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CHAPTER -I
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INTRODUCTION
The project work is conducted to study the organisation and financial aspect of Trivandrum Regional Co-operative Milk Producers Union Ltd, Thrivananthapuram. This study helps us to know about the overall performance of the company. We can know about the performance of different departments through this study. Analysis of financial statement is an attempt to measure the enterprise liquidity, profitability, solvency and other indicators to assess its agencies concerned. Some of the agencies in financial concerns of enterprise include investors, bankers, lenders, suppliers, customers, employers, management and regulatory authorities like tax authorities and company law board. The agencies have diverse and conflicting interests.
Finance is regarded as the lifeblood of business enterprise. This is because in modern economy finance is one of the basic foundations of all kind of economic activity. Financial statements are final product of accounting work done during the accounting period. Financial statements are prepared with view to depict financial position of concern. A proper analysis and interpretation of statement enables a person to judge the profitability and financial strength of a business. Financial statement normally includes Balance sheet and profit and loss account. The contents of financial statement are board report , director‘s responsibility statement, management discussion and analysis, auditor‘s report, report on corporate governance, balance sheet, profit and loss account, cash flow statement, segment report.
The systematic process of critical examination of the financial information contained in financial statement is called financial statement analysis. Financial analysis deals with the use of financial data in the evaluation of current and past performance of an enterprise and to assess its sustainability in future. This implies that the person attempting to make financial analysis should not only be in command of appropriate financial analysis tools and techniques, but must be a craftsman to make a creative and imaginative use if such tools and techniques.
Financial analysis can be used for variety if decision context such as security analysis, analysis of credit worthiness, credit analysis, debt analysis, dividend decision, mergers etc.
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Financial statement analysis seeks to measure enterprise liquidity, profitability, solvency and other indicators to access the efficiency and performance of business enterprise. Some of the agencies interested in the enterprise include investors, bankers, lenders, suppliers, customers, management and stock exchange etc. Sound financial statement is essential for both profit & non profit organisation.
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INDUSTRY PROFILE
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PROFILE OF DIARY INDUSTRY
Milk and milk based industries play a very important role in the world.
Internationalization reminds a key focus for almost of the world‘s leading dairy farms. All the world‘s largest dairy farms operating more than one country and some of them are truly international with activities in every part of the world. The availability and distribution of milk and milk products, in the modern world is blend of the centuries old knowledge of traditional milk products with the application of modern science and technology. Diary is a place where handling of milk and milk products done.
In developed dairying countries, the year 1850 is seen as the dividing line between
farm and factory scale production. The rural areas were identified for milk production where as the urban centers were selected for the location of milk processing plants and product manufacturing factories. These plants and factories were rapidly expanded and modernized with improved machinery and equipment to secure the various advantages of large scale production. Before 1900, nearly all the milk was delivered as raw milk. Milk was first delivered in bottles on January 11, 1878.Once pasteurization was introduced, it developed rapidly. Mechanical refrigeration helped in the rapid development of the factory system of market milk distribution.
A doubling in the price of wholesale milk over the past year is creating havoc among
food manufactures, prompting warning about the food price inflation in U.K .Aid organizations have also raised concerns about the depletion of government stockpiles of milk power.
In the western world today, cow milk is produced on an industrial scale. It is by far
the most commonly consumed form of milk in the world. Commercial dairy farming using automated milking equipments produce the vast majority of milk in the developed countries. The following are the major global players in this field,
Nestle (Switzerland)
Dean Foods(USA)
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Dairy Farmers of America(USA) Fonterra (New Zealand)
Danone (France)
Parmalat (Italy)
Arla (Denmark)
Nevertheless, in spite of these players, India is the largest producer of dairy products and milk followed by USA and China.
A dairy is a business enterprise established for the harvesting of animal milk – mostly from cows or goats, but also from buffalo, sheep, horses or camels – for human consumption. A dairy is typically located on a dedicated dairy farm or section of a multi-purpose farm that is concerned with the harvesting of milk.
Terminology differs between countries. For example, in the United States, a farm building where milk is harvested is often called a "milking parlor". In New Zealand such a building is historically known as a "milking shed" or "milking parlour" (note the different spelling). Sometimes milking sheds are referred to by their type, such as "herring bone shed" or "pit parlour". In some countries, especially those with small numbers of animals being milked, as well as harvesting the milk from an animal, the dairy may also process the milk into butter, cheese and yogurt, for example. This is a traditional method of producing specialist milk products, especially in Europe. In the United States a dairy can also be a place that processes, distributes and sells dairy products, or a room, building or establishment where milk is stored and processed into milk products, such as butter or cheese. In New Zealand English the singular use of the word dairy almost exclusively refers to the corner convenience store, or superette. This usage is historical as such stores were a common place for the public to buy milk products.
As an attributive, the word dairy refers to milk-based products, veil, derivatives and processes, and the animals and workers involved in their production: for example dairy cattle, dairy goat. A dairy farm produces milk and a dairy factory processes it into a variety of dairy products. These establishments constitute the dairy industry, a component of the food industry.
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Milk producing animals have been domesticated for thousands of years. Initially, they were part of the subsistence farming that nomads engaged in. As the community moved about the country, their animals accompanied them. Protecting and feeding the animals were a big part of the symbiotic relationship between the animals and the herders.
In the more recent past, people in agricultural societies owned dairy animals that they milked for domestic and local (village) consumption, a typical example of a cottage industry. The animals might serve multiple purposes (for example, as a draught animal for pulling a plough as a youngster, and at the end of its useful life as meat). In this case the animals were normally milked by hand and the herd size was quite small, so that all of the animals could be milked in less than an hour—about 10 per milker. These tasks were performed by a dairymaid (dairywoman) or dairyman.
With industrialisation and urbanisation, the supply of milk became a commercial industry, with specialised breeds of cattle being developed for dairy, as distinct from beef or draught animals. Initially, more people were employed as milkers, but it soon turned to mechanisation with machines designed to do the milking.
Historically, the milking and the processing took place close together in space and time: on a dairy farm. People milked the animals by hand; on farms where only small numbers are kept, hand-milking may still be practiced. Hand-milking is accomplished by grasping the teats (often pronounced tit or tits) in the hand and expressing milk either by squeezing the fingers progressively, from the udder end to the tip, or by squeezing the teat between thumb and index finger, then moving the hand downward from udder towards the end of the teat. The action of the hand or fingers is designed to close off the milk duct at the udder (upper) end and, by the movement of the fingers, close the duct progressively to the tip to express the trapped milk. Each half or quarter of the udder is emptied one milk-duct capacity at a time.
The stripping action is repeated, using both hands for speed. Both methods result in the milk that was trapped in the milk duct being squirted out the end into a bucket that is supported between the knees (or rests on the ground) of the milker, who usually sits on a low stool.
Traditionally the cow, or cows, would stand in the field or paddock while being milked. Young stock, heifers, would have to be trained to remain still to be milked. In many
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countries, the cows were tethered to a post and milked. The problem with this method is that it relies on quiet, tractable beasts, because the hind end of the cow is not restrained.
In 1937, it was found that bovine somatotropin (BST or bovine growth hormone) would increase the yield of milk. Monsanto Company developed a synthetic (recombinant) version of this hormone (rBST). In February 1994, rBST was approved by the Food and Drug Administration (FDA) for use in the U.S. It has become common in the U.S., but not elsewhere, to inject it into milch kine dairy cows to increase their production by up to 15%. However, there are claims that this practice can have negative consequences for the animals themselves. A European Union scientific commission was asked to report on the incidence of mastitis and other disorders in dairy cows, and on other aspects of the welfare of dairy cows. The commission's statement, subsequently adopted by the European Union, stated that the use of rBST substantially increased health problems with cows, including foot problems, mastitis and injection site reactions, impinged on the welfare of the animals and caused reproductive disorders. The report concluded that on the basis of the health and welfare of the animals, rBST should not be used. Health Canada prohibited the sale of rBST in 1999; the recommendations of external committees were that, despite not finding a significant health risk to humans, the drug presented a threat to animal health and, for this reason, could not be sold in Canada
DAIRY DEVELOPMENT IN INDIA
The dairy sector in India has shown remarkable development in the past decay and
India has now become one of the largest producers of milk and value added milk products in the world. The dairy sector has developed through co-operatives in many parts of the state.
During 1997 – 1998 the state has 60 milk processing plants with an aggregate
processing capacity of 5.8 million litres per day in addition to these processing plants, 123 government and 33 co-operative milk chilling centers operate in the state.
More than 2445 million people economically active in agriculture in the
world.probably2/3 or even more ¾ of them are wholly or partially depended on livestock farming. India is endeavored with rich flora and fauna and continuous to be vital avenue for employment and income generation, especially in rural areas. India, which has 66% of economically active population engaged in agriculture. In India the market milk technology
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may be considered to have commenced in 1950, with functioning of the Central Dairy of Aarey Milk Colony and milk product technology in 1956 with the establishment of Amul Dairy, Anand. The industry is still in its infancy and barely 10% of the total milk production undergoes organized handling.
India achieved the distinction of becoming the world‘s largest milk producer in the
year. The milk production in India is over 110million tones with Utter Pradesh leading the highest among Indian states. Started in 1970, the three phases of Operation Flood have pushed India‘s milk from 21 million tons to 110 million tons in 2008.The growth in the milk definitely surpassed the growth in grains and cereals and today milk is India‘s number one farm produce worth Rs 1,00,000 crores annually.
In spite of being the World‘s milk producer, India‘s milk processing industry is not
very large. Only 12% of milk is delivered to dairies against the world average of 70%. Bulk of Indian milk is utilized for drinking or in the unorganized sector processing industry can be divided in to three segments
Government/ Semi government
Co-operatives
Private sector.
With expectation of a few units, the processing industry is largely involved either in
a liquid pasteurized milk of conversion of milk to milk powder and ghee. Most domestic processor does not have the quality or the marketing knowledge to access the international market.
In India, majority of the milk market remains with the co-operatives which were
formed under Operational Flood all over India. The Milk Marketing Federations and its affiliated Districts Milk Unions control majority of the milk market in the organized sector. The major brands in India are
Amul (Gujarat)
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Milma (Kerala)
Nandini (Karnataka)
Vijay (Andhra Pradesh)
Aavin (Tamilnadu)
Parag (Maharashtra)
Mother Diary (Delhi)
There are few other major private companies which are in the forefront of the diary
product marketing such as Britannia, Nestle and Cadbury etc. New international players such as Anchor Fonterra, Compina, Landolakes etc are expected to enter the Indian market within a short period of time.
Indian diary sector is said to witness a number of new alliances and partnerships.
Consolidation is already taking place in the market with Mother Dairy entering into the joint ventures with the various state co-operatives and Britannia in tie-up with Fonterra etc. Overall the Indian industry is experiencing an upheaval with the new products launches, repositioning of brands and entry of newer players.
Operation Flood
During 1960‘s milk production in India was concentrated only in rural areas. In
Gujarat the farmers owned Co-operative Societies formed namely Anand Milk Union Ltd (AMUL). It was mainly integrated in production, procurement and processing and marketing on Co-operative lines.
Operation Flood was launched in 1970 and the main objective of the program was to
increase the milk production in rural areas and to supply the excess milk to the nearest dairies. Operation Flood was introduced under National Dairy Development Board (NDDB) which functions as the technical consultant. This NDDB was stated under the Societies Act and these societies are known as Anand Pattern Co-operative Societies (APCOS). These societies get financial aid from Indian Dairy Corporate.
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Operation Flood is intended to reduce regional imbalances in dairy development in
underdeveloped regions. It was a remuneration linking of rural milk procuring centers with urban demand centers.
The various phase of Operation Flood include;
First phase aims at the procurement of milk from rural surplus areas to the urban deficit areas.
Second phase was started during 1980‘s its outlay was 29 crores and was utilized for the construction of dairies. Kerala was included in the second phase of Operation Flood.
Anand Pattern
A success story on the dairy scheme in India during the sixties was the farmer owned
Amul co-operative in Anand (Khaira district, Gujarat) with its integrated approach to production, procurement, processing and making on co-operative lines. Over the years this evolved in to a model based on self-rule by farmers ensuring maximum returns to them.
This model came to be known as Anand pattern. The efficiency of this model was worth
replication. There for a dairy programme called ―OPERATION FLOOD‖ was launched in 1970 under the aegis of National Dairy Development Board (NDDB)
ANAND Pattern is a 3-tier structure consisting of
Village level primary co-operative society called ―APCOS‖
Regional co-operative milk producers union
State level milk marketing federation
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COMPANY PROFILE
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PROFILE OF TRCMPU LTD
ABOUT KCMMF
Kerala co-operative milk marketing federation (KCMMF) popularly known as "M1LMA" was established in 1980, with its head office at Thiruvananthapuram for the successful implementation of the second programme "OPERATION FLOOD" in Kerala. During the last 3 decades the sector witnessed uninterrupted growth in terms of animal population and milk production.
Milk co-operative is a form of economic organization in which farmers willfully and voluntarily pool their resources on the basis of equality for the advancement of their economic interest. The guiding principle of a cooperative is basically "self-help through mutual help". This basic idea has been defined in various forms such as "each for all and all for each", of the people, by the people, and for the people", "common welfare through common action" etc. Co-operative dairying is the most outstanding form of agricultural co-operation. The co-operative dairy is an agency, which carries out the functions of promotions procurement, processing and marketing of milk and milk products.
The main aim of dairy co-operative is to ensure continuous hygienic liquid milk to consumers and remunerative return to producers. In India one organized efforts were made for the development of dairy co-operatives before the launching of five year plans.
The Anand Milk Union Limited (AMUL) was the pioneer venture in cooperative Dairy sector. It provided a model for the milk producer's cooperative in Gujarat and other states, which played an important role not only in increasing milk production but improving the status of the members too. In Kerala, a major breakthrough in this direction was made with the establishment of the Kerala Co-operative Milk Marketing Federation (KCMMF) popularly known as MILMA in 1980. The launching of MILMA was part of the "OPERATION FLOOD" second programme, the central objectives of which was to channelize milk from surplus rural areas to deficit urban areas in such a way as to maximize the return of both producers and consumers. Eventually, in April 1983 MILMA took over the revenue earning activities of all the dairies and chilling plants from Kerala Live Stock Development and milk Marketing Board (KLD&MMB).
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MISSION OF KCMMF
―Farmers prosperity through customer satisfaction‖.
OBJECTIVES OF KCMMF
To channelize marketable surplus milk from the rural areas to urban deficit areas to maximize the returns to the producer and provide quality milk and milk products to the consumers.
To carry out activities for promoting production, procurement, processing and marketing of milk products for the farming community.
To built up a viable industry in the state.
To provide constant market and stable price farmers for their produce.
ASSOCIATES OF KCMMF
Milma is in constant touch with other organizations in this sector. It is only through this active exchange that rnilma grew from a small dairy cooperative to the position it holds in Kerala today.
National Dairy Development Board
NDDB, under Dr. V Kurian's guidance set up KCMMF in 1980. Ever since then, there has been a very close co-operation between NDDB and the federation. NDDB are the originators of the Operation Flood Programme and have been our funding agent for the Operation Flood Projects in Kerala
Amul
The dairy co-operatives of Gujarat have been the inspiration for the development of such a vast network of dairy co-operatives in Kerala. Among the co-operatives in Gujarat, the Kerala District co-operative Milk Producers Unions (Amul) is the first in this sector. Our co-operatives are called "Anand Pattern Co-operative Societies" following the illustrious lineage of "Amul".
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Government of Kerala
The phenomenal success of the dairy co-operatives in Kerala could not have been achieved, without the foundation of animal husbandry activities, led by the Animal Husbandry Department, Dairy development and Kerala Livestock Development Board, of the Government of Kerala.
ORGANISATIONAL STRUCTURE OF MILMA
The organizational structure is built on the stabilized successful model of Anand
pattern and is decentralized democratized. The motto of co-operation of ‗of the people, by the people‘ is the foundation three tier system followed by the organization.
Milma having a three tier structure with primary milk cooperative societies known as APCOS. Regional Co-operative Producers Union is (TRCMPU, ERCMPU, and MRCMPU) at Thiruvananthapuram, Ernakulum. Calicut these unions federate at state level to from state federation namely Kerala co-operative Milk Marketing Federation.
Structure of Milma KCMMF KCMMF APCO APCO ERCMPU APCO APCO TRCMPU APCO APCO
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1.
KCMMF
KCMMF provides staff management function to support its units and the regional milk unions. It decides upon matters related to pricing, long term HR policies and other policy matters.
2.
REGIONAL MILK CO0OPERATIVE UNIONS
KCMMF has three regional co-operative milk producers union in Kerala. They are TRCMPU at Thiruvananthapuram, ERCMPU at Ernakulam and MRCMPU at Calicut.
TRCMPU
The regional union covers Trivandrum regional Co-operative milk producers union was established in the year 1985 as a part of implementation of the flood programme in the state of Kerala. The union covers the southern regions of Kerala. This covers the districts of Tvm, Kollam, Pathanamthitta and Alappuzha.
ERCMPU
The Ernakulam Regional Co-operative Milk Producers Union was established in the year 1986, is the central society of primary milk co-operative organized by Anand pattern. This union covers the central regions of Kerala. The areas of operation of this union are four central Kerala districts are Thrissur, Ernakulam, Kottayam and Idukki.
MRCMPU
The Malabar Regional Co-operative Milk Producers Union Limited which stated functioning from 1990, is the youngest one among the three regions of Kerala, viz Kasargode, Kanoor, Vayanadu, Kozhikode, malappuram and Palakkad.
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PROFILE OF THIRUVANATHAPURAM REGIONAL CO-PERATIVE
MILK PRODUCERS UNION LTD (TRCMPU)
TRCMPU is a commercial organization is co-operative sector on May 31, 1983, under the co-operative societies act. But it started its activities only on July 20th 1985. The operational areas of TRCMPU includes Thiruvananthapuram, kollam, Pathnamthitta and Allepy. The regional union covers Trivandrum regional Co-operative milk producers union was established in the year 1985 as a part of implementation of the flood programme in the state of Kerala. The union covers the southern regions of Kerala.
Thiruvananthapuram milk dairy is the biggest milk dairy in Kerala. It is also the first dairy with ISO 9001-2000 certified company. Its head office is at Ksheera Bhavan Pattom, Thiruvananthapuram. The dairy has a processing capacity of two lakhs liters of milk per day and also with an annual turn of 10 crores. There are 250 employees in this dairy which is headed by the General Manager.
MANAGING DIRECTOR GENERAL MANAGER PROCUREMENT AND INPUT ASSITANT MANAGER PRODUCTION
MANAGER MANAGER ASSITANT
PRODUCT MANAGER ASSITANT MANAGER QUALITY CONTROL MANAGER ASSITANT MANAGER MAINTENENCE AND ENGINEERING MANAGER ASSITANT MANAGER MARKETING MANAGER ASSITANT MANAGER FINANCE ACCOUNTS
MANAGER MANAGER ASSITANT PURCHASE AND STORES MANAGER ASSITANT MANAGER PERSONNEL ADMINISTRATION MANAGER ASSITANT MANAGER
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PRODUCT PROFILE
PRODUCTS:-
Milrna has a range of products. A marketing chain consisting of nearly 4000 retail outlets, across the state ensures availability of milma's products to consumers. Milma with its motto your health is our concern has become synonymous with assured quality of milk and milk products. Milrna's spectrum of products adheres to the PFA rules and is released for distribution only after stringent quality checks.
PASTEURIZED MILK
Milma pasteurized vitamin A enriched milk comes in three varieties. Jersey milk which contains 3.5% fat and 8.5% SNF.
Toned milk which contains 3.0%fat and 8.5% SNF. Smart milk which contains 1.5% fat and 9.0% SNF.
Conveniently packed in 500 ml and 1 liter sachets, the fat content range of MILMA's milk has made it the popular health drink of young and old alike.
ICECREAM
Milma ice-cream is available in a range of lip smacking flavours: vanilla, chocolate, mango, strawberry and fruit & nut. The only ice-cream in Kerala market which is manufactured in a dairy and hence most fresh ice cream.
SAMBHARAM
Sambharam (butter milk) a favourite beverage of Kerala. Milma sambharam, the only product of its kind in the market, is very popular throughout the state. It comes in convenient 200ml throw away sachets.
CURD
It is a fermented product prepared from pasteurized skim milk using curd culture from National Dairy Research Institute (NDRI). It is delicious, tasty, free from cholesterol and available in 500ml and bulk.
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GHEE
Ghee is a key ingredient in most Indian delicious. Milma produces good quality, pure ghee from butter or cream at all dairies. The ghee is available in convenient packs of 50g to 15kg.
BUTTER
Milma butter prepared from the cream of milk contains 81% fat and less than 15.6% water. This is available in convenient l00gm, 200gm, and 500gm family packs. Available in salted and unsalted varieties.
SIP-UP
Made from pasteurized skim milk, sweetened and flavoured. Available in 25ml polyethylene tube in flavours like vanilla, pineapple, strawberry, mango, and rose etc., and served in chilled condition. It is a safe and nutritious substitute to all other sip-ups.
SRIKHAND
Srikhand is a semi-soft sweetish sour, whole milk product prepared from lactic fermented curd. The basic ingredient of srikhand is jack fruit.
PEDA
An indigenous milk product manufactured by evaporating water content from wholesome cow's milk and sweetened with cane sugar. It is a nutritious and delicious sweet bite for children. It is available in 20gm.
FLAVORED MILK
Milma offers a range of flavored health drinks in hygienic 200ml bottle. Cardamom milk has already captured the market and are available at all milma outlets and strawberry, chocolate, pineapple, and mango flavors are also available in the market.
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THEORETICAL ASSESMENT
Financial statements are the summarized statements of accounting data produced at
the end of the accounting process by an enterprise through which it communicates accounting information to internal and external users. They are prepared for the purpose of presenting a periodical review or report of the progress made by the concern. Financial statement includes mainly 2 statements which the account prepares at the end of given period. They are income statement (P&L A/c) and position statement (Balance Sheet). The purpose of preparing profit and loss account is to ascertain the net results of the trading activity and that of balance sheet is to show the financial position of the business.
ACCORDING TO JOHN N MYER
―The financial statement provides the summary of accounts of a business enterprise, the balance sheet reflecting the assets and liabilities and income statement showing the results of operation during certain period‖.
NATURE OF FINANCIAL STATEMENT
The nature and accuracy of the data shown in the financial depends on the following facts:
1. Recorded facts
The term recorded facts refer to the data taken out from the accounting records. Records are maintained on the basis of actual cost data. The assets purchased at different times and different prices are put together and shown at cost price. If any depreciation is provided at the end of the accounting year, it is deducted from the original cost.
2. Accounting conventions
While preparing financial statement, certain accounting conventions and principles are followed. Accounting is a dynamic science and accounts have developed from time to time a number of conventions from experience.
3. Postulates
The accountants make certain assumptions while making accounting records. One of the assumptions is that enterprise is an ongoing concern. Similarly he has to use other postulates like business entity, money measurement, stable value of rupee, profit accrual etc. These postulates are reflected in the financial statements.
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4. Personal judgment.
The application of the concept and conventions of accounting depends on the personnel judgment of the accountant. That is why the financial statement prepared by 2 different accountants of the same concern give different results. Personnel judgment effects provision for deddebts, depreciations, value of stock etc. which ultimately effect financial statement. Thus the personnel judgment of the accountant plays an important role in preparing the financial statement.
IMPORTANCE OF FINANCIAL STATEMENT
Financial statements are highly useful to the management, creditors, investors,
bankers, govt. public at large. The utility of financial statement to different parties are:
1. Management
The management is able to exercise cost control through financial statement. The efficient and inefficient spots are brought to the notice of the management. The mgt is able to decide the course of action to be taken in future.
2. Creditors
The creditors are interested in the short-term solvency of the concern. The current ratio and acid test ratio will enable the creditors to assess the short term solvency position of the concern.
3. Bankers
The bankers are interested to see that the loan amount is secure and that the interest is paid regularly. Bankers will analyze Balance sheet & P& L A/c to determine financial strength and profitability of concern. The debt equity ratio and interest coverage ratio will enable the banker to analyse the solvency position of the firm.
4. Investors
The investors are interested in the security of the principle amount invested by them and regular interest payment by the concern. The investor will analyze the present financial position and study the future prospects of the concern.
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5. Government
The financial statements are used to access tax liability of business enterprise. This helps the govt. to find out whether business is following various tax regulations or not.
6. Others
Trade associations, stock exchanges and public at large may also analyze the financial statement to judge the financial position of the concern.
LIMITATIONS OF FINANCIAL STATEMENT
1. A balance sheet is described as a statement of all assets and liabilities. But this is not true. There are certain assets and liabilities which a B/S fail to disclose. E.g.: value of human resource.
2. The figures given in the balance sheet are on historical basis. While preparing it, the replacement cost of the assets is totally ignored.
3. An investor who wishes to analyse the balance sheet is more concerned with present and future, where as the Balance sheet pertains to a point of time relating to past and therefore may not be helpful.
4. Personal judgments play a great role in determining the figures for the balance sheet. Provision for depreciation, stock valuation, provision for bad debts etc are based on personnel judgments and not free from bias.
5. Financial statements do not give a final picture of the concern. The data given in this statement is only approximate. The actual position can only be determined when the business is sold or liquidated.
6. Balance sheet does not disclose information relating to changes is mgt, loss of markets etc which can give a vital bearing on the earnings of the Company.
7. The precision of the financial statement data is not possible because the statements deal with matters which cannot be precisely stated
8. Because of the flexibility of accounting principles, certain liabilities are not provided for and to that extent, Balance sheet will give a misleading picture.
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ANALYSIS OF FINANCIAL STATEMENT
The analysis of financial statement is the study of relationship among
various financial facts and figures as set out in the financial statement is B/S & P&L account. Financial analysis is the process of determining the significant operating and financial characteristics of a firm from accounting data. A proper analysis and interpretation of financial statement enables a person to judge the profitability and financial strength of the business.
According to Myers ―financial statement analysis is largely a study of relationship among the various financial factors in a business as disclosed by a single set of statements and a study of these factors as shown in the series of statements.
OBJECTIVES OF FIANANCIAL ANALYSIS
1. To estimate the earning capacity of the firm.
2. To judge the financial position and financial performance of the firm. 3. To judge the solvency of the firm.
4. To determine the long-term liquidity of the funds.
5. To determine the debt capacity of the firm.
6. To decide about the future prospects off the company. 7. To know the progress of the firm.
8. To measure the efficiency of operations.
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TYPE OF FINANCIAL ANALYSIS
1. ACCORDING TO MATERIAL USED.
a. External analysis
External analysis of financial statement is made by those who do not have access to the detailed accounting records of the company i.e. banks, creditors, and general public. These people almost entirely depend on published financial statement.
b. Internal Analysis
Such analysis is made by the finance and accounting debt to help the top management. These peoples have direct approach to the relevant financial records. Such
Types of Financial Analysis
According to Material used According to Modus operandi According to the objective of Analysis External Analysis Internal Analysis Horizontal Analysis Vertical Analysis Long term Analysis Short term Analysis
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analysis emphasizes on the performance appraisal and assessing the profitability of diffe3rent activities.
2. ACCORDING TO THE MODUS OPERANDI
a. Horizontal analysis
When the financial statements for a number of years are reviewed and analyzed, the analysis is called ‗horizontal analysis‘. Preparation of comparative statements is an e.g. of horizontal analysis. As it is based from year to year, rather than on one date it is also known as ‗dynamic analysis‘.
b. Vertical analysis
Vertical analysis is also known as ―static Analysis‖. When ratios are calculated from the balance sheet of one year, it is called vertical analysis. It is not very useful for long term planning as is does not include the trend study for future.
3. ACCORDING TO THE OBJECTIVES OF ANALYSIS
a. Long term analysis
In the long term the company must earn a minimum amount sufficient to maintain a suitable rate of return on the investment to provide for the necessary growth and development of the company and to meet the cost of capital. Thus, in the long term analysis, the stress is on the stability and earning potentiality of the concern.
b. Short term analysis
The short term analysis of financial statement is mainly concerned with the working capital analysis. In a short run a company must have ample funds available to meet its current needs and sufficient borrowing capacity to meet the contingencies. Hence, in short term analysis, the current assets & current liabilities are analyzed and cash position of the concern is determined.
TOOLS OF FINANCIAL ANALYSIS
In the process of analysis various tools or methods are used by financial analyst.
The different tools are:
a. Comparative Statement
The preparation of comparative financial and operating statements is an important device of horizontal financial analysis., comparative financial statement are the
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statement in which figures of two or more periods are placed side by side along with changes in future in absolute and percentage terms to facilitate comparison. Both income statement (P&L account) and position statement (balance sheet) are prepared in the form of comparative financial statement.
b. Common size financial statement
These are statements prepared to show the relationship of different individual items with some common items. Common size financial statements express all figures of a financial statement as percentage of some common base in the P&L account. The sales figure is assumed to be 100 and all figures are expressed as % of scales. Similarly in the Balance Sheet the total of assets and liabilities is taken as 100 and all figures are expressed in the percentage of 100.
c. Trend Percentage
Trend percentages are helpful in making comparative study of the financial statement for several years. The method of calculating trend percentage involves the calculation of percentage relationship that each item bears to the same item in the base year. Base year is usually the earliest year.
d. Average Analysis
It is an improvement over trend analysis method. When trend ratio has been determined for the concern, these figures are compared with average trend of the industry. Both these trend are presented in the graph as shape of a curves.
e. Statement of changes in working capital
To know the increase or decrease in the working capital over a period of time, The preparation of a statement of changed in working capital is also very useful. The main objectives of the statement preparation are to derive a fairly accurate summary of the event that affected the amount of working capital. The amount of networking capital is determined by deducting the total of current liabilities form the total of current assets.
f. Fund flow and cash flow statement.
Fund flow analysis is a valuable aid to the financial executives and creditors for evaluating the use of the fund by the firm and in determining how those uses were financed. A fund flow statement indicates where funds came from and where they are used during period.
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Cash flow statements reveal the sources of cash and its application. Both are important tools of communication and very helpful for financial executives in planning the intermediate and long term financial of the firm.
g. Ratio Analysis
Ratio analysis expresses the relationship between 2 according variables taken from financial statement of accounting period in the form of ratio. It is the most important tool available to financial analysis for their work.
LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS
1. The analysis of financial statement is only a means to reach conclusions and not conclusions in itself So, it cannot work as a substitute for sound judgment.
2. The figures drawn from the statement of just one year have limited use and value. So it will be dangerous to depend upon them only.
3. The results of the analysis of financial statements should not be taken as indicator of good or bad management
4. Any change in the method or procedure of accounting mars the utility of such analysis. The figures of different financial statement lose the characteristics of comparability. 5. An analyst should also be cautions from window dressing in the accounts.
6. It doesn‘t disclose reasons for changes.
7. The basic nature of financial statement is historic. Part can never be 100% representative of the future. Hence, future course of business events should be forecasted. 8. The rapid changes in the value of money also reduce the validity of such analysis and no useful conclusions can be drawn from a comparative study of the financial statements of different years.
(Ref: Pandey IM ‗Financial Management)
* RATIO ANALYSIS
Ratio analysis is one of the powerful tools of financial analysis. It aims at making use of quantitative information for decision making. A ratio is an expression of relationship between two figures or two amounts. It is a yard stick which measures relationship between two variables. It highlights solvency, liquidity etc.
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According to Robert Antony, Ratio is ―Simply one number expressed in terms of another‖.
Ratio analysis gives answer to the problem such as
i. Whether the enterprises financial position is basically sound. ii. Whether the capital structure of the business is in proper order. iii. Whether the credit policy in relation to sales and purchase is sound. iv. Whether the company is credit worthy.
v. Whether the profitability of the enterprise is satisfactory
ADVANTAGES OF RATIOS ANALYSIS
1. It makes it easy to grasp the relationship between various items and helps in understanding the financial statements
2. Ratios indicate trends in important items and thus will help in forecasting. 3. Ratio may be used as a measure of efficiency.
4. Ratios are very useful for measuring the performance and very useful in cost control. 5. Ratios can effectively communicate what has happened between two accounting dates.
6. Standard ratios may be computed. Comparison of actual ratios with standard will help in control.
7. It throws lights on the degree of the management and utilization of the assets and that is why it is called surveyor of efficiency. They help the management in decision making. 8. It helps in the simple assessment of liquidity, solvency, profitability and efficiency of the firm.
LIMITATIONS OF RATIOS ANALYSIS
1. Ratio can be useful only when they are computed in a sufficient large number. A single ratio would not be able to convey anything. At the same time if too many ratios are calculated, they are likely to confuse.
2. Ratio analysis gives only a good basis for quantitative analysis of financial problems. But it suffers from qualitative aspects.
3. Ratios are computed from historical accounting records. So they also process those limitations of financial accounting.
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4. It is not possible to calculate exact and well accepted absolute standard for comparison.
5. In the ratio Analysis Arithmetical window dressing is possible and firm may be successful in concealing the real position.
6. Ratios are only means of financial analysis, but not an end in themselves. They can be affected with personal ability and bias of the analyst.
7. Ratio analysis helps in providing only a part of information needed in the process of decision making.
CLASSIFICATION OF RATIOS
1. Statement wise classifications
a. Balance sheet Ratios : These ratios deal with relationships between two items or group of items which are both in balance sheet
E.g. Current Ratio, Quick Ratio etc.
b. Income Statement Ratios: These ratios focus on the relationship between the two items or group of items, all of which are drawn from revenue statement. They are also called operating Ratios eg. Gross profit ratio, Stock turnover ratio, net profit ratio.
c. Combined ratios: These ratios depict the relationships between two items, one of which is drawn from balance sheet and other from revenue statements.Eg, debtor turnover ratio, assets turnover ratio etc.
2. Classification according to Nature
a. Liquidity ratios: These ratios portray the capacity of the business unit to meet its short term obligations.Eg, current ratio, quick ratio etc.
b. Leverage Ratios: These ratios are called efficiency ratios. These ratios measure the owners stake in the business vis-à-vis that of outsiders. The long term solvency of the business can be determined by this ratio. Eg.Debt equity ratio, proprietary ratio etc.
c. Activity Ratios: These ratios evaluate the use of total resources of the business concern along with the use of components of total assets. The greater the rate of turnover the move efficient the management would be. Eg, stock turnover ratio, fixed asset turnover ratio etc.
d. Profitability ratios: The profitability of a business concern can be measured by profitability ratios. These ratios highlight the end result of business activities by which alone
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the overall efficiency of a business unit can be judged. Eg. Net profit ratio, gross profit ratio etc.
3. Classification according to importance
a. Primary ratios: The ratios which relates the profit to capital employed is termed as primary ratio. E.g. Return on capital employed, operating ratio etc.
b. Secondary ratios: This classification is effected to facilitate inter firm comparison and to focus on some factors responsible for the success of the unit they are secondary ratios.
I. Liquidity Ratios
Liquidity is the ability of the firm to meet its current liabilities. Since liquidity is
basic to continuous operations of the firm. It is necessary to determine the degree of liability of the firm.
1. Current Ratio
Current ratio is the most common ratio for measuring liquidity. It represents the
ratio of current assets to current liabilities. It is also called working capital ratio. The current ratio measures its short term solvency. The satisfactory ratio is 2:1. A higher ratio indicates sound solvency and a lower ratio indicates adequate working capital. It determined by dividing current assets by current liability.
Current assets are those, the amount of which can be realized within a period of one year e.g.- cash, bills receivables. Current liabilities are those amounts which are payable within a period of one year e.g. Outstanding expenses, bills payable.
Current Assets Current Ratio =
Current Liabilities
2. Quick Ratio.
It is the relation between quick assets to current liabilities. They are also called
‗Acid test Ratio‘ or ‗Liquidity ratio‘. Acid test ratio of 1:1 is considered satisfactory. Higher ratio shows sound financial position and a low ratio shows unsound financial position.
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Quick Assets Quick Ratio =
Current liabilities
Quick assets =cash+bank+B/R+ debtor or current assets-stocks
1. Absolute Liquidity Ratio
It is the ratio of liquid assets to current liabilities. It is also called cash position ratio.
A ratio of 0.75: 1 is an ideal ratio
Cash + Marketable securities Absolute Liquidity Ratio =
Current Liabilities
II. Leverage ratios
These are also called structure ratios. These ratio measures the long term solvency
position of the firm. This ratio helps to determine the capital structure of a company. E.g. Debt equity ratio, proprietary ratio, capital gearing ratio etc.
1. Debt-equity ratio
It is the ratio of outsiders fund to owners‘ equity. This ratio is computed by
dividing the total debt of the firm by its net worth. Debt refers to total outside liabilities. It includes all current liability like loan, debenture etc. Ideal ratio is 2:1.A high ratio is unfavorable for the film. A low ratio represents a satisfactory capital structure of the firm. Debt
Debt-Equity ratio =
Equity
Shareholders fund = share capital + reserve and surplus- fictitious assets.
2. Proprietary Ratio
Proprietary ratio relates to the shareholders fund to total assets. This ratio
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The ideal ratio is 1:3 (i.e. 0.33). This ratio shows the financial strength of the company. Higher ratio indicates a secured position to creditors and a low ratio indicates a greater risk to creditors.
Shareholders‘ funds Proprietary ratio =
Total assets
Shareholders fund = equity share capital + preferences + share capital + reserve & surplus – fictions assets
3. Fixed assets to net worth ratio
This ratio shows relationship between fixed assets and shareholders fund. The purpose of this ratio is to find out the percentage of owners fund invested in fixed assets.
Fixed assets Fixed assets to net worth =
Net worth or shareholders fund
III. Activity ratios
Activity ratio measures how efficiently the assets are employed by the firm. These ratios are also called ‗Turnover Ratio‘. These ratios indicate the speed with which assets are being converted into sales. These ratios are also called ‗efficiency ratio‘.
1. Inventory Turnover Ratio(stock turnover Ratio)
This ratio indicates whether investment in inventories is efficiently used or not. A
high ratio indicates risk sales. A low Ratio results in blocking of funds in inventory. Cost of goods sold
Inventory turnover ratio =
Average stock
Cost of goods sold = sales – gross profit OR sales + gross loss OR = (opening stock + closing stock/2
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2. Fixed assets to turnover ratio
This ratio indicates the extents to which the investments in fixed assets
contribute towards sales if compared with a previous year, it indicates whether the investment in fixed assets has been judicious or not.
Net sales Fixed assets turnover ratio =
Fixed assets
3. Working capital turnover ratio.
This ratio reflects the turnover of the firm‘s net working capital in the course of the
year. It is a good measure of over trading & under taking. Net sales Working capital turnover =
Fixed assets
4. Debtors turnover ratio (Debtors velocity)
It is the ratio of relationship between account receivables and net credit sales of
the period. The higher the ratio, the better it is since it would indicate that debts are being collected promptly.
Net credit sales Debtors Turnover Ratio =
Avg account receivables
IV. Profitability Ratios
A business firm is basically a profit earning organizations. The income statement of
the firm shows the profit earned by the firm during the accounting period. Profitability is an indication of the efficiency with which the operations of business are carried on.
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1. Gross profit ratio
This ratio serves as a valuable indicator of the firm‘s ability to utilize effectively outside sources of fund. Secondly. This ratio serves as aan important tool in shaping the pricing policy of the firm.
2. Net profit Ratio
This ratio is also called the net profit to sales or net profit margin ratio. It is determined by dividing the net income after tax to the net sales for the period. Higher the ratio better is the operational efficiency of the concern.
Net profit
Net profit ratio = X100 Sales
3. Operating ratio
Operating ratio is an indicative of the proportion that the cost of sales bears to sales. Cost of goods sold + operating expenses
Operating Ratio = X100
Net sales
Cost of sales = direct cost of goods sold + other operating expense
Operating expense = administration, selling and distribution expense but do not include financing cost and income tax.
Lower the ratio, the more profitable are the operations indicating an efficient control over cost and selling price. Reverse is the position when the ratio is higher.
(Ref: Davies D ‗The art of Managing Finance)
*Trend Analysis and Average Analysis
Review and appraisal of tendency in connecting in accounting variables is simply called as trend analysis. An analysis of the trend ratios over a past few years may well suggest the direction in which the concern in going. Average analysis is an improvement over trend analysis.
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Uses of trend analysis
It helps in easily knowing the direction of movement of activity of business.
It makes data brief and easily understandable.
It helps in comparing one period with other period.
Current year amount
Trend Percentage = X100 Base year amount
Here both the Trend analysis and average analysis of sales, stock, profit before tax, current assets, current liabilities and working capital are done.
*Comparative Financial Statement
Comparative financial statements are statements of functional position at different periods of time. The comparative statement shows
Absolute Figures( rupee amount )
Changes in absolute figures.
Absolute data in terms of percentage.
Increase or decrease in terms of percentage.
Comparative Balance Sheet
The comparative balance sheet analysis is the study of trend of same items and computed items in two or more balance sheet of the same business enterprise on different dates. Comparative balance sheet will interept the following aspects:
Current financial position and liquidity position.
Long term financial position of the concern can be analyzed by studying the changes in fixed assets, long term liabilities and capital.
Profitability of the concern is the study of increase or decrease in retained earnings, various resources and surpluses.
*Schedule of changes in working capital
Working capital is the difference between current assets and current liabilities. The schedule of changes in working capital is prepared to find out the increase or decrease in working capital during a period. This schedule is prepared with the help of only current assets and current liabilities.
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*Common size balance sheet
This statement establishes the relationship between each asset to total value of assets & each liability to total of liabilities. The objective is to analyse the change in individual item of balance sheet and to see the trend of different items of assets & liabilities.
(Ref: Financial management theory and practice by ‗Chandran P‘)
STATEMENT OF PROBLEM
The ultimate aim of any organisation is the maximisation of wealth of shareholders and it can be done through profit maximisation. Effective and efficient financing and investment decision help to achieve the objectives. Managing of current assets is the main area in which finance department is to concentrate. Inventory constitutes a major portion of current asset in manufacturing organization. So the inventory must be managed effectively & efficiently in order to achieve the financial management objectives.
In this study the main focus is on the efficiency of financial position of the company.
OBJECTIVES
To study the overall performance and profitability of the concern.
To analyse the financial strength and weakness of the company.
To study about the management concern.
To know about the theoretical aspect with actual practice.
To understand the working of various department.
To analyse the source, applications, a use of funds, periodic change in working capital and indicate results of current financial management.
To analyse the liquidity position and solvency of the company.
To assess the future prospects of the company.
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LIMITATION
The major limitation was the time constraints. As time available was much limited.
Due to time constraints, could not interview many executives for collection of more details.
The study covered a 6 year period from 2008- 2009 and 2012-2013. The changes after before this period were not taken into consideration.
Financial matters considered confidential by the company were not revealed.
The technique of trend analysis and ratio analysis are used to study the performance of the firm. The limitation of ratio analysis may affect the effectiveness of study.
As I have taken figures for analysis from the financial statement, all limitation of this statement will apply to study.
METHODOLOGY OF THE STUDY
Research means search for knowledge. It is a process of systematic and in-depth study of search of any particular topic, subject or area of investigation backed by collection, computation, presentation and interpretation of relevant data.
Sources of data
This study is based on primary as well as secondary data. Mainly secondary data has been used for the study.
1. Primary data
Primary data refer to the actual information collected by researcher for the study. It is specifically designed to fulfil the data needs of problem in hand. Primary data is collected from the primary sources that are formal interviews. Information collected is mainly based on personal discussion with finance executives.
2. Secondary data
Data which are not originally collected but rather obtained from the published or unpublished sources are known as secondary data.
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Journal of the company
Company records
Annual records
METHOD OF DATA ANALYSIS
Ratio analysis
Trend analysis and average analysis
Comparative balance sheet
Schedule of changes in working capital
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CHAPTER-II
INTEGRATED PERSPECTIVE OF ALL
FUNCTIONAL AREAS IN
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DIFFERENT DEPARTMENTS IN MILMA DAIRY
FINANCE AND ACCOUNTS DEPARTMENT
Financial management of KCMMF and its units.
Liaison with financial institutions for availing loan for creation of Infrastructure. Liaison with government for availing government financial assistance.
Long term repayment and scheduling of loans.
Capital management schemes for primary co-operative societies. Recommend remuneration of APCOS employees.
HUMAN RESOURCE DEPARTMENT
Family has 2098 skilled, efficient and qualified personnel and has an excellent labour relationship.
Takes active role in fanning personnel policies and services rules Finalize long term wage settlement, bonus etc.
Milma Placement and career development activities.
MARKETING DEPARTMENT
Brand management
Bulk trading of surplus products. Institutional supply contracts
Co-ordinate promotional development Procurement &consumer pricing.
PURCHASE DEPARTMENT
Centralized purchase of dairy consumables Purchase of raw materials for cattle feed plants Purchase functions of KCMMF Head Office.
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QUALITY CONTROL DEPARTMENT
Render technical and legal assistance to primary dairy co-operatives and Regional Milk Unions.
Liaison and maintain quality of milk and milk products as per the standards.
Liaison with statutory authorities for bringing in suitable amendments in statutes.
Attend to consumer complaints on quality problems.
PROJECTS DEPARTMENT
Planning and execution of projects for creating infrastructure for Regional Milk Unions and KCMMF.
Providing consultancy for execution of projects.
Liaisoning with statutory authorities like Factories and Boilers, Electrical Inspectorate Dept.of Explosive etc for obtaining approval and implementation of projects
Liaisoning with government for land allocation, water, power and other amenities.
Estate management and assistance in maintenance of Plant and Machinery of KCMMF Unit.
PLANNING AND SYSTEMS
Maintenance of systems at KCMMF, Units and Regional Milk Unions. Development of software to support various functions.
Purchase of Hardware and Software. Support Management Information System. Networking.
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PROCUREMENT AND INPUT DEPARTMENT
Formation and supervision of primary milk societies. Training and development of dairy farmer and society staff. Rural milk production enhancement activities.
Providing input services to farmer like vetinary and fodder development etc. Ensuring regular cattle field supply.
Providing scholarship to children, death benefit, pension, medical facilities etc.
PRODUCTION DEPARTMENT
Processing and packing of milk as per standards. Production planning and control.
Products manufacturing as per standards. New product development.
MAINTENANCE DEPARTMENT
Upkeep and maintenance of machines.
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ACCOUNTS AND FINANCE DEPARTMENT
The accounts and finance department consist of a manager, assistant accounts officer, junior superintendent, and senior assistant and office assistants. The department has to keep records about the interest paid to NDDB, the insurance provided for building, vehicles plant and machinery etc. The departments prepare profit and loss account and balance sheet and send it to the Head Office. The department has to ensure that the salaries due to employees are paid in time. They are also considered with the preparation the budget and ensuring that the entries are properly posted in the books of accounts. They also see that the tax is paid in time; the store consumption account is also kept to prepare the profit and loss.
Finance Manager
Assistant Manager
Assistant Accounts Officer
Junior Superintendents
Senior Assistant
Office Attenders Junior Assistant
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ACCOUNTING SYSTEM:
The accounting system of the unit is the double entry system i.e. for every credit there is a debit. All the transactions are computerized. Trial balance and profit and loss account are repaired half yearly. A uniform system is designed according to the NDDB. Separate books are maintained for each items.
AUDIT:
The section is computerized, hence auditing is an easy task. There are three types of audits:- internal audit, statuary audit, and co-operative audit Internal audits are done on the daily basis and for this, the auditors are appointed by the dairy. Government does the statutory audits and their remuneration is paid by the union. Co-operative audits are done every year.
BUDGET:
The budget prepared every year considering the procurement sales, increment in salary and other expenses. Budgets are prepared on the policies set by the KCMMF. All the payments and allocations of funds to other department are strictly on the basis of budgets. Each department, if needed to the renewed should check the amount allocated to each department. The budget prepared is submitted to head office and get approval. Budgets are prepared considering the annual turnover.
SOURCES OF FUNDS:
A main source of procurement of funds is NDDB. There are several funds that help to meet the uncertainties. They are price Equalization funds, corpus funds, and farmers welfare funds etc. The working capital is collected from the head office once in fifteen days.
ADVANCE REGISTER:
It contains cash advance details. Profit and loss account is prepared every month while balance sheet and budget is prepared yearly. Every year auditing takes place in the daily. Register of co-operative societies come and audit every year. The Ambalathara Dairy