is spending
          budgeting in the state of Georgia in  differences,focus is task based cost  Rs 300 for every Rs.100 it earns.
          1970. Conventional budgets provide  allocations  than  it  being  trend   Indian Railways is the best case to
          accurate figures for variable costs as  based budgets.ABB is more urbane  emphasize for the need of activity
          these are clearly linked to volumes  version of  traditional absorption  based costing and budgeting and
          of sales and production. Support  costing. In simple terms, it uses cost  what could happen if  companies
          costs were not aligned to the  drivers to help derive budgets. It is  try to overlook its importance.Cost
          incremental process, as it failed to  recommended to implement ABB  dynamics play an important role in
          take into account the evaluation of   by those organizations aligned to  pricing decisions. Debroy committee
          existing activities. After World War  using of activity based costing. This  has pointed out that in the present
          II, money was tighter and required  envisage ABC framework, as pre-  costing system, all annual expenses
          the objectives, outputs and expected  requisite for ABB.  The foundation  are allocated to different services
          resulted be part of the budgeting   of  activity framework postulates   and thus arrives at a unit cost for
          exercise.  Detailed costs were to be  that activities consume resources  trains. However, since one does not
          given for every activity or program  to produce an output. Activities  know how much a specific train
          to manage and control.  This has  are considered to be basic cost  costs, one does not know how much
          eroded the scope of adjustments for  objects. Two-staged  procedure  of profits a specific train brings in.
          inflation, price changes and costs. It  includes assignment of cost: from   In the railway budget of 2015-
          also helped both the organizations   resources to activities and then from  16, the Hon’ble Railway Minister,
          where quantification has to be  activities to output-related objects.  articulated a larger vision and
          justified like sales targets, labor  Traditionally, the focus has been on  strategy for accounting and cost
          workload, production etc and also  the output-related objects like sales  reforms in Indian Railways.  The
          for qualitative services in hospitals  and production targets.  With ABB,  focus envisaged is to ensure that
          and food courts.               planning and budgeting commonly  all the public expenditure results in
           A basic requirement of  ZBB is  revolves around activities and  optimal outcome. Outlining, three




          38   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="39"><![CDATA[integral modules, performance of cost and outcome   REVENUE DETAILS
          based budgeting has been emphasized.  Lasting benefits
          would accrue to the system by developing performance   TRAIN             PROFIT / LOSE PER TRIP
          costing framework to identify appropriate cost and profit                       (IN `)
          centers and then to allocated cost to such centers. Once
          costs and benefits are made available, pricing decisions,   Lokmanyatilak - Ernakulum  - 10,90,480
          efficiency measurement and investment priorities can   Source: Bibek debroy Committee Report
          be driven.
                                                         Application in Aviation:
          REVENUE DETAILS
                                                           ABC and ABB are more used in the closed loop model
                                   PROFIT / LOSE PER TRIP   of airline services. The strength of the model is that it
          TRAIN                                          has both sides of resource planning and control. All
                                          (IN `)
                                                         activities, within the loop are the bloodlines to adjust
          Rajdhani                                       each time there is a change in the supply or demand.
                                                         Closed loop is a continuous process from setting a plan
          New Del hi-Mum bai                     3,14,516  to actual performance with new insights for betterment.
                                                         This would include both the financial and operational
          New Delhi - Rajendra Nagar             2,57,716
                                                         loops, spanning with resource allocation, activities,
                                                         demand requirement, price adjustments, products and
          Howrah - New Delhi                     69,100
                                                         services etc.
                                                           Connectivity has to established between activity based
          Sealdah - New Delhi                    64,982
                                                         costing and activity based budgeting through resources
          New Delhi - Dibrugarh Town            -6,34,211  and activities so as to strengthen the system to enable
                                                         decision making and to sustain low cost carrier status.
          Dibrugarh - New Delhi                -14,48,252  In order to provide lowest airfares to the customers,
                                                         the airlines strives to reduce their direct operating cost
                                                         by focusing on efficiency in airplane related costs or
                                                         passenger related costs.
          Satabdhi                                         Known crew capacity and activity rate, the cost per
                                                         flight hour is determined for actual crew consumption.
          New Delhi - Habibganj                 2,49,994  Budgeting is based on the set number of flight hours
                                                         with the calculated cost per flight hour. There are
          New Delhi - Amritsar                   1,91,149  challenges with respect variable and zero fixed costs,
                                                         planned and idle capacity and non-monetary resources,
          New Delhi - Kalka                     1,56,548  while this needs to be bridged with activity based
                                                         resource planning tools and lean techniques.
          Kalka- New delhi                        71,528
                                                           Air Asia in its operations in India, strives to achieve
                                                         low cost carrier status with ABC and ABB analysis
          New Delhi - Allahabad                  -65,987
                                                         leading to changing flight patterns and discontinue
                                                         non-value added routes.


          Duranto                                         Air ASia India - As of 4th December 2014

          Pune - Nizamuddin                      -33,204  Pattern - 1
                                                          ORGN DEST    STD    STA    BLK    T/A AT DEST
          Yasvsntpur - Howrah                   -4,41,535
                                                          BLR    GOI   6:20   7:35   1:15          0:30
          Mumbai - Howrah                      -2,09,044
                                                          GOI    BLR   8:05   9:15   1:10          0:25
          Yasvsntpur - Delhi                    - 4,69,177




         www.icmai.in                                    May 2017 l  The Management Accountant      39]]></page><page Index="40"><![CDATA[COVER ST OR Y





          BLR    COK   9:40   10:40  1:00          0:30  and other hand being costly, SME would reap long
                                                         term benefits of (1) to filter profitable and unprofitable
          COK    BLR   11:10  12:10  1:00          1:05  products/activities (2) establish cost control and (3)
                                                         ensure competitive pricing.
          BLR    GOI   13:15  14:30  1:15          0:25

          GOI    BLR   14:55  16:00  1:05          0:25  Application in Service sector
                                                           Direct  material and direct labor are not the cost
          BLR    JAI   16:25  18:50  2:25          0:25  categories in a service industry.  It is the resource
                                                         consumption that determine the charges for the services
          JAI    BLR   19:15  21:40  2:25          0:25
                                                         rendered. It’s tricky to implement ABC in the service
          BLR    COK   22:05  13:05  1:00          0:25  firms since employees work on various projects in a
                                                         day and is time-effort based for each of these projects/
          COK    BLR   23:30  0:30   1:00                programs. Practically, the systems are designed for the
                                                         manufacturing process are configured to be used in the
                            AVERAGE 13:35          0:30
                                                         service firms.
                                                           Costing in the service sector need to be forward
                                                         looking. It does not emphasize on valuing inventory and
          Pattern - 1                                    is hard to calculate standard cost to set price for services.
                                                         Product profitability is a must and firms need to know
          ORGN DEST    STD    STA    BLK    T/A AT DEST
                                                         the accurate cost associated with the services rendered.
          BLR    IXC   9:40   12:35  2;55   0:25         ABC and ABB has started to emerge in service sector
                                                         and will be interesting application over a period of time.
          IXC    BLR   13:00  16:00  3:00          0:30    Financial services including banks, Health care
                                                         providers, Medicare firms, Insurance etc shall configure
          BLR    MAA   16:30  17:20  0:50          0:30
                                                         and align ABC to the category of services rendered,
          MAA    BLR   17:50  18:40  0:50                more as a cost management tool in order to make
                                                         correct pricing decisions and to increase profitability.
                            AVERAGE 7:35           0:28
          theflyingengineer.com/category/airline/companies/airasia-  Conclusion:
          india/                                           With globalization and technological changes,
                                                         information is made available at the tap of fingers
           The airline has cancelled its Bangalore – Chennai   envisaging transparency and digitalization. CMA’s have
          return early morning for a long time to address two  role to play and bring about cost consciousness that
          problems: shortage of crew and a poorly performing  impact business growth.  With the cost management
          route.                                         techniques, pivoting business growth should be
                                                         only goal that every organization has to strive thus
          Application in SME Sector:                     strengthening the global economy and making it more
           SME’s are under tremendous pressure to sustain the   competitive and qualitative.
          competition in global economy. Thriving to achieve
          world-class levels of cost savings embracing proven  References:
          supply chain and enhanced management systems     1.  http://www.business-standard.com/article/economy-
          proves costlier. Adoption of ABC has been seen slower   policy/indian-railways-may-be-running-many-premium-
          due to constrained capital, both financial and human   trains-on-loss-115061800920_1.html
          as they operate.                                 2.  http://theflyingengineer.com/category/airline/companies/
           To address the imbalance between budget and         airasia-india/
          actuals, adopt allocation of overheads to products based
          on single cost drivers leads to inaccurate pricing. To be
          competitive, ABC has to be implemented improving
          cost assignment process and determine the right price
          to charge. Despite complexity for SME to implement                     sreenigarimella@gmail.com




          40   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="41"><![CDATA[www.icmai.in                                    May 2017 l  The Management Accountant      41]]></page><page Index="42"><![CDATA[COVER STORY






          ACTIVITY BASED






          COSTING





          IN






          INDIAN BANKS


           C












                        osting of  banking products and

          services, its customers’ business, operational
          transactions and technology upgradation has been an
          undergoing activity ever since the modern commercial
          banks came  in  to  business  in  India.  However,  not
          much data is available on the costing methods and
          models used by them before the Report of Banking
                    1
          Commission , headed by R K Saraiya, was published by
          the Government of India in 1972, where a study was
          published of the costing methods used by banks (but
          only few) and it observed that “cost accounting had
          not made any progress in the banking industry in the
          country” (Pp 273). The Institute of Cost and Works
          Accountants of India  (ICWAI) published a study in
                            2
                            1979 on cost accounting in
                            commercial banking  industry
                            and had recommended that





                              Debajyoti Ghosh Roy
                              Freelance Corporate Trainer
                              Pune



          42
          42   The Mana                       May 2017                                   www.icmai.in
               The Management Accountant  l May 2017gement Accountant  l]]></page><page Index="43"><![CDATA[Indian Banks adopt functional costing system.
                                                           However, M S Narasimhan and Ashok  Thampy
                                                                                                      3
                                                           observed in 2002, “There is no evidence to suggest
                                                           that Indian Banks have adopted at least functional
                                                           cost accounting system recommended by the ICWAI”.
                                                             Worldwide, there have been considerable interests
                                                           shown to find out the appropriate costing structure
                                                           suitable for service industries, especially banks. Ideas
                                                           have moved from calculating direct and indirect costs
                                                           to absorption and variable costing to treatment of
                                                           joint costs to overheads and overhead allocation issues
                                                                                            4
                                                           to applicability of activity based costing . Developers
                                                                                                      5
                                                           of Activity Based Costing (Kaplan and Cooper, 1998)
                                                           suggest that service companies are ideal candidates
                                                           for ABC.

                                                           Activity Based Costing
                                                             The conventional costing system was used mainly
                                                           to find value of  the closing stock of  a trading/
                                                           manufacturing firm to financial accounting to
                                                           arrive at the profit of that period. The conventional
                                                           accounting system was not designed to provide cost
                                                           information for strategic decisions . The limitation of
                                                                                        6
                                                           conventional costing system to provide information
                                                           required for developing strategy was brought about by
                                                                 7
                                                           Kaplan . Activity based costing was then found useful
                                                           in using costing information for strategic decisions.
                                                             ABC is as a method of  measuring costs and
                                                           performance of activities, products, and customers
                                                           (Gunasekaran, Marri, & Yusuf, 1999; Hilton, et al.,
                                                           2008). ABC assigns resource costs to cost objects
                                                           such as products, services, or customers based on
                                                           activities performed for the cost objects (Cooper and
                                                           Kaplan, 1992; Chartered Institute of Management
                                                           Accountants- CIMA, 2005). Wickramasinghe and
                                                           Alawattage (2007) identify ABC as a post-mechanistic
                                                           cost management approach in management
                                                           accounting.  ABC accurately reflects the  resource
                                                           consumption in production and distribution by
                                                           attempting to trace costs to products or processes.
                                                           ABC achieves this by accurately recognizing a causal
                                                           relationship  of  cost  drivers  to  activities  (Holmen,
                                                           1995; Drury, 2004; Hilton, et al., 2008). It identifies
                                                           activities which consume resources, attaches costs to
                                                           them, and assigns costs to products or processes that
                                                           use these activities (Ismail, 2010).

                                                           Activity Based Costing in Banks
                                                             In commercial banks it was gradually accepted
                                                           that ABC is a method of  measuring costs and




         www.icmai.in                                    May 2017 l  The Management Accountant  May 2017 l  The Management Accountant    43
                                                                                                    43]]></page><page Index="44"><![CDATA[COVER ST OR Y





          performance of activities, products, and customers.  that identifies activities in an organization and assigns
          ABC assigns resource costs to cost objects such as  the cost of each activity with resources to all products
          products, services, or customers based on activities  and services according to the actual consumption
          performed for the cost objects. ABC was also identified  by each. ABC tries to ascertain the factors that cause
          as a post-mechanistic cost management approach in  each major activity, cost of such activities and the
          management accounting. ABC accurately reflects the  relationship between activities and products produced.
          resource consumption in production and distribution  It is the main accounting tool to measure the cost of
          by attempting to trace costs to products or processes.  products and services of any bank.
          ABC achieves this by accurately recognizing a causal
          relationship of cost drivers to activities. It identifies  Evolution of Adoption of Cost Accounting in Indian
          activities which consume resources, attaches costs to  Banks
          them, and assigns costs to products or processes that   The Banking Commission Report 1972 and the
          use these activities.                          Narasimhan &  Thampy study in 2002, both have
                                      8
           Rui Vieira and Keith Hoskin  in their research  mentioned inadequate adoption of cost accounting
          paper, “The Implementation of Activity BasedCosting in a  methods in Indian Banks. Though as on date there is
          Portuguese Bank” have observed that, “After it was made  a greater awareness of adoption of costing accounting
          clear that ABC was an importantfeature to provide  techniques in the Indian Banks, which we will be
          the bank with cost information about unitary cost  discussed in detail in this article, yet it has been a slow
          information to provideprofitability by product, customer  evolutionary process in the Indian Banks. There were
          segment, and channel, some attitudes changed,  reasons for this slow progress.
          andmanagers began to accept it as they claimed the   If we look at the profit & loss statement of three banks
          project as their own. Part of the problemmight have  selected at random we will find that interest expenses
          been that the accounting department initially did not  are, in the range at 50-55% of the total expenses and
          feel they owned or managedthe project.” It was felt by  the operating expenses are in the range of 18-26%,
          the researchers that the usual resistance to introduction  hence focus of the banks has been to reduce cost of
          of a new concept faced initial resistance within the bank,  deposits by bringing in more low cost deposits such as
          but continuous persuasion from th top management  current and savings bank deposit customers.
          and the motivated team work resulted in adoption of
          Activity Based Costing in place of conventional cost   Banks   Indian   ICICI Bank  HDFC Bank
          accounting system.                                             Bank
           Douglas  T. Hicks,Edmond J. Olejniczak III, and
          Bradley A. Curell in their paper, “Measuring Customer   Interest Ex-  57.73%  46.30%  49.4%
          and Product Profitability at Community and Regional   penditure
          Banks in USA”found that in most cases, activity costs is   Operating   18.45%  18.63%  25.7%
          assigned as either a cost per transaction or a percentage   Expenditure
          add-on. Those activities most suited for percentage
          add-ons are general fund-raising, market/customer  [Source: Published Profit & Loss Statements of the Banks
          support, product/product line support and general and  2015-2016]
          administrative activities. Those most effectively handled   It is not to mention that reducing operating expenses
          as a cost per transaction are transaction fund-raising,   was not a priority. However, alternate methodologies
          outside contractor support, and transaction fund-  like relying more and more on technology, closing
          using.”                                        down unviable branches, restricting the operational
           Banks over time have come to this understanding   processes/systems  and inculcating the habit of “a rupee
          that the conventional cost system of banking service  saved is rupee earned” were followed more rigorously
          is inadequate and inaccurate.The adoption of ABC  than to adopt cost accounting techniques to analyse the
          system helps in calculating the costs of banking services   actual cost incurred in various operations of the bank.
          in commercial banks more accurately.The adoption of   The other cost factors such staff salary and selling,
          ABC system helps in the pricing of banking services  administrative and miscellaneous cost were reduced by
          more competitive and scientific.               increasing business per unit, thereby reducing over all
           It is also understood that ABC is a costing methodology  cost.




          44   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="45"><![CDATA[The concept of Break Even Point of Bank Branches and Customer’s business were also in vogue in branches in
          1990s and it is still being used. The following case of a collection account of bills and cheques of a customer is
          analyzed at the bank to find out whether the customer’s account is profitable or not.


              Profitability of  a Collection Account in a Bank*

              Profit in the Collection Account: Income – Expenses
              = Sales* Price per Unit of Sales – Sales* Cost per unit of       Sales - Overheads
                                               = Q*P – Q*V – F
              Where Q = No of Units (Quantity)
                   P = Price per Unit
                   V = Cost per Unit (Variable Cost)
                   F = Overheads (Fixed Costs)
              Break-even point means where profit is Zero:
              B.E.P. = P = 0 = Q’*P – Q’*V – F
              Where Q’ is Quantity of Units sold at Break Even Point Level
                    0  = Q’(P – V) – F
              or   F   = Q’ (P – V)
              or   Q’ = F/ (P – V)
              Fixed Cost of handling this account for the last one Year, i.e. F
              F =  Salaries + Overheads = 24.24 + 7.31 = 31.61
              V for Current Deposits = 0 (as no interest is paid on Current deposits)
              V for Term Deposits = (Interest paid on TD/ Total Average Term Deposits) * 100
                                 = 78.24/978*100 = 8%
              P is income on Funds Deployed Notionally = (11.23 * 12)/(304.83 + 978) * 100
                                                         = 134.76/1283 * 100
                                                         = 10.50%
              Notional income on Current Deposits = 10.50 – 0 = 10.50
              Notional Income on Term Deposits = 10.50 – 8.00 = 2.50
              Break Even Point in case only Current deposits are taken = 31.61/0.105 = 301 lakhs (Average Current
              Account balances for the Year)
              Break Even Point in case Term Deposits are taken = 31.61/  0.025 = 1264 lakhs (Average Term Deposits
              balances for the year)
              Break Even Point in case Current deposits and Term deposits are taken [The ratio of Current deposits (305
              lakhs) and Term Deposits (978 lakhs) are 1:3 ] = P – V = 10.50 * 0.25  + 2.5 * 0.75 = 4.5.
              Therefore B.E.P. = 31.61/0.045 = 702 lakhs [Current deposits 176 lakhs and Term Deposits 526 Lakhs]
              Margin of Safety = [(1283 – 702)/ 1283] * 100 = 45%
              B. E. P. is at 55% of last year Sales [Current Deposits and Term Deposits]
              A Competitor had entered at this stage and offered the Customer 50% of Sales (Current and Term Deposits).
              Alternatives available for ABC Bank are:
              Reducing F [which may be possible]
              Say “NO” [i.e. Driving out the Customer]
              Say “Yes” – and Explore Better Deployment of Funds
              alternate scope of income like Service Charges (Fixed Quotation and Floating Quotation) per bill and collect
              it every quarter
              Increase Current Deposit Balance and keep it as near the BEP 301 lakhs
              Source: Dr. K Satyanarayana, Ex-Professor, National Institute of  Bank Management, Pune.
              The figures are actuals of  a real account from a Bank.





         www.icmai.in                                    May 2017 l  The Management Accountant      45]]></page><page Index="46"><![CDATA[COVER ST OR Y





           What is basically argued here is that banks though might not have consciously opted for a particular
          costing method/ technique/ model but were aware of  the significance of  costing in all aspects of  the
          expenditure side of  the Profit & Loss Accounts Statement of  the bank. Various models were developed
          to suit bank’s requirement. A case in point is using the same Break Even concept for bank branches,
          both newly opened as well as loss making branches. We give below an example of  a branch case:

           Break Even Analysis: The Case of  a Personal Banking Branch
           To start with:  Profit = Income – Expenditure (Variable cost + Fixed cost)
                          = Sales – Variable cost – Fixed cost
                        = [No of units sold x price per unit] – [No. of units produced x cost   per unit] – Fixed cost
                 p      = QP – QV – F
           Where, Q is the no of units sold
                 P is the price per unit
                 V is the variable cost per unit
                 p is the profit
           At the Break Even Point Profit is Zero, therefore,
                 0 = Q’P – Q’V – F
           or,   Q’P – Q’V = F
           or,   Q’(P – V) = F, where Q’ is the no. of units sold at Break Even Point,
           or,   Q’ = F/ (P – V), (P - V) is also known as Contribution.
           At the Bank Branch Q is nothing but the Business Mix i.e. Deposits + Advances
           For Personal Banking Branch, Qp, i.e. the present Business Mix is = 1031 + 83 = Rs1114 lakhs;
           And F = Salaries + other overheads – Non-interest income = [41.47 – 6.73*] + 6.40 – 2.21
           * the amount of staff arrears paid in this year was deducted from the salaries paid at the branch
                 = Rs38.93 lakhs
           And (P – V) = [Interest Income on Advances + Net interest income on Head office balances] –[Interest paid on
          Deposits]
                        = [7.67 + 104.97] – 83.60
                        = 112.64 - 83.60
                        = Rs29.04 lakhs
           Now this (P – V) of Rs29.04 lakhs is for a business mix of Rs1114 lakhs at the branch. We have to find out the
          (P – V) for a rupee of business-mix, which is
                        = 29.04/ 1114 = 0.0261
           Therefore the Break Even Point Business Mix of Personal Banking Branch is
                 Q’ = F/(P – V) = 38.93/0.0261 = Rs1492 lakhs, i.e. with the existing CD ratio of 8% the business mix can
          be divided as [Deposits of Rs1372lakhs + Advances of Rs120lakhs].
           For the Branch to Break Even, Strategy 1 available is to increase Rs378 lakhs [1492-1114 = 378] @ CD Ratio
          of 8%, to increase Deposits by Rs348 lakhs and Advances by Rs30 lakhs.
           Looking into the past performance of the branch, an increase of Business Mix of Rs378 lakhs in one year appears
          to be of a bit of a tall order.
           Let us therefore look at Strategy 2: To reduce F, i.e. the Fixed Cost at the Branch. Let us find out the breakeven
          Level of F’ at the Branch:
                        Qp = F’/(P – V)
                 Or,    F’ = Qp x (P – V) = 1114 x 0.0261 = 29.04 lakhs;

           i.e. Strategy 2 is to reduce Fixed cost from Rs38.93 lakhs to Rs29.04 lakhs, which may be possible with a
          combination of the following three strategies:
           Increase Non-interest income, say by Rs2 lakhs;
           Reduce Staff; and
           Expenditure Management (A Rupee Saved is a Rupee Earned).




          46   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="47"><![CDATA[Strategy 2 is also not a full proof concept for the branch to break even, hence there is need for to look at Strategy
          3, which is, improve (P – V), i.e. the Interest Margin available at the branch. The (P – V) at the break even point is:
                        Qp = F’/ (P – V)’
                 Or,    (P – V)’ = F’/ Qp = 38.93/ 1114 = 0.0349, i.e. an increase of 0.88% in interest margin will bring
          about the break even level for the branch without any increase in Business-Mix or Reduction in Fixed cost.
           To pursue Strategy 3 is to do the following:
           Increase the Yield on Advances by going for more High Quality High Yielding Advances and Reducing NPAs
          (Increase CD Ratio).
           Reducing the Cost of Deposits by improving the Deposit-mix by going for more Low-No cost Deposits.
           In reality a combination of all the Three Strategies are required to be pursued.
                               I: Increase Business-Mix by Rs378 lakhs







                                              Zone of
                                              Feasible
                                              Solutions

              II: Reduce Fixed Cost by Rs10 lakhs    III: Improve Interest Margin 0.88%

           Hence for the Branch has a combination of above three Strategies I, II and III, depending on the SWOT of the
          Branch, it can work out the following possibilities:
           1. Increase Business Mix say by 15% i.e. 15% of Rs1114 or Rs170 lakhs of additional business mix over the
             previous year, which could be  little higher than the previous years;
           2. Reduce the Fixed Cost by Rs5 lakhs by increasing Non-interest income, along with transfer of one MMG III
             officer from the branch and cost reduction by 10 % in overheads; and
           3. Improve Interest margin from existing 0.0261 to 0.03, and increase CD ratio from present 8% to 20%

           The Branch will earn a profit of:
                        Profit   = Q’’(P – V)’’ – F’’
           = [1114 + 170][0.03] – [38.93 – 5.00]
                               = 38.52 – 33.93
                               = Rs4.59 lakhs

           Activity Wise Costing Initiatives:
           Sometime in 195-96 the Reserve Bank of India directed banks to conduct an ongoing costing exercise and apprize
          the Reserve Bank of the results of such studies at periodical intervals. The objectives of the study were:
           1. To analyze cost trends for cost control;
           2. To enable comparison of cost results of the bank with the industry level and to take necessary corrective
             measures to control avoidable cost;
           3. To appropriately price various services offered by the banks;
           4. T0 enable systematic profitability analysis for finding out the cost of concessions offered to customers;
           5. T0 facilitate cost-benefit analysis of different ; and undertaken by the bank;
           6. To aid critical review of bank’s systems and procedures; and
           7. To work out break-even analysis of bank’s various services/ activities.

           The cost of each activity is generated in terms of three indicators as under:-
           (i)  Cost per voucher, i.e., cost per credit/debit entries;




         www.icmai.in                                    May 2017 l  The Management Accountant      47]]></page><page Index="48"><![CDATA[COVER ST OR Y





           (ii) Cost per Rs 100/- outstanding balance in case of   The cost of operation of one safe deposit locker
             deposits and advances (loans) and cost per Rs100/-   was Rs47/-, Government receipts was Rs21/- and
             of quantum of turnover in case of transactions,   Government Payments was Rs27/-.
             i.e., Demand Draft/ Pay order/ NEFT/ RTGS issued/
             paid, Government Receipts/ Payments, cheques/   4. Other Instruments:
             bills inward/ outward collection, etc.          Cost of outstation cheques collected for clearing
           (iii) Cost per account per annum.                 was Rs14/-.

          Activity wise Cost (A Case of a Bank) (As of March  Break Even Analysis for Deposits/ Advances Accounts:
          1996):
                                                           a) Deposits
           a) Deposits
             The cost per voucher for savings bank was Rs9/-   i)     Current Account:
             and current account was Rs12/- and term deposita     Cost per Account per Annum
             was Rs42/-. The cost per voucher for total deposits                             Rs 497
             were Rs13/-                                       Yield on Advances
             The cost per account per annum for current account                                    13%
             perannum for current was Rs498/-; savings bank   Break Even Point (BEP) = Fixed Expenses/
             was Rs94/- and for Time Deposit was Rs163/-.  Contribution

           b) Loans and Advances                         = 497/0.13 = RS 3827 = RS 3900 (Say)
             The cost per account for total advances was Rs35/-,
             the cost for agricultural lending was Rs80/-.  ii)    Savings Bank Account:
             The cost per account per annum for total advances     Cost per Account          Rs 94
             was RS783/-. The Industry and Trade Sector cost     Interest Cost (average)      4
             was Rs1040/-, other advances Rs738/-, other       Yield on Funds                13%
             priority sector lending was Rs659/-, Agricultural   BEP = 94/ 0.13 – 0.4 = RS 1045 = RS 1100.00 (Say)
             was Rs277/- and Small Sector Industries Rs151/-.
                                                           iii)   Time Deposits:
           c) Other Activities                                 Cost per Account              Rs 163
                                                               Interest Cost (average)       10%
           1. Remittances:                                     Yield on Funds                13%
             The cost of  a Demand Draft issue was Rs25/-,   BEP = 163/ 0.13 – 0.10 = RS5430 = RS 5500.00
             Paying a Demand draft was Rs41/-, issuance of  (Say)
             a Telegraphic Transfer was Rs83/-, Paying a TT
             was Rs65/-, issuance of a Pay Order was Rs29/-   b) Loans and Advances
             and paying a Pay Order was Rs 21/-, issuance of
             aMail Trnafer was Rs79/- and Paymnet of MT was   i)     Small Scale Industries:
             Rs64/-.                                           Cost per Account              Rs 151
                                                               Yield on Advances             12%
           2. Bills:                                           Cost of Funds (average)       7.5%
             The cost to collect outward cheques/ Demand   BEP = 151/ 0.12 – 0.075 = RS 3359 = RS 3400.00
             Drafts was Rs14/- and the bills was Rs71/-. Inward  (Say)
             cheques/ Demand Drafts was Rs8/- and Bills was
             Rs54/-                                        ii)     Agricultural:
                                                               Cost per Account              Rs 277
           3. Others:                                          Yield on Advances             12%
             The cost to issue an inland letters of credit was     Cost of Funds (average)      7.5%
             Rs669/- and Bank Guarantees was Rs356/-. The   BEP = 277/ 0.12 – 0.075 = RS 6165 = RS 6200.00
             cost of  each foreign transaction was Rs299/-.  (Say)




          48   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="49"><![CDATA[iii)   Other Priority Sector Lending:                  Fee based income from ancillary business
               Cost per Account               Rs 659             including forex business, if any.
               Yield on Advances              12%                 Notional income from float funds generated
               Cost of Funds (average)        7.5%               because of ancillary business.
           BEP = 659/ 0.12 – 0.075 = RS 14637 =            Costs incurred are from:
                                      RS 14700.00 (Say)        Interest costs of deposits placed
                                                               Operating costs (servicing) costs for ancillary
           iv)   Industry & Trade Advances:                      business including forex business, if any.
               Cost per Account               Rs 1040          Funding cost of deposits for advances taken.
               Yield on Advances              12%
               Cost of Funds (average)        7.5%         The income from advances is the interest or discount
           BEP = 1040/ 0.12 –0.075 = RS 23131 =          earned in such accounts. The cost of deposits (also
                                      RS 23200.00 (Say)  known as cost of funds) is the interest paid by the
                                                         branch (or the bank) on its average deposit liabilities.
           v)    Other Loans and Advances:                 For servicing all the products (facilities) availed of by
               Cost per Account               Rs 737     the customer, operating costs are incurred. Operating
               Yield on Advances              12%        costs are worked out by banks periodically, ideally once
               Cost of Funds (average)        7.5%       every year. The total number of transactions under
           BEP = 737/ 0.12 – 0.075 = RS 16390 =          each facility (product) multiplied by the transaction cost
                                      RS 16400.00 (Say)  will give the servicing (operating) costs for that facility
                                                         (product).
          Customer Profitability Analysis:                 Besides, the following additional data as regard to the
           Customer Profitability Analysis, is a methodical  customer’s account is also required:
          attempt, which takes into account the income earned     i) Weekly average balances of deposit/advance
          along with other benefits derived and after deducting   accounts for a year;
          the related costs in servicing the business placed by     ii) Interest paid on deposits/received on advances
          the customer with the bank. For customers who have   during a year;
          been availing a mix of products, it may happen that     iii) Number of transactions of deposits/advances/
          the bank may be making a loss in one product, while it   collections and other ancillary facilities accounts;
          may be able to earn a profit from another product. It is   and
          therefore essential to take a holistic view of use of each     iv) Exchange/Commissions earned.
          product and then to find out whether the account as a
          whole gives the bank enough profit margin. On many  Example of a Calculation of Customer Profitability of
          occasions, it so happen that customers availing multiple  a Corporate Customer
          products, may request for concessions on interest rate   Modern Engineering Works Ltd. (MEWL) is a public
          or opn commissions. All these requests come with the  limited company having its headquarters in one of the
          arguments that they are bank’s valued customers,  major metropolis (M1). It has four divisional offices at
          maintain a large deposit or have availed of  large  four other metros viz. M2, M3, M4 and M5. Modern
          advances. However, placing a large deposit or taking   bank is its main banker. Modern bank has sanctioned a
          a large advance does not necessarily make a customer  cash credit limit of Rs5 crores with sub-limits of Rs50
          profitable unless all aspects of their dealings with the  lakhs each at M2, M3, M4 and M5 branches of the bank
          bank are accounted for.                        to be operated by the divisional offices of MEWL. The
           The profitability of an account depends on net surplus  other products availed of by MEWL are:
          of the income received (interest income and non-interest
          income, e.g. exchange/commission earned) and costs   1.    Purchase of Cheques and Bills drawn outside the
          incurred (interest expenditure-funding cost and non-  above metros tendered at the above branches.
          interest expenditure, i.e. operating costs).         Modern bank has sanctioned a limit of Rs75
                                                               lakhs under this facility (product).
           Incomes received are from:                    2.    Collection account are maintained at cities C1,
               Interest earned on advances                    C2, C3 and C4 from where balances in thousands




         www.icmai.in                                    May 2017 l  The Management Accountant      49]]></page><page Index="50"><![CDATA[COVER ST OR Y





               are transferred to M2, M4, M5 and M1 branches   No. of Drafts Issued                     4750
               respectively every Saturday by demand draft       Amount involved                   Rs35,63,700
               which is issued at par. Postages are recovered.  No. of MTs issued                     30
                                                                 Amount involved                  Rs 6,000
          3.   Remittance facilities like demand drafts, mail   No. of TTs issued                          100
               transfers and telegraphic transfers are offered      Amount involved                    Rs 4,70,000
               by the bank and availed of by MEWL and these   No. of Cheques sent for Collection               1200
               products are being charged at rates lower than      Amount involved                Rs 24,00,000
               the rates charged to public and other outside   No. of Bills sent for collection                    170
               parties.                                          Amount involved                     Rs 6,00,000
                                                           No. of Cheques purchased                        650
           At the time of annual review of the account and its      Amount involved               Rs 72,15,000
          facilities MEWL has proposed to Modern bank that the
          miscellaneous services should be offered at par in view   Interest rate charged on Advances (cash credit)
          of the fact that they are solely banking with Modern                                        15.5%
          bank and paying a huge interest on the cash credit   Cost of Funds  (for every 100 Rupees)
          limits. While making the above request MEWL has also                                           7.5%
          informed the bank that if these facilities are not given at   Cost per voucher
          par they may switch to another bank which has agreed  (i) Cash Credit (debit or credit)/ Current Account Rs15/-
          to extend such facilities.                     (ii) Drafts Issued/ Paid                                    Rs32/-
                                                         (iii) MTs issued/paid                          Rs65/-
          Account Information:                           (iv) TTs issued/paid                                   Rs84/-
           Average weekly outstanding in the cash credit  (v)  Cheques sent for collection/realised           Rs 56/-
           Account maintained at M1 during the year      (vi) Bills sent for collection/realised         Rs145/-
                                           Rs 2.70 crores  (vii) Cheques purchased                    Rs27/-
           Average weekly outstanding in the cash credit   Average transit time considered for settlement of
           Accounts at    M2                Rs 40 lakhs  transactions
                         M3                 Rs35 lakhs           (i)    Drafts                                   7days
                         M5                 Rs20 lakhs           (ii)   MTs                            8 days
                         M4                 Rs30 lakhs credit bal.     (iii)   TTs                     Nil
                                                         (iv) Cheques sent for collection (Date of realisation to
           No of debit/credit transactions in the cash credit   the date of credit of in the account)             8 days
          account during the year at                     (v) Bills sent for collection (Date of realisation to the
                        M1                   12740           Date of credit in the account)                 9 days
                        M2            1430               (vi) Cheques purchased (Date of purchase to date of
                        M3            1600                   respondingat the other branch)             6 days
                        M5               720
                        M4                  60             Notional Income on Float funds     9%
                                                           Exchange on
           The transactions  at the collection centres are as      (i)   Drafts/Mts/TTs      5 p%
          under:                                                 (ii)   Cheques purchase     45 p%
                No. of     Average      Amt. Of weekly     Collection charges
                Daily      Balance(in   remittance (Rs)          (i)    Cheques              15 p%
                Credits    Rs)                                   (ii)   Bills                20 p%
          C1    30         8 lakhs      20 lakhs
          C2    50         10 lakhs     25 lakhs
                                                           Workout
          C3    40         12 lakhs     30 lakhs         1. Direct Advances
          C4    10         5 lakhs      10 lakhs         (a)   No. of vouchers at all centres                           16550




          50   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="51"><![CDATA[Cost per voucher                       Rs15/-    No. of Instruments                      1200
               Servicing cost (16540 * 15)                  Rs2,48,250/-        Servicing cost = 1200 * 56=      Rs 67,200/-
          (b)  No. of vouchers at the 4 collection centres (daily)     Notional income on Float Funds=
                                                                          130   2400000 * 9 * 8/100 * 365 =     Rs4734.25
               Total number of vouchers for the year         Exchange received = 2400000 * 15 p/100 * 100 =
                                       300*130 = 39,000                                        Rs3600/-
               Servicing cost (15*39000)                    Rs5,85,000/-  Net Result (Loss)                   Rs58,865.75
          (c)   Drafts issued per year (4*52)                                208
               Servicing cost (208*32)          Rs6,656/-  VI. Bills for Collection
          (d)  Notional Income of float funds in case of drafts        No. of Instruments                       170
                  @9%  (issued at 4 collection centres)       Servicing Cost = 170 * 145 =     Rs24,650/-
                8500000* 52 * 9 * 7/100 * 365        Rs7,62,904.10     Notional Income on Float funds    =
          (e) Average outstandings at 4 centres (M1, M2, M3 and       600000 *9 * 9/100 * 365 =      Rs1331.50
          M5)                                                    Rs365,00,000/-     Exchange Received = 600000 * 20 p/100 * 100 =
             Interest Rate                             15.5%                                   Rs1200/-
             Interest received              Rs56,57,500/-/-     Net Result (Loss)                   Rs22,118.50
          (f)  Cost of Funds of Rs365 lakhs @7.5% Rs27,37,500/-
          (g) Notional Income on funds which are held at M4  VII. Cheques Purchased
          Rs30lakhs @7.5%                         Rs2,25,000/-      No. of Instruments                       650
          (h) Total Income (d + e + g)            Rs 66,45,404.10      Servicing Cost= 650 * 27 =      Rs17,750/-
          (i) Total Cost (a + b + c + f)            Rs 35,77,406/-      Cost of Funds = 7215000 * 7.5 * 6/100 * 365 =
          (j) Net Result (Profit)( h - i)         Rs30,67,998.10                             Rs8895.20
                                                               Exchanged Received = 7215000 * 45 p/100 * 100
          II. Drafts Issued                                                                     =                Rs32,467.50
            No. of drafts issued                         4750      Net Result (Profit)         Rs5822.30
            Servicing cost                      4750 * 32 = Rs1,52,000/-
            Notional Income on Float Funds = 3563700 * 9 *      Net Profit from the Account:
               7/100 * 365                             Rs6151.04  1. Net Income from Advances Account =
            Exchange Received =3563700 * 5p/100 * 100                                       Rs30,67,998.10
                                                   = Rs1781.85  2. Net Loss from Demand draft issued account =
            Net result (Loss)                  Rs1,44,067.11                                    Rs1,44,067.11
                                                           3. Net Loss from M Ts issued account   = Rs1,935.16
          III. M Ts Issued                                 4. Net Loss from T Ts issued account     = Rs8,165.00
             No. of M Ts issued                      30    5. Net Loss from Cheques sent for collection account
             Servicing Cost = 30 * 65 =          Rs1950/-                                      = Rs58,865.75
             Notional Income on float funds = 6000 * 9 * 8/ 100    6. Net Loss from Bills sent for collection account
                * 365 =                             Rs11.84                                    = Rs22,118.50
             Exchange Received =   6000 * 5 p/100 *100 =     7. Net Income form Cheques purchased account
                                                      Rs3.00                                      = Rs5,822.30
             Net result (Loss)                Rs1935.16    8. Net Profit from MEWL       = Rs28,38,668.88

          IV.  T Ts Issued                                 Profitability of MEWL = [Total Income generated
              No. of T Ts issued                            100  from the Account – Total expenditure incurred on the
             Servicing Cost= 100 * 84 =          Rs8400/-  Account]/[Net Loanable Funds
             Notional Income                         Nil                       = [28,38,668.88]/[3,35,00,000]
             Exchange Received = 470000 * 5 p/100 * 100 =                      = 0.0847
                                                    Rs235/-                    = or 8.47%
             Net Result (Loss)                   Rs8165/-
                                                           Loss of Income on account of the request of MEWL
          V .  Collection of Cheques                     for extending at par facilities:




         www.icmai.in                                    May 2017 l  The Management Accountant      51]]></page><page Index="52"><![CDATA[COVER ST OR Y





           1. Exchange received on Issuance of DDs:        4.  Terzioglu B & Chan E S K, “Towards understanding
                                              Rs.1781.85       the complexities of  service costing: A Review and
           2. Exchange received on Issuance of MTs:       Rs.3.00  Practice”, Vol. 11, No. 2, 2013, JAMAR
           3. Exchange received on Issuance of TTs:    Rs  235.00  5.  Kaplan  R  & Cooper  R,  “Cost and Effect:  Using
           4. Exchange received on Cheques Purchased:          Integrated Costing Systems to drive profitability
                                                    Rs32467.50  and performance”, Harvard Business School Press,
           5. Exchange received on Cheques sent for Collection:   Boston, MA 1998.
                                              Rs3600.00    6.  Ansari, S J Bell, T Klammer and C Lawrence,
           6. Exchange received on Bills sent for Collection:     “Strategic Management Accounting”. Richard D
                                              Rs1200.00        Irwin 1997.
                               Total Loss            Rs39287.35  7.  Kaplan R S, “Measuring Manufacturing
                                                               Performance: A New Challenge for Management
          Constraints in adopting Activity Based Costing in    Accounting Research,“ The Accounting Review,
          Banks                                                October. 1983, pp 686-705.
           The main question emanating from the many       8.  Kaplan R S, “Yesterday’s Accounting Undermines
          paradoxes of cost accounting is why organizations keep   Production,” Harvard Business Review, July/August,
          usinguseless costing systems? The answer is that many   1984, pp133-39.
          organizations regard their cost systems as the lesser of   9.  Kaplan R S, “Accounting Lag: The Obsolescence of
          two evils. They must have a cost system for financial   Cost Accounting System,“ California Management
          reporting,  decision-making  decentralization,  price   Review, Winter 1986, pp 174-99.
          justification, control and performance measurement.   10.  Rui Vieira and Keith Hoskin, “The Implementation
          Since ABC requires more effort without delivering better   of  Activity BasedCosting in a Portuguese Bank”IX
          results, most organizations hold on to their traditional   Congresso Internacional de Custos - Florianópolis,
          cost systems .                                       SC, Brasil - 28 – 30 Nov 2005.
                    9
           Indian banks willy nilly have been moving towards   11.  Nitza Geri a and Boaz Ronen, “Relevance lost: the rise
          accepting activity based costing along with still relying   and fall of activity-based costing”, Human Systems
          on conventional costing methods.                     Management 24 (2005) 133–144 133 IOS Press

          References                                       Note: In some of the examples and cases shown above
           1.  “Report of the Banking Commission”, Government  has  depicted  certain products like  “mail  transfers”,
               of India, New Delhi, 1972.                which is now almost defunct, drafts and telegraphic
           2.  Ghosh,  A  K;  B  B  Banerjee  and  B  Mitter,  “Cost   transfers  are also  getting replaced  by National
               Accounting in Commercial Banking Industry,” The  Electronic Funds Transfers (NEFT) and Real Time Gross
               Institute of  Cost and Works Accountant of  India,  Settlements (RTGS). Banks are, in general, reluctant to
               Kolkata, 1979.                            share their latest data, hence the reliance on earlier data
           3.  Narasimhan M S & Ashok Thampy, “Activity Based  showing few now redundant products.
               Costing in Banking Service: A case study of a large
               Indian Private Sector Bank”, Prajnan, Vol 31, Issue
               No. 2, 2002 Pp 97, NIBM, Pune.                                          dgr123@gmail.com







                                             Articles invited

            We invite quality articles and case studies from members in the industry with relevance to Cost
              and Management Accountancy, Finance, Management, and Taxation for publication in the
           journal. Articles accompanied by color photographs of the author can be sent to: editor@icmai.in





          52   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="53"><![CDATA[www.icmai.in                                    May 2017 l  The Management Accountant      53]]></page><page Index="54"><![CDATA[HR








          REWARDING TALENTS:


          Recognizing, Positioning



          & Showing Up Results





                               e W












                                  have
          earlier dealt with issues and ways   organization as a whole.  Team  during the course of
                                         attributes in fact drown the  resurrection of  the
          of, and the criteria for, return on   contributions of an individual, while   famous  Chrysler
          talents which in fact sought to   the team may in fact constitute  and Fiat cars
          underline the benefits that accrued   individuals  who may  not  have  embracing
          to the organizations in which   made any contribution at all. This   not only
          talented individuals are called in   does not happen when individuals  t  w  o
          for putting their best foot forward,   stand out as leaders in a group  countries
          in  the  process,  benefitting  the   who, however, themselves believe  but also
          organization in very many ways.   in  flattening  the  organizational  t  w  o
          Stress was laid on the treatment   structure, making the teamwork  continents.
          of  the contribution made by the   as the major focal point, by way of  The whole
          talented persons and the ways of   the participative work processes.  stor y  has
          treatment of  their contributions   Knowing the problem is a major task   been elaborately, yet
          in the accounts as also their   and, then, going about  assessing  pointedly, narrated  by
          treatment in the accounts. In many   the depth and breadth thereof  are  Bill Saporito & Auburn
          a case, especially in the services   tasks that call for application of the  Hills in an article published in
          sector, talent is so fractionated   best of acumen. The arrangement of  Time ( December 19, 2011(pp.
          that an individual’s contribution   wherewithal requires a leader who  22-27) entitled ‘Power Steering: How
          cannot be easily distinguished; the   understands not only the nature  the Boss of Fiat and Chrysler is driving
          fresh findings accrue to the team   and complexity of the problem but  an auto-industry revival’.
                            of  experts,   also has feel as to where the shoe  This is a poignant story but
                            or     the   pinches.  All these were illustrated  not unique as far as the




                             CMA Dr P Chattopadhyay
                             Former Director, Research
                             ICAI-CMA, Kolkata




          54   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="55"><![CDATA[teeth of the problem are concerned.   he could muster techno-financial  and attaining higher productivity.
          Apart from the vision of the captain   support, adequate for meeting  This raised many eyebrows within
          in play of the resurrection story, in   the knotty problems in conditions  and without but the Leader put in
          many of the situations similar to   where the economies in Europe and  charge of rejuvenation of Chryler
          those of Fiat and Chrysler, revival   USA were in the shambles due to  and Fiat corporations was unmoved.
          would have been taken as  ruled   the rather unseemly deflationary  As events demonstrated later, his
          out  in the obtaining conditions.   conditions prevailing all over  expertise and years of experience in
          And  the  obtaining  conditions  at   during 2008-9. Commercial banks  facing challenges and the required
          that time were no simple matter at   and other such institutions were  aetiological exercises so that his
          all, as explained later. Production   not adequately equipped either  steps forward were unusual in
          in the automobile sector suffered   attitudinally or financially to  of the instances that faced in the
          most from the downturn of  the   combat the external economic  course of resurrection of the two
          economy while the revival process   threats with funds return of which  major but faltering companies,
          had to have a quality of vision and   in time  was uncertain. Employment  Chrysler and Fiat on two sides
          functional competence of the leader,   in the national economy nosedived  of  the Atlantic, in two different
          apart from self-belief. In  the case of   and creation of new employment  continents with discrete attitudes
          LTCM earlier, during the tenure of   was far-fetched with the economic  to facing challenges of gargantuan
          Mr Greenspan, the Federal Reserve   down-turn experienced during  dimensions!
          Bank had to extend its helping hand   2008-9, as stated earlier. For the
          to shore it up with several billion   revival of Chrysler the important  The Man Behind the Impossible
          dollars of help and assistance. The   point was that the automobile   Revival
                ability of  LTCM to return   industry had the potential of   The boss of revamped Chrysler
                      to track was not in   rejuvenating  the  dull  economic  et al,   as stated by the authors is
                       doubt but it was   conditions with a kind of  chain-  an Italo-Canadian Lawyer and
                       a victim of  the   effects on different sectors of the  Accountant, Sergio Marchionne
                         unf avourable   economy, interlinked as it is with  did undertake the Herculean task
                              mark et    different sectors, for overall revival  of putting back the dysfunctional
                              trends; but   of the economy at large. For all this,  automobile  companies in reckoning
                             the return   the kind of  fund support needed  operating in different countries
                             was not     was beyond the capacity of  the  on both sides of the Atlantic. Who
                            automatic,   commercial banks.  The recovery  believed that the companies and
                            nor    w as  process of the automobile industry  their products could be put back on
                          sourcing funds.  required both techno-economic and  the rail, exuding the confidence that
                                         techno-spatial support that was  ‘I knew I could help technically. And
                Sourcing Techno-Financial   not available just for the calling!  I had a guy who was willing to fund
               Support                   Marchionne figured that going in for  it’(Cf.p.22). The Guy was none other
               Before going into the     shared parts of the two corporations  than Barack Obama. The Obama
           details of the cases of revival, it   would  enhance  returns  to  scale   administration dished out several
          would be relevant to make passing   along with devices like renovation  billions of dollars after the personal
          reference to the fact that the boss of   which was accomplished by the  intervention by  President Obama
          Chrysler, Fiat and Fiat Industrial,   workers of the plants themselves,  but not before a repartee with the
          recognized that he could bring all   without having to close the plants  critics. The President clearly saw
                 of them into shape but to   for renovation purposes or hiring in  the possibilities and appreciated the
                   do that he would require   a number of industrial engineers for  ability and integrity of  Marchionne
                     both financial and   dictating the exact sequence of each  underlined by his Fiat experience,
                      technical support   assembly process, workers were  but the critics could not be silenced
                        for bringing into   trained to use analytical tools to help  before the results of  the deal were
                          shape all these   them understand each process in the  visible. In fact, Marchionne proved
                            companies if,   400 or so work stations on the floor,  instrumental in averting the
                              and only if,   thus saving costs, ensuring safety  impending disaster, its ugly face




         www.icmai.in                                    May 2017 l  The Management Accountant      55]]></page><page Index="56"><![CDATA[HR





          started showing up in different  the concerned economies to order   generated  all over. The corrective
          quarters of   the industrial world  and generating both income and  process thus required dealing with
          within the USA as also elsewhere.  employment , on the other. All this  a pervading effect that respected
          He  played  his  cards  so  deftly  acted as a morale booster in facing  no usual  approaches to the issue
          with such a  degree  of  assurance  the multiple challenges posed,  and it was repeatedly demonstrated
          that convinced not only Obama  transgressing the automobile  that the burning issue was no
          administration but also employees  industries in both Italy and USA to  ordinary matter that admitted any
          in the related companies that  the industrial sectors not only in the  delay or dilly-dallying. Admittedly,
          something real was in the offing.  All  two countries – Italy and the USA -  the stepping in by the Obama
          this was a stupendous task throwing  but also posed a challenge to the  administration was crucial but only
          up a challenge that awaited a head  economic downturn experienced by  after the President was convinced
          to head combat, literally. The act  the world as a whole. Marchionne  that the leadership of Marchionne
          of  rerailing a derailed automobile  all this while demonstrated what  could be a decisive factor as his
          chain required a Herculean effort  the nature of the problem was, how  submissions oozed confidence
          with millions of workers, suppliers  to approach it for an acceptable  in dealing with the problem of
          and users waiting expectantly in a  solution, considering the largeness   bringing the corporations and their
          market situation which lacked guts.  of the problem and the relief it would  products back on track. The issues
          The  inevitability of gradualness was  bring in a reaction pattern akin to  were unique and the correctives also
          sidelined for the moment and work  the  chain-link system underlining  had to be equally unprecedented. As
          started in full swing in both Italy  that loss of  faith in the market  was demonstrated later, the dealing
          and the USA, under the personal  system has the knack of catching  with the recovery process in all
          supervision of the captain of the  up like wild fire. The approach to  its dimensions called for courage,
          team who had no fancy for the text-  the problem by Marchionne seemed  confidence and calculated moves
          bookish approaches to finding  audacious at times that made  which Marchionne had shown
          solutions. One singular quality  former  Italian  Prime  Minister Mr  aplenty.  The recovery process
          demonstrated by Marchionne was  Silvio Berlusconi furious when he   initiated  by    him  had  to  have
          faith in his team, as much as faith  remarked that ‘Europe needs better  sensitivities in regard to all the steps
          in himself, instilling confidence in a  leaders’. The comments were not  he had taken, while he insisted on
          situation which was anything but  taken kindly; he became furious.  teamwork,  regular  eyeing  of   the
          encouraging, to say the least. And                             progress in all the related directions,
          his leadership was demonstrative  The Indian Connections       so that all the promises made earlier
          enough to the effect that he     To restore order thus had to  took a practical shape. This was not
          knew what he was doing, in an  have a conscious effort towards  an easy task at all but he saw to it
          atmosphere of gloom that he sought  streamlining the entire chain of  that the disciplined steps towards
          to wipe away. And all this was in  reactions. A word about the Indian  fulfilment of  the objectives with
          the face of a challenge on which  connections regarding Fiat should be  fixed time-dimensions marked the
          depended not only the recovery of  considered in order. It is interesting  progress of the work undertaken.
          the automobile industry but also  to note that even India was deeply
          the national economies of  both   concerned with the solution to the  The Process of Resurrection
          Italy and the USA, nay, the world  crisis; Fiat has been on the Indian   The process of  resurrection of
          economy as a whole. As  is well-  roads for a considerable period,  Chrysler and Fiat is an interesting
          known, the psychological impact  thanks to Premier Automobiles  story. The first one relates to what is
          of  gloom has had a pervading  having its offices and factories in  technically called aetiology, stressing
          effect. Primarily, the reforms also  Bombay, now Mumbai. The stake  the reasons behind the debilitating
          impacted all the related activities on  thus was huge both in regard to  problems of  different dimensions
          both sides of the Atlantic in terms of  Italy and the USA, in the main,  affecting the normalcy of operations
          generation of income, employment  but also  to India, among other  concerned, as it were! The downturn
          and restoration of  faith of  the  countries, the overall effects being  gulped not only in the automobile
          team in successfully meeting the  pervasive enough particularly  industries in Italy and the USA, but
          challenge, on one side, and restoring  because of  the fear psychosis  the world economy as a whole. Once




          56   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="57"><![CDATA[assured of both the diagnosis of the  from the senior leadership”(p24).  tasks undertaken. A fitting reply
          problems and the required funds,  The motto was to remain absolutely  was possible only when the actual
          Marchionne got down to his task,  focussed on the objective, but not to  results of  the organized efforts
          cleaning the table of old, traditional,   define methods of execution, which  attested  that  the  challenge  to  be
          hierarchical approaches  to  could vary from one to the other;  met was successfully done.  This
          problems, dissecting them to every  the motto was to obtain results from  was demonstrated by the fact that
          detail, delegating tasks and keeping  the actions already taken and those  ‘the amount the US Treasury lent
          a sharp vigil on how things were  programmed for.              to Chrysler amounting to $ 5.1
          going and at what speed, as also with                          billion after Marchionne took over
          what results. The vigil introduced  Effective Buck up – A Prime Need  the reins in June 2009 was repaid
          touched every detail concerning   The leeway given was not without  in full, with interest, six years ahead
          both inputs of resources and the  checks and balances as the captain  of  schedule! Fiat also paid the
          outcome from efforts. He flattened  of  the team pursuing a mission  Treasury $500 million for its 6%
          the  structure  of   organization  kept a constant watch on how  Chrysler stake. Thus, the combined
          with  a  complete  task-orientation  things were progressing. He kept  strength of the two Italo-American
          and watching every detail. In this  reminding the authorities that the   corporations  demonstrated  that
          process of going into every detail   depth and breadth of the problems  given the will, stamina, competence,
          of the operations, services of many  of a crisis of worldwide downturn  foresight, imagination and external
          of the upper hands in the hierarchy  could not be solved with traditional  moral support, the adversities of
          were dispensed with; in their place,  approaches. The mutuality of the   whatsoever dimensions can be
          several of the lower strata of people  combined experiences of   both   successfully combated. However,
          with imagination, technical ability  Fiat and Chrysler and expert  such leaders, provision of necessary
          and acumen with a love for speed  computer assistance of Fiat helped  resources and uninterrupted
          and innovation were brought in to  in bringing to line and effectively  progress are not available just for
          ensure both quality and quantity  sorting out many of the problems  the asking, Much of  the above
          of work done. The results of all this  faced by both; while in Fiat the  discussion relates to dissection
          started showing up by and by, in   revamping problems were usual,   of  a worldwide phenomenon of
          fact much quicker than expected.  in Chrysler, thanks to the several  economic downturn, mainly in the
          One by one, all the varieties vehicles  billion dollars of  Government  countries of the north; those of the
          turned out by both Chrysler and  assistance, the financial problems  south were relatively unaffected,
          Fiat spurred on the road on both  were not as biting. This provided  mainly as result of  economic
          sides of  the Atlantic almost as  some breathing time, fully utilized  planning, albeit being on the last lap.
          a challenge to the downtrend,  by the renovators. By the time both  However, with the economy thrown
          while at the same time ensuring  of these corporations found their  open and the licence raj withdrawn,
          that the vehicles turned out did  feet, several other corporations,  protective lines were not as visible,
          have markets the world over. The   like General Motors, were also  as much as the intervention of the
          captain’s stance was underlined  recovering from the blow, though at  government dishing out funds for
          by his ability to drill down to the  a lower rate, following the adage of  averting an onrushing catastrophe,
          smallest detail of  manufacturing  one begetting another. The results  as the Obama administration did,
          or even advertising. In his own  of all these efforts were writ large in  despite many a  doubting Thomas
          words, Marchionne emphasized,  both Chrysler and Fiat. Leadership,  lurking all around. Marchionne had
          “We flattened the organization  in the  ultimate analysis,  is not  a  to make his march through different
          out. We reached out and brought  quantitative thing. The trust put in  kinds of rough weather calling for
          people on the management team  the leader by the workers has to be  Herculean efforts for meeting the
          who had been buried underneath  attested by results. Leadership has  challenges.
          the classical hierarchy of corporate  to be manifest in terms of the results
          America.” “They were given an  as Chrysler and Fiat demonstrated,  The Indian Phenomenon
          opportunity to play with their own  traversing an unfriendly path with   Under the bold experiment
          ways.  These are the people who  numerous  doubting Thomases  of  planning in a democracy, the
          had been two or three layers down  underlining the impossibility of the  Central and state governments




         www.icmai.in                                    May 2017 l  The Management Accountant      57]]></page><page Index="58"><![CDATA[HR





          had in view the putting into action  attract official and unofficial  of  five rewards that ensued to the
          financing institutions under  attention. Like virtue being its  team, including of course the leader
          the control of  both, so that the  own reward, success in a venture  Mr Sergio Marchionne. One, the
          established industries could flourish,  accrues when the variety of inputs  first and foremost was the amount
          while those coming under the I(D  responds to requirements. Thanks  received from the US Treasury at
          & R Act, 1951), after renovation  to  leadership  of  Marchionne,  the  the intervention of Barack Obama,
          could find their feet. Many industrial    limping corporations had  come  an unprecedented step. The courage
          units coming under the purview  back on track. Return of the loan  of   conviction  that  Marchionne
          of  the Act did have a national  taken resulted from the team-effort  displayed was convincing enough.
          significance. Most unfortunately, as  that he organized. The dictum that  Two, allowing the leader of  the
          many critics underlined, industrial   costs and expenses are not the same,  team to have freedom to  act in a
          units which were nationalized  yet remains unrealized! The whole  totally non-conventional way;  the
          failed to deliver results as expected   process of the illness and recovery  entire  atmosphere  of   course  had
          of them. This was mainly because  underlines four ‘C’s, as the ruling   the assurance that no waste of
          of   distance management practices  mantra: Courage, Comprehension,  funds would take place. Three, the
          – beginning from appointments  Co-operation and Calculativeness !  leader of the team dispensed with
          to their day-to-day actions and  Task-orientation did the trick.  all traces of hierarchy and the team
          managerial performance. Good                                   was made an acronym underlining
          management does not ensue from  The Rewards                    that T stood for togetherness, E for
          shared freedom as the Chrysler   The aforesaid pointers relate  energising, A for actuation and M for
          or Fiat demonstrated.  It is well  to  the  problems  faced  in  putting  measurement and control. Three,
          established that a manager without  back on rail the ailing automobile  the funds that the US  Treasury
          discretion is not worthy of  his  companies as a result of  the  made available were accounted for
          designation and if he has confidence   economic downturn during 2007-  separately and Fiat and Chrysler
          in his own ability and the ability of  09 in most countries of Europe and  funds  were  never  mixed  up  even
          his team, he should be allowed to  America and the act of  bringing  though  the  expertise  of   Fiat  was
          function towards realization of the  back on track the ailing automobile  indeed used for the company. Four,
          objectives without any hindrance.  companies of Italy and America.  the  entire  organization  structure
          The rewards from  patience and  The task was stupendous and called  was flattened so that there was
          non-interference accrued in terms  for Herculean effort for selecting the  bossing  over the people  at work.
          of  returning all the money that  team and keeping the team at work  This made the team a team. Lastly,
          Barack Obama administration  of the highest quality. After fulfilling   the close scrutiny of every detail
          made available to Marchionne,  the task, we naturally ask what were  ensured that no waste of  either
          even much before it was due, as  the rewards. After completing the  funds or time or even expertise
          noted earlier.  With lifting of the  mission, the team was particular  could take place. In all meetings he
          controls, and economic planning  in returning the amount received  would appear unannounced hear
          being given a virtual good bye, the  from the Treasury in the USA. The  the proceedings. The team leader
          Indian economy has been relying  two automobile companies received  was thus in a position to know and
          more and more on the stock market,  the  benefits  of   scale  economies  judge what was going on and thus
          even if  it is at the cost of  really  though, apart from skills and scale  achieve the impossible in the throes
          efficient, responsive management.  economies, the operations of  the  of the nationwide downturn. The
          Uncertainties that are germane to  two companies were not allowed to  Team Leader, Sergio Marchionne,
          a democracy must be combated to  be mixed up. The amounts received  had a close feel of what was going
          restore the counterpoise.  Thus, in  from the US Treasury, were used  on,  in the face of   totally non-
          all, considerable thought, patience  exclusively for Chrysler. All the  conventional and  the prying eyes
          and acumen that go into the  money received on loan from the   of critics looking for faults. Return
          strategizing thought and action  US Treasury, having been returned  of the funds before time silenced
          must weigh in with the realization  before due dates, it should have been  them all.
          of objectives. A lot of leeway yet   natural to consider what returns
          remains uncovered that should  ensued as rewards. One can think            chattopadhyay.p@lycos.com




          58   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="59"><![CDATA[COMPANIES ACT






         Internal Financial
         Internal Financial





         Controls:
         Controls:






          Some Observations
          Some Observations



















































                              CMA Dr. Bhabatosh Banerjee
                              Former Professor of Commerce and
                              Dean of Commerce &Management
                              University of Calcutta



         www.
         www.icmai.inicmai.in                            May 2017 l  The Management Accountant   59
                                                                                                    59
                                                         May 2017 l  The Management Accountant]]></page><page Index="60"><![CDATA[Companies Act

                 COMPANIES ACT
                                                       O  world and  provided  strong  but we only touch upon a few




                                            encouragement to politician and  among the followings:
                                            regulators to develop an effective   What is IFC and what are its
                                                                            objectives?
                                            monitoring mechanism for
                                            enhanced corporate governance   What are its attributes? How
                                            and risk management techniques
                                                                            is it expected to promote better
                           ne  of   the
                                            Act in 2002, Dodd-Frank Wall   Are there strategic, operational
                                                                            and people-oriented challenges?
          significant developments in India   (e.g. in the USA, Sarbanes-Oxly   corporate governance?
                                            Street  Reform,  and  Consumer
          in  2012  was  the  enactment     Protection Act in 2010).        If so, how to overcome them?
          of  Companies Act,  2013. It is   In many countries, the regulators   Are the developments in India
          a comprehensive but concise       introduced measures to revamp   in this respect in line with
          legislation (470 sections as against   internal control system (ICS)   international trends?
          658 in the earlier Act) and is    to reduce, among others, risk  Are  there  interrelationships
          considered  to  be  forward  looking   of   operations  and  enhance   among internal financial
          in that the Central Government    compliance with general         controls, ERM and financial
          enjoys the power to make rules, etc.   principles of management and   statements leading to high
          through delegated legislation. Many   accounting system. To evaluate   quality reporting and promoting
          of its provisions are internationally   the  role  of   corporate boards   value maximisation objective of
          competitive.                      in implementing the ERM and     the firm?
           The Act has introduced many new   understand the organisational    What  are  potential  areas  of
          provisions in line with international   links among mechanisms, one   research in IFC?
          developments. In this article, we   has therefore to examine the
          consider one such area.  Included   interaction.               Legal Provisions
          in this category are Enterprise Risk   Professional bodies also highly   (a) Provisions in the Companies Act,
          Management (ERM) and Internal     recommend that all companies   2013:
          Financial Controls (IFC), among   should develop their own policies
          others. While there have been     and a framework for ERM,and    A mandatory provision [section
          some publications on ERM (Jaggi,   introduce effective and efficient  134(5)(e)] has been introduced in
          2015; Banerjee, 2016), there is   IFCs that will enable the top  the Companies Act for the directors
          good scope for contributing to the   management to keep a watch  to lay down internal financial
          existing literature on IFC in view of   over different aspects of corporate  controls for compliance by the
          its importance and Guidance Notes   management.                company and (to report that) such
          issued by the Institute of Chartered   In India, the Companies Act,  IFCs are “adequate and effective”.
          Accountants of  India (ICAI and   2013 requires, in the context  Explanation to sub-section (e) gives
          KPMG in India).  Hence, an attempt   of preparation and presentation  the purport of IFC.
          is made to share some of the aspects   of  Financial Statements,   It  may  be further stated  that
          of IFC which may provoke research   development and implementation  Directors’ Responsibility Statement
          and publication.                  of a risk management policy and  is part of  Financial Statements
                                            operation of  effective Internal  which are subject to audit by an
          Backdrop                          Financial Controls by its Board  independent auditor.
           Why and how Internal Financial   of Directors for a listed company.  Internal Financial Controls (IFC)
          Controls became an important                                   are essential as tools for enhancing
          issue throughout the world? The  The Issues Involved           effectiveness of  Enterprise Risk
          following few points give some   Internal Financial Control (IFC) is  Management (ERM). The Directors’
          indications.                   a fundamental element of corporate  Responsibility Statement has to
                                         management.  The management is  state that IFC “are adequate and
           Financial crisis in the beginning of  responsible for effective and efficient  operating effectively”.
            the century affected the business  operation of IFC. Therefore, there   Internal Control has been
            environment throughout the  are many issues that concern IFC  operating as part and parcel of




          60   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="61"><![CDATA[accounting and reporting systems   prevention and detection of frauds   reporting cannot be considered
          since the early days of corporate   and errors, the accuracy and com-  effective if one or more material
          history.  Earlier, it was guided by the   pleteness of the accounting records,   weaknesses exist, to form a basis
          definition of SAP 6 in the following   and the timely preparation of reliable   for expressing an  opinion, the
          words (Gupta, 1998):           financial information.             auditor must plan and perform
           It is “the plan of  organisation   We  have  already given  some  of   the audit to obtain appropriate
          and all the methods and procedures  the reasons for introduction of the   evidence that is sufficient to
          adopted by the management of  term “internal financial controls”   obtain reasonable assurance
          an entity to assist in achieving  earlier (Section 2).            about whether the material
          management’s objective of      (b) Guidance Note issued by the ICAI:   weaknesses exist as of  the
          ensuring, as far as practicable, the                              balance sheet date. A significant
          orderly and efficient conduct of   The  Institute  of   Chartered   deficiency or material weakness
          its  business,  including  adherence  Accountants of India (ICAI) issued a   in internal financial controls
          to management policies, the  Guidance Note on IFC in November,    over financial reporting may exist
          safeguarding of assets, prevention  2014. It was revised and issued   even when financial statements
          and detection of fraud and errors,  on 16th September, 2015. Section   are not materially misstated.
          the accuracy and completeness  IV  of   the  Guidance  Note  deals   71.  The auditor should use the
          of  the accounting records, and  with audit of  IFC over Financial   same system of internal financial
          the timely preparation of reliable  Reporting (Clauses 67 to 165).   controls over financial reporting
          financial information. The system  This regulation has been designed   to perform his or her audit
          of internal control extends beyond   based on the Sarbanes Oxley Act –   of  internal financial controls
          those matters which relate directly   Internal Control Section. KPMG in   over financial reporting as
          to the functions of the accounting  India also issued in 2016 Internal   management uses for its annual
          system.”                       Financial Control Perspectives.    evaluation of the adequacy and
           In most cases, therefore, internal   Some of  the important points   effectiveness of  the company’s
          control was an essential operating  of ICAI Guidance Note are quoted   internal financial controls.
          system. Internal audit has not  below:                         73. In a combined audit of
          been made compulsory for all  67.This guidance provides direction   internal  financial controls
          organisations. But in big companies,   that applies when an auditor   over financial reporting and
          particularly the listed ones, internal   is  required  to  report  under   financial statements, the auditor
          audit is required to be done. This has   Clause (i) of  Sub-section 3 of   should design his or her testing
          its impact on the statutory audit.   Section 143 of  the 2013 Act   of  controls to accomplish
           But the Companies  Act,  2013    on whether the company has in   the objectives of  both audits
          introduced internal financial     place adequate internal financial   simultaneously:
          controls by replacing the term    controls over financial reporting      To obtain sufficient evidence to
          “internal control”.               and the operating effectiveness of   support the auditor’s opinion on
           Interestingly, the explanation   such controls.                   internal financial  controls over
          given after sub-section (5)(e) of  68.  Effective  internal  financial   financial reporting as of year-
          Section 134 of  the Act of  2013   controls over financial reporting   end.
          in respect of  Internal Financial   provide reasonable assurance
          Controls appears almost the same.   regarding  the reliability   Some portions of this Guidance
          It is given below:                of   financial reporting  and  Note are reproduced from Auditing
          Explanation- For the purpose of this   the preparation of  financial  Standard (AS) 5, An Audit of
          clause, the term “internal financial   statements for external  Internal Control over Financing
          controls” means the policies and   purposes. If one or more material  Reporting.
          procedures adopted by the company   weaknesses exist, the company’s
          for ensuring the orderly and efficient   internal financial controls cannot  Interrelationship among ERM, IFC,
          conduct of its business, including   be considered effective.   FS and Value Maximisation
          adherence to company’s policies,   69. Because a company’s internal   This interrelationship can be
          the safeguarding of its assets, the   financial controls over financial  summed up in the following steps:



         www.icmai.in                                    May 2017 l  The Management Accountant      61]]></page><page Index="62"><![CDATA[COMPANIES ACT





           Managerial activities will have to   regulations.               there will be market reaction to
            take into consideration IFC and   Managerial actions will be   financial information, which will
            ER requirements (which will be   reflected in the financial     be reflected in market value of
            implemented by the committees   statements.                     the firm.
            set up by the corporate board).   Auditors will audit financial   The above  relationship is shown
           The Board of Directors will have   statements as well as IFC and ER  in Diagram 1.
            an overall responsibility to ensure   Systems.
            that managers follow IFC and ER   Based on audited information,

                                                    Diagram 1
                             Organisational links among ERM, IFC, FS, Audit Report & MV



                                                      Board of         Auditors
                                                      Directors





                     ER Regulating     FIC
                      Guidelines     Guidelines









                                                IFC Report
                             Managerial                                       Auditor     Market
                              Actions           Financial         Audit       Reports     Value
                                                 Reports



           Conclusion                                                          Contemporary Auditing.5th
                                         lead to some policy decisions by      Edition, p.81, Tata McGraw
           A snap shot of various regulatory  the regulators, a good empirical   Hill.
          provisions in respect of IFC has been   research will be highly useful to all   4.  Jaggi, Bikki and L.K.
          given  above. The  ICAI  regulation  the stakeholders of the company in   Krishna  Muoorth y
          comes into effect from 1st April,  India.                            (2015). Enterprise Risk
          2015. Therefore, corporate practices                                 Management: Its Importance
          in this context will pin point to what  References                   and Implementation,  Indian
          extent and how these guidelines   1.  A Guide To The Sarbanese Oxley   Accounting Review, June.
          have been  implemented  by  the      Act. 2002 (http:/www.soxlaw.  5.  Pandab, S.K. (2013).
          listed companies in India. This can   com)                           Companies Act, 2013 with
          be compared with international   2.  Banerjee, Bhabatosh (2016).     Rules. Lawpoint Publications.
          developments. Nevertheless, it       Enterprise Risk Management.   6.  www.icai.org
          opens up scope for further research,   The Management Accountant,   7.  www.kpmg.com/in
          both conceptual and empirical.       March.
          While conceptual research may    3.  Gupta, Kamal (1989).          bhabatosh.commerce@gmail.com




          62   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="63"><![CDATA[FINANCIAL MANAGEMENT








     Motivation and Concern for use of




                                                         FINANCIAL





                                               DERIVATIVES






















































                              CMA Abhimanyu Sahoo
                              Assistant Professor
                              Xavier University
                              Bhubaneswar



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         www.
                                                                                                    63
                                                         May 2017 l  The Management Accountant]]></page><page Index="64"><![CDATA[FINANCIAL  MANAGEMENT

         F                               postal survey on US non-financial  complete the survey to make its



                                         corporations regarding derivatives  usable. Based on 4 replies received
                                         and risk management practices  from the pilot mailing, minor
                                         and pattern of  use of  derivative  changes were made to the original
                                         instruments and supported by some  survey. It was then decided to
                                         other studies such as (Howton, S.D.,  send  the  survey  to  around  250
                                         Perfect, S.B., 1998),. Berkman,  respondents out of which only 69
                    inancial Derivatives  H., Bradbury, M. E., Hancock, P.,  usable responses have been received
          are the new age corporate risk  & Innes, C. (2002) and Brailsford,  for which at least two follow ups or
          management tools adopted by  T. J., Heaney, R. A., & Oliver, B. R.  reminders would have made. The
          corporates world-wide. Most of the  (2003) undertaken two different  key areas being:
          large corporate entities are using  studies to figure out the motives  (a) Which derivatives are used, and
          financial derivatives to hedge their  of  Australian corporates to use   which type of exposure they are
          exposures against varieties of risk.  financial derivatives. Similarly,   used for;
          But still financial derivative has not  there are empirical studies on  (b) Reasons for using derivatives;
          become the universally accepted risk  pattern of  derivative use in New  (c)Factors of concern in derivatives
          management technique. However,  Zealand(Berkman et al.,1997),      usage;
          companies are also apprehending  Canada (Jalilvand, 1999), Belgium   Our  questionnaire  clusters
          about the risk of  using financial  (De Ceuster et al., 2000), Sweden  around three important questions.
          derivatives in risk management. In  (Alkebäck  and Niclas, 1999),   As it is mentioned above, we wanted
          this paper, we have tried to unearth  Taiwan, UK and Singapore (Khim  the respondent to answer that
          the possible determinant and  and Liang,1997) at different point  according to them which kind of
          motivating factors as well as the  of time. In the given research work,  derivative instruments are mostly
          concerns of the corporate entities  we conduct an investigation but  used by the Indian firms; motivation
          in using derivatives as an accepted  not based on companies because   for using derivatives and concerns
          risk management tool.  Data has  the response rate in survey of India  of  using derivative instruments.
          been collected through Google  corporate is not so impressive (8%  The detail analysis of responses to
          Forms from various sources like  in Anand, M., & Kaushik, K. P.,  every question in the questionnaire
          corporates,  executives  of  broking  2008), but based on the opinion of  is presented below:
          firms, executives of  consulting  the financial professionals about the   What kinds of derivatives companies
          firms and other financial experts  perception of Indian companies in   are using to manage exposures to
          like university professors and  respect of use of financial derivative   financial risks?
          researchers.  The findings of  the  instruments for risk management
          survey imply that Indian corporates  purposes. The survey questionnaire   Here we have tried to ask for
          pretty much interested in overall risk  used is broadly focuses on the  responses about the kinds of
          reduction and they frequently use  motivational factors influencing the  derivative instruments used such
          derivative instruments in managing  companies to go for using financial  as OTC forwards, exchange-traded
          foreign exchange risk, interest rate   derivatives as well as the concerns  futures, OTC options, exchange-
          risk and moderately use derivatives  of  companies about not using  traded options, swaps to manage
          in commodity risk management.  derivatives.                    exposures like: currency exposure,
                                           The survey link was sent initially  interest rate exposure, commodity
          Survey results and Discussion:  to 10 respondents through e-mails.  exposure, equity market exposure.
           Bodnar et al. (1995) conducted a  The respondents are requested to
                                                      Table-1
                                       Derivative Instruments and Risk Matrix

            Kinds of derivative    To manage    To manage interest    To manage       To manage equity
               instruments     currency exposure  rate exposure  commodity exposure   market exposure

          OTC forwards            62(89.85%)       24(34.78%)        7(10.14%)            5(7.24%)




          64   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="65"><![CDATA[Kinds of derivative    To manage    To manage interest    To manage       To manage equity
               instruments     currency exposure  rate exposure  commodity exposure   market exposure
             Exchange-traded      32(46.37%)       39(56.52%)        49(71.1%)            6(8.69)
                 futures

               OTC options        37(53.62%)       19(27.53%)        12(17.39%)           1(1.44%)
             Exchange-traded      34(49.27%)       22(31.88%)        17(24.63%)           3(4.34%)
                 options
                 Swaps            38(55.07%)       42(60.86%)         4(5.79%)            2(2.89%)

          The table-1 along with figure-1  commodity price exposures market  exposures at 49.27%, 31.88% and
          explain about the responses we have  related risks. Similarly, the maximum  24.63% respectively according to the
          got regarding kinds of derivatives   use (71.1%) of  exchange traded  data. In regard to swaps, responses
          companies are using to manage  future is for commodity derivatives.  say that its highest use (60.86%) is
          your exposures to financial risks. The  Also, exchange traded futures  for hedging interest rate exposures.
          table clearly shows that according to  are used for currency  exposures  Next best use (55.07%) of swap is
          the respondents, Indian companies  (46.37%) and for interest rate  for managing currency exposures.
          are highly using the OTC forward   exposures (56.52%). In the same  But swap is not so popular to be
          contracts to hedge risks. Typically,  line, 53.62% of  the respondents  used against commodity risks and
          companies use OTC contracts to  opine that Indian companies use  financial market risk. The overall
          hedge currency exposures, interest   OTC options for currency exposures.  responses say that all derivative
          rate exposures. As per the data, 62  27.53% and 17.39% of respondents  contracts are normally used for
          out of 69 respondents (89.85%),  say that OTC options are used  currency exposures and interest rate
          the Indian companies are using   for interest rate and commodity   exposures. Very nominal proportion
          OTC forwards for hedging against  exposures respectively. Exchange  of responses says that equity market
          exchange related risks. OTC contracts  traded options are used for currency,  exposures are hedged by derivative
          are not so widely used for managing  interest rate and commodity  contracts.

                       Figure-1: Types Derivative Instruments Used for Managing Financial Risks


































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          In which purposes (motivating factors), derivative instruments are used?
           In this question, we tried to seek answers about the nature of risks hedged such as fluctuations in accounting
          earnings, fluctuations in cash flows, balance sheet ratios, market value of the firm, etc. by the corporate in India.
          We asked the respondents to rank the nature of risks hedged in a four-point ranked scale.

                                  Figure-2: Ranks of  Motivations to Use Derivatives

































           In the scale, rank-1 is the most important purpose of use of derivatives; rank-2 and rank-3 are the second and
          third best purpose of use of derivatives.
           The responses to the above question of presented in the table-2 along with the graph (figure-2). It is very clear
          that Indian firms are more concern about the cash flows rather than accounting earnings or other financial
          indicators like financial ratios. But Indian firms hedge cash flows next to accounting earnings.
                                                      Table-2
                                Motivations of  Hedging through Financial Derivatives
                                                               Rank-2         Rank-3
                   Nature of  Hedging        Rank-1 (High)                                Do not Know
                                                              (Moderate)       (Low)
          Fluctuations in accounting earnings    15(21.73%)    24(34.78%)     21(30.43%)      9(13.04%)


          Fluctuations in cash flows             42(60.86%)    17(24.63%)       3(4.34%)      7(10.14%)

          Balance sheet ratios                    9(13.04%)    15(21.73%)     35(50.72%)     10(14.49%)


          Market value of  the firm                3(4.34%)    13(18.84%)     10(14.49%)     43(62.31%)


           Ha1: There is significant motivation for the entities to use derivatives as risk management tool.





          66   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="67"><![CDATA[Table-3
                                   Chi-Square Tests for Motivations of  Derivatives Use
                                                             Value           df       Asymp. Sig. (2-sided)
          Pearson Chi-Square                                  140.928 a      9              .000
          Likelihood Ratio                                     131.857       9              .000
          Linear-by-Linear Association                          44.640       1              .000
          N of Valid Cases                                         276
          a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 17.25.
           Chi-square test has been used to test the hypothesis that whether there is any significance evidence of evidence
          of association between motivations for use of derivatives for hedging and their degree of significance. The Pearson
          Chi-square is found to be highly significant (²=140.928, degrees of freedom=9 and <0.001) providing sufficient
          evidence for rejection of the null hypothesis that the motivation for use of derivatives and their level of importance
          are independent of each other. We also used Cramer’s V and Phi test to assess the statistical significance of degree
          of association between the motivation to use derivative and their level of importance which is also found to be
          statistical significant at a very lowest level of Type-I error(<0.001). Our above discussed results are corroborated
          by the Motivation X Rank Cross-tabulation which is presented in the table-4.

                                                      Table-4
                                         Motivations X Rank Cross-tabulation
                                                                          Rank
                                                            High     Moderate   Low     Do not   Total
                                                                                        know
                                         Count               15        24        21       9       69
                                         Expected Count     17.3      17.3      17.3    17.3     69.0
                       Fluctuations in ac-
                                         % within Motivations  21.7%  34.8%    30.4%    13.0%   100.0%
                       counting earnings
                                         % within Rank      21.7%     34.8%    30.4%    13.0%   25.0%
                                         % of Total         5.4%      8.7%      7.6%    3.3%    25.0%
                                         Count               42        17        3        7       69
                                         Expected Count     17.3      17.3      17.3    17.3     69.0
                       Fluctuations in cash
                                         % within Motivations  60.9%  24.6%     4.3%    10.1%   100.0%
                       flows
                                         % within Rank      60.9%     24.6%     4.3%    10.1%   25.0%
                                         % of Total         15.2%     6.2%      1.1%    2.5%    25.0%
           Motivations
                                         Count                9        15        35      10       69
                                         Expected Count     17.3      17.3      17.3    17.3     69.0
                       Balance sheet ratios  % within Motivations  13.0%  21.7%  50.7%  14.5%   100.0%
                                         % within Rank      13.0%     21.7%    50.7%    14.5%   25.0%
                                         % of Total         3.3%      5.4%     12.7%    3.6%    25.0%
                                         Count                3        13        10      43       69
                                         Expected Count     17.3      17.3      17.3    17.3     69.0
                       Market value of the
                                         % within Motivations  4.3%   18.8%    14.5%    62.3%   100.0%
                       firm
                                         % within Rank      4.3%      18.8%    14.5%    62.3%   25.0%
                                         % of Total         1.1%      4.7%      3.6%    15.6%   25.0%





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                       Total             Count               69        69        69      69      276
          Expected Count                       69.0         69.0      69.0      69.0    276.0
          % within Motivations                 25.0%        25.0%     25.0%    25.0%   100.0%
          % within Rank                       100.0%       100.0%    100.0%    100.0%  100.0%
          % of Total                           25.0%        25.0%     25.0%    25.0%   100.0%
                                                      Table-5
                                                Symmetric Measures
                                                                              Value        Approx. Sig.
                                  Phi                                        0.715           0.000
          Nominal by Nominal
                                  Cramer’s V                                 0.413           0.000
          N of Valid Cases                                                    276
          Which derivative contracts companies are mostly using for hedging?
           Through this question, we have tried to get response from the respondents about the use of important financial
          derivative contracts by companies in India. For that, we have taken four of important derivative contracts for
          obtaining responses.
                                                      Table-6
                                 Proportion of  Use of  Different Derivative Contracts

              Types of  Contracts   Rank-1 (High)   Rank-2 (Moderate)   Rank-3 (Low)     Do not Know
          Forwards                       29(42.03%)        24(34.78%)        9(13.04%)        7(10.14%)
          Futures                        16(23.19%)        21(30.43%)       18(26.09%)       14(20.29%)
          Options                        11(15.94%)         9(13.04%)       24(34.78%)       25(36.23%)
          Swaps                          13(18.84%)        15(21.74%)       18(26.09%)       23(33.33%)
           The table-6 and figure-3 explains that Indian companies use mostly forward and future contracts for hedging
          purposes. Together forwards and future contracts account for more than 65% of the derivative use according to the
          responses we have received placing them at rank-1. Similarly, options and swaps account for 35% of the derivative
          use at rank-1.

                       Figure-3: Ranks of  Types of  Derivative Instruments Used to Manage Risks


























          68   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="69"><![CDATA[This implies that Indian companies are more interested in customised derivative contracts (OTC) in comparison to
         readymade derivative contracts. This is because forward contracts are cheap and can be appropriately customised
         as per the needs vis-à-vis the exchange traded derivatives, though there is a default risk in OTC contracts but it
         is not so detrimental to the interest of the parties because of robust Indian regulatory framework and sufficient
         understanding between the parties to honour the contract.
         What are the issues or concerns about which companies are apprehensive of using financial derivatives?
           With this question, we want to ask about the companies’ perception about the demotivational factors for using
         derivatives. The various potential factors which we have chosen are on the basis of survey of prior literatures.
                                                      Table-7
                                           Possible Concerns of  Hedging
                                Possible Concerns                        High      Moderate     Low
          Credit risk                                                      0          0          8
          Uncertainty about qualifying for hedge accounting treatment      6          3          5
          Tax or legal issues                                              5          1          6
          Disclosure requirements                                          0          0          4
          Cost of hedging compared to benefits                            19          25         3
          Liquidity risk                                                   0          0          12
          Lack of knowledge about derivatives within firm                 16          20         2
          Difficulty quantifying the firm’s underlying exposures           6          6          9
          Perceptions by investors, regulators and the public             10          12         4
          Pricing and valuing derivatives                                  4          2          8
          Monitoring and evaluating hedge results                          2          0          5
          Evaluating the risk of proposed derivatives transactions         1          0          3
           Responses to this question  for small sized companies because  or bankruptcies of  Barings Bank
         clearly identify that there are  they cannot afford to appoint  in 1995, Long-term Capital
         certain important concerns  experts having requisite knowledge  Management in 1998, Enron in
         which demotivates to go for  in the field of derivatives. Because, if  2001, Lehman Brothers, American
         using derivatives. Out of so many  these instruments are not properly  International Group (AIG) in 2008
         factors  we have included  in  the  handled it may create reasons for  and J.P Morgan in 2012. Warren
         questionnaire on the basis of our   mass destruction of the company  Buffet even viewed derivatives as
         literature review, we found that cost  as we have witnessed in case of  time bombs for the economic system
         of hedging is the most important  Lehman  Brothers,  J.P  Morgan,   and called them financial weapons
         concern for the companies to  Baring Bank, etc.                 of  mass destruction (Berkshire
         use  derivatives. This  implies  that   Due to certain mishandling of  Hathaway Inc., 2002). Norvald
         when  companies  are  making  a  derivatives, which created havoc   Instefjord (2005) made a study
         cost benefit analysis, the cost of  for companies become a perpetual  on – Risk and hedging: Do credit
         hedging is more than the potential   concern for companies which  derivatives increase bank risk? His
         benefit that is going to accrue to  are  thinking  to  use  derivatives.  analysis identifies two effects of
         the company.  This is applicable for   Derivatives have been associated  credit derivatives innovation – they
         small companies whose exposures  with a number of  high-profile  enhance risk sharing as suggested
         are not so substantial.         corporate  events  that  roiled  the  by the hedging argument – but they
           Lack of  knowledge about  global financial markets over  also make further acquisition of
         derivatives within the companies is  the past two decades.  To some  risk more attractive. Similarly, some
         the next important for concern for  critics, derivatives have played an  may perceive that derivatives can be
         companies. This is also applicable  important role in the near collapses  very complex, as evidenced by the




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          massive losses incurred by J.P. Morgan in 2012, which seem to have combined various measures of incompetence,
          ignorance, failure to comply with financial regulations, and corruption. United States Senator Carl Levin, Chairman
          of the Senate Subcommittee on Investigations, summarized the pervasive cynicism and concern when he stated:
          ‘‘Derivative values that cannot be trusted are a serious risk to our financial system’’ (14 March 2013).

                                 Figure-4: Concerns of  companies to Use Derivatives

















































           It has not only created  investors has created concerns for  hedge accounting treatment, tax or
          apprehensions for the companies,  companies as this may discount the  legal issues, difficulty quantifying
          but also in the minds of investors.  value of the company. We have also  the firm’s underlying exposures,
          Government has also made stringent  found in the responses which we  pricing and valuing derivatives,
          provision for accounting and  have received by the survey, 16.12%  monitoring and evaluating hedge
          disclosures of derivative exposures  respondents are of the opinion that  results, evaluating the risk of
          and  SEBI  with  listing  agreement  perceptions by investors, regulators  proposed derivatives transactions
          requires mandatory disclosure of  and the public responsible a lot for  which  are  according  to  the
          corporate risk management policies.  companies not going for derivatives.  respondents creating concerns
          This higher risk perception about   There are few responses in favour  for using derivatives by Indian
          derivative user firms in the minds of  of uncertainty about qualifying for   companies.




          70   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="71"><![CDATA[Table-8
                                         Concern X Rank Cross-tabulation

                                                                              Rank
                                                                                                 Total
                                                                    High    Moderate   Low
                                                   Count             0         0        8         8
                                                   % within Concern  0.0%     0.0%    100.0%    100.0%
                   Credit risk
                                                   % within Rank    0.0%      0.0%     11.6%     3.9%
                                                   % of Total       0.0%      0.0%     3.9%      3.9%
                                                   Count             6         3        5         14

                   Uncertainty about qualifying for hedge accounting   % within Concern  42.9%  21.4%  35.7%  100.0%
                   treatment                       % within Rank    8.7%      4.3%     7.2%      6.8%
                                                   % of Total       2.9%      1.4%     2.4%      6.8%
                                                   Count             5         1        6         12
                                                   % within Concern  41.7%    8.3%     50.0%    100.0%
                   Tax or legal issues
                                                   % within Rank    7.2%      1.4%     8.7%      5.8%
                                                   % of Total       2.4%      .5%      2.9%      5.8%
                                                   Count             0         0        4         4
                                                   % within Concern  0.0%     0.0%    100.0%    100.0%
                   Disclosure requirements
                                                   % within Rank    0.0%      0.0%     5.8%      1.9%
                                                   % of Total       0.0%      0.0%     1.9%      1.9%
                                                   Count             19       25        3         47
                                                   % within Concern  40.4%   53.2%     6.4%     100.0%
          Concern  Cost of hedging compared to benefits
                                                   % within Rank    27.5%    36.2%     4.3%     22.7%
                                                   % of Total       9.2%     12.1%     1.4%     22.7%
                                                   Count             0         0        12        12
                                                   % within Concern  0.0%     0.0%    100.0%    100.0%
                   Liquidity risk
                                                   % within Rank    0.0%      0.0%     17.4%     5.8%
                                                   % of Total       0.0%      0.0%     5.8%      5.8%
                                                   Count             16       20        2         38
                                                   % within Concern  42.1%   52.6%     5.3%     100.0%
                   Lack of knowledge about derivatives within firm
                                                   % within Rank    23.2%    29.0%     2.9%     18.4%
                                                   % of Total       7.7%      9.7%     1.0%     18.4%
                                                   Count             6         6        9         21

                   Difficulty quantifying the firm’s underlying expo-  % within Concern  28.6%  28.6%  42.9%  100.0%
                   sures                           % within Rank    8.7%      8.7%     13.0%    10.1%
                                                   % of Total       2.9%      2.9%     4.3%     10.1%
                                                   Count             10       12        4         26
                                                   % within Concern  38.5%   46.2%     15.4%    100.0%
                   Perceptions by investors, regulators and the public
                                                   % within Rank    14.5%    17.4%     5.8%     12.6%
                                                   % of Total       4.8%      5.8%     1.9%     12.6%




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                                                   Count                 4       2        8       14
                                                   % within Concern    28.6%   14.3%    57.1%   100.0%
                   Pricing and valuing derivatives
                                                   % within Rank       5.8%     2.9%    11.6%    6.8%

                                                   % of Total          1.9%     1.0%    3.9%     6.8%
                                                   Count                 2       0        5       7
                                                   % within Concern    28.6%    0.0%    71.4%   100.0%
                   Monitoring and evaluating hedge results
                                                   % within Rank       2.9%     0.0%    7.2%     3.4%

                                                   % of Total          1.0%     0.0%    2.4%     3.4%
                                                   Count                 1       0        3       4
                   Evaluating the risk of proposed deriva-  % within Concern  25.0%  0.0%  75.0%  100.0%
                   tives transactions              % within Rank       1.4%     0.0%    4.3%     1.9%
                                                   % of Total          0.5%     0.0%    1.4%     1.9%

                                              Total Count               69       69      69      207
                                                   % within Concern    33.3%   33.3%    33.3%   100.0%
                                                   % within Rank      100.0%   100.0%   100.0%  100.0%
                                                   % of Total          33.3%    33.3%   33.3%   100.0%
           Ha2: There are concerns (apprehensions) for entities to use financial derivative as a risk management tool.

                                                                                                                 Table-9
                                    Chi-Square Tests for Concerns of  Derivatives Use
                                                                                            Asymp. Sig.
                                                                  Value           df
                                                                                             (2-sided)
          Pearson Chi-Square                                     100.902 a        22           .000
          Likelihood Ratio                                       117.862          22           .000
          Linear-by-Linear Association                             .201           1            .654
          N of Valid Cases                                         207
          a. 24 cells (66.7%) have expected count less than 5. The minimum expected count is 1.33.
                                                                                                            Table-10
                                  Symmetric Measures for Concerns of  Derivatives Use

                                                                        Value           Approx. Sig.
                                                  Phi                        0.698           .000
          Nominal by Nominal
                                                  Cramer’s V                 0.494           .000
          N of Valid Cases                                                    207

           Similarly, we also used Chi-square test to test the hypothesis that whether there is any significance evidence of
          evidence of association between concerns for use of derivatives for hedging and their level of significance. The
          Pearson Chi-square is found to be highly significant (²=100.902, degrees of freedom=22 and <0.001) providing
          sufficient evidence for rejection of the null hypothesis that the concerns for use of derivatives and their level of




          72   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="73"><![CDATA[importance are independent of  mentioned results.                    Economic Review: Perspectives
          each other. We also used Cramer’s                                    on East Asian Economies
          V and Phi test to assess the  References                             and Industries, 44:1, 101-
          statistical significance of degree of   1.  Hull, Options, Futures and Other   115, DOI:10.1080/12265
                                                                               08X.2015.1012093
          association between the motivation   Derivative Securities, Prentice   9.  Fatemi, A., & Glaum, M.
          to use derivative and their level of   Hall, Englewood Cliffs, New   (2000).  Risk management
          importance which is also found to    Jersey (1989).                  practices of  German firms.
          be statistical significant at a very   2.  Adedeji, A., & Baker, R. (2002).   Managerial Finance, 26(3),
          lowest level at  less than 0.001. The   Why firms in the UK use interest   1-17.
          results of Chi-square test are also   rate derivatives. Managerial   10.  Faulkender, M.  (2005).
          supported and corroborated by the    Finance, 28(11), 53-74.         Hedging or Market  Timing?
          Concern X Rank Cross-tabulation   3.  Ahmed, A., Emre Kilic, & Lobo,   Selecting  the  Interest  Rate
          which is presented in the table-8.   G. (2006). Does Recognition     Exposure of  Corporate Debt.
                                               versus  Disclosure  Matter?
                                               Evidence from Value-Relevance of   Journal of Finance, 60, 931-
          Conclusion                           Banks’ Recognized and Disclosed   962.
           This survey is directed towards     Derivative Financial Instruments.   11.  Judge, Amrit, Hedging and the
          gathering information about stand    The Accounting Review, 81(3),   Use of  Derivatives: Evidence
          of various financial professionals on   567-588. Retrieved from http://  from UK Non-Financial Firms
          motivating factors and challenges    www.jstor.org/stable/4093106    (November 2002). EFMA
          faced by the Indian companies to   4.  Ammattamsir, H. (2011).       2003 Helsinki Meetings.
          use financial derivatives as a risk   Applying hedging tools to      Available at SSRN: http://
          management tool. In this survey, we   minimize interest rate risk of   ssrn.com/abstract=394990
          sent questionnaire to more than two   Non- Financial firms, doctoral   or http://dx.doi.org/10.2139/
                                                                               ssrn.394990
          hundred finance professionals out of   diss., Maastricht School of   12.  Pei-Gi Shu and Hsuan-Chi
          which we can be able to receive only   Management, Suriname.         Chen;  The Determinants of
          69 usable responses. The responses   5.  Amrit, J. (2002). Hedging and   Derivatives Use: Evidence
          show that the foreign currency       the Use of Derivatives: Evidence   from Non-Financial Firms in
          risk is the most widely hedged risk   from UK Non-Financial Firms,   Taiwan; Review of Pacific Basin
          and the OTC forward contracts are    Proc., Center for Applied Research   Financial Markets and Policies;
          most frequently used derivative      in  Economics Workshop,         06, 473 (2003). DOI: 10.1142/
          instrument. It has also been found   Middlesex University, Hendon,   S0219091503001171
                                               London.
          that Indian companies use derivative   6.  Berkman, H., Bradbury, M.,   13.  Yip, W. H., & Nguyen, H.
          instruments to hedge against         & Magan, S. (1997). An          (2012).  Exchange  rate
          variations in cash flows unlike in   International Comparison        exposure and the use of foreign
          the western world companies use      of  Derivatives Use. Financial   currency derivatives in the
          derivative instruments to hedge      Management, 26(4), 69-73.       Australian resources sector.
          against accounting earnings          Retrieved from http://www.jstor.  Journal of  Multinational
          (Accrual Hedgers). With regard to    org/stable/3666128              Financial Management, 22(4),
          the concerns of the companies to   7.  Christoph Hinkelmann, &       151-167.
          use derivatives, the responses show   Swidler,  S. (2005).  State   14.  Dolde, Walter. “The trajectory
          that the cost of hedging compared    Government Hedging Using        of  corporate financial risk
          to benefits, lack of  knowledge      Financial Derivatives. State    management.” Journal of
                                                                               Applied Corporate Finance 6.3
          about derivatives within firm and    & Local Government Review,      (1993): 33-41.
          perceptions of investors, regulators   37(2),  127-141. Retrieved
          and the public are the three major   from http://www.jstor.org/
          constraints about which Indian       stable/4355395
          companies are apprehensive of    8.  Danbee Park & Joocheol Kim            abhimanyu@xsc.edu.in
          using financial derivatives. The chi-  (2015) Financial Derivatives
          square test of hypothesis confirms   Usage and Monetary Policy
          and corroborates the above-          Transmission:  Evidence  from
                                               Korean Firm-level Data, Global



         www.icmai.in                                    May 2017 l  The Management Accountant      73]]></page><page Index="74"><![CDATA[SKILL DEVELOPMENT





          Skill Development for
          Skill Development for




          Nation Building
          Nation Building































































                              Sankar Kumar Sanyal
                              President, Howrah Chamber of Commerce
                              Howrah



                                                                                         www.
          74   The Management Accountant  l Ma                                           www.icmai.inicmai.in
          74
                                              May 2017y 2017
               The Management Accountant  l]]></page><page Index="75"><![CDATA[I                                               went into oblivion.  Individuals became self centred,



                                                         thus making production process skill less.  But with the
                                                         revolutionary change in production process, individual
                                                         efforts became collective and skill becomes a necessary
                                                         ingredient.  While skill is a broad spectrum human
                                                         function, its development requires proper parameters
                                                         of skill.  These parameters are multi faceted for which
                             ndia has been facing a burgeoning problem  specialized training is necessary for each kind of skill.
          of unemployment.  Number of unemployment people  As we understand that the primary objective of the
          has crossed millions and is still increasing.  Govt. has  National Skill Development Council is to delineate the
          taken a number of initiatives.  There are a number of  kinds of skill required for different segments of the
          flagship programmes through which rural and urban   society and it is the duty of the Council is to find out
          unemployment may be addressed.                 areas where there is lack of skill and where development
           But these programmes did not touch even the  of  skill will lead to greater productivity leading to
          fringe of this gigantic issue.  Hence, the Govt. of India  national growth in terms of higher GDP.
          has envisaged a new programme on the premise     Vital aspects of development of skill in any sphere
          that unemployment problem is not just a lack of  of life is very closely and intimately related with the
          employment.  It is rather a problem of unemploybility   foundation of mindset, which begins with the pattern
          of the major section of the work force.  The youth do not  and content of education of young population in the
          have required skill to perform any kind of job and hence   schools and colleges and how they are motivated during
          find no employment.  In order to obviate these hurdles,  their studies and discourses.
          the Government has decided to make the unemployed   The  subject  matter  of   skill  development  and
          skilful and established an institution called National  competitive mindset is almost synonymous with
          Skill Development Council.                     national development.  In fact, development of every
           The National Skill Development Council is an  individual life is to be viewed as a matter of competition
          innovative concept having Pan India ramifications.    and skill development, which depends first and foremost
          Acquiring of skill is the natural instinct of mankind and  on intelligence development, imagination development
          from time immemorial the civilization has progressed by   and finally technical development as indicated by Sir
          progressive change of skills from one generation to the  Albert Einstein.  Present education system needs to be
          other.  Pre human history when people were hunter-  thoroughly reviewed and must be based on finer, wider
          gatherer of resources from natural surroundings had   and deeper sense of a competitive perspective and far
          the need for lesser amount of skill and more of physical  from just an income oriented mechanized career, which
          strength.  Gradually, with the march of humanity,  is the culture and mode of education of modern world.
          physical strength becomes less germane and mental  This was stressed by Swami Vivekananda long 100 years
          aptitude of the persons became the prime mover of   back and proclaimed ‘Education is the Manifestation
          development.  This transformation from physical to   of  Perfection already in Man’  and emphasized
          mental architecture was driven by a kind of energy,  on ‘Man Making Education’, which should be our
          which later termed as ‘skill’.  In that sense, skill is an   aim and motto for the development of the Youth and
          inherent component of human mind, which remains  subsequent building of the Nation.
          dormant unless it is triggered by some outside stimulus.
          This stimulus may take the shape of physical push or
          spiritual realization.  Modern society prefers spiritual
          development of  the mind since the days of  Swami
          Vivekananda a century ago.
           Unfortunately,  during  the  last  two  centuries                  Sankar_sanyal@yahoo.co.in
          philosophy of mind had metamorphosed into socialist
          realism with the advent of Marxian concept of society,
          which he believed is related to labour and its exploitation.
          This concept has had its hey days for a considerable time
          but with the destruction of Soviet Union, the concept




         www.icmai.in                                    May 2017 l  The Management Accountant      75]]></page><page Index="76"><![CDATA[CASE STUDY







               Analysis of Financial Statements in
               Analysis of Financial Statements in

                                           THE SUGAR
                                            THE SUGAR






                                                 INDUSTRY
                                                  INDUSTRY






































                              Dilip. S. Patil
                              Finance Manager,
                              Padmabhushan Krantiveer Dr. Nagnathanna Naikawadi Hutatma Kisan
                              Ahir S. S. K. Ltd.,  Walva











                              CMA J. N. Mohanthy
                              Honorary Financial Advisor
                              Vasnatdada Sugar Institute, Pune



                                                                                         www.icmai.inicmai.in
          76   The Management Accountant  l Ma                                           www.
          76
                                              May 2017y 2017
               The Management Accountant  l]]></page><page Index="77"><![CDATA[T                                                (b) Top Management: Financial analysis helps the



                                                             Top Management in measuring the success of the
                                                             company’s operations, appraising the individual’s
                                                             performance and evaluating the system of internal
                                                             control.
                                                         (c) Trade Payables:  The traders are particularly

                                                             claims over a very short period of time, which
                       he basis for financial analysis, planning
          and decision making reflects in scientific analytical   interested in sugar factory’s ability to meet their
                                                             evaluate factory’s liquidity position.
          financial statement which mainly consists of Balance  (d) Lenders: Banks and Financial Institutions are
          Sheet and Profit & Loss account of a sugar factory. This   concerned  about  the  sugar  factory’s  long  term
          summarized financial report provides the operating   solvency and survival. They analyze the historical
          result and financial position of a sugar factory and   financial statements to assess its future solvency
          detailed analytical information contained therein   and profitability.
          is useful for assessing the operational efficiency and  (e) Investors: Investors, who have invested their
          financial soundness of a sugar factory.            money in the sugar factory’s shares, are interested
                                                             in the sugar factory’s earnings and present and
          What is Financial Statement?                       future profitability to ascertain its effects on sugar
           Financial statements are structured representation of   factory’s earning.
          the financial position and financial performance of an  (f) Others: Economists, Researchers, Government
          entity. Financial statements provide information about   etc., analyze the financial statements to study the
          an entity’s                                        economic conditions for price regulations, taxation
             i)   Assets                                     and other similar purposes.
            ii)  Equity & Liabilities
            iii) Income and expenses, including gains and losses  Tools of Analysis of Financial Statements
               and                                         The most commonly used techniques of financial
            iv) Cash flows.                              analysis are as follows:
                                                         A) Comparative Statements: The  comparative
          Significance of Analysis of Financial Statements   Profit & Loss account gives an idea of the progress
           Financial analysis is useful and significant to different   of business over a period of time. The changes
          users in the following ways:                       in absolute money values and percentages  can
          (a) Finance Manager: Financial analysis techniques   be determined to analyze the profitability of the
             enable the finance manager to make constant     business. This analysis is also known as ‘horizontal
             reviews of the actual financial operations of the   analysis or Intra sugar factory analysis. Horizontal
             sugar factory for analyzing the causes of major   analysis compares each item with an item for a
             deviations, which may help in taking corrective   selected base year.
             action.

                               “One cannot be the finest without comparing with rest”
          SUMMERISED COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR  2014-15 & 2015-16
          YEAR                     CANE CRUSHING                PRODUCTION
          2014-15                  674765.310   MT              894855 QTLS
          2015-16                  731132.950  MT               967000 QTLS         Rs.Lakhs
          1)  INCOME                                     2014-15    2015-16     Diff. (+/-)  Change%
          1.1) Sugar Realization                         26109.58   27801.88    1692.30     6.48
          1.2) Bagasse                                   279.15     542.60      263.45      94.37
          1.3) Molasses                                  948.16     1312.77     364.61      38.46
          1.4) Other Income                              163.29     485.05      321.76      197.06
          TOTAL (1)                                      27500.18   30142.30    2642.12     9.61



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           2)  COST OF PRODUCTION
           2.1) Raw Material Cost                        20677.80    24070.15   3392.35     16.41
           2.2) Manufacturing Overheads                  2921.23     1685.72    (1235.51)   (42.29)
           2.3) Salary & Wages                           1393.13     1643.43    250.30      17.97
           2.4) Administrative Exp.                      444.12      525.19     81.07       18.26
           TOTAL (2)                                     25436.28    27924.49   2488.21     9.78
           GROSS PROFIT                                  2063.91     2217.81    153.91      7.46
           3)  Depreciation                              269.91      309.51     39.60       14.67
           4) Interest                                   1760.75     1848.54    87.79       4.99
           5) TOTAL COST OF PRODUCTION (2+3+4)           27466.94    30082.54   2615.60     9.52
           6) NET PROFIT (1-5)                           33.24       59.76

          Interpretation:                                figures in rupees as compared to year 2014-15. The
           During the financial year 2015-16 the factory  financial statements indicated in above table, is prepared
          crushed 7.31 lac MT of sugar crane & produced 9.67   for successive periods 2014-15 & 2015-16, where it
          lakh quintals of sugar as per the Balance Sheet of   shows the changes in percentages over a period of time.
          March 2016, the factory has holding sugar stock of Rs.  B)  Common  Size  Statements: The common size
          321.74Cr., this was mainly because of lower market   statements analysis compares each item with a base
          price during financial year 2015-16. The sugar prices   item of two different factories to realize where we
          have gone far below the FRP, therefore sugar factory   actually stand as compared to other sugar factories
          was compelled to carry over stock in an anticipation of   and what the exact reasons of deviation are. This
          better price in future.                            analysis is also known as ‘Vertical analysis or Inter
           The above table gives idea about deviation in absolute   sugar factory analysis’.

                        “The difference between running and ruining the business is high cost”
                                             Variable Cost    Fixed Cost Rs.   Income  Contribution
          Name of  The Company Financial Year
                                             Rs. PMT          Lakh             Rs. PMT    PMT
                   1                 2              3                4             5         6 =(5-3)
          X  Sugar Mill        2015-2016     3786.54          2397.90          4122.69    336.14
          Y  Sugar Mill        2015-2016     3546.00          2425.10          4242.91    696.91
          C) Trend Analysis: Trend analysis studies the financial history, operational results & financial position of a sugar
             factory over a series of years using the historical data to observe the percentage changes in selected data.

                             “Costing is strange racing where falling considered wining”
          Trend Analysis
          SUMMARISED COMPARATIVE PROFIT AND LOSS ACCOUNT FOR THE YEAR  2013-14 &  2015-16
                                                                Rs. Lakhs           TREND%
          1)  INCOME                         2013-14    2014-15   2015-16      2013- 2014-15   2015-16
                                                                          14
          1.1) Sugar Realization                    21264.26  26109.58  27801.88  100.00  122.79  130.74
          1.2) Bagasse                        491.04     279.15     542.6   100.00     56.85      110.5
          1.3) Molasses                      1006.51     948.16   1312.77   100.00      94.2    130.43
          1.4) Other Income                   219.93     163.29    485.05   100.00     74.24    220.55



          78   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="79"><![CDATA[TOTAL (1)                        22981.74   27500.18   30142.3    100.00    119.66    131.16
          2)  COST OF PRODUCTION
          2.1) Raw Material Cost            18138.73   20677.8  24070.15    100.00       114      132.7
          2.2) Manufacturing Overheads       1226.14   2921.23    1685.72   100.00    238.25    137.48
          2.3) Salary & Wages                1330.54   1393.13    1643.43   100.00     104.7    123.52
          2.4) Administrative Exp.             263.7     444.12    525.19   100.00    168.42    199.16
          TOTAL (2)                        20959.11   25436.28 27924.49     100.00    121.36    133.23
          GROSS PROFIT                      2022.63    2063.91   2217.81    100.00    102.04    109.65
          3)  Depreciation                    276.56     269.91    309.51   100.00      97.6    111.91
          4) Interest                        1727.26   1760.75    1848.54   100.00    101.94    107.02
          COST OF PRODUCTION (2+3+4)       22962.93   27466.94 30082.54     100.00    119.56    130.95
          NET PROFIT                           18.81      33.24     59.76   100.00    176.91    316.51

           The above table indicates financial trend is positive and the better financial management of the sugar factory
          year to year.

          D) Ratio Analysis: It is a tool for comparison of the previous year’s figures of the sugar unit, other entities, and
             the industry. It helps the management to take proper decision after analysis.

                       “Ratios are like true friends. They tell us our shortcomings and strengths”
          FINANCIAL RATIO STATEMENT AND VARIANCES
           S.no         Particulars                  Concept              2014-15    2015-16  Variance
          A      Liquidity Ratios
          A.1    Current Ratio                Current Assets/ Current Liabilities  1.10  1.18      0.08
          A.2    Working Capital  (Rs.Lakhs)  Current Assets Less Current Liabilities  2590.92  5541.34  2950.42
          A.3    Cash Profit (Rs.Lakhs)              Net Profit +Depreciation  303.15  369.27     66.12
          A.4    D.S.C.R                     Net operating Income+Int. +Dep. /  1.38    1.91       0.53
                                                          Total Debt service
          DSCR WORKINGS :
                                                                                                                                                                                                     Rs.Lakhs
          PARTICULARS                                                       2014-15            2015-16
          CASH AVAILABLE FOR DEBT SERVICE :
          NET PROFIT                                                           33.24              59.76
          ADD:DEPRECIATION                                                    269.91             309.51
          INTEREST ON TERM LOAN                                               548.72             248.45
          TOTAL CASH AVAILABLE FOR DEBT SERVICE                              851.88             617.72
          DEBTS TO BE SERVICED :
          REP AYMENT OF TERM LOAN                                              66.54              75.50
          INTEREST ON TERM LOAN                                               548.72             248.45
          TOTAL DEBT TO BE SERVICED                                          615.26             323.95
          D.S.C.R.                                                              1.38              1.91
          AVERAGE D.S.C.R.                                                                        1.56




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          Interpretation
           Above statement show that, significant improvement in major liquidity ratios. Current ratio has increased from
          1.10 to 1.18 in the year 2015-16. An ideal current ratio is 2:1.
           “Absolute figures unless converted into relative ones are meaningless.”
          FINANCIAL RATIO STATEMENT AND VARIANCES
          S.no   Particulars                     Concept                    2014-15 2015-16 Variance
          A      Solvency /Leverage Ratio
          A.1    Debt Equity Ratio                        Total Debt/ Net Worth  2.56    1.40     -1.16
          A.2    Solvency Ratio                          Net worth/Total Assets  0.07    0.13     0.06
          A.3    Fixed asset to Net worth Ratio          Net worth/Fixed Assets  0.72    0.82     0.10
          A.4    Gross profit to Total Income Ratio (%)  Gross profit/Total Income  0.08  0.07    -0.01
          A.5    Net profit to Total Income ratio (%)    Net Profit/Total Income  0.12   0.20     0.08
          A.6    Gross Value added  (Rs.Lakhs)           (Income -Rm-P&C-Pac)  6185.52  5516.14  -669.38
          A.7    Net Value added  (Rs.Lakhs)       Gross Value added-Depreciation  5915.60  5206.93  -708.67
          A.8    Raw material to Value of output       (Raw material +Process &   76.04  80.65    4.61
                                                         Chem.)/Value of output

          A.9    Wages to Total Income (%)                 Wages/Total Income   5.07     5.45     0.38
          A.10   Interest to Value output (%)             Interest /Value output  6.4    6.13     -0.27
          A.11   Net Profit to Equity (%)                     Net profit/Equity  3.18    5.64     2.46
          A.12   Capital employed Turnover ratio        Sales / Capital Employed   4.90  2.35     -2.55
          A.13   Return on Capital Employed (%)          EBIT/Capital Employed  31.98   14.86    -17.12

          Interpretation
           1) The table shows that the total Debt Equity ratio has decreased in the year 2015-2016 from 2.56 to 1.40.
          During FY 2015-16 factory has raised soft loan from banks to pay FRP as per Government norms this has resulted
          substantial increase in outside liabilities.
           2) The above table shows the gross profit ratio of the table indicates that the ratio in the year 2015 was 0.08 and
          in the year 2016 it decreased to 0.07.
           “Analyzing is like dissecting. It may not change the past it can improve the future”


          Variance Analysis
          Intra Firm Variance Analysis for the year 2014-15 and 2015-16
          Particulars            2014-15  2015-16  Variance  AbsoluteVari-  Formula
                                                            ance Rs. Lakh
                                                                          14-15yr’s pmt contribution X
          Cane Crushed Lakh MT   6.75     7.31     0.56     201.36
                                                                          excess crushing
          1) Income From Operations PMT Income     PMT
            1.1) Sugar Reliazation  3905.23  3802.58  -102.64  -750.45    PMT variance X 15-16 yr’s crushing
            1.2) Bagasse         41.37    74.21    32.84    240.13        PMT variance X 15-16 yr’s crushing
            1.3) Molasses        140.52   179.55   39.04    285.41        PMT variance X 15-16 yr’s crushing
            1.4) STOCK IN PROCESS  -35.79  -0.01   35.79    261.65        PMT variance X 15-16 yr’s crushing
            1.5) Other Income    24.20    66.34    42.14    308.13        PMT variance X 15-16 yr’s crushing
          TOTAL (1)              4075.52  4122.69  47.17




          80   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="81"><![CDATA[2) Variable Cost      PMT Expnediture   PMT
            2.1) Cane Purchase &   2627.84  2708.70  -80.85  -591.15      PMT variance X 15-16 yr’s crushing
          Related Exp
            2.2) Sugarcane Purchase   0.00  88.15  -88.15   -644.52       PMT variance X 15-16 yr’s crushing
          Tax
            2.3) Cane H& T Expenses  432.86  494.76  -61.90  -452.60      PMT variance X 15-16 yr’s crushing
            2.4) Cane Supply Expens-  2.62  0.16   2.46     18.00         PMT variance X 15-16 yr’s crushing
          es
            2.5) Cane Feeding Exp.  1.12  0.40     0.72     5.27          PMT variance X 15-16 yr’s crushing
            2.6) Salary& Wages (20%) 41.29  44.96  -3.66    -26.78        PMT variance X 15-16 yr’s crushing
            2.7)Machinery Repairs &        75.06  68.37  6.69  48.90      PMT variance X 15-16 yr’s crushing
          Maintenance
           2.8)  Process & Chemicals  34.65  32.93  1.73    12.63         PMT variance X 15-16 yr’s crushing
            2.9) Packing Expenses  59.73  43.08    16.65    121.72        PMT variance X 15-16 yr’s crushing
           2.10)Other Stores     23.30    28.15    -4.85    -35.49        PMT variance X 15-16 yr’s crushing
            2.11)Factory Overhead  240.18  58.03   182.15   1331.78       PMT variance X 15-16 yr’s crushing
            2.12)Interest on Working   179.62  218.85  -39.23  -286.81    PMT variance X 15-16 yr’s crushing
          Capital Loan
          TOTAL (2)              3718.28  3786.54  -68.26
          3) Contribution Rs.  PMT   357.23  336.14
          Cane
          4) Fixed Cost
            4.1) Salary & Wages   1114.50  1314.74  -200.24  -200.24      Increase in Salary & Wages
          (80%)
            4.2) Administrative   444.12  525.19   -81.08   -81.08        Increase in Adm. Exp.
          Expenses
           4.3) Depreciation     269.91   309.51   -39.60   -39.60        Increase in Dep. Exp.
            4.4) Interest on Term   548.72  248.45  300.27  300.27        Decrase in Int. Exp
          Loan
          TOTAL (4 )             2377.25  2397.90  -20.65
          Net Variance (+)/(-)                              26.52
          Last year’s Profit(+)/(-)                         33.24
          Current year’s Profit/                            59.76
          Loss (+)/(-)
          Interpretation
           1) Variable cost
           The total variable cost PMT has increased from Rs.3718.28 lakh to 3786.54 lakh as compared to financial year
          2014-15. This is mainly due to increase in cane cost, sugar cane purchase tax and interest on working capital loan
          due to huge carryover stock of sugar.
           2) Fixed cost
           The total fixed cost has increased from Rs.2377.25 lakh to 2397.90 lakh as compared to financial year 2014-15.
          This is mainly due to rise in salary and wages, administrative expenses and deprecation expenditure.
           3) Income From Operations
           Income from operations includes value of sugar, molasses, bagasse & other income, here below detail analysis of




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          decrease in per MT of sugar realization is done:
           Factory has crushed 6.75 Lakh M.T. sugar cane in financial year 2014-15 and in the year 2015-16  there is an
          increase  of 0.56 Lakh M.T. due to good rain fall and rise in per hectare sugar cane production. From the above
          statement, it shows higher sugar production of 0.72 Lakh Qtl. as compared to 2014-15. Sugar recovery has slightly
          declined by 0.03 % during 2015-16.
           After examining the variance in crushing, production, recovery and sugar realization, the actual impact on Profit
          and Loss account comes to Rupees 750.45 lakhs which is calculated as under:
          S.No.   Particulars
          A)      Decrease in Sugar Realization       Sugar realization   Cane  Crushing Decrease ( In Lakhs)
                  102.65                              variance PMT(Rs.)  current Year (B)  (C)C=(A)*(B)
                                                      (A)
                                                      731133            750.45

          MICRO ANALYSIS OF DECREASE IN SUGAR REALIZATION
          B.1     Loss due to decrease in sugar  Avg. Sugar   Avg. Sugar price per  Sugar  Produc- Loss  in  Lakhs
                  realization            price per Qtl   Qtl in 2015-16 (Rs.) tion in  2015-16  D=(A)-(B)*(C)/1L
                                         in201415     (B)               (Qtls) (C)
                                         (Rs.)(A)
                                         2944.73      2875.07           967000         673.61
          B.2     Loss due to low sugar recovery %    Sugar Recovery in  Sugar Recovery  Recovery Loss in (%)
                  13.26172                            2014-15 (%)(A)    in 2015-16 (%)  C= (B)-(A)
                                                                        (B)
                                                      13.22605          -0.03567
          B.2(a)  Less Sugar Production due to low sugar recov- Cane Crushing in Yr.  Recovery Loss in  Sugar Production in
                  ery                                 15-16  (in MT)    %              Qtls (C)
                  731133                              (A)                (B)           C=(A)*(B)/10
                                                      -0.03567          2607.95
          B.2(b)  Loss due to decrease in sugar recovery in Rs.  Less Sugar Produc- Avg. Sugar price  Amount In Lakhs
                  2,607.95                            tion    (Qtls)  (A)  per Qtl in 2014-
                                                                        15 (Rs.) (B)   C=(A)*(B)
                                                      2944.73           76.80
                  Total Loss due to decrease in Sugar Realization ( Rs.  Lakh) (B.1 + B.2(b)  750.45

          E) Cash Flow Analysis: It is the analysis of actual movement of cash inflow and outflow in an organization. The
             flow of cash into the sugar factory is called as cash inflow and the flow of cash out of the sugar factory is called
             as cash outflow. The difference between the inflow and outflow of cash is the net cash flow.

                             CASH FLOW STATEMENT FOR THE YEAR ENDED 31-03-2016
          S.no   Particulars                                                      Amount     Amount
          A      CASH FLOW FROM OPERATING ACTIVITIES
          A.1    Net Profit before tax and transfer to general reserve                        70.74
          A.2    Depreciation expense                                                      309.51
          A.3    Interest on term Loan                                                     248.45
                 Operating Profit before working capital changes                                     628.70
                 Adjustments for changes In Working Capital
          A.4    (Increase)/Decrease in current assets                             (15,338.01)




          82   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="83"><![CDATA[A.5    (Increase)/Decrease in advances & receivables                          8,023.80
          A.6    Increase/(Decrease) in working capital Loan                            2,333.66
          A.7    Increase/(Decrease) in current liabilities & provisions                3,825.70     (1,154.85)
                 NET CASH FROM OPERATING ACTIVITIES                                          (526.15)
          B      CASH FLOW FROM INVESTING  ACTIVITIES
          B.1    Sale of Investment                                                        624.45
          B.2    Purchase of fixed assets                                                (876.50)
          B.3    Payment of long term debts                                                (75.49)
                 NET CASH FROM INVESTING ACTIVITIES                                                  (327.54)
          C      CASH FLOW FROM FINANCING  ACTIVITIES
          C.1    Amount raised through share capital                                          12.53
          C.2    Proceeds from Long term debts                                          2,885.17
          C.3    Interest Expense on term Loan                                           (248.45)
                 NET CASH FLOW FROM FINANCING ACTIVITIES                                         2,649.25
          D      NET(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (A+B+C)                     1,795.56
                 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD                            106.81
          E      CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD (D+E)                        1,902.37

          Cash Flow Interpretation
           The cash flow statement depicts that sugar factory  has raised funds by redemption  its Investment and issue of share
          capital as well from long term loan to meet operational expenditure and capital expenditure.
          F) Funds Flow Analysis: A Fund Flow Statement is a summarized statement of the movement of Funds from different
             activities of a sugar factory during an accounting period.
           “Know what you own and what you owe”

                  SUMMERIZED COMPARATIVE BALANCE-SHEET AS ON 31 ST MARCH, 2015 & 2016
                                                                   (  Rs. Lakh )
          Particulars                                         2014-15       2015-16       Diff. (+/-)

          A) OWN CAPITAL

          Share Capital                                       1046.91       1059.44       12.53
          Reserves & Surplus                                  1045.28       1056.27       10.99
          Profit & Loss A/c(+/-)                              93.39         153.15        59.76
          TOTAL (A)                                           2185.58       2268.86       83.28

          B) LONG TERM DEBTS
          Term loan                                           2812.72       5151.52       2338.80
          Soft Loan                                           295.81        220.32        (75.49)
          Voluntary  Deposits                                 2476.69       3023.07       546.38
          TOTAL (B)                                           5585.22       8394.91       2809.69
          C) CURRENT LIABILITIES

          Working Capital Loan                                12283.43      14617.09      2333.66



         www.icmai.in                                    May 2017 l  The Management Accountant      83]]></page><page Index="84"><![CDATA[CASE STUDY





          Current liabilities/provisions.                     12953.11      16778.81      3825.70
          TOTAL (C)                                           25236.54      31395.90      6159.36
          TOTAL LIABILITIES (A+B+C)                           33007.34      42059.67      9052.33
          D) CAPITAL INVESTMENT
          Gross Fixed Assets                                  7922.61       12510.96      4588.35
            Less: Accum. Depn.                                4903.79       5213.30       309.51
            Less: Revaluation Reserve                         0.00          3711.85       3711.85
          Net Fixed Assets                                    3018.82       3585.81       566.99
          INVESTMENT                                          2161.07       1536.62       (624.45)
          TOTAL (D)                                           5179.89       5122.43       (57.46)
          E) CURRENT ASSETS
                                                              16836.37
          Current Assets                                                                  15338.01
                                                              32174.39
          Advances & Receivables                              10884.28      2860.48       (8023.80)
          Cash and Bank Balances                              106.81        1902.37       1795.56
          TOTAL (E)                                           27827.46      36937.24      9109.78
          TOTAL ASSET ( D+E)                                  33007.35      42059.67      9052.33
           NET WORKING CAPITAL(E-C)                           2590.92       5541.34       2950.42
          NET WORTH(A)                                        2185.58       2268.86       83.28
          Current Ratio ( E ÷ C )                             1.10          1.18
          Capital Employed (Net F.Asset + Net W.C.)           5609.74       9127.15
          Debt Equity Ratio ( B ÷ A )                         2.56          3.70
          “Finance is lifeblood of business only when it flows in the right direction”

                                 FUNDS FLOW STATEMENT FOR THE YEAR 2015-16
                                                                                 2015-16
          I)   SOURCES OF FUNDS :
                                                                                 Rs. Lakh
          A) Long Term  Sources
          Depreciation                                                           309.51
          Share Capital                                                          12.53
          Reserves & Surplus                                                     10.99
          Profit & Loss A/c(+/-)                                                 59.76
          Term loan                                                              2338.80
          Voluntary  Deposits                                                    546.38
          Decrease in Investment                                                 624.45
          Total Long Term Sources                                                3902.42
          B) Short Term Sources
          Working Capital Loan                                                   2333.66
          Current liabilities/provisions.                                        3825.70
          Decrease In Advances & Receivables                                     8023.80



          84   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="85"><![CDATA[Total Short Term Sources                                               14183.16
          C) TOTAL SOURCES(A+B)                                                  18085.58
          II)    APPLICATIONS OF FUNDS :
          A) Long Term Uses
          Capital Expenditure(Excl. Reval. Asset)                                876.50
          Decrease in Soft Loan                                                  75.50
          Total Long Term Uses                                                   952.00
          B) Short Term Uses
          Increase in Current Assets                                             17133.58
          Total Short Term Uses                                                  17133.58
          TOTAL APPLICATIONS (A+B)                                               18085.58
          Interpretation
           From the funds flow statement sugar factory has generated Rs. 18085.58 Lakh funds during the Financial Year
          2015-16, out of which long term sources is Rs.3902.42 lakh and short term sources is 14183.16 lakh. The use
          of long term funds is Rs.952 lakh and use of short term funds is Rs. 17133.57 lakh.

          Conclusion
           Financial ratio analysis and common-size analysis help to gauge the financial performance and condition of a
          sugar factory through an examination of relationships among these many financial items. A thorough financial
          analysis of a sugar factory requires examining its efficiency in putting its assets to work, its liquidity position, its
          solvency, and its profitability. We can use the tools of common-size analysis and financial ratio analysis, to help
          understand where a company has been. We then use relationships among financial statement accounts in pro
          forma analysis, forecasting the sugar factory’s income statements and balance sheets for future periods, to see
          how the sugar factory’s performance is likely to evolve. The above various types of financial analysis indicate
          the positive performance of sugar factory which is now a day’s essential to turnaround the financial position of
          the sick units.

                                                                                     dilip.patil4@gmail.com







                           Clarification on the notification issued dated 21st September 2016 for CEP Credit
                           Hours requirements for the block of three (3) years starting effective April 1,
                           2015 to March 31, 2018, to be complied with by Members holding Certificate
                           of Practice above the age of 65 years which states that -

                            “The member should undergo minimum mandatory training of 50% of the
                           minimum CEP hours per year and block of 3 years as per the category of the
                           members holding Certificate of Practice below the age of 65 years, i.e. 7 hours
                           per year and 25 hours in a block of 3 years.”

                            Clarification : The above requirements shall be effective for renewal of CoP from FY
                           2018-19 onwards and will not be applicable for renewal of CoP for FY 2017-18.







         www.icmai.in                                    May 2017 l  The Management Accountant      85]]></page><page Index="86"><![CDATA[INDIAN PARTNERSHIP ACT






          Section 49 of the




          Indian Partnership






          Act, 1932

































                                                         be applied in payment of debts of the firm and hence
                                                         contrary to the very principles of partnership itself.  We
                                                         discuss hereunder the import of Section 49 of the Act
         I t is a settled principle that a Partnership firm   and the ambiguity created thereby.
          has no separate legal status from the Partners and that   Section 4 of  the Indian Partnership Act, 1932
          all partners are individually liable for payment of the   provides as under :
          dues of the firm. However, Section 49 of the Act appears   “Persons who have entered into partnership with
          to limit the liability of a Partner by providing that the   one another are individually called “partners” and
                              separate property of  the   collectively “a firm” and the name under which their
                              Partner shall be applied first   business is carried on is called the “firm name”. Some of
                              in discharge of  his separate   the observations of the courts on this issue are as under:
                              debts and surplus if any shall   In  the  case  of   Seodoyal  Khemka  Vs.  Joharmull




                              Hareesh Kolichala
                              Chief Manager (Law)
                              Union Bank of India
                              Kolkata



          86   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="87"><![CDATA[Manmull [AIR 1924 Cal 74], it is  position of law that a Partnership  an entity distinct from the members
          held by the Calcutta High Court as  firm is not distinct from its Partners.  composing it. Our partnership law is
          under:                         However, Section 49 of the Act is an  based on English Law and we have
           “A partnership (under Section  aberration and contradicts the very  also adopted the notions of English
          239 of Indian Contracts Act, 1872)  concept of partnership.    lawyers as regards a partnership
          is a relationship which subsists   Section 49 of the Act provides as   firm.
          between persons; but a firm is not   under:                      17. Some of  the mercantile
          a  person,  it  is  not  an  entity,  it  is   Payment  of   firm’s  debts  and  of  usages relating to a firm have,
          merely a collective name for the  separate debts :             however, found their way into
          individuals who are members of   “Where there are joint debts due  the law of  partnership.  Thus in
          the partnership. It is neither a legal  from the firm, and also separate  keeping accounts, merchants
          entity, nor is it a person. [See per  debts due from any partner, the  habitually show a firm as a debtor
          Lord Justice James in Ex parte Blain,  property of the firm shall be applied  to each partner for what he brings
          In re Sowers (1879) 12 Ch. D. 522  in the first instance in payments of  into the common stock and each
          : 41 L.T. 46: 28 W.R.334, and per  the debts of the firm, and if there is  partner is shown as a debtor to
          Lord  Justice  Far  well  in  Sadler  v.  any surplus then the share of each  the firm for all that he takes out of
          Whiteman (1910)]. A firm name in  partner shall be applied in payment  that stocks. But under the English
          truth is merely a description of the  of his separate debts or paid to him.  Common Law, a firm, not being a
          individuals who compose the firm. It   The separate property of the any  legal entity, could not sue or be sued
          is that and nothing more.”     partner shall be applied first in the  in the firm name or sue or be sued
             It has been laid down by the Privy  payment of his separate debts and  by its own partner, for one cannot
          Council in the case of the case of  the surplus (if any) in the payment  sue oneself. Later on this rigid law
          Bhagawanjee Goculdas Vs. Alembic  of the debts of the firm.”   of  procedure, however, gave way
          Chemical Works Co.Ltd.,[1948     The Supreme Court had, in the  to considerations of  commercial
          L.R.75Ind AP147] that Indian law  case of Dulichand Laxminarayan  convenience and permitted a firm
          has not given legal personality to a  Vs.CIT (AIR 1956 SC354) has  to sue or be sued in the firm name,
          firm apart from the partners.    traced the origin of Section 49 as  as if it were a corporate body (See
           In the case of  Munshi Ram  under :                           Code of  Civil Procedure, Order
          Vs.Municiapl Committee [(1979)3   “16. As pointed out in Lindley  XXX corresponding to rules of
          SCC 83], the Supreme Court held as  on Partnership, 11th Edition, at  the English Supreme Court Order
          under:                         page 153, merchants and lawyers  XLVIII-A).  The law of  procedure
            “7. Partnership as defined in  have different notions respecting  has gone to the length of allowing
          Section 4 of the Indian Partnership  the nature of a firm. Commercial  a firm to sue or be sued by another
          Act, 1932 is the relation between  men and accountants are apt  firm having some common partners
          persons who have agreed to share  to look upon a firm in the light  or even to sue or be sued by one or
          the profits of a business carried on  in  which  lawyers  look  upon  a  more of its own partners (see Order
          by all or any of them for the benefit  corporation, i.e., as a body distinct  XXX, rule 9 of  the  Code  of  Civil
          of all. The Section further makes  from the members composing  Procedure), as if the firm is an entity
          it clear that a firm or partnership  it. In other words merchants are   distinct from its partners. Again
          is not a legal entity separate and  used to regard a firm, for purposes  in  taking  partnership  accounts
          distinct from the partners. Firm is  of business, as having a separate  and in administering partnership
          only a compendious description of  and independent existence apart  assets, the law has, to some extent,
          the individuals who compose the  from its partners. In some systems  adopted the mercantile view and the
          firm.”                         of law this separate personality of  liabilities of the firm are regarded
           The said position has been  a firm apart from its members has  as the liabilities of  the partners
          consistently reiterated by the courts  received full and formal recognition,  only in case they cannot be met
          from time to time while deciding  as, for instance, in Scotland. That is,  and discharged by the firm out of
          the issues involving the status of  however, not the English Common  its assets. The creditors of the firm
          Partnership and Partners and as  Law conception of a firm. English  are, in the first place, paid out of the
          such there is no dispute as to the  Lawyers do not recognize a firm as  partnership assets and if there is




         www.icmai.in                                    May 2017 l  The Management Accountant      87]]></page><page Index="88"><![CDATA[INDIAN  PARTNERSHIP  ACT





          any surplus then the share of each  be proceeded against and applied   Furthermore,  as  stated  above,  a
          partner in such surplus is applied  for the satisfaction of the decretal  court executing the decree cannot
          in payment of his separate debts,   amount. It was held by the Bombay  go behind the decree. It must take
          if any, or paid to him. Conversely,  High Court as under while rejecting  the decree, as it stands. For the
          separate  property  of  a partner  is  the view of the trial judge :  decree is binding and conclusive
          applied first in the payment of his   “4. No doubt, the principles  between the parties to the suit.
          separate debts and the surplus, if  underlying S.49 of the partnership  Therefore, when a decree is made
          any is utilised in meeting the debts  Act have been applied when the  not only against the firm but also
          of the firm (see Section 49 of the   question of firm debts are in issue,  against the partners personally, it
          Indian Partnership Act, 1932).  but those have been applied in  follows that by recourse to any other
           18. It is clear from the foregoing   principle and not by reason of the  method the executing court cannot
          discussion that the law, English   statute.                    refuse to execute the decree which
          as  well  as Indian, has, for some   Section 49 has to be read along  is clearly a personal decree against
          specific purposes, some of  which  with Section 25 and if so read, it  the partners.
          are referred to above, relaxed its  would indicate that, even while   The question when such a
          rigid notions and extended a limited  applying the provisions of Section  personal decree is not made what
          personality to a firm. Nevertheless,  49, the debt by the third party can  should be the procedure to be
          the general concept of  partnership,   be recovered by proceeding against   followed, is not relevant for
          firmly established in both systems  the partners. Before the principles  determining such a position,
          of  Law, still is that a firm is not an  underlying S.49 are pressed in aid,  suffice it to say that the provisions
          entity or person in law but is merely   all the conditions that bear upon the   of O.21 R. 50(1) of the Civil P.C.
          an association of individuals and a firm  principles must be available. In case  are attracted when the decree is in
          name is only a collective name of those  of a decree which clearly makes the  terms against the firm and there is
          individuals who constitute the firm.  debt payable by the firm as such and  no personal decree against the other
          In other words, a firm name is merely  also by each of the defendants, who  defendants who were jointed to the
          an expression, only a compendious  may happen to be its partners, the  suit as partners.
          mode of  designating the persons who  principle is clearly not available.  7. When the decree is made by use
          have agreed to carry on business in   5. The provisions of O.21, R.50(1)  of the words jointly and severally,
          partnership. According to the principles  of the Civil P.C. are clearly enabling  there is no question of any ratable
          of  English jurisprudence, which we  in nature and same permit a decree  distribution of the liability. It is in
          have adopted, for the purposes of  made against a firm to be executed  those cases only where the liability
          determining legal rights ;there is no  in  the  manner  as  is  indicated  by  can be ratably distributed inter
          such thing as a firm known to the law;  cls.(a), (b),(c) thereof. That such a   se among the judgment-debtors
          as was said by James, L. J. in Ex parte  decree could be executed against the  on the terms of  the decree that,
          Corbett, In re Shand [1880 L.R. 14  personal property of the partners  presumably, the principles of S. 49
          Ch. 122.”                      is well settled. (See  Topnmal  may  be  available  for  application.
           However, in the case of Nilkanth  Vs.M/s.Kundomal Gangarm-AIR  In all other cases the terms of the
          Balppa Mangave Shop &amp; Anr.,  1960SC388 and Gajendra Narain  decree is determinative of  the
          Vs.M/s.Raj &amp; Co., {AIR 1982  Singh Vs.Johrimal Prahlad :AIR   liability.”
          BOM388}, the suit filed by the  1964 SC581). The provisions of this   The Court had clearly indicated
          Plaintiff was decreed by the trial   Rule are not intended for making it  that the Section 49 of  the Act
          court against the firm as well as the  compulsory upon the decree-holder  should be read with Section 25 of
          Partners. The Partner Defendant  to exhaust the remedies in the  the Act and the provisions of O. 21
          resisted attachment of his deposit  manner laid down by cl. (A) or cl.(B)  R. 50(1) of Civil Procedure Code,
          amount citing Section 49 of  the  or cl. (C) .                 1908 (CPC) govern execution of a
          Indian Partnership Act, 1932. The   6. It is obvious that these enabling  decree against a firm and Partners.
          trial judge lifted the attachment  provisions of O. 21 R. 50(1) govern  Section 25 of the Partnership Act
          upon the principles of  the said  the case of a decree which has been  provides as under :
          Section holding that the separate  passed against the firm and not   Liability of a partner for acts of the
          property of the Partner should not  against  the partners personally.   firm - Every partner is liable, jointly




          88   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="89"><![CDATA[with all the other partners and also  determined.              of the debts of a firm recourse can
          severally for all acts of  the firm done   (3) Where the liability of  be had not only to the assets of the
          while he is a partner.         any person has been tried and  firm but to other means of relation
           It is clear from Section 25 of the  determined under sub-rule (2), the  of the debt are also allowed. Apart
          Act that the liability of the partners  order made thereon shall have the  from the assets of  the firm, the
          is joint and several. It is open to  same force and be subject to the  partners who have been served with
          a creditor of  the firm to recover  same conditions as to appeal or  summons in such capacity and also
          the debt from any one or more of  otherwise as if it were a decree.  persons who have  been  adjudged
          the partners. Each partner shall   (4) Save as against any property  as partners can be made liable
          be liable as if the debt of the firm  of the partnership, a decree against  under the decree. The procedure
          has been incurred on his personal  a firm shall not release,   also enables the judgment-creditor
          liability.                       render liable or otherwise affect  to proceed against a person who
           Order 21 Rule 50 provides as   any partner therein unless he has  has been left out and has not been
          under: -                       been  served  with  a  summons  to   impleaded as a partner by having
           Execution of decree against firm :  appear and answer.        an adjudication of the Court that
           (1) Where a decree has been     The execution under this Rule  the person concerned was in fact a
          passed against a firm, execution  may be granted against the  partner.”
          may be granted -               partnership property. It may also   The judgment in the case of Dena
           (a) against any property of the  be  granted  against the partners,   Bank v. Bhikhabhai Prabhudas
          partnership;                   in which case the decree-holder  Parekh &amp; Co. and Ors.,
           (b) against any person who has   may proceed against the separate   [2001]247ITR165 (SC) can
          appeared in his own name under  property of the partners.”     be beneficially referred to in the
          rule 6 or rule 7 of Order XXX or who   Let us now discuss hereunder  present context. The question arose
          has admitted on the pleadings that  some more decisions of the various  for consideration by the Supreme
          he is, or who has been adjudged to  courts which held that the partners  Court in this case, inter alia, was
          be , a partner;                were personally liable for repayment  whether the property belonging
           (c) against any person who  of the dues of the firm on the basis of  to the partners can be proceeded
          has been individually served as a  principles embodied in CPC.  against for recovery of  dues on
          partner with a summons and has   In the case of N. Ranganayakulu  account of  Sales tax assessed
          failed to appear;              Vs.J. Narasimharao and Company  against the partnership firm under
           Provided that nothing in this  and Ors. [AIR 1971 AP 58], the  the provisions of  the Karnataka
          sub-rule shall be deemed to limit or  Andhra Pradesh High Court held as  Sales Tax Act, 1957. In paragraph
          otherwise affect the provisions of  under :                    18, it was observed as under:
          Section 30 of the Indian Partnership   “15. It is pertinent to consider   “The High Court has relied on
          Act 1932 (9 of 1932).          the effect of Rule 50 of Order 21.  Section 25 of the Partnership Act,
           (2) Where the decree-holder  It provides that where a decree has  1932 for the purpose of  holding
          claims to be entitled to cause the  been passed against a firm execution  the partners as individuals liable
          decree to be executed against any  may be granted against any property  to meet the tax liability of the firm.
          person other than such a person   of  the partnership, against any  Section 25 provides that every
          as is referred to in sub-rule (1),   person who has appeared in his own  partner is liable, jointly with all the
          clauses (b) and (c) as being a partner  name under Rule 6 or 7 of Order 30  other partners and also severally for
          in the firm, he may apply to the  or who admitted on the pleadings  all acts of the firm done while he is
          Court which passed the decree for  that he is a partner. Execution may  a partner. A firm is not a legal entity.
          leave, and where the liability is not  also be granted against a person  It is only a collective or compendious
          disputed, such Court may grant  who has been adjudged to be a  name for all the partners. In other
          such leave, or, where such liability  partner or against a person who  words, a firm does not have any
          is disputed, may order that the  has been individually served with   existence away from its partners.
          liability of such person be tried and  summons as a partner but has failed  A decree in favour of or against a
          determined in any manner in which  to appear. The underlying purpose   firm in the name of the firm has the
          any issue in a suit may be tried and  of this rule, is that for the recovery  same effect as a decree in favour of




         www.icmai.in                                    May 2017 l  The Management Accountant      89]]></page><page Index="90"><![CDATA[INDIAN  PARTNERSHIP  ACT





          or against the partners. While the   the partnership and against all the  Section 188-A with effect from April
          firm is incurring a liability it can be  partners by following the procedure  1, 1989 to make it explicit what is
          assumed that all the partners were  prescribed in  Order 21 Rule 50  already implicit and removed the
          incurring that liability and so the  of  the Code of  Civil Procedure  ambiguity as to the liability of the
          partners remain liable jointly and  notwithstanding Section 49 of the   Partner to pay tax on the income of
          severally for all the acts of the firm.”  Act.                 the firm in line with the decisions of
           In the case of  Maharani        Therefore, Section 49 is in  the courts. Section 188-A of Income
          Mandalsa Devi and Ors. v. M.  contradiction and repugnant to the  Tax Act, 1961 reads as under
          Ramnaram Private Ltd.and Ors.,  principles enunciated by the courts   Joint and several liability of
          [1965]3SCR421 , while considering  as to the concept of Partnership firm  partners for tax payable by firm.:
          the scope of Order 21 Rule 50, the  as defined in Indian Partnership   “188A. Every person who
          Supreme Court observed as under :  Act, 1932.                  was, during the previous year, a
           “A suit by or in the name of a firm   The Parliament has recently  partner of  a firm, and the legal
          is really a suit by or in the name of  enacted Limited Liability  representative of any such person
          its partners. The decree passed in  Partnership(LLP) Act, 2008 where  who is deceased, shall be jointly and
          the suit, though in form against the  under it is clearly provided that LLP  severally liable along with the firm
          firm, is in effect a decree against all  shall be a body corporate and a legal  for the amount of tax, penalty or
          the partners. Beyond doubt, in a  entity separate from its partners and  other sum payable by the firm for
          normal case where all the partners  the benefits of limited liability have  the assessment year to which such
          of a firm are capable of being sued  been allowed to the Partners under  previous year is relevant, and all the
          and of being adjudged judgment-  Sections 27(3), 27(4) and 28(1) of  provisions of this Act, so far as may
          debtors, a suit may be filed and a  the Act.                   be, shall apply to the assessment of
          decree may be obtained against a   Whereas, it is not clear as to the  such tax or imposition or levy of
          firm under Order XXX of the Code  object sought to be achieved by  such penalty or other sum.”
          of  Civil Procedure, and such a  continuing Section 49 to be on the   Therefore, there is a strong case
          decree may be executed against the  statute book when the position of  for deletion of Section 49 from the
          property of  the partnership and  law is well settled that a Partnership  Indian Partnership  Act,  1932 to
          against all the partners by following  firm has no distinct and separate  remove the ambiguity, especially,
          the procedure of Order 21 Rule 50  legal status from its partners. It has  now, a Partner can limit his liability
          of the Code of Civil Procedure” .  only created unnecessary confusion  under Limited Liability Partnership
           From the decisions as discussed  as to the personal liability of  a  Act, 2008.
          above,  it  can  be  safely concluded  Partner.
          that a decree obtained against   It is noteworthy that the
          the firm and partners can be  Parliament has already amended              kshk.hareesh@gmail.com
          executed against the property of  Income  Tax Act and introduced








                                                                     President and Vice President meeting
                                                                     Ms. Ebyan Mahamed Salah, Hon’ble
                                                                     Ambassador of  Federal Republic of
                                                                     Somalia to India











          90   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="91"><![CDATA[AUDIT








                        Aftermarket audit to gain



        COMPETITIVE LEADERSHIP













































                             CMA Aishwarya Nair                               Dr. TR Madan Mohan
                             Junior consultant                                Managing Partner
                             Browne & Mohan                                   Browne & Mohan
                             Bangalore                                        Bangalore









                              Balasubramaniam D                               Rudresh Basavarajappa
                              Director                                        CEO and Chairman of Quest
                              Browne & Mohan                                  Informatics Pvt Ltd
                              Bangalore                                       Bangalore



         www.icmai.in                                    May 2017 l  The Management Accountant      91]]></page><page Index="92"><![CDATA[AUDIT

         A                                               auditing of four arrays of service: service product,


                                                           For a comprehensive aftermarket audit, we propose

                                                         service resources, service organization, and service
                                                         operations (Armistead & Clark 1991, Cohen et al.,
                                                         2006). This framework is based on Institute of Cost
                                                         and Works Accountants of  India (ICWAI) 2009
                                                         guidelines for an internal audit.  An aftermarket audit
                            ftermarket is an important  is an appraisal of company’s aftermarket operations,
          source of revenue for many companies. Aftermarket  evaluation and monitoring of  risk management,
          involves any product, service or support provided over  reporting and control practices. As an internal
          the complete life cycle of end customer vehicle, after the  audit, aftermarket audit provides inputs on: control
          original purchase has been made (Bundschuh&Dezvane  environment, risk assessment, control actions,
          2003). After-market revenues come from repair and  information and communication and monitoring of
          maintenance of parts and service. Aftermarket revenue   complete gamut of aftermarket activities. We therefore
          contribution to OEMs varies between 30-50% and is also   recommend an aftermarket audit to capture:
          highly profitable, as the gross margins vary between
          35-50%. Effective aftermarket offers other advantages      Service product encompasses identification of
          including customer loyalty, de-risk of business from   what strategic parts does the organization want to
          economic downturns and higher margin business.       support, what are the service policies, aftermarket
           However, aftermarket brings its own challenges.     parts sales, committed free offerings, warranty
          Proliferation  of  multiple  brands, lack  of   parts   cover, and the complete service plan.
          rationalization, poor parts and inventory management
          practices would need top management support and       Service resources would entail the of field and off-
          investment. OEMs are not only exposed to revenue     field service resources, technicians, mobile service
          leakages, but also ineffective customer and dealer   vans, mobile tools and fixtures, and their work
          experiences. According to a study by Genpact, revenue   plans. Work plan administration also includes
          leakage can cost a typical US$1 billion service provider   workshop service, planned services, service
          as much as US$80-100 million in missed revenues      training and certification, Bay management, etc.
          and US$10-15 million in lost profits. Revenue leakage
          occurs at any step in an organization’s ‘revenue value      Service organization refers to the dealer and OEM
          chain’ which includes pricing, proposal, negotiation,   support network including help desk, service desk,
          contract management, order management, billing,      parts desk, etc. Service organization would also
          accounts receivable and collections. OEMs often lose out   define the service standards, customer complaint
          on revenue due to ineffective deployment of resources,   management, campaign management, and CRM.
          both products and people.
                                                              Service operations include the service
          Aftermarket Audit: a comprehensive internal audit    documentation, partner management for fill
           There is a need for OEM’s to conduct a comprehensive   rate, and availability, service protocols and service
          audit of all aftermarket operations including its dealers,   performance.
          warehouse, warranty, people and service. . In each   Figure  1  presents  the  scope  and  details  of   an
          of these steps, contract terms and conditions must  aftermarket audit. This can be used at either an OEM
          be accurately captured and documented. Then the  level or OEM and its constituents (Dealers, partners).
          enterprise must act upon this information in a correct
          and timely manner. Traditional recovery audits are not   Aftermarket audit must capture
          the complete answer, as they miss the root causes - i.e.
          process inefficiencies. An effective aftermarket audit     Lack of SOP adherence
          must not only capture the process, but customer     Operational problems
          experience, supply chain management, sales and service     Mismanagement
          operations.  Aftermarket audit is an internal audit, but     Irregularities
          can draw from some of the section of statutory audit     Lack of controls
          reports.


          92   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="93"><![CDATA[For a comprehensive aftermarket audit, we propose
 auditing of four arrays of service: service product,
 service resources, service organization, and service
 operations (Armistead & Clark 1991, Cohen et al.,
 2006). This framework is based on Institute of Cost
 and Works Accountants of  India (ICWAI) 2009
 guidelines for an internal audit.  An aftermarket audit
 is an appraisal of company’s aftermarket operations,
 evaluation and monitoring of  risk management,
 reporting and control practices. As an internal
 audit, aftermarket audit provides inputs on: control
 environment, risk assessment, control actions,
 information and communication and monitoring of
 complete gamut of aftermarket activities. We therefore
 recommend an aftermarket audit to capture:

     Service product encompasses identification of
 what strategic parts does the organization want to
 support, what are the service policies, aftermarket
 parts sales, committed free offerings, warranty
 cover, and the complete service plan.

     Service resources would entail the of field and off-
 field service resources, technicians, mobile service
 vans, mobile tools and fixtures, and their work
 plans. Work plan administration also includes
 workshop service, planned services, service
 training and certification, Bay management, etc.

     Service organization refers to the dealer and OEM
 support network including help desk, service desk,   Scope of Aftermarket Audit   to justifiable reasons or otherwise. An ineffective
 parts desk, etc. Service organization would also   As shown in the Figure 1, Aftermarket Audit must   system could also lead to repair orders remaining
 define the service standards, customer complaint   cover following areas:  open unintentionally. A major revenue loss is
 management, campaign management, and CRM.                   unmade service calls to existing customers or low
            Parts administration broadly covers strategic parts   coverage of campaigns. Customers may obtain their
     Service operations include the service   planning, inventory management, in/out goods,   services from 3rd party providers causing a revenue
 documentation, partner management for fill   parts pricing, discounts, parts claim management   loss and rendering  the  campaign  ineffective.
 rate, and availability, service protocols and service   from customer and to the suppliers, etc.  A lack   Goodwill is an area where adjustments are made
 performance.   of control of parts in transit can be used by any   beyond a certain period and sometimes for frivolous
 Figure  1  presents  the  scope  and  details  of   an   associate at the expense of the dealer. Parts that   or unacceptable reasons. Extending goodwill is a
 aftermarket audit. This can be used at either an OEM   remain in transit indefinitely, or parts lost on the   management decision and hence must have the
 level or OEM and its constituents (Dealers, partners).   way are clear indication of a failure in the process   required protocols to support it. Add-on service is a
             or an operational mistake. Inventory control also   huge area of leakage and customer dissatisfaction
 Aftermarket audit must capture   becomes critical to reducing revenue leakages.   which happens when repair problems detected
             Both lack of inventory and excess of it could cause   do not match with customer complaints.  This
   Lack of SOP adherence   significant losses.              happens when job card information is poor or
   Operational problems    Service administration covers service planning, free   service team coordination between shifts is not
   Mismanagement  and paid service plan, service requests and service   good. Comeback repairs, where problems reoccur or
   Irregularities  campaigns management, etc. Lets just look at open   new ones prop up also are clear indicators of service
   Lack of controls  repair orders. A repair order could remain open due   administration.




         www.icmai.in                                    May 2017 l  The Management Accountant      93]]></page><page Index="94"><![CDATA[AUDIT





            Support administration encompasses onsite and   conditions. These non-standard terms are difficult
             offsite field study, customized repair programs,   for organizations to capture and report on across
             workshop management, customer and partner       the enterprise. Complicated contracts always
             help-desks, parts help desk to support dealers, etc.   increase the likelihood of errors.
             An example of revenue leakage is a field engineer    Information administration covers the complete
             who is out in the field fixing a product. While on-site,   capture, storage, retrieval and use of aftermarket
             a problem with another product is uncovered. To   documentation right from service agreements,
             maintain a high level of customer satisfaction, the   technical publications, service bulletins, etc.  The
             field engineer fixes the product, but they cannot   root cause of warranty leakages is a lack of visibility
             access the customer’s contract and cannot know   into  warranty coverage and  costs.  Complexity
             if the work is covered under the warranty. If it’s   also adds to the management of warranty. Many
             not and the customer refuses to pay for the service,   companies lack comprehensive, easily accessible
             revenue is lost, customer satisfaction is impacted,   data about contracts, warranties, and entitlements.
             and everyone loses.                             Many times the data is there; it’s just difficult to
            Dealer administration involves the complete sales,   access. If, for example, the contact center is not
             service and support process at dealer, pricing, dealer   connected  to  all  the  contract  and  entitlement
             SOPs, dealer discounts, etc. Dealer’s adoption of SOP   data, center staff may send out field technicians
             on test drives, pick &drop , showroom experience or   for support that is not actually covered under the
             merchandize may not be consistent.  Often dealers   contract. With the proper contract information
             may not use factory fluids (engine oil, transmissions   readily available, service staff can recognize out-
             or coolants) or carry out extensions that may   of-contract circumstances and sell the client the
             invalidate repair or void warranty. Leakages can   needed services. There is also a need for warranty
             happen when chargebacks are not raised. Scrap   and contract automation. Every service transaction
             administration is another pain area if  they do   can be delivered properly. This will ensure that the
             not stay in the parts department until parts claim   business doesn’t under deliver or over deliver for
             payments are made. Sometime, small oversight    what the customer wants and has paid for.
             opens a potential avenue for leakages and cause of    Performance administration covers measurement
             major heartburn between OEMs and dealers. Lack   of  the dynamism of  aftermarket services, the
             of stamping on the repair order or lack of details of   agility,  speed  of  response,  reliability  of  process,
             parts numbers or lack of initials of the receiver on   standardization, etc. The good old adage “What
             repair order can all become potential irritants.   gets measured gets done”, aptly sums up the role
            Customer administration covers customer         of performance measures. From a management
             relationship  process,  pre-purchase  and  post   perspective performance measurement systems are
             purchase, campaigns, community programs,        required for control and reporting. Traditionally,
             customer discounts, etc. Many organizations     most performance measures are financial measures.
             still develop sales contracts manually using ‘cut   However, accounting professionals have recognized
             and paste’ processes. Pertinent clauses can be   the value of integrating financial and non-financial
             inadvertently  left  out,  pricing can  be  wrong  or   measures using Balanced Score Card (BSC) or
             outdated, terms and conditions can’t be tracked,   Results Based Management (RBM) to provide a
             and clauses can’t be well maintained for reuse in   robust integrative view of the company. Companies
             future contracts. The sales contract itself is often   without service or utilization measures may not be
             built from a series of other sales documents such   cost competitive. It is imperative to have measures
             as the customer proposal or statement of work,   like % of appointments completed on time, repeat
             previous contracts, pricing catalogs, etc., all of   calls to measure field service performance. Service
             which can impact potential revenue and create   contract uptime (% of  uptime for an installed
             opportunities for error. Moreover, negotiations   product covered by a contract), First time fix rate,
             with customers can often lead to non-standard   Utilization, Mean time to repair, Mean time to
             outcomes. Customers often produce custom pricing,   complete, and  Repeat visit are some key measures
             unique payment terms, and one-off performance   to evaluate the status of aftermarket in a company.
             obligations resulting in non-standard terms and   It is importantly not only to capture measurement




          94   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="95"><![CDATA[of each outcome, but also to evaluate whether     Efficiently manage their cost structure
             measures link individuals, departments and the    Develop systems and process that ensure consistent
             organization as a whole. Audit also whether the   response and quality of delivery
             measures are based on desired strategy and linked to     Streamline operations to reduce waste
             long-term vision of growing aftermarket revenues.    build cost effective business continuity mechanisms
            Partner administration covers the parts,      The starting point for each OEM seeking to enhance
             service and support partner policies, SLAs,  an affective aftermarket strategy is different. But the
             etc. Overpayments  to  suppliers  due to pricing  challenges are common: increasing competition,
             errors, rebates, and duplicate  payments are  a  quarter by quarter drop in new sales, new technology
             significant issue. They can create leakage of up to  developments and legislative changes. A comprehensive
             1 percent of revenue, reduce cash flow by up to 5   aftermarket audit is a must to assess current state;
             percent, and inflate working capital requirements   uncover challenges, and an active evaluation of where
             by up to 6 percent.                         their aftermarket future lies.
           Being an internal audit, a comprehensive aftermarket
          audit can be conducted every 3 years or whenever major  References
          warranty and parts policy changes are announced.   1.   Armistead, C., & Clark, G. (1991).A framework for formulating
          Consistent with the guide notes on Internal audit 2009   after-sales support strategy.International Journal of  Physical
          by ICWAI, aftermarket audit planning, complementing   2.   Distribution & Logistics Management, 21(9), 22-29.
                                                               Bundschuh, R. G., &Dezvane, T. M. (2003). How to make after-
          system auditing with pre-audit of various functions   sales services pay off. McKinsey Quarterly, 12(4), 117-127.
          and reporting formats for management review can be   3.   Cohen, M. A., Agrawal, N., & Agrawal, V. (2006).Winning in the
          customized for each company.                         aftermarket.Harvard Business Review, 84(5), 129-138.
                                                           4.   Corey, R.E., Cespedes, F.V. and Rangan, V.K. (1989), Going to
                                                               Market: Distribution Systems for
          Conclusion                                       5.   Industrial Products. Harvard Business School Press, Boston, MA,
           Aftermarket services and support do influence       pp. 22-59.
          customer relationships to a significant level. Effective   6.   Gaiardelli P., Saccani N. and Songini L. (2007) “Performance
          Customer care, parts management and service can      measurement of  the after-sales service network- Evidence from
                                                               the automotive industry” Computers in Industry, 58 (7), pp.
          enhance the effectiveness of aftermarket operations.   698-708.
          Dealers and their management of moments of truth   7.   Lusch, R.F., Vargo, S.L. and O’Brien, M. (2007), “Competing
          are crucial to reinforce the brand experience and service   through service: insights from service-dominant logic”, Journal of
          quality.  An aftermarket audit can not only reveal the   8.   Retailing, Vol. 83 No. 1, pp. 5-18.
                                                               The  Institute of Cost and Works Accountants of India (2009),
          cost and service dimensions of current operations, it   ‘Guidance Note on Internal Audit’, January, Kolkatta.
          can help them to align the employees at all levels to
          be aware of their organizational goals and have the
          attitudes towards the services.  An aftermarket audit            aishwarya@browneandmohan.com
          can help a company:








                                                                 Dr. V.S Chauhan, Chairman UGC,
                                                                 being felicitated by CMA Manas
                                                                 Kumar Thakur, President of the
                                                                 Institute on April 21, 2017










         www.icmai.in                                    May 2017 l  The Management Accountant      95]]></page><page Index="96"><![CDATA[CAPITAL MARKET








          Reflection of Firm's Performance through



          Return on Equity A study on Sensex Companies


          in India






           There are various Management Accounting indicators used by the firms to
          measure their performance. The important management accounting indicators
          are ROE, ROA, ROI, ROS, Cash Conversion cycle, Profit margin, Operating Cycle,
          Operating Profit, EPS, Return on Capital employed. This study uses the most
          common appropriate accounting-based measure i.e. ROE for assessing the
          efficacy of the performance of Sensex companies in terms of profitability

         F                                               Objective of Study




                                                           To assess the performance of 30 Sensex companies by
                                                         using ROE measures
                                                           To study the smoothness in the forecasted value of
                                                         ROE by comparing with actual ROE



                    rms Performances states the subjective
                                                           Acheampong (2000) the ROE has a great influence on
          overview of how well a firm uses its assets that support   Literature Review on Roe
                                                         the company and country performances.
          for revenue generation. In this paper, 30 component   Herciu, Ogrean and Belascu (2011), Investors are
          companies which are some of the largest and most   least concern for any other profits they prefer to check
          actively traded stocks in BSE are taken.  These 30   on ROS, ROS and ROE, to know the cause and effect
          companies  are representative  of various  Industrial   relationship i.e. cause may be sale, assets or Equity and
          sectors of the Indian economy. Accounting profitability   effect is profit.
          of the companies can be measured with four indicators   (Berman, Knight and Case, 2013) ROE says about the
          such as ROE, ROA, ROS and ROI. Out of these four most   company’s profitability that earned from shareholder’s
          extensively used accounting measures we have taken   investment, but it depends on the company to distribute
                            ROE is an appropriate measure                    or  reinvest  Aimen  Ghaffar
                            to reflect the firm’s performance.               (2014) ROE has a positive
                                                                             effect on the profitability and
                                                                             organisational performance



                            CMA Dr. Prafulla Kumar Swain                     Arya Kumar
                            Professor                                        Research Scholar
                            IBCS, Siksha ‘O’ Anusandhan                      IBCS, Siksha ‘O’ Anusandhan
                            University                                       University



          96   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="97"><![CDATA[Kritika & Vikas Choudhary (2015) As  regard  the  impact  of  board  size  on  firm performance the results suggest
          that for ROE (statistically significant)
           It can be concluded that ROE can be considered as one of the measures to evaluate companies or firms
          performances. It should not be kept isolated.
          ‘Sensex’ listing Criteria: The Basic guidelines

           Sensex states about the S & P BSE Sensex, which is the standard index of BSE (Bombay Stock Exchange).  It
          considers the 30 top active companies in respect to their performance as well as in their respective sectors that are
          traded on BSE. It is the oldest stock index in India since 1986 which track the growth of the company, sectoral
          development and booms, and bust.
          Listing Criteria in Sensex
                   FACTORS                                    LISTING NORMS
          Net Tangible assets           •   The organisation must hold Rs 3 crores of net tangible assets from last audited
                                           report
          Net-Worth                     •   Minimum Rs 3 crores of Net-Worth (excluding revaluation reserves) from last
                                           audited report.

          Track record                  •   As per sec. 205 of Companies Act, 1956 the company must produce its dis-
                                           tributable profits for minimum two years. If the company makes any extraor-
                                           dinary profits then the net worth will go up to Rs 5 crores
          Post-issue paid up capital    •   Minimum Rs 3 Crores and Maximum Rs 25 crores will be the company’s
                                           post-issue paid up capital.
                                        •   The company is bound to make provision for trading in Demat securities and
                                           make an agreement with both the depositors.
          Lot Size                      •   Less than Rs 1,00,000 shall not be the minimum application and trading lot
                                           size
          Underwriting of  the issue    •   Underwriting issue shall be 100%

                                        •   15% shall be underwritten by Merchant Bankers in their own account.
          Certification from Practicing  Certificate from the applicant company/ promoting company (ies) stating the
          Company Secretary         following:

                                        •   The company must not be coming under BIFR (Board for Industrial and Fi-
                                           nancial Reconstruction)

                                        •   No petition is filed against the court which is accepted by court.
          Market Making                 •   Minimum 3 years of Market making
                                    OTHER REQUIREMENTS

                                        •   Companies official website is must

                                        •   To make the company listed on BSE all the promoters must attain interview
                                           with Listing Advisory Committee

                                        •   As per the circular issued by BSE on dated 26-11-2012, the company should
                                           file a compliance certificate by a Practicing Company Secretary under the
                                           guidance of the Institute of Company Secretaries of India.

          Research Methodology
           The data source is secondary. The sample period spans 10 years, from 2006-07 to 2015-16 there are 30




         www.icmai.in                                    May 2017 l  The Management Accountant      97]]></page><page Index="98"><![CDATA[CAPITAL  MARKET





          companies in the sample taken as per purposive sampling technique. The estimation of the adopted accounting
          measure is based on the annual balance sheets and income statement of this Sensex companies. The information
          is used in this study are from BSE database.
           ROE is usually calculated by dividing Net Profit after Tax by average Share Holder equity. It represents the
          percentage of profit that the company makes for every monetary unit of equity invested in a company.

          The following table highlights the ROE of 30 Sensex companies for the period 2007-2016

                                                     Table 1:
                               2007   2008    2009   2010   2011    2012   2013   2014    2015   2016

          Adani Port           27.88   11.2   15.6   21.35   24.7   25.4   28.82  24.71   21.77  23.47

          Asian Paints         39.9   46.55   37.4   53.51  43.05   39.96  35.8   32.87   31.53  33.52
          Axis Bank            19.31  17.45  19.14   18.93  19.18   20.29  18.75  17.63   17.87  16.97

          Bajaj Auto             0    49.65  38.04   73.78  73.66   55.27  43.5   37.53   29.79  29.27
          Bharti Airtel        42.84  38.29   30.2   26.27   13      8.6   4.49    5.42   8.27    5.51
          CIPLA                19.88  18.66  23.06   20.63  15.44   15.68  17.55  13.74   10.58  12.23

          Coal India Ltd.      36.89  28.12  11.04   40.29  35.84   40.24  39.19   33.3   33.15  38.45

          Gail                 23.03   22    19.75   20.04  20.55   19.34  16.28  14.87   9.26    6.38
          Dr. Reddy            31.33   9.29   3.54   18.32   25.2   29.61  26.92    27    25.19  22.24
          HDFC                 19.38  17.69  17.18   16.71  17.02   18.9   20.64  21.69   19.94  18.65

          Hero Motor Corp.     34.74  32.21  35.43   57.74  57.55   60.53  41.37    36    37.44  41.42
          HDFC ltd.            26.1   24.68  12.98   15.91  18.95   19.92  19.53   18.7   16.84  16.64

          HUL                  62.47  81.97  134.89  86.91   77.6   82.07  99.28  112.45  97.05  98.72
          ICICI Bank Ltd.      11.46   9.07   7.39   9.88   11.85   13.62  15.58  16.09   16.07  12.42

          Infosys              41.97  37.13  39.29   29.98  27.76   28.95  26.68  25.45   25.89  24.86
          ITC                  27.87  27.51  25.29   28.97  32.57   34.84  35.19  35.51   32.78  29.71

          L & T                32.32  25.44  23.75   22.46  18.11   18.06  15.5   12.99   11.05  11.07
          Lupin Ltd.           29.34  39.71  38.62   34.65  29.37  24.54   28.93   29.7   30.27  22.35
          Mahindra and Ma-
          hindra               36.75  29.73  21.59   26.81  23.76  20.08   20.84  21.25   11.89  11.91
          Maruti Suzuki        24.93  21.84  13.35   23.47  17.64  10.93   13.27  13.53   14.88  17.87

          NTPC                 14.56  14.72  14.71   14.71   14.3  13.77   14.78  13.51   11.79  12.01
          ONGC                 27.99  27.55  24.16   19.28  20.66  21.24   16.89   16.2   10.38  10.08

          Power Gridco         11.76  11.62  11.95   13.23  14.13  14.44   16.98   14.8   13.64  14.87




          98   The Management Accountant  l   May 2017                                   www.icmai.in]]></page><page Index="99"><![CDATA[RIL                  20.49  24.24   14.66  18.16  12.85   11.61   11.2  11.03   10.82  11.25

          SBI                  16.6   17.76   16.72  15.45  13.42   16.69  15.85  10.64   11.35   7.48
          Sun Pharma           33.51  38.06   29.9   17.84  20.35   23.36  24.76  28.86   21.07  18.13

          TATA Motors          30.29  23.88   -28.4  26.19  66.08   53.01  29.86  25.77   23.07  21.82
          TATA Steel           33.71  31.25  24.52   -11.04  27.54  6.71   -19.11  8.72  -15.63  -17.88

          TCS                  55.59   44.1  41.16   41.13  42.33   39.53  40.61  43.32   36.92  40.41
          Wipro                35.99   30.6  32.09   29.16  25.78   21.66  21.66  25.67   23.5   20.77

          TOTAL                868.8   852    749     831    860    809    741.6   749    648.4  632.6
          Average of  30 Com-  28.96   28.4   24.97   27.7    28.7     27  24.72   24.97  21.61  21.09
          panies
         Source BSE database
          From the above data, the average ROE of 30 companies has been computed.
           The average ROE for the year 2006- 07 is found 28.96% which is highest during the period under study. However, the average
          Returns on Equity for the year 2015-16 were found lowest i.e. 21.09%. The movement of average Return on Equity during the
          period 2006-07 to 2015-16, is shown in the following graph

                                                     Graph-1:


































           From the above graph, it is found that the behavior of average ROE of 30 Sensex companies during the period
          from 2006-07 to 2015-16 was in bearish trend. This result has negative repercussion on Indian Capital Market
          under global view.





         www.icmai.in                                    May 2017 l  The Management Accountant      99]]></page><page Index="100"><![CDATA[CAPITAL  MARKET





          Actual and expected average ROE: A diagnostic comparison
           To make the study more meaningful, a comparison between actual average ROE and expected average ROE has
          been made. For forecasting the expected average ROE, Exponential Smoothing Model is used.
                                              GST
          Exponential Smoothing Model: A conceptual framework and application
           It is a technique or method of forecasting data without following any trend or seasonality. We consider the recent data to
          forecast rather than old data like in any other forecasting tools.
           Traditionally, we denote the observed value as   and smoothed average as  .
          Then,
             undefined


           and, generalized

           Where, , the smoothing constant, takes the value from the range [0;1)
           In this exponential smoothing model the    is taken as 0.5. The forecasted values of average ROE for the 10years have been
          computed and presented in the following table:
                          Table-2: Forecasted Value of  Average ROE by Exponential Smoothing Model
                 Year          2007   2008   2009    2010   2011   2012    2013   2014    2015   2016
            Actual Average Of
                  ROE          28.96  28.4   24.97   27.7    28.7    27    24.72  24.97  21.61   21.09
           Forecasting Value Of   28.96  28.68  26.82  27.25  27.96  27.46  26.09  25.53  23.57  22.33
                  ROE
         From the above table, it can be interpreted that the Actual average of ROE and Forecasted value of ROE are both declining and
         followed the bearish trend. In the recent past, i.e. for the year 2015-16 the forecasted average value of ROE is found 22.33%
         which is higher than the actual average value of ROE i.e. 21.09%.
                                                     Graph-2:






























           Above Graph Showing the comparison lines between the Actual average of ROE and Forecasted value of ROE.





         100 The Management Accountant  l     May 2017                                   www.icmai.in]]></page><page Index="101"><![CDATA[Results                                              Numbers Really Mean. Business Literacy Institute, Inc.
           The results of present studies show that the average ROE   USA, 284 pages.
          of 30 Sensex companies follows the bearish trend. As Sensex,   3.  Herciu, M., Ogrean, C., Belascu, L. (2011). A Du Pont
          being the India’s capital market indicator, is directly reflected   Analysis of the 20 Most Profitable Companies in the
          by the financial performance of the largest and most actively   World. 2010 International Conference on Business
          traded stocks, is not growing in comparison with the global   and Economics Research, Vol.1, 45-48.
          capital market.                                  4.  Aimen Ghaffar (2014),  Impact of  Research and
                                                               Development  on  Firm  Performance    International
          Conclusions                                          Journal of Accounting and Financial Reporting, Vol.
           The responsibility of management of any company, the   4, No. 1
          obligation of BSE and NSE for creating infrastructure facility   5.   Irina Berzkalne – Elvira Zelgalve (2014) Return On
          to make the capital market  most efficient and finally the   Equity And Company Characteristics: An Empirical
          duty of the regulators and policy makers (SEBI, RBI and   Study Of Industries In Latvia, The 8th International
          MCA) of our country to simplify the regulatory framework   Days Of Statistics And Economics, Prague, September
          so that it would have a positive synergy effect on the   11-13, 2014
          performance of all the listing companies with an objective to   6.  Kritika, Vikas Choudhary (2015) Impact Of Board
          put our Sensex or NIFTY as benchmarked index in the global   Size On Firm Performance :  A Study Of Selected Bse
           capital market.                                     500 Companies, Apeejay Journal of  Management and
                                                               Technology, Vol. 10, No. 1, 34-40
          References
           1.  Acheampong, Y.J. (2000). International Variation in
               Return on Equity in the Food and Beverage Industries.
               Journal of Agricultural and Applied Economics, 32(2),
               383-392                                                      prafullaswain@soauniversity.ac.in
           2.  Berman, K., Knight, J., Case, J. (2013). Financial             aryakumar@soauniversity.ac.in
               Intelligence. A Manager’s Guide to  Knowing What the



                                             At the helm























             Our heartiest congratulations to CMA Narender Kumar Bhola, a fellow member of the
             Institute, for his appointment as Director General, Corporate Affairs with effect from
             1 April 2017. Prior to this he was Regional Director (Northern Region).

             We wish CMA Narender Kumar Bhola the very best for all his future endeavours.




         www.icmai.in                                    May 2017 l  The Management Accountant      101]]></page><page Index="102"><![CDATA[GST






          GST




          Electronic-Way Bill



          Major Hurdle in Ease of Doing Business


         D












                         raft rules were put on the public
                                                               Details furnished in Part A of FORM GST INS-01
          domain. Undoubtedly concept is very good but the way     of goods.
          it has been drafted, it will defeat the purpose of “Ease of   will be available for furnishing details in GSTR-1
          Doing Business”. The salient features of draft are given     E-way bill can be generated and carried even if
          below:                                               value of the consignment is less than Rs.50,000/-
           E-way bill to be generated for any movement of goods,   (optional)
          whether by own transport or any modes of transport     New E-way bill needs to be generated if goods are
          irrespective of tax invoice against taxable supplies or   transferred from one conveyance to another in
          Bill of supply for exempted goods / non-taxable goods or   the course of transit by the transporter
          delivery challan without invoice for movement of goods     Consolidated e-way bill in FORM GST INS-02 to
          from one location to another location within the state   be generated by the Transporter when multiple
          of the same entity or delivery challan for job work. It   consignments are intended to be transported in
          should be generated in Part A and endorsed in Part B   one conveyance
          by the transporter / recipient of supplier as a consignee.     SMS facility will be available for generation and
          Of course, it is for the movement of goods valued more   cancellation of e-way bill
          than Rs 50,000/-. However, valuation will always     Recipient of goods to confirm his acceptance /
          require to be determined before movement of the goods.   rejection on common portal within 72 hours,
                                                               failing which it will be assumed to be accepted
          When to be generated                                Cancellation of e-way bill is possible within 24
              Movement of  goods by registered person         hours of generation, except when been verified
               (including inward supply from unregistered      in transit
               person) having value exceeding Rs.50,000/- to
                             be updated electronically in  Manner of issue of E-way Bill
                             Part A of FORM GST INS-01 on   E-way will be generated in FORM GST INS-1 with a
                             common portal and generation      unique e-way bill number (EBN) as under:
                             of e-way bill before movement


                              CMA A. B. Nawal
                              Chairman
                              Taxation Committee
                              Institute of Cost Accountants of India




         102 The Management Accountant  l     May 2017                                   www.icmai.in]]></page><page Index="103"><![CDATA[Particulars         Information to be  E-way bill to   following documents instead of the e-way bill:
                              furnished in   be generated       tax invoice or bill of supply or bill of entry; or
                                             by                 a delivery challan, where the goods are
          Goods are transported  Part B of FORM  Registered      transported other than by way of supply
          by registered person as  GST INS-01  person as a      Invoice Reference Number to be generated from
          a consignor (whether in            consignor         the common portal against tax invoice uploaded
          his own conveyance or                                in FORM GST INV-1 which will be valid for a
          a hired one)
                                                               period of 30 days
          Goods are handed over  Part B of FORM  Transporter     Information in FORM GST INS-01 shall be auto
          to a transporter    GST INS-01                       populated based on FORM GST INV-1
          Movement is caused                 Re c ip i en t      Transporters, as specified, to obtain a unique
          by an unregistered to a            of supply as      RFID and get the said device embedded on to the
          registered recipient who           the consign-      conveyance and map the e-way bill to the RFID
          is known at the time               ee                prior to the movement of goods
          of commencement of                                  RFID readers will be installed at places where
          movement of goods (in                                verification of movement of goods is required to
          his own conveyance or
          a hired one or through                               be carried out
          a transporter)                                      Officers may be authorised by Commissioner
                                                               to stop the conveyance to verify the e-way bill /
          Movement is caused by              Unregis -
          an unregistered person             tered person      number for inter-state / intra-state movements
          – other case(in his own            or  Trans-       If  a  vehicle  is  stopped  /  detained for  a  period
          conveyance or a hired              porter            exceeding 30 minutes, the transporter will upload
          one or through a trans-                              the information in FORM GST INS-04.
          porter)                                             Physical verification of conveyances in case where
          Validity of E-way Bill                               information is received for evasion of tax and too
           Validity shall be as under from the date of generation,   once during transit unless specific information is
          subject to extension allowed by the Commissioner:    received which warrants another verification
           Sr. no.     Distance        Validity period        Details of  inspection  and verification  to be
                                           (days)              furnished online in Part A of FORM GST INS –
                                                               03 within 24 hours of inspection and final report
            (1)          (2)                (3)
                                                               in Part B of FORM GST INS – 03 to be recorded
             1.   Less than 100 km           1                 within 3 days of inspection
             2.   100 km or more but         3
                  less than 300km                        Issues:
             3.   300 km or more but         5                Whether all the transporters in the organized
                  less than 500km                              sectors and unorganized sectors will be
                                                               equipped not only for generation / endorsement
             4.   500 km or more but        10
                  less than 1000km                             or  consolidation  for  following  the  procedure
                                                               mentioned above?
             5.   1000 km or more           15
                                                              Whether Inspector Raj through intercepting
          Movement of Goods:                                   vehicles will come back? Why it is necessary for
              Documents to be carried by the person-in-charge   intra-state supplies?
               of conveyance:                                 Why simple system is not suggested rather than
                invoice or bill of supply or delivery challan  so complex system?
                copy of the e-way bill or the e-way bill number     Trade & Industry will suffer heavily and hence
                 - physically or mapped to a Radio Frequency   such type of way bill should only be enforced for
                 Identification Device (RFID) embedded on to   inter-state supplies.
                 the conveyance
              Commissioner to specify situations in which the
               person-in-charge of conveyance will carry the                          nawal@bizsolindia.com




         www.icmai.in                                    May 2017 l  The Management Accountant      103]]></page><page Index="104"><![CDATA[INSTITUTE NEWS






          Eastern India Regional Council                  began with the welcome speech of CMA Bibekananda
                                                          Mukhopadhyay, Chairman, EIRC of The Institute. He
            EIRC jointly with the HQ organized a a seminar on   welcomed all guests and dignitaries and mentioned that
          ‘Insolvency & Bankruptcy Code 2016 – Practical Aspects for   the programme on IBC2016 organised for the Bankers was
                                                          the first of its kind to take place in Kolkata. The Welcome













          Bankers’, at J.N. Bose Auditorium , CMA Bhawan, on April 21,
          2017. The Seminar consisted of Inaugural Session followed   Speech was followed by the lighting of the lamp by all the
          by Technical Sessions and a Question-answer session. The   dignitaries.  Dr. M.S. Sahoo, Chairperson IBBI discussed
          important dignitaries of the Inaugural Session were Dr. M.S.   about the various aspects of the Insolvency & Bankruptcy
          Sahoo, Chairperson – Insolvency & Bankruptcy Board of India   Code 2016. Shri Sanjeev Pandey, Deputy General Manager
          was the Chief Guest. Shri V.P. Singh, Member - Judicial, NCLT   IBBI discussed about the its major areas & how it can help
                                                          the Bankers to save an account turning into NPA. Smt. Rekha
                                                          Warriar, Regional Director of Eastern Region RBI highlighted
                                                          the major risks & issues faced by the Bankers at the time of
                                                          loan disbursement. Shri V.P. Singh, Member - Judicial, NCLT
                                                          – Kolkata explained elaborately on the subject. CMA Kaushik
                                                          Banerjee Secretary ICAI mentioned some of the important
                                                          points of IBC2016.  CMA J.K. Budhiraja, CEO–Insolvency
                                                          Professional Agency, ICAI gave an explicit presentation on the
                                                          subject.
                                                            There was an interactive discussion , where the dignitaries
          – Kolkata, Shri Sanjeev Pandey, Deputy General Manager,   Dr. M.S. Sahoo, Chairperson – Insolvency & Bankruptcy Board
          Insolvency & Bankruptcy Board of India, Smt. Rekha Warriar,   of India, Shri V.P. Singh, Member - Judicial, NCLT – Kolkata,
          Regional Director of Eastern Region RBI, CMA J.K. Budhiraja,
          CEO – Insolvency Professional Agency ICAI & Senior Director
          (Technical) ICAI, CMA Kaushik Banerjee - Secretary ICAI &
          CMA Bibekananda Mukhopadyay - Chairman-EIRC-ICAI.
            Amongst the other distinguished guests present in this
          programme were Smt. Dimple Bhandia, General Manager,
          RBI, CMA Kunal Banerjee, Past President of ICAI & Insolvency
          Professional of IPA ICAI, CMA S.S. Sonthalia Past Chairman-
          EIRC & Insolvency Professional of IPA ICAI, CMA Sanjay
          Lahiri, CMA & CMA Tapas Mallik the other two Insolvency
          Professionals of IPA ICAI & CMA Pranab Chakraborty, Vice   Shri Sanjeev Pandey, Deputy General Manager, Insolvency
          Chairman-EIRC, CMA Shymal Kr. Bhattacharya, RCM-EIRC,   & Bankruptcy Board of India, Smt. Rekha Warriar, Regional
          CMA Arundhati Basu, RCM-EIRC apart from other valued   Director of Eastern Region RBI, CMA J.K. Budhiraja, CEO
          guests & invitees from various banks .          – Insolvency Professional Agency ICAI & Senior Director
            A book on “INSOLVENCY & BANKRUPTCY CODE 2016-   (Technical) ICAI and the Insolvency Professionals suitably
          Practical Aspects For Bankers” published by The Institute   replied to all the queries of the bankers who attended the
          of Cost Accountants of India , officially got released by   Seminar.
          the Dignitaries in the Inaugrual Session. The programme   The Vote of thanks was proposed by CMA Arundhati Basu,





         104 The Management Accountant  l     May 2017                                   www.icmai.in]]></page><page Index="105"><![CDATA[Chairperson of the Professional Development & Continuing   GST at its premises. Chairman of the chapter, CMA P.R. Jat
          Education Programme Committee, EIRC of the Institute. She   and CMA Pushpendra Singh Shekhawat were the speakers
          concluded by thanking everyone for making the Programme a   and explained various aspects of GST. On March 31, 2017
          grand success.                                  the Chapter organized a seminar on ‘GST – Overview’ at its


          Northern India Regional Council
          The Institute of Cost Accountants of India-Lucknow Chapter

            The Chapter organized a seminar on ‘CMA Abhyuday 2017
          - Reinforcing India with CMAs’ on March 19, 2017.  Shri S.P.
          Singh, Vice Chancellor of Lucknow University, the chief guest,
          told about the need of professionals in current scenario and
          especially in education sector. Shri M.S. Sahoo, Chairman,
          Insolvency & Bankruptcy Board of India, the guest of honour   premises. Key Speaker CA Jatin Harjai, leading practitioner
          briefed on the Code. Special Guest, Shri Sudhanshu Dwivedi,   explained in detail about various practical aspects of GST. He
          Director Finance , UPPCL discussed the need of professionals   informed that it is most likely to be implemented by 1st July,














          in power sector. Vice President of the Institute, CMA Sanjay   2017 and in any case latest by 15th September, 2017.
          Gupta, Council Member, CMA Dr. I. Ashok, Chairman NIRC,
          CMA Ravi Sahni, Vice Chairman NIRC, CMA Sunil Singh,
          Treasurer, CMA Rajendra Bhati, Dr. Dinesh Tayagi, CEO, CSC E   Southern India Regional Council
          Governance, Smt R.H. Singh, DDG of UIDAI, Shri Rajiv Kumar,
          CEO-HAL, Shri A.K. Pritam, Regional Commissioner of P.F, Shri   The Institute of Cost Accountants of India-Bangalore Chapter
          B. Madhav Reddy, CEO Karvy, Shri V Valte, Commissioner,
                                                            On February 18, 2017 the Chapter inaugurated 101st batch
                                                          of oral coaching classes leading to June 2017 Examinations.
                                                          Hon’ble Dr. Justice M. Rama Jois, Former Chief Justice,
                                                          Haryana and Punjab, Former Governor, Bihar & Jharkand ,
                                                          Former Member of Parliament was present in the ceremony.





          Central Excise, Lucknow, Shri  Pugal T Associate, Vice
          President, Tally etc were among other eminent dignitaries
          present in the seminar.

          The Institute of Cost Accountants of India-Jaipur Chapter

            The Chapter on March 11, 2017 organized a workshop on   A CMA Career Counselling Programme was conducted on




         www.icmai.in                                    May 2017 l  The Management Accountant      105]]></page><page Index="106"><![CDATA[INSTITUTE NEWS





          February 27, 2017 at APS College, N R Colony, Bangalore.
            The Chapter organized a Professional Development Meet












                                                          2017 at its premises. The speaker CA Sudhir stressed on the
                                                          key terms in GST like origin to destination based tax, taxability
          on ‘Cost Audit-Practical Approach &Way Forward’ at The   of free supply of services, casual dealer concept, place of
          Indian Institute of world culture, Bangalore on February 23,













                                                          supply and online matching of tax credit.
          2017 and CMA Srinivasan, Director, Cost, Central Excise,
          CMA Zitendra Rao, CMA Suryanarayana, Member, SIRC, CMA
          N Ramaskanda were present at the Meet. Karnataka CMA   The Institute of Cost Accountants of India-Coimbatore
          Convention-2017 ‘Global Economy-Steering India forward’   Chapter



                                                            The Chapter organized a Professional Development
                                                          Program on GST Procedures & Issues on March 11, 2017 and
                                                          CA Muralidharan. R, Practicing Chartered Accountant, Erode
                                                          was the speaker of the programme. Another Professional
                                                          Development Programme on GST-An Overview and Scope
                                                          was held on March 18, 2017 and Sri Rajendran. K, Asst
                                                          Commissioner of Central Excise, Coimbatore was the speaker
                                                          of the programme. As per HQ circular, International Women’s
          was held on March 11, 2017 organised by the chapter as well
          as Mysore, Mangalore & Bhadravathi –shimoga Chapters
          at Indian Veterinary research Institute, Bangalore and Prof.
          Vivek Moorthy, CMA S L Prasad, Dr. Murali Krishna B V., JCCT,
          GOK, Sri Bharadwaj Raghuraman and Sri B B Prasad, S. N.
          Rangaprasad were present in the convention.

          The Institute of Cost Accountants of India- Visakhapatnam
          Chapter

           The Chapter organized a Professional Development   Day was celebrated on March 8, 2017 and chief guest Dr.
          Programme on ‘GST-Industry Preparedness’ on March 25,   Shilpa Shah, Life Style Health Consultant, Coimbatore





         106 The Management Accountant  l     May 2017                                   www.icmai.in]]></page><page Index="107"><![CDATA[spoke on ‘Natural Health for Women’. A career counselling
          programme was conducted at Sree Saraswathi Thyagaraja










                                                          CMA Lavanya explained with adequate illustrations the
                                                          various pricing strategies and in the cost-competitive era,
                                                          how firms like Walmart, KLM Airlines, the TATAs, Apple etc
          College, Pollachi on March 8, 2017 by chairperson CMA   still retained their cost competitiveness. CMA Zitendra Rao
          Meena Ramji. The Chapter organised an industrial oriented   elaborated about the costing process, its impact on products
                                                          and competition and how cost management may be used to
                                                          stay ahead in the competitive world.
                                                            The chapter conducted workshops on GST
                                                            •    Hindustan Aeronautics Limited (HAL) at Avionics
                                                          Division, HAL Township, Balanagar
                                                            •    National Mineral Development Corporation
                                                            •    Bharat Dynamics Limited (BDL) , Kanchanbagh
                                                            On March 8, 2017 the chapter celebrated International
                                                          Women’s Day on ‘Global Corporate Trends - Women
                                                          Leadership’ in association with ICSI-Hyderabad Chapter,
          training for final students from March 4, 2017 onwards.  Institute of Directors and Institute of Public Enterprise at
                                                          IPE, Osmania University. The program witnessed CMA Manas
                                                          Kumar Thakur, President, as chief guest and CS Sheela, CS
          The Institute of Cost Accountants of India-Hyderabad Chapter
                                                          Rasheeda, CMA Manjula and Smt. Vinulata as the speakers.
                                                          The speakers highlighted as to why there is dearth of women
            On March 3, 2017, the Chapter organized a programme on   in leadership roles despite more number of women joining
          ‘Value Addition by CMA’ and CMA M. Gopalakrishnan, Past   the middle management roles.  Various Investor Awareness
          President of the Institute was the speaker of the programme.
          CMA M. Gopalakrishnan elaborately discussed about the
          importance of performance appraisal report and how it
          carries the essence of a cost audit report.  On March 4, 2017
          a training programme was held on ‘Strategic Dimensions of







                                                          Programmes were conducted on different dates of March
                                                          2017 at different districts of Andhra Pradesh.  On March 8,
                                                          2017 a Press Meet had been conducted and attended by CMA
                                                          Manas Kumar Thakur, president of the Institute. The President
                                                          detailed the need of CMAs to the society and how students
          Cost Accounting’ at Pendekanti Institute of Management,   will be benefitted by pursuing the course. On March 9, 2017,
          Ibrahimbagh, Gandipet, Hyderabad.  CMA KVN Lavanya, Vice   a programme on ‘Women as Entrepreneurs and Directors’ was
          Chairperson, CMA D. Zitendra Rao, Member, SIRC and Smt.   held at Hotel Katriya, Raj Bhavan Road, Hyderabad and the
          Sudha Murthy, Faculty were the speakers of the programme.   Deputy Commissioner of Police, North Zone, Smt B. Sumathi,




         www.icmai.in                                    May 2017 l  The Management Accountant      107]]></page><page Index="108"><![CDATA[INSTITUTE NEWS





                                                          CMA Rajitha R & CMA  Aswathy Sunder as three members













          the Chief Guest, Smt. K. Ramadevi, President of ALEAP and
          Smt Sujana Prabha, Vice-President of Vivekananda Seva   and  Smt Jaya R as  convener  to look after women’s needs
          Samithi of the Bharat Vikas Parishad, Hyderabad Chapter   at the chapter. Chairman, CMA G.S Manoharan Nair &
          celebrated the day with the concerned theme.  On March   Women’s Committee Chairman, CMA Lakshmi V and students
          18, 2017 a programme on ‘Improving Productivity using
          Office Automation’ was held at CMA Bhavan, Himayatnagar,
          Hyderabad and CMA TCA Srinivasa Prasad, Advisor (ERP),
          NMDC LTd., Former Executive Director, (F&A – ERP) SAIL was
          the speaker and he provided certain tips for faster working
          with MS Office applications and the Windows explorer.
          On March 24, 2017 an industrial visit had been organized
          for the students to T.S Dairy Development Cooperative
          Federation Ltd, Vijaya Dairy at Hyderabad to know the
          process of production, method of costing adapted, marketing
          structure, different types of products, etc.  On March 30,   representative, Dr. Rajani R V planted saplings.
          2017 a joint programme with ICAI and ICSI was held with the
          support of Ministry of Corporate Affairs on ‘Corporate Social
          Responsibility’ at ni-msme, Yousufguda, Hyderabad. Sri S.B.   Western India Regional Council
          Gautham, Regional Director (Ser), MCA, CS S. Balachandra,
          Company Secretary in Practice, CA Ganesh Balakrishna
          and  Sri N. Krishna Murthy, Registrar of Companies, AP &   The Region organized the valedictory session of 12 Days Pre
          Telangana were the speakers and they highlighted that the   Campus Orientation Programme of WIRC held at Mumbai on
          professional Institutes shall prevail upon the corporate sector   25 March 2017.  CMA Debasish Mitra, Chairman, Students,
          for compliance of CSR as per the provisions of the Companies   Member’s and Chapter Co-ordination Committee, WIRC, CMA
          Act. After the inaugural session, CS Sunku Balachandra   Kalpana Mukherjee, DGM-Finance, Sequent Scientific Ltd,
          explained the need for CSR for a country like India and how   Guest of Honour, CMA R. Jayashri, Asstt Vice President (F &
          actively corporates have to take it up for nation building. On   A), Reliance Industries Ltd, Guest of Honour, Mr. P. Srinivasan,
          March 30, 2017 an interactive session on ‘Ind AS era-issues   CFO, NOCIL, Chief Guest were among the eminent dignitaries
          in Cost Audit’ was held and CMA D. Zitendra Rao, Practising   present during the session. Regional Cost Convention 2017 of
          Cost Accountant was the moderator of the session.  WIRC was conducted at Ahmedabad on 25th & 26th February
                                                          2017 jointly with Ahmedabad Chapter on the theme ‘Paradigm
          The Institute of Cost Accountants of India-Trivandrum
          Chapter


            The Chapter on March 8, 2017 celebrated Women’s Day
          at its premises. CMA Lakshmi V, Practicing Cost Accountant
          spoke about lots of opportunities for women in government
          and private sector.  Women’s subcommittee was formed
          with CMA Lakshmi V, as Chairman  and CMA Smitha V S,





         108 The Management Accountant  l     May 2017                                   www.icmai.in]]></page><page Index="109"><![CDATA[Business & Doing business through innovations and Advanced
                                                          Technologies" under the Chairmanship of CMA Neeraj Joshi,
                                                          Shri Sunil Shah, MD, Motivation Engineers & Infrastructure
                                                          Pvt. Ltd. dealt in detail the concept with his professional
                                                          experience and emphasized CMAs to be innovative. Souvenir







          Shift In Doing Business’. The Convention was inaugurated by
          Chief Guest Hon Dr. Kiritbhai Solanki, Member of Parliament,
          Ahmedabad West, President of the Institute CMA Manas
          Kumar Thakur, Shri Ajay Das Mehrotra, IRS, Principal
          Commissioner of IT & Govt. Nominee in the Institute. CMA P V   was released at the hands of Shri Ajay Das Mehrotra, IRS,
          Bhattad, Immediate Past President & CCM, CMA Pradip Desai,   Principal Commissioner of IT & Govt. Nominee in the Institute
          Chairman, WIRC, CMA Kailash Gandhi, Vice Chairman WIRC   on the occasion. The session was concluded by vote of
          and Convener of RCC, CMA Laxman D. Pawar, Hon. Secretary   thanks offered by CMA Shriram Mahankaliwar, Chairman PD
          WIRC and CMA Vinod Savaliya, Chairman, Ahmedabad   Committee, WIRC.
          Chapter were on the dais. In the 1st Technical Session under
          the Chairmanship of CMA Amit Apte, CMA Hiranand Savlani   The Institute of Cost Accountants of India-Pimpri Chinchwad
          & CMA Deodhar presented Industry points of view on GST-   Akurdi Chapter
          The Road Ahead and emphasized GST as radical change.  In
          2nd technical session, ‘Doing Business Digitally’, under the   The Chapter organized a seminar on ‘Activity Based Costing
          Chairmanship of CMA Harshad Deshpande, speakers Shri R K   (ABC)’ on March 4, 2017 at CMA Bhawan. CMA Ashish
          Saraf gave detail account of initiatives taken by Govt of India   Deshmukh, chairman of the chapter focused on how Activity
          towards digital India project with its benefits & challenges.   Based Costing can be implemented and covered the following
          Dr. Kalpesh Parikh with his expertise on "Cloud Computing &   topics under ABC Implementation Guide for Indian Railway.
          Security" gave broad insight of "New Normal" & '(In) security   On March 11, 2017 the Chapter organized a seminar on ‘Profit
          & Risk mitigation emphasized security as prime for survival. In   Optimization by integrating Cost & Energy Audit (ECORE)’ at
                                                          CMA Bhawan. The first session was conducted by Dr. Ravi
                                                          Deshmukh, Managing Director-PPS Energy Solutions.  In his
                                                          speech, he focused on importance of energy and the second
                                                          session was conducted by CMA Dhananjay Kumar Vatsyayan
                                                          and he highlighted on the following points under profit
                                                          optimization by integrating cost & energy audit. The Chapter






          3rd Session on 'Tax Techniques for Business Value Creations'
          under the chairmanship of CMA Debasish Mitra, speaker CMA
          Ashok B Nawal, council member emphasized that business
          value comes from vision, change Management, enhancement
          of stakeholders' value & use IPR etc. On 2nd day in the
          4th technical session on 'Bankruptcy & Insolvency Code &   organized a seminar on ‘GST – Final Draft Provisions’ on March
          NCLT & Role of Cost Accountants / Professionals' under the   17, 2017 and faculty CMA L D Pawar, Secretary & RCM, WIRC
          Chairmanship of CMA Manubhai Desai, CMA J K Buddhiraja   focused on the GST rates which have been approved by the
          gave a detailed presentation on Insolvency & Bankruptcy   GST Council. The Chapter conducted communication and
          Code 2016. 5th Technical session on "Govt. Initiatives for   soft skills training for intermediate students from 25th, 27th




         www.icmai.in                                    May 2017 l  The Management Accountant      109]]></page><page Index="110"><![CDATA[INSTITUTE NEWS





                                                          the occasion. CMA Amit Sahane, Secretary Pune Chapter
                                                          and CMA Nilesh Kekan and Mr. Krunal Shah were also the
                                                          faculties and they gave technical knowledge like key processes
                                                          in sugar industries. On March 25, 2017 the Chapter organized
                                                          a seminar on ‘GST- One Nation One Tax ease of doing







          and 29th March 2017 at CMA Bhawan. Eminent faculty in
          communication & soft skills, Mr. Sunil Mirchandani conducted
          this training for three days for the benefit of students.
                                                          Business’ and CMA V S Datey, CMA Malav Dalwadi and CA
                                                          Avinash Poddar were the faculties. CMA V S Datey explained
                                                          basis of forthcoming GST implementation and complexities
                                                          involved. CMA Malav Dalwadi explained in details the
                                                          formalities and process of filing various returns and CA
                                                          Avinash Poddar explained in brief about the GST. On the
                                                          same day students of the chapters were felicitated by Shri B A
                                                          Parikh, Vice President of Sarvajanik Education Society, Surat
                                                          and former Vice Chancellor of the Veer Narmad South Gujarat
                                                          University. CMA Ashok Nawal, Council Member and Chairman
                                                          of Taxation Committee of the Institute complimented the
                                                          chapter for its Silver Jubilee and blessed the meritorious
          The Institute of Cost Accountants of India-Surat South   students especially the Rank holders.
          Gujarat Chapter
                                                         The Institute of Cost Accountants of India-Ahmedabad
            The Chapter celebrated silver jubilee programme on March   Chapter
          23, 2017 at its premises and Blood Donation Camp had been
          organized by the chapter. On March 24, 2017 inaugural   The Chapter organized a CEP on ‘Emotional Freedom’ on
          session of silver jubilee was organized and chief guest of the   March 25, 2017 at its office. CMA P D Modh, faculty for the
          session was Shri B. S. Agrawal, President the Southern Gujarat   CEP elaborated on the topic. The Chapter arranged press
          Chamber of Commerce and Industries.  CMA Amit Apte, CCM   meet on February 24, 2017 at its office. CMA Manas Thakur,
          and Chairman PD, Banking and Insurance Committee of the
          Institute, gave scientific data comparison about production
          and consumption of sugar by sugar industries in India and
          abroad for last 10 years. CMA D. V. Joshi, past president,
          elaborated the history of the sugar industries. CMA P. H.





                                                          President, CMA P H Desai, Chairman WIRC, CMA Vinod H
                                                          Savalia, Chairman of the Chapter and managing committee
                                                          members of chapter attended the Press Meet and provided
                                                          information to the media about result of Foundation,
                                                          Intermediate and Final course of Dec’16 session examination,
          Desai, chairman WIRC, CMA R N Bhave, founder chairman   also explained about the bright future for CMAs in practice
          of the chapter and renowned faculty on IFRS also graced   and service.





         110 The Management Accountant  l     May 2017                                   www.icmai.in]]></page><page Index="111"><![CDATA[TAX UPDATES






          Customs                                         Seeks to amend Notification No.12/2012-Customs,
                                                             dated the 17th March, 2012, so as to allow duty free
          Notifications:                                     import of raw sugar upto a quantity of 5 lakh MT
                                                             under Tariff Rate Quota (TRQ) upto and inclusive
          Tariff:
                                                             of 12th June 2017
                                                         [Notification No. 12/2017-Cus,dt. 05-04-2017]
            Seeks to exempt goods, falling under the First
             Schedule to the Customs Tariff Act, 1975, when   Seeks to amend Notification No. 69/2011-Customs,
             imported  into  India  by  or  along  with  a  unit  of   dated 29th July, 2011 so as to provide deeper tariff
             the Army, the Navy, the Air Force or the Central   concessions in respect of specified goods imported
             Paramilitary Forces on the occasion of its return   under the India-Japan Comprehensive Economic
             to India after a tour of service abroad, from basic   Partnership Agreement (IJCEPA), w.e.f. 1st of April,
             customs duty (BCD), CVD and SAD subject to the   2017.
             specified conditions.                       [Notification No. 11/2017-Cus,dt. 31-03-2017]
          [Notification No. 17/2017-Cus,dt. 21-04-2017]
                                                          Amendment to Notification No.12/2012-Customs,
            Seeks to exempt goods falling under chapter 30   dated the 17th March, 2012, so as to impose basic
             of first schedule of Customs tariff Act 1975, for   customs duty of  10% on wheat and Tur, with
             supply under Patient Assistance Programme run   immediate effect.
             by specified pharmaceutical companies       [Notification No. 10/2017-Cus,dt. 28-03-2017]
          [Notification No. 16/2017-Cus,dt. 20-04-2017]
                                                          Amendment to Notification No.12/2012-Customs,
           Seeks to amend 8/2011 dated 14.2.2011 so as to   so as to reduce the basic customs duty from 30%
             extend the exemption of additional duty of Customs   to 10% on sunflower seeds falling under tariff item
             to specified jute products imported from Nepal  1206 00 90 [i.e. other than of seed quality] for the
          [Notification No. 15/2017-Cus,dt. 20-04-2017]      purposes extraction and refining of oil subject to
                                                             actual user condition, for the period from 1st April,
            Amendment to Notification No.41/1999-Cus to     2017 to 30th September, 2017
             align the said notification with para 4.36 of FTP  [Notification No. 09/2017-Cus,dt. 01-03-2017]
             2015-20 by omitting the word ‘for export’ in the
             proviso to the notification                  Inclusion of Hazira (Surat) Port in the list of ports
          [Notification No. 14/2017-Cus,dt. 18-04-2017]      mentioned in Export Promotion (EP) Schemes
                                                             Notifications
           seeks to further amend notification No.12/2012-  [Notification No. 08/2017-Cus,dt. 23-03-2017]
             Customs, dated 17.03.2012 so as to allow the
             following changes regarding duty free import   Non-Tariff:
             of  raw sugar [1701], allowed vide notification
             No.12/2017-Customs dated 5th, April, 2017:     Rate of  exchange of  conversion of  the foreign
             1.  Time line for availing  TRQ benefit (duty   currency with effect from 21st April, 2017
             free)  for  import  of   raw  sugar  [1701]  has  been  [Notification No. 40/2017-Cus (NT),dt. 20-04-2017]
             extended from 12.06.2017 to 30.06.2017.
             2. Actual user condition has been prescribed for   Tariff Notification in respect of Fixation of Tariff
             importing raw sugar at Nil rate, availing  TRQ   Value of Edible Oils, Brass Scrap, Poppy Seeds, Areca
             benefit for manufacture of white/ refined sugar.   Nut, Gold and Sliver
             3. A time line of 2 months, from the date of filing of  [Notification No. 39/2017-Cus (NT),dt. 13-04-2017]
             bill of entry or the date of entry inwards, whichever
             is later, is being prescribed to convert raw sugar into   Amendment to notification no. 78/2014-Customs
             white/ refined sugar.                           (N.T.) dated 16.09.2014
          [Notification No. 13/2017-Cus,dt. 13-04-2017]  [Notification No. 38/2017-Cus (NT),dt. 13-04-2017]





         www.icmai.in                                    May 2017 l  The Management Accountant      111]]></page><page Index="112"><![CDATA[TAX UPDATES




           Customs (Settlement of Cases) Amendment Rules,  Anti Dumping Duty:
             2017
          [Notification No. 37/2017-Cus (NT),dt. 12-04-2017]   Seeks to levy definitive anti-dumping duty on import
                                                             of âFlexible Slabstock Polyolâ originating in or
            Rate of  exchange of  conversion of  the foreign   exported from Thailand for a period of five years
             currency with effect from 7th April, 2017       (unless revoked, superseded or amended earlier).
         [Notification No. 33/2017-Cus (NT),dt. 06-04-2017  [Notification No. 13/2017-Cus (ADD), dt. 11-04-2017]

           Rate of  exchange of  conversion of  the foreign   Seeks to levy anti-dumping duty on the imports of
             currency with effect from 6th April, 2017       âLinear Alkyl Benzeneâ originating in or exported
         [Notification No. 32/2017-Cus (NT),dt. 05-04-2017]  from Iran, Qatar and Peopleâs Republic of China
                                                             for a period of five years (unless revoked, superseded
          Seeks to notify Foreign Post Offices              or amended earlier).
         [Notification No. 31/2017-Cus (NT),dt. 31-03-2017]  [Notification No. 12/2017-Cus (ADD), dt. 11-04-2017]

           Seeks to further amend notification No.   Seeks to amend notification no. 01/2017-Customs
             63/94-Customs (N.T), dated the 21st November,   (ADD) dated 05.01.2017 vide which definitive anti-
             1994                                            dumping duty was levied on the import of âJute
         [Notification No. 30/2017-Cus (NT),dt. 31-03-2017]  Productsâ viz. Jute Yarn/Twine (multiple folded/
                                                             cabled and single), Hessian fabric and Jute sacking
           Customs (Advance Rulings) Amendment, Rules       bags from Bangladesh or Nepal for a period of five
             2017                                            years.
         [Notification No. 29/2017-Cus (NT),dt. 31-03-2017]  [Notification No. 11/2017-Cus (ADD), dt. 03-04-2017]

          Regarding the Deferred Payment of Import Duty   Seeks to order provisional assessment on imports
             (Amendment) Rules, 2017                         of  “1,1,1,2-Tetrafluoroethane or R-134a “
         [Notification No. 28/2017-Cus (NT),dt. 31-03-2017]  ,originating in or exported from People’s Republic of
                                                             Chinaby M/s. Zhejiang Sanmei Chemical Ind. Co.,
          Regarding the Bill of Entry (Forms) Amendment     Ltd. (Producer/Exporter) [China PR], M/s Zhejiang
             Regulations, 2017                               Sanmei  Chemical  Products  Co.,  Ltd (Exporter)
         [Notification No. 27/2017-Cus (NT),dt. 31-03-2017]  [China PR] and M/s Jiangsu Sanmei Chemical Ind.
                                                             Co., Ltd (Producer) [China PR] into India, till the
          Regarding the Bill of Entry (Electronic Integrated   finalization of New Shipper Review initiated by
             Declaration) Amendment Regulations, 2017        DGAD, vide notification No.15/22/2016-DGAD
         [Notification No. 26/2017-Cus (NT),dt. 31-03-2017]  dated 27.02.2017.
                                                         [Notification No. 10/2017-Cus (ADD), dt. 24-03-2017]
           Regarding amendment to Notification No.
             40/2012-Customs (N.T.), dated the 2nd May, 2012   Seeks to impose anti-dumping duty on the imports
         [Notification No. 25/2017-Cus (NT),dt. 31-03-2017]  of Indolinone originating in or exported from the
                                                             People’s Republic of China up to and inclusive of
          Regarding the Handling of Cargo in Customs Areas   20th November, 2019.
             (Amendment) Regulations, 2017               [Notification No. 09/2017-Cus (ADD), dt. 24-03-2017]
         [Notification No. 24/2017-Cus (NT),dt. 31-03-2017]
                                                         Central exCise
          Tariff Notification in respect of Fixation of Tariff
             Value of Edible Oils, Brass Scrap, Poppy Seeds, Areca  Notifications:
             Nut, Gold and Sliver.                       Non-Tariff:
         [Notification No. 23/2017-Cus (NT),dt. 31-03-2017]
                                                          Seeks to amend CENVAT credit Rules, 2004 to allow
                                                             the importer of the goods to take Cenvat credit on





         112 The Management Accountant  l     May 2017                                   www.icmai.in]]></page><page Index="113"><![CDATA[basis of the challan of payment of service tax by the  [Notification No. 14/2017-Service Tax dt. 13-04-2017]
             said importer on the services provided by a foreign
             shipping line to a foreign charterer w.r.t. goods   Service Tax (Settlement of Cases) Amendment Rules,
             destined for India.                             2017
          [Notification No. 10/2017-CENT dt. 13-04-2017]  [Notification No. 13/2017-Service Tax dt. 12-04-2017]

           Central Excise (Settlement of Cases) Amendment    Service Tax (Advance Rulings) Amendment, Rules
             Rules, 2017                                     2017
          [Notification No. 09/2017-CENT dt. 12-04-2017]  [Notification No. 12/2017-Service Tax dt. 31-03-2017]

           Central Excise (Advance Rulings) Amendment, Rules
             2017                                        inCome tax
          [Notification No. 08/2017-CENT dt. 31-03-2017]
                                                         Notification:
          serviCe tax                                     In exercise of the powers conferred by clause (iii)

                                                             of the proviso to section 269ST of the Income-tax
                                                             Act, 1961 (43 of 1961), the Central Government
           Seeks to amend Service Tax Rules, 1994 so as to,(i)   hereby notifies that the provision of section 269ST
             Specify the importer as defined under clause (26) of   shall not apply to receipt by any person from an
             section 2 of the Customs Act, 1962 (52 of 1962) of   entity referred to in sub-clause (b) of clause (i) of
             goods as the person liable for paying service tax in   the proviso to section 269ST.
             case of services provided or agreed to be provided   2. The notification shall be deemed to have come into
             by a person located in non-taxable territory to a   force with effect from 1st day of April, 2017.
             person located in non-taxable territory by way of  [Notification No.28/2017, F.No.370142/10/2017-TPL]
             transportation of such goods by a vessel from a place
             outside India up to the customs station of clearance   In exercise of the powers conferred by section 139A
             in India. (ii) Provide an alternate mechanism for   and section 285BA, read with section 295 of the
             calculating and paying service tax, Swachh Bharat   Income-tax Act, 1961 (43 of 1961), the Central
             Cess and Krishi kalyan Cess.                    Board of Direct Taxes hereby makes the following
          [Notification No. 16/2017-Service Tax dt. 13-04-2017]  rules further to amend the Income-tax Rules, 1962,
                                                             namely:—
           Seeks to amend notification No. 30/2012-ST dated  1. (1)  These rules may be called the Income –tax
             20.06.2012 so as to specify the importer as defined   (Seventh Amendment) Rules, 2017. (2) It shall be
             under clause (26) of section 2 of the Customs Act,   deemed to have come into force from the 1st March,
             1962 (52 of 1962) of goods as the person liable for   2017.
             paying service tax in case of services provided or  2. In the Income-tax Rules, 1962, in rule 114B, in the
             agreed to be provided by a person located in non-  fourth proviso, for the figures, letters and words
             taxable territory to a person located in non-taxable   “28th day of February”, the figures, letters and
             territory by way of transportation of such goods by   words “30th day of June” shall be substituted.
             a vessel from a place outside India up to the customs   [Notification No. 27/2017/F. No. 370142/32/2017-
             station of clearance in India.                  TPL]
          [Notification No. 15/2017-Service Tax dt. 13-04-2017]
                                                          In exercise of the powers conferred by clause (c) of
           Seeks to amend Point of Taxation Rules, 2011 with   sub-section (2) of section 80JJAA read with section
             effect from 22nd January, 2017 so as to provide the   295 of the Income-tax Act, 1961 (43 of 1961),
             point of taxation of services provided by a foreign   the Central Board of Direct Taxes hereby makes the
             shipping line to foreign charterer w.r.t. goods   following rules further to amend the Income-tax
             destined for India as the date of bill of lading of   Rules, 1962, namely:-
             goods in the vessel at the port of export.  1. (1) These rules may be called the Income-tax ( 6th




         www.icmai.in                                    May 2017 l  The Management Accountant      113]]></page><page Index="114"><![CDATA[TAX UPDATES





             Amendment), Rules, 2017.                    (b) activities and the nature of the specified income
          (2) They shall come into force from the 1st day of   remain unchanged throughout the financial years;
             April,2017.                                     and
          2. In the Income-tax Rules, 1962 (hereafter referred to  (c) shall file return of income in accordance with the
             as the Principal rules), for the existing rule 19AB,   provision of clause (g) of sub-section (4C) section
             the following rule shall be substituted, namely:-   139 of the Income-tax Act, 1961.
          “19AB. Form of report for claiming deduction under  3. This notification shall deemed to have been applied for
             section 80JJAA. Report of an accountant which is   the financial years 2013-2014, 2014-2015, 2015-
             required to be furnished by the assessee along with   2016, 2016-2017 and 2017-2018.
             the return of income under clause (c) of sub-section  [Notification No. 24/2017/ F. No.196/15/2013-ITA-I]
             (2) of section 80JJAA shall be in Form No. 10DA.”
          3. In the principal rules, in Appendix II, for the ‘Form   In exercise of the powers conferred by clause (46)
             No. 10DA’, the following Form shall be substituted.  of section 10 of the Income-tax Act, 1961 (43 of
          [Notification No. 26/2017 /F. No. 370142/3/2017-TPL]  1961), the Central Government hereby notifies for
                                                             the purposes of the said clause, the Madhya Pradesh
           In exercise of the powers conferred by sub-section   Electricity Regulatory Commission, a Commission
             (3) of section 115BBF, read with section 295 of the   constituted by the State Government of Madhya
             Income-tax Act, 1961 (43 of 1961), the Central   Pradesh, in respect of the following specified income
             Board of Direct Taxes hereby makes the following   arising to that Commission, namely:—
             rules further to amend the Income-tax Rules, 1962,  (a) amount received as petition fees;
             namely:—                                    (b) amount received as interest on savings;
          1. (1) These rules may be called the Income-tax (5 th  (c) amount received as fines and charges; and
             Amendment) Rules, 2017.                     (d) other incidental income received as Grants, sale of
          (2) They shall come into force on the1st day of April,   tender documents, processing fees, certified copying
             2017.                                           fees, sale of old newspapers, license fee, vehicle
          2. In the Income-tax Rules, 1962 (hereafter referred to   rent, interest on loans to staff, Right to Information
             as the principal rules), after rule 5F, the following   receipts, receipts from ‘Distribution of Tariff Book’.
             rule shall be inserted.                     [Notification No. 23/2017/F. No.196/27/2014-ITA-I]
          [Notification No. 25 /2017/F. No. 370142/1/2017‐TPL]
                                                          In exercise of the powers conferred by section 139
           In exercise of the powers conferred by clause (46)   read with section 295 of the Income-tax Act, 1961
             of section 10 of the Income-tax Act, 1961 (43 of   (43 of 1961), the Central Board of Direct Taxes
             1961), the Central Government hereby notifies for   hereby makes the following rules further to amend
             the purposes of the said clause, the Science and   the Income-tax Rules, 1962, namely:-
             Engineering Research Board, a board constituted   1. (1) These rules may be called the Income-tax (Fourth
             by Central Government, in respect of the following   Amendment) Rules, 2017.
             specified income arising to that Board, namely:—   (2) They shall come into force with effect from the 1st
          (a) grants (revenue and capital) received from Central   day of April, 2017.
             Government;                                 [Notification No. 21/2017/ F.No.370142/5/2017-TPL]
          (b) interest received or accrued on bank account either
             saving or on fixed deposits with banks;      Whereas, a Third Protocol amending the Agreement
          (c) refund of unspent amount received back from the   between the Government of the Republic of India
             institutions to which Science and Engineering   and the Government of the Republic of Singapore
             Research Board had given a grant earlier; and   for the  avoidance  of  double taxation and the
          (d)  other  incomes  like  receipts  as  per  the  Right  to   prevention of fiscal evasion with respect to taxes on
             Information Act, 2005 (22 of 2005) and scrap sale.  income was signed at New Delhi on the 30th day
          2. The provisions of this notification shall be effective   of December, 2016 (hereinafter referred to as the
             subject  to  the  conditions  that  the  Science  and   Third Protocol);
             Engineering Research Board,—                 And whereas, the Third Protocol entered into force on
          (a) shall not engage in any commercial activity;   the 27th day of February, 2017, being the date of





         114 The Management Accountant  l     May 2017                                   www.icmai.in]]></page><page Index="115"><![CDATA[the later of the notifications of the completion of   and letter “Member (L)”, the words and brackets
             the procedures as required by the respective laws   “Member (Income Tax)” shall be substituted;
             for the entry into force of the Third Protocol, in  (II) in rule 6DDD, in sub-rule (1), for the words and
             accordance with Article 6 of the Third Protocol;   brackets “Member (Legislation)”, the words
          Now, therefore, in exercise of the powers conferred by   and brackets “Member (Income  Tax)” shall be
             sub-section (1) of section 90 of the Income-tax   substituted;
             Act, 1961 (43 of 1961), the Central Government  (III) after rule 127, the following rule shall be inserted
             hereby notifies that all the provisions of the Third  [Notification No. 17/2017/F.No. 370142/4/2017-TPL]
             Protocol, as annexed hereto, shall be given effect to
             in the Union of India.                       In exercise of the powers by sub sections (1) and
          [Notification No. 18/2017/ 500/139/2002-FTD-II]    (2) of Section 120 of the Income-tax Act, 1961)
                                                             (43 of 1961), the Central Board of Direct Taxes
           In exercise of the powers conferred by clause (d)   hereby makes the following amendment to the
             and clause (e) of proviso to clause (5) of section   notification of the Government of India, Ministry of
             43 and section 282A read with section 295 of the   Finance, Department of Revenue, Central Board of
             Income-tax Act, 1961 (43 of 1961), the Central   Direct Taxes, number S.O.2483(E), dated the 30th
             Board of Direct Taxes hereby makes the following   September, 2009, published in the Gazette of India,
             rules further to amend the Income-tax Rules, 1962,   Extraordinary, Part II, Section 3, Sub-section (ii).
             namely:-                                    [Notification No. 16 /2017/ F. No.187/3/2017-ITA-I]
          1. (1) These rules may be called the Income –tax ( 3 rd
             Amendment) Rules, 2017.                                                        Contributed by
          (2) They shall come into force on the date of their                           Taxation Committee
             publication in the Official Gazette.
          2. In the Income-tax Rules, 1962,-                              Institute of Cost Accountants of India
          (I) in rule 6DDB, in sub-rule (1), for the word, brackets




                                             At the helm























             Our heartiest congratulations to CMA Debasish Bandopadhyay, a member of the Institute,
             and ROC Delhi, for being posted with the duties of DII, Corporate Affairs with effect from
             1 April 2017. Prior to this he was Regional Director (Northern Region).

             We wish CMA Debasish Bandopadhyay the very best for all his future endeavours.




         www.icmai.in                                    May 2017 l  The Management Accountant      115]]></page><page Index="116"><![CDATA[FROM  THE  RESEARCH  DESK



                                         Role of CMAs
                                                      in

           Activity Based Costing & its Applications



           Assisting in Designing and ImplementingActivity Based   to provide real time cost accounting information to all relevant
          Costing (ABC) System:                          providers, payers and managers with decision support alerts is
           Designing and implementing a good Activity Based Costing system   essential to actively manage costs when it can do measurable good.
          requires intimate knowledge of many parts of the organization’s   CMAs can apply Time-driven, Activity-Based Costing here to provide
          overall operations. This knowledge can only come from the people who   high quality but reasonable cost care.
          are familiar with those operations. Here CMAs can act as a consultant
          to facilitate the management in developing effective framework of   Applicability of ABC method in the IT Sector:
          Activity Based Costing (ABC) System in the organization. They can   With the proliferation of computer-related services, the explosion
          also help to identify the appropriate methodologies to ensure the   in data communication, and ongoing trends toward globalization,
          sustainability of an ABC system helping to realize the informational   managers in high-tech industries are considering new ways to manage
          needs of its users.                            and control costs. The fact that most Information Technology (IT)
                                                         services have varied degrees of intangibility creates constraint to
           Customer Profitability Analysis:              measure the costs of the services delivered. The resulting model
           Customer Profitability Analysis has become an important new   provides a managerial tool to compute productivity and efficiency
          management accounting tool based on recognition that each   and is currently being used for IT cost chargeback and process
          customer is different and that each amount of revenue does not   improvements. The costs of IT services could be more accurately and
          contribute equally to the firm’s profitability. Customers utilize   meaningfully charged to the clients/users under ABC method. The
          company resources differently; thus customer costs vary from   professionals like CMAs can help managers assess which activities
          one customer to another. At this juncture, CMAs can apply ABC   could be reduced or eliminated.
          technique to assist manager in identifying customer activities and
          track those costs that are allocated to specific customers. This can   ABC Method for sustainable infrastructure:
          provide management with unique information about customers and   Infrastructure is the backbone of acceleration of growth in India.
          customer segments. It would also facilitate in protecting existing   In a populous country like ours with increasingly growing levels
          highly profitable customers; price-fixation of expensive services   of consumption and industrialization, prompt development of
          based on cost-to-serve; discounting to gain business with low cost-  infrastructure such as Railways, Power, Ports, Highways, Economic
          to-serve customers and attempting to capture high-profit customers   Zones, Smart Cities among others, is not just a need of an hour but
          from competitors.                              a pre-requisite for growth and sustainability. Thus to achieve higher
                                                         productivity and profitability with optimum duration and optimum
           Service Sector:                               cost, application of ABC is unparallel. ABC can contribute to evaluate
           The role of service sector’s contribution in Indian economy is   the cost and performance efficiency of companies in a more exact
          gradually mounting up over the last two decades. The CMAs can   way. It makes the management practices more transparent, too.
          help out management in the decision making purpose regarding
          Price-fixing mechanism, Break-even analysis, Productivity and   Project Cost Analysis:
          Profitability. The CMAs can apply ABC as a tool for determining   Many business improvement projects may need considerable
          true costs in the service sector and help companies to outline better   capital expenditure, and it will be indispensable therefore to do a
          decisions or strategies based on more accurate costing information.   cost benefit analysis to establish whether it is worthwhile going
          ABC can allocate activity costs to service, or customer that consumes   ahead. In this juncture, CMAs can apply Activity Based Management
          resources in order to compute profitability and provide cost-effective   (ABM) to supply more accurate information about the potential
          and timely information better than traditional accounting system.   savings from a particular project, therefore leading to a more accurate
                                                         assessment. After completion of a business process improvement
           Applicability of ABC method in the Health Sector:   project, many businesses do not measure the benefits achieved by
           One of the decisive challenges of healthcare profession is to   the project, and in some cases fail to take full advantage of them.
          measure actual costs in real time. All payers like the Centers for   ABM enables management to identify which activities or processes it
          Medicare & Medicaid Services, employers, consumers/patients, etc.   is spending the most on, and where the biggest financial savings can
          are willing to pay for healthcare services based upon real costs with   be made. It can also identify activities where management believes
          a reasonable margin. Obviously, having clinical/business analytics   big improvements can be made.




                                                                                         www.
         116 The Management Accountant  l Ma                                             www.icmai.inicmai.in
                                              May 2017y 2017
         116 The Management Accountant  l]]></page><page Index="117"><![CDATA[ACTIVITY BASED COSTING


             WITH REFERENCE TO LOGISTICS  SERVICES



           Activity-based-costing is a way of identifying the costs associated with operational activities so that handling and
          other service contract pricing and cost reduction efforts may be improved.  It allocates manufacturing overhead
          by assigning indirect costs to several different cost pools, then dividing each cost pool by its associated cost driver
          to obtain several different rates that can then be used to allocate overhead to different products/services. Efficient
          handling of costs can provide distinct advantage over the competition.

          Activity Based Costing :
             Determines the actual cost of doing business
             Identifies the areas in which costs may be reduced
             Highlights operations inefficiencies for improvement
            Draws attention to activities which are done markedly efficiently so that the principles employed may be applied
             elsewhere in the operations
             Enhances price negotiation with vendors and other suppliers

           Cost Management is more and more important in the case of transport & logistic companies such as the
          railways, aviation, bus transit systems, ports etc. These companies need reliable information on the efficiency of
          their services. The currently used cost calculation procedures however don’t meet the requirements
          of  up-to-date management principles and new costing methods for such industries shall be found to
          overcome problems resulting in distorted information. A possible solution can be the adaptation of activity
          based costing methodology to transportation specific management processes.

                   Examples of  cost systems attributed to the various activities in Logistics Services #





           Activities Costs  1.Checking lines &   Infrastructure  2. Propping up  the  tracks  3. Removing and cutting   grass  4. Transport supervision  5. Checking work done   by external suppliers  6. Clearing snow and ice  7. Cleaning buildings  11. Maintenance and   checking infrastructure  13. Building   maintenance  17. Infrastructure   electrical maintenance  18. Mechanical   maintenance of tracks/  roads  19. Goods  carriage





          Personal costs  x    x     x   x   x    x  x    x    x    x     x     x    x   x   x    X
          Maintenance          x                          x         x     x     x    x       x    x
          equipment
          Maintenance
          material             x                          x               x     x    x       x    x
          Consumable work-                                                x     x    x
          shop material
          Cleaning materials                         x                                   x
          Consumable elec-                                x                                  x    x
          trical material
          Miscellaneous                                   X               X     X    X       X    x
          material
          Miscellaneous                                   x         x     x     x    x       x    x
          maintenance
          Other cleaning                             X                                   x
          service
          Maintenance of                                                                              x
          ticket machines
          Depreciation:



         www.icmai.in                                    May 2017 l  The Management Accountant      117]]></page><page Index="118"><![CDATA[FROM THE RESEARCH DESK





          -  transport         x     x                    x                                  X    x
             engine
          - transport          x     x                    x                                  X    x
            equipment
          -  transport
             workshop                                               X     x     x    x
             machines
          -  ticket                                                                                   x
             machines
          #parameters may vary according to the sectors
           The basic idea of improving rail/ports/aviation transport costing is to include technology parameters into the
          calculations. Thus indirect costs can be allocated to profit objects through using technology performance flows
          instead of ad-hoc distribution keys. When applying the activity based costing (ABC) approach, cost elements
          which cannot be allocated to profit objects directly shall be assigned to activities taking part in the production of
          elementary transportation services.  Technology systems deliver performance indicators for each activity, which
          enables a more exact distribution of these costs among elementary services as profit objects.

                                 Attribution of  activity costs to the cost destinations
                                                                               Sta-
                                              Overhead   Level   E.S.S.  Track   tions/  Bridges   Trans-
                                               cables   crossings     sections         tunnels   ports
                                                                               Ports
          1.  Checking lines and infrastructure   x       X       x      x               x
          2.  Propping up tracks                                         x
          3.  Removing and cutting grass                                 X      X

          4.  Supervision                        X        X       X      X      X        X
          5.  Checking work done by suppliers    X        X       X      X      X        X
          6.  Clearing snow and ice                                      X      X
          7.  Cleaning buildings                                                X
          11.  Maintenance/checking  infrastructure   X   X       X      X               X
          13. Building maintenance                                              X
          17. Railway/ports/airport electrical maintenance                                        X
          18. Railway/ports/airport mechanical mainte-
          nance                                                                                   X
          19. Railway/ports/airport infrastructure  main-                                         X
          tenance
          20. Carpentry                                                         X                 X
          21. Cleaning trains / Buses / stations / Ports                        X                 X
          23. Maintenance of ESS                          x       x
          25. Maintenance of overhead cables     x

          This figure illustrates the comprehensive operation mechanism of ABC model.  It relies on the general methodology
          but shall be adapted to the specific management and technology characteristics of rail transport/service companies.






         118 The Management Accountant  l     May 2017                                   www.icmai.in]]></page><page Index="119"><![CDATA[Resource costs

                         Direct                                       Indirect

                                                               Indirect cost   allocation based on   resource   consumption   Resource drivers






                                                             Costs of
                                                    transportation activities
                                                   Direct cost allocation       Activity  cost   allocation based on   performance   consumption         cost drivers














                                             Production cost
                                 of elementary transportation services





           Suggestive activity based costing model for transportation sector

           The adaptation of the ABC methodology to rail specific business procedures is a possible solution to make
          management related decision making practices more reliable in the case of rail companies.  After having a clear
          picture of the activities and the performance flows in the rail company, cost allocations can be carried out in
          a transparent and exact way.  Moreover, accounting and calculation procedures between different companies
          operating in rail business are also more transparent by extending the improved costing methodology to inter-
          company relationships.
                                  Attribution of  cost items to the cost destinations
                                    Overhead   Level   E.S.S.  Track sections  Stations /   Bridges and   Transports
                                      cables  crossings                    Ports     tunnels
          Consumable materials:

          Sleepers                                               X
          Road metal-slabs                                       X
          Tracks and points                                      X
          Material for tracks                                    X
          Material for building maintenance                                 X
          Electrical material for stations                                  X
          Material for electrical systems   X   X       X                                         X





         www.icmai.in                                    May 2017 l  The Management Accountant      119]]></page><page Index="120"><![CDATA[FROM THE RESEARCH DESK





          Level crossing material               X
          Overhead cable material      X
          Mechanical maintenance material                                                         X

          Electrical energy                     X                           X          X          X
          Water                                                             X
          Bodywork material                                                                       X
          Supply of services:
          Premises maintenance                                              X
          Building maintenance                                              X
          Station maintenance                                               X
          Bodywork maintenance                                                                    X
          Mechanical maintenance                                                                  x

          Air conditioner maintenance                                       X
          Railway/port maintenance     X        X       X        X          X          X
          Depreciation:
          Head Office                                                       X
           Terminals                                                        X
          Self-cleaning toilets                                             X
          Air-conditioning system at Trento                                 X

          Trains /Ships / Buses                                                                   X
          Miscellaneous  cost items:
          Fuel for heating stations                                         X
          Surveillance services                                             X                     X
          Transport insurance                                                                     X
          Infrastructure insurance                                          X
          Rubbish disposal                                                  X
          Inspections and certification  X      X       X        X          X          X          X
          Total costs attributed

           Transport companies are service oriented organizations. Induction of various Cost and Management techniques
          related to service sectors will not only enhance the efficiency and performance but also helps for the cost control/
          cost reduction in this sector. Activity based costing (ABC) for cargo handling, berthing, pilotage, railways activity,
          etc., should be performed at regular intervals and a management information system must be there to analyse the
          performance for decision making to the management for achievement of better results by way of performance and
          profitability.
           ABC in service sector, especially the transportation, has become increasingly important for companies whose
          markets are becoming more competitive. Since ABC is really about cost management, using it allows service
          companies as well as manufacturing companies to reduce and control their costs in order to make correct pricing
          and other decisions, and to increase their profitability. It is likely to continue to become more prevalent in the service
          industry in the future.
           # an exploratory initiative

         120 The Management Accountant  l     May 2017                                   www.icmai.in]]></page><page Index="121"><![CDATA[THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
                                  (STATUTORY BODY UNDER AN ACT OF PARLIAMENT)

                                EXAMINATION TIME TABLE & PROGRAMME – JUNE- 2017

                                        FOUNDATION COURSE EXAMINATION


             Day & Date      Foundation Course Examination Syllabus-2012    Foundation Course Examination Syllabus-2016
                                    Time 2.00 p.m. to 5.00 p.m.            Time 2.00 p.m. to 5.00 p.m.
            11th June, 2017    Fundamentals of Economics & Management   Fundamentals of Economics & Management
               Sunday
            12th June, 2017         Fundamentals of Accounting             Fundamentals of Accounting
               Monday
            13th June, 2017        Fundamentals of Laws & Ethics          Fundamentals of Laws & Ethics
               Tuesday
            14th June, 2017   Fundamentals of Business Mathematics & Statistics   Fundamentals of Business Mathematics & Statistics
              Wednesday



                                                  Examination Fees


                                                                Inland Centres               Rs. 1200/-
                 Foundation Course Examination
                                                               Overseas Centres               US $ 60


       1.  The Foundation Examination will be conducted in Offline, descriptive (Pen & Paper) mode only. Each paper will be
           of 100 marks and for 3 hours duration.

       2.  Application Forms for Foundation Examination can be filled up either through online or in offline mode.

       3.  The examination application form can also be downloaded from the Institute website www.icmai.in and the student may
           apply in offline mode by attaching demand draft of requisite examination fees. Demand draft should be made in favour of
           The  Institute  of Cost  Accountants of India, payable  at  Kolkata.  In case  of overseas candidates,  forms are  available  at
           Institute’s Headquarters only on payment of $ 10 per form.

       4.  (a) Students can login to the website www.icmai.in and apply online through payment gateway by using Credit/Debit card
           or Net banking

           (b) Students can also pay their requisite fee through pay-fee module of IDBI Bank

       5.  Last date for receipt of Offline Examination Application Forms without late fees is 31st March, 2017 and with late fees of
           Rs. 300/ is 10th April, 2017.  In case of online Examination Application with payment gateway by using Credit/Debit Card
                                                                                  th
           or Net banking, the late fees of Rs.300/-will be waived and the last date for application is 10  April, 2017.

       6.  Examination Centres: Adipur -Kachchh(Gujarat), Agartala, Agra, Ahmedabad, Akurdi, Allahabad, Asansol, Aurangabad,
           Bangalore, Baroda,  Berhampur(Ganjam), Bhilai, Bhilwara, Bhopal, Bewar  City(Rajasthan), Bhubaneswar, Bilaspur,
           Bokaro, Calicut, Chandigarh, Chennai, Coimbatore, Cuttack, Dehradun, Delhi, Dhanbad , Durgapur, Ernakulam,Erode,
           Faridabad, Ghaziabad,Guntur,Guwahati, Haridwar,Hazaribagh, Howrah, Hyderabad, Indore, Jaipur, Jabalpur, Jalandhar,
           Jammu, Jamshedpur, Jodhpur, Kalyan, Kannur, Kanpur, Kolhapur, Kolkata, Kota, Kottayam,  Lucknow, Ludhiana,
           Madurai, Mangalore, Mumbai, Mysore, Nagpur, Naihati, Nasik, Nellore, Neyveli, Noida, Palakkad, Panaji (Goa), Patiala,
           Patna, Pondicherry,Port  Blair, Pune, Raipur ,Rajahmundry,  Ranchi,Rourkela, Salem, Sambalpur,  Shillong, Siliguri,
           Solapur, Srinagar, Surat, Thrissur, Tiruchirapalli,Tirunelveli,  Trivandrum, Udaipur, Vapi, Vashi, Vellore,  Vijayawada,
           Vindhyanagar, Waltair and Overseas Centres at Bahrain, Dubai and Muscat.

       7.  A candidate who is completing all conditions for appearing the examination as per Regulation will only be allowed
           to appear for examination.
       8.  Probable date of publication of result:  23rd August, 2017.
                                                                                           DR. D. P. NANDY
                                                                                               Director
                                                                                            (Examination)
                      * For any examination related query, please contact exam.helpdesk@icmai.in

         www.icmai.in                                    May 2017 l  The Management Accountant      121]]></page><page Index="122"><![CDATA[INTERMEDIATE AND FINAL COURSE EXAMINATION TIME TABLE & PROGRAMME – JUNE 2017







       THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
                PROGRAMME FOR SYLLABUS 2016   Final  Intermediate  Time: 2.00 P.M. to 5.00 P.M.  Time: 2.00 P.M. to 5.00 P.M.   Corporate Laws & Compliance  Financial Accounting   Strategic Financial Management  Laws & Ethics   Strategic Cost Management –   Direct Taxation   Decision Making  Direct Tax Laws and International   Cost Accounting   Taxation   Operations Management &  Corporate Financial Reporting  Strategic Management  Cost

          (STATUTORY BODY UNDER AN ACT OF PARLIAMENT)














                PROGRAMME FOR SYLLABUS 2012    Final  Intermediate  Time: 2.00 P.M. to 5.00 P.M.  Time: 2.00 P.M. to 5.00 P.M.   Corporate Laws and  Financial Accounting    Compliance    Advanced Financial  Laws, Ethics and   Management   Governance    Business Strategy &   Direct Taxation   Strategic Cost Management    Tax Management  Cost Accounting &   & Practice   Financial Management    Strategic  Operation Management  Performance
























                     Day & Date      Sunday,   11th June, 2017   Monday,   12th June, 2017   Tuesday,   13th June, 2017   Wednesday,   14th June, 2017   Thursday,   15th June, 2017   Friday,   16th June, 2017   Saturday,   17th June, 2017   Sunday,   18th June, 2017   One Group                    Two Groups       (b) Students can also pay their requisite fee through pay-fee module of IDBI Bank.   examination. For details visit clarifica
                                                                    Module of IDBI Bank).








                                                               1.    2.   3.   4.   5.   6.   7.   8.   9.   10.   11.


         122 The Management Accountant  l     May 2017                                   www.icmai.in]]></page><page Index="123"><![CDATA[Insolvency Professional Agency of Institute of Cost Accountants of India (IPA of ICAI)
                                               (Section 8 Company of the Institute of Cost Accountants of India)




       About IPA of ICAI: The Insolvency Professional Agency of Institute of Cost Accountants of India (IPA of ICAI), a section 8 company
       incorporated under the Companies Act 2013 has been promoted by the Institute of Cost Accountants of India to enroll and regulate
         Insolvency Professionals (IPs) as its members in  accordance  with provisions of the  Insolvency and Bankruptcy  Code  2016, Rules,
       Regulations and Guidelines issued thereunder.



         Enrol and Register as an Insolvency Professional
        Enrollment is Open: For Professionals & Advocates and Graduates having Management Experience
        IPA of ICAI enrolls the professionals as ‘Insolvency Professionals’ under Regulation 7 read with Regulations 4 & 5 of Insolvency and
        Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, if
           1.  He/she has passed the ‘Limited Insolvency Examination’, conducted by the Insolvency & Bankruptcy Board of India
              (IBBI) and
           2.  Has/she has  ten years of experience as -
                 (a)  a cost accountant enrolled as a member of the Institute of Cost Accountants of India,
                 (b)  a chartered accountant enrolled as a member of the Institute of Chartered Accountants of India,
                 (c)  a company secretary enrolled as a member of the Institute of Company Secretaries of India, or
                 (d)  an advocate enrolled with a Bar Council. enrolled with a Bar Council,
                                             OR
           3.  He/ she has fifteen years of experience in management, after receiving a Bachelor’s degree from a University established

              or recognized by law.


        Professional may function as:
           Interim Insolvency Professional in Corporate, Individual and Partnership Insolvency Process; Fast Track Corporate
             Insolvency Process; and Fresh Start Process;
           Resolution Professionals for Corporate, Individual and Partnership Insolvency Process; Fast Track Corporate Insolvency
             Process; and Fresh Start Process;
           Liquidator in Liquidation Process for Corporate Persons;
           Liquidator in Voluntary Liquidation for Corporate Persons;
           Bankruptcy Professional for Bankruptcy of Individual and Partnership Firm.

            Why to enrol as Insolvency Professional ……
               It’s a niche area of practice with opportunities galore
               With the first mover’s advantage, there is an opportunity to create a brand name
               Adequate handholding from IBBI and the IPA of ICAI



                                               CMA J. K. Budhiraja
                  CEO, Insolvency Professional Agency of Institute of Cost Accountants of India

          Registered Address:                          Phone No.: 011 24666141, 24666120
          CMA Bhawan, 4  Floor, 3, Institutional Area,   Mail Id: ipa@icmai.in

                        th
          Lodhi Road, New Delhi- 110003                Website: www.ipaicmai.in






         www.icmai.in                                 123 May 2017 l  The Management Accountant     123]]></page><page Index="124"><![CDATA[Registered RNI 12032/66, Postal Regd. No. KOL RMS/139/2016-18
                                                                               Publication Date: 10 May 2017



















































































          124
         124 The Management Accountant  l     May 2017                                   www.icmai.in]]></page></pages></Search>