FIXED ASSET CONTROL AND VERIFICATION SYSTEM AT MARUTI SUZUKI INDIA LIMITED

SUMMER TRAINING REPORT

Submitted in Partial Fulfillment of the requirements for the PG Diploma in Management 2012-14

Under Supervision of Dr. MEENAKSHI SINGH COORDINATOR SMS VARANASI

By NIDHI PRIYA PGDM (FINANCE)

DECLARATION
I hereby declare that the project work entitled FIXED ASSET CONTROL AND VERIFICATION SYSTEM AT MARUTI SUZUKI INDIA LIMITED submitted to School of Management Sciences, Varanasi is a record of an original work done by me under the guidance of Dr. Meenakshi Singh, Coordinator, SMS Varanasi, and this project work is submitted in the partial fulfillment of the requirements for the award of the degree of Post Graduate Diploma Management. The details and work given in this project have not been submitted to any other University or Institute for the award of any degree or diploma.

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ACKNOWLEDGEMENT
I would like to express my special thanks of gratitude to our Director Sir Prof. P.N. JHA, College Dean Dr. Sanjay Saxena, as well as our Coordinator Dr. Meenakshi Singh, who gave me the golden opportunity to do this wonderful project on the topic FIXED ASSET CONTROL AND VERIFICATION SYSTEM AT MARUTI SUZUKI INDIA LIMITED, which also helped me in facing new challenges in corporate world and I came to know about so many new things. I would also like to thanks my college mentor Dr. Minaakshi Singh for her valuable guidance and continues support during the completion of my project. I also take this opportunity to express a deep sense of gratitude to Mr. Anand Kumar Jha, Deputy Manager, Internal Audit Department, MARUTI SUZUKI INDIA LIMITED, for his cordial support, valuable information and guidance, which helped me in completing this Project through various stages. Lastly, I thank almighty, my parents, brother, sisters and friends for their constant encouragement without which this Project would not be possible.

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Table of content
Industry Overview. Company Overview.. Experiential Learning.. Description of the Project Details of the Project.. Methodology. Objectives... Limitations.. Bibliography 5 11 23 26 27 30 40 41 42

INDUSTRY OVERVIEW

Automotive industry is the key driver of any growing economy. It plays a pivotal role in country's rapid economic and industrial development. It caters to the requirement of equipment for basic industries like steel, non-ferrous metals, fertilizers, refineries, petrochemicals, shipping, textiles, plastics, glass, rubber, capital equipments, logistics, paper, cement, sugar, etc. It facilitates the improvement in various infrastructure facilities like power, rail and road transport. Due to its deep forward and backward linkages with almost every segment of the economy, the industry has a strong and positive multiplier effect and thus propels progress of a nation. The automotive industry comprises of the automobile and the auto component sectors. It includes passenger cars; light, medium and heavy commercial vehicles; multi-utility vehicles such as jeeps, scooters, motor-cycles, three wheelers, tractors, etc; and auto components like engine parts, drive and transmission parts, suspension and braking parts , electrical, body and chassis parts; etc. In India, automotive is one of the largest industries showing impressive growth over the years and has been significantly making increasing contribution to overall industrial development in the country. Presently, India is the world's second largest manufacturer of two wheelers, fifth largest manufacturer of commercial vehicles as well as largest manufacturer of tractors. It is the fourth largest passenger car market in Asia as well as a home to the largest motor cycle manufacturer. The installed capacity of the automobile sector has been 9,540,000 vehicles, comprising 1,590,000 four wheelers (including passenger cars) and 7,950,000 two and three wheelers. The sector has shown great advances in terms of development, spread, absorption of newer technologies and flexibility in the wake of changing business scenario. The Indian automotive industry has made rapid strides since delicensing and opening up of the sector in 1991. It has witnessed the entry of several new manufacturers with the state-of-art technology, thus replacing the monopoly of few manufacturers. At present, there are 15 manufacturers of passenger cars and multiutility vehicles, 9 manufacturers of commercial vehicles, 16 of two/ three wheelers and 14 of tractor, besides 5 manufacturers of engines. The norms for foreign investment and import of technology have also been liberalized over the

Years for manufacturing of vehicles. At present, 100% foreign direct investment (FDI) is permissible under the automatic route in this sector, including passenger car segment. The import of technology for technology up gradation on royalty payment of 5% without any duration limit and lump sum payment of USD 2 million is also allowed under automatic route in this sector. The Indian automotive industry has already attained a turnover of Rs. 1, 65,000 crore (34 billion USD) and has provided direct and indirect employment to 1.31 crore people in the country. The growth of Indian middle class, with increasing purchasing power, along with strong macro-economic fundamentals has attracted the major auto manufacturers to Indian market. The market linked exchange rate, well established financial market, stable policy governance work and availability of trained manpower have also shifted new capacities and flow of capital to the auto industry of India. All these have not only enhanced competition in auto companies and resulted in multiple choices for Indian consumers at competitive costs, but have also ensured a remarkable improvement in the industry's productivity, which is one of the highest in Indian manufacturing sector. The Department of Heavy Industry, under the Ministry of Heavy Industries and Public Enterprises, is the main agency in India for promoting the growth and development of the automotive industry. The department assists the industry in achievement of its expansion plans through policy initiatives, suitable interventions for restructuring of tariffs and trade, promotion of technological collaboration and up-gradation as well as research and development. The department is also concerned with the development of the heavy engineering industry, machine tools industry, heavy electrical industry, industrial machinery, etc. According to recent reports, India overtook Brazil and became the sixth largest passenger vehicle producer in the world (beating such old and new auto makers as Belgium, United Kingdom, Italy, Canada, Mexico, Russia, Spain, France, Brazil), grew 16 to 18 per cent to sell around three million units in the course of 201112. In 2009, India emerged as Asia's fourth largest exporter of passenger cars, behind Japan, South Korea, and Thailand. In 2010, India beat Thailand to become, Asia's third largest exporter of passenger cars. The production of passenger vehicles in India was recorded at 3.23 million in 2012-13 and is expected to grow at a compound annual growth rate (CAGR) of 13 per cent during 2012-2021, as per data published by Automotive Component Manufacturers Association of India (ACMA)
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The majority of India's car manufacturing industry is based around three clusters in the south, west and north. The southern cluster consisting of Chennai is the biggest with 35% of the revenue share. The western hub near Mumbai and Pune contributes to 33% of the market and the northern cluster around the National Capital Region contributes 32%. Chennai, with the India operations of Ford, Hyundai, Renault, Mitsubishi, Nissan, BMW, Hindustan Motors, Daimler, Caparo, and PSA Peugeot Citron is about to begin their operations by 2014. Chennai accounts for 60% of the country's automotive exports. Gurgaon and Manesar in Haryana form the northern cluster where the country's largest car manufacturer, Maruti Suzuki, is based. The Chakan corridor near Pune, Maharashtra is the western cluster with companies like General Motors, Volkswagen, Skoda, Mahindra and Mahindra, Tata Motors, Mercedes Benz, Land Rover, Jaguar Cars, Fiat and Force Motors having assembly plants in the area. Nasik has a major base of Mahindra & Mahindra with a UV assembly unit and an Engine assembly unit. Aurangabad with Audi, Skoda and Volkswagen also forms part of the western cluster. Another emerging cluster is in the state of Gujarat with manufacturing facility of General Motors in Halol and further planned for Tata Nano at their plant in Sanand. Ford, Maruti Suzuki and Peugeot-Citroen plants are also set to come up in Gujarat. Kolkata with Hindustan Motors, Noida with Honda and Bangalore with Toyota are some of the other automotive manufacturing regions around the country.

The auto industry produced 1,684,011 vehicles in April 2013 as against 1,721,455 in April 2012, decline of (-) 2.81 percent over same month last year. The overall domestic sales in the month of April 2013 declined by (-) 0.34 percent over same month last year. The overall sales in Passenger Vehicles declined by (-) 8.21 percent in April 2013 over same month last year. Within the Passenger Vehicles, passenger cars and vans dropped by (-) 10.43 percent and (-) 13.42 percent respectively, while utility vehicles grew marginally by 3.99 percent in April 2013 compared to the same month last year. The recent fall of Rupee against Dollar, the increase in price for crude oil and fear of inflation will install bigger hurdles to the Indian automobile industry in the coming months. A total of 2,968,201 vehicles
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were sold in India during the first two months of the financial year 2013-14, thus registering a feeble decrease of 0.64% as against same period of 2012-13. The sales stood at 2,987,438 in April-May for 2012.

HISTORY
The first car ran on India's roads in 1899. Until the 1930s, cars were imported directly, but in very small numbers. An embryonic automotive industry emerged in India in the 1940s. Hindustan was launched in 1942, longtime competitor Premier in 1944. They built GMand Fiat products respectively. Mahindra & Mahindra was established by two brothers in 1945, and began assembly of Jeep CJ-3A utility vehicles. Following the independence, in 1947, the Government of India and the private sector launched efforts to create an automotive component manufacturing industry to supply to the automobile industry. In 1953 an import substitution programme was launched, and the import of fully built-up cars began to be impeded.

The Hindustan Ambassador dominated India's automotive market from the 1960s until the mid-80s

However, the growth was relatively slow in the 1950s and 1960s due to nationalization and the license raj which hampered the Indian private sector. Total restrictions for import of vehicles was set and after 1970 the automotive industry started to grow, but the growth was mainly driven by tractors, commercial vehicles and scooters. Cars were still a major luxury item. In the 1970s price controls were finally lifted, inserting a competitive element into the automobile market. By the
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1980s, the automobile market was still dominated by Hindustan and Premier, who sold superannuated products in fairly limited numbers. During the eighties, a few competitors began to arrive on the scene.

Eventually multinational automakers, such as, though not limited to, Suzuki and Toyota of Japan and Hyundai of South Korea, were allowed to invest in the Indian market ultimately leading to the establishment of an automotive industry in India. Maruti Suzuki was the first, and the most successful of these new entries, and in part the result of government policies to promote the automotive industry beginning in the 1980s.

Considering the challenges that the industry has been facing since the past few years and the way it has countered most of the threats that it faced, one can be sure that the future of auto industry is promising. This is proved by the recent announcement made by SIAM (Society of Indian automobile manufacturers), that the car sales are projected to increase up to 5 million vehicles by 2015 and more than 9 million by 2020. By 2050, India is expected to top the world in car volumes with approximately 611 million vehicles on the nations roads .

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COMPANY OVERVIEW

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Maruti Suzuki India Limited commonly referred to as Maruti and formerly known as Maruti Udyog Limited is an automobile manufacturer in India. It is a Subsidiary of Suzuki Motor Corporation, Japan. It has two manufacturing facilities located at Gurgaon and Manesar, south of New Delhi, India. Maruti Suzukis Gurgaon facility has an installed capacity of 900,000 units per annum. The Manesar facilities, launched in February 2007 comprise a vehicle assembly plant with a capacity of 550,000 units per year and a Diesel Engine plant with an annual capacity of 100,000 engines and transmissions. Both the facilities have a combined capability to produce over a 1.5 million (1,500,000) vehicles annually. The company is 54.2% owned by the Japanese multinational Suzuki Motor Corporation . The rest is owned by public and financial institutions. It is listed on the Bombay Stock Exchange and National Stock Exchange of India. The Suzuki Motor Corporation, Maruti's main stakeholder, has been a global leader in mini and compact cars for three decades. Suzukis strategy is to utilize light-weight, compact engines with stronger power, fuel-efficiency and performance capabilities. Nearly 75,000 people are employed directly by Maruti Suzuki and its partners. It has been rated first in customer satisfaction among all car makers in India from 1999 to 2009 by J D Power Asia Pacific. It provides cars in 3 categories- Utility Vehicles, Passenger Cars and Vans. The Company offers 17 brands and over 150 variants ranging from people's car Maruti 800 to the latest Life Utility Vehicle, Stingray. The portfolio includes Maruti 800, Alto, Alto K10, A-star, Estilo, Wagon R, Ritz, Swift, Swift DZire, SX4, Omni, Eeco, Kizashi, Grand Vitara, Gypsy, Ertiga , Stingray. Some upcoming models are Jimny, Cervo, Palette , XA Alpha , Solio.

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In 2012, it had a market share of 37.76% of the Indian passenger car market down from 44.64% in 2010, because of factors including declining sales of entry-level petrol cars, increasing competition and, mostly, labour trouble at its Manesar plants. The net sales are 4261256 in 2013 as compare to 347059 in 2012, an increase of 22.78% and net profit of the company on 31st March, 2013 is Rs. 23921 million as compare to 16352 million in 2012, an increase of 46%. Across india, it has over 2971 nationwide service outlets, with 33000 strong trained service professional Today, Maruti Suzuki exports cars to over 125 countries. Among them are highly competitive and mature European auto markets like the Netherlands, Germany, France, Italy and UK. Maruti Exports Limited is a subsidiary of Maruti Suzuki with its major focus on exports and it does not operate in the domestic Indian market. The first commercial consignment of 480 cars was send to Hungry. By sending a consignment of 571 cars to the same country, it crossed a benchmark of 300000 cars. MILESTONES- MSIL Received Gold Trophy for "Top Exporter for the Year 2008-09" for the Northern region. The Company clocked its highest ever exports at 147,575 units, a growth of 111% in the Fiscal Year 2009-10. The world loves Alto - more than 2 million units sold. A star crossed the 2 million mark in just three years.

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VISION AND MISSION:

Customer Obsession Fast Flexible & Fast Mover Innovation and creativity Networking and Partnership Openness and learning

ORGANISATIONAL STRUCTURE
Chairman of the board Mr. R.C. BHARGAWA Managing Director and CEO Mr. Kenichi Ayukawa Directors Mr. Davindra Brar Mr. Osmo Suzuki Mr. Pallavi Shroff Mr. Amal Ganguly Mr. Manvindra Banga Managing directorMr. Shinzo Nakanishi

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PRODUCTS
Maruti 800 Maruti Alto Maruti Alto K10

Maruti A-star Maruti Estilo Maruti Wagonr Maruti Ritz Maruti Swift Maruti Swift DZire

Maruti SX4 Maruti Omni Maruti Eeco

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 Maruti Kizashi

Maruti Grand Vitara Maruti Gypsy Maruti Ertiga

Maruti Stingray
Some upcoming models are Jimny, Cervo, Palette , XA Alpha , Solio.

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POLICIES
Quality Policy
Consumer satisfaction through continuous improvement of products and services by following PDCA in all functions and levels of organization

Environmental Policy
Reduce the pressure placed on the environment resulting from our business activities and products. Maintain and continually improve upon our Environmental Management System and performance. Promote environmental communication. Working collaboratively with our customers, suppliers, and the surrounding community for environmental issues.

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 Occupational Health and Safety Policy

Manage Risks Comply with legal and other obligations Establish targets and review mechanism Provide appropriate training and information Ensure meaningful and effective consultation Communicate Promote a Culture of Safety

Major competitors:

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MAJOR SALES AND SERVICES

As of 31 March 2011 Maruti Suzuki has 933 dealerships across 666 towns and cities in all states and union territories of India. It has 2,946 service stations (inclusive of dealer workshops and Maruti Authorized Service Stations) in 1,395 towns and cities throughout India. It has 30 Express Service Stations on 30 National Highways across 1,314 cities in India. Service is a major revenue generator of the company. Most of the service stations are managed on franchise basis, where Maruti Suzuki trains the local staff. Other automobile companies have not been able to match this benchmark set by Maruti Suzuki. The Express Service stations help many stranded vehicles on the highways by sending across their repair man to the vehicle.

Maruti Insurance
Launched in 2002 Maruti Suzuki provides vehicle insurance to its customers with the help of the National Insurance Company, Bajaj Allianz, New India Assurance and Royal Sundaram. The service was set up the company with the inception of two subsidiaries Maruti Insurance Distributors Services Pvt. Ltd and Maruti Insurance Brokers Pvt. Limited. This service started as a benefit or value addition to customers and was able to ramp up easily. By December 2005 they were able to sell more than two million insurance policies since its inception.

Maruti Finance
To promote its bottom line growth, Maruti Suzuki launched Maruti Finance in January 2002. Prior to the start of this service Maruti Suzuki had started two joint ventures Citicorp Maruti and Maruti Countrywide with Citi Group and GE Countrywide respectively to assist its client in securing loan. Maruti Suzuki tied up with ABN Amro Bank, HDFC Bank, ICICI Limited, Kotak Mahindra, Standard Chartered Bank, and Sundaram to start this venture including its strategic partners in car finance. Again the company entered into a strategic partnership with SBI in March 2003. Since March 2003, Maruti has sold over 12,000 vehicles through SBIMaruti Finance. SBI-Maruti Finance is currently available in 166 cities across India.
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Maruti True Value

Maruti True service offered by Maruti Suzuki to its customers. It is a market place for used Maruti Suzuki Vehicles. One can buy, sell or exchange used Maruti Suzuki vehicles with the help of this service in India. As of 31 March 2010 there are 341 outlets.

N2N Fleet Management

N2N is the short form of End to End Fleet Management and provides lease and fleet management solution to corporate. Clients who have signed up of this service include Gas Authority of India Ltd, DuPont, Reckitt Benckiser, Sona Steering, Doordarshan, Singer India, National Stock Exchange and Transworld. This fleet management service include end-to-end solutions across the vehicle's life, which includes Leasing, Maintenance, Convenience services and Remarketing.

Accessories
Many of the auto component companies other than Maruti Suzuki started to offer components and accessories that were compatible. This caused a serious threat and loss of revenue to Maruti Suzuki. Maruti Suzuki started a new initiative under the brand name Maruti Genuine Accessories to offer accessories like alloy wheels, body cover, carpets, door visors, fog lamps, stereo systems, seat covers and other car care products. These products are sold through dealer outlets and authorized service stations throughout India.

Maruti Driving School

As part of its corporate social responsibility Maruti Suzuki launched the Maruti Driving School in Delhi. Later the services were extended to other cities of India as well. These schools are modeled on international standards, where learners go through classroom and practical sessions. Many international practices like road behavior and attitudes are also taught in these schools. Before driving actual vehicles participants are trained on simulators.

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Maruti Auto Card

This is not all. One get an attractive exchange loyalty bonus of 3000 auto points when one exchanges his/her existing Maruti car with a new one. To maximize the benefits on the Loyalty Card, Maruti has partnered with State Bank of IndiaIndia's leading and most trusted bank. Maruti & SBI are both leading brands, have consistently spelt trust and quality in all their product offerings for the Indian consumer.

HISTORY:
Originally, 18.28% of the company was owned by the Indian government, and 54.2% by Suzuki of Japan. The BJP-led government held an initial public offering of 25% of the company in June 2003. As of May 2007, the government of India sold its complete share to Indian financial institutions and no longer has any stake in Maruti Udyog. Maruti's history begins in 1970, when a private limited company named 'Maruti technical services private limited' (MTSPL) is launched on November 16, 1970. The stated purpose of this company was to provide technical know-how for the design, manufacture and assembly of "a wholly indigenous motor car". In June 1971, a company called 'Maruti limited' was incorporated under the Companies Act and Sanjay Gandhi became its first managing director. After a series of scandals, "Maruti Limited" goes into liquidation in 1977. This is followed by a commission of inquiry headed by Justice A. C. Gupta, who submits his report in 1978. On 23 June 1980 Sanjay Gandhi dies when a private test plane he was flying crashes. A year after his death, and at the behest of Indira Gandhi, the Indian Central government salvages Maruti Limited and starts looking for an active collaborator for a new company: Maruti Udyog Ltd being incorporated in the same year.

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Suzuki enters
In 1982, a license and Joint Venture Agreement (JVA) was signed between Maruti Udyog Ltd. and Suzuki of Japan. At first, Maruti Suzuki was mainly an importer of cars. In India's closed market, Maruti received the right to import 40,000 fully built-up Suzukis in the first two years, and even after that the early goal was to use only 33% indigenous parts. This upset the local manufacturers considerably. There were also some concerns that the Indian market was too small to absorb the comparatively large production planned by Maruti Suzuki, with the government even considering adjusting the petrol tax and lowering the excise duty in order to boost sales. Finally, in 1983, the Maruti 800 was released. This was Indias first affordable car. Initial product plan was 40% saloons, and 60% Maruti Van. Local production commenced in December 1983. In 1984 the Maruti Van, with the same three-cylinder engine as the 800, was released. Installed capacity of the plant in Gurgaon, reached 40,000 units. In 1985 the Suzuki SJ410-based Gypsy, a 970 cc vehicle, was launched. In 1986 the original 800 was replaced by an all-new model of the 796 cc hatchback Suzuki Alto/Fronte. This is also when the 100,000th vehicle was produced by the company. In 1987 follows the company's first export to the West, when a lot of 500 cars were sent to Hungary. Maruti products had been exported to certain neighboring countries already. By 1988, the capacity of the Gurgaon plant was increased to 100,000 units per annum.

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EXPERIENTIAL LEARNING

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INTERNAL AUDIT DEPARTMENT

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance. In Maruti Suzuki India Limited, I worked in Internal Audit Department under the guidance of Mr.Anand Jha, Deputy Manager. This department comes under Finance Division and plays a major role in the functioning of the company. It follows all the standards of internal audit. In this department the major functions performed are internal audit of all the departments of the company. They keep a proper record of all the assets. They keep on checking the availability of assets in the respective departments and update the records as required. The reports of the department are further submitted in the Audit Committee Meeting.

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EXPERIENCE GAINED
We came to know the role of internal audit department in the organization. We experienced the need of maintaining proper records of the assets of the company and value of control mechanism in the organization. The process involved in the verification of the fixed assets of the company. We contributed in the Audit Committee Meeting held at MSIL. We were given the details of old vehicles which were allotted to the various departments for various purposes. Various purposes were: testing, research and development, display at the brand center, visitors, for employees, marketing, etc. We find that most of the vehicles are being used for testing and research purposes by the organization. The work experience I gained there is of enormous value for me. I became familiar with the organizational environment which will help me in future.

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DESCRIPTION OF THE PROJECT

As per statutory requirement under The Companies Act 1956, fixed assets of the company needs to be physically verified by the management and ensured that their proper record giving full details and location is being maintained. The statutory auditor has to report that there is an adequate internal control system commensurate with the size of the company and the nature of its business for the purchase of fixed assets. Also, that the management at reasonable intervals has physically verified the fixed assets of the company. To meet this statutory requirement and ensure better control over the assets of the company, Fixed Asset Control and Verification System was introduced by MSIL from 1st October 2003. The Fixed Asset Control and Verification system is aimed at strengthening the internal control mechanism for safeguarding the fixed assets of the company by defining the procedure for maintaining fixed asset record and ensuring the physical availability of the assets of the company. Further, as per the policy the assets of the company are to be linked with the concerned user within the department.

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DETAILS OF THE PROJECT:Review and revise of the fixed assets monitoring and verification system in MUL was decided by the internal audit department due to certain shortcomings observed by them during the physical verification conducted as per the approved policy in the years before 2001. As per the instructions of the executive director (Finance), DMP (PMS) delivered a lecture on the fixed asset control system in SMC, based on his learning during his visit to SMS. Thereafter, the gap between the system in MUL and SMC were identified. The major gap was that in MUL no asset control number was affixed on the assets with which they can be identified at the time of physical verification. Moreover no particular person or department was assigned the responsibility of the asset. So a Cross Functional Team (CFT) of personnel from concerned divisions namely production, production engineering, engineering, finance was formed to deliberate and propose the revised system of physical verification of fixed assets for MUL in line with the system in SMC. Based on the deliberations by CFT members, understanding from the learning of DPM (PMS) and discussions with SMC advisors, the proposed system which was broadly based on SMC system was placed for kind consideration and approval. It was proposed to implement the new system for asset capitalization with effect from 1st Oct. 2003. Existing assets and records were to be modified in 2 nd phase, which had to be started in Oct. 2003 itself. It was further proposed to conduct the phased manner physical verification of assets as the policy approved in May 2001 till all existing assets were modified as per the proposed system after which the physical verification of all the assets shall be done every year as per the new system.

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Existing Policy of Maruti Udyog Limited:

As per MULs practice regarding physical verification and reconciliation of fixed assets, only addition to all the categories of fixed assets were verified every year except for furniture and fixtures (including office equipments). As only the additions were being verified and reconciled year to year, it was presumed that cumulative verification of all the assets have been done.

Shortcomings of the existing policy:

Internal audit during its yearly physical verification exercise, observed that the description of the assets in the finance records was quit insufficient and no common was available to link finance records with the shop floor records. Hence, the assets were not distinctly identifiable in turn making reconciliation of the physical assets with the assets cards extremely difficult. It was felt that the financial fixed assets records should be updated and linked using a common key with the assets identification records of the shop floor, in such a way so as to facilitate smooth physical verification and reconciliation. However, considering the size of the asset base it was felt that it is not possible to update and link 100% assets. Also physical verification and reconciliation every year was difficult and reasonable time interval needs to be adopted.

This view was also supported by the institute of charted accountants of India, which has issued a guidance note on the issue stating that the management shall carry out physical verification of fixed assets at appropriate intervals in order to ensure that they are in existence. The note says that the frequency of verification should be reasonable that is where the assets are numerous and difficult to verify, verification should be conducted once in 3 years by rotation so that all assets are verified at least once in 3 years.

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PROPOSED POLICY
In view of above, it was proposed that MUL may adopt a policy of carrying out the physical verification and reconciliation exercise in phased manner, covering all the fixed assets in three years, except the assets which are not practical to verify like furniture and fixtures (including office equipments), piping, ducting, and cabling work, installation work, movable items like roller racks, trolleys and bins. The above exercise was to be done by linking the finance records with the shop floor records for fixed assets with a common key, so that identification and reconciliation does not create any problem. Any discrepancy noticed had to be invested and reported to the management and approval had to be taken for the necessary adjustment in the books of account.

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METHEDOLOGY

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CONTROL SYSTEM BY VENDOR PAYMENT DEPARTMENT

The system is aimed at strengthening the internal control mechanism for safeguarding the fixed assets of the company by defining the procedure for maintaining the fixed asset record and its link with the physical assets for its periodic verification.

APPLICABILITY
The system is applicable to all the fixed assets except the assets which are not practical to be verified like furniture and fixtures (including office equipments like fax machine, photocopier, digital camera, overhead projector, mobile phones, T.V./VCR, air conditioner, inverter, etc), piping, ducting and cabling work, movable items like roller racks etc and assets up to the value of 5000 each.

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MAJOR CLASSIFICATION CODE

ASSETS LAND BUILDING ROADS & BRIDGES, DRAINAGE & SEWER

0 1 3 5 6 7 8 9

MACHINERY, EQUIPMENT AND ELECTRICAL & MECHANICAL UTILITIES VEHICLES IT ASSETS(ELECTRONIC DATA & PROCESSING SYSTEM) DIES AND JIGS

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MIDDLE CLASSIFICATION CODE:

Fixed asset middle classification code is used to describe the type or category of the assets.

MINOR CLASSIFICATION CODE:

The default code is 01. For any additional equipment, which can be capitalized within the same assets, code shall be increased by 1 no. thus the code will appear as 01, 02, 03 and so on.

Fixed assets control number:

Fixed assets control no. (Except for vehicles and IT assets which is maintained separately) is a 11 character an appears as 9-99-99999-99 where

9 = major classification code (of single digit) 999= middle classification code (of three digits) 99999= running control no. (of five digits) 99= minor asset code (of two digit)

Vehicles is to be controlled by their chassis and engine no., registration no. wherever allotted by regional transport authority and 4 digit running no. is to be allotted by administration department. All the IT assets is to be controlled by the SMD department in IT division.

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PHYSICAL CONTROL SYSTEM:

Common assets like land, building and road etc are controlled by civil department. Similarly, EMU department controls common electrical and mechanical utilities. Other assets like machine and equipment, dies and jigs, vehicles etc are controlled by user department. The classification of assets to be verified by the respective departments is as follows:

Classification Asset type code

Control Physical responsibility verification coordination

For factory and VPE & IAU Dep Head Office: Civil Dep. VPE & IAU Dep.

0,1 and 3

Land, building, roads and bridges and drainage

5 and 9

Machinery, User Dep. equipment, electrical and mechanical utilities, digs & jigs Vehicles (company User Dep. owned vehicles for dep. use) Vehicles (company User Dep. owned vehicles for department use)

ADM Dep.

ADM Dep.

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ALLOTMENT OF ASSET CONTROL NUMBER:

Asset control number, for assets other than vehicles and IT assets, is allotted by VPE department. In case of vehicles, ADM department and for IT assets SMD department allots asset control number.

ASSET NUMBER PLATE:

Asset number plate bearing the asset control number is to be affixed on the machines and equipments, dies and jigs and IT assets. In case of building and bridges, asset control number is to be painted at conspicuous place. For such assets to be procured/installed with effect from the implementation of this system, asset number plate is to be affixed/painted on the assets by procuring agency within one week after receiving the asset control card number. For assets installed prior to this new system, number plate is to be affixed by the user department in coordination with VPE department. In case of big assets, as mentioned above is to be affixed in such a way that it is un-detachable/ permanently fixed. In case of tools, dies and jigs, the asset number plate is to be embossed or painted. In case of small assets, stickers bearing control number is to be affixed.

ASSIGNMENT OF RESPONSIBILITY:
Responsibility of fixed asset (other than common facilities like land, building, etc, being controlled by civil department) shall be assigned by the head of department of user department to employees of supervisor or above level. Staff number and name of responsible person shall be given in the commissioning certificate an will be entered by VPE department in the on-line computer system. Such person will be allowed access to the on-line computer system to view and conform the assets under their control.

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ASSSET COMMISSIONING CERTIFICATE:

VPE department will capitalize the asset in the financial books of accounts based on the commissioning certificate to be submitted by the procuring department. the commissioning certificate shall be sent to the VPE department within one week of the commissioning. Assets of the category, which are not practical to be verified shall be flagged as such in the online fixed asset system at the time of capitalization by VPE department based on the information in the asset commissioning certificate.

ASSET CONTROL CARD:

Within one working day capitalization of asset in the financial books, a computer generated asset card will be e-mailed to the responsible person nominated by the user department for controlling the asset. A copy of the same will be sent to the user department head and the procuring agency. The procuring agency will arrange to affix the asset number plate within one week from the receipt of asset control card. The responsible person will take a print of the asset card, go to asset location, cross check the number plate and actual asset by seeing the asset and conform the availability of asset within two weeks, in the online system. The print copy of the asset control card shall be duly signed and kept safely in the files of the asset cards to be maintained by the user department.

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TRANSFER OF ASSETS
In case of permanent transfer of the asset from one location to the other location or in case of the change in/transfer of the controlling person, the responsible person of such asset shall inform the change to VPE department. The person who has taken over the responsibility of controlling the asset shall countersign the transfer note. VPE department on receipt of such transfer note will update the record in the online fixed asset system. A computer generated e-mail containing the revised asset control card will go the new responsible person who shall conform the same in online system and keep the hard copy.

SCRAPPING OF THE ASSET

An asset shall be scrapped as per Ringi approval. On scrapping of any asset the responsible person shall inform the VPE department along with the copy of ringi. On receipt of such note VPE department will de-capitalize the asset in the financial record and update the data in the online fixed asset system. A system generated e mail of the de-capitalization will go to the head of the user department and responsible person for their information.

PHYSICAL VERIFICATION SYSTEM

Physical verification of the fixed assets (except vehicles) will be done once in every year to reconcile the assets physically available with the record in the financial books. An inventory execution chart responsible person wise, containing important details of the asset and asset plate no. etc will be generated from the online fixed asset system. This inventory execution chart will be sent to the user department by email for verification of assets by the responsible person.

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(In case of vehicles, verification will be coordinated by Administration department). The responsible person will take a print of the inventory chart and check the assets physically with the asset no. plate and encircle the relevant alpha code as under: AP, TV, TO ND, NA,

For easy verification status of the assets, abbreviations/codes are defined to be used along with the suggested action for the same. They are as follows

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Abbreviation

Description

Action Required

AP

Physically available and in use or kept as spare for actual use in contingency

The asset is physically available with the person, therefore no action required.

TV

Assets transferred to Vendor

Responsible person shall send copy of approval based on which asset was transferred to vendor along with the transfer form for updation of the FAR. For updation of the FAR, responsible person shall submit the transfer form based on which asset was transferred within the company.

TO

Assets transferred to some other location within the company Assets destroyed / demolished / scrapped

ND

Copy of M.D. approval based on which asset was demolished/ scrapped shall be sent to the IAU department. In case the approval was not taken, then after necessary investigation approval shall be obtained and given to VPE department for decapitalizing the asset. Efforts should be made to locate the assets. If after exhausting all efforts and investigations the asset is not located then MD approval shall be obtained and given to VPE department for de-capitalizing the assets

NA

Assets not available

After verifying all the assets in the inventory execution chart, responsible person will sign the same and send it to IAU department.

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OBJECTIVES

To examine whether the fixed asset control and verification system are as per the internal control policy. To ensure that the internal control mechanism for safeguarding the fixed assets of the company are as per the procedure for maintaining the fixed asset record and its link with physical assets for periodical verification is complied with. As per the statutory requirements under the companies act 1956, the statutory auditor has to report that the company has maintained proper records, including quantitative details and situation of fixed assets. Also it has been reported that the management at reasonable intervals has physically verified the fixed assets of the company and material discrepancies if any, are adjusted. The system will help in meeting this statutory requirement also by the company. To bring to the notice of management, deviations if any.

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LIMITATIONS

Traceability of assets Asset plate numbers may not be affixed on some of the assets, which is the common link used to identify the asset physically with the Fixed Asset record at the time of physical verification, due to the undergoing process of plating. Volume Considering the number of assets to be verified the time frame for the exercise is very limited. Delay in process The main focus of shop floor personnel is on production and hence fixed asset verification process is delayed due to this priority. Lack of real time updation for FAR - Movement of assets within as as outside the company well

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Bibliography

Fixed Asset Verification Policy (2008-09). Annual Report (2012-13) Discussion with concerned Personnels. Wikipedia

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