IFFCO:-Indian Farmers Fertilizers Co-operative Ltd.

SUMMER TRAINING REPORT ON

“ CAPITAL BUDGETING”

AT IFFCO, PHULPUR UNIT – ALLAHABAD

UTTAR PRADESH

Submitted by

SUNIL SANGWAN (2010MB25)

in partial fulfillment for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

GUIDED BY: SUBMITTED TO:

Mr. Syed Azam Ali Dr. D.N.Verma

( Manager – Accounting) (Head – Training Centre)

Motilal Nehru National Institute of Technology Allahabad - 211004, INDIA

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ACKNOWLEDGEMENTS

This is my great privilege to acknowledge my sincere honor to my guide Mr. Syed Azam Ali, IFFCO, ALLAHABAD for his inspiring and excellent guidance, keen supervision and help in successful completion of this summer training.

I also express my deep sense of gratitude of and thankfulness to Sh. D.K.Suneja, DGM (Finance and Accounting) for helping and encouraging me during the completion of my summer training.

Our sincere thanks are also due to Dr. D.N.Verma, Head- Training Centre, IFFCO for providing all necessary facilities and assistance from the department which helped to complete my summer training work.

(SUNIL SANGWAN) R.No:2010MB25

S.M.S MNNIT Allahabad-211004

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IFFCO:-Indian Farmers Fertilizers Co-operative Ltd.

The Concept of Co-operation

The strength of co-operative movement emanates from its ability to empower people who

are individually weak and often helpless. The spirit of co-operations encourages people to

come together on the basis of equality to achieve their economic interests. Voluntary

association of individuals is the important aspect of any co-operative endeavor. Equality

is assured to all the individuals involved in an unselfish atmosphere. The goal is to

achieve the common economic interests of the group of individuals who have come

together for the purpose. According to the Committee on co-operation in India (Mclagan

committee) " the theory of co-operation is very briefly, that an isolated and powerless

individual can be in association with others and by moral development and mutual

support obtain, in his-degree, the material advantages available to wealthy or powerful

person, and there by develop himself to the fullest extent of his natural abilities. By the

union of forces, material advancement is secured and by united action self-reliance is

fostered, and it is from the interaction of these influences that it is hoped to attain the

effective realization of the higher and more prosperous standards of life which has been

characterized as ' better business, better farming and better living".

The basic characteristics which are common to all the co-operative endeavors are defined

under principles of cooperation. They provide the framework within which all the co-

operative bodies operate with some variations.

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CENTRALISATION / DECENTRALISATION

Centralization refers to the degree to which decision making is concentrated at a single

point in the organization. the implications of centralization is that the decision making

Power with regard to planning , organization directing and control is the hands of manger

sat the top level.

Decentralization is the extent to which authority and decision making are spread

throughout all levels of an organization rather than being reserved exclusively for top

management.

The Phulpur plant of IFFCO has a highly centralized structure of authority. The major

policy decision, strategies and goals are set by the Board of Directors of IFFCO and

conveyed to the top levels of management of the IFFCO phulpur plant. At the phulpur

plant the Senior General Manager along with the General Manager and the Joint General

Managers than analyze the Goals set for them and make decisions and plans to attain

them. However The Board only lays down a broad outline and sets goals all decision

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regarding the daily affairs of the plant and the methods to be adopted to achieve the

goals are taken by the TOP levels of management at the phulpur Plants.

CAPITAL BUDGETING

Capital Expenditure

A capital expenditure is an outlay of cash for a project that is expected to produce a cash

inflow over a period of time exceeding one year. Examples of projects include

investments in property, plant, and equipment, research and development projects, large

advertising campaigns, or any other project that requires a capital expenditure and

generates a future cash flow.

Because capital expenditures can be very large and have a significant impact on the

financial performance of the firm, great importance is placed on project selection. This

process is called capital budgeting.

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Decisions on investment, which take time to mature, have to be based on the returns

which that investment will make. Unless the project is for social reasons only, if the

investment is unprofitable in the long run, it is unwise to invest in it now.

Often, it would be good to know what the present value of the future investment is, or

how long it will take to mature (give returns).

Criteria for Capital Budgeting Decisions

Potentially, there is a wide array of criteria for selecting projects. Some shareholders may

want the firm to select projects that will show immediate surges in cash inflow, others

may want to emphasize long-term growth with little importance on short-term

performance. Viewed in this way, it would be quite difficult to satisfy the differing

interests of all the shareholders. Fortunately, there is a solution.

The goal of the firm is to maximize present shareholder value. This goal implies that

projects should be undertaken that result in a positive net present value, that is, the

present value of the expected cash inflow less the present value of the required capital

expenditures. Using net present value (NPV) as a measure, capital budgeting involves

selecting those projects that increase the value of the firm because they have a positive

NPV. The timing and growth rate of the incoming cash flow is important only to the

extent of its impact on NPV.

Using NPV as the criterion by which to select projects assumes efficient capital markets

so that the firm has access to whatever capital is needed to pursue the positive NPV

projects. In situations where this is not the case, there may be capital rationing and the

capital budgeting process becomes more complex.

Note that it is not the responsibility of the firm to decide whether to please particular

groups of shareholders who prefer longer or shorter term results. Once the firm has

selected the projects to maximize its net present value, it is up to the individual

shareholders to use the capital markets to borrow or lend in order to move the exact

timing of their own cash inflows forward or backward. This idea is crucial in the

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principal-agent relationship that exists between shareholders and corporate managers.

Even though each may have their own individual preferences, the common goal is that of

maximizing the present value of the corporation.

Capital budgeting versus current expenditures

A capital investment project can be distinguished from current expenditures by two

features:

a) Such projects are relatively large

b) a significant period of time (more than one year) elapses between the investment

outlay and the receipt of the benefits.

As a result, most medium-sized and large organizations have developed special

procedures and methods for dealing with these decisions. A systematic approach to

capital budgeting implies:

a) The formulation of long-term goals

b) The creative search for and identification of new investment opportunities.

c) Classification of projects and recognition of economically and/or statistically

dependent proposals

d) The estimation and forecasting of current and future cash flows

e) A suitable administrative framework capable of transferring the required information

to the decision level

f) The controlling of expenditures and careful monitoring of crucial aspects of project

execution

g) A set of decision rules which can differentiate acceptable from unacceptable

alternatives is required.

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Classification of investment projects

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a) By project size

Small projects may be approved by departmental managers. More careful analysis and

Board of Directors' approval is needed for large projects of, say, half a million dollars or

more.

b) By type of benefit to the firm

1. An increase in cash flow.

2. A decrease in risk.

3. An indirect benefit (showers for workers, etc).

c) By degree of dependence

1. Mutually Exclusive Projects (Can Execute Project A or B, But Not Both).

2. Complementary Projects: Taking Project Increases the Cash Flow of Project B.

3. Substitute projects: taking project A decreases the cash flow of project B.

d) By degree of statistical dependence

1. Positive dependence

2. Negative dependence

3. Statistical independence

The analysis stipulates a decision rule for:

I) accepting or

II) Rejecting investment projects

The time value of money

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Recall that the interaction of lenders with borrowers sets an equilibrium rate of interest.

Borrowing is only worthwhile if the return on the loan exceeds the cost of the borrowed

funds. Lending is only worthwhile if the return is at least equal to that which can be

obtained from alternative opportunities in the same risk class.

The interest rate received by the lender is made up of:

i) The time value of money: the receipt of money is preferred sooner rather than later.

Money can be used to earn more money. The earlier the money is received, the greater

the potential for increasing wealth. Thus, to forego the use of money, you must get some

compensation.

ii) The risk of the capital sum not being repaid: This uncertainty requires a premium as a

hedge against the risk; hence the return must be commensurate with the risk being

undertaken.

iii) Inflation: money may lose its purchasing power over time. The lender must be

compensated for the declining spending/purchasing power of money. If the lender

receives no compensation, he/she will be worse off when the loan is repaid than at the

time of lending the money.

a) Future values/compound interest

Future value (FV) is the value in dollars at some point in the future of one or more

investments.

FV consists of:

i) The original sum of money invested, and

ii) the return in the form of interest.

The general formula for computing Future Value is as follows:

FVn = Vo (l + r)n

Where

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Vo is the initial sum invested

r is the interest rate

n is the number of periods for which the investment is to receive interest.

b) Net present value (NPV)

The NPV method is used for evaluating the desirability of investments or projects.

Where:

Ct = the net cash receipt at the end of year t

Io = the initial investment outlay

r = the discount rate/the required minimum rate of return on investment

n = the project/investment's duration in years.

The discount factor r can be calculated using:

c) The internal rate of return (IRR)

1. The IRR is the discount rate at which the NPV for a project equals zero. This rate

means that the present value of the cash inflows for the project would equal the present

value of its outflows.

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2. The IRR is the break-even discount rate.

3. The IRR is found by trial and error.

Where r = IRR

Economic rationale for IRR:

If IRR exceeds cost of capital, project is worthwhile, i.e. it is profitable to undertake.

Net present value vs. internal rate of return

Figure NPV vs. IRR Independent projects

If cash flows are discounted at k1, NPV is positive and IRR > k1: accept project.

If cash flows are discounted at k2, NPV is negative and IRR < k2: reject the project.

Mathematical proof: for a project to be acceptable, the NPV must be positive, i.e.

Similarly for the same project to be acceptable:

Where R is the IRR.

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The profitability index - PI

This is a variant of the NPV method.

Decision rule:

PI > 1; accept the project

PI < 1; reject the project

If NPV = 0, we have:

NPV = PV - Io = 0

PV = Io

Dividing both sides by Io we get:

d) The payback period (PP)

The CIMA defines payback as 'the time it takes the cash inflows from a capital

investment project to equal the cash outflows, usually expressed in years'. When deciding

between two or more competing projects, the usual decision is to accept the one with the

shortest payback.

Payback is often used as a "first screening method". By this, we mean that when a capital

investment project is being considered, the first question to ask is: 'How long will it take

to pay back its cost?' The company might have a target payback, and so it would reject a

capital project unless its payback period was less than a certain number of years.

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Disadvantages of the payback method:

1. It ignores the timing of cash flows within the payback period, the cash flows after the

end of payback period and therefore the total project return.

2. It ignores the time value of money. This means that it does not take into account the

fact that $1 today is worth more than $1 in one year's time. An investor who has $1 today

can consume it immediately or alternatively can invest it at the prevailing interest rate,

say 30%, to get a return of $1.30 in a year's time.

3. It is unable to distinguish between projects with the same payback period.

4. It may lead to excessive investment in short-term projects.

Advantages of the payback method:

1. Payback can be important: long payback means capital tied up and high investment

risk. The method also has the advantage that it involves a quick, simple calculation and

an easily understood concept.

e) The accounting rate of return - (ARR)

The ARR method (also called the return on capital employed (ROCE) or the return on

investment (ROI) method) of appraising a capital project is to estimate the accounting

rate of return that the project should yield. If it exceeds a target rate of return, the project

will be undertaken.

Note that net annual profit excludes depreciation.

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Disadvantages:

1. It does not take account of the timing of the profits from an investment.

2. It implicitly assumes stable cash receipts over time.

3. It is based on accounting profits and not cash flows. Accounting profits are subject to a

number of different accounting treatments.

4. It is a relative measure rather than an absolute measure and hence takes no account of

the size of the investment.

5. It takes no account of the length of the project.

6. It ignores the time value of money.

The payback and ARR methods in practice

Despite the limitations of the payback method, it is the method most widely used in

practice. There are a number of reasons for this:

1. It is a particularly useful approach for ranking projects where a firm faces liquidity

constraints and requires fast repayment of investments.

2. It is appropriate in situations where risky investments are made in uncertain markets

that are subject to fast design and product changes or where future cash flows are

particularly difficult to predict.

3. The method is often used in conjunction with NPV or IRR method and acts as a first

screening device to identify projects which are worthy of further investigation.

4. It is easily understood by all levels of management.

5. It provides an important summary method: how quickly will the initial investment be

recouped?

Allowing for inflation

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So far, the effect of inflation has not been considered on the appraisal of capital

investment proposals. Inflation is particularly important in developing countries as the

rate of inflation tends to be rather high. As inflation rate increases, so will the minimum

return required by an investor. For example, one might be happy with a return of 10%

with zero inflation, but if inflation was 20%, one would expect a much greater return.

The two rates of return and the inflation rate are linked by the equation:

(1 + money rate) = (1 + real rate) x (1 + inflation rate)

Where all the rates are expressed as proportions.

Expectations of inflation and the effects of inflation

When a manager evaluates a project, or when a shareholder evaluates his/her

investments, he/she can only guess what the rate of inflation will be. These guesses will

probably be wrong, at least to some extent, as it is extremely difficult to forecast the rate

of inflation accurately. The only way in which uncertainty about inflation can be allowed

for in project evaluation is by risk and uncertainty analysis.

Inflation may be general, that is, affecting prices of all kinds, or specific to particular

prices. Generalized inflation has the following effects:

a) Inflation will mean higher costs and higher selling prices. It is difficult to predict the

effect of higher selling prices on demand. A company that raises its prices by 30%,

because the general rate of inflation is 30%, might suffer a serious fall in demand.

b) Inflation, as it affects financing needs, is also going to affect gearing, and so the cost of

capital.

c) Since fixed assets and stocks will increase in money value, the same quantities of

assets must be financed by increasing amounts of capital. If the future rate of inflation

can be predicted with some degree of accuracy, management can work out how much

extra finance the company will need and take steps to obtain it, e.g. by increasing

retention of earnings, or borrowing.

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However, if the future rate of inflation cannot be predicted with a certain amount of

accuracy, then management should estimate what it will be and make plans to obtain the

extra finance accordingly. Provisions should also be made to have access to 'contingency

funds' should the rate of inflation exceed expectations, e.g. a higher bank overdraft

facility might be arranged should the need arise.

Many different proposals have been made for accounting for inflation. Two systems

known as "Current purchasing power" (CPP) and "Current cost accounting" (CCA) have

been suggested.

CPP is a system of accounting which makes adjustments to income and capital values to

allow for the general rate of price inflation.

CCA is a system which takes account of specific price inflation (i.e. changes in the prices

of specific assets or groups of assets), but not of general price inflation. It involves

adjusting accounts to reflect the current values of assets owned and used.

At present, there is very little measure of agreement as to the best approach to the

problem of 'accounting for inflation'. Both these approaches are still being debated by the

accountancy bodies.

Capital Budgeting At IFFCO

Classification of items/ projects:

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The projects which are undertaken at IFFCO are broadly classified into four categories

for the purpose of preparing capital budget.

1. New items: new items are those items which are commenced in the current year

for the purpose of energy saving, safety, or due to some operational necessity,

replacement of ageing equipments etc. For instance,

2. Ongoing items: the projects which do not get completed within one financial year

are included in ongoing items. These incomplete projects are carrying forwarded

to the next financial year as ongoing items for completion of remaining of the

work. The reason behind creating this head is that many projects take years to

complete. Financial constraints may also be the reason for carrying the projects to

next financial year, as it is not possible to allot sufficient funds for each of the

items.

PROJECT/ITEMS

New items

Ongoing items

Completed items

Dropped items

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3. Completed items: those items which had already been completed by previous

year are included in the list of completed items. These items are not included in

the current capital budget as the capital budgeting is not done for completed

items.

4. Dropped items: those items which are approved in previous tear but in the

current year they are neither in ongoing list nor in completed items are dropped

items. These items are dropped due to insufficiency of funds or because of their

lesser priority level.

While preparing capital budget at IFFCO the expenditures incurred on the new and

ongoing items are broadly classified into thirteen categories according to their priority

level, which are as follows: -

I. Energy Saving Systems/Schemes.

II. Operational Necessity

III. Reliability Improvement

IV. Safety

V. Replacement Of Ageing Equipments

VI. Statutory Requirements Or Government Directives/ Requirements Of Input

Supplies

VII. Minor Modifications

VIII. Inspection Facility

IX. Research And Development Equipments

X. Administration Office, Buildings, Furniture and Vehicles Etc.

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XI. Associated Areas Like Welfare, Colony Amenities, and Guest House Etc.

XII. Computer And Computer System

XIII. CISF Facility

I. Energy Saving Systems/Schemes:

As the name suggests energy saving schemes are those schemes which results in

the reduction of consumption of power and energy. As in these production units

power/energy constitute a major portion of the cost of production, by reducing the energy

consumption the total cost of production can be brought down to a greater extent, which

increases the profitability of the company.

IFFCO has embarked upon an ambitious Energy Saving Project (ESP) for its five

Ammonia Plants located at Kalol, Phulpur-I, Phulpur-II, Aonla-I and Aonla-II at a total

cost of Rs. 405 crore. October 2003 was declared as Zero date of the Project. M/s. HTAS,

Denmark and M/s PDIL, Noida, were appointed as Consultants for Basic Engineering

and Detailed Engineering respectively. The Energy Saving Schemes were identified by

M/s. HTAS, Denmark, after carrying out a detailed study of all the five Ammonia Plants.

The Project was bifurcated in to two parts as Phase-I and Phase-II for ease of

implementation and to facilitate accrual of early benefits.

II. Operational necessity:

These are those items which are required for ease of operations. These types of items

reduce the time consumption by the machines and hence increase the overall efficiency. It

is also very much necessary for uninterrupted production. For ex. Protection of pipe lines

from moisture near cooling tower is very much necessary as the pipe lines laid on pipe

racks near cooling tower are getting damaged due to moisture of cooling tower resulting

in deep pits on the surface of pipe lines. So it is proposed to protect these pipelines from

moisture of cooling tower by fabricating steel structures and covering by asbestos sheets.

III. Reliability Improvement

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The expenditure incurred on these types of items improves the consistency and reliability

of the production process. To avoid any break down in production process due to

improper functioning of machines/plant, reliability needs to be improved by replacing

and revamping of machineries and equipments. For Ex. Procurement of Spare Rotor for

12.5 MW Turbo Generator in Power plant & Brush less excitator is necessary due to

following reasons:-

1. The Turbo Generator is in continuous operations for the past 25 years. A fault had

occurred for the last one year in the rotor of the generator due to accumulation of

dust or weakness of insulation of rotor.

2. Also the insulation resistance value of rotor has drastically reduced to .5 mega

ohms as against the normal value of more than 500 mega ohms.

3. BHEL in their overhauling report, suggested to have a spare rotor for backup in

case any eventuality on account of the rotor fault. Also the repairing of the

existing rotor at BHEL takes minimum six months. During this period the plant

partial load is to be taken on UPPCL grid supply. The monthly electricity bills

will be exorbitantly high.

IV. Safety Equipments

Under this category various fire and safety equipments are procured to enhance the safety

of workers and materials at the work place. In this the proposals are made replacement of

various fire & safety equipments such as water monitors, Fire Extinguishers, breathing

Apparatus sets, various fire lighting nozzles & monitors.

V. Replacement of Ageing Equipments

Replacement is necessary due to normal wear & tear, depreciation, obsolescence etc.

Replacement of ageing equipments is required for maintaining the appropriate production

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facilities so as to maintain consistency and reliability. It is also necessary for

uninturrupted production in plants. A sudden breakdown will result to heavy loss both in

terms of time and money. For Ex. Ni-Cd battery bank for power plant UPS is required .

the battery bank was commisioned in 1996-97 during P2 plant project stage. The battery

bank is provided for back power for normal power supply. In case of power faliure for

instrumentation of both the TGs and boilers will entirely depend upon this battery bank.

Since this is almost 10 years old and almost it has outlived its capacity, for reliability

replacement of battery bank is proposed.

VI. Statutory Requirements or Government Directives/ Requirements of Input

Supplies:

The expenditure needs to be incurred on these so as to fulfill the legal necessities as per

the norms of the government. In addition to these norms government authorities/boards

may, at times, ask to fulfill some special requirements like pollution control and

environmental protection. So it is very much necessary to avoid any forced shut down of

plants by law and order of the Government. As in production of ammonia and urea, CO2

and other hazardous gas are released, proper chimney should be there to release them in

air so that it would not effect the environment. Again Water meter with an integrator for

Bore wells are proposed to buy because existing meters are prone to theft and all are not

having facility for integration. At present the pollution control board and water process

authority required the integration facility with all the meters. Mechanical type meter with

mechanical type totaliser with locking facility is proposed.

VII. Minor Modifications:

Minor modifications are required for execution of various minor jobs in plant and

township. As it is not possible to stop the production to make big alterations because they

are more time consuming and expensive, so minor modifications are made to continue

with the production in an efficient manner.

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VIII. Inspection Facility:

There is a need of inspecting and analyzing the equipments and machines at regular

interval of time. It is important to inspect the equipments at regular interval so as to

maintain the uninterrupted production and smooth functioning of the plant. For example;

it is often required to check the thickness of the vessels, pipelines etc. in one or more

locations at a time, as currently IFFCO has one thickness gauge. So one additional

thickness gauge is proposed to be procured to carry out work in parallel.

IX. Research and Development Equipments:

As research and development constitutes a very important part of any growing

organization, IFFCO is also indulged in Research and Development activities so as to

find new techniques and ways to reduce the cost in terms of energy saving, operational

efficiency etc.

X. Administration Office, Buildings, Furniture and Vehicles Etc.:

This head contains all the expenditure regarding office furniture, fixtures, vehicles etc. It

includes construction of parking sheds, canteen, waiting rooms, and renovation of older

ones. In this head funds are also raised for fax machines, mobile phone instruments, air

conditioners.

XI. Associated Areas like Welfare, Colony Amenities, and Guest House Etc.:

IFFCO provides complete residential services for its employees known as Township. At

Phulpur unit it is known as Ghiyanagar. It includes facilities like schools, hospitals,

guest houses, shopping centers, clubs etc. It also provides transportation facilities through

buses at very nominal charges.

XII. Computer and Computer System:

This head includes the expenditure incurred for maintaining the computer systems at

IFFCO. HRMS (Human Resource Management System) is used at IFFCO to connect all

the departments and maintain coordination. It provides easy accessibility of all the

records of the employees like salary, leaves, medical dues, loans etc.

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XIII. CISF Facility (central industrial security force):

This facility was provided by the central government, when 50% equity holdings were

owned by central government. But now central government does not holds any of the

shares in IFFCO, so these facilities are not provided by the government and no

expenditure is incurred in this head.

Steps involved in the process of capital budgeting at IFFCO:

1. The first step in capital budgeting is to find the requirements and opportunities for

improvement in the production process for this purpose technical department

undergoes a research work and if they sought any scope of improvement they

prepare a feasibility report where they provide for justifications and the benefits.

2. The second step is to forward the feasibility report to the head office for approval.

This report is presented before board of directors and they keeping in mind the

justification and financial constraints give their decision.

3. Further if the approval is given by the board of directors then all the necessary

steps are taken to procurement of funds. Funds are procured from financial

institutions, banks, co-operative societies in the form of long term loans.

4. If all funds which are granted for a particular project are get utilized before the

completion of the project, then more funds are required. For this purpose revised

quarterly budget is prepared. Reasons for more funds are asked and only after

being satisfied, more funds are granted.

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Points must be kept in view while preparing Capital Budget:-

1. Items of capital nature costing unto Rs. 10 lakhs which are continuing for two

years or above should not be carried forward as on ‘on going items’ unless the

work has already commenced. Similarly uncommitted balances under the head

office equipments, Air conditioners, Vehicles, Furniture, Canteen and Welfare

equipments should be surrendered and should not be carried forward.

2. Technical and financial justifications along with the cost benefit analysis must be

submitted for all items costing Rs. 10 lakhs and above.

3. It has been observed that the units have a tendency to obtain budget much in

excess of their requirement and then to seek re- appropriation to cover those items

which were not anticipated /approved for inclusion at the time of preparation of

the budget or in respect of the items which were deferred by the Head Office at

the time of review of capital budget proposals. Similarly, the cost of some capital

items is not estimated properly. As a result of which the request of re-

appropriation are received from the units. Such practices are against the principals

of budgeting and should not be encouraged. Inclusion of new items in capital

budget requires the approval of the board.

4. It has been observed that some of the units are including items of construction of

buildings, Air conditioners, Refrigerators, Ceiling Fans, Waters Coolers etc. under

different sub heads instead of including under specific heads provided for the

purpose i.e. O-X or O-XI and N-X or N-XI. Unit Finance Heads should

appropriate Budget head with adequate break-up of requirements. The budget

should be strictly being prepared under the specified heads. All items connected

with Computers including Computer System, PC’s, Printers etc. should be

included under the head “Computer and Computer System”.

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5. Classification of “Completed” and “On- going items” must be carefully made

under “Completed Items”, those items which are very certainly going to be

completed by March of the financial year only should be included. Items included

under the head “ Completed items” but not taken up for implementation i.e. for

which the work order etc. are neither yet awarded nor likely to be awarded will

lapse as by march, and it will not be possible to take up such items in 2007-08

unless specific approval is taken.

6. A list of all items included as “on-going items” or “new items “in 2006-07

Capital Budget from which re-appropriation have been made, should also include

the details of the items against which re-appropriations have been made, the

approved cost, amount actually spent on item, balance available which has been

re-appropriated and the item/items for which the amount has been reappropriated

be given.

7. Similarly, details of items for which separate approvals have been taken during

2006-07 should also be provided for inclusion in the Capital Budget as revised

Capital Budget 2006-07. In case any new item is proposed during 2006-07 that

should also be indicated for inclusion in Revised Budget 2006-07.

8. A list of all items which were not included in the Capital Budget 2006-07 but for

which the unit has obtained approvals subsequently should also be submitted.

9. The Capital Budget Estimate must be examined and concurred by the Unit

Finance Head before being sent to Head Office.

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CONCLUSION

IFFCO's experience has shown that cooperative sector can succeed even in high

investment , high technology areas like fertilizer production. The large scale

extension activities and cooperative development programmers have strengthened

the bond between IFFCO and the Indian farmers who are the consumers as well as

members of the village level cooperative societies. The confidence generated by this

success has paved way for a vigorous growth programmed to expand is existing

units as well as establish new units. This will enable IFFCO to emerge as a global

leader in production and marketing of chemical fertilizers located in a single

country.

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Bibliography

1. primary source

Finance Dept. IFFCO, Phulpur Unit

2. secondary source

websites

a) www.iffco.org

b) www. wikepedia.com

c) www.iffcoindia.nic.in

books/authors

a) Financial Management :- I.M.Pandey

b) Principles Of Corporate Finance :- Ricard A. Brealey &

Stewart C. Myers

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