FIXED ASSET MANAGEMENT WITH RESPECT TO WILO MATHER AND PLATT PUMPS PVT LTD

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1 FIXED ASSET MANAGEMENT WITH RESPECT TO WILO MATHER AND PLATT PUMPS PVT LTD Dr. Daniel Penkar Abstract: Fixed assets management is an accounting process that seeks to track fixed assets for the purposes of financial accounting, preventive maintenance, and theft deterrence. Organizations face a significant challenge to track the location, quantity, condition, maintenance and depreciation status of their fixed assets. This research paper addresses the role fixed assets play in efficiency of a company to generate sales. At the same time, this paper addresses the areas for improvement for the company s employees. The study is based on the research conducted at Wilo Mather and Platt Pumps Pvt. Ltd. Keywords: Fixed assets, Fixed asset register, Fixed asset management cycle INTRODUCTION The term asset refers to something that is of value to use. Our education is an asset, albeit and intangible one, it is an asset. Our cars are assets, and this would be a tangible asset that we can actually see and touch. Do we owe for our car? If so, the loan associated with our car is a liability. The difference between the asset value and the liability value of the loan is our equity in the car. This is as brief a summation of these terms; however these terms do need some further explanation and exploration. An asset: So many things that come into our lives will be classified as assets. Our homes, our cars, our education, our possessions, they will all constitute our assets. We don t often think of them in these terms. Quite honestly, assets and liabilities are generally used only by business people and accountants. In reality however, we should really have a grasp on what our assets are, and what they can mean to us, financially. For instance, your education is an asset. It is known as an intangible asset, because you can t actually see your education. It is an asset nonetheless because it gives you increased knowledge of a specific subject. You are able to turn this education into a greater income than the individual without an education. OBJECTIVES To study and understand the efficiency of WILO MATHER AND PLATT PUMPS PVT. LTD. to generate sales from the fixed assets. To study and evaluate the returns from fixed assets to the company. To study and evaluate what amount of fixed assets will return to the firm if sold in the market. NEED 1. It would help to learn about the fixed assets management at WILO MATHER AND PLATT PUMPS PVT. LTD. 2. It would help the firm to manage their fixed assets very efficiently. 3. It would help to know the areas of improvements for its employees THEORETICAL BACKGROUND MEANING: Assets are bought to increase the value of a firm or benefit the firm s operations. An asset is something that can generate cash flow, regardless of whether it s a company s manufacturing equipment or an individual s rental apartment. Dr. Daniel Penkar Director, PCET S S. B. Patil Institute of Management, Nigdi, Pradhikaran, Pune

2 MIT-SOM PGRC KJIMRP 1 st International Conference (Special Issue) ISSN No.: DEFINITION: Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property. TYPES: Assets may be classified into Current and Non-Current. The distinction is made on the basis of time period in which the economic benefits from the asset will flow to the entity. Current Assets are ones that an entity expects to use within one-year time from the reporting date. Non-Current Assets (Fixed Assets) are those whose benefits are expected to last more than one year from the reporting date. CURRENT ASSETS: In accounting, a current asset is any asset reasonably expected to be sold, consumed, or exhausted through the normal operations of a business within the current fiscal year or operating cycle (whichever period is longer). Typical current assets include cash, cash equivalents, short-term investments, accounts receivable, stock inventory and the portion of prepaid liabilities which will be paid within a year. Current assets typically include categories such as cash, marketable securities, short-term investments, accounts receivable, prepaid expenses, and inventory. Current assets are important because they indicate how much cash a company essentially has access to within the next 12 months outside of third-party sources. It is indicative of how the company funds its on-going, day-to-day operations, and how liquid a firm is. The ratio of current assets to current liabilities is particularly important in judging liquidity. FIXED ASSETS: Fixed Assets are the assets held with the intention of being used on continuous basis for the purpose of producing or providing goods or services and are not held for resale in the normal course of business. E.g.: Land and Buildings, Plant and Machinery, Motor Vehicles, Furniture and Fixtures. Valuation of fixed assets is important to have fair measure of profit or loss and financial position of the concern. Fixed assets are meant for use for many years. The value of these assets decreases with their use or with time or many other reasons. A portion of fixed assets are reduced by usage are converted into cash through charging depreciation. For correct measurement of income, proper measurement of depreciation is essential, as depreciation constitutes Part of total cost of production. Financial transactions are recorded in the books, keeping in view the going concern aspect of the business unit. In going concern aspect it is assumed that the business unit has reasonable expectation of continuing the business for a profit for an indefinite period of time. This assumption provides much of the justification for recording fixed assets at original cost and depreciating them in a systematic manner without reference to their current realizable value. It is useless to record the fixed assets in the balance sheet at their estimated realizable values if there is no immediate expectation of selling them. So, they are shown at their book value (i.e., Cost Depreciation) and not at current realizable value. The market value of the fixed assets may change with the passage of time, but for accounting purpose it continues to be shown in the books in historical cost. The cost concept of accounting states that depreciation calculated on the basis of historical cost of old assets is usually lower than the amount calculated at current value replacement value. These results in more profits, which if distributed in full will lead to reduction in capital. FIXED ASSETS REGISTER (FAR) A fixed asset register (FAR) is an accounting method used for major resources of a business or it can be defined as a statement of an organization which shows the assets that it owns. Making entries in the FAR Company should be very careful while making entries in the register of fixed assets as not all the assets can be included in the register. Only the asset which is valuable for more than 1 82

3 Fixed Asset Management with Respect To Wilo Mather and Platt Pumps Pvt Ltd year is included in the register. The fixed assets which are valuable for less than 1 year are excluded from the register. The format of FAR entries The format / details to be provided in a FAR generally depends upon the following factors: a) Nature of assets. If movable assets constitute a significant portion of total fixed assets, details will be necessary on their movement from one department / cost centre / people to another. Cost of assets. Greater control and security is required for costly equipment. b) Customized reports on fixed assets required by management. c) Disclosure norms / regulatory compliance as per statutory laws applicable to the entity. d) Extent of owned, and assets taken on lease / hire purchase. e) Requirements of insurance company. f) Location of fixed assets. If fixed assets are located at numerous locations, greater details will have to be given. In the case of a construction company, the assets are located at different work sites. These work sites maybe in different cities / countries / continents. g) Maintenance costs. Some fixed assets require regular servicing to keep them running in an efficient and satisfactory manner. It would be necessary to keep a tab on the maintenance costs, dates of servicing etc. during a stated period. Maintenance of a FAR in a multi-national corporation (MNC) can be onerous and complex due to different regulatory and compliance requirements in each country and different currencies.generally, an MNC sets up a subsidiary in the country in which it intends to start operations. Maintenance of FAR is decentralized. The FAR is maintained as per the company s policy, and regulatory requirements which are country specific. FIXED ASSETS MANAGEMENT CYCLE The fixed assets management cycle is the cycle of activities from the acquisition of the asset to the final disposition of the assets at the end of their useful life. The cycle has 7 steps: Acquisition: The cycle begins with the acquisition, purchase, gift or otherwise, of an asset and the determination that the asset is to be capitalized. To be capitalized the asset has to meet the agency s capitalization limit and have a useful life of one year or more. Receiving: The asset is formally received and accepted by the agency. Receipt may be verified by entry into an automated purchasing system or by hard copy document. In the case of donated fixed assets, receipt can be verified by a letter to the donor. Payment: Payment is made for the asset according to the terms of the purchase order or recognition of acceptance of a gift to the donor. The payment includes the acquisition cost, freight and all other costs to put the asset. Acquisition cost of donated fixed assets is determined by its fair market value. Identification: The asset is identified as an asset, tagged or otherwise identified and entered into the fixed assets management inventory system. Assets are identified with a permanently attached identification tag, etching or by painting on the identification number. Inventory: The longest step in the cycle. The asset is used over its useful life. Assets are inventoried and accounted for during this step until they are no longer needed. The agency s policies and procedures determine the inventory interval. Excess: The asset is declared as excess to the user s needs. The asset may be transferred to another user where it will continue to be used, accounted for and inventoried. Assets may be declared as excess more than once until the asset is no longer needed. Surplus: The last step in the fixed assets management cycle. The asset is declared to be surplus property and to have no further value to the agency. The asset is disposed of by sale or discarding depending on the residual value. Sale can be by auction, sealed bid, spot sale, or through a sales store. 83

4 MIT-SOM PGRC KJIMRP 1 st International Conference (Special Issue) ISSN No.: COMPANY PROFILE NAME: WILO MATHER & PLATT PUMPS PVT LTD. REGISTER OFFICE ADDRESS: Mumbai-Pune road, Chinchwad, Pune VISION Mather & Platt seeks to be recognized as the innovator and leader of pumping related products and technologies in domestic and global market. MISSION Improve customer returns, Create value through a culture of excellence, and Innovate service and product delivery. HISTORY OF COMPANY WILO SE How German PumpenIntelligenz. was formed from ideas, speed and engineering... WILO SE is one of the leading manufacturers of pumps and pump systems for heating, cooling and air conditioning technology and for water supply and sewage disposal. The company was founded in 1872 by Louis Opländer as a copper and brass goods factory and now has subsidiaries in more than 50 countries and employs about 6,000 personnel throughout the world. WILO SE is the holding company of the current WILO Group, which was formed with the merger of WILO - Salmson SE and WILO GmbH in In 2006, turnover amounted to 873 million euros. In November 2005, WILO SE acquired management control of Mather + Platt. 13 WILO MATHER & PLATT PUMPS PVT LTD Mather + Platt, a subsidiary of WILO SE is one of the leading manufacturers of centrifugal pumps up to 50,000 m3/hr, valves up to 2600 mm diameter and pumping systems for water supply, irrigation, energy, industry, building sector and wastewater fields and is also pioneer and leader in the field of firefighting systems from small buildings to large industrial plants. RESEARCH METHODOLOGY AND DATA ANALYSIS OBJECTIVES OF THE STUDY: The following are the objectives of the study To study and evaluate the fixed assets turnover of WILO MATHER AND PLATT PUMPS PVT. LTD. To study whether fixed assets are giving adequate returns to the company or not. To evaluate that if fixed assets are liquidated what proportion of it will contribute for the payment of owners fund and long-term obligations. SIGNIFICANCE OF THE STUDY The study was intended to establish the efficiency of the company to generate sales from the owned fixed assets to assist managers improve their operational efficiency. It will also intend to add to the existing literature on fixed assets management in business, to help future researchers interested in the subject matter and as a basis for further reference. RESEARCH METHODOLOGY Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. The study is conducted at WILO MATHER AND PLATT PUMPS PVT. LTD. If the firm has their fixed assets turnover ratio is good then the firm is performing at their best to generate sales through fixed assets, while if the return on fixed assets is satisfactory which indicates the company s ability to earn profit on sale of fixed assets. RESEARCH DESIGN The formidable problem that follows the task of defining the research problem is the preparation of the design of the research paper, popularly known 84

5 Fixed Asset Management with Respect To Wilo Mather and Platt Pumps Pvt Ltd as the research design. A research design is a framework or blueprint for conducting any research. It details the procedures necessary for obtaining the information needed to structure or solve the research problems TYPES OF RESEARCH DESIGN Research design of the topic namely A STUDY ON FIXED ASSET MANAGEMENT WITH RESPECT TO WILO MATHER AND PLATT PUMPS PVT LTD is EXPLORATORY RESEARCH design. Exploratory means to explore the hidden things, which is not clearly visible. Exploratory research is a type of research conducted for a problem that has not been clearly defined. Exploratory research studies are also termed as analytical research studies. Exploratory research helps determine the best research design, data collection method and selection of subjects. Exploratory research focuses on why questions. Exploratory research provides insights into and comprehension of an issue or situation. It draws definitive conclusions only with extreme caution. Exploratory research is a type of research conducted because the problem has not been clearly defined. Exploratory research helps determine the best research design, data collection method and selection of subjects. Given its fundamental nature, exploratory research often concludes that a perceived problem does not actually exist. Exploratory research often relies on secondary research such as reviewing available literature and/ or competitors and more formal approaches such as informal discussions with consumers, employees, management or competitors and more formal approaches though in depth interviews, focus groups, projective methods, case studies or pilot studies. The Internet allows for research methods that are more interactive in nature. SOURCES OF THE DATA COLLECTION: The data which is used for formation of the study is Secondary data. Secondary Sources:- Secondary data is generated with the help of following: Annual Report: Majority of information gathered from data exhibited in the annual reports of the company. These include annual reports of the year 2010, 2011 and Induction Manual: Information relating to company history and profile gathered from the induction manual of WILO MATHER & PLATT PUMPS PVT. LTD. Reference Books: Theory relating to the subject matter and various concepts taken up from various financial reference books. Financial Statement i.e. Balance sheet and profit and loss account of Year 2010 to 2012 (3 years) have taken as a sample for study of Fixed Assets Management. TOOLS USED FOR ANALYSIS: Bar Charts Bar charts can be drawn either on horizontal or vertical base, but bars on horizontal base more common. Bars must be uniform width and intervening space between bars must be equal. While constructing a simple bar diagram, the scale is determined on the basis of the highest value in the series. SCOPE OF THE STUDY The research is covered on fixed assets of WILO MATHER AND PLATT PUMPS PVT LTD. drawn from annual reports of the company. The subject matter is limited to fixed assets, its analysis and its performance but not to any other areas of accounting corporate, marketing and financial matters. The study is limited for a period of 3 years i.e., from Jan Dec 2010, Jan Dec 2011 and Jan 2012 Dec All of the data has been collected from secondary sources. LIMITATIONS Due to busy schedule of the employees, it was not possible to get access to each and every, information. Study was based on more of secondary data that is available in the form of reports. The study is the limited up to the date and 85

6 MIT-SOM PGRC KJIMRP 1 st International Conference (Special Issue) ISSN No.: information provided by WILO MATHER AND PLATT PUMPS PVT. LTD. and its annual reports. RATIO ANALYSIS: Ratio Analysis compares one figure in one financial statement (say P&L account or Balance Sheet) with another figure in the same financial statement or in another financial statement of the company. A ratio is expressed in the numerator denominator format. Thus the numerator and denominator can be either from the P&L account or the Balance sheet of the same company. Ratios give colour to absolute figures. For example a profit of Rs.100 lakhs means very little to an analyst because he needs to know what the sales was or what the net worth was against which the Rs.100 lakhs was earned. More than the profit, the ratio of profit to sales and the ratio of profit to net worth are useful to understand the performance of a company. Thus if profit grew from Rs 100 lakhs to Rs 125 lakhs, while it is good, what is more important is how it stacked up against the sales achieved or the net worth deployed. Ratio analysis facilitates intra firm comparison. That is comparison of your Company s performance in the current year with your company s performance in the previous year. It also facilitates inter firm comparison i.e. comparison of your company s performance in the current year with your competitor s performance in the current year Peer review, as this is called, helps you benchmark your performance with your peers. Ratios help in ascertaining the financial health of the company and also its future prospects. FINDINGS After analyzing the financial position of Mather & Platt Pumps Ltd. and evaluating its fixed assets management or capital budgeting techniques in respect of trend analysis and ratio analysis, the following things can be made out. The progress of WILO MATHER & PLATT PUMPS PVT. LTD. shows that there is an increase in net block considerably over the year that the investment in the net block is in increase trend. It increased during the year The company s net worth to finance fixed assets has a trend of decreasing as the ratio indicates the falling adequate funds. The long term obligations invested in fixed assets is continuously increasing as the fixed assets ratio is increasing from 2010 in 2011 but is stable in The firm is performing efficiently as fixed asset turnover of the company is satisfactory throughout but it fell down in 2011 from 2010 and again the firm accelerated their efficiency and improved the turnover ratio of the firm. Regarding the Return on fixed assets ratio it has been observed that there is no profit after selling the fixed assets, but during the usability of the fixed assets they are fully utilized to the greatest extend. SUGGESTIONS: The firm increasing their fixed assets every year but they should be careful while investing in fixed assets not to block their cash more in their fixed assets. Total investment to sales can be improved. Globalization of economies and the requirement of shares from investors in capital market, diverse and demanding audience to the company, need a clear and in-depth in information about the company s financial position in Annual report. As the company is consuming their fixed assets throughout their life but it is suggested to use their fixed assets so efficiently that the selling value should give some returns to them and let company earn profit after selling them. CONCLUSIONS The fixed assets turnover of the firm is good throughout the study and the best efficient performance of the firm was in The company is earning respectful returns on the investment made on fixed assets, the return on fixed assets are satisfactory in 2010 and 2012 but due to the loss incurred by the firm, the firm had negative return which is not good indicator. The company s fixed assets does not value the 86

7 Fixed Asset Management with Respect To Wilo Mather and Platt Pumps Pvt Ltd amount to pay off owner s funds and longterm obligations, as fixed assets ratio is not even equal to 1 throughout the study. REFERENCES Books- Satish M. Inamdar, (2009), Financial Management, 6 th Edition, Everest publishing House. M. Y Khan & P K Jain, (2008), Financial Management, 5th Edition, Tata McGraw Hill. I M Pandey, (2008), Financial Management, 9th Edition, Vikas publishing house Pumps Ltd. 87