The Management Accountant - icmai.in

PRESIDENTG. N. Venkataraman

email : [email protected] PRESIDENT

B. M. Sharmaemail : [email protected] COUNCIL MEMBERS

A. N. Raman, A. S. Durga Prasad,Ashwin G. Dalwadi, Balwinder Singh,Chandra Wadhwa, Hari Krishan Goel,Kunal Banerjee, M. Gopalakrishnan,

Dr. Sanjiban Bandyopadhyaya,S. R. Bhargave, Somnath Mukherjee,

Suresh Chandra Mohanty, V. C. Kothari,GOVERNMENT NOMINEES

Jaikant Singh, P. K. Sharma, R. K. Jain,S. C. Vasudeva, T. S. Rangan

CHIEF EXECUTIVE OFFICERSudhir [email protected]

Senior Director (Examinations)Chandana Bose

[email protected] Director

(Administration & Finance)R N Pal

[email protected] (Technical)

J. P. [email protected]

Director (Studies)Arnab Chakraborty

[email protected] (CAT)L. Gurumurthy

[email protected] Director (CEP)

D. [email protected]

Additional Director (Membership) cumJoint Secretary

Kaushik [email protected]

Additional Director (International Affairs)S. C. Gupta

[email protected]

Sudhir GalandeEditorial Office & Headquarters

12, Sudder Street, Kolkata-700 016Phone : (033) 2252-1031/34/35,

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Phone : (011) 24622156, 24618645,Fax: (011) 24622156, 24631532,

24618645

TheManagementAccountan t

« Official Organ of The Institute of Cost and Works Accountants of India

established in year 1944 (Founder member of IFAC, SAFA and CAPA)

Volume 45 No. 1 January 2010

the management accountant, January, 2010 5

Editorial 7

President’s Communique 8

Cover Features

EVA-MVA : Shareholders’ Value

Measures

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by N. Sakthivel 10

Business Valuation : A Critical

Analysis

by Dr. Arindam Ghosh &

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Prof. Asit Gope 15

Tools and Techniques of Business

Valuation

by Dr. Tanuja Talwar &

Pooja Sareen 19

Recent developments in finance

Benchmarking and Cost Reduction

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by Yashan Jokhi 22

Cost accounting Standard on Climate

Change & Pollutants

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by Ashok K Agarwal 24

Critical Appraisal of Microfinance in

India (Special Reference to UP)by Dr. R. K. Maheshwari &

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

Dr. Ekta Rastogi 27

First Time Adoption of InternationalFinancial Reporting Standards

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by Dr. T. P. Ghosh 52

SME-Emerging Sector for Bank

Finance : Special Initiatives &Measures for its Growth

by Dr. Ram Jass Yadav 57

IDEALSTHE INSTITUTE STANDS FOR

q to develop the Cost and Manage-ment Accountancy profession q todevelop the body of members andproperly equip them for functionsq to ensure sound professionalethics q to keep abreast of newdevelopments.

The views expressed bycontributors or reviewers in thisJournal do not necessarily reflect theopinion of The Institute of Costand Works Accountants of India nor can the Institute by any way beheld responsible for them. Thecontents of this journal are thecopyright of The Institute of Costand Works Accountants of India,whose permission is necessary forreproduction in whole or in part.

Accounting Standard

IAS 24, Related Party Disclosures -

A Closer Look

by K. S. Muthupandian 41

Costing Techniques

Creating Competitive Advantage with

Life Cycle Costing

by Barnali Chaklader &

Rajat Gera 45

Admission to Membership 61

WIRC Conference 72

Legal Updates 74

The Management AccountantTechnical Data

Periodicity MonthlyLanguage English

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6 the management accountant, January, 2010

MISSION STMISSION STMISSION STMISSION STMISSION STAAAAATEMENTTEMENTTEMENTTEMENTTEMENT

�ICWAI Professionals would ethically driveenterprises globally by creating value tostakeholders in the socio-economic contextthrough competencies drawn from theintegration of strategy, management andaccounting.�

VISION STVISION STVISION STVISION STVISION ST AAAAATEMENTTEMENTTEMENTTEMENTTEMENT

�ICWAI would be the preferred source ofresources and professionals for the financialleadership of enterprises globally.�

DISCLAIMER

The views expressed by the authorsare personal and do not necessarilyrepresent the views and should notbe attributed to ICWAI.

CONDOLENCE

We inform with deep sorrow thedemise of our beloved past Secretaryof ICWAI, Shri S.N.Ghose onDecember 24th, 2009 at Kolkata. Wepray for peace of the departed souland hope that his family has strengthto bear the irreparable loss.

Editorial


Valuable Valuation

Readers will recall that the last issue of TheManagement Accountant focused on corporatestrategy. One of the foremost requirements offormulating a corporate strategy is to estimate thevalue of one's organization. Business valuation is aprocess and a set of procedures used to estimatethe economic value of an owner's interest in abusiness. Valuation is used by financial marketparticipants to determine the price they are willingto pay or receive to consummate a sale of a business.In addition to estimating the selling price of a business,the same valuation tools are often used by businessappraisers to resolve disputes related to estate andgift taxation, allocate business purchase price amongbusiness assets, establish a formula for estimatingthe value of partners' ownership interest for buy-sellagreements, and many other business and legalpurposes.

The most common benefits of an annual businessvaluation policy include: Accountability andPerformance (an annual business valuation enablesthe shareholders to see the value that is beingconsistently created or destroyed by the managementof the firm), Estate Planning Purposes (manyshareholders have on-going estate planning strategiesaimed at protecting wealth for heirs), Buy-sellsituations (for those firms that do not have buy-sellagreements in place, annual business valuations area good way of avoiding disputes that may arise whena shareholder seeks to sell his shares to the othershareholders), Facilitate Banking (the ability of a firmto borrow based on the value of the goodwill or thevalue of the company's shares may expand theuniverse of value-creating investment optionsavailable) and Expands the Investment Options (for

closely held firms which suffer from a lack ofliquidity).

The most common approaches to valuate a businessare: asset approach (establishment of fair marketvalue, replacement value or liquidation value of theassets and liabilities), market approach (futuremaintainable earnings valuation- capitalisation rate,discount rate and discounted cash flow methods)and market appoach (relative valuation comparedto company & comparable transactions).

Understanding how to value a business and give anaccurate business appraisal is a difficult and timeconsuming process. Setting a price for a businessthat is too high can result in the business not beingsold for a long period of time; sometimes not at all.If the business owner eventually adjusts the price tohow the market is responding, the deal will often betainted with the view that something is wrong withthe business or that the owner is desperate. Settinga price for a business that is too low can often resultin the business owner not realizing the full benefit oftheir investment, ultimately losing out on the truebusiness value. Determining the cost of valuing abusiness is dependent on the size and complexity ofthe business being evaluated, as well as anyfundamental factors that may affect the businessvalue: Business Cash Flow, Industry Sector,Competition, Buyer Market, Employee Skill Level,Customer Base, Owner Involvement, Revenue, Ageof Business, Availability of Vendor Financing andProfitability Trend.

The articles covered in the current issue are aimedto equip readers with facts and issues on businessvaluation.


lPresident�s Communique l

Dear Professional friends,At the outset, let me wish you a VERY VERY HAPPY AND PROSPEROUS YEAR 2010.1. INDIA CORPORATE WEEK:The month of December was filled with hectic events of ICWAI and I congratulateall my professional friends, especially from the Chapters and Regions, along withmy Council colleagues, for having contributed for much more visibility of ICWAI. Imay have to mention that the recently concluded INDIA CORPORATE WEEK2009 held from 14th to 21st December 2009 along with MCA was a tremendoussuccess and brought more laurels to the members of our profession. The reportingof the celebrations was noticed especially by our Minister, Mr. Salman Khurshidand he congratulated our Institute for arranging such programmes. One of thenewspapers reported that ICAI and ICSI were following the path of ICWAI. Thecredit goes to all of you. Apart from the Minister, our Secretary, Shri Bandyopadhayaji and MCA AdditionalSecretary, Mr. Sudhakar and MCA Joint Secretaries, Mrs. Renuka Kumar and Mr. Srivastava appreciatedICWAI's contribution for the grand success of INDIA CORPORATE WEEK 2009. The programmesincluded Corporate Awareness Run, Blood Donation, Essay Competition and address by eminent speakerson Corporate Governance and Corporate Social Responsibility. The ICWAI has brought out 6 publicationsduring the occasion to herald ICWAI's participation in the inclusive growth of economy of the country. Thepublications were released by ROC-Chennai. Compendium of 1 to 10 Standards was also released as wehave made it mandatory for all our members to adhere to CAS 1 to 10 from 1st April 2010.The finale of the INDIA CORPORATE WEEK 2009 was held at New Delhi on 21st December 2009 withaddress by Her Excellency, Mrs. Prathibha Patil, President of India, along with Hon'ble Minister for CorporateAffairs, Mr. Salman Khurshid and Secretary-MCA, Shri Bandyopadhyaya. It was sponsored by IICA andNFCG, representatives of all industry associations and three Professional Institutions, including ICWAI.2. AWARD OF EXCELLENCE FOR ICWAI:During this occasion, we were happy to be awarded with Corporate Excellence Award by the President ofIndia, which was received by me along with my colleagues. This is a great honour given to our professionover the past several years and I cherish the same along with all of you and thank you for enabling us toreach this height. The MCA has also brought out 2 publications during this occasion, titled 'VoluntaryGuidelines of Corporate Social Responsibility 2009' and 'Corporate Governance 2009'. I congratulateMCA, IICA and NFCG for giving a thrust for these events to happen for the first time in Corporate India.This will be the annual feature from now onwards.3. ICWAI'S PARTICIPATION IN THE INDO-UK TASK FORCE:I am extremely happy to have represented the Indo-UK Task Force of Govt. of India, headed by ShriBandyopadhyaya, IAS, Secretary-MCA and Shri Jitesh Khosla, IAS, OSD-IICA. The Task Force hadfruitful meetings with the Right Hon'ble Mayor of London and his officials. Several meetings with theMinistry Officials of UK and other professional bodies were the hallmark for continuation of our tie-up withprofessional bodies like CIMA, UK. Shri Kunal Banerjee, CCM-IPP, accompanied me.4. OUR MINISTER'S CALL FOR INNOVATION BY ICWAI:The SAFA's International Seminar was inaugurated by our Hon'ble Minister Mr. Salman Khurshid on 26th

November 2009 and he gave a call to ICWAI to work with innovative ideas including Corporate SocialResponsibility and suggested CSR Credit Rating on the lines of Carbon Credit Rating. He expressed thathe would be very happy to see that ICWAI takes the lead along with SAFA so that the other parts of theworld follows it. In this direction, I am happy to say that ICWAI has initiated certain programmes, which Iwill be sharing with you when it materializes and this will be a good contribution of ICWAI to the wholeworld, if not just for the Corporate Sector.


5. REGIONAL COST CONVENTIONS:5.1 Regional Cost Convention of SIRC:The SIRC organized Regional Cost Convention 2009 at Hyderabad on 4th and 5th December 2009. Thetheme of this Convention was "Business Strategies for Economic Revival - Role of ManagementAccountants." The Chief Guest of this Convention and also Chairman of the Insurance Regulatory Authority,called for ICWAI to help with quality manpower to service the Insurance Sector. I also mentioned aboutthe necessity for revival of ICWAI to meet the current-day challenges. On this occasion, I congratulatedthe Hyderabad Chapter of Cost Accountants for effectively conducting the Regional Cost Convention2009.

5.2 Residential Regional Convention of NIRC:NIRC organized a Residential Regional Conference at Agra on 18th and 19th of December 2009. Thetheme of this Convention was "Transformational Journey - An Update on Changes." I was happy toparticipate in this Convention and the Member-CERC, Mr. Krishna Murthy, was the Chief Guest. Hisadvice to the Cost and Management Accountants to take up many challenges in the emerging sectorsincluding Electricity was well received by the audience. Our members were happy to note the challengesgiven by Shri Krishna Murthy that the Cost Accountants/Cost Auditors are also included for certifyingthe cost report on the tariff of Private Power Sectors apart from Chartered Accountants. I appreciated theinnovative idea of NIRC for making the Regional Convention as a Residential Regional Convention in avery meaningful atmosphere at Agra and it was a good deliberation of two days and members participatedin a big number.

5.3 Regional Cost Convention of EIRC:I congratulated the Rourkela Chapter of Cost Accountants for having taken the responsibility of holding thisConvention at Rourkela. The theme of this Convention also was apt for the current economic scenario.

I was also happy to address a grand 2-day Convention organized by Cochin and Thrissur Chapters on 20thand 21st November 2009 consisting of all the Chapters in Kerala. A good coverage of all the above eventshas appeared throughout Kerala. The theme of this Convention being "Cost Management - Key to EnterpriseExcellence."

While talking to the representatives of Gulf countries at Ooman, there was a lot of enthusiasm from themembers who are settled in Muscat and Bahrain to start Overseas Centres as is done in Dubai and otherplaces. I have advised the members in these countries to send the proposals, which will be good for us toserve the cause of Cost and Management Accountants in the Gulf region.

I am extremely happy to note that out of our visibility of ICWAI throughout the country, there is a goodnumber of increase in admission in all the Chapters and Regions. I congratulate all the members and theChapters for taking up this challenge. I am also happy to note that for over several years, for the first time,the number of people who are taking ICWAI examination has also crossed 43,000 and this adds to ourcapacity building programme of Cost and Management Accountancy.

With regards and wishing once again A HAPPY NEW YEAR.Yours sincerely

(GN Venkataraman)PresidentDate : 1st January, 2010

lPresident�s Communique l


EVA - MVA: Shareholders'Value MeasuresMaximizing shareholders value is becoming the new corporate standard in India.The corporates, which gave the lowest preference to the shareholders’inquisitiveness, are now bestowing the utmost inclination to it. Shareholders’value is measured in terms of the returns they receive on their investment. Thereturns can either be in the form of dividends or in the form of capital appreciationor both. Capital appreciation in turn depends on the subsequent changes in themarket value of shares. This market value of shares is influenced by a number offactors, which can be company specific, industry specific and macro-economicin nature.

To help corporates to generate value for shareholders, value basedmanagement systems have been developed. For measuring the corporate financialperformance, there are accounting profitability measures and shareholders’value based measures. Accounting profitability measures include ROI, ROE,EPS, ROCE and DPS etc., Shareholders valued based measures include EVAand MVA. Against this background, this article is an attempt to discuss theconcepts of EVA and MVA, evolution and growth of EVA, computation of EVAand MVA, EVA and financial performance, EVA in Indian environment andrelationship between EVA (Economic Value Added) and MVA (Market ValueAdded).

N. Sakthivel*

*Lecturer, PG & Research Dept. ofCommerce, Gobi Arts & Science College,Gobichettipalayam, Erode, Tamilnade-638453. E-Mail ID: sakthivel_ gasc @rediffmail.com

INTRODUCTION

M any companies in India andabroad have adopted theconcept of shareholders' value

added (SVA) in their annual statement.Value management is a technique ofintegrating the thinking aboutshareholder value throughout acompany. Two most important phasesof value management are: 1) EconomicValue Added (EVA) 2) Market ValueAdded (MVA). The company form oforganization's real owners are equityshareholders. They all invest theirmoney in equity shares of a companywith the primary motive of achievinggood capital appreciation and regular& stable return (i.e., dividends). Theinvestors' objectives are purely basedon the profitability and financial

performance of the company. So, beforetaking their investment decisions, theinvestors consider several factorswhich influence the corporateperformance. For measuring thecorporate financial performance, thereare accounting profitability measuresand shareholders' value basedmeasures. Accounting profitabilitymeasures include ROI, ROE, EPS, ROCEand DPS etc., Shareholders valuedbased measures include EVA, MVA.

Maximizing the shareholder valueisconsidered as one of the fundamentalgoals of all businesses. In United States,top management is expected to maximizeshareholder value. There are a numberof value based management (VBM)frameworks i.e. shareholder valueanalysis (SVA) Rapport (1986) andEconomic Value Analysis (EVA)developed by Stern Stewart (1990) arethe two well-known ones.

Maximizing shareholders value isbecoming the new corporate standard

in India. The Corporates, which gavethe lowest preference to theshareholders' inquisitiveness, are nowbestowing the utmost inclination to it.Shareholders' wealth is measured interms of the returns they receive on theirinvestment. The returns can either bein the form of dividends or in the formof capital appreciation or both. Capitalappreciation in turn depends on thesubsequent changes in the market valueof shares. This market value of sharesis influenced by a number of factors,which can be company specific,industry specific and macro-economicin nature. To help Corporates togenerate value for shareholders, valuebased management systems have beendeveloped. Indeed, value basedmanagement, which seeks to integratefinance hypothesis with strategiceconomic philosophy, is considered asone of the most significant contributionto corporate financial planning in thelast two decades or so. Against thisbackground, this article is an attempt todiscuss the concepts of EVA and MVA,evolution and growth of EVA,computation of EVA and MVA, EVA andfinancial performance, EVA in Indianenvironment and relationship betweenEVA and MVA (Market Value Added).

Market Value Added (MVA)With a view to measure share-

holders' value, Stewart invented theterm Market Value Added (MVA).Market Value Added (MVA) is definedas "the difference between market valueof invested capital and book value ofinvested capital of a company at a givenperiod of time". Market value ofinvested capital refers the market valueof equity capital and debt capital, butthe market value of debt is not easilyavailable as debts are not generallytraded. Thus, the definition of MVA canbe stated as market capitalization lessnet worth. Market capitalization is theproduct of closing share price andnumber of out standing shares as onthat date (i.e., date of balance sheet).Whereas, net worth is the sum of equitycapital, reserves and surplus net of

Cover Feature


revaluation reserve less accumulatedlosses and miscellaneous expenditure.

MVA = Market Capitalisation - NetWorthMarket Capitalisation = Closing SharePrice x Number of Outstanding Shares.Net Worth:

1. Equity Share Capital -2. Reserve and Surplus

(net of revaluation reserve) -Total -

Less:

1. Accumulated Losses -2. Miscellaneous Expenditure -

Net Worth -It is clear from the above definition

that MVA simply reflects the price tobook value relationship that is depictedby P/B ratio (Market price to book valueratio). The only difference betweenMVA and P/B ratio is that MVA is anabsolute measure whereas P/B ratio is arelative measure. A positive MVAimplies that P/B ratio is greater than one(P/B ratio > 1). If MVA is negative itimplies that P/B ratio is less than one(P/B ratio < 1). Therefore, it may beconcluded that MVA is the change inmarket value of a company between twodifferent points of time with referenceto a fixed quantity of outstandingshares. It may be noted that if thenumber of shares change between twogiven points of time, MVA should becalculated with reference to sharesoutstanding on the latest point of time.This would mean that the marketcapitalization at the end of current yearreflects the market value of outstandingshares at the end of current year. For ameaningful and objective comparison,market capitalization at the previous yearshould be modified to reflect thenumber of outstanding shares at theend of the current year.

MVA represents the value added toa particular share over its book value.MVA informs how much value ashareholder has added to this wealth,which he has invested in the share.Accordingly, a company with an

objective of enhancing the share-holders' wealth should attempt tocapitalize on its MVA. MVA can beestimated by subtracting the book valueof shares from the market value ofshares. It is silent that EVA helps inpushing up the MVA of an organization.As a result, EVA can be considered asan internal measure and MVA as theexternal measure of a company'sperformance.

MVA is considered as a measure ofshareholders' wealth. MVA denotes theextent to which the market has addedvalue to the net worth of a company.An increase in MVA infers maximizationof shareholders' wealth. This is becauseshareholders want to see appreciationin stock price. MVA can improve ifmarket capitalization increases for thesame level of net worth or if net worthof a company decreases. MVA providesthe stock market's assessment of howefficient a company is in using capital.A positive MVA indicates that acompany is building value for itsshareholders and a negative MVAindicates that a company is destroyingshareholders' value.

Economic Value Added (EVA)The concept of Economic Value

Added was introduced by a New Yorkbased consulting firm M/s Stern Stewart& Co in early eighties. The corporatesector in India is gradually recognizingthe importance of EVA as a result ofwhich some Indian companies viz.,Ranbaxy Laboratories, Samuel IndiaLtd.etc., have started calculating EVA.Infosys Technologies Ltd is the firstIndian company to report its EVA in theannual report. EVA attempts to measuretrue economic profit as it comparesactual rate of return as against therequired rate of return. EVA explainswhether a business unit best utilizes itsassets to generate return and maximizeshareholders' value. EVA is just a wayof measuring an operation's realprofitability. EVA effectively measuresthe productivity of all the factors ofproduction. viz., land, labour, capital,entrepreneur and management.

Economic Value Added (EVA) is aresidual income that subtracts the costof capital from the operating profitsgenerated by a business. EVA is anexcess profit of a firm after chargingcost of capital. EVA essentially seeksto Measure Company's actual rate ofreturn as against the required rate ofreturn. To put it simply, EVA is thedifference between Net Operating ProfitAfter Tax (NOPAT) and the capitalcharge for both debt and equity (WACC-Weighted Average Cost of Capital). IfNOPAT exceeds the capital charge(WACC), EVA is positive and if NOPATis less than capital charge, EVA isnegative. EVA is a corporate surplus,which is shared by the employees,management and the shareholders.Efficiency bonus, profit sharingschemes, managerial remuneration overand above minimum sustenance salary,issue of bonus shares and incentivedividend to equity and preferenceshareholders respectively can be linkedto EVA.

Evolution and Growth of EVAEVA is not a newer innovation. An

accounting performance measure calledresidual income that is defined asoperating profit subtracted with capitalcharge. EVA is thus, one variation ofresidual income with adjustments tohow one works out income and capital.According to Wallace, one of theearliest to point out the residual incomeconcept was Alfred Marshall in 1890.Marshall described economic profit astotal net gains less the interest oninvested capital at the current rate.According to Odd and Chen, the ideaof residual income appeared first inaccounting theory literature early in thiscentury. It was initiated by Church in1917 and further defined by Scovell in1924. Later, this concept appeared inmanagement accounting literature in the1960s.

Knowing this backdrop, severalresearchers have been wondering aboutthe big media hype and praise that hasencircled EVA in the recent days. TheEVA concept is recurrently called as

Cover Feature


Economic Profit (EP) in order to stayaway from problems caused by the trademarking. On the other hand, the nameEVA is so popular and well known thatoften all residual income concepts arecalled EVA although they do not takeaccount of even the main elementsdefined by Stern Stewart & companyfor the purpose. For instance, hardlyany of those Finish Companies thathave adopted EVA calculate rate ofreturn based on the beginning capitalas Stewart has defined it, becauseaverage capital is in practice a betterestimate of the capital employed. So,they do not actually use EVA but otherresidual income measures. Thisimmaterial detail is overlooked later onin order to avoid more severemisapprehensions and is foundjustified to say that the EVA concept,the Finish companies are usingcorresponds approximately the EVAdefined by Stern Stewart & Company.During 1970s, the residual incomeconcept did not get ample publicity andit did not finish up to be the primeperformance measure of companies.However EVA, practically, the sameconcept with a different name, has cometo fore in the recent years. Moreover,the propagation of EVA and otherresidual income measures does notseem to be on an abating trend. On thecontrary, the number of companiesadopting EVA is increasing rapidly. Onecan only guess why residual income didnever gain recognition of this level. Oneof the possible reasons is that EconomicValue Added was marketed with aconcept of Market Value Added (MVA)and it did not offer a hypotheticallysignificant connection to marketvaluations. In the times when investorsinsist on shareholders' value, this washigh time to sink your teeth into theconcept. The clarity that EVA hasbrought to the pursuit of shareholdervalue has led more than 400 companiesto adopt the discipline since SternStewart introduced the new system backin 1982. EVA has long had a base inSouth Africa, owing primarily to thelectures that Joel Stern gave before

academic and business groups. In thelast couple of years, EVA has fascinatedan increasing number of Corporatestogether in Europe, Asia, Australia andLatin America.

In mid-1996, Joel Stern was invitedto give a full- dress presentation on EVAto top management and later that year,the company signed up and formed anEVA Steering Group to implement EVA.As part of the initial phase of the EVAproject, Tate & Lyle decided to pilot EVAin two businesses-UM, UK-basedmolasses trading company andRedpath, a Canadian sugar refiner. Theobjective was to determine whether thetheory of EVA would be appropriate inpractice and to test the EVA groundrules formulated by Steering Group.

First, a retrospective study wasconducted to provide a record of pastEVA, against which future performancewas to be measured. The key valuedrivers were identified, especially in thecapital area, in addition to opportunitiesfor increasing NOPAT throughcontinuation of the existing costmanagement initiatives.

The pilot schemes were successfuland demonstrated the merits of EVA, notjust as a measure but also as a valuablemanagement tool. It was then decidedto roll out EVA throughout Tate & Lylebeginning with the training of all thefinance managers of the varioussubsidiaries followed by the operatingpeople. For the fiscal year that began inOctober 1997, some 60 of the topmanagers had their cash bonus linkedto EVA performance. EVA may berealistically in young age in the west,has been going through its babyhoodin country like ours. It may be quiteemerging concept in the mind of Indiancorporate policy makers and managers.

EVA and Financial Performance

According to accounting concept,business profit is measured bydeducting expenses from income earnedduring the period. On the other hand,according to economic concept,business profit is considered to be the

maximum amount that the business iscapable of distributing to itsshareholders while still remaining in thesame position at the end of the periodas it was at the beginning. Notably, theaccounting concept does not take intoaccount opportunity cost and riskadjusted return on capital employed inthe business in order to overcomelimitations of accounting basedmeasures of financial performance.

EVA as a tool of financialperformance measurement enlightenswhether the operating profit is enoughto cover the cost of capital.Shareholders must earn sufficientreturns for the risk they have taken ininvesting their funds in company'scapital. The return generated by thecompany for shareholders has to bemore than the overall cost of capital tojustify risk taken by shareholders. TheEVA framework is becoming more andmore admired tool for measuring thefinancial performance of Corporates.EVA offers a consistent approach to setgoals and measure performance,communicate with investors, evaluatestrategies, allocate capital valuingacquisitions and determine incentivebonuses. However, the EVAimplementation and improvementprocess is one of the several ongoinginitiatives for a new corporate. A firmcan improve its EVA in three ways:

l Earn more profit without using morecapital.

l Downsize unprofitable units ordivisions.

l Make investment where the returnis more than the marginal cost ofcapital.

Computation of EVA

EVA is the excess of Net OperatingProfit After Tax (NOPAT) over theWeighted Average Cost of Capital(WACC). In other words, EVA is acompany's net operating profit after taxafter deducting the cost of capitalemployed on total investment in thebusiness. EVA takes into account thetotal cost of capital employed which

Cover Feature


makes EVA so revealing. The traditionalpractice normally considers only asingle component of the total cost ofcapital (i.e., the explicit cost of borrowedcapital) to arrive at net profits. EVArecognizes explicit cost of borrowedcapital as well as implicit cost of owncapital as part of cost to be deductedfrom the figure of net operating profits.

While computing EVA, capitalemployed represents capital invested atthe beginning of the year. The logicbehind taking beginning capital forcomputing EVA is that a companywould take at least one year time to earna return on investment. It may bementioned here that calculation of EVAinvolves some tricky issues. Eachelement of EVA, therefore, has beendiscussed individually. EVA requiresthree different inputs for itscomputation. They are given below: (A)NOPAT (Net Operating Profit After Tax)B) Invested Capital (C) WeightedAverage Cost Of Capital (WACC).

EVA = NOPAT - (WACC x InvestedCapital)

(A) Net Operating Profit After Tax(NOPAT)

Stewart (1991) defined NOPAT asthe "Profits derived from company'soperations after taxes but beforefinancing costs and non-cash bookkeeping entries. Such non-cash bookkeeping entries do not includedepreciation since depreciation isconsidered as a true economic expense.In other words, NOPAT is equal to theincome available to shareholders plusinterest expenses (after tax). However,Stewart considered regular non-operating incomes as part of NOPAT.Stewart (1991) provided the followingcalculation for computing NOPAT:

1. Profit after tax -

2. Non-recurring expenses -

3. R&D expenditures -

4. Interest Expenses -

5. Provision for taxes -

TOTAL -

LESS:

1. Non-recurring incomes -

2. R&D amortization -

3. Cash operating taxes* -

NOPAT -

*Where, Cash Operating Taxes =(Provision for taxes + tax benefit ofnon-recurring expenses + Tax benefitof interest expenses) - (Tax on non-recurring incomes)

B) Invested Capital / Capital Employed

Invested capital or capital employedrefers to total assets net of non-interestbearing liabilities. From an operatingperspective, invested capital can bedefined as Net Fixed Assets plusInvestments plus Net current assets.Net current assets denote currentassets net of non-interest bearingcurrent liabilities. From a financingperspective, the same can be definedas Net Worth plus total borrowings.Total borrowings denote all interestbearing debts

(C) Weighted Average Cost of Capital(WACC)

WACC represents overall cost ofcapital employed in the business (i.e.,cost of debt capital and cost of equitycapital). For calculating WACC, cost ofeach source of capital is calculatedseparately then weights are assignedto each source on the basis ofproportion of a particular source in thetotal capital employed. Weights can beassigned on market value basis or bookvalue basis. Stewart suggested marketvalue basis. WACC can be calculatedas below:

WACC = E/CE ́ Ke + LTB/CE x Kd

Where,

E = Equity Capital

CE = Capital Employed

LTB = Long Term Borrowings

Ke = Cost of Equity Capital

Kd = Cost of Debt Capital

WACC includes two specific costs viz.,(i) cost of equity (Ke), (ii)cost of debt

(Kd).

I) Calculation of Cost of Debt (Kd)

Cost of debt is calculated bymultiplying the pre-tax debt cost by (1-t), Where't' refers the effective tax rate.This will furnish the post tax cost ofdebt. The post tax cost of debt iscalculated because debt cost enjoys taxshield. In other words, tax reduces theeffective cost of debt. Cost of debt canbe calculated by applying the followingformula:

Cost of Debt = (Total Interest Expense /Beginning Total Borrowings)

(1-t)´100

Kd = (TIE / BTB) x (1-t) x 100

II) Calculation of Cost of Equity (Ke)

Cost of equity (Ke) is theopportunity cost that is equal to the totalreturn that investor could expect to earnfrom alternative investments ofcomparable risk. It is not an explicit costas the cost of debt. The dividend basedor earning based approach for findingcost of equity is not considered a properway of computing the return expectedby equity shareholders. Theseapproaches measure the explicit cost ofservicing equity whereas the truemeasure of cost of equity is not what acompany offers but what investorsreasonably expect. Conceptually, thecost of equity may be stated as "theminimum rate of return that a companymust earn on the equity-financialposition of an investment project inorder to leave unchanged the marketprice of the shares". The cost of equitycan be calculated by the Capital AssetPricing Model (CAPM). The CAPM isnormally used to determine minimumrequired rates of return from investmentin risky assets. Stewart also usedCAPM consistently as a measure forcost of equity in his methodology forcomputing EVA. The expected return onequity can be calculated under CAPMby applying the formula given below:

Rj = Rf + b (Rm - Rf)

Where,

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Rj = Expected Return on Scrip j

Rf = Risk free rate of return

b = Beta representing the volatilityof scrip j against marketvolatility.

Rm = Expected stock market return.

From the above formula, it can beconcluded that the required rate ofreturn on equity is equal to the sum ofthe risk-free rate of return and anincrement that compensates theinvestors for accepting the assets risk.

EVA in Indian Environment

Bennett Stewart, along with JoelStern founded the New York-basedglobal financial consultancy firm underthe name "Stern Stewart & Company"in 1990. An EVA company has believedthat EVA is such financial performancetool that comes closer than any othertools to capture the true economic profitof an organization. The EVA analysishas attracted much attention in theWestern countries both as amanagement innovation as well as stockmarket analysis. The acceptance ofsuch a technique in Indian context,however, shows somewhat diversetrends. Some corporate houses likeInfosys, BPL, Hindustan Lever Limited,Balarpur Chinni Mills, NIIT, TataConsultancy Services, Godrej Soapshave started publishing EVA in theirfinancial statements. Majority ofcompanies are still not willing to installthe EVA technique for evaluating theirfinancial performance because ofcertain inherent difficulties associatedwith the computation. Again, it isobserved by some scholars that inIndian context, it may be very difficulttask to establish the existence of anyrelationship between stock price andeconomic value added (EVA).

In developing economy like India,depending on EVA could be an obstaclein making new investment decisions.Moreover, when talking aboutshareholders' value, the profile of theshareholders also needs to be taken

care. In India, for a particular businessor company there is no one particularset of shareholders. In fact, there isalways more than one set. Thensituations may arise when the companyends up satisfying one set ofshareholders at the cost of another set.In India, we have large businesshouses, which started off with onebusiness but diversified during thecourse of time. In the entire process,they ended up creating many sets ofshareholders thus making the spread ofvalue creation all the more complicated.Considering all these situations whatbecomes important is reporting andtransparency & consistency inreporting which can assure the successof EVA to some extent.

EVA, MVA and Share Prices

The EVA theory defines marketvalue of a company as its book valueplus the current value of future EVA.Through this relationship, EVAinfluences market value of shares butthis relationship is again debated anddifferent studies have revealed differentresults. Stewart studied the relationshipbetween EVA and MVA by takingmarket data of 618 US firms and Stewartfound that the relationship between EVAand MVA is quite high in US firms. Butin situation, where both EVA and MVAare negative and the relationship doesnot hold good. The reason behind thisbehaviour is that the market valuereflects the asset base of companiesand the companies, which have highasset base will also, have high marketvalues irrespective of their returns. Incase of low or negative EVA, the marketstart valuing the companies on thepotential of liquidation, recovery,recapitalization or takeover, but if theEVA is positive, then the valuation ison the basis of expected return andgrowth potential and not on the basisof liquidation or recovery value.

While establishing a correlationbetween EVA and MVA, it is best toconsider the change rather than the

absolute figures. Considering changesin the value is safer because they arenot affected much by accountingdistortions and inflation than theabsolute values. There is onefundamental question in correlatingEVA with share prices i.e. the main basefor market value is the expectation offuture cash flows. The change in thecurrent share price is a reflection of thechange in the future cash flows andfuture EVA expectations. Hence, thecurrent EVA cannot explain the currentshare price. When the current EVAchanges, it infers that the future EVA isalso likely to change. Therefore, likeother measures, EVA also has the powerto explain, may be a little more strongly.EVA is more appropriate in case ofcorporate control and the use of EVAas discounted cash flow to estimatecurrent valuations with future EVAestimate is really informative. More thanthe share price, EVA has morecorrelation with MVA. Share prices canalso rise when more money is pumpedup into the business, but EVA and MVArise only when the returns generatedwith the additional money is more thanthe incremental cost of capital. One ofthe reasons of poor correlation betweenEVA and share price is distorted. EVA isno better than any other accountingmeasure like ROI or EPS. Also, thesedistortions could be responsible for thefact that more than absolute valuechanges in EVA correlates with shareprices.

EVA reflects the true economic profitof an organization. It is an internalmeasure of performance oforganisations. In order to make EVAmore popular in Indian environment, itis essential to remove many practicaldifficulties in implementing EVA inbusiness houses. It can be concludedthat maximizing shareholders' value isthe primary objective of any businessorganization and it should be kept inmind that change is the only way, which

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Contd. on Page 18


Business Valuation:A Critical AnalysisDr. Arindam Ghosh*Sri Asit Gope**Introduction:

B usiness valuation is ameasurement process. In orderfor any measurement process to

be useful, the results must be consistent,precise, and accurate. Unlike ordinaryphysical measurements, the businessvaluation process involves multiplequalitative judgements, as well asquantitative procedures. To achievegreater precision and consistency,valuation professionals have attemptedto make the valuation process moredependent on quantitative proceduresand less dependent on qualitativejudgements. Qualitative judgementsoften are thought to be inherently moresubjective and prone to bias thanquantitative procedures. Despite thefact that qualitative judgements are notnecessarily biased in principle, inpractice such judgements are often thesource of biased and inconsistentappraisal results. Many users ofbusiness valuations have noted thisproblem. Business valuation is a processor a set of procedures that is used toestimate the economic value of theowner's interest in a business. Valuationis used by financial market participantsto determine the price they are willingto pay or receive to consummate a saleof a business. Business valuationresults can vary considerablydepending upon the choice of both thestandard and premise of value. In an

actual business sale, it would beexpected that the buyer and seller, eachwith an incentive to achieve an optimaloutcome, would determine the fairmarket value of a business asset thatwould compete in the market for suchan acquisition. Valuing a company ishardly a precise science and can varydepending on the type of business andthe reason for coming up with avaluation. There are a wide range offactors that go into the process -- fromthe book value to a host of tangible andintangible elements. In general, thevalue of the business will rely on ananalysis of the company's cash flow. Inother words, its ability to generateconsistent profits will ultimatelydetermine its worth in the marketplace.Business valuation should beconsidered a starting point for buyersand sellers. It is rare that buyers andsellers come up with a similar figure, if,for no other reason, than the seller islooking for a higher price. The goal ofthe valuation should be to determine aapproximate figure from which thebuyer and the seller can negotiate aprice that they can both live with.

The Need for Valuation:

The need for valuing a business ora firm can well be identified byanswering the question-"Whatpurpose does a valuation serve?". Toanswer that question we have toconsider the benefits that are gained bydifferent parties, directly or indirectlyengaged their interests in the businessconcerned. To judge that we need tocalculate the view points of all theparties who are directly or indirectlyconnected with the business. Thepurposes that a valuation serves are

*Reader and Head, Department ofCommerce, Panihati College ; Life Member:Indian Economic Association & BengalEconomic Association.**Research Scholar, Department ofCommerce, University of Kalyani.

manifold. A valuation may be used fora wide range of purposes. These arelisted as follows:

q From the buyer's point of view, thevaluation tells him the price heshould pay;

q From the seller's point of view, thevaluation will tell him the lowestprice at which he should be preparedto sell;

q In case of listed companies:

- valuation is useful to compare thevalue obtained with the share's priceon the stock market and to decidewhether to sell, buy or hold theshares;

- valuation of several companies maybe used to make portfolio decision;

q When share are offered to public,the valuation is used to justify theprice at which the shares are offeredto the public;

q The valuation is used to comparethe shares' value with that of theother assets;

q Valuation of a company provides afundamental benchmark to identifyand stratify the main value drives;

q The valuation of a company orbusiness unit is a prior step inmaking strategic decisions, such as,the decision to continue in thebusiness, sell, merge, grow or buyother companies;

q In case of strategic planning, thevaluation of the company and thedifferent business units arefundamental for deciding whatproducts/business lines/countries/customers to maintain, grow orabandon. It also provides means formeasuring the impact of thecompany's possible policies andstrategies on value creation anddestruction;

Different Approaches or Methods toBusiness Valuation:

A Business Valuator (or anyonevaluating your business) will use a

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variety of business valuation methodsto determine a fair price for yourbusiness, such as:

(1) Asset-Based Approach:

It is used when a company is asset-intensive. The most common assetvaluation techniques are:

Book Value Method:

The book value is simply thebusiness valuation based upon theaccounting books of the business.Assets less liabilities equal the owner'sequity, which is the "Book Value" of thebusiness. The problem with book valuebusiness valuation is that theaccounting records may not accuratelyreflect the true value of the assets inthe business valuation.

Adjusted Book Value:

Two types of adjusted book valuebusiness valuations are Tangible BookValue and Economic Book Value (alsoknown as book value at market).

l Tangible Book Value is based oncomprising the value of tangibleassets only. Assets, such, goodwill,patents, capitalized preliminaryexpenses and deferred revenueexpenses etc are not considered.

l Economic Book Value is the valueof the business that allows a bookvalue analysis that adjusts theassets to their market value. Thisincludes valuation of goodwill, realestate, inventories and other assetsat their market value.

Replacement Value Method:

It is quite closely similar to anadjusted book value analysis. Liabilitiesare deducted from the replacement valueof the assets to determine thereplacement value of the business.Replacement value of an asset is usuallyhigher than its book value.

Liquidation Value Method:

It is lso similar to an adjusted bookvalue analysis. Liabilities are deductedfrom the liquidation value of the assetsto determine the liquidation value of the

business. A liquidation asset-basedapproach determines the net cash thatwould be received if all assets were soldand liabilities paid off.

(2) Income/Earning-Based Approaches:

These valuation methods are bestused for non-asset intensive businesseslike service companies. These businessvaluation methods are predicated on theidea that a business's true value lies inits ability to produce wealth in thefuture. The most common earning valueapproach is Capitalizing Past Earning.

Income Capitalizing Valuation Method:

Earnings are divided by acapitalization rate (a rate of returnrequired to take on the risk of operatingthe business). The earnings figure tobe capitalized should be one that reflectsthe true nature of the business. Whendetermining a capitalization rate oneshould compare with rates available tosimilarly risky investments.

Discounted Earnings ValuationMethod:

It determines the value of a businessbased upon the present value ofprojected future expected earnings,discounted by the required rate of returni.e. the capitalization rate. But thequestion is how well earnings areprojected.

Discounted Cash Flow ValuationMethod:

When an entity is set up toaccomplish a specific project, thistechnique is proved to be the mostuseful in valuing such an affair orbusiness and when a certain time frameis set where an investor wishes to seehis investment returned over a specificperiod of time. In discounted cash flow,the present value of liabilities issubtracted from the combined presentvalue of cash flow and tangible assets,which determines the value of thebusiness.

Discount Rate:

In order to compute net present

value, it is necessary to discount futurebenefits and costs. This discountingreflects the time value of money.Benefits and costs are worth more ifthey are experienced sooner. All futurebenefits and costs, including non-monetized benefits and costs, shouldbe discounted. The higher the discountrate, the lower is the present value offuture cash flows. For typical invest-ments, with costs concentrated in earlyperiods and benefits following in laterperiods, raising the discount rate tendsto reduce the net present value.

Estimating the Discount Rate

Use of a discount rate to quantifysystematic and unsystematic risk is partof the Capital Asset Pricing Model(CAPM). CAPM is firmly grounded ineconomic theory, and many textscontain summaries. However, it is alsobased on publicly-traded markets, whichare not applicable to privately-heldfirms. Alternatively, some practitionersmay use a "build-up" method.Although the use of this term is notconsistent, some "build up" methodsdo not include a "beta." This approachis not founded in economic theory andis instead based heavily on professionaljudgement. Damadoran (2002)recommends the CAPM approach,noting the failure of more contemporarymodels to significantly improve uponCAPM. Different methods forestimating a discount rate exist.

(3) Market Valuation Approaches:

Market value approaches tobusiness valuation attempt to establishthe value of the business by comparingit to similar businesses that haverecently sold. Obviously, this methodis only going to work well if there are asufficient number of similar businessesto compare. This approach comparessimilar companies on a set of variables.For instance the value of a businesscould be determined by using an"industry average" figure, such assales, times a multiplier. This industryaverage number is based on what

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comparable businesses have sold forrecently. As a result, an industry-specific formula is devised, usuallybased on a multiple of gross sales.

Price Earnings Multiple ValuationMethods:

The price-earnings ration (P/E) issimply the price of a company's shareof common stock in the public marketdivided by its earnings per share.Multiply this multiple by the net incomeand you will have a value for thebusiness. If the business has noincome, there is no business valuation.

Dividend Capitalization ValuationMethod:

Dividend paying capacity based onaverage net income and on average cashflow is used.

To determine dividend-payingcapacity, near term capital needs,expansion plans, debt repayment,operation cushion, contractualrequirements, past dividend payinghistory of a business and dividends ofa comparable company should beinvestigated. After analyzing thesefactors, percent of average net incomeand of average cash flow that can beused for the payment of dividends canbe estimated.

Sales Multiple Valuation Method:

This method is easy to understandand use. The sales multiple is often usedas the business valuation benchmark.The information required is annual salesand an industry multiplier, which isusually a range of .25 to 1 or higher. Theindustry multiplier can be found invarious financial publications, as wellas analyzing sales of similar concerns.

Profit Multiple Valuation Method:

Profit and sales multiples are themost widely used business valuationbenchmarks used in valuing a business.The information needed is pretax profitsand a market multiplier, which may be 1,2, 3, or 4 and usually a ceiling of 5. Themarket multiplier can be found in variousfinancial publications, as well as

analyzing the sale of comparablebusinesses.

The above mentioned three mainapproaches are recognized by theInternal Revenue Service, accountingand appraisal authorities, andbusiness valuation authorities.However, much recent research in theunderlying economics of businessvaluation, as well as the trend inprofessional practice, has underminedthis easy classification. In particular,there has been severe criticism of theimproper use of accounting-basedhistorical cost figures to estimatemarket value, the reliance onaccounting income statements as thefundamental basis for forecastingfuture revenue, and the naiveapplication of CAPM models to thediscount rates for private firms.

What is Market Value or Fair Value?

The value of an asset if it were to besold on the open market at its currentmarket price. When land is involved itmay be necessary to distinguishbetween the market value in its presentuse and that in some alternative use;for example, a factory site may have amarket value as a factory site, and be sovalued in the company's accounts,which may be less than its market valueas building land. Market value is oftendifferent from book value because themarket takes into account future growthpotential. Most investors who usefundamental analysis to pick stockslook at a company's market value andthen determine whether or not themarket value is adequate or if it'sundervalued in comparison to its bookvalue, net assets or some other measure.The value of a company obtained bymultiplying the number of its issuedordinary shares by their market price.This may differ widely from the bookvalue of the company. Fair value is theamount of money for which it isassumed an asset or liability could beexchanged in an arm's lengthtransaction between informed and

willing parties. The concept is essentialin acquisition accounting.

Conclusion:

Business valuation methodologycontinues to evolve over time. Forexample, a century ago, the mostcommon business valuation methodsrelated to asset values and dividendyields. These business valuationmethods are given far less weight today.A half-century ago, the price/earningsmultiple and the multiple of price to cashflow per share were important businessvaluation components. While the price/earnings multiple continues to be animportant valuation component, theprice/cash flow multiple is no longergenerally accepted. The DCF(Discounted Cash Flow) method hasbecome a widely used businessvaluation method. The DCF method isconceptually useful, but it hassignificant application limitations. Themethod is based on the premise that thevalue of a business is the present valueof its future net cash flow. Projected netcash flow is discounted to present valueusing a cost of capital that is intendedto reflect the risks of the business.Because cash flow projections are madefor only a limited period, the value of abusiness at the end of the discreteprojection period is calculated. Thetheory of a DCF analysis assumes thevalidity of the financial projections, butfinancial projection accuracy is asimplifying assumption that does notoften comport with the real world.Moreover, a DCF analysis is also highlydependent on the selected discountrate, as well as the methodology usedfor estimating the terminal value. Often,the terminal value is based on theprojected financial results for the yearafter the discrete projection period.Terminal value is based on the final yearof a projection, which is necessarily farless predictable than projections forearlier years. Valuation is an importantconsideration, but the decision makersshould also consider the structural

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fairness of the transaction and otherfactors. A fairness conclusion renderedto the board of directors should weighthe overall impact of a transaction onshareholders. An analyst rendering afairness opinion should recognize thatshareholders are the ultimatebeneficiaries of the fairness conclusionand that the shareholders will beconsidering the fairness opinion inarriving at their transaction decisions.The CAPM is widely accepted forfinancial analysis, portfoliomanagement, corporate planning, andother applications. However, itsreliability in calculating the appropriatediscount rate for an individual companyis subject to question. Many of thefactors used in estimating the discountrate, such as beta, the company-specificrisk premium, and the small company/size adjustment risk premium, aresubject to the judgment of the analyst.Under the CAPM, a company's cost of

equity is determined by adding the risk-free rate of return to a measure of theequity risk premium. A company'sequity risk premium is calculated bymultiplying the equity risk premium forthe market as a whole by a factor calledbeta. Beta is a measure of the volatilityof an individual security's return relativeto the total market return. Ideally,valuation analysts should use aforward-looking beta. In practice,though, historical betas are commonlyused because projected betas are notreadily available. An analyst shouldtest the reasonableness of thecalculated cost of capital, based on theanalyst's professional judgement andexperience as to the rates of returnrequired in the marketplace.

Bibliography:

1. Waldron D and D Hubbard, (1991)"Valuation Methods and Estimates inRelationships to Investing VersusConsulting" Entrepreneurship: Theory

and Practice, Fall Volume 16,November 1.

2. Shanno P Prat (2001) "The MarketApproach to valuing Business" JohnWiley & Sons Inc.

3. Barth, M.E., W.H. Beaver and W.R.Landsman (2001). "The Relevance ofthe Value Relevance Literature forAccounting Standard Setting: AnotherView." Journal of Accounting andEconomics 31: 77-104.

4. Magni, C. A. (2007). Project valuationand investment decisions: CAPMversus arbitrage. Applied FinancialEconomics Letters, 3(1) (March), 137-140.

5. Fernández, P. (2002). ValuationMethods and Shareholders ValueCreation. San Diego: Academic Press.

6. Damodaran, A. (1999). AppliedCorporate Finance: A User's Manual.New York: Wiley.

7. Fernandez, Pablo (2002), ValuationMethods and Shareholder ValueCreation, Academic Press.q

is constant in nature. Obliterationshould be welcomed if it is for betterand the managers of publicorganisations should take decisions.As if it is a private organization that thecapital is optimally utilized and result inmaximizing the shareholders' value.

Conclusion

Shareholders' value based measureslike Economic Value Added (EVA),Market Value Added (MVA) are beingintroduced and greater attention isbeing paid to getting the accountantsand the finance executives involved inplanning, decision making andperformance evaluation in recent timesas these metrics explicitly discloses thevalue of the firms. These value basedmetrics are widely used by themanagement of a business in order tolook for a way to link earnings andrelated investment, not just for thecompany as a whole, but for theindividual parts of the business as MVA

and EVA are an effective measure of thequality of managerial decisions as wellas a reliable indicator of an enterprise'svalue growth in future. So, managementof business has now startedinvestigating ways to link its owninterest to the interest of theshareholders. Due to the abovedevelopments, economic value added(EVA) and market value added (MVA)are given the most attention and mostof the companies in India, either MNCor Indian have now adopted use ofabove first class metrics in recent times.

References:

l Singh K.P. and Garg M.C, "EconomicValue Added (EVA) in IndianCorporates", First Edition, Deep &Deep Publications Pvt Ltd, New Delhi,2004.

l Sony Agarwal, "Value AddedStatement", First Edition, RBSAPublishers, Jaipur, 2004.

l Anand, Manoj, Garg, Ajay, and Arora,Asha, "Economic Value Added:Business performance measure ofshareholders' value", The ManagementAccountant, May 1999, Vol. 34, No. 3,pp. 351-356.

l Niranjan, Swain, Mishra, C.S andMukesh Kumar, "Market Response toEconomic Value Maximization: A Studyof Indian Chemical Industry", TheICFAI Journal of Applied Finance, Vol.8, No. 4, July 2002, p. 3

l Banerjee, Ashok and Jain, "EconomicValue Added and Shareholder Wealth:An Empirical Study of Relationship",Paradigm, Vol. 3, No. 1, January-June,1999, p.114.

l www.eva.com

l Ghosh T.P, "Economic Value Added -A Tool for Business Planning", FirstEdition, The Institute of Cost and WorksAccountants of India (ICWAI),Kolkatta, 1999.q

Contd. from

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Tools and Techniques ofBusiness ValuationBusiness valuation is a process and a set of procedures used to estimate theeconomic value of an owner's interest in a business. Valuation is used by financialmarket participants to determine the price they are willing to pay or receive toconsummate a sale of a business. In addition to estimating the selling price of abusiness, the same valuation tools are often used by business appraisers toresolve disputes related to estate and gift taxation, divorce litigation, allocatebusiness purchase price among business assets, establish a formula for estimatingthe value of partners' ownership interest for buy-sell agreements, and manyother business and legal purposes. An attempt has been made in this article toprovide knowledge regarding the various tools and techniques that are used inthe valuation of a business, starting with simple financial statements and the useof ratios, and going on to discounted free cash flow and option-based methods.

Dr. Tanuja Talwar*Pooja Sareen**

*Lecturer, Postgraduate Department ofCommerce in Govt. College, Chandigarh.**Guest Faculty, Postgraduate Departmentof Commerce in Govt. College, Chandigarh.

Introduction

Business Valuation has become anintrinsic part of the corporatelandscape. The corporate

landscape has witnessed dynamicchanges in the recent years as mergersand acquisitions, corporate restruc-turings, and share repurchases arehappening in record numbers. At thecore of the dynamics of all theseactivities stands some notion ofvaluation. The valuation methods arenot only necessary for accountingpurposes but they also serve asroadmaps for the investors, venturecapitalists and corporate acquirers inorder to know the true value of acompany's assets. How a business isvalued depends on the purpose, so themost interesting part of implementingvarious methods will be to see how theywork in different contexts -- such asvaluing a private company, valuing anacquisition target, and valuing acompany in distress. Although there arenumerous individual valuationtechniques, we will discuss the

following prominent techniques ofbusiness valuation :

(1) Cash to Market Value Method

It is one of the premier screens forferreting out companies with more cashon hand than their current market value.Firstly look at a company's cash andequivalents and short-terminvestments. Dividing this number bythe number of shares outstanding givesa quick measure that tells us how muchof the current share price consists ofjust the cash that the company has onhand. Buying a company with a lot ofcash can yield a lot of benefits -- cashcan fund product development andstrategic acquisitions and can pay high-caliber executives. Even a company thatmight seem to have limited futureprospects can offer tremendous promiseif it has enough cash on hand.

(2) Working Capital to MarketCapitalization

Another measure of value is acompany's current working capitalrelative to its market capitalization.Working capital is what is left aftercompany's current liabilities aresubtracted from its current assets .Working capital represents the fundsthat a company has ready access to for

use in conducting its everydaybusiness. If we buy a company for closeto its working capital, we haveessentially bought a Re of assets for aRe of stock price -- not a bad deal, either.Just as cash funds all sorts of goodthings, so does working capital.

(3) Price to Book Value MethodBook value is literally the value of a

company that can be found on theaccounting ledger. To calculate bookvalue per share, take a company'sshareholder's equity and divide it by thecurrent number of shares outstanding.If you then take the stock's current priceand divide by the current book value,you have the price-to-book ratio.

Stock's current pricePrice to Book Value =-----------------------

Current book value

Book value is a relativelystraightforward concept. The closer tobook value we can buy something at,the better it is. Book value is actuallysomewhat skeptically viewed in this dayand age, since most companies havelatitude in valuing their inventory, aswell as inflation or deflation of real estatedepending on what tax consequencesthe company is trying to avoid.However, with financial companies likebanks, consumer loan concerns,brokerages and credit card companies,the book value is extremely relevant. Forinstance, in the banking industry,takeovers are often priced based onbook value, with banks or savings &loans being taken over at multiples ofbetween 1.7 to 2.0 times book value.Another use of shareholder's equity isto determine return on equity .

(4) Return on Equity (ROE)Return on equity is a measure of

how much earnings a companygenerates in four quarters compared toits shareholder's equity. It is measuredas a percentage. For instance, if XYZCorp. made a return of Rs one million inthe past year and has a shareholder'sequity of ten million, then the ROE is10%. Some use ROE as a screen to findcompanies that can generate largeprofits with little in the way of capital

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investment. Coca Cola, for instance,does not require constant spending toupgrade equipment -- the syrup-makingprocess does not regularly move aheadby technological leaps and bounds.High ROE companies are very attractiveto investors .(5) Earnings Per Share (EPS)

Earnings per share measures theprofit available to equity shareholderson a per share basis, i.e., the amountthat they can get on every share held.EPS is calculated by simply dividing thetotal amount of the earnings a companyreports by the number of shares itcurrently has outstanding. Thus, if XYZCorp. has 1million shares outstandingand has earned Rs.1million in the past12 months, it has EPS of Rs1.00.

Rs1,000,000EPS= -------------- = Re.1.00 1,000,000 shares

The earnings per share alone meansabsolutely nothing, though. To look ata company's earnings relative to itsprice, we can employ the price /earningratio.(6) Price/Earnings (P/E) Ratio.

The P/E ratio takes the stock priceand divides it by the last four quarters'worth of earnings. For instance, if, inour example above, XYZ Corp. wascurrently trading at Rs15 a share, itwould have a P/E of 15.

Rs.15 Share priceP/E=-------------------------- = Rs.15

Rs.1.00 EPSIt represents the price currently

being paid by the market for each Re ofcurrently reported EPS. It measuresinvestors expectations and marketappraisal of the performance of the firm.(7) The Price-to-Sales Ratio

Every time a company sells acustomer something, it is generatingrevenues. Revenues are the salesgenerated by a company for peddlinggoods or services. Whether or not acompany has made money in the lastyear, there are always revenues. Evencompanies that may be temporarilylosing money, have earnings depresseddue to short-term circumstances (like

product development or higher taxes),or are relatively new in a high-growthindustry are often valued off of theirrevenues and not their earnings.Revenue-based valuations are achievedusing the price/sales ratio,PSR.Theprice/sales ratio takes intoconsideration the current marketcapitalization of a company and dividesit by the last 12 months trailingrevenues. The market capitalization isthe current market value of a company,arrived at by multiplying the currentshare price times the sharesoutstanding. This is the current price atwhich the market is valuing thecompany. For instance, if in our example,company XYZ Corp. has ten millionshares outstanding, priced at Rs10 ashare, then the market capitalization isRs100 million.Some investors are evenmore conservative and add the currentlong-term debt of the company to thetotal current market value of its stock toget the market capitalization. The logichere is that if we were to acquire thecompany, we would acquire its debt aswell. This avoids comparing PSRsbetween two companies where one hastaken out enormous debt that it hasused to boast sales and one that haslower sales but has not added any nastydebt either.Market Capitalization = (SharesOutstanding * Current Share Price)

+ Current Long-term DebtThe next step in calculating the PSR

is to add up the revenues from the lastfour quarters and divide this numberinto the market capitalization. Say XYZCorp. had Rs200 million in sales overthe last four quarters and currently hasno long-term debt. The PSR would be:

(10mnshares*10/share)+0debtPSR = ------------------------------------- = 0.5

Rs200 million revenuesThe PSR is a measurement that

companies often consider when makingan acquisition. The PSR is often usedwhen a company has not made moneyin the last year. PSR measures how muchwe are paying for a Re of sales insteadof a Re of earnings. We can use the PSRin conjunction with the P/E in order to

confirm value. If a company has a lowP/E but a high PSR, it can warn aninvestor that there are potentially someone-time gains in the last four quartersthat are pumping up earnings per share.(8) Discounted Cash Flows Method

It is the most common measurementfor valuing public and privatecompanies used by investment bankers.Cash flow is literally the cash that flowsthrough a company during the courseof a quarter or the year after taking outall fixed expenses. Cash flow is normallydefined as earnings before interest,taxes, depreciation and amortization(EBITDA).In a private or public marketacquisition, the price-to-cash flowmultiple is normally in the 6.0 to 7.0range. When this multiple reaches the8.0 to 9.0 range, the acquisition isnormally considered to be expensive.In a leveraged buyout (LBO), the buyernormally tries not to pay more than 5.0times cash flow because so much of theacquisition is funded by debt.

Free Cash Flow goes one stepfurther. A company cannot drain all itscash flow, to survive and grow it mustinvest in capital and hold enoughinventory and receivables to supportits customers. So after adding back inthe non-cash items, we subtract out newcapital expenditures and additions toworking capital.

The premise of the discounted freecash flow method is that company valuecan be estimated by forecasting futureperformance of the business andmeasuring the surplus cash flowgenerated by the company. The surpluscash flows and cash flow shortfalls arediscounted back to a present value andadded together to arrive at a valuation.The discount factor used is adjustedfor the financial risk of investing in thecompany. The mechanics of the methodfocus investors on the internaloperations of the company and itsfuture.

The discounted cash flow methodcan be applied in six distinct steps. Sincethe method is based on forecasts, agood understanding of the business,its market and its past operations is a

Cover Feature


must. The steps in the discounted cashflow method are as follows:l Develop debt free projections of the

company's future operations. Thisis clearly the critical element in thevaluation.

l Quantify positive and negative cashflow in each year of the projections.The cash flow being measured is thesurplus cash generated by thebusiness each year. In years whenthe company does not generatesurplus cash, the cash shortfall ismeasured.

l Estimate a terminal value for the lastyear of the projections. Estimate howmuch value will be contributed tothe company by the cash flowsgenerated after the last year in theprojections.

l Determine the discount factor to beapplied to the cash flows. Thisdiscount factor should reflect thebusiness and investment riskinvolved.

l Apply the discount factor to thecash flow surplus and shortfall ofeach year and to the terminal value.The amount generated by each ofthese calculations will estimate thepresent value contribution of eachyear's future cash flow. Addingthese values together estimates thecompany's present value assumingit is debt free.

l Subtract present long term and shortterm borrowings from the presentvalue of future cash flows toestimate the company's presentvalue.

(9) Option-Based MethodsExecutives continue to grapple with

issues of risk and uncertainty inevaluating investments andacquisitions. Despite the use of netpresent value (NPV) and othervaluation techniques, executives areoften forced to rely on instinct whenfinalizing risky investment decisions.Given the shortcomings of NPV, realoptions analysis has been suggestedas an alternative approach, one thatconsiders the risks associated with an

investment while recognizing the abilityof corporations to defer an investmentuntil a later period or to make a partialinvestment instead. In short, investmentdecisions are often made in a way thatleaves some options open. The simpleNPV rule does not give the correctconclusion if uncertainty can be"managed." In acquisitions and otherbusiness decisions, flexibility isessential -- more so the more volatilethe environment -- and the value offlexibility can be taken into accountexplicitly, by using the real-optionsapproach.

Financial options are extensivelyused for risk management in banks andfirms. Real or embedded options areanalogs of these financial options andcan be used for evaluating investmentdecisions made under significantuncertainty. Real options can beidentified in the form of opportunity toinvest in a currently availableinnovative project with an additionalconsideration of the strategic valueassociated with the possibility of futureand follow-up investments due toemergence of another relatedinnovation in future, or the possibilityof abandoning the project.

The option is worth somethingbecause the future value of the asset isuncertain. Uncertainty increases thevalue of the option, because if theuncertainty is interpreted as thevariance, there are possibilities tohigher profits. The loss on the option isequal to the cost of acquiring it. If theproject turns out to be non-profitablewe always have the choice of non-exercising. More and more, the realoptions approach is finding its place incorporate valuation.Conclusion

The firms that face an importantinvestment, acquisition, or growthdecisions, particularly in a rapidlychanging competitive environment,effective management requires anunderstanding of value creation and acommand over valuation analysis.While valuing a business we should notrely on any one method rather we

should select combination of methodsthat can help us to take betterdecisionWe all know very well that onewrong decision can destroy the valuecreated over the years. Financial expertsbelieve that business valuations usingany method should not be too high ortoo low because that could be costly,resulting in either overpayment or lostopportunities. It is the need of the hourthat the executives belonging to financeor non finance background mustpossess thorough understanding of allthe available valuation techniquesbecause they play an important role inthe various strategic decisions taken bythe corporates.

Referencesl Anderson, Patrick Lee., Business

Economics and Finance, Chapman &Hall/CRC, 2005.

l Anderson, Patrick L., "NewDevelopments in Business Valuation."Developments in Litigation Economics.Ed.s P.A. Gaughan and R.J. Thornton,Burlington: Elsevier, 2005.

l Damodaran, Avanish. InvestmentValuation, New York, Wiley, 1996.

l Fishman, Pratt, Morrison, Standards ofValue: Theory and Applications, JohnWiley & Sons, Inc., NJ, 2007.

l Gaughan, Patrick A., MeasuringBusiness Interruption Losses, JohnWiley & Sons, Inc., NJ, 2004.

l Hitchner, James R., ed., FinancialValuation, McGraw-Hill, 2003.

l Mercer, Christopher, "Fair MarketValue vs. The Real World," ValuationStrategies, March 1999; reprint

l Pratt, Reilly, and Schweihs, Valuing ABusiness, The Analysis and Appraisalof Closely Held Companies, 3rd ed.,New York, McGraw-Hill, 1996, [4thed., 2002] [5th ed., 2007]

l Pratt, Reilly, Cost of Capital, McGraw-Hill, 2002.

l Taulli, Tom, The Complete M&AHandbook: The Ultimate Guide toBuying, Selling, Merging, or Valuing aBusiness for Maximum Return, PrimaLifestyles, 2002.

l Trout, Robert, "Business Valuations,"chapter 8 in Patrick Gaughan, ed.,Measuring Commercial Damages,Wiley, 2000.q

Cover Feature


I n a situation where market drivenforces restricts the volume sandselling price, many organizations

adopt benchmarking process tounderstand the cost behaviour at a moremicro level. We at All Metals Industriesdid the same.

Benchmarking, a process ofcomparing the business processes andperformance metrics it provides asnapshot of our business and helpsunderstand where we are in relati to aparticular standard or other similarunit.The result is often a business case and"Burning Platform" for making changesin order to make improvements.

Traditionally the formula for arrivingat profit Profit = Sales - Cost.

Owner's Market Element largely

Expectation Driven under

organizational

Profit Sales control

Cost

Where the 'PRICE' is dominated bythe market and the 'PROFIT' is expectedby the owners, the one element we cancontrol is 'COST'.

Having said that, it should berealised that not all costs are equal andcontrollable. There are some whichbleed the organization and need to beaddressed immediately, while othersneed attention on a longer perspective.

One might argue that any costreduction would directly contributetowards the bottomline. There are

Benchmarking and CostReductionYashan Jokhi*

*Group Financial Controller, All MetalsIndustries LLC, Dubai, United ArabEmirates

dangers in such an approach. One, it isnot sustainable and second, it couldaffect the customers adversely, whichmay lead to sub optimal service levels.Effectively it would lead to pressure onrevenue and render the initiativecounter productive. E.g are staffretrenchment, travelling costs,advertising costs, perks, etc.

A better approach would be to firstattack the operational costs, which aredirectly related to products andprocesses.

The key cost element comparis onof our two plants in the attached sheetwas an eye opener, which helped infocussing the drivers which affectedthese costs.

Observations:

a) Plant II was comparatively a newerplant and had advantage due tobetter layout and space.

b) Plant-I bottom line could zoom upat a faster and consistent pace byadopting Plant-II consumptionstandards.

c) Plant-II could also benefit by lookingat certain parameters likeHydrocloric acid, Fume Suppresant,Diesel & others wherever they areexceeding Plant-I.

Comparative Table showing Key Operational Cost Elements



Initiatives Taken:

a) Presented the above two tables withtheir implication on bottom lines toboth the divisional managers ofrespective plants.

b) Nominated two representativesfrom each division as a joint taskforce with the following objectives:

i} Identify the main cost driver(aspect of process) which affects theincrease/decrease of each costelement.

ii} Identify the differences inproduction processes/methodsadopted by each division, whichleads to differiantial absorption ofcost drivers.

iii} Exchange the better processesand experiment in each division, towork out the impact on cost, quality& safety.

iv} Institutionalise the newprocesses by revision of existingprocedures and impart of necessarytraining to concerned employees ofeach division.

Challenges Faced:

a) Time constraint to go into deeperdetails.

b) Resistance to change at down thelevel due to habits formed.

Conclusion:

By exchanging process knowhowand practices, the organizationas wholegained immensely. The bottom line ofthe group zoomed by XXXX + YYYYamount as both the divisions benefited.We could achieve substantial savings(not 100%) of our targets as indicatedin the tables.

Moreover this helped in setting newstandards for this industry, whereinother similar units worldwide couldbenchmark their performances and weall could benefit globally.q



Cost accounting Standardon Climate Change &PollutantsAshok K Agarwal*

M.Sc.; FICWA; Ph.D, Practising CostAccountant (Delhi)

Introduction

Climate change: Climate changecaused by human activities thatemit greenhouse gases into the

air has started showing its affect in thefrequency of extreme weather eventssuch as drought, extreme temperatures,flooding, high winds, and severestorms. Global surface temperature hasalso increased between the start and theend of the 20th century, caused byincreasing concentrations of green-house gases resulting from Fossil fuelsburning and deforestation.

With the increasing attention givento the link between greenhouse gasesand climate change, many companiesare quantifying their greenhouse gasesemissions for internal managementpurposes, and an increasing number arealso preparing a greenhouse gasstatement:

(a) As part of a regulatory disclosureregime;

(b) As part of an emissions tradingscheme; or

(c) To inform investors and others on avoluntary basis, included as part ofannual report;

Pollutants: Negative externalitiessuch as pollution is more than merelyan ethical problem. The problem is oneof the disjuncture between marginalprivate and social costs that is notsolved by the free market. It is a problemof societal communication andcoordination to balance costs and

benefits. This also implies that pollutionis not something solved by competitivemarkets. Some collective solution isneeded, such as a court system to allowparties affected by the pollution to becompensated, government interventionbanning or discouraging pollution, oreconomic incentives such as greentaxes.

Objective

The objectives of the Costaccounting Standard on Climate Change& Pollutants are:

(a) To obtain reasonable assuranceabout whether the greenhouse gas& Pollutants statement is free frommaterial misstatement, whether dueto fraud or error, thereby enablingthe practitioner to express anopinion on whether the greenhousegas & Pollutants statement isprepared, in all material respects, inaccordance with the applicablecriteria; and

(b) To report on the company'sgreenhouse gas & Pollutantsstatement, and communicate, inaccordance with the practitioner'sfindings.

Scope /Issues due to Climate Change& Pollutants

In economic terms, pollution fromfossil fuels is regarded as a negativeexternality.

Taxation is considered one way tomake societal costs explicit, in order to'internalize' the cost of pollution. Thisaims to make fossil fuels more expensive,thereby reducing their use and theamount of pollution associated with

them, along with raising the fundsnecessary to counteract these factors.

Many negative externalities (also called"external costs" or "externaldiseconomies") are related to theenvironmental consequences ofproduction and use.

l Anthropogenic climate change isattributed to greenhouse gasemissions from burning oil, gas, andcoal. Global warming has beenranked as the No.1 externality of alleconomic activity, in the magnitudeof potential harms and yet remainsunmitigated.

l Water pollution by industries thatadds poisons to the water, whichharm plants, animals, and humans.

l Industrial farm animal production, onthe rise in the 20th century, resultedin farms that were easier to run, withfewer and often less-highly-skilledemployees, and a greater output ofuniform animal products. However,the externalities with these farmsinclude air quality problems; thecontamination of rivers, streams,and coastal waters withconcentrated animal waste; animalwelfare problems.

In these situations the marginalsocial benefit of consumption is lessthan the marginal private benefit ofconsumption. This leads to the good orservice being over-consumed relativeto the social optimum. Withoutintervention the good or service will beunder-priced and the negativeexternalities will not be taken intoaccount.

Cost Benefit Determinations

Debates weigh the benefits oflimiting industrial emissions ofgreenhouse gases & Pollutants againstthe costs that such changes wouldentail. Using economic incentives,alternative and renewable energy havebeen promoted to reduce emissionswhile building infrastructure.

Air pollution is the introduction of



chemicals, particulate matter, orbiological materials that cause harm ordiscomfort to humans or other livingorganisms, or damages the naturalenvironment, into the atmosphere.

Definitions

Emissions - The greenhouse gases& Pollutants that, during the relevantperiod, have been emitted to theatmosphere or would have been emittedto the atmosphere had they not beencaptured and channeled to a sink.

Greenhouse gases: - Carbon dioxide(CO2) and any other gases, such as:methane; nitrous oxide; sulfurhexafluoride; hydrofluorocarbons;perfluorocarbons; and chlorofluoro-carbons. These other gases are oftenexpressed in terms of carbon dioxideequivalents (CO2-e).

Organizational boundary: Deter-mining which organizations or facilitiesto include in the company's greenhousegas & Pollutants statement is known asdetermining the company'sorganizational boundary. In some cases,the applicable criteria may allow achoice between different methods fordetermining the company's organi-zational boundary. Determining thecompany's organizational boundarymay require the analysis of complexorganizational structures such as jointventures, partnerships, and trusts, andcomplex or unusual contractualrelationships. For example, a facility maybe owned by one party, operated byanother, and process materials solely foranother party.

Pollutants: A pollutant is a wastematerial that pollutes air, water or soil.

Removal: Removal of greenhousegases & Pollutants the company wouldhave otherwise emitted to theatmosphere are ordinarily accounted foron a gross basis, that is, both the sourceand the sink are disclosed in thegreenhouse gas & Pollutants statement.

Pollutants:

Three factors determine the severity

of a pollutant: its chemical nature, theconcentration and the persistence.Some pollutants are biodegradable andtherefore will not persist in theenvironment in the long term.

Types of pollutants

Stock pollutants: Pollutants that theenvironment has little or no absorptivecapacity are called stock pollutants (eg.persistent synthetic chemicals, non-biodegradable plastics, and heavymetals). Stock pollutants accumulate inthe environment over time.Biodegradable matter is generallyorganic material such as plant andanimal matter and other substancesoriginating from living organisms, orartificial materials that are similar enoughto plant and animal matter. Heavy metalpollution can arise from many sourcesbut most commonly arises from thepurification of metals. The damage theycause increases as more pollutant isemitted, and persists as the pollutantaccumulates. Stock pollutants cancreate a burdon for future generationsby passing on damage that persists wellafter the benefits received fromincurring that damage have beenforgotten.

Fund pollutants: Fund pollutantsare those for which the environmenthas some absorptive capacity. Fundpollutants do not cause damage to theenvironment unless the emission rateexceeds the receiving environment'sabsorptive capacity (eg. carbon dioxide,which is absorbed by plants andoceans). Fund pollutants are notdestroyed, but rather converted intoless harmful substances, or diluted/dispersed to non-harmful concen-trations.

Notable pollutants: Notablepollutants include the following groups:

Heavy metals: Iron, cobalt, copper,manganese, molybdenum, and zinc arerequired by humans. Excessive levelscan be damaging to the organism. Otherheavy metals such as mercury,

plutonium, and lead are toxic metals thathave no known vital or beneficial effecton organisms, and their accumulationover time in the bodies of animals cancause serious illness. Some of them aredangerous to health or to theenvironment (e.g. Hg, Cd, As, Pb, Cr),some may cause corrosion (e.g. Zn, Pb),some are harmful in other ways (e.g.Arsenic may pollute catalysts).

Persistent organic pollutants:Persistent organic pollutants (POPs) areorganic compounds that are resistantto environmental degradation throughchemical, biological, and photolyticprocesses. Because of this, they havebeen observed to persist in theenvironment, to be capable of long-range transport, bioaccumulate inhuman and animal tissue, biomagnifyin food chains, and to have potentialsignificant impacts on human health andthe environment.

Polycyclic aromatic hydrocarbons:Polycyclic aromatic hydrocarbons(PAHs) are chemical compounds thatconsist of fused aromatic rings and donot contain heteroatoms or carrysubstituents. PAHs occur in oil, coal,and tar deposits, and are produced asbyproducts of fuel burning (whetherfossil fuel or biomass). As a pollutant,they are of concern because somecompounds have been identified ascarcinogenic, mutagenic, andteratogenic. PAHs are also found infoods. Studies have shown that mostfood intake of PAHs comes from cereals,oils and fats. Smaller intakes come fromvegetables and cooked meats.

Volatile organic compounds: Volatileorganic compounds (VOCs) are organicchemical compounds that have highenough vapor pressures under normalconditions to significantly vaporize andenter the atmosphere. Volatile organiccompounds are numerous and varied.VOCs may be natural or synthetic. Likeorganic chemicals in general, there aremillions of different compounds whichmay be classified as VOCs.



Environmental xenobiotics: Environ-mental xenobiotic are xenobioticsubstances with a biological activity thatare found as pollutants in the naturalenvironment. Pharmaceutical drug is achemical used for the alteration,diagnosis, prevention and treatment ofdisease, health conditions or structure/function of the human body.

Principles of Measurement

Emissions can be categorized as:

l Direct emissions (also known asScope 1 emissions), which areemissions from sources that areowned or controlled by thecompany.

l Indirect emissions, which areemissions that are a consequenceof the activities of the company, butwhich occur at sources that areowned or controlled by anothercompany/entity. Indirect emissionscan be further categorized as:

a) Scope 2 emissions, which areemissions associated with energy,including electricity, heating/cooling, and steam, that istransferred to and consumed by theother company/entity.

b) Scope 3 emissions, which are allother indirect emissions.

Where some Scope 1 or Scope 2emissions sources have been excluded,it is important that the explanatory notesdisclose the basis for determining whichsources are included and which areexcluded, particularly if the sources thatare included are not likely to be thelargest sources for which the companyis responsible. Inclusion of Scope 3emissions is optional because the full

extent of indirect emissions for nearlyany company would be impossible toquantify. Where some Scope 3emissions sources have been included,it is important that the basis for selectingwhich sources to include is reasonable,particularly if those included are notlikely to be the largest sources for whichthe company is responsible. In somecases, the source data used to quantifyScope 3 emissions may be maintainedby the company. For example, thecompany may keep detailed records asthe basis for quantifying emissionsassociated with employee air travel. Insome other cases, the source data usedto quantify Scope 3 emissions may bemaintained in a well-controlled andaccessible source outside the company.

Qualitative factors may include:

l The sources of emissions.

l The types of gases & Pollutantsinvolved.

l The uncertainties associated withquantification.

Nearly all quantifications ofgreenhouse gases & Pollutantsemissions involve some degree ofuncertainty because it is virtuallyimpossible in any circumstances toprecisely count each molecule ofgreenhouse gases & Pollutants emittedby a company. To the extent theuncertainty relates to existing gaps inavailable scientific knowledge, it isunavoidable and permeates allquantifications of greenhouse gases &Pollutants emissions. However, allquantifications are made within thecontext of the applicable criteria, andcriteria differ in how they treat

estimation or measurement uncertainty.Some criteria stipulate rigid models,methods, emissions factors, etc., thatmust be applied in all circumstanceswhen calculating emissions from aparticular source. For example, theapplicable criteria may require Scope 2emissions from electricity to becalculated by multiplying kilowatt hoursrecorded on suppliers' invoices by aprescribed emission factor.Quantification in accordance with suchcriteria effectively eliminates estimationuncertainty for the purpose of reportingin accordance with those criteria.

Disclosures

Disclosure of:

l The categorization of emissionsattributable to each material type ofemission included in the greenhousegas & Pollutants statement;

l Which organizations or facilities areincluded in the company'sorganizational boundary, and themethod used for determining thatboundary if the applicable criteriaallow a choice between differentmethods;

l The method used to determinewhich Scope 1 and Scope 2emissions have been included in thegreenhouse gas & Pollutantsstatement;

l The nature of Scope 3 emissions,including that it is not practicablefor the company to include all Scope3 emissions in its greenhouse gas& Pollutants statement; The basisfor selecting those Scope 3emissions sources that have beenincluded;q

OBITUAR Y

ICWAI deeply regrets the sad demise of Mr. S. P. Sarma, Vice Chairman of HyderabadChapter of Cost Accountants on 10th November, 2009. Mr. Sarma was the founderMember of Godavari Chapter of Cost Accountants, Rajahmundry.



Critical Appraisal ofMicrofinance in India (SpecialReference to Uttar Pradesh)Dr.R.K Maheshwari*Dr. Ekta Rastogi**

*Reader, Dept of Applied Economics,Lucknow University.**Assistant Professor, IILM, Lucknow.

Introduction

T he paper deals in the study of'Critical Appraisal of Micro-finance in India'. Every study

aims in arriving at certain conclusions.It includes the study of theMicrofinance sector, its history,evolution, theoretical concepts, variousmodels of project report. It provides theessentials of Microfinance sector as awhole.

It includes the study of bankingindustry in relation to the MicrofinanceDivision. This chapter aims in givingus a clear scenario of the two majorprivate sector banks, HDFC bank Ltd.,and ICICI bank Ltd, in relation to theirmicrofinance division. This chapterincludes the market research of thesetwo banks. Research is a necessity since"TO LEARN, DO IT" is the mostimportant concept in every researchwork done till now. The most crucialaspect of this paper is It carries theResearch work undertaken to analyzethe Consumer's Views on Microfinance,its awareness, availability, need etc. andcomparing the two banks.

All efforts and activities weredirected and focused to achieve thefollowing purpose: -

l To study the whole Microfinancesegment in India.

l To study the theoretical conceptsof Microfinance.

l To study the Banks Microfinancedivision and a comparison.

l To study the consumer's views onmicrofinance in Uttar Pradesh.

Rationale of the Study

Poverty is striking India at a greatspeed. It is estimated that the countrywill have more than 40% of itspopulation in urban by the year 2030.Despite the large number of urban poor,most of them have little or no access toformal financial services, there isrelatively little outreach of microfinancein major urban areas today.

One in three of the World's poorestpeople are Indians. India is a hugecountry of 1.1 billion people andpoverty remains on a staggering scale -over 400 million people in India livebelow the internationally agreedpoverty line (living on less than US $1per day) and 855 million on less than $2per day.2 Each year over one million

women and children die due to lack ofhealth care. Only 10% of the wholeIndian Population does enjoy some levelof social protection, while 950 millionare still excluded. In India, merely 5.1million persons are covered undermicro-health insurance schemes mainlyof employees in the organized sector ortheir families.

The research aims in answering:

1. What is the microfinance situationin a poor country like India?

2. What is the role of private banks inthe Microfinance sector?

3. What is the awareness level ofMicrofinance within masses?

Research Objectives

The first objective of research wasto do an in-depth analysis of theMicrofinance sector in India. The mainobjective was to get an in-depthknowledge of the same.

The second objective of researchwas to do a cross Banking survey inorder to get an overall view of theMicrofinance structure in relation to theprivate banking industry. It also tried tofind out the awareness level ofMicrofinance among the massesthrough a survey.

Research Methodology

Taking into consideration theobjective of the project, a draft of how



to go about to accomplish it wasdecided.

Firstly, it was decided to divide theresearch into two broad categories,namely:

1. Comparative study of cross bankingMicrofinance facility comparingHDFC Bank Ltd. And ICICI BankLtd.

2. Study of awareness of microfinanceamong masses.

After dividing the project into twoparts, the source of data was decided.The data collected was primary as wellas secondary.

A, Cross Banking MicrofinanceFacility Analysis:

Sampling Design

l Place: For collecting details ofMicrofinance of the two banks, visitwas being made to these banks inLucknow.

l Sampling Frame: Personal visit

l Sampling Size: 2 private banks inLucknow, which deal in Microfinance.

l Sample Characteristics: The datawas collected from the banks(private) which provideMicrofinance facility.

l Method of Data Collection: Samplesurvey method

l Tool of Data Collection: A structuredquestionnaire

B) Consumer Survey of MicrofinanceFacility..

Sampling Design

Place: The places where rural peopleor urban poor people were beingtapped.:

Sampling Frame: Personal visit

Sampling Size: 50 rural people

Sample Characteristics: The data wascollected from the poor people living inthe capital city of Uttar Pradesh,Lucknow.

Method Of Data Collection: Samplesurvey method

Tool of Data

COLLECTION: A structured questionnaire

Research Limitations

It was not easy to complete theresearch work. It took a lot of time togather the data needed for the research.The following were the limitations facedby me;

l Bank authorities were reluctant toreveal their banks data andinformation.

l Banks were not providing crisp dataneeded for the research.

l On asking to meet personally, theyhanded over the brochures to getthe information we needed.

l Full information was not given.

l While making banks visits, no co-operation was there on the parts ofthe managers.

l It was quite tricky to get the bankingarrangement information.

l No one clearly revealed their annualturnover.

l When asked certain facts, they didnot remember them.

l The poor people were unable tounderstand the questions properly.

l They gave vague answers.

Theoretical Presentation of the Topic

Microfinance services are financialservices that poor people desire and arewilling to pay for. The term also refersto the practice of sustainably deliveringthose services. More broadly, it refers

to a movement that envisions "a worldin which as many poor and near-poorhouseholds as possible have permanentaccess to an appropriate range of highquality financial services, including notjust credit but also savings, insurance,and fund transfers."

Traditionally banks and LendingInstitutions do not lend money to low-income

Individuals .The reasons being:

l Lack of Information aboutIndividuals.

l Collateral.

l High Transaction cost of processingMicrofinance provides a solutionfor the above problem.

Microfinance

Definition: The means by which poorpeople convert small sums of Moneyinto large lump sums (Rutherford 1999)

The goals are

l Eradicate Extreme Poverty &Hunger.

l Achieve Universal Education.

l Promote Gender Equality &Women's Empowerment.

l Reduce Child Mortality

l Combat Diseases

l Developing Entrepreneurial Spirit.

Boundaries of microfinanceTheoretically microfinance encom-

passes any financial service used by



poor people, including those theyaccess in the informal economy, suchas loans from a village moneylender. Inpractice however, the term is usuallyonly used to refer to institutions andenterprises whose goals include bothprofitability and reducing the povertyof their clients. Microfinance servicesare needed everywhere, including thedeveloped world. However, indeveloped economies intensecompetition within the financial sector,combined with a diverse mix of differenttypes of financial institutions withdifferent missions, ensures that mostpeople have access to some financialservices. Efforts to transfermicrofinance innovations such assolidarity lending from developingcountries to developed ones have metwith little success. Microfinance canalso be distinguished from charity. It isbetter to provide grants to families whoare destitute, or so poor they are unlikelyto be able to generate the cash flowrequired to repay a loan. This situationcan occur for example, in war zone orafter a natural disaster.

Key principles of microfinance

Key principles of microfinance weredeveloped in 2004 by ConsultativeGroup to Assist the Poor (CGAP) andendorsed by the Group of Eight leadersat the G8 Summit on June 10, 2004.Among the key principles, summarizinga century and a half of developmentpractice, are the following:

l Poor people need a variety offinancial services, not just loans.

l Microfinance can pay for itself, andmust do so if it is to reach very largenumbers of poor people.

l Microfinance is about buildingpermanent local financialinstitutions.

l The job of government is to enablefinancial services, not to providethem.

l The key bottleneck is the shortageof strong institutions and managers.

More generally, the Principles assertthat "Microfinance means buildingfinancial systems that serve the poor."Financial systems include strongfinancial institutions but also muchmore: more competitive financial markets,better government regulatory servicesand better complementary services.

Financial needs and financial services.

In developing economies andparticularly in the rural areas, manyactivities that would be classified in thedeveloped world as financial are notmonetized: that is, money is not used tocarry them out. Almost by definition,poor people have very little money. Butcircumstances often arise in their livesin which they need money or the thingsmoney can buy.

In Stuart Rutherford's recent bookThe Poor and Their Money, he citesseveral types of needs:

l Lifecycle Needs: such as weddings,funerals, childbirth, education,home-building, widowhood, and oldage.

l Personal Emergencies: such assickness, injury, unemployment,theft, harassment or death.

l Disasters: such as fires, floods,cyclones and man-made events likewar or bulldozing of dwellings.

l Investment Opportunities:

expanding a business, buying landor equipment, improving housing,securing a job (which often requirespaying a large bribe), etc.

Poor people find creative and oftencollaborative ways to meet these needs,primarily through creating andexchanging different forms of non-cashvalue. Common substitutes for cashvary from country to country buttypically include livestock, grains,jewellery and precious metals.

Microfinance in India

An understanding of India'spoverty, economy, and growth helps inmaking informed statements about thecommercialization of microfinance. Thissets the stage for defining microfinanceand analyzing the costs and benefits ofa more commercial model of micro-finance delivery. A more in-depth lookat the country's financial sector and itsregulation provides the context withinwhich microfinance has evolved andoutlines its constraints.

INDIA: It's Economy

Home to 1.1 billion people as of 2004,India constitutes approximately onesixth of the world's total population. Itis the world's largest democracy and akey emerging market alongside Chinaand Brazil. India is the world's tenthlargest economy with a gross domestic



Financial needs of poor people

product in 2007 of US$1 trillion asreported by the World Bank. Thispicture presented shows anenvironment where wealth is increasingfor the nation but it is not accruing toall citizens. Microfinance is onedevelopment approach that cancontribute to achieving the national andinternational goal of improving thelivelihoods of those Indians that are notyet seeing the benefits of growth.

Poverty

India has over a quarter of itspopulation below the poverty line. TheWorld Bank reports that India is stillhome to some 260 to 290 million poor,numbers that rise to 390 million ifpoverty is measured by the internationalstandard of those living on less thanUS$1 dollar a day. Almost half of India'spoor, approximately 133 million, areconcentrated in three states: UttarPradesh, Bihar, and Madhya Pradesh.Rural areas in India are home to threequarters of India's poor which isstrengthened by the increasing urban/rural disparities. There are substantialdisparities within the country as the gulfbetween the rich and poor widens. The

Indian government's poverty reductionstrategy focuses on infrastructure,social development (especiallyeducation and health), and rurallivelihoods.

Microfinance Defined in INDIANcontext:

Microfinance can be defined as anyactivity that includes the provision offinancial services such as credit,savings, and insurance to low incomeindividuals which fall just above thenationally defined poverty line, andpoor individuals which fall below thatpoverty line, with the goal of creatingsocial value. The creation of socialvalue includes poverty alleviation andthe broader impact of improvinglivelihood opportunities through theprovision of capital for micro enterprise,and Insurance and savings for riskmitigation and consumption smoothing.

A large variety of actors providemicrofinance in India, using a range ofMicrofinance delivery methods. Sincethe founding of the Grameen Bank inBangladesh, various actors haveendeavored to provide access tofinancial services to the poor in creative

ways. Governments have pilotednational programs, NGOs haveundertaken the activity of raising donorfunds for on-lending, and some bankshave partnered with publicorganizations or made small inroadsthemselves in providing such services.This has resulted in a rather broaddefinition of microfinance as anyactivity that targets poor and low-income individuals for the provision offinancial services. The range ofactivities undertaken in microfinanceinclude group lending, individuallending, the provision of savings andinsurance, capacity building, andagricultural business developmentservices. Whatever the form of activityhowever, the overarching goal thatunifies all actors in the provision ofmicrofinance is the creation of socialvalue. Microfinance is therefore definedas much by form as by intent of thelender or financial service provider.

The Evolution and Regulation ofMicrofinance in India:

A complete understanding of theevolution and nature of a country'sfinancial System, regulation, and



government attitude toward the sectoris integral to understanding the natureof microfinance in any particularcountry. Such knowledge allows one tounderstand what forces shape itsgrowth and what factors constrain it.The World Bank has called South Asiathe "cradle of microfinance." Statisticsindicate that some 45% of all the peoplein the world who use microfinanceservices are living in South Asia.However, the overall percentage of thepoor and vulnerable people with accessto financial services remains small,amounting to less than 20 % of poorhouseholds in India. The World Bankestimates that more than 87% of India'spoor cannot access credit from a formalsource and therefore they are notborrowing at all or have to depend onmoney-lenders who charge theminterest rates ranging from 48% to 120%per annum and sometimes much higher.This demonstrates that there arepotential clients for microfinance inIndia, depending on the level ofdemand for financial services, fromthose poor without access to it. Theprovision of such services, if donecorrectly, could have a significantimpact on the poor. This fact alone isvery compelling and is reason enoughto occupy oneself with the carefulquestioning of how microfinance canbe\ provided to as many of the poorwith a demand for it as possible.

Year of Micro-credit Conference:Microfinance can be the biggestinstrument in the fight against poverty,says Bank Vice President. The WorldBank Group, Dec. 5 2005 (Accessed 02/16/2006.

India still ranks among the poorestcountries in the World. Historically,credit to the poor in India was viewedas a government program that requiredlarge amounts of subsidy. This haschanged somewhat in that the trend hasbeen a move towards more commercialforms of financing. This trend has beenthe product of a long evolution of the

financial sector, which can becharacterized by Three major events.

The first of these pivotal events wasIndira Gandhi's bank nationalizationdrive launched in 1969 which requiredcommercial banks to open rural branchesresulting in a 15.2% increase in ruralbank branches in India between 1973and 1985. Today, India has over 32,000rural branches of commercial banks andregional rural banks, 14,000 cooperativebank branches, 98,000 primaryagricultural credit societies (PACs), and154,000 postal outlets that are requiredto focus on deposit mobilization andmoney transfers. India's deep financialsystem is attributable to its vastnetwork of financial

The second national policy that hashad a significant impact on the evolutionof India's banking and financial systemis the Integrated Rural DevelopmentProgram (IRDP) introduced in 1978 anddesigned to be 'a direct instrument forattacking India's rural poverty.' Thisprogram is interesting to this studybecause it was a large program whosemain thrust was to alleviate povertythrough the provision of loans and itwas considered a failure. It thereforeprovides a comparison of what hasfailed in the past and how this affectsthe provision of microfinance throughprivate means today. The IRDP wasreputed as one of the largest povertyalleviation programs in the world withthe number of loans advanced since itsinception having reached approximately45 million.

The last major event which impactedthe financial and banking system inIndia was the liberalization of India'sfinancial system in the 1990scharacterized by a series of structuraladjustments and financial policyreforms initiated by the Reserve Bankof India (RBI). The result was a partialderegulation of interest rates, increasedcompetition in the banking sector, andnew microfinance approaches of whichthe most notable was a movement to

link informal local groups called self-help groups (or SHGs) created by NGOsto commercial banks like the NationalBank for Agriculture and RuralDevelopment (NABARD). Thesefinancial policy reforms in the 1990swere very significant to microfinancebecause they involved scrapping theinterest rate controls for credit to thepoor and other types of credit. Thesefinancial liberalization measures thenmade it possible for NABARD totransform what was then a smallresearch project into a full blownmicrofinance program for the wholecountry.

This program was better known asthe 'SHG Bank Linkage' model which hascome to be one of the most well knownand widespread microfinance models inIndia. Since many consider the SHGBank Linkage model of microfinance tobe one of the major successes ofmicrofinance delivery in the country itwill provide the most important directcontrast to the delivery of microfinanceservices by individual MFIs.

The Indian Microfinance Experience- Accomplishments and Challenges

Home to the largest population ofpoor in the world, India has been anatural candidate for experimenting withmicrofinance as a tool for povertyalleviation. With a nationalized formalbanking sector that has emphasizedrural and developmental banking forseveral decades now, India'sinvolvement with small credit targetedprimarily at the rural poor is hardly new.However, recent years have generatedunprecedented interest in microcreditand microfinance in the form of group-lending without collateral; thanks in partto the remarkable success of institutionslike the Grameen Bank in neighboringBangladesh and BRI, BancoSol andothers in more distant lands. Theperformance of organizations likeSEWA in Western India and SHAREand BASIX in Southern India haveconvinced many a skeptic that



microfinance can indeed make adifference in India as well. Over the pastdecade, NABARD's "SHG-BankLinkage Program" aimed at connectingself-help groups of poor people withbanks, has, in fact, created the largestmicrofinance network in the world. Theself-help group approach has wonenthusiastic supporters amonginfluential policymakers like the AndhraPradesh CM, Chandrababu Naidu. Eventhe central government has recognizedthe advantages of group lending andhas adopted the approach in its battleagainst poverty.

Microcredit, in the sense of smallloans to the poor, is of ancient originsin India. Traders and moneylendershave traditionally provided credit to therural poor, usually at exorbitant rates ofinterest leading to considerablehardship and impoverishment ofborrowers, including undesirable andillegal practices like bonded labor. Whatwe refer to as microfinance today doesnot include such exploitative practices,but rather lending to the poor atreasonable but sustainable rates.

Within India the microfinancemovements in Western and SouthernIndia have received most attention, bothin the media as well as in academicresearch . The poster boys among theIndian microfinance NGOs - SHARE,BASIX, SEWA, MYRADA andPRADAN, for instance - havedeservingly received attention fromacademicians, media-persons as well asthe government. Andhra Pradesh, inparticular, has witnessed a remarkablegrowth in microfinance activities and itssuccess stories have been widelyreported as well.

India is perhaps the largestemerging market for microfinance. Overthe past decade, the microfinancesector has been growing in India at afairly steady pace. The self-help group(SHG)-bank linkage programme of theNational Bank for Agriculture and RuralDevelopment (NABARD) accelerated

the growth of the microfinancemovement in India in the latter half ofthe Nineties. Now the SHG-bank linkageprogramme is one of the largestmicrofinance programmes in the worldwith 16 lakh SHGs covering nearly 242lakh poor families till March 31, 2005.Apart from this, there are almost 800microfinance institutions deliveringmicrofinance services to over 1.5 millionacross India.

In India, MFIs are predominantlyNGOs in the legal form of Society / Trust(80%) and remaining 10% are incompany structure either Section 25companies or NBFC or Cooperatives.65% of MFIs follow SHG model ofMicrofinance, 20 % Grameen bankmethodology and remaining 10 %operates on Individual lendingmethodology.

In India, microfinance has enabledthe poor to have a greater access tofinancial services, particularly credit. Ithas achieved several socialdevelopment objectives like gendersensitization, empowerment andpoverty alleviation by diversifying theirlivelihoods and especially contributedlargely towards raising their incomes. Ithas also allowed the poor to accumulateassets and has contributed towardstheir security. Further, microfinance hasalso had a very significant social impact.In areas with sound microfinanceprogrammes, the quality of life of thepoor has improved significantly.

In recent tines many banks andfinancial institution are viewing this asa profitable business and aggressivelylending to these institutions. Manyventure capitalists are also startedoperating and exploring possibilities ofinvesting in to equity of MFIs. Thisencouraged many MFIs to convertthemselves to suitable legal form(NBFC).

More than subsidies poor needaccess to credit. Absence of formalemployment make them non ̀ bankable'.This forces them to borrow from local

moneylenders at exorbitant interestrates. Many innovative institutionalmechanisms have been developedacross the world to enhance credit topoor even in the absence of formalmortgage.

Micro-finance and Poverty Alleviation

Most poor people manage tomobilize resources to develop theirenterprises and their dwellings slowlyover time. Financial services couldenable the poor to leverage theirinitiative, accelerating the process ofbuilding incomes, assets and economicsecurity. However, conventionalfinance institutions seldom lend down-market to serve the needs of low-incomefamilies and women-headedhouseholds. They are very often deniedaccess to credit for any purpose, makingthe discussion of the level of interestrate and other terms of financeirrelevant. Therefore the fundamentalproblem is not so much of unaffordableterms of loan as the lack of access tocredit itself.

The lack of access to credit for thepoor is attributable to practicaldifficulties arising from the discrepancybetween the mode of operationfollowed by financial institutions andthe economic characteristics andfinancing needs of low-incomehouseholds. For example, commerciallending institutions require thatborrowers have a stable source ofincome out of which principal andinterest can be paid back according tothe agreed terms. However, the incomeof many self employed households isnot stable, regardless of its size. A largenumber of small loans are needed toserve the poor, but lenders preferdealing with large loans in smallnumbers to minimize administrationcosts. They also look for collateral witha clear title - which many low-incomehouseholds do not have. In additionbankers tend to consider low incomehouseholds a bad risk imposingexceedingly high information



monitoring costs on operation.

Over the last ten years, however,successful experiences in providingfinance to small entrepreneur andproducers demonstrate that poorpeople, when given access toresponsive and timely financial servicesat market rates, repay their loans anduse the proceeds to increase theirincome and assets. This is notsurprising since the only realisticalternative for them is to borrow frominformal market at an interest muchhigher than market rates. Communitybanks, NGOs and grass root savingsand credit groups around the world haveshown that these micro enterprise loanscan be profitable for borrowers and forthe lenders, making microfinance oneof the most effective poverty reducingstrategies.

To the extent that microfinanceinstitutions become financially viable,self sustaining, and integral to thecommunities in which they operate, theyhave the potential to attract moreresources and expand services toclients. Despite the success ofmicrofinance institutions, only about2% of world's roughly 500 million smallentrepreneurs are estimated to haveaccess to financial services .Althoughthere is demand for credit by poor andwomen at market interest rates, thevolume of financial transaction ofmicrofinance institution must reach acertain level before their financialoperation becomes self sustaining. Inother words, although microfinanceoffers a promising institutional structureto provide access to credit to the poor,the scale problem needs to be resolvedso that it can reach the vast majority ofpotential customers who demandaccess to credit at market rates. Thequestion then is how micro enterpriselending geared to providing short termcapital to small businesses in theinformal sector can be sustained as anintegral part of the financial sector andhow their financial services can be

further expanded using the principles,standards and modalities that haveproven to be effective.

To be successful, financialintermediaries that provide services andgenerate domestic resources must havethe capacity to meet high performancestandards. They must achieve excellentrepayments and provide access toclients. And they must build towardoperating and financial self-sufficiencyand expanding client reach. In order todo so, microfinance institutions needto find ways to cut down on theiradministrative costs and also tobroaden their resource base. Costreductions can be achieved throughsimplified and decentralized loanapplication, approval and collectionprocesses, for instance, through grouploans which give borrowersresponsibilities for much of the loanapplication process, allow the loanofficers to handle many more clientsand hence reduce costs.

Microfinance institutions canbroaden their resource base bymobilizing savings, accessing capitalmarkets, loan funds and effectiveinstitutional development support. Alogical way to tap capital market issecuritization through a corporationthat purchases loans made by microenterprise institutions with the fundsraised through the bonds issuance onthe capital market. Savings facilitiesmake large scale lending operationspossible. On the other hand, studiesalso show that the poor operating inthe informal sector do save, althoughnot in financial assets, and hence valueaccess to client-friendly savings serviceat least as much access to credit.Savings mobilization also makesfinancial institutions accountable tolocal shareholders. Therefore, adequatesavings facilities both serve thedemand for financial services by thecustomers and fulfill an importantrequirement of financial sustainabilityto the lenders. Microfinance

institutions can either provide savingsservices directly through deposit takingor make arrangements with otherfinancial institutions to provide savingsfacilities to tap small savings in a flexiblemanner

Convenience of location, positivereal rate of return, liquidity, and securityof savings are essential ingredients ofsuccessful savings mobilization.

Once microfinance institutions areengaged in deposit taking in order tomobilize household savings, theybecome financial intermediaries.Consequently, prudential financialregulations become necessary to ensurethe solvency and financial soundnessof the institution and to protect thedepositors. However, excessiveregulations that do not consider thenature of microfinance institution andtheir operation can hamper theirviability. In view of small loan size,microfinance institutions should besubjected to a minimum capitalrequirement which is lower than thatapplicable to commercial banks. On theother hand, a more stringent capitaladequacy rate (the ratio between capitaland risk assets) should be maintainedbecause microfinance institutionsprovide uncollateralized loans.

Governments should provide anenabling legal and regulatory frameworkwhich encourages the development ofa range of institutions and allows themto operate as recognized financialintermediaries subject to simplesupervisory and reporting requirements

In this context, following strategic,institutional and connectivity issuesrelated to micro-finance arise.

Strategic Issues

l Is there a prevailing paradigm formicro-finance?

l Are there clearly visible patternacross the country?

l Is there a clearly defined foundationbuilding blocks such as organizingprinciples, gender preferences and



operational imperatives?

l What are methodological issues?

Institutional Issues

l Is there a need for a new institution?

l Should it operate all India or in astate?

l Where should it be located?

l Who can lead an institution of thissort?

l What will its contextualinterconnections be?

l Who will be its beneficiaries?

Connectivity Issues

l How should the Corporate FinancialSector be involved?

l What is the role of donor agencies?

l How should communities beinvolved?

l Are there political issues thatshould be explicitly considered?

Cross Banking Study of Microfinance:

ICICI Bank Ltd. & Hdfc Bank

Indian banking system, which isamong the largest banking networks inthe world, did not reach most of the ruralpoor in India. About 70% of the Indianpopulation from rural areas accountedfor only 30% of bank deposits. Thebanks did not meet the creditrequirements of the poor and they wereforced to fall back on moneylenders forcredit. Though the banks werenationalized, they perceived rural creditto be a high risk and high costproposition. The central bank in India,RBI, on its part, tried to cater to theneeds of the rural poor by establishingregional rural banks and cooperativebanks, but did not meet with success.In the early 1990s, to provide credit andsavings services to the poor,microfinance was envisaged.

These efforts led to formation of SelfHelp Groups (SHGs), where poor fromhomogenous background formed intogroups of around 20 each and pooledmoney that was lent to the needy in thegroup. By the mid 1990s, several

mainstream banks began providingcredit and savings facilities to SHGs thatbuilt credible financial discipline. Theprogram was called SHG - Bank linkageprogram. There were for profit MFIs,mutual benefit MFIs and not for profitMFIs that participated actively inspreading microfinance initiativesacross India. By 2004, there were around1,000 MFIs in the country. Realizingunderlying potential of microfinance,several commercial banks entered intopartnership with MFIs. Both banks andMFIs stood to benefit from thisassociation as banks could reach theinterior part of the country and MFIscould access more funds.

The report discusses some of theleading microfinance providers in India:National Bank for Agriculture & RuralDevelopment, Small IndustriesDevelopment Bank of India, RashtriyaMahila Kosh, and Friends of Women's.

With the huge potential and lowNPAs, several private and foreignbanks, unveiled their plans to enter theIndian microfinance sector. Thegovernment and the RBI announcedseveral measures to boost microfinanceactivities in the country. RBI allowedthe NGOs involved in microfinanceactivities to raise External CommercialBorrowings upto US$ 5 million a year.

Still there are several poor, who werenot under the purview of microfinance,the number of SHGs and microfinanceprograms did not have any major impacton poverty alleviation in the country.Only in some of the well-developedstates in the country, SHGs andmicrofinance gained popularity. Lot ofgroundwork was required to spreadmicrofinance activities in North andNorth East regions of the country.

The formal banking sector hasplayed an important role in microfinancein India. Much of the microfinanceinitiative in India has involved Self-HelpGroups (SHGs), predominantly of poorwomen. NABARD's Bank LinkageProgram, pilot-tested in 1991-92 and

launched in full vigor in 1996, has beena major effort to connect thousands ofsuch SHGs across the country with theformal banking system. By late 2002, itconnected about half a million SHGs tothe banking system with total loandisbursement of about Rs. 1026 crores.Efforts of other organizationssupplement that of NABARD. ByMarch 2001, SIDBI, for instance, haddisbursed over Rs 30 crore to SHGsthrough 142 MFI-NGOs.

The emphasis on linking the self-help groups of rural poor to the formalbanking system was made in the mid-80s in the Asia and Pacific RegionalAgricultural Credit Association and theSHG-Bank Linkage emerged as a resultof that. RBI included the program in its"priority sector lending" and in 1999,the Government of India recognized inits Budget.

The Indian state put stress onproviding financial services to the poorand underprivileged sinceindependence. The commercial bankswere nationalized in 1969 and weredirected to lend 40% of their loan ablefunds, at a concessional rate, to thepriority sector. The priority sectorincluded agriculture and other ruralactivities and the weaker strata ofsociety in general. The aim was toprovide resources to help the poor toattain self sufficiency. They had neitherresources nor employmentopportunities to be financiallyindependent, let alone meet the minimalconsumption needs. To supplementthese efforts, the credit schemeIntegrated Rural DevelopmentProgramme (IRDP) was launched in1980. But these supply side programs(ignoring the demand side of theeconomy) aided by corruption andleakages, achieved little. Further, 'Theshare of the formal financial sector intotal rural credit was 56.6%, comparedto informal finance at 39.6% andunspecified sources at 3.8%. [RBI 1992].Not only had formal credit flow been



less but also uneven. The collateral andpaperwork based system shied awayfrom the poor. The vacuum continuedto be filled by the village moneylenderwho charged interest rates of 2 to 30%per month. 70% of landless/marginalfarmers did not have a bank accountand 87% had no access to credit from aformal source.

It was in this cheerless backgroundthat the Microfinance Revolutionoccurred Worldwide. In India it beganin the 1980s with the formation ofpockets of informal Self Help Groups(SHG) engaging in micro activitiesfinanced by Microfinance. But India'sfirst Microfinance Institution 'ShriMahila SEWA Sahkari Bank was set upas an urban co-operative bank, by theSelf Employed Women's Association(SEWA).

MFIs, Self Help Groups, IncomeGeneration and Women Empowerment

Under the microfinance programme,loans are extended to the 'Self HelpGroups (SHG)' who pool a part of theirincome into a common fund from whichthey can borrow. The members of thegroup decide on the minimum amountof deposit which ranges from Rs 20 toRs 100 per month depending upon thesize of the group. The group funds aredeposited with a Micro FinanceInstitution (MFI) against which theyusually lend (The deposits are usuallyplaced with a bank by the MFI) at acredit deposit ratio of 4:1 but the ratioimproves with account performancerecord i.e. prompt repayment of loans.The group funds is the way 'microsavings' are enforced ,though it mayseem like a collateral .The loan ticketsizes are usually Rs 2000/- to Rs 15,000.

The MFIs stress on asset creationby the SHGs and extend loans forproduction and provides training for thesame. If any member needs creditbeyond the stipulated limits they areallowed to draw from group funds andthe amount is settled in the periodic(monthly) group meetings. SHGs

consisting of poor members withidentical socioeconomic backgroundsare usually more sensitive to the creditneeds of the poor. Though loanrepayment is a joint liability of the groupbut, in reality, individual liability isstressed upon. Maintaining groupreputation leads to the application oftremendous peer pressure.

In India and other Asian countriesthe majority of SHGs consist of womenbecause, in these countries, SelfEmployment through Microfinance wasperceived as a powerful tool foremancipation of women. It has beenobserved that gender equality is anecessary condition for economicdevelopment. The World Bank reportsthat societies that discriminate on thebasis of gender are in greater poverty,have slower economic growth, weakergovernance, and lower living standards.

Indicators of empowerment throughmicrofinance

l Ability to save and access loans

l Opportunity to undertake aneconomic activity

l Mobility-Opportunity to visitnearby towns

l Awareness- local issues, MFIprocedures, banking transactions

l Skills for income generation

l Decision making within thehousehold

l Group mobilization in support ofindividual clients- action on socialissues

l Role in community developmentactivities

In spite of such an impressivecoverage, the formal banking sector hashad a limited impact on microfinance orlending to the poor. The RRBs were setup in the mid-70's with a clear mandatefor lending to the poor as it was felt thatthe cooperative banks were beingdominated by the rural wealthy an thatthe commercial banks had an urban bias.For the first two decades of their

existence, political pressure and focuson outreach at the expense of prudentlending practices led to very highdefault rates with accumulated lossesexceeding Rs. 3,000 crores in 1999. Thereforms in the mid-90's, following therecommendations of the NarsimhanCommittee Report, removed some of theconstraints on the functioning of RRBs,easing their interest ceiling and allowingthem to invest in the money market. Thefinancial situation of the RRBs hasimproved since then with declininglosses and over 80% of the RRBs arenow profitable. However, much of thisturnaround has resulted from a shift toinvestment in government bonds (thathave gained with falling interest rates)and loans to the non-poor in rural areas.

The focus on financialsustainability has cost outreach dearly.Recent years have witnessed - perhapspredictably - a sharp decline in the shareof rural and small loans in the portfolioof the banks. The locational distributionof bank branches has also undergone aconsiderable shift away from the ruralareas .

Microfinance in HDFC Bank Ltd:

HDFC Bank Ltd. Is one of the mostserious lenders in the sphere ofMicrofinance. It forayed into this sectorsince the year 2003-2004. Its businessin microfinance has grown more than 4to 5 folds in the last 3 to 4 years. Itsbusiness is in proportion of 75:25. Itimplies 75% through MFI's and 25%through BC's and SP's. It is consistentlypartnering with all the MFI's andBusiness Correspondents.

HDFC Bank Ltd. has itsMicrofinance division in the corporatebanking. Its been headed by Mr. N.Skishore Kumar, country head,Microfinance.

It has two models of lending:

1. Wholesale lending, in which itprovides term loans, working capitalto MFI's, who are its target clients.It has also started supporting the



upcoming MFI's, provided theyfulfill the entry criterions, likepromoters baground. Share capitaletc.

2. Direct lending, started in September2006, is lending to self help groupsthrough business correspondentsand service providers. It worksaccording to RBI circular on BCmodel, May 2006.

Efforts taken by HDFC bank to enterthe rural market:

l Bank was not very keen on ruralmarket in 2002.But it started rurallending since 2004.

l It identified good locations where itcan enter,

l Got the license to open ruralbranches

l Wherever the bank cannot go, itfound good NGO's and Co-operative societies on its behalf.

l In 2006, it started direct lendingthrough appointing serviceproviders. ( BC's act on behalf ofbank, where bank cannot reach.)

l Keeping this in mind, HDFC BankLtd. Started its SHG bank linkageprogram in September 2006.

At present HDFC bank ltd. Isworking with more than 200 BC's indifferent parts of the country and morethan 75% BC's are based in south India,Tamil Nadu, Andhra Pradesh and Orissa(east).

Challenges of Financial Inclusion

l Illiteracy

l Remote Locations

l Cost of servicing small sizedtransactions

l Telecommunication

l Reach of Technology

Micro Finance & Self Help Groups

l Reach remote unbanked areas/nonbranch locations through SHGLending Programme

l SHG Clients being serviced withLoan & Savings Products

l Door step banking (disbursement ofloans and collection of installments)to all the SHGs using ServiceProviders (SP) as our BusinessCorrespondents.

Major Sectors:

With special reference to UttarPradesh, HDFC bank ltd targets placeslike Varanasi, Allahabad, Mirzapur,Moradabad, and Lucknow.

Purpose Of Loan:

It provides loan for any incomegeneration activity specially. Howeverit also grants loans for agriculture andallied activities , and small loans as well.

Repayment Mode:

In retail lending, its on a monthlybasis, and in wholesale lending, its on aquarterly basis.

Mode of Disbursement:

It is done either through NGO orMFI. Mostly group approach is there,no individual approach.

Demographics Of Clent:

People below poverty line aretargeted, age ranging between 30 to 45years, and mostly women are beingfocused.

Competitors:

Wholesale lending: ABN AMRO,ICICI Bank, FWWB.etc

Retail lending: major public sectorbanks.

Credit Mechanisms Adopted byHDFC (India) for Funding the LowIncome Group Beneficiaries

HDFC has been making continuousand sustained efforts to reach the lowerincome groups of society, especially theeconomically weaker sections, thusenabling them to realise their dreams ofpossessing a house of their own.HDFCs' response to the need for betterhousing and living environment for thepoor, both, in the urban and rural sectorsmaterialized in its collaboration withKreditanstalt fur Wiederaufbau (KfW),a German Development bank. KfW

sanctioned DM 55 million to HDFC forlow cost housing projects in India.HDFCs' approach to low-incomelending has been extremely professionaland developmental in nature. Negatingthe concept of dependence, HDFCs' lowcost housing schemes are marked bythe emphasis on peoples participationand usage of self-help approachwherein the beneficiaries contributeboth in terms of cash and labour forconstruction of their houses. HDFCalso ensures that the newly constructedhouses are within the affordability ofthe beneficiaries, and thus promotes theusage of innovative low costtechnologies and locally availablematerials for construction of thehouses.

For the purpose of actualimplementation of the low cost housingprojects, HDFC collaborates withorganizations, both, Governmental andNon-Governmental. Such organizationsact as co-ordination agencies for theprojects involving a collective ofindividuals belonging to theEconomically Weaker Sections. Theprojects could be either in urban or ruralareas. The security for the loan isgenerally the mortgage of the propertybeing financed. The construction workis regularly monitored by the co-coordinating agencies and HDFC. Theloans from HDFC are disburseddepending upon the stages ofconstruction. To date, HDFC hasexperienced 100% recovery for theloans disbursed to various projects.

Microfinance in ICICI Bank Ltd:

Banking at the Bottom of thePyramid

ICICI Bank: An overview

ICICI Bank is one bank that hasdeveloped a very clear strategy toexpand the provision of financialproducts and services to the poor inIndia as a profitable activity.

l Haruhiko Kuroda, President, AsianDevelopment Bank.



l India's 2nd largest bank; assets ofUS$ 62 bn

l Rated higher than sovereign byMoody's

l Over 12 million retail customers (+3million)

l Technology leader among Indianbanks

l Present across the spectrum offinancial services

l Use of Technology and MultipleChannels

l Establishing international footprint

ICICI Bank, India's second largestbanking institution, has discovered alarge under-served market of potentialcustomers-the 700 million mostly poorinhabitants of rural India. Furthermore,ICICI considers business strategies foraccessing this market as critical to thefuture of the company. The bank alsosees its efforts to develop viablecommercial models and distributionsystems as having an important socialmission-that of enabling the poorest ofthe poor to become active and informedparticipants in socio-economicprocesses. In a relatively short period,the company has established asignificant presence in rural India as adirect provider of financial services,helping to organize village self-helpgroups to whose members ICICIprovides micro-loans. To extend itsreach, the company has also establishedindirect distribution channels,becoming a lender to, and sometimesan investor in, some of the largestmicrofinance organizations in India andpartnering with several ventures to offerfinancial services over their rapidly-growing networks of Internet kiosks.

By developing profitableapproaches to serving poor ruralcommunities, ICICI is expanding itspotential market and developing whatit sees as its engine of growth for thefuture. But to do it successfully, it isalso catalyzing self-help groups thatcreate powerful social advantages and

partnering with both microfinanceinstitutions and business enterprisesthat are providing financial and otherservices to rural communities. Bycombining an explicit socialcommitment, a focus on innovation, andan insistence on profitable businesspractices, ICICI is well positioned for aleadership role in India's financialmarket.

15

Reaching the unbanked

M icro -en ter p r is e

Tin y and co tta g e

en ter p r is es

S M E

Lar g e O rg an iza tio ns

SHG based

JLG based

Individual

HN Is

E co nom ic all y inactive / destitu te

DIFFERENT ASPECTS OF ICICI Bank's MICROFINANCE:

COMPARISON BETWEEN BANKS& CONSUMER AWARENESS OF MICROFINANCE

GRAPHICALREPRESENTATIONOF MARKET RESEARCH

BANKS SURVEY ANALYSIS:1. MAXIMUM AMOUNT

M AXIM UM AM OUNT

0

10,000

20,000

30,000

40,000

50,000

60,000

IC ICI HDFC

B AN K

AM

OU

NT IC ICI

HDFC

Major Sectors:

In Uttar Pradesh, it mainly targetsareas like Varanasi, Allahabad, andAgra.

Purpose Of Loan:

It provides loan for any incomegeneration activity specially. Howeverit also grants loans for agriculture andallied activities, and small loans as well.



Repayment Mode:

It depends upon MFI, exampleCashppor and Sonata, its weekly, forterm loan, its monthly.

Mode of Disbursement:

No direct lending exists. It is doneeither through NGO or MFI. Mostlygroup approach is there, no individualapproach.

Demographics of Clent:

People below poverty line aretargeted, age ranging between 30 to 45years, and should be less than 60 yearsof age, and mostly women are beingfocused. Rest specifications dependupon MFI.

Competitors:

No Competition, it has its own share,and everyone can increase theirs.

Analysis:

The figure clearly depicts that as faras maximum amount of disbursement isconcerned, both the banks are havingthe same figure, i.e. Rs. 50,000 permember.

They disburse not more than 50,000to a single client.

2. Minimum Amount

Analysis:

As regards the minimum amount,ICICI bank can give a very low amount;it ranges from 0 to 100. But HDFC bankhas fixed a nominal amount, Rs 500 asits minimum amount.

3. Penalty

Analysis:

ICICI bank charges a penalty of 8%above its CURRENT BPLR,

Which is quite high, whereas, HDFCbank charges only 2% above its BPLR,as a penalty for delay in repayment.

4. Rate of Interest

Analysis :

If we look into the graph, ICICI bankcharges a high rate when compared toHDFC bank in micro credit area,

M INIMUM AMOUNT

0

100

200

300

400

500

600

IC ICI HDFC

B AN K

AM

OU

NT IC ICI

HDFC

RATE OF INTER EST

11

11.5

12

12.5

13

13.5

14

IC ICI HDFC

BANKS

RA

TE

OF

INT

ER

ES

T

PENALTY FOR DELAY IN REPAYM ENT

0123456789

IC ICI HDFC

B AN K

PE

RC

EN

TAG

E+

BP

LR



It charges 13.5%, whereas HDFC bankcharges 12% only.

Consumer Survey Analysis:

1. Awareness:

Analysis :

Out of 50 people surveyed, 74%people were aware of the microfinancefacility, they knew a brief about thisaspect of financing, but were not veryclear about it.

Only 26% people were ignorantabout this facility.

Thus, we see that awareness levelis quite high.

2. Need Level:

Analysis:

The need of funds was very high amongthe masses. People wanted funds forvarious reasons. Only 4% people saidthat they don't need funds, rest all werein need.

3. Preffered Bank:

Analysis:

People who were aware ofmicrofinance, when asked that whetherthey would like to tie up with ICICI orHDFC bank, most people preferred ICICIbank. However, 48% voted for HDFCbank as well.

4. Purpose:

Analysis:

Those who had need ofmicrofinance facility, needed fundsmostly for unproductive purposes. Only30% needed funds for some productive,income generating activities.

5. Repayment Mode:

Analysis:

People who wished to take thisfacility, preferred quarterly paymentover weekly or monthly payments.

28 % people wanted quarterlyrepayment facility and only 55 wantedweekly mode.

Findings

1. Microfinance institutions shouldachieve strong outreach along all

AWAREN ESS

74% yes

26% no

NEED O F FACILITY

,

YES, 48

NO, 2

YES

NO

N O. O F P EO PLE

ICICI52%

H DFC48%

PURPOSE

PRO DU CTIVE

U N PR O D U C T IVE

0

5

10

15

20

25

30

35

REASON

NO

.OF

PE

OP

LE



REPAYM ENT M ODE

Q UARTERLY

MONTH LY

W EEKLY

0

5

10

15

20

25

30

35

Q UARTERLY MO NTH LY W EEKLY

M O DE

NO

.O

FP

ER

SO

NS

three basic dimensions: depth(reaching the very poor), extent(significant scale), and service quality.

2. People were mostly aware ofmicrofinance, but 100% awarenessamong masses id still due.

3. People have sufficient high level ofneed for funds, but their properallocation is needed

4. People mostly prefer public sectorbanks; however they were aware ofprivate sector providing this facility.

5. People wanted to repay the loan inquarterly installments.

6. They were all in need of moneymostly for unproductive purposes.

7. The banks aimed towards fulfillingthe twin objective of social serviceplus profitability.

8. There is still a huge scope of themicrofinance sector in India.

Suggestions

Microfinance should be used as atool for reducing poverty first and thenas a profit earning proposition.

1. The rate of interest charged mustbe very nominal. The governmentshould try to fix some uniform rate.

2. Microfinance credit should betargeted to poor people who arealso talented entrepreneurs.

3. A sustained development of thissector should be made by widerpenetration and more specializedservices.

4. Institutions with large existinginfrastructures could scale upfinancial services for the poor, like:State-owned banksCredit union networksFinancial cooperativesRetail chains.

6. More access to capital, Better

protection of poor people's savings,Increased legitimacy.

7. Open markets to more poor andremote clients.

8. Secure and convenient depositservices with flexible terms andVariety of loan products, Insurance,Transfer payments, Remittanceservices.

9. Create an environment thatencourages a diversity ofinstitutions and financial productsto serve the poor.

10. Combine expertise and fundinginstruments to promote a wide rangeof financial services for the poor.

11. Appropriate loan products fordifferent segments.

12. Demonstrate that banking with thepoor is viable

Conclusion

Without microfinance, the financialsector remains half-done, because morethan half the population of the worldremains ineligible to access to theservices of the financial institutions.

We must get into serious actions to

a Making microfinance services available to the poorest, particularly poorest women.

b

Making information technology available to the poorest so that they can find answers to their own problems, they can design their own lives based on all the available opportunities in the world, their children can become world citizens, rather than live in isolation and ignorance through of the lack of information.

achieve the 2015 goals. Two actions willremain very vital:

The aim of micro-finance is todevelop habits and financial visionamong the rural poor, such that theyare able to save, seek credit and knowseveral finance related aspects and thusimprove their financial position andliving standards. The focus of micro-finance is to facilitate the shift frominduced development from the aboveto initiated development from below.Banks are already doing their bittowards this end but a lot is yet to bedone. The vast potential andopportunities of Micro-finance in Indiaare yet to be fully tapped.

BibliographyReferenceswww. Microfinanceindia.orgwww.microfinanceinsights.comwww. Google.comwww. icmr.comBooks & magazinesa) Resource directory, Microfinance Indiab) Business Todayc) An era of innovationd) SDC in Indiaq



IAS 24,Related Party Disclosures- A Closer LookK.S.Muthupandian*

*M.Com., FICWA and Member of TamilNadu State Treasuries and Accounts Service,presently working as Treasury Officer,Ramanathapuram District, Tamil Nadu.

I nternational Accounting Standard(IAS) 24, Related Party Disclosures,prescribes the disclosures of related

party transactions. In March 1983, theInternational Accounting StandardsCommittee (IASC) issued the ExposureDraft E25, Disclosure of Related PartyTransactions. In July 1984, the IASCissued IAS 24, Related Party Disclosures,effective from January 1, 1986. In 1994,the IASC reformatted IAS 24. In April2001, the International AccountingStandards Board (IASB) resolved thatall Standards and Interpretation issuedunder previous Constitutions continuedto be applicable unless and until theywere amended or withdrawn. OnDecember 18, 2003, the IASB issued therevised version of IAS 24. The effectivedate of IAS 24 (2003) was fixed as January1, 2005. In February 2007, the IASBissued the Exposure Draft of ProposedAmendments to IAS 24. On December11, 2008, the IASB issued the RevisedExposure Draft of Proposed Amend-ments to IAS 24. On November 4, 2009,the IASB issued revised IAS 24, RelatedParty Disclosures. The effective date ofIAS 24 (2009) was fixed as January 1, 2011.

ObjectiveIAS 24 requires entities to disclose

in their financial statements informationabout transactions with related parties.In broad terms, two parties are relatedto each other if one party controls, orsignificantly influences, the other party.The objective of IAS 24 is to ensurethat an entity's financial statementscontain the disclosures necessary to

draw attention to the possibility that itsfinancial position and profit or loss mayhave been affected by the existence ofrelated parties and by transactions andoutstanding balances with such parties.

ApplicationIAS 24 shall be applied in:

l identifying related party relation-ships and transactions

l identifying outstanding balancesbetween an entity and its relatedparties

l identifying circumstances in whichdisclosure of the relevant items isrequired

l determining the disclosures to bemade about those items

Key DefinitionsClose members of the family of an

individual are family members, who maybe expected to influence, or beinfluenced by, that individual in theirdealings with the entity, including:

a. the individual's domestic partnerand children

b. children of the individual's domesticpartner

c. dependants of the individual or theindividual's domestic partner

Compensation includes allemployee benefits (as defined in IAS19, Employee Benefits) includingemployee benefits to which IFRS 2applies. Employee benefits are all formsof consideration paid, payable orprovided by the entity, or on behalf ofthe entity, in exchange for servicesrendered to the entity. It also includessuch consideration paid on behalf of aparent of the entity in respect of theentity. Compensation includes:

(a) short-term employee benefits, suchas wages, salaries and socialsecurity contributions, paid annualleave and paid sick leave, profit-sharing and bonuses (if payablewithin twelve months of the end ofthe period) and non-monetarybenefits (such as medical care,housing, cars and free or subsidisedgoods or services) for currentemployees

(b) post-employment benefits such aspensions, other retirement benefits,post-employment life insurance andpost-employment medical care

(c) other long-term employee benefits,including long service leave orsabbatical leave, jubilee or other longservice benefits, long-term disabilitybenefits and, if they are not payablewholly within twelve months afterthe end of the period, profit-sharing,bonuses and deferred compen-sation

(d) termination benefits

(e) share-based payment

Key management personnel arethose persons having authority andresponsibility for planning, directingand controlling the activities of theentity, directly or indirectly, includingany director (whether executive orotherwise) of that entity.

Related party - a party is related toan entity if:

a. directly or indirectly through one ormore intermediaries, the party

i. controls, is controlled by, or is undercommon control with, the entity (thisincludes parents, subsidiaries andfellow subsidiaries)

ii. has an interest in the entity thatgives it significantly influence overthe entity

iii. has joint control over the entityiv. the party is an associate of the entityb. the party is a joint venture in which

the entity is a venturer (see IAS 31,Interests in Joint Ventures)

c. the party is a member of the keymanagement personnel of the entityor its parent 24

Accounting Issues


d. the party is a close member of thefamily of an individual referred to in(a) or (c)

e. the party is an entity that iscontrolled, jointly controlled orsignificantly influenced by, or forwhich significant voting power insuch entity resides with, directly orindirectly, any individual referred toin (c) or (d)

f. the party is a post-employmentbenefit plan for the benefit ofemployees of the entity, or of anyentity that is a related party of theentity

A related party transaction is atransfer of resources, services orobligations between related parties,regardless of whether a price is charged.

Who are Related Parties?A related party is a person or entity

that is related to the entity that ispreparing its financial statements(referred to as the 'reporting entity').

l (a) A person or a close member ofthat person's family is related toa reporting entity if that person:

m (i) has control or joint controlover the reporting entity;

m (ii) has significant influence overthe reporting entity; or

m (iii) is a member of the keymanagement personnel of thereporting entity or of a parent ofthe reporting entity.

l (b) An entity is related to areporting entity if any of thefollowing conditions applies:

m (i) The entity and the reportingentity are members of the samegroup (which means that eachparent, subsidiary and fellowsubsidiary is related to theothers).

m (ii) One entity is an associate orjoint venture of the other entity(or an associate or joint ventureof a member of a group of whichthe other entity is a member).

m (iii) Both entities are jointventures of the same third party.

m (iv) One entity is a joint ventureof a third entity and the otherentity is an associate of the thirdentity.

m (v) The entity is a post-employment defined benefit planfor the benefit of employees ofeither the reporting entity or anentity related to the reportingentity. If the reporting entity isitself such a plan, thesponsoring employers are alsorelated to the reporting entity.

m (vi) The entity is controlled orjointly controlled by a personidentified in (a).

m (vii) A person identified in (a)(i)has significant influence overthe entity or is a member of thekey management personnel ofthe entity (or of a parent of theentity).

The following are deemed not to berelated:

l two entities simply because theyhave a director or key manager incommon

l two venturers who share jointcontrol over a joint venture

l providers of finance, trade unions,public utilities, and departments andagencies of a government that doesnot control, jointly control orsignificantly influence the reportingentity, simply by virtue of theirnormal dealings with an entity (eventhough they may affect the freedomof action of an entity or participatein its decision-making process)

l a single customer, supplier,franchiser, distributor, or generalagent with whom an entity transactsa significant volume of businessmerely by virtue of the resultingeconomic dependence

Prescribed DisclosuresDisclosure of related party

transactions and outstanding balancesin the separate financial statements of aparent, venturer or investor shall bepresented in accordance with IAS 27,Consolidated and Separate FinancialStatements.

Specific disclosure requirementsinclude:m Parent / Subsidiary relationships:

Relationships between parents andsubsidiaries shall be disclosedregardless of transactions betweenthose related parties. The entityshall disclose the name of the parententity, and if different the ultimatecontrolling party. If neither theentity's parent nor the ultimatecontrolling party produces financialstatements available for public use,the name of the next most seniorparent shall be disclosed.

m Management Compensation: Anentity shall disclose keymanagement personnel'scompensation as defined in totaland for each of the followingcategories:

– short-term employee benefits

– post-employment benefits

– other long-term benefits

– termination benefits

– share-based payment benefits

m Related party transactions: Wherethere have been transactionsbetween related parties, an entityshall disclose the nature of therelated party relationship as well asinformation about the transactionsand outstanding balancesnecessary for an understanding ofthe potential effect of therelationship on the financialstatements. At a minimum,disclosures shall include:

– the amount of the transactions

– the amount of outstandingbalances, terms and conditions(including whether they aresecured), and the nature of theconsideration to be provided insettlement and details of anyguarantees given or received

– provisions for doubtful debtsrelated to outstanding balances

– the expense recognised during theperiod in respect of bad or doubtfuldebts due from related parties

Accounting Issues


m Categories: The required disclosuresshall be made separately for each ofthe following categories:

– the parent– entities with joint control or

significant influence over the entity– subsidiaries– associates– joint ventures in which the entity is

a venturer– key management personnel of the

entity or its parent– other related parties

m Aggregation: Items of a similarnature may be disclosed inaggregate except when separatedisclosure is necessary for anunderstanding of the effects ofrelated party transactions on thefinancial statements of the entity

A statement that related partytransactions were made on termsequivalent to those that prevail in arm'slength transactions should be madeonly if such terms can be substantiated.

Examples of the kinds of Transactionsthat are disclosed if they are with aRelated Party

l purchases or sales of goods

l purchases or sales of property andother assets

l rendering or receiving of services

· leases

l transfers of research anddevelopment

l transfers under licence agreements

l transfers under financearrangements (including loans andequity contributions in cash or inkind)

l provision of guarantees or collateral

l commitments to do something if aparticular event occurs or does notoccur in the future, includingexecutory contracts (recognisedand unrecognised)

l settlement of liabilities on behalf ofthe entity or by the entity on behalfof another party

February 2007 Exposure DraftOn February 22, 2007, the IASB

published for public comment, by May25, 2007, an exposure draft of proposedamendments to IAS 24 (State-controlledEntities and the Definition of a RelatedParty). The proposals are to amend therequirements for entities to disclose intheir financial statements informationabout related parties.

The main change proposed is toeliminate the disclosure requirements inparagraph 17 of IAS 24 for some entitiesthat are controlled or significantlyinfluenced by a state in relation totransactions with other entitiescontrolled or significantly influenced bythat state. The IASB has used anindicator approach to establish whenan entity can apply the exemption. Thechanges respond to concerns expressedby interested parties about thedifficulties that these entities have inobtaining the information required byIAS 24. In many cases, the entitiesaffected may not even know that theyare related to others controlled orinfluenced by the state. The IASBconcluded that for those entitiesaffected the cost of complying with IAS24 is likely to outweigh the benefits ofthe disclosures to users of their financialstatements. The exemption proposed islimited to those circumstances in whichit is clear that the related entities are notinfluencing each other.

The proposed indicators ofcircumstances in which the relationshipshould not be exempt include:

m the presence of common membersof the board

m the existence of direction orcompulsion by a state

m related parties transacting businessat non-market rates

m related parties sharing of resources

m related parties undertakingeconomically significant transac-tions.

The Exposure Draft also proposesto amend and clarify the definition of arelated party to remove inconsistencies

and improve readability. The mainamendments to the definition are:

m the inclusion, in the definition of arelated party, of the relationshipbetween a subsidiary and anassociate of the same entity, in theindividual or separate financialstatements of both the subsidiaryand the associate.

m the removal, from the definition of arelated party, of situations in whichtwo entities are related to each otherbecause a person has significantinfluence over one entity and aclose member of the family of thatperson has significant influenceover the other entity. The IASBconcluded that the definition of IAS24 does not include two associatesof the same entity as related to eachother. Therefore, when the investoris a person and a close member ofthe family of that person, the sameconclusion should apply.

m the inclusion, within the definitionof a related party, of two entitieswhere one is an investee of amember of key managementpersonnel (KMP) and the other isthe entity managed by the personthat is a member of KMP. At present,investees of KMP are related to theentity that the KMP managed butIAS 24 does not include thereciprocal of this.

Introducing the Exposure Draft, SirDavid Tweedie, IASB Chairman, said:"The proposals aim to remove asignificant burden of disclosure fromsome entities, particularly injurisdictions with extensive statecontrol of, and significant influenceover, businesses. The IASB believesthat eliminating requirements that, inthose circumstances, produceinformation that is often of little or novalue will enable preparers and users offinancial statements to focus on thesubstance of those related partyrelationships that are likely to affect thefinancial statements. We are also takingthe opportunity to respond to somevalid requests to clarify the definitionof a related party."

Accounting Issues


December 2008 Revised ExposureDraft

On December 11, 2008, the IASBpublished for public comment, byMarch 13, 2009, an exposure draft ofproposed amendments to IAS 24(Relationships with the State). Therevised proposal was published toeliminate the unnecessary disclosurerequirements that apply to state-controlled entities. The February 2007proposal was issued to exempt state-controlled entities from providingdisclosures about transactions withother state-controlled entities ifspecified conditions were met.Respondents generally agreed that theIASB should provide an exemption forthese entities. However, they hadconcerns about the complexity of theproposals, caused in particular by aproposed requirement to assesswhether state influence actually existed.They were also asked for numerousclarifications.

In the light of respondents'concerns, the IASB decided to reviseand simplify its proposed exemption forstate-controlled entities. Unlike theoriginal proposal, the revised exemptionwould not require state-controlledentities to assess the extent of stateinfluence. It would exempt such entitiesfrom providing full details abouttransactions with other state-controlledentities and the state. Instead, (unlikethe 2007 exposure draft) it would requiregeneral disclosures about the types andextent of significant transactions.

The IASB would particularly like tohear from respondents whether theproposals would give investors andanalysts the information they needwithout imposing unnecessary burdenson preparers of financial statements.

The 2007 exposure draft alsoproposed to amend the definition of arelated party to clarify the intendedmeaning and remove inconsistencies.Respondents were largely in agreementwith the revised definition of a relatedparty. The IASB intended to finalise thedefinitions of a related party and of a

related party transaction without furtherexposure (apart from one minor matterraised in the 2008 exposure draft) anddecided to issue them when it issuesthe amendments resulting from the 2008exposure draft.

Revised StandardOn November 4, 2009, the IASB

issued a revised version of IAS 24 thatsimplifies the disclosure requirementsfor government-related entities andclarifies the definition of a related party.The revised standard is effective forannual periods beginning on or afterJanuary 1, 2011, with earlier applicationpermitted.

The IASB has revised IAS 24 inresponse to concerns that the previousdisclosure requirements and thedefinition of a 'related party' were toocomplex and difficult to apply in practice,especially in environments wheregovernment control is pervasive. Therevised standard addresses theseconcerns by:

Providing a partial exemption forgovernment-related entities - Until now,if a government controlled, orsignificantly influenced, an entity, theentity was required to discloseinformation about all transactions withother entities controlled, or significantlyinfluenced by the same government.These requirements were onerous interritories where government control ispervasive. Government-related entitiesare now defined as entities that arecontrolled, jointly-controlled orsignificantly influenced by thegovernment. The revised standard stillrequires disclosures that are importantto users of financial statements buteliminates requirements to discloseinformation that is costly to gather andof less value to users. It achieves thisbalance by requiring disclosure aboutthese transactions only if they areindividually or collectively significant.For example, a government-controlledrailway was theoretically required todisclose details of the transactions withthe postal department. This informationis not necessarily useful to users of the

financial statements but is costly andtime-consuming to collect.

The revised standard introduces anexemption from all of the disclosurerequirements of IAS 24 for transactionsbetween government-related entitiesand the government, and all othergovernment-related entities. Thosedisclosures are replaced with arequirement to disclose:(a) The name of the government and

the nature of their relationship; and(b) (i) The nature and amount of any

individually-significant transac-tions; and

(ii) The extent of any collectively-significant transactions qualitativelyand quantitatively.This is a significant relaxation of the

disclosure requirements and should beof substantial benefit to government-related entities. The complexity andvolume of the disclosures in thefinancial statements and the costs ofrecord-keeping will be reduced. The newdisclosures will provide moremeaningful information about the natureof an entity's relationship with thegovernment and material transactions.

Providing a revised definition of arelated party - The previous definitionwas complicated and contained anumber of inconsistencies. Theseinconsistencies meant, for example, thatthere were situations in which only oneparty to a transaction was required tomake related party disclosures. Thedefinition has been amended to removethe inconsistencies and to make itsimpler and easier to apply. Theamended definition means that someentities will have more related partiesand will be required to make additionaldisclosures. For example, a subsidiaryis now required to disclose transactionswith an associate of its parent. An entitythat is controlled by an individual thatis part of the key management personnelof another entity is now required todisclose transactions with that secondparty. The entities that are most likelyaffected are those that are part of a

Accounting Issues

Contd. on Page 50


Introduction

Every product has a life cycle thatstarts from development stageand ends with the declining

stage. Different products have differentlife cycles. Due to technologicaldevelopment and high competition, lifecycles of products have shortened.However, industry may have longer lifecycle than the product. For example,automobile industry has a long life cyclebut a particular model of car may have ashorter life cycle. A product passesthrough different stages. Introductionstage is when the product is introducedin the market. The products areintroduced at introductory stage. Atthis stage there are many trial andimpulse purchases in the market. Themarket share starts growing at thegrowth stage. There are many repeatpurchases in the growth stage. Atmaturity stage, strong growth in salesdiminishes and competition may appearwith similar products. The primaryobjective is to defend market share. Atthe decline stage the companyrejuvenates the product or proceeds tothe withdrawal stage.

Life cycle costing provides a longterm perspective to product or servicecost. It considers the entire life cycle ofthe product or service. It provides amore complete perspective of product

Creating CompetitiveAdvantage with LifeCycle CostingBarnali Chaklader*Rajat Gera**

*Associate Professor, (Finance andAccounting) Institute of Management andTechnology, Ghaziabad**Associate Professor, (Marketing) Instituteof Management and Technology, Ghaziabad

cost or profitability. Adamany andGonsalves (1994) divide the life cycleinto seven stages:

1. Analysis: Assessment of the ideaand effects of the investment

2. Startup: Prototyping, dedication ofthe manufacturing facilities, andpractical assessment of the effectsof the investment

3. Entry: Market entry of the newproduct or services

4. Growth: Return on investment isreceived as sales revenues

5. Maturity: Profit harvesting

6. Decline: Sales begin to decrease.Alternatively proceed to the nextstage or revitalize the product

7. Withdrawal: The Companywithdraws from the market.

Life cycle costs - producer’sperspective and cost reductionopportunities

A company should manage andevaluate life cycle costs, understand all

Figure 1:: A Typical Product Lifecycle

Source: Management and Cost Accounting (2004), Colin Drury, Chapter 22, Cost Management

relationships of the product life cycle,and implement actions that takeadvantage of revenue enhancementand cost reduction opportunities(Hansen and Mo wen 2000). 80 percentof the cost is committed at the designingphase and there is a cost reductionopportunity at the manufacturing/logistics phase. (Fig 2)

LCC (ref: figure3) enables thedecision makers to analyze andunderstand the comprehensive view of

Figure 2

Figure 1

Source: Management and Cost Accounting(2004), Colin Drury, Chapter on CostManagement

Figure 3

Costing Techniques


the product life cycle costs from R&Dand planning to disposal (Shields andYoung 1991 and Sakurai 1996). Strategiccost management emphasizes theimportance of an external focus and theneed to recognize and exploit bothinternal and external linkages Hansenand Mowen 2000). LCC is a relatedapproach that builds a conceptualframework that facilities management’sability to exploit internal and externallinkages. LCC is a way of thinking wherethe attention is paid to the total coststhat occur during a product’s entire lifecycle.

A myopic approach of product coststarts from its manufacturing phase.Product life cycle costing starts it fromthe moment the product is conceived,say the designing phase and the lifecycle ends with the disposition of theproduct, (ref: figure 4) Upstream anddown stream cost can account for asignificant portion of the product cost.Cost incurred before manufacturing areupstream cost. i.e. research anddevelopment and designing cost.Examples of industries with upstreamcost are computer software and medicalequipments. Downstream costs areincurred after manufacturing phase,examples of downstream costs aremarketing and distribution andcustomer services costs. Some examplesof industries with high downstreamcosts are perfumes and cosmetics. If aproper cost management has to be doneand the cost of product is to be broughtdown, then a manager has to understandthe proportion of cost that is incurredin each portion of the value chain. Inpresent competitive era, product lifecycle has shortened and due to betterversion of the product, the older modelbecomes obsolete, e.g. electronicproducts. Therefore designing phasebecomes extremely important.Designing phase can reduce themanufacturing cost as well as speedproduction, reduce the time to market

and reduce service costs. Product lifecycle is an important concept as ittouches facets of marketing, finance,strategy and production. Literaturereview emphasizes that rapidtechnological changes and shortenedlife cycles have made product life cyclecost analysis critical to organisations.Life cycle cost is particularly moreimportant when there are large planningand developmental cost, for example ina jet liner. It may be important when thereis large product abandonment cost, forexample decommissioning a nucleargenerating facility. In general, life cyclecosting provides a comprehensiveaccounting of a product’s cost, bothmanufacturing and environmental, fromcradle to grave to help decision makersunderstand the cost consequences ofmaking the product and to identify areasin which cost reduction efforts are bothdesirable and effective (Kaplan andAtkinson, 1998).

l It is important to distinguishbetween product life cycles andindustry life cycles. Industry lifecycle may be very long whereas

Figure 4

Value Chain AnalysisSource: Management and Cost Accounting (2004), Colin Drury, Chapter 22, CostManagement Susman (1989) has presented a framework for estimating life cycle revenueand costs

product life cycle may be short. E.gin case of television industry,Television is there for many decadesbut models keep on changing.

l It is important to understand forwhom product life cycles aremanaged: Producers, consumersor the society. Producers areinterested in profits, consumers areinterested in product performancein a given price range and society isinterested in health, safety andenvironment issues.

The following is a small case letwhich will explain that the concept oflife cycle costing is far more superior tothe traditional costing system inknowing about the profitability of theproduct. In exhibit I traditional productline income statement indicates thatProduct A is more profitable , whereasthe life cycle cost analysis clearlyindicates that Product ‘B’ is moreprofitable of the two products becauseProduct ‘A’ incurred bulk of the R & Dcost. Similarly if disposal anddistribution cost when attributed toeach product can indicate the rankingof products on account of profitability.

Exhibit I

Product A Product B Total

Sales (Rs.) 4500000 2500000 7000000

Cost of Sales 1240000 1005000 2245000

Gross Margin 3260000 1495000 4755000

Research and

Development 4000000

755000

Costing Techniques


Exhibit II

Product A Product B Total

Sales (Rs.) 4500000 2500000 7000000

Cost of Sales 1240000 1005000 2245000

Gross Margin 3260000 1495000 4755000

Research and

Development 3000000 (75%) 1 000000 (25%) 4000000

260000 495000 755000

Pricing and marketing strategyPricing is a complex and strategic

decision which tends to capture thevalue of a product thus leading toprofitability, survival and long termsustainable growth of a firm. There havebeen various approaches developedover a period of time while drawing fromthe discipline of economics,psychology and sociology. There havebeen thus various efforts to prescribenormative models of pricingapproaches based on demand,competition, cost and environmentalconditions. The dominant approachescurrently are labeled as cost, demandand competition oriented pricingapproaches while product line and newproduct pricing approaches have alsobeen prescribed. The current widelyaccepted framework considers pricingas a strategic variable leading tocompetitive advantage. Thus price isset somewhere between the cost of theproduct to the seller and the value ofthe product to the buyer while takinginto consideration the competition andthe environment. Value may beconsidered as perceived value as isprevalent in consumer marketing oreconomic value also known as life cyclecost as is prevalent in industrialmarketing. The approach adopted alsotakes into consideration the coststructure of the seller and thecompetitor and the objectives of thecompetitors and the seller. Thus ageneric linear textbook model of pricingdecisions would follow the followingsteps:

Step one would be to determine theobjectives of the company in terms ofwhat philosophy the company uses to

determine prices which could be profitmaximization, sales volume, marketshare, target return on investment level,status quo, and survival. In the secondstep the pricing policy is determinedwhich is a plan or course of action forachieving pricing objectives. Commonpolicies include price skimming,penetration pricing, life-cycle pricing,cost plus pricing, above/at/belowcompetitors, and customer value. Thepricing policy is a strategic decisionbased on analysis of company costsincluding cost structure and how costsbehave with volume; customerperceptions of value which determinethe maximum price the customer iswilling to pay and customer pricesensitivity also measured as priceelasticity of demand; competitorobjectives, costs and perceived/economic value of competitor's product.This information helps sellerunderstand how to achieve competitiveadvantage and determines pricing leveland tactics to be adopted. Thus pricingdecisions are based on a threedimensional analysis of costs, customerand competition to determine the bestpositioning and approach which willculminate in a long term competitiveadvantage for the firm. This is followedby determination of the price level andthe discounting tactics to be followed.Finally pricing is a dynamic decisionwhich needs constant fine tuning toachieve the objectives of the company/seller by adapting to the changingenvironmental conditions.

Pricing which is part of the overallmarketing strategy plays a very criticalrole in the success of a company as it isable to increase the profitability and or

increase the market share. Pricing is oneof the most difficult decisions faced byorganisations. As well as a detailedknowledge of the costs involved inproducing a product or delivering aservice, the decision maker must alsofactor in the organization's strategicobjectives and a range of environmentalfactors, such as market demand, theexpected life cycle and competitors'actions. One of the key issues to beconsidered is whether the organisationis able to influence the price level (is it aprice setter?) or must it accept the pricelevel as determined by the market (is it aprice taker?). Economists refer to thisas the price elasticity of demand - ameasure of how demand responds tochanges in price.

Demand is elastic if it is affected bythe selling price. This will be the casefor many products and services -particularly those which may beprovided by a number of competitors.In order to discourage the entry ofcompetitors, an organisation maychoose a low initial price level (the lowprofit per unit will discourage the initialentry of competitors). This will allow alarge market share to be built up, whichin turn will further discourage potentialcompetitors from entering the market.

Demand is inelastic if it is likely tobe relatively unaffected by the sellingprice. This means that if the initial sellingprice of the product or service is set at ahigh level, there will be little impact onsales volumes.

The elasticity of demand will be oneof the influences on the selection of apricing strategy.

Market skimming is the term usedto describe a strategy in which the initialselling price is set at a high level. Theintention is to 'skim' off the profit whichcan be earned due to the fact that theselling price is significantly greater thancost. This will be more appropriate forproducts or services for which demandis relatively inelastic.

Market penetration is the term usedto describe a policy in which the initialprice is set at a lower level to build a

Costing Techniques


strong market share, and is more likelyto be successful when demand iselastic.

As well as elasticity, the pricingstrategy will be influenced by theproduct life cycle and the organization'sstrategic objectives, particularly withregard to profitability and return oninvestment.

Of course whether the organisationis a price setter or price taker, reliableinformation about costs is required bythe decision maker. If the organisationis a price setter, the selling price mustbe set at a level which will cover allcosts, and allow a reasonable profit tobe earned. If the organisation is a pricetaker, the level of profit which can beearned by charging the market pricewhich must be carefully assessed, asthere will be little value in achieving highsales volume, but little or no profitLCC and competitive advantage

Exploiting customer linkages is thekey idea behind the concept of life cyclecosting which deals explicitly with therelationship between what a customerpays for the product and the total coststhe customer incurs over the life cycleof using the product. (Shank andGovindrajan, 1993). Forbis and Mehta,1981 as cited in Shank and Govindrajan,1993 describe how a life cycle costingperspective on a customer linkage in avalue chain can lead to increasedprofitability. Explicit attention to postpurchase costs by the customer can leadto more effective market segmentationand product positioning. Designing aproduct to reduce post purchase costof the customer can be a major weaponin capturing competitive advantage. Forexample while designing an electronicproduct a proper research anddevelopment is done to design anelectronic product which is slim, handy,light weight and requires less servicingcan reduce upstream costs. Product lifecycle cost analysis for pricing decisiondepends on how a firm is choosing tocompete in the market. According toPorter (1980) a firm may choose tocompete either by having lower costs

or by offering superior products. Theformer is known as cost leadership andthe later is known as productdifferentiation. These two approachesdemand a separate mindset ofmanagement accountants for analysiscosts from the product life cycle cost.Target costing will be important for acost leadership firm and it will be achallenge for the firm to reducemanufacturing cost. In the presentcompetitive era, target pricing is criticalat every stage except for the withdrawalstage. Target pricing is a pricing methodthat involves (1) identifying the price atwhich a product will be competitive inthe marketplace, (2) defining the desiredprofit to be made on the product, and(3) computing the target cost for theproduct by subtracting the desiredprofit from the competitive market price.The formula for target pricing is

Target Price - Desired Profit = TargetCost

Target cost is then given to theengineers and product designers, whouse it as the maximum cost to beincurred for the materials and otherresources needed to design andmanufacture the product. It is theirresponsibility to create the product ator below its target cost. In case of adifferentiation firm, more emphasis willbe given to design cost and lessemphasis on engineered manufacturingcosts. Firms that operate ondifferentiation strategy have morediscretion in setting prices. Thedifferentiation strategy set a high pricefor the customers willing to pay. Firmsthat compete on cost leadershipstrategy use cost information toimprove operating efficiency to reducecost and price. A firm may consider thefollowing profit optimization strategies:(i) the myopic strategy of maximizing thecurrent-period profit and (ii) the far-sighted strategy of maximizing the life-cycle profit. If a firm wants to maximizelife cycle profit, then it must considerthe phases in the life cycle and decidethe total cost of the product right fromthe designing till the disposal phase.

This cost has to be recovered atdifferent phases of the life cycle.Pricing, LCC and PLC

Developing pricing strategy andmanaging costs over the life cycle ofthe product requires understanding ofthe factors affecting pricing and thesources of variability and incorporationof the knowledge of the same in costmanagement.

For instance the method of costingcan have undesirable consequencesduring the manufacturing stage of theproduct. LCC is a way of thinking ratherthan a costing tool as in addition to themanagement of costs, it focuses on thelong-term performance of products byemploying a variety of managementaccounting methods. A basicassumption behind the LCC approachis that it is possible to affect the futurecosts of a product beforehand, eitherby planning its use or by improving theproduct or asset itself. The supplierwhile using Life cycle cost analysis hasto forecast the future and thus differentcost estimation methods are applied i.e.estimating by engineering procedures;estimating by analogy; and parametricestimating methods. To explain with anexample if a portion of LCC is too high,then some modification ca be done toreduce the cost. There may be somefeature or attribute in the product whichmay not be important and thus can beremoved. Activity based managementcan be used to identify the non valueadded activities and thus removed.Business Process Reengineering (BPR)can be used. BPR involves examiningbusiness processes and makingsubstantial changes to howorganisation focuses on cost reduction,simplification and improved quality andthus enhance customer satisfaction.Dunk (2004), points out that the use ofmanagement control systems such aslife cycle costing may be contingent onthe characteristics of the firm:organizations with products at an earlystage of their life cycle are likely to useLCC as a planning device rather than asa control tool, whereas in firms with more

Costing Techniques


mature products the focus may shiftmore toward control. Thus costconsciousness referred to as cost imageespecially in the life cycle costingcontext, requires understanding of aproduct's cost history and its currentcost behavior together with an estimateof its future costs. Thus, tocomprehensively grasp the costsassociated with a certain cost object,one could combine these three factorsinto a "cost image".

During the life cycle the emphasisof LCC shifts essentially from costestimation to cost control. At thebeginning of the life cycle, LCCcorresponds mainly to the estimationof future costs. Over time, the focusgradually shifts to monitoring theincurred costs, and the estimation offuture costs is increasingly based onthe analysis of past cost. At the end,cost estimation has little value for thedecision maker, whereas properlycollected cost data would allow makingan overall LCC statement that illustratesthe total impact of the product on theorganization. As up to 80-90 percent ofthe product cost that will eventually beincurred is already determined(committed) during product andproduction development though inmany industries, - including electronics,communication, machine construction,and the car industry - the after salesperiod is a substantial contributor bothin terms of total product revenues and,in particular, generated profitsAdvantages and Disadvantages of LifeCycle Costing

Some of the benefits of LCC as costmanagement approach are summarizedas follows:l LCC enables decisions makers to

analyze and understand thecomprehensive view of the productlife cycle costs from R&D andplanning to disposal (Shields andYoung 1991 andSakurai 1996).

l LCC emphasizes the importance ofan external focus (customer) andexploits both internal and external

linkages in the value chain (Hansenand Mowen 2000).

l LCC supports the profitabilityanalysis of the product life cycle(Berliner and Brimson 1988) andhelps managers to manage costsmore effectively because it focuseson cost behavior during each phaseof the product life cycle (Hansen andMowen 2000).

l Successful application of LCCprovides a company withcompetitive advantage (Shields andYoung 1991 and Sakurai 1996).Although LCC declares a lot of

benefits and advantages as anapproach of cost management, there arealso some drawbacks and difficulties forimplementation and application of theLCC approach to organizations.

Dhillon (1989) stated that thedrawbacks of LCC are: costly, timeconsuming, accuracy of data is doubtful,and obtaining data for analysis are atrying task.

Sakurai (1996:) argued thatapplication of the approach of LCC hastwo major areas of problems. First,problem is with the companiesthemselves; the managers andemployees are very little interest in it,or understanding LCC. Secondly it isdifficult to compute user costs such asoperating, maintenance, and disposalcosts. In addition to these difficulties,implementing LCC takes much time andeffort and evaluating the results alsotakes time.

However, Dhillon (1989) and Shieldsand Young (1991.) argued that there area number of important points associatedwith LCC that help a company to developand implement LCC as an approach ofcost management successfully. Some ofthose are given below:l Invest more in pre-manufacturing

assets and in people skills toincrease the probability of low cost,higher quality and innovation.

l Use more resources in the earlyphases of a product life cycle.

l Target costing is the key to

establishing cost goals for a product.l Emphasize on cost reduction, not

cost control.l Performance evaluation and

compensation systems shouldreinforce a whole life cycle costperspective.

l All sources of organizationalresistance to product life cycle costmanagement must be dealt with inimplementing a culture of costconsciousness and continuousimprovement.

l Continuous education.l A cost analyst with excellent

knowledge and experience maycompensate for various data basedifficulties.

l The management plays animportant role in making the LCCeffort worthwhile.

l The risk management is the essenceof LCC.

LCC : Developing an approachA model is suggested to develop

an approach to LCC which integratespricing strategy and PLC.. For example,in pricing for new products, LCC wouldrequire defining the target customerthrough segmentation as LCC woulddepend on user behaviour. For exp,calculating the LCC by an automobilecompany planning to introduce a newmodel which is CNG based would needto incorporate the usage behaviourvariables such as no of kms traveled /day; average distance traveled/servicing; city vs highway usage. ThusLCC would need to be based on aunderstanding of the customer segmentand its usage characteristics. Furtherthe LCC approach would need to bebased on the pricing strategy/approachof the company. For a company whosecompetitive advantage stems from itshigh market share, LCC would requireestimation of the fixed and variablecosts over the life cycle of the productso that the cost behaviour can bepredicted and opportunities for costreduction can be identified and tackledat design stage itself. The LCC

Costing Techniques


approach would also be dictated by thetype of Industry as for Industries withhigh upstream costs, LCC would needto simulate the costs behaviour over thelifecycle of the product and how designvariable affect these costs whereas formindustries with high downstream costs,LCC would require forecasting skills.

LCC approach based on PLC and Pricing approach

Cost Based Competition based Value based

New Product Simulation and cost Estimation of LCC of Estimation of LCC offorecasting for product product and comparison customer based on valuedesign at low cost with competitor parameters defined by

products LCC customer ie for luxurycustomer, fuel efficiencymay not be an importantparameter

Introduction Estimate LCC based Estimate LCC of Tracking of perceivedon product positioning competitor product value of product andof new product and and track the same estimation of LCCcustomer behaviour based on the same

Growth Effect of capital Estimation of LCC Identification ofinvestment on LCC for customers product new customer

based on scaling up segments based onof manufacturing, value and estimationmarketing infrastructure. of LCC for the same.

Maturity LCC for cost control LCC for cost reduction LCC for cost managementnased on identified tradeoffs between cost andvalue parameters

Thus the approach to LCC would bedependent on the customer segmentbeing targeted, the pricing approach ofthe firm (based on its source ofcompetitive advantage), type of Industryand stage of Product in Product Lifecycle. These can be illustrated with thefollowing framework:.

Costing Techniques

Thus, there is no standard approachto LCC and the purpose (objectives),estimation techniques and usage needsto be adapted to specific circumstances.LCC is an effective tool for new productdesign, cost reduction and managementand pricing but its usage would dependon the specific circumstances.q

group that includes both subsidiariesand associates and entities withshareholders that are involved withother entities.

Comparative Indian StandardThe Accounting Standard issued

by the Institute of CharteredAccountants of India (ICAI)comparative to IAS 24 is AS 18, RelatedParty Disclosures. AS 18 is based onIAS 24 (reformatted 1994). The majordifferences between these twostandards are Conceptual differences:

1. According to AS 18, as notified bythe Government, a non-executivedirector of a company should notbe considered as a key managementperson by virtue of merely his beinga director unless he has the authority

and responsibility for planning,directing and controlling theactivities of the reporting enterprise.However, IAS 24 provides forincluding non-executive director inkey management personnel.

2. In AS 18 the term 'relative' is definedas "the spouse, son, daughter,brother, sister, father and motherwho may be expected to influence,or be influenced by, that individualin his/her dealings with the reportingenterprise" whereas the comparableconcept in IAS 36, Impairment ofAssets, is that of 'close members ofthe family of an individual' who are"those family members who may beexpected to influence, or beinfluenced by, that individual in their

dealings with the entity. They mayinclude:

(a) the individual's domestic partnerand children;

(b) children of the individual's domesticpartner; and

(c) dependants of the individual or theindividual's domestic partner."

ConclusionThe global financial crisis widened

the range of entities subject to therelated party disclosure requirements.The revised standard will affect thedisclosures required in the financialstatements of all government-relatedentities. The disclosure burden will besignificantly reduced and replaced withmore useful summarized information anddetails of significant transactions.q

Contd. from Page 44


First Time Adoption ofInternational FinancialReporting StandardsFair value Measurement issues :Application of Optimised DepreciatedReplacement Cost MethodDr.T.P.Ghosh*

*Professor, Institute of Management

Technology , Dubai

I n the context of First Time Adoptionof IFRSs , fair value measurement isa critical issue. Although in the

post-IFRSs adoption era an entity hasthe option to adopt cost model in thecase of Property, Plant and Equipment( IAS 16) , Intangible Assets (IAS 38)and Investment Property ( IAS 40) , forthe first time adoption cost as per thelocal GAAP is required to be adjustedfor factors that are not recognised inthe IFRSs. It has been perceived theindustry parlance that recreation of costrecords is a costly and time consumingexercise if not impossible1. Presentedbelow in Table 1 the reasons for costadjustment for first time adoption.

Reconstruction of cost records inaccordance with IAS 38 IntangibleAssets and IAS 40 Investment Propertymight not be so difficult ( if an entitywishes to follow cost model) as theyare for Property , Plant and Equipmentbecause of wide veracity of itemshaving acquisitions or self-constructiondate back to decades. Therefore anentity may adopt fair value as deemedcost of property, plant and equipmentin accordance with IFRS1.D5 . An entityhas the option to use one of thefollowing amounts as the deemed costof an item of property, plant andequipment:

(a) fair value at the date of transition toIFRSs [ IFRS 1.D5]

(b) a revaluation in accordance withprevious GAAP that meets thecriteria in IFRS 1.D6 ; or

(c) fair value at the date of an eventsuch as a privatisation or initialpublic offering (in accordance withIFRS 1.D8.

It is intended to demonstrate theapplication of optimised depreciatedreplacement cost method fordetermination of fair value ofspecialised assets. This method is basedon Level 3 inputs and therefore, it shouldbe filtered through cash flow sufficiencytest ( which is termed as profitabilitytest in valuation standards).

Fair Value Measurement Guidance inIAS 16

IAS 16 Property , Plant andEquipment provides the followingguidance :

i. The fair value of land and buildingsis usually determined from market-based evidence by appraisal that isnormally undertaken byprofessionally qualified valuers. Thefair value of items of plant andequipment is usually their marketvalue determined by appraisal. IAS16.32.

ii. If there is no market-based evidence

of fair value because of thespecialised nature of the item ofproperty, plant and equipment andthe item is rarely sold, except as partof a continuing business, an entitymay need to estimate fair valueusing an income or a depreciatedreplacement cost approach. IAS16.33.

A major portion of the property ,plant and equipment of a first timeadopter is specialised asset by naturefor which income based valuation ordepreciated replacement cost methodmay be applied.

IASB's Fair Value MeasurementStandard

The IASB has issued an ExposureDraft for the proposed Fair ValueMeasurement standard in the light ofSFAS 157 in the US which it intends tomake a single source fair valuemeasurement principles.

Fair value is the price that would bereceived to sell an asset or paid totransfer a liability in an orderlytransaction between market participantsat the measurement date. It is an exitprice. On the other hand , specialisedasset do not have an exit price.

A fair value measurement is basedon -

(a) appropriate valuation premiseconsistent with the highest and bestuse of the particular asset2 ;

(b) the most advantageous market forthe particular asset ; and

(c) the valuation technique(s)appropriate for the measurement,considering the availability of datawith which to develop inputs thatrepresent the assumptions thatmarket participants would use inpricing the asset and the level of thefair value hierarchy within which theinputs are categorised.

Market participants will buy aspecialised asset for its highest and bestuse. Therefore, fair value of the asset isdetermined with reference to cash flows



Table 1 : Cost Adjustments in First Time Adoption of IFRSs Asset Items Reasons of cost adjustments Property, Plant and Equipment ( IAS 16)

i. Depreciation charge may not be based on the estimated useful life and residual value of the concerned asset. An entity might have charged depreciation applying the regulatory rate(s). ii. Depreciation might not have been charged based on componentization of asset in accordance with IAS 16. iii. Capitalised borrowing costs are different from amortised cost based borrowing cost determined in accordance with IAS 39 Financial Instruments : Recognition and Measurement ( or IFRS 9 Financial Instruments ) . iv. Capitalisation of exchange fluctuation loss is allowed to a limited extent in accordance with IAS 23 Borrowing Costs. It is restricted to the exchange fluctuation loss which can be recognised as interest. v. Capitalisation of certain administrative expenses under local GAAP may not be allowed.

Intangible Assets (IAS 38)

i. Amortisation charge might have been worked out based on tax allowance not on the basis of the useful life of the asset. ii. Normally, residual value of an intangible asset is taken as nil. However, it is possible to demonstrate the presence of residual value in certain cases and thereby such residual value is required to be considered for deciding amortisation policy. iii. Capitalised borrowing costs for internally developed intangible assets are different from amortised cost based borrowing cost determined in accordance with IAS 39 Financial Instruments : Recognition and Measurement ( or IFRS 9 Financial Instruments ) . iv. Capitalisation of exchange fluctuation loss is allowed to a limited extent in accordance with IAS 23 Borrowing Costs. It is restricted to the exchange fluctuation loss which can be recognised as interest. v. Capitalisation of administrative expenses under local GAAP. vi. Intangible asset may have indefinite life. In that case , intangible asset is not required to be amortised. Once the conditions change and the asset turns into having finite life, amortisation charge commences. Local GAAP may have different principle. vii. Impairment principle for goodwill might not have been followed in accordance with IFRS 36 Impairment of Assets.

IAS 40 Investment Property

i. This class of asset might not have been segregated as per local GAAP from other items of fixed assets. ii. Let out building might have been depreciated applying regulatory rate. ii. They are of specialised nature and therefore, market quotation based exit price is not readily available.

Remedial Action : The entity is required recreating cost records as if IFRSs were applied since the asset is recognised. This will put a first time adopter into a costly , time consuming and difficult process. Alternatively, an entity may use fair value as deemed cost.



( profit ) determined with reference tohighest and best use. For specialisedasset having unique use , 'highest andbest use' criteria is not applicable. ' Mostadvantageous market' criteria is also notapplicable to specialised asset.However, it is possible to applyalternative valuation approachesdepending upon the inputs.

Paragraphs IE 11 of the proposedstandard has demonstrated the exampleof valuation of machine held and usedapplying lower of the replacement costmodel and market value approach.

The proposed standard has also setout three levels of fair hierarchy :

Level 1 Inputs : They quoted prices(unadjusted) in active markets foridentical assets or liabilities that theentity can access at the measurementdate.

Level 2 Inputs : They are quotesprices of similar assets -

i. quoted prices for similar assets orliabilities in active markets ;

ii. quoted prices for identical or similarassets or liabilities in markets thatare not active;

iii. inputs other than quoted prices thatare observable for the asset orliability (eg interest rates and yieldcurves observable at commonlyquoted intervals, volatilities,prepayment speeds, loss severities,credit risks and default rates) ;

iv. inputs that are derived principallyfrom or corroborated by observablemarket data by correlation or othermeans (market-corroboratedinputs).

Level 3 Inputs : They are inputs forthe asset or liability that are not basedon observable market data(unobservable inputs). Unobservableinputs are used to measure fair value tothe extent that relevant observableinputs are not available, e.g. whenmarket activity for the asset or liabilityat the measurement date is little or nil.

The fair value hierarchy gives the

highest priority to quoted prices(unadjusted) in active markets foridentical assets or liabilities (Level 1inputs) and the lowest priority tounobservable inputs (Level 3 inputs).

Optimised Depreciated Replace Cost

Depreciated replacement cost is anapplication of the cost approach usedin assessing the value of specialisedassets for financial reporting purposes,where direct market evidence is limited.International Valuation Guidance NoteNo. 8 The Cost Approach for FinancialReporting ( issued by the InternationalValuation Standards Committee)3defines the tern depreciatedreplacement cost as the current cost ofreproduction or replacement of an assetless deductions for physicaldeterioration and all relevant forms ofobsolescence and optimisation.

While applying depreciatedreplacement cost, it becomes necessaryto ensure that the key elements of amarket transaction have beenconsidered. These include:

i. an understanding of the asset, itsfunction, and its environment;

ii. research and analysis to determinethe remaining physical life (toestimate physical deterioration) andeconomic life of the asset;

iii. knowledge of the businessrequirements (to estimatefunctional/technical obsolescence);

iv. an assessment of future industryrequirements (to estimate economic/external obsolescence);

v. familiarity with the class of propertythrough access to available marketdata;

vi. knowledge of constructiontechniques and materials (to estimatethe cost of a modern equivalentasset); and

vii. sufficient knowledge to determinethe impact of economic/externalobsolescence on the value of theimprovements.

Determination of the replacement cost

is based on the modern equivalent asset(MEA). Adjustment is necessary for :

a. Physical deterioration - In assessingthe physical deterioration of theimprovements resulting from wearand tear over time and any lack ofmaintenance, different valuationmethods may be used for estimatingthe amount required to rectify thephysical condition of theimprovements.

Estimates of specific elements ofdepreciation and contractors'charges can be used or direct unitvalue comparisons betweenproperties in similar condition.

b. Functional or technicalobsolescence - Functional andtechnical obsolescence can becaused by advances in technologythat create new assets capable ofmore efficient delivery of goods andservices. Modern productionmethods may render previouslyexisting assets fully or partiallyobsolete in terms of current costequivalency. Obsolescence andoptimisation are allowed for byadopting the replacement cost of aModern Equivalent Asset asdistinct from a reproduction of theasset.

c. Economic or external obsolescence- Economic obsolescence resultingfrom external influences may affectthe value of the asset. Externalfactors may include changedeconomic conditions which affectthe demand for goods and servicesand the profitability of businessentities.

Case Example : Historical cost ofspecialized Plant & Equipment Rs. 1000crores ; Net Rs. 300 crores - 70% of theasset have already been depreciated.

Replacement cost of ModernEquivalent Asset Rs. 1700 crores.

Machines Rs. 1100 crores

Labour Rs. 400 crores

Overhead Rs. 200 crores



The company has self-constructedsimilar asset 3 years back. Cost :Machines Rs. 900 crores, LabourRs. 300 crores , Overhead Rs. 150crores, Total Rs. 1350 crores

Appropriate capital T-3 314

index : T0 381

Minimum Wages : T-3 52.69

T0 56.71

( Lower range)

T-3 97.12

T0 104.89

( Lower range)

Others : T-3 127 T

0 180

The entity compares the costsdetermined through price quotationsand / or contractors' quotationsapplying general price index. The entityuses average of wage range. Theindexation process is explained in theTable 2 below.

Application of general index is justto testify the rationality of the currentestimates in the light of the most recentexperience. Any high variance shouldbe analysed in details to eliminate anyerror of estimation. Often general indexmay not reflect the correct specificprice.

Having estimated currentreplacement cost of the asset , theentity shall carry out optimisation. It isa process by which a least costreplacement option is determined for theremaining service potential of an asset.It is a process of adjustments reducingthe replacement cost to reflect that anasset may be technically obsolescentor over-engineered, or the asset mayhave a greater capacity than thatrequired. Hence optimisation minimises,rather than maximises, a resultingvaluation where alternative lower costreplacement options are available. Indetermining the depreciatedreplacement cost, optimisation is appliedfor obsolescence and relevant surpluscapacity.

Table 2: Filtering Cost Estimates applying Indices Rs. in crores T0 Actual Indexation T3 Indexed T3 Estimated Variance Material 900.00 192.04 1092.04 1100 0.73% Labour 300.00 23.61 323.61 400 23.61% Overhead 150.00 62.60 212.60 200 -5.93% 1350.00 1628.25 1700.00 4.41%

Suppose the MEA is having 100000units capacity whereas the old asset ishaving 75,000 capacity. The currentreplacement cost is derived based onthe MEA as similar capacity asset is notcurrently available.

Optimisation Adjustment : Rs. 1700crores × 75000/100000 = Rs. 1275 crore.

Adjustment for physical deterioration :The existing asset have estimatedremaining useful life of 10 years andexpired life of 20 years.

Rs. 1275 crores × 10/30 = Rs. 425 crores.

Profitability Test : For commercialentity with specialised assets, avaluation assessed by depreciatedreplacement cost must be subject to thetest of adequate profitability in relationto the whole of the assets held by theentity or the cash generating unit. It is areverse impairment analysis process. Incase of impairment , the recoverableamount is higher of the 'fair value lesscosts to sell' and 'value in use'. In caseof determination of fair value which isexit price of the asset , the seller shouldplace himself in the buyer's shoe.

Profitability test can be carried outin terms of value in use of the asset , i.e.PV of future cash flows of the cashgenerating unit net of separatelyidentifiable fair value of other assets.While determining the cash flows , anentity shall consider cash outflowsrequired for major overhauls to keep theasset in the working conditions apartfrom routine maintenance. Effect ofchanged economic conditions on theproducts are also reviewed. Discountfactor should be industry average costof capital.

Assume that Value in Use of theCash Generating Unit to which the

specialised asset belong : Rs. 500 crores.Fair value of other assets belonging tothe cash generating unit is Rs. 100crores. Thus value in use of thespecialised asset is Rs. 400 crores.

Optimised depreciated replacementcost is moderated by the cash flow testbecause no rational buyer will pay morethan the PV of cash flows. In caseoptimised depreciated replacement costis lower than the value in use, then itstands as a fair value of the specialisedasset.

Concluding Remarks

Optimised depreciated replacementcost is based on Level 3 inputs. Filteringthe most recent observed cost throughappropriate index and comparing thecost estimates bring objectivity to thevaluation. In the second state,profitability test converts the entryvalue into exit value through linkingthe investment to return.

Notes

1. In a letter to the Chairman , IASBCanadian Electricity Association ,Canadian gas Association andCanadian Energy PipelineAssociation on 30 April , 2008 raiseda viewpoint that " Conversion toIFRS, as currently published, wouldcause the Canadian electricity, gasand pipeline industries to enter intoa very costly and, in many cases,virtually insurmountable process ofrecreating detailed historic recordsas at the transition date to removefrom PPE those amounts that wouldnot be permitted to be capitalizedunder IFRS. As historical cost hasbeen traditionally used by theregulators of these industries forrate-setting purposes, as well as byinvestors, creditors and rating



agencies, a costly retrospectiveconversion process would havelittle or no economic benefit tostakeholders…… In accordancewith IFRS 1, an entity may elect tomeasure an item of PPE at the dateof transition to IFRS at its fair value,and use that fair value as its deemedcost at that date. However, thenature of our PPE is such that it isoften unique and of use only withinour industry. Fair value informationis not readily available. It is ourposition that determining fair valuewould be time-consuming given ourmany long-lived items of PPE. Giventhe lack of qualified independentvaluators, and the potential forverification issues, electing to usethe fair value as deemed cost feature

of IFRS 1 may not be practicable forall rate-regulated entities." Andthereby pleaded that carryingamount of the asset be treated asdeemed cost. This view does notfind merit in the IFRSs amendmentprocess.

2. The Group of 100 (G100) is anorganization of chief financialofficers from Australia's largestbusiness enterprises with a purposeof advancing Australia's financialcompetitiveness. In letter to theChairman , IASB , the G100 disagreeswith the proposal to identify thedifferent components of the fairvalue of an asset where it is used ina way that differs from the highestand best use. The provision of thisinformation in effect requires the use

of two valuations on different baseswhich would increase compliancecosts unnecessarily for littleinformation benefit.

3. www.ivsc.org

International Valuation StandardsCommittee ( IVSC) has issued :

l International Valuation Standards ( IVS 1-3)

l International ValuationApplications (IVA 1-3) and

l Guidance Notes ( GN 1-15)

In the context of fair valuemeasurement , these standards haverelevance. IVSC states that its valuationstandards are adopted as nationalstandards, in Australia, New Zealand,Romania, Turkey, South Africa and areused by many other bodies.

Diagram showing Steps of Optimised Depreciated Replacement Cost Method


OptimisedReplacement Cost

DepreciationAdjustment

Carry out profitability test

Charge depreciation forExpired life of the

asset

Applying optimisationFor surplus capacity etc.

Cost estimation of thespecialised asset on thebasis ModernEquivalent Asset(MEA)

Observed cost of mostrecent project involvingself-construction of thespecialised assetPreferably at the sameMEA level

Review of costestimates in the lightcost comparison andfinalisation of costestimates

OptimisationAdjustments

Optimised DepreciatedReplacement CostMethod

Costcomparisonusing indices


Introduction

T he Micro, Small and MediumEnterprises (MSMEs) play animportant role in the growth and

development of Indian economy.Looking their potential to generateemployment, foster technicalinnovation and entrepreneurship,contribution to country’s manufac-turing output and exports; MSMEs havenow assumed Center stage in India’sTrade Policy. The MSME sectoraccounts for about 90% of the totalindustrial units, contributing about 45%of total manufactured output and nearly40% of exports. As regards employmentit offers jobs to over 42 million people.Special Initiatives for MSMES

The Indian SME market is placed ataround $ 5 billion. Majority of SMEs inour country are still in the unorganizedsector that is facing internal and externalchallenges in borderless economy. Inthe present era of globalization, MSMEsnecessarily to develop capacities andalso need regulatory support forenabling them to be internationallycompetitive. In this backdrop, MSMEhas been considered the privilegedsector of economy and the policymakershave taken a number of initiaties andpolicy measures. A few of them havedirect bearing on the banking andfinancial aspects are discussed in thearticle as under -Definition of MSMEs

Recognizing the significantcontribution of this sector in economic

SME - Emerging Sectorfor Bank Finance: SpecialInitiatives & Measuresfor its GrowthDr Ram Jass Yadav*

growth and also in employmentgeneration in our country, thepolicymakers revised the erstwhiledefinition of ‘Small Scale Industries’ andit is expanded with inclusion of services& trading activities in the ambit ofMSME by enactment of Micro, Small &Medium Enterprises Development(MSMED) Act from 2nd October 2006Also the Act recognizes the term‘Entriprises’ instead of ‘Industry’ toinclude service in SME segment. TheMicro, Small & Medium enterprisesengaged in manufacturing or producingand providing or rendering of serviceshas been defined under the Act on basisof original investment in plant &machinery and equipment as under -

The advances to Micro & Smallenterprises are reckoned as prioritysector lending target of 40% fordomestic commercial banks. Though theloan to medium enterprises do not formpart of priority sector advances, theseenterprises have also given treatmentat par with micro and small enterprisesby banking industry.Credit flow to MSME

Under policy package announcedby Government of India to step up creditto MSME sector, banks were advisedto fix self target for growth in SME

*Chief Manager, Bank of Baroda, SMELoan Factory, Agra (UP)

Enterprises Manufacturing Service

Micro Enterprises Up to Rs.25.00 lacs Up to Rs. l0.00 lacs

Small Enterprises Above Rs.25.00 lacs to Above Rs 500.00 lacs toRs. 500.00 lacs Rs.200.00 lacs

Medium Enterprises Above Rs. 500 lacs to Above Rs. 200.00 lacs toRs. 1000.00 lacs Rs. 500.00 lacs

sector in order to achieve minimum 20%year on year growth in credit to MSMEswith the objective to double the creditflow to MSME sector within a period of5 years i.e. from 2005-06 to 2009-10.

Further to have adequate credit flowto the small enterprises, banks arelending minimum 60% of smallenterprises advance to the microenterprises comprising at least 40% oftotal small enterprises advances tomicro enterprises having investment inplant and machinery up to Rs.5 lacs(manufacturing unit) / investment inequipment up to 2 lacs (service) and20% to micro enterprises withinvestments in plant & machinery aboveRs.5 lacs & up to Rs.25 lacs(manufacturing) / investment inequipments above Rs.2 lacs & up toRs.10 lacs.

The domestic commercial bankshave not given sub-target of lending toMSME under priority sector advancesbut for foreign banks the advance toMSME sector should not be less than10% of adjusted net bank credit (ANBC)/ credit equivalent amount of off balancesheet (OBS) exposure whichever ishigher under that overall target of 32%under priority sector advances.Registration and timely payment

Registration is optional for MSMEsengaged in providing or rendering ofservices, however, for a mediumenterprises engaged in manufacture orproduction of good registration iscompulsory under section 8 of MSMEDAct with such authority as specified bythe State Government or CentralGovernment.

The existing provisions of delayedpayment to MSEs, have been furtherstrengthened under MSMED Act asunder -



v The buyer to make payment on orbefore the date agreed on betweenhim and MSE supplier in writing or,in case of no agreement before theappointed day. The agreementbetween seller and buyer shall notexceed more than 45 days.

v If the buyer fails to make paymentof the amount to the MSE supplier,he shall be under obligation to paycompound interest with monthlyrests to the supplier on the amountfrom the appointed day or, on thedate agreed upon, at three times ofBank Rate notified by RBI as perprovisions of section 15 of the Act

v Besides amendment has been madein the Companies Act, 1956 fordisclosure of particulars of dues toMSEs. It has been mandatory todisclose the details of dues to microand small enterprises and alsoparticulars of interest if any,payable/paid to suppliers as perMSMED Act in the balance sheet.

v Banks have already been advisedto fix sub limit within overall workingcapital limit to the large borrowers(i.e. borrowers enjoying workingcapital limits of Rs 10 crores andabove from the banking system),specifically for meeting the paymentobligation in respect of purchasefrom MSEs.

Collateral security & composite loanThe loan limit up to Rs 5 lacs to MSE

borrowers is exempted in general andbanks with approval of competentauthority may on the basis of goodtrack records and financials position ofthe MSME units, increase the limit ofdispensation of collateral requirementfor loans up to Rs. 25 lacs. Loanapplication of SMEs otherwise viableshould not be turned down merely forwant of collateral security or 3rd partyguarantees.

SME beneficiaries may besanctioned a composite loan limit of Rsone cores to avail of their workingcapital and term loan requirementthrough single window.Cluster approach and specialized SMEbranch

To implement recommendation ofGagualy Committee on flow of credit toSSI sector, the concept of MSE clusterhas been introduced by adopting 4Csapproach (Customer focus, Costcontrol, Cross sell & Contain risk) witha view to cater to the diverse needs ofthe MSE sector through extendingbanking services to the cluster. Clusterbased approach to lending may be moreuseful in dealing with well defined andrecognized groups, availability ofappropriate information for riskassessment and monitoring by thelending banks/ FIs. At present 388clusters have been identified by UnitedNations Industrial DevelopmentOrganization (UNIDO) spread over 21

states across the country.Besides public sector banks have

opened specialized SME branches atleast one such branch in each district.Further banks have been permitted tocategorize their general bankingbranches having 60% or more of theiradvances to SME sector as SME branchfor providing better services to theSME sector as a whole.Code of Bank's Commitment

The Banking Codes & StandardsBoard of India (BCSBI) has formulateda Code of Bank's Commitment to Micro& Small Enterprises (MSEs). It is avoluntary code, sets minimumstandards of banking practices forbanks to follow when they are dealingwith MSEs has been adopted almost byall public sector banks. The codeprovides protection to MSE andexplains how the bankers are expectedto deal with the sector for day to dayoperations and to cater to financialrequirements of the MSEs.Credit Insurance for MSEs

A separate and dedicatedorganization known as 'CreditGuarantee Fund Trust for Micro & SmallEnterprises (CGTMSE) has been set upby Government of India & SIDBI toinsure the collateral free lending to MSEsector by way of credit guarantee. Thesalient features and conditions to coverthe MSE credit under guarantee schemeare as under -

Category Maximum extent of guarantee cover

Limit/Loan

Micro Enterprises

WomenEntrepreneurs /unitslocated in North EastRegion (incl. Sikkim)

Up to Rs.5 lacs

85% of the amount indefault (maximum ofRs.4.25 lacs)

85% of the amount indefault (maximum ofRs.4.25 lacs)

Above Rs.5 lacs up toRs.50 lacs

75% of “the” amount indefault (maximum ofRs.37.50 lacs)

80% of the amount indefault subject to aMaximum ofRs.40 lacs

Above Rs.50 lacs Up toRs.100 lacs

Rs. 37.50 lacs plus 50% Ifamount in default aboveRs. 50 lacs subject to overallceiling of Rs. 62.50 lacs

Rs. 40 lacs plus 50% ofamount in default aboveRs. 50 lacs subject to overallceiling of Rs. 65 lacs.

All other category of 75% of the amount in default subject to a Rs37.50 lacs plus 50% ofBorrowers maximum of Rs.37.50 lacs amount in default above

Rs.50 lacs subject to overallceiling of Rs.62 50 lacs.



v Credit facilities to the MSEbeneficiary should be from singlelending institution.

v Loan limit up to Rs. One crore bothfund based and non-fund based.

v Credit should have been givenwithout collateral and / or third partyguarantee

v Lock in period is 18 monthsv Rate of interest on such advance

should not exceed 3% over BPLR tothe borrower

v Minimum period of guarantee covershall be the agreed tenure of termloan and five years for workingcapital facilities.

v Amount of premium and guaranteecoverage available under thescheme are as under -

Policy Measures - to Face GlobalSlowdown

The global and consequentdomestic economic meltdown has nodoubt posed a major challenge toMSMEs to maintain their growthmomentum due to steep fall in exportsand domestic orders, delayed paymentetc. Our policymakers have taken a goodnumbers of measures that have helpedthe economy in general and MSMEs inparticular to a large extent. Some of theimportant measures announced andimplemented are discussed as under-ü Adhoc increase in working capital-

Banks provided 20% of sanctionedfund based limit to MSME by wayof working capital demand loan(subject to maximum of Rs. 2.00crores) for a period of 12 monthswith a moratorium of 6 months.

ü Reduced margin in respect ofinventory and receivables by 5%including export receivables fromthe existing margin norms

ü Extended existing holding norms ofinventory by another 15 days.

ü Extended moratorium period whereproject implementation has beendelayed.

ü Allowed drawings against domesticreceivables up to the age of 180 daysagainst the usual norms of 90 days.

ü Reduced lending rates for MSMEsby 50 to 100 basis points (bps) {1%

for Micro & 0.50% for Small &Medium Enterprises}

ü Extended period of export credit atconcessional rates i.e. from 180 daysto 270 days for pre-shipment andfrom 90 days to 180 days for post-shipment.

ü Set up regional MSME care centregiving different nomenclature bythe banks to facilitate MSMEs forquick redressal of their grievances.

ü Launched two stimulus packageswhich included, interalia, reductionin duties (across the board cut inCenvat by 4%), greater thrust oninfrastructure, additional exportincentives of around Rs. 350 crores,enhancing ECGC guarantee,extension of 2% export subventionto specified sectors etc

ü Provided special refinance fund /limit of Rs. 7000 crores to SIDBI forenlarging the resources base ofbanks, SFCs, NBFCs, Micro FinanceInstitution (MIFs)

ü Set up MSME credit monitoring cellby the Ministry of Micro, Small &Medium Enterprises, GOI to overseethe resolution of credit issues ofMSMEs by banks.

Basel-II Incentives for Growth of SMESector

Basel-II recommendation hastriggered a fundamental change in theattitude of banks towards borrowersespecially SME borrowers. Creditmanagers have not always goodinsights into SMEs economics toaccurately rate these firms objectivelybased on the Basel-ll criteria.Particularly, soft facts such as market/industry position, competence of SMEmanagement, operating leverage,character and reliability of firms' owner,history of relationship with its suppliersand business prospects in the localneighborhood in which firm operates.This problem is because of inability ofthe borrower to present relevant softfacts about the market and businessdynamics. Hard facts such as financialstatements are traditionally easy to dealwith; however, in absence of statisticallyvalid industry benchmarks, it will bedifficult for a bank to judge the quality

of SME earning and cash flow. In lightof informationally opaque with respectto soft facts, SMEs apprehends thateven a proactive move to obtain ratingmay prompt the banks to withdraw thecredit line, because the rating turn outworse than what SMEs had expectedwith a bad rating, the SME will hardlyget financing from banks and firms willhave to seek alternative financing forwhich they are ill-prepared, therefore,many SMEs are expected to fail

However, in real life situation it isestimated through some of the studiesthat application of advanced internalrating based (AIRB) approach underBasel-ll will reduce capital requirementon SME loans from 100% risk weightcategory of Basel-l provided banksequipped themselves to implementAIRB approaches of risk managementin our country. Besides that RBI hasallocated lower provisions 0.25%instead 0.40% on standards advancesto SME segment that reduces capitalrequirement to encourage finance to thesector and also lower rate of interest onMSE loan across the board. Thus creditto SME under Basel-ll regime would beenjoying win-win position for banks andentrepreneurs against apprehension ofpoor credit worthiness of borrowers.Tasks AheadTasks at National & State LevelSub-target for MSME, in PrioritySector Lending by Banks -

For strengthening the credit deliveryto MSEs, the government announced apolicy package for stepping up creditto SME in August 2005 for doublingthe credit flow to this sector within aperiod of 5 years. In this context RBIdirected the banks to increase theiradvance at least 20% per year to SMEsector. This has resulted in to asignificant increase in the credit flowby Public Sector Banks to SME sectorwith outstanding from Rs. 67,600 croresas at 31.03.05 to Rs. 190,958 crores atthe end of March 2009 and yet the flowof credit to SME sector has not beenadequate. Therefore, there is need ofsetting sub-target for MSMEs say at



15-18% within the overall Priority SectorLending target of 40% of adjusted netbank credit (ANBC) in case of PublicSector Banks and Private Sector Banks.At present MSME credit comes around9-10% of the net bank credit. The issueof allocation separate share for MSMEwithin overall target of priority sectorfor domestic commercial banks isprobably under discussion at variousforums, which should be made effectivewithin regulatory framework at, earliestto consider MSME finance as preferredsector for finance for it due share inbanks total credit.Streamline credit delivery to MSEsector-

A good number of recommen-dations have been made by a workinggroup constituted by RBI in its reportsubmitted in April 2008 in recognition ofproblem faced by MSEs. Government ofIndia, State governments and bankingindustry needs to consider thoserecommendations to make smooth andeasy access of the credit to MSE sectorSome of the important issues addressedby the working group are given belowfor the information of readers-ü Creation of an independent

rehabilitation fund by Governmentof India for rehabilitation of SMEs

ü To adapt cost effective andcustomer centric technologydeveloped in other countries byDepartment of Science &Technology (GOI) for Indian MSMEsector.

ü Set up more ITIs, Tool room trainingcenters etc for training of workforceon latest technology.

ü Creation of Central Registry by StateGovernments for creation of chargesof all banks / financial institutionson all movable & immovableproperties of borrowers.

ü State Governments to provide landat 50% of normal rate to set upIndustrial Estate exclusively forMSMEs and further 50% capitalsubsidy on capital cost of commonfacilities like effluent treatment plant,power plant, etc.

ü Scoring model may be adopted for

all advances up to Rs, 2.00 croresand information required for scoringshould be incorporated inapplication form itself. No individualrisk rating is required in such cases.

ü Banks may start central Registrationof loan application. It may be usedfor online submission of applicationas also for online tracking of loanapplication.

ü Introduce centralized processingcells that may be utilized for singlepoint of appraisal, sanction,documentation, renewal & enhance-ment. Central Processing Centreshould act as the back office of thebank. Bank of Baroda has alreadyimplemented this concept by settingup SME Loan Factories at 35business centers across the country.

ü Consider combined level of stocks& receivables and no separate limitfor debtors may be fixed. Banks mayallow cash credit / over draft againststock & receivables under onefacility.

Tasks at Regional LevelVarious forums of industrial

associations, district industrial centersand many more have been playing apivotal role in the growth &development of MSME. To establish astrong linkage and coordination amongvarious government bodies anddepartments, it is suggested that LeadBank at district level should shoulderfollowing additional responsibilitiesunder its normal developmentalactivities for the growth of this sector.ü Enhance participation of Banks

officials in its regular meetings /seminars in order to have businessdialogue with them on regularinterval.

ü Set up S/WE Club as a voluntaryand dedicated group of bankers tooversee the credit flow and bankingrelated issues of MSMEs. The Zonaland Regional Managers, Heads ofMSMEs care centers and CentralProcessing Cells of active playerbanks in the district may be invitedfor participation in the clubmeetings.

ü Undertake a structured study oncredit flow to MSME sector in thedistrict to examine reasons for poorcredit access to the sector and offerviable recommendation foraccelerating credit flow to the sector.Its report may be submitted toDistrict Level CoordinationCommittee (DLCC) and State LevelBankers Committee (SLBC)conveners for corrective measuresproposed to be taken by bankers.

Sum -upMSME is considered as a growth

engine of our economy. The policymakers- i.e. GOI, RBI and barking systemare paying their special and focusedattention to the sector. The variousindustrial associations are taking up theproblems of IvlSMEs with concernedauthorities including banking industryto get them resolved for the growth ofthe sector in present borderless world.Though the efforts of government todevelop mutual understanding of thebusiness between credit givers andusers deserve appreciation, there isneed to instil certain simple rules of thelife by both bankers and borrowers. Thebankers to liberalize their systems andprocedures of taking decisions todayinstead tomorrow, change in the mindset from desisting attitude to helpingapproach and to value the creditbusiness like clinical treatment forhealthy growth of clients which shouldbe given at right time with rightdiagnosis and right doses. While on thecredit users front, the money must betaken as invaluable and very preciousunit of the blood for their businesswhich should be used for the purposeit is given and to be repaid in timeenabling the bankers to offer novellifeline to the business activities as wellas to help the banks to build moneybank (like blood bank) very strong andaccessible to each needy persons of thesociety. What is needed is tounderstand business of each other's andto be partner in the prosperity of thenation for delivering welfare to thesociety.

“...Together We Win...”



THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA12, SUDDER STREET, KOLKATA - 700 016

Admission to Membership

Advancement To FellowshipDate of Advancement :1st October 2009

M/5296Shri Dinesh Chand Agarwal,MSC(STAT), FICWA6/9, J M Sengupta Road,B - Zone, Durgapur 713205

M/6361Shri N. Guruswamy,MSC, BGL, FICWAFlat No. 34, Landon Towers,New 32, Old 47, LandonsRoad, Kilpauk,Chennai 600010

M/6376Shri Ajit Kumar Maity,MCOM, FICWASr. Manager (Finance),D-76, Deepanjali Nagar,NTPC Township, NTPC-Simhadri 531020

M/6748Shri Yeshwant Anant Angane,FICWAD402, Dharam Palace,Shantivan, Borivali (East),Mumbai 400066

M/7127Shri Saranga Dhar Sahu,BCOM, FICWADy. General Manager (Fin),NALCO, Captive Power Plant,Nalco Nagar 759145

M/7387Shri A. N. V. L. KankadriSharma, BSC(HONS),FICWAFinance Manager(Internal Audit), C.C.L.,Ranchi 834029

M/7529Shri Krushna Chandra Samal,BCOM, FICWADy. General Manager (Fin.),National Aluminium Co. Ltd.,Refinery Division,Damanjodi,Koraput 763008

M/7539Shri Nalini Bihari Tripathy,BCOM, FICWADy. General Manager (Fin.),National Aluminium Co. Ltd.,Mines DivisionDamanjodi 763008

M/7597Shri Narinder Pal Singh,BCOM(HONS),MCOM, FICWA22, Harshvardhan, J.P. Road,Versova, Mumbai 400061

M/8364Shri Anil Kumar Gautam,BCOM(HONS), FICWAHouse No. A-15, Sector - 53,Noida 201301

M/9153Shri Dattatreya Guru,BCOM, ACS, FICWATata BP Solar India Limited,Plot No. 78 Electronic City,Hosur Road,Bangalore 561100

M/10314Shri Bankim Kumar Mishra,BCOM, LLB, FICWAN-5/29, I.R.C. Village,Bhubaneswar 751015

M/10842Shri Chaturbhuja Padhiari,BSC(HONS), FICWAChief Manager (Fin),NALCO., Smelter Plant,At/PO. Nalco Nagar, Dist-Angul,Nalco Nagar 759145

M/11023Shri Natarajan Subramanian,BA, FICWAFlat No. 402, Vijay RajTowers, Amravati Road,Nagpur 440033

M/11606Shri P. Ponnusamy,MCOM, BED, FICWAFinance Officer, AnnaUniversity Coimbatore,Academic Campus,Jothipuram,Coimbatore641047

M/11694Shri Suresh Laxman Pingale,BCOM, LLB, MBA, FCS,FICWAManaging Director, AndanteIndia Consultants P. Ltd.,Office #3, Ground Floor,Avishkar Heights, 1413,Sadashiv Peth,Pune 411030

M/11804Shri R. Ahalya Rajan,MSC(MATH), MA, BED,FICWASenior Manager (F & A), SteelAuthority of India Ltd., SalemSteel Plant, Salem 636013

M/11815Shri C. Balachandran,MSC, MBA, FICWADirector, ICWAI CochinChapter, Judges Avenue,Cochin 682017

M/12014Shri S. Mohan,MCOM, FICWA2-2-185/56/C3, 103, Opp.Lal Bunglow, Sathya Sai Apts.,SomaSundar Nagar, BagaAmberpet,Hyderabad 500013

M/12719Shri Amitava Saha, BSC,BCOM, FICWAC/o Mr. N. C. Saha SahaHomeo Clinic Samdi RoadRupnarayanpur Bazar 713364

M/13056Shri Goutam Kumar Malick,BCOM, FICWAVill & P.O. Banitala,Uluberia 711316

M/13715Shri Rangarajan VeeraraghavanIyengar,BCOM, LLB, FICWA11, Av. Dispensary Building,Nadkarni Park, Wadala (E),Mumbai 400037

M/14190Shri Dilip Kumar Gupta,MCOM, FICWAMeera Apartment,Flat No. 3/11, 52, Sahid BinayBose Road, Bansdroni,Kolkata 700070

M/14656Shri Arunava Chakraborty,BCOM, FICWAC-1/D, Rajat Vihar, Sector 62,Noida 201301

M/14882Shri Ashutosh Das,BCOM(HONS), FICWAAudit Officer, National Instituteof Technology-Durgapur,Mahatma Gandhi Avenue,Durgapur 713209

M/14883Shri Udayan Das,MCOM, MBA(F), FICWAPlot No. 1 & 2, Adarsh Vihar,Phase - I, Patia,Bhubaneswar 751024

M/15030Shri Cheruvu Venkata Ramana,BSC, LLB, FICWA,God`s Gift, Urban Bank Road,Berhampur 760001

M/15957Shri G. Shrinivas,BCOM, FICWAAl Rashideen Trading Co. Ltd.,(Int`l Division), P.O. Box #7318, Dubai

M/16279Shri Malay Kumar Nayak,MCOM, FICWATIV/1/3, River Side Quarters,College Tilla, Agartala 799004

M/16294Shri P. Lakshi Narayana Sarma,BSC, LLB, FICWA`Sri Nivas`, 59, Road No. 2,New Nagole Colony,Hyderabad 500035


M/16997Shri Bidyut Kumar Singha,BCOM(HONS), FICWAVill- Bhuteswar,Sanbandha 722180

M/17092Mrs. Nisha Dewan,BCOM(HONS), LLB, FICWAC-124, Upper Ground Floor,New Rajinder Nagar,New Delhi 110060

M/18011Shri Chandramani Sahoo,BCOM, FICWAC. Sahoo & Co. B-34, GroundFloor, Golden Nest - VI SonamShopping Center Chs.. Ltd.Mira Bhayandar Road, MiraRoad (E)Thane 401107

M/18022Shri Sisir Kumar Acharya,BCOM(HONS), FICWASr. Manager - Finance,National Aluminium Co. Ltd.,Refinery Complex,Damanjodi 763008

M/18324Shri Niranjan Nanda,MCOM, LLB, FICWAManager (Finance), NALCOSmelter Plant At/Po. NALCONagar Dist- AngulNalcoNagar 759145

M/18647Shri Sankar Bose,BSC, FCA, FICWAA 04, Adarsh Enclave, BDGPath, Opp. Upper ChelidangaKali Bari, Asansol 713304

M/18783Shri Rudra Charan Beura,MCOM, LLB, FICWADy. Manager - Finance, Audit& Accounts Branch, CorporateOffice, Southco, Courtpeta,Berhampur 760004

M/19009Shri Chandr Mohan Pareek,MCOM, FICWA129, Heera Nagar,Near DCM Godown,Ajmer Road, Jaipur 302024

M/19039Shri Ajay Kumar Singh,BCOM, LLB, FICWASingh Ajay & Associates 7,Grant Lane, 2nd Floor, RoomNo. 215, Kolkata 700012

M/19367Shri K. Ramakrishnan,BCOM, FICWARamakrishnan & Co., 4,K.R.H., 82-A, Third Street,Tatabad, Coimbatore 641012

M/19385Shri V. Suresh Babu,BCOM, ACA, FICWA50, Krishnappa Lane, ThiyagiKumaran Street, Coimbatore 641001

M/20103Shri Govindarajan RamPrasadh,BCOM, ACS, FICWAA-1/801, Windsor Avenue,Survey No. 60/2, 60/3,P.O. S.R.P.F., Pune 411022

M/20649Shri Padmanava Swain,BCOM, LLB, FICWADy. Manager (Finance),SOUTHCO, CorporateOffice, Courtpeta,Berhampur 760004

M/20758Shri Lokesh Kumar Goel,BCOM, FICWAC-8/152, Yamuna Vihar,Delhi 110053

M/21034Shri Subrat Kumar Routray,BSC(H),LLB,FICWADy. Manager (Finance),SOUTHCO CorporateOffice, Courtpeta,Berhampur 760004

M/21141Shri M. C. Baby,MCOM, MBA, ACS,FICWAThekkemuriyil House,Ellimood, P.O. PerumpanachyKottayam 686536

M/21347Shri Dillip Kumar Mishra,MCOM, FICWAAt Fakirpur AnandapurFakirpur 758022

M/21483Shri Samir Kumar Swain,MCOM, LLB, FICWAGA-478, Sailashreevihar,Chandrasekharpur,Bhubaneswar 751021

M/21848Shri Saugata Mukherjee,BCOM(HONS), FCA,FICWABlock No. 25, Unit 0607,Rain Tree Park, MalaysianTownship, Kukatpally,Hyderabad 500072

M/21858Shri Sriram Viswanathan,BCOM, FICWAF1 Block-A, Sai NandhannFlats, No. 42, 1st Cross Street,Alwar Thirunagar,Chennai 600087

M/22133Shri T. N. Sivasubramanian,BCOM, FICWANew No. 26, Old No. 32/2,3rd Trust Cross Street,Mandavelipakkam,Chennai 600028

M/22193Shri K. Balasubramanian,BSC, FICWAAsst. General Manager -(F & A) Steel Authority ofIndia Ltd., Salem Steel Plant,Salem 636013

M/22379Shri Pradip Bhattacharya,MCOM, LLB, FICWAP. Bhattacharya & Associates60/9A Gouri Bare Lane,Kolkata 700004

M/22610Shri Girdhari Lal Soni,MCOM, FICWA19, State Bank Colony,Rajnandgaon 491441

M/22658Shri Satya Brata Dash,BSC, MFM, FICWAC-167, NALCO Township,Bhubaneswar 751061

M/22713Shri Santosh Kumar Ojha,BCOM(HONS), FICWAC/o. Prafulla Mishra,Sidharthanagar, Bank Colony,2nd Lane, Berhampur

M/23035Shri Prabir Kumar Bhaduri,BSC(HONS), MBM, FICWA9, Dr. P.N. Mukherjee Street(East), P.O. Chatra,Serampore 712204

M/23279Shri Vinay Gupta,BCOM, FICWALIG-423, Housing Board Colony,Padmanabhpur, Durg 491001

M/23346Shri Ajit Pratap Singh,BSC, LLB, FCS, CFA, FICWAA G M (Fin) & CompanySecretary JSW Bengal Steel Ltd.,Morena House, 11, CarmichaelRoad, Opp. MunicipalCommissioners Bungalow,Mumbai 400026

M/23440Shri Dakshina Murthy Chitti,MCOM,MBA,FICWAG-1, Door No. 30, Viswapadam,4th Cross, Pilliar Kovil Street,Perungudi,Chennai 600096

M/23522Shri Kaundinya Parag Krishna,BCOM, FICWA13, Temple-View, Cheddanangar,Chembur, Mumbai 400089

M/23745Shri Vinod Kumar Bhatt,MCOM, FICWAVinod Bhatt & Associates,47/1, Sector - B Vaishali Nagar,Annapurna Road Indore 452009



M/23806Ms. G. Amudha,MCOM, MBA, FICWA6/21, Anna Nagar,Subramaniyapuram,Tiruchirapalli 620020

M/23891Shri Bhaskar Das,BSC, FICWAB.D. & Associates, 8A,Santi Ghosh Street,Kolkata 700003

M/24111Shri Subrata Ghosh,BSC, FICWAS.G. & Associates, 8A,Santi Ghosh Street,Kolkata 700003

M/24155Shri Amit Prakash,MCOM, ACS, FICWAC-200, NTPC Township,Sector 33, Noida 201301

M/24164Shri Ragesh M.,BCOM, MBA, FICWAKoolothodi House,Perumudiyur-P.O.Via- Pattambi, PalakkadDistrict,Palakkad 679303

M/24190Shri Gautam Kumar Saha,BCOM(HONS), FCA,FICWADy. Manager (F & A)O N G C Ltd., Finance &Accounts Section Room No.97, Ground Floor, R OBuilding, MakarpuraRoad,Vadodara 390009

Admission To Associateshipon the basis of MOU withIMA, USADate Of Admission :14th September 2009

C/28046Mrs. Rukhsana Ismail Pawane,BCOM, CMA(USA), AICWAP5, Nad Rashid Villas, 8thStreet, Rashidiya, Dubai,U.A.E. 50177

C/28047Mr. Sohail Siddique,BA(ECON), CMA(USA),AICWASmith International Inc.,Al-Khobar 31952,Saudi Arabia 1940

C/28048Mr. Parag Bhagat,BCOM(HONS), ACA, CMA(USA), AICWAApt. 26, 450,Kimberly Dr., Waukesha,Wisconsin - 53188, U.S.A.

C/28049Mr. Sunil AppukuttanKuttiparambil,BCOM, CMA(USA), AICWAOlaya, P.O. 366103,Riyadh - 11393, Saudi Arabia

C/28050Mr. Sarkare Faisal Ahmed,BCOM, CMA(USA), AICWAP.O. Box 81457,Dubai, U.A.E.

C/28051Mr. Nirmal Kumar C. Kottieth,BA(ECON), CMA(USA),CFM, AICWAFinance Manager, AerogulfServices Co. LLC, P.O.Box 10566, Dubai, U.A.E.

Admission To AssociateshipDate Of Admission :1

st October 2009

M/28052Ms. R. Manjula Devi,BCOM, AICWA1/204, Avarappalayam Pirivu,P.O. Veerapandi,Tirupur 641605

M/28053Shri Paresh Vishalal Darji,BCOM, AICWA205, Vinay Tower Bldg.No. 2, Opp. Pleasant Park,Mira-Bhayandar Road,Mira Road,Thane 401107

M/28054Shri Sumedh C. Deshpande,BCOM, CFA, AICWA52, Ramsai SymphonyDwellings, Anand NagarColony, Khairatabad,Hyderabad 500004

M/28055Shri Pankaj Garg,BCOM, AICWA424, GuruAppartment, Plot No. 2,Sector-6, Dwarka,New Delhi 110075

M/28056Shri Dudala Venkata Ramana,BCOM, AICWAC/o. Transpaper (T) Ltd,. Plot159, Saza Road, Changombe,P.O. Box 45648, Daressalaam,Tanzania, East AfricaDar-Es-Salaam

M/28057Shri Jyoti Ranjan Ray,MCOM, LLB, AICWAC/o. B. S. Pattnaik Sikharpur(Uppersahi), Cuttack 753003

M/28058Shri Ram Shashikant Chavan,MCOM, AICWA"SHUBHANGAN" Plot No.2, Pascalwadi, Madh-Via-Versova, Mumbai 400061

M/28059Shri Ganesh Babu Jagtap,MCOM, AICWAIndira Nagar No. 1, S. V. Road,Vile Parle (West),Mumbai 400056

M/28060Shri Laxmish Hegde,MCOM, AICWA203,Millenium Park, A-Wing,Opp. Kajal Apartments,Dombivili (W)Mumbai 402122

M/28061Shri Rounak Dhirajlal Shah,BCOM, AICWA501, 2D Palm Spring, Palm CourtComplex, Malad Link Road,Mumbai 400064

M/28062Shri Sachin Balkrishna Shinde,BCOM, AICWA11/823, 2nd Floor, Tata PowerHouse, Borivali (E),Mumbai 400066

M/28063Ms Karuna Rajesh Sakharkar,BCOM, AICWA403, Vallabh Height, Next toVallabh Tower, Purnima TalkiesArea, Murbad Road,Kalyan (West) 421301

M/28064Shri Shah Manojkumar Shantilal,BE, AICWAB-301, Tirupati Apartments,Opp. MIG Flats, Karelibaug,Vadodara 390018

M/28065Shri Neeraj Somani,BCOM, AICWAFlat - FA-1,Tesa Maria Apartments,Church Road, PerungudiChennai 600096

M/28066Shri Hemal Hasmukhlal Vora,BE, AICWAC-709, Veena Sarang CHS. Ltd.,Near Anandibaikale College,Sai Baba Nagar Extn., Borivli(West),Mumbai 400092

M/28067Shri Amit Prasad,BCOM(HONS), AICWA5/11, Buro Shib Tala Main Road,P.O. Sahapur P.S. Behala,Kolkata 700038

M/28068Shri Bal Kishan Gupta,BSC, BCOM, AICWA357, Kucha Ghasi Ram,Chandni Chowk,Delhi 110006



M/28069Shri Dipak Barua,MCOM, AICWA31/B, Moore Avenue, P.O.Regent Park, Tollygunge,Kolkata 700040

M/28070Ms Sonali Makode,MCOM, AICWAD-4/8, Popular Nagar, Warje-Malwadi, Bangalore-MumbaiHighway, Pune 411058

M/28071Shri Biswaranjan Panda,BCOM(HONS), AICWAAdipitha, Kazibazar,Buxibazar, Cuttack 753001

M/28072Ms Jayalakshmi Sundharesan,BCOM, AICWA1215, (New No.10), 3rd Main,Dr. Ambedkar Layout,Kavalbyrasandra R TNagar,Bangalore 560032

M/28073Shri V. Krishna Gopal,BCOM, ICWAIP.O. Box 52194, Arabian AntiPiracy Allianie, SH. ZayedRoad, 401, City Tower II,Dubai, U A EDubai

M/28074Ms Purnima Gulyani,BCOM, MBA, AICWA66, Priyadarshini Vihar, NearNew Gupta Colony,Delhi 110009

M/28075Shri Surendra KumarAddepalli, MCOM, AICWA203, Ganesh Residency,Ganesh Nagar, BehindKakatiya Bank,ChintalHyderabad 500054

M/28076Shri P. Satish Babu,BBM, AICWAPlot No. 375, Netaji HousingColony, Near Radio Station,SAP Camp, P.O.Kurnool,Kurnool 518003

M/28077Shri Satish Kumar G.,BCOM, MBA, AICWA78/8, 1st Cross, 16th Main,HMT Layout, Mathikare,Bangalore 560054

M/28078Mrs. Nitendra Saxena,BCOM, AICWAB-401, Sansar ViharApartments, Plot No. 2,Sector-3. Dwarka,Delhi 110076

M/28079Shri Deepesh Das,BCOM(HONS), AICWAC.I.T. Buildings, Flat No. 2,Block-D, 15, Bechulal Road,Kolkata 700014

M/28080Miss Mugdha Ravindra Joshi,MCOM, AICWA1451, Sadashiv Peth,Kashinath Smruti Apts.,Pune 411030

M/28081Ms Kekane Meghana Keshav,MCOM, AICWA4, Parth Sadan, 89/90Lokmanya Colony, Kothrud,Pune 411029

M/28082Mrs Kinjal Maitrik Diwan,MCOM, AICWAA/5, Satellite Plaza RowHouse, Nr. Mansi Tower,Premchandnagar Road,Satellite, Ahmedabad 380015

M/28083Shri Parag P Shah,BCOM, AICWAD-9, Pragati Nagar, 51,Kallikuppam Road,Ambattur, Chennai 600053M/28084Shri Sanjeev Kumar Rastogi,BCOM, AICWA31/503, HP Nagar (East),Vasi Naka, Chembur,Mumbai 400074

M/28085Shri Biren Kumar Barik,MCOM, AICWAFlat No. 7, Girnar NiwasCo-op Society, Bijlee Nagar,Chinchwad,Pune 411033

M/28086Shri Anil Kumar Dosapati,BA, AICWAF. No. 204, Surya Towers,Nr. Venkateswara Temple,Sainagar, Balanagar,Hyderabad 500042

M/28087Miss Anupama Ramani,BCOM, AICWANo. 534, 2nd Main, 10thCross, MICO Layout,(N.S. Palya) Bangalore 560076

M/28088Shri Shaik Farook Musthafa,MBA, AICWAFlat No. 103, Teja SunshineApartments, 16 D Cross, 1stMain, Pai Layout, Old MadrasRoad, Nr. TIN FactoryBangalore 560016

M/28089Mrs Anita Kuntal Dave,MCOM, AICWA11, Bhavin Park Society,Nr. Vastrapur RailwayCrossing, Vejalpur,Ahmedabad 380051

M/28090Miss K. Valliammai,MSC, MPHIL, AICWA5/79, MSP Nagar, "SabariIllam", Dharapuram 638656

M/28091Shri Srinath Narayan,BCOM, AICWA427, 1st Floor, PadmanabhaNagar, 9th Main,Bangalore 560070

M/28092Shri Alokesh Roy,BSC, AICWAFlat - 3, Block - 10,Building - 3, Salmiya, Kuwait

M/28093Shri Sandeep Kumar,BCOM(HONS), AICWABhushan Power & Steel Ltd.,Flat No. 1A, NH-2, Delhi Road,Bangihatti, P.O. Mallickpara,Serampore 712203

M/28094Shri Harendra Pandey,BCOM(HONS), AICWAM-315, RNA Court, Opp.Phase-III, Behind PoonamComplex, Mira Road (E),Thane 401107

M/28095Shri Sanjay Pukhraj Jain,BCOM, ACA, AICWA202,Navkar Darshan, B-Wing, 3rdFloor, Alster Road, Near NaginaHotel, Byculla,Mumbai 400027

M/28096Shri Prashant SureshchandraSharma, BCOM, AICWAA Wing / 203, ManodayaBuilding, Dattapada Road,Borivali East, Mumbai 400066

M/28097Shri Prasanna Kumar Mishra,BSC, AICWAAt- Arakhapal, PO. Khurusia,VIA Marthapur DIST.DhenkanalKhurusia 759023

M/28098Shri Mishra Pramod KumarHarishankar,BCOM(HONS), AICWA7/B, Shyama Charan MukherjeeByelane, Hathikul,Konnagar 712235



M/28099Miss R. Vimala,MCOM, AICWANo. 29, Dr. Srinivasan StreetExtension, Tirupattur,Vellore 635601

M/28100Shri Rajeev Pushkarna,BCOM, AICWAFlat No. 551, Air Force &Naval Officers Enclave, PlotNo. 11, Sector-7,Dwarka New Delhi 110075

M/28101Ms Anila Elizabeth Mathews,MCOM, MPHIL, AICWANo. 7, VOC II Street,Collectorate Colony (East),Aminjikarai, Chennai 600029

M/28102Shri Pradipta Kumar Das,BSC, AICWA1031, Vijaya Heritage(Amarnath), Uliyan, Kadma,Jamshedpur 831009

M/28103Shri Dhulipalla VenkataRangarao,MCOM, AICWAC/o. L I C Sri Hari, A S NTemple Street, Venkatagiri,Dist- NelloreNellore 524132

M/28104Shri K. R. Rakesh,BCOM, AICWAKochuveedu,P.O. Kothamangalam,Dist- Ernakulam,Kothamangalam 686691

M/28105Shri Harjit Singh,BCOM(HONS), AICWAQtr. No. Villa-A3/42, DSBColony, NHPC Ltd., ChenabNagar, Kishtwar 182206

M/28106Shri T. Bhanu Pradeep,BA, MBA, AICWAC/o. K V Narayana Rao,D. No. 11-44-56, II Floor,Kummari Street,Vijayawada 520001

M/28107Shri Binoy R.K.,BCOM, AICWA"REVATHY", VivekanandaNagar, Balaramapuram,Trivandrum 695501

M/28108Shri Sunil Yadav, BCOM, AICWA341, Yadav Tyre Works, AutoMarket Hisar, Hissar 125001

M/28109Mrs Bindu Ravi Iyer,BCOM, AICWAB-701, Akruti-Vega, Sai Wadi,Andheri (East),Mumbai 400069

M/28110Shri Rasuri Sudhakar,BCOM, AICWAS/o. Pitchaiah, 3rd Mile,Navalok Garden,Nellore 524002

M/28111Shri Ramu Lingareddy,BSC, AICWAPidatha Polur (V & P)Muthukur (M.D.) NelloreDist Nellore 524346

M/28112Shri Srihari Pinamurty,BCOM, AICWAC/o. P. Srinivas Rao HanumanNagar, Bissam Cuttack,Rayagada 765019

M/28113Shri Deepak Chitrapu,MCOM, AICWA122, Ashok Nandavanam,Iyyapanthangal,Chennai 600077

M/28114Ms. Amitha Chandrashekar,MCOM, AICWA# (FACM)-408, 10th Block,2nd Cross, Central Township,HAL Colony, MarathahalliPost,Bangalore 560037

M/28115Shri Prashant Tripathi,BSC, MBL, LLB, AICWAHouse No. 61, Sector-7,Gurgaon 122001

M/28116Shri Sourabh Gupta,BCOM, AICWAC/o. Suniti Sarkar Plot No.465, Sahid Nagar,Bhubaneswar 751007

M/28117Shri Ajay Kumar Agarwal,BCOM(HONS), ACS,ACA, AICWAFlat No. 3B, 3rd Floor,"Heritage Srijan Tower", NearICICI Bank, 188 B,Manicktala Main Road,KankurgachiKolkata 700054

M/28118Shri Hemnath Soundarrajan,MFM, AICWA16, Ashton Court, VictoriaWay, Woking, Surrey, UnitedKingdom - GU216AL

M/28119Shri S. Vijay Anand,BSC, AICWA9/49, Arunagiri Nathar Street,T.M.P. Nagar, Padi,Chennai 600050

M/28120Shri Satish Sharma,BCOM, AICWAC-10, House No. 100,Yamuna Vihar,New Delhi 110053

M/28121Shri Shambhu Kumar Thakur,BSC, LLB, AICWAE-120, Delta - I, GreaterNoida, Noida 201308

M/28122Shri Sukhpreet Singh Bimbra,BCOM, AICWAH. No. T-235/11, Hill Marg,Baljeet Nagar, West Patel Nagar,New Delhi 110008

M/28123Shri Sachin Jain,BCOM(HONS), AICWAC/o. Shri Baba General Store,Near State Bank, Subji MandiKosikalan (Mathura)Karakulam 281403

M/28124Shri Naga Swathi S.,BCOM, AICWAC/o. K V Narayana Rao,D No.- 11-44-56, II Floor,Kummari Street,Vijayawada 520001

M/28125Mrs Neelima Sunkara,BCOM, AICWAD/o. S Papa Rao,D No.- 40-1/1-14H, Labbipet,Vijayawada 520010

M/28126Shri Bhushan Prasad,BCOM(HONS), AICWAE-17, Gali No. 12, Mandawali,Fazalpur, New Delhi 110092

M/28127Shri Pankaj Bhadula,BCOM, AICWAHouse No. 51, Sector-07, R.K.Puram, New Delhi 110022

M/28128Shri Mukesh Kumar Jha,MCOM, AICWAD-162, Karam Pura, ShivajiMarg, New Delhi 110015

M/28129Ms Annu Sharma,BCOM, AICWAV.P.O. Chulkana, House No. 682,Teh : Samalkha, Dist- PanipatPanipath 132101



M/28130Shri Sunil Kumar,MCOM, AICWAH. No. 394, Sector - 21 D,Faridabad 121001

M/28131Shri B.V.S.R.M.S.N. Murty,MCOM, AICWAH. No. 12-11-204, HanumanResidency, Brahmin Basti,Warasiguda,Secunderabad 500061

M/28132Shri N V D S A Phanindranath,MBA, AICWAFlat No. G1, VenkateswaraResidency, Plot No. 234,Chandragiri Colony, Safalguda,Secunderabad 500056

M/28133Shri G V S Sai Aravind,BCOM, MBA, AICWAD-1, Vasant Vihar Apartments,Behind Moghul Function HallMogalrajpuramVijayawada 520010

M/28134Shri Talapaneni Mahesh,MCOM, AICWA25-1-1330, Netaji Nagar,Nellore - 4, Nellore 524004

M/28135Shri Sunil Kumar Mohanta,BSC, AICWANo. 2, 4th Cross Street,Thangaraj Nagar, NewPerungallathur, WestTambaram,Chennai 600063

M/28136Shri A. Inbasagaran,MCOM, AICWANo. 52, First Floor, SecondCross Street, Anandha RengaPillai Nagar,Pondicherry 605013

M/28137Ms Revathi G.V.,BCOM, AICWA94, 5th Cross, 29th Main,BTM II Stage,Bangalore 560076

M/28138Shri U Jambukumar,BCOM, AICWAOld No. 15, New No. 2(1)Sundaram Nagar II StreetThirupathi Nagar 4th MainRoad KolathurChennai 600099

M/28139Shri Chintapalli Subba Rao,BSC, AICWAD. No. 9-7-56/1, Md. AliStreet Gandhi Nagar,Kakinada 533004

M/28140Shri Sourav Kumar Manna,BCOM(HONS), AICWAC/o. AL Faraa Gen. Cont. Co.LLC P.O. BOX - 15915AL-AIN, U A EAl Ain

M/28141Shri Prafulla Chandra Jha,BCOM, MBA, AICWA16A-408, HIG, Vasundhara,Ghaziabad 201012

M/28142Shri Yogendra Hamal,MCOM, AICWAShantinagar,Sector - 3/C-18/203 Mira Road(E), Thane 401107

M/28143Shri Ashish Kumar,BCOM(HONS),AICWABlock No. 12,Flat No. 210, Lodhi Colony,New Delhi 110003

M/28144Shri Malleswara Durga Prasad,MCOM, FCS, AICWA10-03-20, East Marredpally,Secunderabad 500026

M/28145Shri Alex John,AICWAPadinjattedahu House,Malamekkara, Adoor (P.O.)Dist. Pathanamthitta,Adoor 691523

M/28146Shri Rajendrakumar P Kaimal,AICWAFlat No. 1202, Sector-R-3,"C" Wing, Orchid Enclave,Nihars Amrit Shakti,Chandivali, Andheri(East),Mumbai 400072

M/28147Shri A Gnanasekaran,MCOM, AICWANew No. 3 (Old No. 1/2),Ganapathy Street, WestMambalam, Chennai 600033

M/28148Ms. B. Vijayalakshmi,BCOM, AICWANo. 57/1, C.G.N.G Street,Varadharajapuram, Ambattur,Chennai 600053

M/28149Shri M Chandra Sekhara Sastry,BCOM, AICWAFlat 3 G4, Bhargav Residency,Plot-18, 19, 20, Sai NarayanReddy Colony, NizampetVillage,Hyderabad 500072

M/28150Shri Venkata Naveen Lalam,BCOM, AICWA301, H. No. 20, ElectronBuilding, 8th Main, 1st Cross,Vinayakanagar,Bangalore 560017

M/28151Ms Shilpa Girish Peswani,MCOM, AICWA202, Jal Darshan CHS Ltd.,Gorai - 2, Plot No. 67, Borivali(West), Mumbai 400091

M/28152Shri Prasanna Kumar Sahu,BCOM(HONS), AICWAQrs. No. 1836, Type-IV, NehruNagar, Nr. Old Central School,Jail Road, Nashik Road,Nasik422101

M/28153Shri Avinash Shridhar Khare,BCOM, AICWAB-22, "Samruddhi", RajarshiShahu Society, Pune-Satara Road,Pune 411037

M/28154Shri Vijay RameshchandraMandaliya, MCOM, AICWAB/9, Takshashila Apartment,Opp. Jethabhai Park, NarayanNagar Road, Paldi,Ahmedabad 380007

M/28155Ms Rabeka Sinha,BSC, AICWAC/o. Dilip Kumar Dutta,58/107, R. K. Road, Chatra,Mannapara, Serampore,Dist- HooghlySerampore 712204

M/28156Shri Prakash Kumar Puhan,BCOM, AICWAC/o. Bhabani Shankar Pattnaik,At. Sikharpur, Upper Sahi, NearNew Mal Godown Road, P.O.College Square,Cuttack 753003

M/28157Shri Rajesh Kumar Das,BCOM(HONS), AICWAR - 210/6, Cotton Mill Lane,P.O. Badartala, Kolkata 700044

M/28158Shri Gyanaranjan Dalai,BCOM(HONS), AICWAS/o. Chandramani Dalai, Plot No.1014, Near Mangala Temple,Jharupara Village,Bhubaneswar 751006



M/28159Shri Amit Kumar Sanki,MCOM, AICWA44,Panchabati, PO-Natagarh,Dist-24 Parganas(N), SodepurKolkata 700113

M/28160Shri Harinder Kaur,MCOM, AICWA# B-II, 704/2, Satnam Nagar,Near New Grain Market,Jalandhar City 144008

M/28161Mrs M.S. Sudha,MCOM, AICWAFlat No. 3, PRR Homes, PlotNo. 1, Ganesh Nagar MainRoad, Adambakkam,Chennai 600088

M/28162Shri Prashant Balaji Narnaware,MCOM, AICWAH. No. 48/15, Ground Floor,1st Cross, Cambridge Layout,Halasuru, Bangalore 560008

M/28163Shri S. Krishna,BCOM, AICWANo. 25, New CorporationQuarters, Jakkarayanakere,Sheshadripuram,Bangalore 460030

M/28164Shri Sathish Borker S,MCOM, AICWAC/o. Triveni Silks Sarees,Prabhu Complex, Near BusStand, MoodbidriMoodbidri 574227

M/28165Shri Sidhartha Das,BCOM, MBA, AICWAPlot No. 220, Unit-3,Khanavela Nagar,Bhubaneswar 751001

M/28166Shri Vijay Bhagwanrao Shrotre,ME, AICWA`Mahur`, Plot No. 24,Sahkarnagar,Aurangabad 431005

M/28167Shri Satyajit Mohanty,MCOM, AICWAN H P C Ltd., Salt Lake,Sector-V, Block - DP, Plot No.3, Kolkata 700091

M/28168Shri A.R. Rajesh,BBM, AICWASampengi Nilayam, 235,Mayor Nagar, 10th Street,Peramanur East,Salem 636007

M/28169Shri Parag Somani,BCOM, AICWA"KRISHNA KUNJ", A-66, 80Feet Road, Maihesh Nagar,Tonk Phatak,Jaipur 302015

M/28170Mrs Padma Sopan Shinde,BCOM, FCA, MBA, AICWA7229, Hanover Parkway,Suite - D, Green Belt,Maryland - 20770Maryland

M/28171Shri Srinivasan Santhanam,BCOM, AICWANo. 1, Ist Floor, VI CrossExtn., Kumaran NagarLawspet, Pondicherry 605008

M/28172Shri Gostha Behari Jana,MCOM, AICWA"Priyam" Apartment, 58/1,Santoshpur Avenue, ( 3Avenue South ),Santoshpur,Kolkata 700075

M/28173Shri Ajaya Kumar Das,MCOM, AICWAC/o. Jatindra Singh, Thoriasahi,Mangalobag, Cuttack 753001

M/28174Shri G. Radhakrishnan,BA, ICWAI21/26, Shant Nagar III Street,F1, Rajus Ruby, Vysarpadi,Chennai 600039

M/28175Shri Navin Agarwal,BCOM(HONS), AICWA1A/1, Anantram MukherjeeLane, Ramkrishnopur,Howrah 711101

M/28176Shri M. Jayakumar,BCOM, AICWAF/20, New Daulat CHS.,Sector-16A, Vashi, NaviMumbai 400705

M/28177Shri Nilesh Jain,BCOM, LLB, ACS, AICWATCFC Finance Limited,501-502, Raheja Chambers,Free Press Journal Marg,Nariman Point,Mumbai 400021

M/28178Shri J.V. Niranjan,BSC, BL, AICWA18/5, Veera Bhadran Street,Nungambakkam,Chennai 600034

M/28179Shri Prakash YashvantlalRasania,MCOM, AICWA2, Sona Apartment, HeeraBaug, Ambawadi,Ahmedabad 380006

M/28180Shri George Eapen,BCOM, AICWAZamil Industrial, P.O. Box14441, Dammam, Kingdom ofSaudi Arabia, Pin No.31424Dammam

M/28181Shri Santosh Kumar Pandey, BA,AICWAH. No. 45-A, New FriendsColony, Behind Singla NursingHome, Model Town,Panipat, 132103

M/28182Shri V.P. Ramprasad,ACA, AICWANo. 5/5, Sri Chamundi Flats, 13thStreet, Thillai Ganga Nagar,Chennai 600061

M/28183Shri Vissapragada Veera VenkataNaga Chaitanya,BSC, AICWAS/o. P. V. Subbalakshmi,D.No. 9-52, Geddapeta,Jaggampeta 533435

M/28184Shri Manmath Kumar Das,BSC(HONS), MBA, AICWANo. 18, Sai Flat, 29th StreetExtn., T. G. Nagar, Nanganallur,Chennai 600018

M/28185Shri Shib Sankar Ghosh,BCOM(HONS), AICWA422, Olaichandi Tala, SaratSarani, PO+Dist- Hooghly,Hooghly 712103

M/28186Shri P. J. Joseph,BSC, AICWANo-475 B Block, Aecs LayoutKundalahalli, Bangalore 560037

M/28187Shri Jaydeep Phookan,BCOM, AICWAFlat No. C3,Luv Kush Apartments, ZooRoad, Senduri Ali,Guwahati 781024

M/28188Shri Sourabh Jain,BCOM, AICWAC/o. ParveenKumar Jain, 8/1129, Jain Bagh,Veer Nagar, Saharanpur 247001



M/28189Shri Subhendu Kumar Mishra,BCOM, AICWAUL. Raabego 2B,Lokal 80, 02-793,War s Zawa, Poland Warszawa

M/28190Shri Vedantam Leela Krishna,BCOM, ACA, AICWAH. No. 12-1-331/38.B,Dattatreya Colony,Hyderabad 500028

M/28191Ms Anitha Kandoor Aithal,BCOM, AICWAFlat No. 201, "RevankarTowers", 983, Ideal HomesCo-op. Housing Society,Rajarajeshwari Nagar,Bangalore 560098

M/28192Shri Sanjiv Kumar Prusty,BCOM(HONS), AICWAAt/PO. Balipal, Via-Kushaleswar, Dist- Keonjhar,Balipal 758025

M/28193Shri Ajith P.K.,AICWA`APARNA`, EMS Lane,Karthyayini Temple Road,Ayyanthole, Thrissur 680003

M/28194Shri Madhav Baliga,BCOM, AICWANo. 28, 6th Cross, AnjaneyaTemple Street,Yellagondapalayam,Bangalore 560047

M/28195Shri Ponnala Sasi Kumar,BCOM, AICWAC/o.K. Jagadeswara Rao, MunisufStreet, 5th Ward, Narsapur,W.G. Dist.,Narsapur 534275

M/28196Dr P.M. Deleep Kumar,MCOM, MPHIL, PHD.,AICWAKalindi, Near MEA School,Mangad Post, Kollam 691015

M/28197Shri Yatrik V Pandya,BCOM, AICWAR-203, Cosmos, MagarpattaCyber City, Hadapsar,Pune 411028M/28198Ms Shruti Kedia,BCOM(HONS), AICWA101, Hari Kripa Apartments,Meera Marg, Bani Park,Jaipur 302016

M/28199Shri Khirod Kumar Parida,BOCM, LLB, AICWA18-B, BDA Duplex Colony,AT/PO - Baramunda,Bhubaneswar

M/28200Shri Haridas K. Warrior,BCOM, AICWAFlat G1, Kumbha Lake ShoreApts.- 2, Lake View ResidencyLayout, Kodichikkanahalli IIM(B), P.O. Begur,Bangalore 560076

M/28201Shri Sudarshan Nahar,MA, AMIE, AICWA44, Chandra Nagar, GopalpuraBye Pass, Tonk Road,Jaipur 302018

M/28202Shri Narasimha Prasad GubbiRamachandra,BCOM, ACA, AICWAFlat 14, Rashid MeadhadBuilding, Near President HotelKarama, P.O. Box 120813,Dubai, United ArabEmirates,Dubai

M/28203Shri Rajiv Kumar,MCOM, AICWA16-656,Indira Nagar,Lucknow 226016

M/28204Mrs Anjani Nirav Dalal,MCOM, AICWAG-802, Kamla Vihar, MahavirNagar, Kandivali (W),Mumbai 400067

M/28205Shri Bhagwan Devraj Padhi,BCOM, AICWA43/1631, Sector-7, C G SColony, Antophill,Mumbai 400037

M/28206Shri Dipankar Bandyopadhyay,BCOM(HONS), AICWA41 (161/49) G.T. Road,Baidyabati, Dist- Hooghly,Baidyabati 712222

M/28207Shri Chandra Prakash Misra,MCOM, AICWA14, Block - S, Near Kunj ViharChauraha, Yashoda Nagar,Kanpur 208011

M/28208Mrs. Gauri Rahul Bhagwat,MCOM, AICWAPlot No. 52, " GajananBunglow ", Pavananagar,Chinchwadgaon, Pune 411033

M/28209Shri Kamesh Subramanian,BCOM, AICWAOld No. 11 New No. 21,Crescent Avenue, KeshavPerumal Puram,Chennai 600028

M/28210Shri Malyala Madhava Rao,BCOM, AICWAMC 10, Near Santha SCCL.,Kothagudem 507117

M/28211Shri Ankur Goyal,BCOM(HONS), AICWAAsha Ram Bhati, Basant Vihar,Near I.T.I., Palwal 121102

M/28212Shri Amlendu Kaushik,BCOM(HONS), AICWAC/o. Arun Kumar Kar 163, PurbaSinthee Bye Lane, Dum DumKolkata 700030

M/28213Miss Parmita Banerjee, MCOM,AICWA7E, Ballygunge Station Road,Kolkata 700019

M/28214Shri Subrata Mandal,BCOM(HONS), AICWAC/o. Arati Das 22/5, Verner Lane,Belgharia, Kolkata 700056

M/28215Shri Debanjan Ghosh,BCOM(HONS), AICWA76/B, Izzatulla Lane, Tollygunge,Kolkata 700033

M/28216Shri Santanu Chatterjee,BCOM(HONS), AICWA48/1, Laxmi Narayan Tala RoadFlat - 1C, P.O. B. Garden,Howrah 711103

M/28217Ms. Neha Agarwal,BCOM (HONS), AICWA530, Rabindra Sarani, Kolkata 700003

M/28218Ms. Nivedita Pal,BSC(HONS), AICWA41, Haridevpur New Road,P.O. Haridevpur,Kolkata 700082

M/28219Ms Soma Mukherjee,AICWA262/N, Jyotish Roy Road,Kolkata 700053



M/28220Ms A. Nisha,MCOM, AICWA10, Rose Garden I CrossStreet, Balaji Nagar,Irumbuliyur, EastTambaram,Chennai 600059

M/28221Shri Dipesh Kantilal Panchal,MCOM, AICWA146/1742, KarnavatiApartment, Part-II, ParasNagar, Sola Road, Ahmedabad380063M/28222Shri Suhas Gudihal,BE, AICWA3373, Clarine Way E, Dunedin,Florida - 34698-9439 UnitedStates of America,Florida

M/28223Shri Sanjay Kumar Kalra,LLB, AICWA15/11, Ashoka Road, ShipraSun City, Vaibhavkhand, IndiraPuram,Ghaziabad 201014

M/28224Shri Kalyan Mondal,BCOM(HONS), AICWAAshalata Apartment, 1stFloor, 76/D, South SintheeRoad, Kolkata 700030

M/28225Shri Sanjiv Kumar,AICWAAT/PO. Shekhpur,Via- Ramna, Dist-MuzaffarpurMuzaffarpur 842002

M/28226Shri Avinash Kumar,BCOM, AICWAE-102/1, Naraina Vihar,New Delhi 110028

M/28227Shri Desai Ravindra Vijay,BE, MBA, AICWASector - 24, K - F, RelianceGreens, Jamnagar,Jamnagar 361142

M/28228Shri Rakesh Pandey,BCOM(HONS), AICWAC/o. Narsingh Prajapati, NearShiv Mandir, Dipugarha,Hazaribagh,Hazaribagh 825301

M/28229Shri Pradeep Krishnarao Patil,BCOM, AICWAP.O. Box 10054, Sweihaah, ALAin, Abudhabi, U.A.E.,Al AinM/28230Shri Rakesh Kumar Dubey,BCOM(HONS), AICWAD-1313, I O C L., PanipatRefinery, P.O. Baholi,Panipath 132140

M/28231Shri Mohit Kumar Kakkar,BCOM, AICWAC/o. AL Faraa Group, P.O.Box15915, AL Ain, United ArabEmiratesAl Ain

M/28232Shri Patel Dhaval Kumar,MCOM, AICWA7, Gopigeet Society, NearJalaram Nagar, Gotri Road,Vadodara 390021

M/28233Mrs Kattula Padmini,MBA, AICWAFlat - G4, Plot No. 1/3A, 11thCross Street, VenkateshwaraNagar-II Main Road,Ramapuram, Porur,Chennai 600089

M/28234Shri Sukanta Kumar Sahu,BCOM(HONS), AICWA7A, Bentick Street, 4th Floor,Room No. 403, Kolkata 0

M/28235Shri Rajarshi Sen,BCOM, AICWAHouse No. 25, 3rd C Main,Rathan Singh Layout,Kavalbyrasandra, R. T.Nagar,Bangalore 560032

M/28236Shri Prashant Sudhakar Vaze,BCOM, AICWAManisha 79-B/3, PrabhatRoad, Pune 411004

M/28237Shri Santosh Kumar Barik,BCOM, AICWAC/o. Arun Parida,Radhakrushna Nagar, NearBalaji Mandir, BhawaniPatna,Kalahandi 766001

M/28238Shri Manoj Kumar Tripathy,BCOM, AICWAAt. Khatuapara, P.O.Gopinathpur, Via-Bhubaneswar, Dist-KhurdaBhubaneswar 751002

M/28239Shri Robert Fernandes,BCOM(HONS), AICWAApartment No. 322, SkylarkApartments, Sector-35, Plot-6,Dwarka,New Delhi 110075

M/28240Ms K. Bhargavi,FOUNDATIONFlat-"B", 3rd Floor, VikasPlaza, 37-C, Velachery-Tambaram Main Road,Velachery,Chennai 600042

M/28241Shri Hrusikes Panigrahi,BCOM, AICWAC/o. The India Cements Ltd.,Plot No. 40, Link Road, ShardaNagar, Banswara,Banswara 327001

M/28242Shri Subhankar Choudhury,BCOM(HONS), AICWA28/7, Mahendra BanerjeeRoad, Behala,Kolkata 700060

M/28243Shri M. Senthil Murugan, BBA,AICWAGeneral Insurance Officers Qrts.,Building No. 9, Flat No. 41,Bandra Reclamation, Bandra(W),Mumbai 400050

M/28244Shri Nilesh Ramesh Patil,BCOM, AICWA104, Tapovan - 1, Village Road,Opp. Nahur Rly. Station (W),Nahur (W),Mumbai 400078M/28245Shri Hari Veeramani Iyer,BCOM, AICWA103, Karama Gold Block,47C Street, Karama Dubai

M/28246Shri Amarendra Khuntia,BCOM, AICWAAt- Gaithipur, P.O. Narijanga,Via- Tirtol, Dist- Jagatsinghpur,Narijanga 754137

M/28247Mrs K Rama,MCOM, AICWANo. 12/1, Natesa Mudali Street,Sai Mandir Apartments,Venkatapuram, Ambattur,Chennai 600053

M/28248Shri Nitin Kumar,BCOM, AICWAE-377, Gali No.7, West Vinod Nagar,New Delhi 110092

M/28249Shri Shah Ehteshamul Hasan,MCOM. ICWAIBlock-4, Flat-302, Club TownApartments, Chandrashekharpur,Bhubaneswar 751024

M/28250Shri Shuvransu Ghosh,BCOM(HONS), AICWAFlat-5, Block-G, SudakshinaEstate-B, 96 Raja S.C. MullickRoad Kolkata 700047



M/28251Shri Subrata Mallik,MCOM, LLB, AICWAP.O.Santragachi, Ramrajatala,Sastitala, Kona Road, LandMark "Amitalaya", Howrah711104

M/28252Shri Sunanda Choudhury,BCOM, AICWA6 Sahid Nagar, Jadavpur, P.O.Haltu, Kolkata 700078M/28253Shri Shyama Prasad Acharya,BCOM, AICWAC/O. Haran Mondal, 13B,Kalibari Road, Santoshpur,Kolkata 700075

M/28254Shri Satish Ramabadran,BCOM, ACA, AICWAPark Side Apartments, 9-B/1,Venkatanarayana Road, T.Nagar, Chennai 600017

M/28255Shri L. Prakash Prabhakaran,BCOM, AICWAC-44, NFL Township,Vijaipur, Guna,M. P.Guna 473111

M/28256Shri Shirish Bagul,BCOM, CPA(AUS),CMA(AUS), AICWA14, Barina Road, Oak Park,VIC - 3046, Australia

M/28257Shri Mukesh Trehan,BCOM(HONS), ACS,AICWA2387, Sector-C, Pocket-II,Vasant Kunj,New Delhi 110070

M/28258Shri Sandeep Goswami,BCOM, AICWA1345 Sagewood Crescent,Oakville, Ontario, Canada,L6M 4A4Ontario

M/28259Shri Gireesh KumarDamodaran,BCOM, AICWAKCADEUTAG DRILLINGGMBH P O Box 17240, JebelAli Free Zone South, Dubai, UA E., 17240

M/28260Shri Sumit Kumar,BCOM, AICWAE B 62 Quilla Mohalla,Jalandhar 144001M/28261Shri Patel Jay Kanaiyalal,MCOM, AICWA"Shriji Nivas", B-85,Abhinandan Swamy Society,H B Kapadia School Road,Mem Nagar,Ahmedabad 380052

M/28262Shri Jojo James,MCOM, MBA, ACA,AICWAChennoth House,Varanadu-P.O., Cherthallai,Alappuzha-Dist,Alappuzha 688543

M/28263Shri RamakrishnanRamkumar, BSC,AICWA15745 Rothschild CTHaymarket,VA 20169 U S AVirginia

M/28264Shri Uma Shankar Yadav,MCOM, AICWAAt- Lane No. 15, IrrigationColoney, Bhawanipatna,Dist- KalahandiBhawanipatna 766001

M/28265Shri Shiba Shankar Ghosh,BCOM, AICWAC/o. N K Ghosh Plot No. 655,Behera Sahi, Nayapalli,Bhubaneswar 751012M/28266Mrs Kavita Kuchhal,BCOM, AICWAA-967/17,Indira Nagar,Lucknow 226016

M/28267Shri Sayed Sheful Hoda,BCOM(HONS), AICWARites Limited, Rites Bhawan,Plot No. 1, Sector-29,Gurgaon 122001

M/28268Shri D. Prakash,BCOM, AICWA3/157, Avvai Nagar (Thottam),Naickenpalayam Post,Coimbatore 641020

M/28269Shri Rabindra Nahak,BCOM(HONS), AICWAOrissa Hostel, 52/B,Beninandan Street,Bhowanipur, Kolkata 700025

M/28270Shri Vikrant Kumar,BCOM(HONS), AICWA1/D, Ram Narayan MotilalLane, Kolkata 700014

M/28271Ms Priyanka Gupta,BCOM(HONS), ACA,AICWA89, G T Road (South),Howrah 711101

M/28272Miss Sneha Kumari,BCOM(HONS), AICWAC/o. Deepak Medical Hall,Near Devisthan, Paliganj, Dist-PatnaPatna 801110

M/28273Shri Pawan Kumar,BCOM(HONS), AICWAC/o. Umesh Saw 2/40,Azadgarh, P.O. Regent Park,Kolkata 700040

M/28274Shri Bikram Singh,BCOM, AICWA11,Pran Nath Pandit Street,Kolkata 700025

M/28275Shri Sanjib Basak,BCOM(HONS), AICWABH 170, Vidyasagar Pally,Jorakhana, Krishnapur,Kolkata 700102

M/28276Shri Ravi Bindal, MCOM,AICWAKC5/1, Aswini Nagar,Classic Apartments, Baguihati,Kolkata 700059

M/28277Shri Mukund VasantraoDashputre, BCOM, AICWA103, Vrundavan Apartments,Parmanand Society, Ramannagar,Nr, Daxini Rly. Crossing,ManinagarAhmedabad 380008

M/28278Shri Patel Rinalben Amrutbhai,MCOM, AICWAB 27, New Navjyot Society,Opp. New Nikita Park Society,Memnagar, Ahmedabad 380052

M/28279Shri Vedha Moorthy Raghu,BCOM, ACA, AICWABuilding No. 8, Flat No. 11, EssaAL Qatami Street,Salmiya Kuwait

M/28280Shri N. Mugundhan, BA,AICWA19/6, Viswanatha Puram, 3rdStreet, Kodambakkam,Chennai 600024

M/28281Shri C. Mahesh Kumar,BCOM, AICWA44/28, Flat No.2B, Bageerathy Apartments,Alamelumangapuram,Mylapore,Chennai 600004

M/28282Shri Avijit Mondal,BCOM(HONS), AICWA44/2, Fakir Das Mondal Lane,Howrah 711101

M/28283Shri Pratap Keshori Mahapatra,MCOM, AICWAC/o. Umakanta Mishra ShantiKutir, Plot No. 20, JayadurgaNagar, Nr. Engineering SchoolPost Office,Berhampur 760010



M/28284Shri Binod Bihari Nayak,BCOM(HONS), AICWAC/o. N. Rama Krishna Rao,Gandhinagar 4th Lane, AT/PO.Berhampur Dist-GanjamBerhampur

M/28285Ms Sangita Pal,BCOM(HONS), AICWAChheda Complex, F-103,Station Road, Nallasopara(West), Thane 401203

M/28286Shri Maheswar KumarMahapatra,BCOM, AICWAAt- 1/108/3, Azadgarh, P.O.Regent Park, Kolkata 700040

M/28287Mrs Kiran Gupta,BCOM(HONS), AICWAA-17, IIIrd Floor, Pocket-OO,Sector-2, Avantika, Rohini,Opposite Community Centre(32 Sq mt.)New Delhi 110085

M/28288Shri Kartik Bharatkumar Radia,BCOM, ACA, CPA, CIA,AICWA301, Vivek Shital Nagar, AshokChakravarthy Cross Road-1,Kandivli (East),Mumbai 400101

Admission to Associateshipon the Basis of MOU withIMA, USADate of Admission : 30

th

October 2009

C/28289Mr. Binoy Mathew,BCOM, CMA(USA), AICWADirect Investment Dept. - 18thFloor, The Public Institutionfor Social Security, P.O. Box24324, Safat 13104,Kuwait

C/28290Dr. Raef Arthur Lawson,BS, MBA, PHD, CPA(USA),CMA(USA), CFA(USA),AICWAInstitute of ManagementAccountants, 10, ParagonDrive, Montvale,NJ 07645, U.S.A.

C/28291

Mr. Vilayanur Krishnan

Haridas, BCOM, ACS, CMA

(USA), CFM(USA), AICWA

Finance Manager - Arabic

Region, Pyrotek Bahrain SPC,

P.O. Box 26170, Manama,

Kingdom of Bahrain

C/28292

Dr. Manuel Fernandez,

MCOM, MPHIL, PHD,

CMA(USA), AICWA

Institute of Management

Technology, P.O. Box 345006,

International Academic City,

Dubai,U.A.E.

C/28293

Mr. Abdulaziz Mohd.

Faraj Al Mulla,

CMA(USA), AICWA

P.O. Box 16292,

Dubai, U.A.E.


C/28294Mr. Areekara Raghavan Dinesan,BCOM, CMA(USA), AICWAPico International (Bahrain)S.P.C., No. 1 Manama Center,Bldg. 66, Government Avenue,Manama Town 316, P.O. Box13990,Kingdom of Bahrain

C/28295Mr. PadmanabhanRamasubramanian,MCOM, CMA(USA), CIA,CISA, AICWAAsstt. Manager - Fleet Accounts,United Arab Shipping Co., 4thFloor, P.B. 3636, Safat -13037Kuwait

C/28296Mr. Thomas Chiramel Ouseph,MCOM, CMA(USA), AICWAFlat 21, Bldg. 663, Road 1123,Area 311, Salmaniya, Manama,P.O. Box 21635,Kingdom of Bahrain

HEARTY FELICIT ATIONS

Shri Sanjoy Bhattacherjee, member of our Institute (M-9706), B.Com, LLB has been

promoted as DGM (Finance) in Power Grid Corp of India Ltd. He was working as ChiefFinance Manager (CFM) as well as Head of Finance. He is Patron of Patna Chapter of Cost

Accountants. We wish him all the best in all his future endeavours.

PEOPLE AT THE HELM

Shri M. K. Mittal, Member of ICWAI has been appointed as Director (Finance) in HindustanOrganic Chemicals Limited, Mumbai by Government of India, Ministry of Chemicals &Fertilizers. Prior to this assignment, Shri Mittal was Zonal Manager (North Zone) in RuralElectrification Corporation Limited, Chandigarh. We wish Mr. Mittal the very best in all

his future endeavours.


WESTERN INDIA REGIONAL COST CONFERENCE 2010Dear Sir/ Madam,

We have the pleasure to inform you that the Western India Regional Cost Conference is being hosted by the AurangabadChapter of Cost Accountant of the 1C WAI on 11th Feb and 12th Feb 2010 in the Historical City of Aurangabad in Marathwada.

The theme is "Challenges of Change - IFRS, GST & Direct Tax Code"

The Institute of Cost and Works Accountant of India (ICWAI) has been set up under an Act of Parliament. Since 65 years,ICWAI is the apex and only statutory body in India engaged mainly in promoting and developing cost and managementaccounting profession. With a mission of producing world class Management Accountants, to take up the cost leadershipchallenge in the emerging economy.

The Institute operates with more than 180,000 students and 40,000 overall members spread all over the country and abroad.The institute operates through its four regional councils, 104 chapters including 6 overseas centers.

Aurangabad chapter of cost accountants has come a long way in the last 20 years. It started with 2 students in 1989. Thesmall dream of the fastest growing Asian city then has now resulted in student strength of 800 per year. The success of thischapter has grown further with addition of more than 60 cost accountants in the last two years.

With the signs of the recovery in global economy and stable political situation in the country makes a cohesive situation totake up the pending reforms. The Union government in its agenda has already announced series of Accounting and TaxReforms. The theme of the two days regional cost conference is appropriately chosen based on current topics of importancelike I FRS, GST , Valuation and Cost Management.

I FRS is a common base that should lead to create greater transparency, comprehensibility, usefulness for users andcomparability on a global scale. With business turning global, it is important that investors are able to compare companiesunder similar standards. Likewise, it is important for businesses operating in multiple countries to be able to create financialstatements that are understandable in all of the countries they operate in.

Goods and Services Tax, the second biggest tax reform of the country is under wide discussions and debate. The success ofVAT implemented by the States has led to the next major step of the reform to look for the unified tax system of indirect taxes.World wide our country depicts a true picture of "Unity in Diversity", the same is expected through this tax reform.

“CHANGE AND PAIN ARE SYNONYMOUS&

SUCCESS DEMANDS WE DEAL WITH BOTH”Our effort through this seminar is to make each stakeholder of this reform to know the correct implications of the same. It shallhelp to understand better and to overcome the CHALLENGES of CHANGE under IFRS and GST.

Eminent resource persons from renowned institutes, business schools, industry, service sector, and government departmentwill present their views on the technical sessions. We are confident that the deliberations in the Technical sessions will beof very high quality which will enrich the delegates and will also facilitate the industry, Business Houses, Practitioners, andStudents to enhance and sustain competencies under changing reforms.

This convention will benefit the CEOs, CFOs, Managers, Management Accountants, Professionals and Management teammembers of all enterprises. This will also benefit to the students of the professional courses in the field of Accounting,Taxation, and Management.

Your kind support is solicited for the following:

Providing entries for delegatesAdvertisements in the Conference SouvenirSponsoring the events of the Conference

THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA(Set up under an Act of Parliament in the year1944-founder member of IFAC, CAPA & SAFA)


While appreciating your continued support to this profession, we expect all co-operation and guidance from you for makingthis conference a great success.

Aurangabad chapter is looking forward to host you in the wonderful tourist city of Aurangabad. Wishing you a very happyand prosperous New Year 2010!!!With Warm Regards

Sanjay Mundade A R Joshi M R Pandit R P Gore R G ModaniChairman Chairman Chairman Chairman ChairmanACCA Training & Professional Executive Advisory

Education Development Committee Committee9970160229 9325228194 9370115382 9860221012 9823199492

Contact us at : Aurangabad Chapter of Cost Accountants, Ph no 0240-235 1848, Telefax 0240-232 1828, Mobile 094231 47312(Shirish) Email : [email protected], [email protected], [email protected]

Western India Regional Cost Conference 2010Challenges of Change – IFRS, GST and Direct Tax CodeDay 1 : 11th February 2010, Thursday

9.00-9.30 Registration9.30-10.00 Interaction of delegates with members10.00-11.00 Inaugural Session11.00-11.30 Tea Break11.30-13.00 Technical Session 1 IFRS13.00-14.00 Lunch Break14.00-15.00 Challenges of Change: Industry

perspective15.00-15.15 Tea Break15.15-17.45 Valuation management and Risk

Management17.45 onwards President address to WIRC Chapters

Meet, Cultural evening

Western India Regional Cost Conference 2010Challenges of Change – IFRS, GST and Direct Tax CodeDay 2 : 12th February 2010, Friday

10.00-11.00 Inaugural Speech11.00-11.30 Interaction with Guests by Members,

Delegates (Tea Break)11.30-13.00 Technical Session 1 Goods and Services Tax13.00-14.00 Lunch Break14.00-15.30 New Direct Tax Code15.30-15.45 Tea Break15.45-16.45 Valedictory: Challenges of Change–

How to Steer?Remarks from ICWAI – President andKey members, CCMs

16.45 onwards Vote of thanks and National Anthem

Western India Regional CostConference 2010

Challenges of Change-IFRS, GST, and Direct Tax Code

Dates : 11th & 12th February 2010Venue : Tapadiya Natya Mandir

Nirala Bazar, AurangabadMaharashtra, India

Western India Regional Cost Conference 2010Challenges of Change – IFRS, GST and Direct Tax Code

CATEGORY FEES

COMPANY DELEGATE 3000/-

PRACTISING MEMBER 2500/-

STUDENT FINAL CWA 1500/-

Fees includes Souvenir, Technical Literature, Lunch and highteas for both the days

Our travel help desk shall provide assistance for outstationdelegates to suitable accomodation at Aurangabad and tosight seeing tours at reasonable costs.

Hosted byAurangabad Chapter of Cost Accountants

(Efforts of last 20 years)


Ministry of Finance, Government of IndiaCircular No. 31/2009-Cus

F.No.: DGEP/G&J/490/2006Govt. of India

Ministry of FinanceDepartment of Revenue

Central Board of Excise & CustomsDirectorate General of Export Promotion

New Delhi, the 24th November, 2009

Sub: Setting up Private/Public bonded warehouse for diamonds and gemstones for import and re-export therefrom-reg.

Attention is invited to erstwhile scheme for setting up private/public bonded warehouse in SEZ/DTA for import and re-exports of cut & polished diamonds, cut & polished colored gems stones, uncut & unset precious & semi precious gemstones,subject to achievement of minimum value addition of 5% under paragraph 4A.18 of the Foreign Trade Policy 2004-09. Thisscheme has now been deleted from the Foreign Trade Policy 2009-14 announced on 27.08.2009 by DGFT.2. The erstwhile scheme (para 4A.18 of FTP 2004-09) was in operation vide Board's circular No. 28/98-Cus dated 24.04.1998and clarification issued vide circular No. 47/99-Cus dated 27.07.1999.3. In view of withdrawal of the scheme for setting up private/public bonded warehouse for diamonds and gemstones fromForeign Trade Policy 2009-14, no new private/public bonded warehouse license can be allowed for bonding of diamonds andgemstones for import and export thereform. Further, such a facility can also not be allowed for non-dutiable goods in term ofsection 57 of the Customs Act, 1962.4. Accordingly, the circular No. 28/98-Cus dated 24.04.1998 stands withdrawn to the above extent.5. As a transitory arrangement for the existing warehouses to surrender the bonding license, a period of three months isgranted from the date of issue of this circular. For this three months period, diamonds and gemstones may be deemed asdutiable goods for the purpose of regulatory control and the procedure of ex-bonding of dutiable goods shall be followed.However, bonding of these goods shall not be allowed in the existing warehouses.6. Wide publicity may please be given to these instructions by way of issuance of Public/Trade Notice. Suitable Standingorders/instruction may be issued for guidance of the field officers. Difficulties, if any, in implementation of these instructions,may be brought to the notice of the Directorate General of Export Promotion.7. This issues with the approval of Central Board of Excise & Customs.8. Receipt of this circular may kindly be acknowledged.

Yours faithfully(Praveen Mahajan)

Director

Circular No. 32/2009-Cus.F.NO.605/61/2007-DBKGovernment of IndiaMinistry of Finance

Department of RevenueNew Delhi, the 25th November 2009.

Sub: Revised norms for execution of Bank Guarantee under specified Export Promotion Schemes - Modifications inCircular No.17/09-Cus dt.25.05.09 - reg.

I am directed to invite your attention to Circular No.17/2009-Cus. dated 25.05.2009 (herein after referred to as 'the saidcircular') vide which revised norms for execution of Bond / Bank Guarantee (BG) in respect of imports made under theAdvance Authorization / Export Promotion Capital Goods/Duty Free Import Authorization Schemes were notified and to saythat, representations have been received to clarify, whether the status holders other than 'Star Export House' are entitled for'nil' BG in terms of sl.No.(c) of the Table appended to para 2.1 of the said circular.2. The issue has been examined by the Board. The circular no 17/09-Cus. had amende circular No.58/2004-Cus which wasissued in the light of the provisions of the 2004-05 edition of the Foreign Trade Policy (FTP).The FTP-2004 recognized fivecategories of Status Holders viz. One star /two star / three star /four star and five star Export Houses. The circular No. 58/2004-Cus extended the benefit of 'nil' BG to all the five categories through a common phrase 'Star Export House' under sl.No.

Legal Updates


(c) of the Table. The intention of the circular no 58/2004-Cus was therefore to extend the benefit of 'nil' BGto all the statusholders.The sl no. (c) of the table remained unchanged in circular No. 17/09-Cus.3. As the above categories are now known as Export House, Star Export House, Trading House, Star Trading House andPremier Trading House respectively in terms of para 3.10.2 of the current FTP, the benefit of 'nil' BG should also be extendedto all categories of status holders.The words 'Star Export House' appearing under sl. No. (c) of the Table may therefore beread to mean 'Status Holders recognized under the provisions of the Foreign Trade Policy'4. These instructions may be brought to the notice of the trade / exporters by issuing suitable Trade / Public Notices.Suitable Standing orders/instructions may be issued for the guidance of the assessing officers. Difficulties faced, if any, inimplementation of the Circular may please be brought to the notice of the Board at an early date.Receipt of this Circular may kindly be acknowledged.

Yours faithfully,(P.V.K. Rajasekhar)

OSD (Drawback)

CIRCULAR NO.33/2009-CUSTOMSF.No.609/67/2009-DBKGovernment of india

MINISTRY OF FINANCEDEPARTMENT OF REVENUE

CENTRAL BOARD OF EXCISE & CUSTOMSNew Delhi, the 27th of November, 2009

ToAll Chief Commissioners of CustomsAll Chief Commissioners of Customs & Central Excise/Central ExciseAll Director Generals under CBEC/ DG, CEIB/ CDR, CESTATAll Commissioners of Customs, Customs (Preventive)All Commissioners of Customs & Central Excise/Central Excise

Sir/Madam,

Subject: Introduction of new entries in the Drawback Schedule and clarification on certain issues-reg.

The Ministry has issued notification No. 175/2009 Customs (NT) dated 27th November, 2009 introducing the following newentries in the present Drawback Schedule:-a) Gold and silver jewellery (711301 & 711302);b) Rounder's bat, wooden (sports goods) (95069963);c) Bells, gongs, statuettes, ornaments, picture frames etc of Aluminium and Iron & steel (830603 & 830604);d) Leather Safety Footwear with protective metal toe (640311);e) Jars, perfume bottles, candle plate/ coasters, votive, lotion bottle/soap dish, ornamental spheres/ stars/ bells made ofglass (70139991);f) Lanterns/ lamps predominantly of glass (940506).2. The notification is available at CBEC website www.cbec.gov.in and may please be perused for details. The drawback ratesand caps on other items remain unchanged. Thus, the drawback schedule which was announced vide notification NO. 103/2008-Cus (NT) dated 29th August, 2008 as amended shall continue to be in operation until a revised schedule is notified.3. The drawback ates provided for gold & silver jewellery will only be applicable for exports made through the ports /custom houses as specified in para 4A.12 of the Hand Book of Procedures (vol.1), 2004-2009 after examination by thejewellery expert appraisers/superintendents to ascertain the quality of gold/silver and the quantum of gold/silver in theexported items. It may be noted that the drawback rate provided for gold & silver jewellery is a specific rate in terms of rupeesper unit weight of net content of gold/silver in the jewellery. The drawback rates for gold & silver jewellery are equal to theprevalent import duty on gold/silver.4. The drawback rates provided for gold & silver jewellery and parts thereof shall not be applicable to goods manufacturedor exported in discharge of export obligation against any scheme of the relevant Export and Import Policy or the ForeignTrade Policy of the Government of India which provides for duty free import/replenishment/procurement from local sourcesof gold/silver.

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5. It is requested that the export of gold and silver jewellery and parts thereof, which are high value items and for which adrawback entry is being introduced for the first time, may be closely monitored. A monthly report indicating the quantum ofsuch exports and drawback availed may be sent to the board for the next six months beginning December 2009 and upto May2010.6. The drawback rates provided for bells, gongs, statuettes, ornaments, picture frames etc of Aluminium and Iron & steel;Jars, perfume bottles, candle plate/ coasters, votive, lotion bottle/soap dish, ornamental spheres/ stars/ bells made of glass;and Lanterns/ lamps made predominantly of glass are the same as the drawback rates presently applicable to artware/handicraft items made of the respective constituent material. The new entries have been created with a view to minimisedisputes in classification of artware/handicraft items.7. It may be seen that lamps made of brass, copper, iron and aluminium are already covered under tariff items 940502, 940503,940504 & 940505 respectively of the drawback schedule. These tariff items may also be taken to include lanterns made of therespective constituent material and the criteria of predominance of constituent material which has been incorporated in thetariff item 940506 (Lanterns/ lamps made predominantly of glass) may be adopted for classification of items in these tariffitems also.8. Representations have been received from FIEO, the Indian Silk Export Promotion Council and others that embroideredsilk fabric should be extended the same drawback rate as plain silk fabric. Silk fabric with embroidery is being classified underheading 5810 of the drawback schedule at some ports. The drawback rate applicable on embroidery under heading 5810 ofthe drawback schedule is at 5.7% with cap of Rs. 25.2/kg. On the other hand, the drawback rate for silk fabric falling underheading 500701 of the drawback schedule is 9.8% with cap of Rs. 295/kg. The issue has been examined by the Board. Thedrawback rates for heading 5007 were based on the understanding that silk fabrics, whether plain or embroidered, would beclassified under this heading. It is therefore clarified that till a new drawback schedule is notified, silk fabrics with/withoutembroidery may be extended the same rate as prescribed against the applicable sub headings under heading 5007 of thedrawback schedule. Past cases, if any, pending on this score may be settled accordingly.9. A suitable Public Notice and Standing Order may be issued for the guidance of the trade and staff.Difficulties faced, ifany, in implementation of the Circular may be brought to the notice of the Board at an early date.

Receipt of the Circular may kindly be acknowledged.Yours faithfully,

(PRAMOD KUMAR)TECHNICAL OFFICER (DBK)

F. No. 401 /148/2008-Cus-IIIGovernment of IndiaMinistry of Finance

Department of RevenueCentral Board of Excise & Customs

New Delhi dated the 3rd December, 2009All Commissioners of Customs / Customs (Prev.).All Commissioners of Customs & Central Excise.

Subject: Implementation of the decisions taken by MoEF in respect of Hazardous Waste (Management, Handling andTransboundary) Rules, 2008.Sir/Madam,

Please refer to the Board's instructions of even number dated 24.8.2009 and 15.10.2009 and the Notifications No. S.O. 2447 (E)dated 23rd September, 2009 and S.O. (E) 1799 dated 21st July, 2009 issued by the Ministry of Environment and Forests(MoEF) on the above mentioned subject.2. In this regard, it is stated that the Ministry of Environment and Forests (MoEF) held a meeting on 17.11.2009 with theState Pollution Control Boards (SPCBs), Central Pollution Control Board and CBEC to ascertain the status of registrationprocess taken up by the SPCBs concerned and the difficulties faced by the trade in complying with the provisions of theaforesaid Rules.3. After deliberations, the MoEF has clarified vide its 0.M.F.No.22-27/2006-HSMD dated 24.11.2009 on the following points:(i) The SPCBs will register the traders at the earliest as per Form - I of the Hazardous Waste (Management, Handling andTransboundary) Rules, 2008. The Form - I, is the form for obtaining authorisation for collection / reception / treatment /storage / disposal of hazardous waste. Hence, certain columns of the forms such as SI.No.4 to 7 in Part A, SI.No.8(a) to 8(c)

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and 9 in Part B, and SI.No.1 0 in Part C, are not applicable for the importers who are not actual users in respect of ** (doubleasterisk) category of waste listed in Schedule III of Part B to the aforesaid Rules. However, the importers should intimate theImport Export Code (IEC) No. to the SPCBs. Further, it has been clarified that the traders need to register for import on behalfof actual users with only one SPCB.(ii) The time given for traders to get themselves registered with SPCBs has been extended by MoEF for another two monthsi.e. from 30.11.2009 to 31.1.2010. In the meantime, imported shipments of ** (double asterisk) category of waste listed inSchedule III of Part B would, be cleared by Customs authorities subject to all other conditions being met i.e. they mustaccompany by Movement Document in Form 9 and Pre-shipment Inspection Certificate and random inspections by Customsauthorities.(iii) The MoEF has explained that prior to the issue of Notification dated 21.7.2009, import of metal scrap was being allowedwithout any restriction (i.e. there was no distinction between actual user and trader). The difficulty experienced as a result of21.7.2009 notification has been addressed by the subsequent amendment Notification dated 23.9.2009. The purport of theRules is to ensure that metal scrap which is otherwise allowed to be imported without MoEF permission and DGFT licenceis not mixed with other illegal waste.

Therefore, MoEF had clarified that the Customs authorities shall be instructed to clear the consignments imported bytraders during the interim period from 21.7.2009 to 23.9.2009 subject to the fulfilment of other essential conditions namelyForm 9 (Movement Document), Pre-shipment Inspection certificate and random inspection by Customs authorities to ensurethat the consignment contain only permitted metal scrap as per declaration.4. In view of the above, Board hereby instructs that the above clarifications communicated by MoEF may be implementedby all the Customs field formations. The designated nodal officers in each of the Commissionerates may be requested toliaise with the respective State Pollution Control Board for effective implementation of the above clarifications / decisions ofthe MoEF.

Yours sincerely,(Navraj Goyal)

Under Secretary (Customs Policy)Tel. 2309 4182

Circular No 906/26/2009-CXF.No. 208/1/2005-CX 6Government of IndiaMinistry of Finance

Department of RevenueCentral Board of Excise & Customs

New Delhi, dated 3rd December, 2009To,All Chief Commissioners of Customs and Central Excise (including LTU),All Director Generals,All Commissioners of Customs and Central Excise (including LTU)Madam/Sir,

Subject : - Circular No. 824/1/2006-CX-Clarification regarding prospective implementation of orders - regarding.Attention is invited to Board's Circular No. 824 /1 /2006-CX dated 16th January, 2006 on the aforesaid subject. It has been

reported that some of the Commissionerates have taken a view that once an order has been passed on issues like classification/valuation etc., in that case, all subsequent removals must follow the said order even though appeal of the assessee againstthe said order is pending. It has further been reported that in case of removal without conforming to the said order, the goodshave been seized on the ground that these have been cleared in violation of the order passed by the Adjudicating Authority.2. The issue has been examined. It is clarified that the said circular nowhere provided for seizure of goods, which are clearednot in conformity with the adjudication order when the appeal against the said order is pending. Therefore, in such casesprotective show cause notices should be issued to safeguard the revenue, and seizure of goods only for the aforesaid reasonshould not be effected.3. Trade & Industry as well as field formations may be suitably informed.4. Receipt of this circular may kindly be acknowledged.5. Hindi version will follow.

(Madan Mohan)Under Secretary to the Government of India

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Circular No. 907/27/2009-CXF.No.267/141/2009-CX8

Government of IndiaMinistry of Finance

Department of Revenue(Central Board of Excise & Customs)

New Delhi, dated the 7th December, 2009.All Chief Commissioners of Central Excise (including LTU),All Commissioners of Central Excise (including LTU),All Director Generals.Sir/ Madam,Subject: Clarification on issues related to reversal of cenvat credit on WIP/ finished goods written off in the books ofaccounts -reg.

References have been received from field formations stating that as per Rule 3(5B) of CENVAT Credit Rules, 2004, if thevalue of inputs is fully written off, then the manufacture is required to pay an amount equal to cenvat credit taken. However,there is no provision to demand reversal of credit taken on inputs which have gone into manufacture of work in progress(WIP), semi finished goods and finished goods which have also been written off fully in the books of accounts.2. The matter has been examined. Rule 3(5B) of the CENVAT Credit Rules, 2004, provides that if the value of any input onwhich cenvat credit has been taken is written off fully in the books of accounts, then the manufacturer is required to reversethe credit taken on the said input. As far as finished goods in concerned, it is stated that excise duty is chargeable on theactivity of manufacture or production. Even though liability for payment of tax has been postponed to the time of removal ofgoods for the factory, but still the legal liability to pay the excise duty has been fastened on the goods, when it has beenmanufactured or produced. Therefore, normally all goods manufactured suffer excise duty at the time of removal, but if themanufactured goods are destroyed due to natural causes etc., Rule 21 of Central Excise Rules, 2002, provides for remissionof duty. Further, Rule 3(5C) of CENVAT Credit Rules, 2004, also requires reversal of credit on the inputs when the duty isordered to be remitted under the said Rule 21. Therefore, if the goods have been manufactured, in that case, a manufactureris liable to pay excise duty unless duty is remitted under Rule 21. Therefore, if the value of finished goods is written off, themanufacturer would be liable to pay excise duty or he would be required to reverse the credit on the inputs used, if duty hasbeen remitted on finished goods.3. As regard writing off work in progress (WIP), it is stated that if the WIP has reached the stage, when it can be consideredas manufactured goods, in that case, the same treatment as applicable to finished goods, discussed in para2 above wouldapply. However, if the activity carried out on the WIP goods cannot be considered as amounting to manufacture, in that case,the said goods should be considered as input and the treatment for reversal of credit applicable to input would be applicable.4. Trade & Industry as well as field formations may be suitably informed.5. Receipt of this circular may kindly be acknowledged.6. Hindi version will follow.

Yours faithfully,(Amish Kumar Gupta)

OSD (CX-8)

Circular No. 909/29/09-CXF.No. 6/4/2009-DS (CX.1 & 4)


Department of RevenueCentral Board of Excise and Custom

New Delhi, the 11 December 2009Director General (All)Chief Commissioners of Central Excise including LTU (All)Commissioners of Central Excise (All)Sir/Madam,Subject: Inclusion of After Sale Service and Pre-delivery Inspection Charges in the assessable value.

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Please refer to the Minutes of the Conference of Chief Commissioners at Shillong on 30th and 31st October 2009 withregard to the issue mentioned above at point No 2.9.2. On this issue, the Board has vide point No 7 in circular No. 643/34/2002-CX dated 1-7-2002 clarified as follows:

3. The tribunal in the case of Maruti Udyog Limited [2004 (170) E.L.T. 245 (Tri. - Del.)] held that these charges are notincludible in the assessable value as these do not accrue to the manufacturer. But recently, the Tribunal has in the case ofMaruti Udyog Ltd, [2009 (238) ELT 186 (T-Del)] doubted the correctness of its earlier decision referred to above, and referredthe following question for consideration by a Larger Bench.

"Whether the charges towards pre-delivery inspection and after-sale-services received by dealers from buyers of thecars are to be included in the assessable value of cars in the light of the definition of 'transaction value' given in Section4(3)(d) of the Central Excise Act."4. Further, the Supreme Court has in the case of Grasim Industries (C.A. No.3159/2004), referred the question as to whetherthe concept of transaction value under new Section 4 has made any material departure from deemed normal price concept oferstwhile Section 4(1)(a) of the Act for consideration of the Larger Bench.5. In view of the above decisions referring the matter to larger bench, the conference was of the view that in this matter showcause notices should be issued demanding duty on the value of these activities, and transferred to Call Book pending thedecision of Larger Bench on the issue.6. The view expressed in the Chief Commissioners Conference has been accepted by the Board and accordingly you maydirect the officers in your jurisdiction to continue issuing show cause notice and transfer them to call book, pending thedecision of larger bench on the issue.7. Receipt of this circular may be acknowledged8. Hindi version would follow.

Yours faithfullyMadan Mohan

Under Secretary (CX.1)F.No. 6/44/2000-CX1

Circular No. 910/30/2009 - CXF No 6/3/2009-DS (CX 1 & 4)


Department of RevenueCentral Board of Central Excise &Customs

New Delhi, the 16 December 2009ToAll the Chief Commissioners of Custom and Central ExciseDirector General (CEI), Director General (Audit), Director General (Inspection)SirSubject : Clarification regarding labelling and repacking etc. amounting to manufacture.

It has been brought to the notice of Board that certain dealers are receiving liquid chemicals in bulk in containers andoffloading the same at the dealers' premises or godown into drums of 200ltrs for subsequent marketing of these materials tocustomers. Doubts have been raised as to whether such activity would amount to manufacture in terms of Chapter Note 10to Chapter 29. As the said Chapter Note has been amended in 2008 budget, it has been contested that the said activity iscovered by the present wordings of the Chapter note. The relevant portions of the chapter note reads as under:Before Amendment (1.03.2008)10. In relation to products of this Chapter, labelling or relabelling of containers and repacking from bulk packs to retail packsor the adoption of any other treatment to render the product marketable to the consumer, shall amount to 'manufacture'.After amendment (1.03.2008)

What about the cost of after salesservice charges and pre deliveryinspection (PDI) charges, incurredby the dealer during the warrantyperiod?

Since these services are provided free by the dealer on behalf of the assessee,the cost towards this is included in the dealer's margin (or reimbursed to him).This is one of the considerations for sale of the goods (motor vehicles, consumeritems etc.) to the dealer and will therefore be governed by Rule 6 of the ValuationRules on the same grounds as indicated in respect of Advertisement and Publicitycharges. That is, in such cases the after sales service charges and PDI chargeswill be included in the assessable value.

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10. In relation to products of this Chapter, labelling or relabelling of containers or repacking from bulk packs to retail packsor the adoption of any other treatment to render the product marketable to the consumer, shall amount to 'manufacture'.2. Whether an operation amounts to repacking from bulk packs to retail packs or not, is a question to be decided on facts.However before examining the implication of the substitution of word 'and' by 'or', it is necessary to examine whether theactivity itself is covered by term repacking from bulk packs to retail packs. Hence the first issue which needs to be decidedis whether the "container/ lorry tanker" can be considered as bulk pack.3. Tribunal has in the case of Ammonia Supply Co. [2001 (131) ELT 626 (T)], held that "As per Note quoted above, labellingor re-labelling of the container should take place at a time when the goods are packed from bulk packs to retail packs. Theassessee was not getting Ammonia in bulk packs. They were getting it in tankers. Ammonia gas brought in tankers can neverbe termed as brought in bulk packs. So the assessee was not repacking the goods from bulk packs to retail packs. Accordinglythe activity undertaken by the assessee in filling the smaller container from bulk container namely tankers can never fallwithin the fiction of manufacture as envisaged by Note 10 quoted above."4. Therefore the tankers cannot be termed as bulk packs and therefore the activity of transferring the goods from tankersinto smaller drums cannot be said to be covered by the said chapter note 10.5. Pending cases may be disposed of accordingly.6. Hindi version will follow.

Yours faithfullyMadan Mohan

Under Secretary (CX 1)

F.No.267144/2009-CX 8Government of IndiaMinistry of Finance

Department of RevenueCentral Board of Excise and Customs

New Delhi dated 25.11.2009To,The Chief Commissioner of Central Excise,Bangalore Zone,Madam,Subject:- Credit of duty under Rule 16 of Central Excise Rules, 2002 on goods brought into the factory-reg.Please refer to your reference dated 02.04.09 issued from C.No.IV/16/267/2008 C.C.C.Ex(Bz) on the above referred subjectmatter.2. The matter has been examined. The Rule 8(2) of the Central Excise Rules, 2002, provides that "the duty of excise shall bedeemed to have been paid for the purposes of these rules on the excisable goods removed in the manner provided under subrule(1) and the credit of such duty is allowed, as provided by or under any rule". This provision explains that the invoice ofthe returned goods, would be a valid document for availing credit and duty is deemed to have been discharged. Regardingavailing credit on its own invoice, Rule 16(1) of the Central Excise Rules, 2002, allows the assessee to do so. In any case, thewhole procedure is revenue neutral, in the sense as the duty has to be discharged by the 5th of next month.3. In view of above, it is clarified that credit on rejected/ returned goods, received in the factory before prescribed date forduty payment, can be allowed to be taken under Rule 16(1) of the Central Excise Rules, 2002.


OSD (CX-8)Copy to:- The Chief Commissioners of Central Excise(All) (including LTU) for information please.

F.No.267141/2009-CX8Government of IndiaMinistry of Finance

Department of RevenueCentral Board of Excise and Customs

New Delhi dated 07.12.2009To,The Chief Commissioner of Central Excise,Coimbatore Zone.Subject:- Leviability of duty on capital goods cleared after being put into use for over 10 years-reg.

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Please refer to your letter dated 22.11.08 issued from C.No. IV/16/203/2008-Tech (CCO) on the above referred subject matter.2. The matter has been examined. It is clarified that in view of specific provisions under Rule 3(5A) of the CENVAT CreditRules, 2004, if the capital goods, on which cenvat credit has been taken, are cleared as waste and scrap, even after a periodof 10 years, an amount equal to the duty leviable on the transaction value for such capital goods cleared as waste and scrap,would be payable.


OSD (CX-8)Copy to:- The Chief Commissioners of Central Excise(All) (including LTU) for information please.

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)]Government of IndiaMinistry of Finance

(Department of Revenue)New Delhi, the 2nd December, 2009

Notification No. 43/2009-Service TaxG. S. R. (E).- Whereas the Central Government is satisfied that a practice was generally prevalent regarding levy of service tax( including non-levy thereof ), under section 66 of the Finance Act, 1994 ( 32 of 1994) (hereinafter referred to as the FinanceAct), on taxable service namely 'business auxiliary services' specified in sub-clause (zzb) of clause 105 of section 65 of theFinance Act provided by a person ( hereinafter called the 'service provider') to any other person ( hereinafter called the'service receiver') during the course of manufacture or processing of alcoholic beverages by the service provider, for or onbehalf of the service receiver, and that such services being a taxable service were liable to service tax under the said sub-clause (zzb) of clause 105 of section 65 of the Finance Act with effect from 1 st day of September 2009, which was not beinglevied according to the said practice during the period commencing from the 1 st day of September, 2009 and ending with the22nd day of September, 2009;Now, therefore, in exercise of the powers conferred by section 11 C of the Central Excise Act, 1944 (1 of 1944), read withsection 83 of the Finance Act, the Central government hereby directs that the service tax payable on the said taxable service,namely 'business auxiliary service' provided by the service provider to the service receiver, during the course of manufactureor processing of alcoholic beverages by the service provider, for or on behalf of the service receiver, which was not beinglevied in accordance with the said practice, shall not be required to be paid in respect of such business auxiliary serviceprovided during the aforesaid period.

(F. No. 332/17/2009 - TRU)(Prashant Kumar)Under Secretary

Circular No.-8 /2009F.No.385/08/2009-IT(B)


Department of RevenueCentral Board of Direct Taxes

New Delhi, dated the 24th November, 2009Sub: Applicability of provisions under Section 194J of Income Tax Act'61 in the case of transactions by the Third PartyAdministrators (TPAs) with Hospitals etc.A number of representations have been received from various stakeholders regarding applicability of provisions underSection 194J of Income Tax Act'61 on payments made by Third Party Administrators (TPAs) to hospitals on behalf ofinsurance companies for settling medical/insurance claims etc with the hospitals.2. The matter was examined by the Board. As per provisions of section 194J (1) 'Any person, not being an individual or aHindu undivided family, who is responsible for paying to a resident any sum by way of-(a) fees for professional services, or(b) fees for technical services, [or][(c)royalty, or(d) any sum referred to in clause (va) of section 28,]shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of acheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-

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tax on income comprised therein…". Further as per Explanation (a) to 194J "professional services" means services renderedby a person in the course of carrying on legal, medical, engineering or architectural profession etc..'.3. The services rendered by hospitals to various patients are primarily medical services and, therefore, provisions of 194Jare applicable on payments made by TPAs to hospitals etc. Further for invoking provisions of 194J, there is no stipulationthat the professional services have to be necessarily rendered to the person who makes payment to hospital. ThereforeTPAs who are making payment on behalf of insurance companies to hospitals for settlement of medical/insurance claims etcunder various schemes including Cashless schemes are liable to deduct tax at source under section 194J on all suchpayments to hospitals etc.3.1 In view of above, all such past transactions between TPAs and hospitals fall within provisions of Section 194J andconsequence of failure to deduct tax or after deducting tax failure to pay on all such transactions would make the deductor(TPAs) deemed to be an assessee in default in respect of such tax and also liable for charging of interest under Section 201(1A) and penalty under Section 271C.4. Considering the facts and circumstances of the class of cases of TPAs and insurance companies, the Board has decidedthat no proceedings u/s 201 may be initiated after the expiry of six years from the end of financial year in which such paymenthave been made without deducting tax at source etc by the TPAs. The Board is also of the view that tax demand arising outof Section 201 (1) in situations arising above, may not be enforced if the deductor(TPA) satisfies the officer in charge of TDSthat the relevant taxes have been paid by the deducteeassessee (hospitals etc.). A certificate from the auditor of the deductee assessee stating that the tax and interest due fromdeductee assessee has been paid for the assessment year concerned would be sufficient compliance for the above purpose.However, this will not alter the liability to charge interest under Section 201 (1A) of the Income Tax Act till payment of taxesby the deductee assessee or liability for penalty under Section 271C of the Income Tax Act as the case may be.5. The contents of the circular may be brought to the notice of officers and officials working under you for strict compliance.Hindi version will follow

(Ansuman Pattnaik)Director (Budget)

Circular No. 9 /2009F.No.142/19/2007-TPL


Department of Revenue(Central Board of Direct Taxes)

New Delhi, the 30th November, 2009Subject:- Remittances to non-residents under section 195 of the Income-tax Act -- remittances of Consular receipts -clarification reg:-Reference is drawn to Circular No. 4/2009 dated 29th June, 2009 prescribing the revised procedure for furnishing informationregarding remittances being made to non-residents w.e.f. 1st July, 2009.2. As per Article 28 of schedule to section 2 of the Diplomatic Relations (Vienna Convention) Act, 1972, the fees andcharges levied by a diplomatic mission in the course of its official duties shall be exempt from all dues and taxes.3. In view of the above, while remitting consular receipts abroad, diplomatic missions in India will be required to submit onlya self certified undertaking in Form No 15CA to the remitter bank. They are not required to obtain a certificate from anaccountant/ certificate of Assessing officer (Form 15CB). The procedure for furnishing information regarding remittances ofconsular receipts by diplomatic missions in India will be as follows:-(i) The diplomatic mission will access the website to electronically upload the remittance details to the Income-tax Departmentin Form 15CA (undertaking).(ii) (The diplomatic mission will then take a print out of this filled up Form 15CA (which will bear an acknowledgementnumber generated by the system) and sign it. Form 15CA (undertaking) can be signed by the Head of the mission or by anofficer of the mission so authorized by the Head of the mission.(iii) The duly certified Form 15CA (undertaking) will be submitted in duplicate to the Reserve Bank of India / authorizeddealer. The Reserve Bank of India / authorized dealer will in turn forward a copy of the undertaking to the Assessing Officerconcerned.

(Munesh Kumar)Secretary,

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Central Board of Direct Taxes.Reserve Bank of IndiaAll these notifications are available on the rbi website "www.rbi.org"RBI/2009-10/231 DPSS.CO.PD.No.1102 /02.14.08/ 2009-10 November 24, 2009All Banks, Payment System Providers and System ParticipantsDirections for opening and operation of Accounts and settlement of payments for electronic payment transactions involvingintermediariesRBI/2009-10/242 IDMD.PDRD.No. 2424 / 03.64.00 / 2009-10 December 1, 2009All Standalone Primary DealersWaiver of trade confirmation in Government Securities transactions in OTC marketRBI/2009-10/239 DNBS.PD/ CC.No.165/03.05.002/2009-10 December 1, 2009All NBFCsCapital Adequacy - Risk weightage on Lending through Collateralized Borrowing and Lending Obligation (CBLO)RBI/2009-10/240RPCD.CO.RF.BC.No.44/07.40.06/2009-10 December 1, 2009All State and Central Co-operative BanksCredit Information Companies (Regulation) Act, 2005RBI/2009-10/243 DBOD.No.BL.BC. 65 /22.01.001/2009-10 December 1, 2009All Scheduled Commercial Banks(excluding RRBs)Section 23 of the Banking Regulation Act, 1949 - Relaxations in Branch Authorisation Policy

SEBIChief General ManagerOffice of Investor Assistance and EducationOIAE/Cir-1/2009 November 25, 2009All Companies whose securities are listed on Stock Exchanges (throughStock Exchanges)All recognized Stock ExchangesAll registered Merchant BankersDear Sir / Madam,Sub: Issue of No Objection Certificate for release of 1% of issue amount

As per the Listing Agreement with the Stock Exchanges, the issuer company deposits 1% of the issue amount of thesecurities offered to the public and/or to the holders of the existing securities of the company, as the case may be, with thedesignated stock exchange. This amount was being released to issuer companies after obtaining a No Objection Certificate(NOC) from SEBI in accordance with the SEBI (Disclosure and Investor Protection) Guidelines, 2000. Since these Guidelineshave now been rescinded, the NOC will be issued henceforth in accordance with this Circular.2. For the purpose of obtaining the NOC, the issuer company shall submit an application on its letter head addressed toSEBI in the format specified in Annexure - A, after lapse of 4 months from listing on the Exchange which was the last to permitlisting. The application shall be filed by the post issue lead merchant banker with the concerned designated office of SEBIunder which the registered office of the issuer company falls, as specified in Annexure - B. On the date of application, thebank guarantees, if any, included in 1% deposit musthave a residual validity of at least 2 months.3. SEBI shall issue the NOC after satisfying itself that the complaints arising from the issue received by SEBI against theCompany have been resolved to its satisfaction, the Company has been submitting monthly Action Taken Reports on thecomplaints forwarded by SEBI to the company as per the proforma specified in Annexure - C, and the fees due to intermediariesassociated with the issue process including ASBA Banks have been paid.4. All companies whose securities are listed on stock exchanges and all registered merchant bankers are advised to complywith the aforesaid terms and conditions.5. The Stock Exchanges are accordingly advised to:a. bring the provisions of this circular to the notice of all the companies whose securities are listed in the exchange and alsoto disseminate the same on the website.b. make amendments to the relevant Listing Agreement, bye-laws, rules and regulations for the implementation of the termsof this circular, if necessary.6. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India

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Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securitiesmarket.

Yours faithfully,G. P. GargEncl: a/a

DEPUTY GENERAL MANAGERMARKET REGULATION DEPARTMENTMRD/DSA/SE/CIR-18/2009 December 2, 2009The Managing Directors / Chief Executive Officers / Executive Directors of All Stock ExchangesSub: Limitation period for filing of Arbitration referenceDeputy General ManagerMarket Intermediary Regulation and Supervision DepartmentE-mail: [email protected]/ SE /Cir-19/2009 December 3, 2009The Managing Directors of all Recognized Stock ExchangesSubject: Dealings between a client and a stock broker (trading members included)

DEPUTY GENERAL MANAGERMarket Regulation Department - Division of PolicyE-mail: [email protected]/DoP/SE/Cir- 21 /2009December 9, 2009All Stock ExchangesDear Sir,Sub: Preservation of records1. This circular is issued in supersession of SEBI circular no. SEBI/MRD/SE/Cir- 15/2005 dated August 4, 2005 and SEBI/MRD/SE/Cir-23/05 dated December 22, 2005.2. In terms of Rules 14 and 15 of Securities Contracts (Regulation) Rules, 1957 (hereinafter referred to as SCRR, 1957), everyrecognized stock exchange and its members are required to maintain and preserve the specified books of account anddocuments for a period ranging from two years to five years. Further, as per regulation 18 of SEBI (Stock Brokers & Sub-brokers) Regulations, 1992 (hereinafter referred to as Stock Broker Regulations), every stock broker shall preserve thespecified books of account and other records for a minimum period of five years. In case such documents are maintained inelectronic form, provisions of Information Technology Act, 2000n in this regard shall be complied with.3. Further, it has been noticed that enforcement agencies like CBI, Police, Crime Branch etc. have been collecting copies ofthe various records/documents during the course of their investigation. The originals of such documents maintained eitherin physical or in electronic form or in both would be required by such enforcement agencies during trial of the case also.4. In view of the above, it is clarified that if a copy is taken by such enforcement agency either from physical or electronicrecord then the respective original is to be maintained till the trial or investigation proceedings have concluded.5. All the Stock Exchanges are advised to:-a) make necessary amendments to the bye-laws and Listing Agreement, as applicable ;b) bring the provisions of this circular to the notice of their members and also to put up the same on the website; andc) communicate to SEBI the status of the implementation of the provisions of this circular in the Monthly DevelopmentReport.6. This circular is being issued in exercise of the powers conferred by Section 11(1) of Securities and Exchange Board ofIndia Act, 1992 to protect the interest of investors in securities and to promote the development of, and to regulate, thesecurities market.

Yours faithfully,HARINI BALAJI

DEPUTY GENERAL MANAGERINVESTMENT MANAGEMENT DEPARTMENTSEBI/IMD/CIR No.12 /186868 /2009 December 11, 2009All Mutual Funds/Asset Management Companies (AMCs)Association of Mutual Funds (AMFI)Sub: Transactions through some mutual fund distributors and compliance with the SEBI circular on AML

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