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Internship Report on

Dane Foods Limited

ACKNOWLEDGEMENT

In the name of Almighty Allah who is most merciful, and who give me strength to write this

internship report in a different way.

I extend my heartiest thanks to my seniors, collegues, and subordinates who assist me on every

occasion to enable me to write this report.

My parents, classmates, friends come next in the list of those whom I have to thank.

I pay special homage to the following persons.

Mr. Shafaat Ahmed (Plant Manager)

Mr. Arif Rasheed (Assistant Baker)

Miss Shamim Akhtar (Supervisor)

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Internship Report on
Dane Foods Limited

PREFACE
This report is one of the necessary elements to get the Master of Business Administration Degree

from the Allama Iqbal Open University.

As a part of my MBA studies I went through three months internship at DANE FOODS

LIMITED (A Denmark-Pakistan Enterprises) where I am working since five years and worked at

both places i.e. Factory (Hattar), and Head Office (Lahore). During the internship period I went

through various sections of the financial Accounting. I hope that this report will give a detail and

true picture of the company and what I did and learnt during my training program.

I also try my best to write this report in such a way that gives more information about the

financial accounting systems and ratio analysis techniques to the reader in simple language.

For the sake of simplicity, I have divided this report in portions. So, reader will not face any

difficulty in understanding this report.

I have also tried my level best to obtain as accurate data and present all what I have learnt in the

following pages.

I hope that this report will be a true representative of my efforts and will satisfy the purpose,

which I was meant to achieve.

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TRANSMITTAL MEMORANDUM

To: Department of Management Sciences


Allama Iqbal Open University Islamabad

From: MUHAMMED AZEEM


ROLL# E-5520628
REG # 89-PLE-0451
H.# 180 Street # 2, Larex Colony, Grid Station # 1,
Post Office Garhi Shahu, Lahore.
PH # (042) 6653951, 6373345 FAX #(042) 6653950
E-Mail: m.azeem@nexlinx.net.pk

SUBJECT: INTERNSHIP REPORT ON DANE FOODS LIMITED

Internship report on any organization is a necessary element to get the MBA degree from any
university. I have written an internship report on Dane Foods Limited and review its financial
accounting system and its ratio analysis.

My major recommendation is this: Dane Foods Limited should improve their financial accounting
systems, and also establish Internal Audit department to avoid the future complications. That
conclusion was arrived at after three months extensive practical training in the financial
accounting department of the company. Besides this, financial statements also reviewed for the
three years from June 30, 1996-1998.

As a result of my analysis company’s official agreed on my suggestions and wanted to implement


them in near future. I am grateful to my seniors, colleges, and subordinates who assist me to
complete this comprehensive report in an excellent way.

If the members of the review committee of this report have any additional questions, I Inshallah
will try my best to do it more well way.

At last I thankful to the University who give me an opportunity to review the financial accounting
system of the company and for analysis of the financial statements as well.

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Internship Report on
Dane Foods Limited
EXECUTIVE SUMMARY

TITLE: AN INTERNSHIP REPORT ON


DANE FOODS LIMITED

AUTHORIZATION This report is a necessary part of MBA degree program.


REOCMMENDATION: Department of management sciences of the university advised to
Every student to submit. It was done after the completion of all
subjects. The main purpose of this report is, review of the
finance & accounting systems of the organization. Find out their
weaknesses and give suggestions for improvements. I strongly
recommend that company should adop an effective internal
control system and also establish internal audit department to
overcome their weakness.

PROCESS OF REVIEW Data from June 30, 1996-1998 were taken for analysis, and also
METHODOLOGY: financial accounting practices followed by the company seen
practically, whether the company adopted them according to the
international accounting standards or not. I had been working in
this organization since five years. So I was in a better position to
review the system in an efficient way.

PROBLEMS: A central problem in the financial accounting systems of the


company is, accounts are prepared on monthly basis but
reconciliation of individual accounts not made on monthly basis.
That work does on every audit which is conduct on the end of
financial year. Another problem is, insufficient accounts staff.
Work done by one person directly checked by Manager
Accounts. Internal control system is not implemented properly.

Likewise, internal audit department is not also functioning in the


company. Controls and check systems on the documents and
persons are also found weak in the company.

I point out those weak areas, and hope that company if, adopted
my suggestion and recommendation can overcome the problems.
This will also benefit for the other systems of the company.

TIME FRAME: Finally, if the recommendation is accepted the program could be


put into effect within six months.

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Internship Report on
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TABLE OF CONTENTS

PAGE #

Acknowledgement 1

Preface 2

Transmittal Memorandum 3

Executive Summary 4

CHAPTER 1: INTRODUCTION

1.1 Introduction to organization 8

1.2 Background of the organization 9

1.3 Objectives of studying the organization 10

1.4 Financial structure of the company 11

1.5 Brief History 12

1.6 Nature of the organization 13

1.7 Business volume 14

1.8 Objectives of the company 15

1.9 Product lines 16

CHAPTER 2: ORGANIZATIONAL STRUCTURE

2.1 Organizational chart 18

2.2 Company’s information 19

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CHAPTER 3: PRODUCTION FACILITIES
PAGE #
3.1. Manufacturing process of butter cookies 21

3.2 Mixing 21

3.3 Dough cutting process 21

3.4 Dough Extruding and depositing process 21

3.5 Baking Process 22

3.6 Cooling Process 22

3.7 Packing Process 22

CHAPTER 4: STRUCTURE OF THE FINANCE DEPARTMENT

4.1 Finance & Accounting operations 23

CHAPTER 5: FUNCTION OF FINANCE DEPARTMENT

5.1 Accounting system of the organization 24

5.1.1 Cash & Bank 25

5.1.2 Inward Invoicing 28

5.1.3 Outward invoicing 31

5.1.4 Excise & Sales Tax 34

5.1.5 Inventory Accounts 35

5.1.6 Payroll 38

5.1.7 Funds 42

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PAGE #

5.2 Cost Accounting Department 43

5.3 Internal Audit 44

5.4 Use of electronic data in decision making 45

5.5 General functions of finance department 46

CHAPTER 6: FINANCIAL ANALYSIS

6.1 Introduction about financial analysis 47

6.2 Three years comparative balance sheet from June 30, 1996-1998 50

6.3 Three years comparative Profit & Loss Account from June 30, 1996-1998 52

6.4 Horizontal Analysis (Balance Sheet) 53

6.5 Vertical Analysis (Balance Sheet) 56

6.6 Horizontal Analysis (Profit & Loss Account) 58

6.7 Vertical Analysis (Profit & Loss Account) 61

6.8 RATIO ANALYSIS

6.8.1 LIQUIDITY RATIOS 64

6.8.2. LEVERAGE RAIOS 69

6.8.3. PROFITABILITY RATIOS 75

CHAPTER 7: SWOT ANALYSIS 79-82

CHAPTER 8: SUGGESTIONS AND RECOMMENDATIONS

7.1 Short-false/weaknesses 83

7.2 Recommendations for improvement 85

7.3 Conclusion 87

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1.1. INTRODUCTION OF THE ORGANIZATION

Dane Foods Limited is a joint venture with Packages Group of Companies and Kelsen

International Bakery A/S of Denmark. Packages Group of Companies includes

International General Insurance Company of Pakistan, Zulfiqar Industries, and First

International Investment Bank, while Kelsen headquarters are based in Denmark, with

subsidiaries and associated companies in Sweden, Norway, Germany, Hong Kong, USA,

Brazil and joint venture partners in a number of other countries.

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1.2. BACKGROUND OF THE ORGANIZATION

High quality natural ingredients, process using the very best recipes has been the

philosophy ever since Christian and Karen Volf established their bakery in 1890.

Quality joined forces with capacity in 1907, when a group of bakers co-operated in large-

scale production under the name Helsingor Faellesbageri (Helsingor Cooperative

Bakers), which later became Dansk Biscuit Company.

The quality concept was also a feature of the village bakery established by Marinus and

Anna Kjeldsen in 1933.

In 1993, all these companies merged to form Kelsen the International Bakery A/S.

Again in 1993 Kelsen makes a joint venture agreement with Packages of Group of

Companies and established Dane Foods Limited. It was incorporated on 23rd January

1993 as a public limited company under the Companies Ordinance 1984. They have

started their commercial production on 5th March 1994.

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1.3. OBJECTIVES OF STUDYING THE ORGANIZATION

(i) To review the Finance & Accounting System

(ii) To make the financial Analysis

(iii) To make the organizational analysis with reference to the industries

(iv) To indicate the Short-false/weaknesses of the Finance Department

(v) To give the recommendation for improvement of the Finance & Accounting System

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1.4. FINANCIAL STURCTURE OF THE COMPANY

Its authorized capital is Rs. 100 Million divided into 10 Million ordinary shares of Rs. 10

each. Issued subscribed and paid up capital is Rs.73,186,170 which was increased in

1998 to Rs.80,504,810 The equity participation is as under.

Kelsen the International Bakery A/S Denmark 67 %

Packages Group of Companies of Pakistan 33 %

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1.5. BRIEF HISTORY

In 1993 Kelsen makes a joint venture agreement with Packages of Group of Companies and

established Dane Foods Limited. It was incorporated on 23rd January 1993 as a public limited

company under the Companies Ordinance 1984. They have started their commercial production

on 5th March 1994.

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1.6. NATURE OF BUSINESS

Dane Foods Limited is the manufacturers of high quality of Cookies in Pakistan. Their

Brand Name is “DANE”. Their famous products are Royal Dane Butter Cookies, Hansel

Chocolate Chip Cookies, Shots, Viking Sandwich Butter Cookies, Saltees etc.

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Dane Foods Limited
1.7. BUSINESS VOLUME

They are only one manufacturer of Danish Butter Cookies of international taste in

Pakistan with technical collaboration of Kelsen Bakery A/S of Denmark. Though

Company has spent only 4½ years in this particular industry, but gain a good market

share of cookies and biscuits with an average sale of 900 Tons of cookies and biscuits in

a year. Their main competitors are LU French Biscuits, Peak Freans, EBM Brands, Meiji

Biscuits, Montgomery Biscuits, etc.

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1.8. OBJECTIVES OF DANE FOOD LIMITED

(i) To produce and distribute Kelsen the International Bakery A/S full range of products

through out the world.

(ii) To provide the quality home made cookies with reasonable prices.

(iii) To transfer the technology of making the international brands of cookies to Pakistani

peoples.

(iv) To provide the employment to poor people especially females of the town.

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1.9. PRODUCT LINES

(I) Cookies

(II) Biscuits

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CHAPTER 2: ORGANIZATIONAL STRUCTURE

Dane Foods Limited is a public limited company and it is controlled and managed by its

following Board of Directors

1 Mr. Tariq Hamid (Chairman)

2 Syed Kamal Ali

3 Mrs. Hina Faisal Imam

4 Mr. Athar Rashid Butt

5 Mr. Rafi Iqbal (Alternate to Mr. Henrik Weihrauch)

6 Dr. F. D. Toor (Alternate to Mr. Jorn Anker Thomson)

7 Mr. Khalid Yacob (Alternate to Mr. Brian Ronsholdt)

The company was incorporated under the companies’ ordinance 1984. Its operation and

routine business activities are controlled through highly professional managers as shown

in the organizational structure.

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ORGANIZATIONAL CHART
Director & G.M

Plant Manager Product & Sales Manager Accounts Commercial Manager


Co-ord. Manager

Baker RSM Lahore Payable Purchaser


Accounts

Q.C R&DC RSM Karachi Receiveable


Costing
Budgeting

Commercial RSM Islamabad Payroll


Assistant Cash & Bank
Personnel

Finished Goods F. Officer Multan Factory


Store Accountant

Engineering Product Executive

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2.2. COMPANY’S INFORMATION

COMPANY SECRETARY

Mr. Waseem Ahmed (FCA)

AUDITORS

A.F. Ferguson & Co. Chartered Accountants

LEAGAL ADVISORS

Hassan & Hassan Lahore

Mr. Javed Qureshi (Advocate High Court Rawalpindi)

BANKERS

ABN Amro Bank Lahore

The Bank of Khyber

FACTORY

Plot No. 31/1, Phase I & II, Industrial Estate Hattar, District Haripur.

Ph. No. (0995) 617018, 617230, 617058.

Fax No. (0995) 617019

E-mail:Dane@micro.net.pk

HEAD OFFICE & REGIONAL SALES OFFICE

13-Askari Villas, Shami Road, Lahore Cantt.

Ph. No. (042) 6660907, 6653951, 6660026

Fax No. (042) 6653950

E-mail dfl.ho@nexlinx.net.pk

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REGIONAL SALES OFFICE MULTAN

Dane Foods Limited,

Pull Wasil Suraj Miani Road,

Multan.

Ph. No (061) 582650

REGIONAL SALES OFFICE ISLAMABAD

Mr. Aftab Iqbal Awan

Regional Sales Manager

Razia Sharif Plaza,

90-Blue Area,

G-7/F-7,

ISLAMABAD

Ph. No. (051) 273840

REGIONAL SALES OFFICE KARACHI

Mr. Tahir Latifi

Regional Sales Manager

1st Flour, Finlay House,

I.I. Chundrigarh Road,

KARACHI.

Ph. No. (021) 2426974

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CHAPTER 3: PRODUCTION FACILITIES

3.1. MANAUFACTURING PROCESS OF BUTTER COOKIES

While receiving raw materials are checked to determine their quality attributes and

transferred immediately to a proper place, not only to maintain their shelf life but also to

minimize the changes of deterioration during storage conditions.

At Dane Foods Ltd. the manufacturing of Danish Butter Cookies involves the following

process.

3.2. MIXING PROCESS

For production purpose each ingredient is weighed accurately by an electronic weighing

balance, in order to maintain standards in finished product. After weighing the raw

materials, are mixed in mixing machine at proper giving time to develop dough.

3.3. DOUGH CUTTING PROCESS

From dough feeder dough is forced in to the molds which are negative shape of the dough

process complete with patterns, name type and docker holes. The excess dough is

scraped off with knife bearing upon the mold and thereafter the pieces are extracted on to

the web.

3.4. DOUGH EXTRUDING AND DEPOSITING PROCESS

For dough extruding and depositing on steel band, there are two types of extruders.

(i) DEPOSITOR

(ii) WIRE CUT

This machine basically consists rollers which force dough in to a pressure balancing

chamber underneath, through nozzles or dies on steel band.

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3.5. BAKING PROCESS

In baking process, cookies are baked in an oven at certain temperatures, turbulence of air

and humilidity for the development of structure, moisture reduction and color changes in

cookies.

3.6. COOLING PROCESS

After baking, the cookies are cooled by hydrocooling for cooling conveyor, in order to

complete removal of moisture from cookies.

3.7. PACKAGING PROCESS

The coolies are packaged to collate them in to a suitable sized group for sale, and to

protect them from moisture uptake from atmosphere, dust, and to protect them so that

their flavor and appearance is preserved for as long as possible.

After cooling process, cookies are placed in plastic tray and transferred manually to

flowpack machine to ovewrap the tray by imported B.O.O.P. film. The overwrapped

trays are inserted in biscuit cartons.

The biscuit cartons are feed on the conveyor of cartons overwrapping machine by O.P.P.

film. Such biscuit cartons are placed/arranged properly in C.W.C. and sealed by paper

gum tape, and shifted to finished goods store for delivery.

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CHAPTER 4: STRUCTURE OF FINANCE DEPARTMENT

4.1. FINANCE & ACCOUNTING OPERATIONS

Company has no full time Finance Manger & Company Secretary. Mr. Waseem Ahmed

Cost & Tax Manager of Packages Limited performs as Finance Manager as well

Company Secretary and give suggestions in finance decisions. However, the Accounts

Manager works on behalf of Finance Manager and directly report to the Director &

General Manager. The Manager Accounts is responsible for

 Financial Accounting

 Cash Flow and Budget Preparation

 Income Tax and Wealth Tax Assessment

 Business Correspondence especially related with Finance matters

 To conduct Audit and Report

Manager Accounts heads the Financial Accounting Department. He has one Senior

Accountant, Two Accounts Officers, and one Accounts Assistant.

The Financial Accounting Department looks after the following affairs.

A. Store & Inventory


B. Cash & Bank
C. Inward and outward invoicing
D. Salaries & Wages
E. Income & Sales Tax
F. Costing of Products
G. Management Decision Support Services

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CHATPER 5: FUNCTIONS OF FINANCE DEPARTMENT

5.1. ACCOUNTING SYSTEM OF THE ORGANISATION

Financial Accounting is further divided into the following sections i.e.: -

5.1.1 CASH & BANK

5.1.2 INWARD INVOICING

5.1.3. OUTWARD INVOICING

5.1.4. INCOME & SALES TAX

5.1.5. INVENTORY ACCOUNTS

5.1.6 PAYROLL

5.1.7 FUNDS

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5.1.1. CASH & BANK

It deals with all the payments and receipts of the funds. Payments are both cash and

through cheques. Similarly receipts are both cash and through cheques.

In Dane Foods Limited Cash & Bank section perform the above function in two places

i.e. at Factory and at Head Office.

CASH & BANK AT FACTORY

At factory, Accounts Officer is responsible for organizing this section. Following cash

payment are made through the factory Accounts.

i) Temporary workers wages

ii) Payment to purchaser against expenses summaries

iii) Travelling & Entertainment bills

iv) Machinery Maintenance & other minor services bills

v) Petty Cash Payments

Certain payments being made through cheques is as stated below: -

i) Supplier’s bills

ii) Female workers Wages bill

iii) Utilities bills

(Verified by the Plant Manager & Checked by the Accounts Officer)

Cash receipts from waste material sale, and Fair Price Shop sale is received by the

Accounts officer. Cash receipts from local distributors are also received by him and

deposited in Company’s Bank Account accordingly.

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Receipts of Cheques from distributors are not made at factory. At factory, Accounts

Officer records all the payments and receipts entries in a CashBook maintain by him in

computer. On routine basis he sends the Cash Receipts & Payments Vouchers, and Bank

Debit & Credit Vouchers to the Head Office through Mail. At month end he sends

CashBook statement and Bank Statement to Head Office.

CASH & BANK AT HEAD OFFICE

At Head Office Senior Accountant deals with this section.

Following cash he makes payment.

i) Payment to purchaser against expenses summaries

ii) Travelling & Entertainment bills

iii) Petty Cash Payments

Certain payments being made through cheques is as stated below: -

i) Supplier’s Bills

(Checked & verified by Purchase Section)

ii) Services Bills

(Verified by Director & General Manger)

iii) Employee’s final dues

(Prepared & checked by Payroll Section)

iv) Service Rewards to employees

(Checked by payroll section)

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Cash receipts from customers and he also receives employees and he to acknowledge the

receipt of cash issues cash receipts.

All cheques, drafts and payorders received mainly from the customers through Marketing

Department are deposited in the Company’s bank accounts and receipts are issued to

them as acknowledgment.

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5.1.2. INWARD INVOICING

Like Cash & Bank Inward invoicing also takes place at factory as well as at Head Office.

This section also known as Purchase Section. This section does accounting of all the

materials stores, spares & supplies purchased by the Commercial Department.

Purchases are classified into two types.

1. CASH PURCHASES

2. CREDIT PURCHASES

1. CASH PURCHASES AT FACTORY

As by the name it is clear that when such purchases are made cash payment is made

immediately. These purchases include small types of things such as stationery and other

small requirements etc. At factory, Commercial Officer has given imprest for cash

purchase. He make small purchases on cash and submit expenses summaries alongwith

bills bearing Purchase Requisition No. Goods Received Note No. Gate Entry No. To the

Account officer at factory. Accounts officer checked the expense summary with the

relevant documents and made payment to him accordingly. At last these expenses

summaries sent to head office for further verification. At Head Office these expenses

summaries rechecked by the Accounts Officer & Manager Account and if any

discrepancy found in it then debited it to the purchaser account immediately with

intimation to the Accounts Officer and Purchaser as well.

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CASH PURCHASES AT HEAD OFFICE

Commercial Manager makes only office supplies on cash payment. He also made his

expenses summaries. This expense summary verified by the General Manager and

checked by the Accounts Officer & Manager Accounts as well.

CREDIT PURCHASES AT FACTORY

Main raw materials like Wheat Flour, Sugar, etc. are purchased on credit basis.

CREDIT PURCHASE AT HEAD OFFICE

All packaging material, some raw materials like flavours, vegetable fats etc., machinery,

spare parts, and other things required for the manufacturing are purchased on credit.

PURCHASE PROCEDURE

The general process of purchase in Dane Foods Limited at factory is that the department

which needs the goods, sends a Purchase Requisition to the Central Store. The Incharge

of the store looks at the stock position and in case there is no stock, send a copy of the

Purchase Requisition to the commercial officer for making purchases of the required

goods.

Plant Manager decides whether, these things should be locally purchased or to purchased

through Head office. Decision of the imported and costly items is made in consultation

with the finance department and higher management. After making this decision the

Plant Manager advises the Commercial Officer for arranging the purchase. On receiving

the goods at factory gate, the gatekeeper enters the goods in INCOMING GOODS

REGISTER and endorses the gate serial no. The bills or delivery note. Then the goods

are received and collected by Central Stores and

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Goods Received Note (GRN) is prepared. It has four copies

i) for head office

ii) For Accounts Officer at factory

iii) Commercial Officer

iv) Store Keeper

At factory, Accounts officer checked the expense summaries and bills with GRN and

Purchase Order & Purchase Requisition earlier issued by the Commercial Officer. After

checking the bills and expenses summaries are sent to Head Office for book keeping in

Computer. If Payments are made on cash he made the payment to the purchaser at

factory and if the purchase is on credit basis he issue a crossed cheque accordingly.

DEBIT AND CREDIT NOTE

If there any deduction or some addition arises in the account of the supplier a debit note

is sent to the supplier if he charges more than the settled amount and credit note is issued

if less amount is charged than the actual. Accounts Officer at factory done this job at his

end and send a copy to the Head office account for book keeping. Likely at Head office

accounts officer does this function as well.

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5.1.3. OUTWARD INVOICING

Outward invoicing deals mainly with the Marketing & Sales Department. It also

maintains the customer’s records. This section plays a vital role in preparing of accounts.

Sales are involved with the following documents.

Order confirmation

Marketing Order

Despatch Note

Invoice

The actual procedure is that Sales force gets the order from distributor and sends to the

Regional Sales Manager. He prepares the Sales Order and sends it to Head Office. At

Head Office all Sales orders received from every Regions, then the Product & Sales

Cord. Manager prepares an Order Form and faxed to Factory for despatches.

At factory, Incharge Despatch received the Order Form and prepares the following

documents.

DESPATCH NOTE

INVOICE

Despatch Note has the following informations.

Despatch Note No. Despatch Date, Delivery Terms, Despatch through (Transporter

name), and Truck No. Distributor name and address.

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Despatch Note has four copies and its distribution is as under.

White for Distributors

Blue for Transporter on which receiving is taken from Distributor.

Yellow for Accounts Record

Pink for Despatch Record

Invoice has the following information

Invoice No. Date, Despatch Note No. Despatch date, Terms of sale, Time of supply,

Delivery Terms, Despatch through, Buyer’s Name & address, Sales Tax Registration No.

Of the buyer (if any), S. No. Product Code, Cases, Quantity (Pkts) Description of Goods,

Price per pkt. Sales Tax Exclusive Value, Sales Tax Rate, Sales Tax Payable, Weight in

Kgs. Net Tax Inclusive Value in Rs.

Invoice has three copies

White for Distributors

White for Accounts Department

Yellow for Despatch Record

Incharge Despatch handed over the following documents to the truck driver at the time of

delivery.

Copy of Despatch Note

Copy of Invoice

Copy of the letter from exemption of Zila Tax (issued by the Local Government)

Copy of the letter from exemption of Octori (issued by the Local Government)

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Dane Foods Ltd. is exempted from Zila & Octori Tax in N.W.F.P. Province, whereas it

has to pay Octori on despatches in other three provinces.

The delivery terms for all distributors are Ex-Godown. It means that company is bound

to deliver the goods at the distributors Godown and bears all expenses during the

transportation.

One copy of Despatch Note and Invoice sent by the Incharge Despatch to Factory

Accounts, where Account Officer checks both the documents carefully. After verifying

he sends it to Head office Sales section for book keeping in computer. If there is any

mistake in the documents immediately informed to the factory as well as to distributor.

Another job of the sales section is to pay distributor’s claims. If there are any differences

in the agreed quantity, quality or short receipt the distributor sends a claim and is verified

by the Regional Sales Manager and Product & Sales Cord. Manager. Then the Accounts

Department issues a “CREDIT NOTE” in favour of the customer. Sales are debited and

the customer is credited, to book the accounting entry. If the Transportation Company is

responsible, then Sales Section issued debit note to the concerned company. All

accounting process in the Sales Section are Computerized.

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5.1.4. EXCISE & SALES TAX

Dane Foods Limited is exempted from both of these taxes. However, company maintains

all of the necessary records to submit the Monthly Sales Tax Return to the Sales Tax

Department. Following Sales Tax records maintain at the factory.

DAILY PRODUCTION REPORT

SALES TAX INVOICE

SUPPLY REGISTER

RG-1 REGISTER

GATE PASS

MONTHLY SALES TAX RETURN

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5.1.5. INVENTORY ACCOUNTS

This department is in Head Office and concerned with the control of inventory/stock

carried by the entire company and the accounting aspects of imports, fixed assets, loans

and insurance of the assets.

INVENTORY

All the items lying in stores pertaining to the company are known as “INVENTORY”

CLASSIFICATION OF STORES

Following are the stores situated at factory.

RAW MATERIAL

PACKING MATERIAL

MISCELLEANEOUS ITEMS STORE

All these materials are kept in the central stores and One storekeeper looks after the store.

All purchases whether on credit or cash purchases arrived at the factory gate. The

gatekeeper entered the goods in the “INCOMING GOODS REGISTER” and endorses

the Gate Serial No. On the Delivery Note or Cash Memo. Then Goods received at the

Central Store, storekeeper prepares the GOODS RECEIVED NOTE (GRN) and posted in

the Material Ledger. That issue Requisition is submitted by the Packing and Production

department in the stores if he founds the required material in the store then he issued

accordingly. After that IR is also posted in the Material Ledger which is maintained by

him manually. Goods Received Note and Issue Requisition sent the Head Office on daily

basis, where all these documents are posted in the computer in Inventory Package

specially prepared for Inventory control purpose. At month end storekeeper sends

monthly stock movement report of Packing & Raw Material to Head Office.

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FIXED ASSETS

The inventory section also deals with fixed assets of the Company.

ASSETS

Assets are the property of a company, which is, used in production directly in, case the

assets comprising of plant and machinery and indirectly in the case of

furniture/equipment’s. Assets under installation are debited to capital work in progress

and on completion machinery is capitalized forming part of fixed assets.

DEPRECIATION

Depreciation on all other operating fixed assets is charged to profit on the straight line

method so as to write off the historical cost of an asset over its estimated useful life at the

following annual rates: -

Leasehold land 1.01

Plant & Machinery 10

Building on leasehold land 5

Office Equipment & Appliances 20

Furniture & Fixtures 10

Vehicles 20

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Dane Foods Limited
The full annual rate of depreciation is applied on the cost of additions, excluding

exchange differences, while no depreciation is charged on assets deleted during the year.

The net exchange difference relating to an asset, at the end of each year, is amortized in

equal installments over its remaining useful life. Major renewals and improvements are

capitalized.

CAIPTAL EXEPNDITURE PROPOSAL

At the end of every year each department prepares its requirement to formally request for

specific items. The requirement is then sent to Manager Account where a comprehensive

budget summary is made and submitted to General Manager. General Manager sends it

to the Chairman for approval. If Chairman signed it then this goes to Inventory Section

for implementation. Based on the approved budget Commercial Manager prepares a

Capital Expenditure Proposal (CEP) and gets it approved by Chairman again. Inventory

Section allots a serial number to each CEP. Counter reference is then given on approved

budget summary. One copy is retained by Inventory Section and one goes to

Commercial Manager.

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5.1.6. PAYROLL

Payroll section basically deals with payment of salaries and wages to the employees and

workers. Like other sections, payroll is also computerized. In Dane Foods Ltd.

following are the categories of the employees & workers.

CONTRACTED FEMALE WORKERS

MONTHLY PAID MALE WORKERS

PERMANENT EMPLOYEES

PREPARATION OF FEMALE WORKERS WAGES

Female workers wages are paid on monthly basis. Contracted Female Workers wages

bill is submitted by the Contractor to the Factory Accounts on the 3rd of every month of

following month wages, he checked the number of attendance with the attendance

register maintain by him, and submit it to Plant Manager for approval. After approval he

issued the cheque to the contractor and then he distribute the wages to female workers

and receive individual signature on a separate wages sheet. Contracted Female Workers

are 70.

PREPARATION OF MALE WORKERS WAGES

Monthly paid male workers wages are paid through Factory accounts. When the workers

enter from the factory gate endorse the signature on the register kept by the gatekeeper.

After that Factory account officer endorse initial on the register. On 26th of every month

over time sheet duly signed by the departmental head and Plant Manager submitted to the

factory accounts. The overtime period & attendance period is 26th of the previous month

and 25th to the current month. He prepared the wages according to attendance and

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overtime on computer and paid them in cash on 3rd of the following month and get

signature on wages sheet. The strength of workers is 27

PREPARATION OF PERMANENT EMPLOYEES SALARIES

The attendance sheet of factory permanent employees and Regional Sales Manager’s

offices are sent to Head office on 26th of every month. All Employees salaries prepared

on computer and subsequently transferred to the individual Bank Accounts. Leaves

records of the employees also maintained by the Accounts department. There is no

Personnel Manager in anywhere of the organization.

The company also has a tax liability towards the Government. There is a monthly

deduction of income tax from the salaries of the employees. Tax deducted is deposited

into Government Treasury by the 7th of the next month and a return to this effect is filed

with Income Tax Department on monthly as well as annual basis.

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DEDUCTIONS

Only Income Tax deduction is made from the permanent employees’ salaries.

CONTRIBUTIONS

Following contributions are paid by the company to the Government institutions.

EMPLOYEES OLD AGE 5% of the monthly salary of female & male workers

BENEFITS CONTRIBUTION Maximum to Rs.3, 000.00

SOCIAL SECURITY 7% of the monthly salary of Female & Male workers

CONTRIBUTION and permanent employees Maximum to Rs.3, 000.00

WORKER’S CHILDREN Rs. 10.00 per workers of those Female & Male

EDUCATION CESS workers whose salaries are upto Rs. 3,000.00

ADVANCE PAYMENT

If a worker or permanent employee needs an advance. He prepares an advance request

slip and signed it by its Departmental Head. Plant Manager approved the advance and

Account officer pays it accordingly through cash voucher. Vice Versa same practice is

made at Head Office and G.M. approved the advance.

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PAYMENT TO GOVERNMENT DEPARTMENTS

These payments are in the form of EOBI, Social Security Contribution, Worker’s

Children Education Cess, monthly income tax, etc.

FINAL SETTLEMENTS

Information about the permanent employees’ resignation is received at Head Office from

factory and Regional Sales Manager’s offices. Accordingly their records are checked and

Cheques are advised for payment to the Cash and Bank Section, which dispatches the

Cheques to these ex-employees at their residential addresses.

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5.1.7. FUNDS

Following are the types of funds, which exist in most of the organization.

1 WELFARE FUND

2 GRATUTITY FUND

3 PENSION FUND

4 PROVIDENT FUND

5 PARTICIPATION FUND

In Dane Foods Limited there is no fund section and no contribution is deducted from

employees salaries.

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5.2. COST ACCOUNTING DEPARTMENT

There is no Cost & Management Accountant in the company. But the Manager Accounts

makes product cost accounting. At the month end total receipts and issues of the raw &

packing materials are taken. It is compared with the standard consumption and then

variances are taken. So in this way management knows about the favourabale and

unfavourable items of the materials.

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5.3. INTERNAL AUDIT

Internal Audit department function is to checks the work of all accounting departments.

It is an independent appraisal activity within the organization for the review of operations

as a service to management. It exercises managerial control, which functions by

measuring and evaluation the effectiveness of other controls. But like Cost &

Management Accountant there is no Internal Audit Manager in the company.

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5.4. USE OF ELECTRONIC DATA IN DECISION MAKING

The Accounts department at factory as well as at Head Office is fully computerized.

There are four Personal Computers in the accounts department. One in factory and

remaining at Head Office. All these systems are 586 Personal computer. All periodic

and interim statements prepared through computers. For recording all of the accounting

transactions they are using the “DAC EASY ACCOUNTING SYSTEMS”. Trail

Balance, Income Statement & Balance Sheet also taken from this accounting package.

Computerized accounting plays a vital role in decision making, because whenever

management requires any kind of financial information they can get it within moments.

Similarly in Dane Foods Limited periodic statements like 15 days outstanding debit

balance statement, creditors balance statement Cash Flow statement etc. help

management for the decision making. So we can say easily that the company is fully

utilized the electronic data in decision making.

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5.5. GENERAL FUNCTIONS OF FINANCE DEPARTMENT

The duties and functions of typical finance department can be classified into two generic

categories. The first category is PLANNING and the second function is

CONTROLLING. These activities are inter-related and inseparable because if there is no

planning there will not be any control. Therefore, planning and control move together.

Planning refers to the activities that bridge the gap from the starting point to the terminal

point. Planning in the finance department under review refers to the activities of Cash

Flow and Budget preparation. These are the major activities (planning) in any such

department.

In Dane Foods Limited above two major functions of Finance Department is done by the

Manager Accounts with the help of acting Finance Manager.

BUDGETING

Following budgets are prepared in the company.

CASH FLOW BUDGET

MARKETING DEPARTMENT BUDGET

PRODUCTION DEPARTMENT BUDGET

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CHAPTER 6: FINANCIAL ANALYSIS

6.1. INTRODUCTION ABOUT FINANCIAL ANALYSIS

Financial analysis is designed to determine the relative strengths and weaknesses of a company.

Financial analysis concentrates on financial statement analysis, which highlights the key aspects

of a firm’s operation. Financial statement analysis involves a study of the relationships between

income statement and balance sheet accounts, how these relationships change overtime (trend

analysis) and how a particular firm compares with other firms in its industry (comparative

analysis). Although financial analysis has limitation, when used with care and judgment, it can

provide some very useful in sights into the operations of a company.

The income statement summarizes the firm’s revenues and expenses over the past year. Earning

per share (EPS) is called “the bottom line”, denoting that all of the items on the income statement,

EPS is the most important.

The Balance Sheet shows the firm’s assets and the claims against those assets. It portrays the

financial condition at a point in time. Assets, found on the left-hand side of the balance sheet, are

typically shown in the order of their liquidity. Claims, found on the right-hand side are generally

listed in the order in which they must be paid.

Trend analysis looks at the trend of single ratio overtime. Trend analysis can provide clues as to

whether the firm’s financial situation is improving, holding constant, or deteriorating.

Comparative analysis compares the firm’s ratios with industry average ratios and/or the ratios of

leading competitors. Such analysis provides insights into the firm’s relative performance.

Commons size analysis is another technique for analyzing a firm’s financial statements.

To create common size statements, all income statement items are divided by sales, and total

assets divide all balance sheet items. Thus, a common size income statement shows each item as

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a percentage of sales, and a common size balance sheet shows each items as a percentage of total

assets.

The advantage of common size statements is that they facilitate comparisons of balance sheets

and income statements overtime and across companies.

Common size and ratio analysis provide the same type information about a firm, but since they

look at the data from different prospective, they should both be used in a complete financial

statement analysis.

Financial statement analysis is useful, but there are a number of limitations which analysis must

recognize.

Ratios are often not useful for analyzing the operations of conglomerate firms that operate in

many different industries because comparative ratios are from single industries.

The use of industry averages may not provide a very challenging target for high level

performance. Inflation affects depreciation charges, inventory costs, and therefore the value of

both balance sheet items and net income. For this reason, the analysis of a firm overtime, or a

comparative analysis of firms of different ages, can be misleading. Also ratios may be distorted

by seasonal factors.

Different operating policies, such as the decision to lease rather than to buy equipment may have

an impact on financial ratios. Information on the firm’s non-capitalized lease agreements, on its

pension plan, on its recent acquisitions and divestitures, or its accounting policies, and so forth,

can be found in the notes to the financial statements and should be considered by the analyst.

Many ratios can be interpreted in different ways and whether a particular ratio is “good” or bad”

should be based upon a complete financial analysis rather than the level of single ratio at a single

point in time.

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Different accounting practices can distort comparisons. However, most firms in a given industry

use similar procedures.

In the financial analysis following three techniques have been used.

1. Horizontal Analysis

2. Vertical analysis

3. Ratio Analysis

Each above have been applied on the period 1996, 1997, & 1998 of Dane Foods Limited.

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6.2.
DANE FOODS LIMITED
BALANCE SHEET AS AT JUNE 30, 1996-1998

1996 1997 1998


SHARE CAPITAL (Rs.) (Rs.) (Rs.)
Authorized Capital 100,000,000 100,000,000 100,000,000
10,000,000 ordinary shares
Of Rs.10 each.
Issued, subscribed and paid up capital 73,186,170 73,186,170 80,504,810
(1997:7,318,617) & (1998: 8,050,481)
Accumulated loss brought forward (43,348,685) (61,527,271) (71,303,245)
29,837,485 11,658,899 9,201,565

PROVISION FOR STAFF GRATUITY 616,283

CURRENT LIABILITIES
Short term running finances-secured 21,514,008 35,274,218 33,836,657
Creditors, accrued and other liabilities 11,991,196 17,877,075 19,611,442
Provision for taxation 115,030
33,620,234 53,151,293 53,448,099

63,457,719 64,810,192 63,265,947

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1996 1997 1998


FIXED CAPITAL EXPENDITURE (Rs.) (Rs.) (Rs.)
Operating fixed assets 46,727,757 42,292,655 36,520,523
Capital work in process 545,390
46,727,757 42,292,655 37,065,913

LONG TERM DEPOSITS AND


DEFFERED COSTS 314,730 2,762,105 305,230

CURRENT ASSETS
Stock in trade 9,263,715 9,946,450 9,281,949
Trade debts 5,356,182 8,159,864 14,297,001
Advances, deposits, prepayments, 965,648 722,625 979,823
& other receivable
Cash and bank balances 829,687 926,493 1,336,031
16,415,232 19,755,432 25,894,804

63,457,719 64,810,192 63,265,947

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6.3.
DANE FOODS LIMITED
PROFIT & LOSS ACCOUNT AS ON JUNE 30 1996-98

1996 1997 1998


(Rs.) (Rs.) (Rs.)

Sales 54,854,556 64,601,475 78,440,834


Cost of Goods sold 48,136,761 53,400,114 59,859,566
Gross profit 6,717,795 11,201,361 18,581,268

Selling Expenses 20,375,631 19,711,833 18,618,847


Administrative & General Expenses 6,821,730 5,176,105 5,256,898
27,197,361 24,887,938 23,875,745

Operating loss (20,479,566) (13,686,577) (5,294,477)


Other Income 432,936 1,237,907 1,593,499
(20,046,630) (12,448,670) (3,700,978)

Financial charges 4,120,526 5,399,916 5,673,889


Other Charges 500
4,121,026 5,399,916 5,673,889

Loss before taxation (24,167,656) (17,848,586) (9,374,867)


Provision for taxation 281,119 330,000 401,107

Loss after taxation (24,448,775) (18,178,586) (9,775,974)


Accumulated loss brought forward (18,899,910) (43,348,685) (61,527,271)
Accumulated loss carried forward (43,348,685) (61,527,271) (71,303,245)

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6.4.
DANE FOODS LIMITED
BALANCE SHEET
HORIZANTOL ANALYSIS
INCREASE/(DECREASE)
1996 1997 1998 1996-97 1997-98
PARTICULARS (Rs.) (Rs.) (Rs.) (Rs.) % (Rs.) %
Issued, subscribed and paid up capital 73,186,170 73,186,170 80,504,810 0 0.00 7,318,640 10.00
Accumulated loss brought forward (43,348,685) (61,527,271) (71,303,245) (18,178,586) 41.94 (9,775,974) 15.89
29,837,485 11,658,899 9,201,565 (18,178,586) (60.93) (2,457,334) (21.08)
PROVISION FOR STAFF GRATUITY 616,283
CURRENT LIABILITIES
Short term running finances-secured 21,514,008 35,274,218 33,836,657 13,760,210 63.96 (1,437,561) (4.08)
Creditors, accrued and other liabilities 11,991,196 17,877,075 19,611,442 5,885,879 49.09 1,734,367 9.70
Provision for taxation 115,030 (115,030)
33,620,234 53,151,293 53,448,099 19,531,059 58.09 296,806 0.56
63,457,719 64,810,192 63,265,947 1,352,473 2.13 (1,544,245) (2.38)
FIXED CAPITAL EXPENDITURE
Operating fixed assets 46,727,757 42,292,655 36,520,523 (4,435,102) (9.49) (5,772,132) (13.65)
Capital work in process 545,390
LONG TERM DEPOSITS AND
DEFFERED COSTS 314,730 2,762,105 305,230 2,447,375 777.61 (2,456,875) (88.95)
CURRENT ASSETS
Stock in trade 9,263,715 9,946,450 9,281,949 682,735 7.37 (664,501) (6.68)
Trade debts 5,356,182 8,159,864 14,297,001 2,803,682 52.34 6,137,137 75.21
Adv., deposits, prepayments, & others 965,648 722,625 979,823 (243,023) (25.17) 257,198 35.59
Cash and bank balances 829,687 926,493 1,336,031 96,806 11.67 409,538 44.20
16,415,232 19,755,432 25,894,804 3,340,200 20.35 6,139,372 31.08
63,457,719 64,810,192 26,200,034 1,352,473 2.13 (38,610,158) (59.57)

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ISSUED, SUBSCRIBED AND PAID UP CAPITAL

There is no change in 1997 but company made an increase of 10% in 1998 which is Rs.7, 318,640 to

increase the working capital

ACCUMULATED LOSS

With the passage of time it has been reduced. In 1996-97 it was 41.94% but in 1997-98 comparison it

reduced to 15.89% which shows the improvement of the company.

PROVISION OF STAFF GRATUITY

There is no provision in 1996 & 1997 but Rs.616, 283 provision is made in 1998.

SHORT TERM RUNNING FINANCES-SECURED

Short term running finances available from commercial banks under mark up arrangements amount to Rs.
37 million in 1997. The rates of mark up range from Re.0.41 to Re0.44 per diem or part thereof. In the
event, the company fails to pay the balance on the expiry of the quarter, mark-up is to be computed at
rates ranging from Re0.60 to Re0.69 per Rs.1000 per diem or part thereof on the balance unpaid. The
short term running finance are secured by hypothecation of fixed and current assets. An increase of
63.96% is made in 1997, whereas a decrease of 4.08% occurred in 1998 due to reduction of mark up
which is computed at the rate of Re0.55 per Rs1, 000 per diem or part thereof on the balance unpaid.
CREDITORS ACCRUED AND OTHER LIABILITIES

An increase of 49.09% in 1997 with the comparison of 1996, whereas, in 1998 an increase from 1997 to

9.7%. That means company’s liquidity position is not better.

OPERATING FIXED ASSESTS

Its reduced in 1997 by 9.49% and in 1998 13.65% due to the charge of depreciation

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LONG TERM DEPOSITS AND DEFFERED COSTS

It has been increased in 1997 by 777.61% over 1996 due to heavy advertisement expenses. But again it is

reduced to 88.95% over 1997, because in 1998 no deferred cost of advertisement expenses is made during

the year.

CURRENT ASSETS

Total current assets increased by 20.35% and 31.08% in 1997, 1998 respectively. The increase is due to

Trade Debts and Cash & Bank balances mainly.

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6.5. DANE FOODS LIMITED
BALANCE SHEET
VERTICAL ANALYSIS
1996 1997 1998
(Rs.) % (Rs.) % (Rs.) %
Issued, subscribed and paid up capital 73,186,170 115.33 73,186,170 112.92 80,504,810 127.25
(1997:7,318,617) & (1998: 8,050,481)
Accumulated loss brought forward (43,348,685) (68.31) (61,527,271) (94.93) (71,303,245) (112.70)
29,837,485 47.02 11,658,899 17.99 9,201,565 14.54
PROVISION FOR STAFF GRATUITY 616,283 0.97
CURRENT LIABILITIES
Short term running finances-secured 21,514,008 33.90 35,274,218 54.43 33,836,657 53.48
Creditors, accrued and other liabilities 11,991,196 18.90 17,877,075 27.58 19,611,442 31.00
Provision for taxation 115,030 0.18 0.00 0.00
33,620,234 52.98 53,151,293 82.01 53,448,099 84.48
63,457,719 100.00 64,810,192 100.00 63,265,947 100.00
FIXED CAPITAL EXPENDITURE
Operating fixed assets 46,727,757 73.64 42,292,655 65.26 36,520,523 57.73
Capital work in process 545,390 0.86
73.64 65.26 37,065,913 58.59
LONG TERM DEPOSITS AND
DEFFERED COSTS 314,730 0.50 2,762,105 4.26 305,230 0.48
CURRENT ASSETS
Stock in trade 9,263,715 14.60 9,946,450 15.35 9,281,949 14.67
Trade debts 5,356,182 8.44 8,159,864 12.59 14,297,001 22.60
Adv., deposits, prepayments, & others 965,648 1.52 722,625 1.11 979,823 1.55
Cash and bank balances 829,687 1.31 926,493 1.43 1,336,031 2.11
16,415,232 25.87 19,755,432 30.48 25,894,804 40.93
63,457,719 100.00 64,810,192 100.00 63,265,947 100.00

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Balance sheets vertical analysis means the relationship between each item on asset‘s side & liabilities side

of (balance sheet) of total assets and also the relationship between balance sheet to total liabilities.

Vertical analysis of Dane Foods Limited shows that.

ISSUED, SUBSCRIBED & PAID UP CAPITAL

It is 115.13% of the total net worth in 1996 and there is Rs. 7,318,640 has increased no change in 1997,

but in 1998 it in 1998. Now in 1998 it comes to 127.25% of the total net worth.

ACCUMULATED LOSS

The loss of 43.348%, 61.527%, & 71.303% million in 1996, 1997, & 1998 has reduced the networth

equity.

CURRENT LIABILITIES

Current liabilities of company in 1996,1997 & 1998 are 52.98%, 82.01%, 84.48% means current

liabilities are continuously increasing which shows the poor performance of the company and proper

planning for paying their obligations are not made.

FIXED CAPITAL EXPENDITURE

Fixed capital expenditure is 73.64%, 65.26%, and 58.59% in 1996, 1997, & 1998. This also shows the

decrease of fixed capital expenditure every year. It also indicates that company would have less fixed

assets while liquidation.

LONG TERM DEPOSITS AND DEFFERED COST

It shows the decrease in 1998 that is .048% over 4.26% of 1997.

CURRENT ASSETS

The ratio of current assets in 1996, 1997, & 1998 are 25.87%, 30.48% & 40.93 which shows a positive

sign to meet the current liabilities.

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6.6.
DANE FOODS LIMITED
PROFIT & LOSS A/C STATEMENT
(HORIZONTAL ANALYSIS)

PARTICULARS INCREASE/ (DECREASE)


1996 1997 1998 1996-97 1997-98
(Rs.) % (Rs.) %
Sales 54,854,556 64,601,475 78,440,834 9,746,919 17.77 13,839,359 21.42
Cost of Goods sold 48,136,761 53,400,114 59,859,566 5,263,353 10.93 6,459,452 12.10
Gross profit 6,717,795 11,201,361 18,581,268 4,483,566 66.74 7,379,907 65.88

Selling Expenses 20,375,631 19,711,833 18,618,847 (663,798) (3.26) (1,092,986) (5.54)


Administrative & General Expenses 6,821,730 5,176,105 5,256,898 (1,645,625) (24.12) 80,793 1.56
27,197,361 24,887,938 23,875,745 (2,309,423) (8.49) (1,012,193) (4.07)

Operating loss (20,479,566) (13,686,577) (5,294,477) 6,792,989 (33.17) 8,392,100 (61.32)


Other Income 432,936 1,237,907 1,593,499 804,971 185.93 355,592 28.73
(20,046,630) (12,448,670) (3,700,978) 7,597,960 (37.90) 8,747,692 (70.27)

Financial charges 4,120,526 5,399,916 5,673,889 1,279,390 31.05 273,973 5.07


Other Charges 500
4,121,026 5,399,916 5,673,889 1,278,890 31.03 273,973 5.07

Loss before taxation (24,167,656) (17,848,586) (9,374,867) 6,319,070 (26.15) 8,473,719 (47.48)
Provision for taxation 281,119 330,000 401,107 48,881 17.39 71,107 21.55

Loss after taxation (24,448,775) (18,178,586) (9,775,974) 6,270,189 (25.65) 8,402,612 (46.22)
Accumulated loss brought forwarded (18,899,910) (43,348,685) (61,527,271) (24,448,775) 129.36 (18,178,586) 41.94
(43,348,685) (61,527,271) (71,303,245) (18,178,586) 41.94 (9,775,974) 15.89

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SALES

Net Sales increased by 17.77% in 1996-97 and in 1997-98 is 21.42% that shows an improvement

of the company.

COST OF GOODS SOLD

In 1996-97 it is 10.93% and in 1997-98 is 12.10% which shows slightly increase in it. Due to

increase in sales this slightly change is minor.

GROSS PROFIT

In 1996-97 Gross Profit is 66.74% which reduce in 1997-98 to 65.88%.

OPERATING EXPENSES

There is good sign seen in the operating expenses which has been reduced in 1996-97 to 8.49%

and in 1997-98 to 4.07% which shows the good managerial policies of the company.

OPERATING LOSS

Another good sign seen in the operating loss, which is reduced in 1996-97 to 33.17% and 61.32%

in 1997-98. This thing shows that company is going in the right direction.

OTHER INCOME

It is also increased in 1996-97, which is 185.93%, but it is drop out to 28.73% in 1997-98. On the

other hand it is a positive sign in the company that with the passage of time it is increasing not

decreasing.

FINANCIAL CHARGES

It has been increased in 1996-97 to 31.03% and in19967-98 it is 5.07% with compare to 1996-97.

That Means Company’s borrowing with commercial is increasing and this is not a good sign for

the company in the long run.

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LOSS BEFORE TAXATION

There is also a positive sign seen in the reduction of loss before taxation, which is reduced in

1996-97 to 26.15% again reduced in 1997-98 to 47.48%.

LOSS AFTER TAXATION

Loss after taxation in 1996-97 is 25.64% and in 1997-98 is 46.22% which shows that company

will improve their position and in near future it will gain profit.

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6.7.
PROFIT & LOSS A/C STATEMENT
(VERTICAL ANALYSIS)

PARTICULARS 1996 1997 1998


(Rs.) % (Rs.) % (Rs.) %
Sales 54,854,556 100.00 64,601,475 100.00 78,440,834 100.00
Cost of Goods sold 48,136,761 87.75 53,400,114 82.66 59,859,566 76.31
Gross profit 6,717,795 12.25 11,201,361 17.34 18,581,268 23.69

Selling Expenses 20,375,631 37.14 19,711,833 30.51 18,618,847 23.74


Administrative & General Expenses 6,821,730 12.44 5,176,105 8.01 5,256,898 6.70
27,197,361 49.58 24,887,938 38.53 23,875,745 30.44

Operating loss (20,479,566) (37.33) (13,686,577) (21.19) (5,294,477) (6.75)


Other Income 432,936 0.79 1,237,907 1.92 1,593,499 2.03
(20,046,630) (36.55) (12,448,670) (19.27) (3,700,978) (4.72)

Financial charges 4,120,526 7.51 5,399,916 8.36 5,673,889 7.23


Other Charges 500 0.00 0.00 0.00
4,121,026 7.51 5,399,916 8.36 5,673,889 7.23

Loss before taxation (24,167,656) (44.06) (17,848,586) (27.63) (9,374,867) (11.95)


Provision for taxation 281,119 0.51 330,000 0.51 401,107 0.51

Loss after taxation (24,448,775) (44.57) (18,178,586) (28.14) (9,775,974) (12.46)


Accumulated loss brought forwarded (18,899,910) (34.45) (43,348,685) (67.10) (61,527,271) (78.44)
(43,348,685) (79.02) (61,527,271) (95.24) (71,303,245) (90.90)

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Dane Foods Limited

COST OF GOODS SOLD

The cost of goods sold in 1996, 1997, & 1998 are 87.75%, 82.66% and 76.31% respectively.

Comparison shows that every year it is reduced. This indicates the good policies adopted by the

company to reduce the losses every year.

GROSS PROFIT

The gross profit in 1996, 1997, & 1998 are 12.25%, 17.34% and 23.69% respectively. Every

following year its position is improving, which is a good sign for the company.

OPERATING EXPENSES

The operating expenses in 1996, 1997, & 1998 are 49.58%, 38.53% and 30.44% respectively.

This comparison also shows that company has adopted the policy to reduced the expenses every

year and policies to be made for the betterment of the company.

OPERATING LOSS

Operating loss in 1996, 1997, & 1998 are 37.33%, 21.19% and 6.76% respectively. This thing

also goes in the favour of the company that they are moving in the right direction.

OTHER INCOME

Other income in 1996, 1997, & 1998 are 0.79%, 1.92% and 2.03% respectively. This comparison

shows that company gains a lot of money by selling their waste materials during these years.

This material includes Empty Flour bags, sugar bags, waste polythene etc.

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FINANCIAL CHARGES

Financial charges also reduced in the review period, which are 7.51% 8.36% and 7.23%

respectively.

LOSS BEFORE TAXATION

Loss before taxation in 1996, 1997, & 1998 are 44.06%, 27.63% and 11.95% respectively. Due

to good management policies it is also reduced with the passage of time.

LOSS AFTER TAXATION

Loss after taxation in 1996, 1997, & 1998 are 44.57%, 27.63% and 11.95% respectively. These

also indicate a positive sign of the company’s policies.

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6.8. RATIO ANALYSIS

6.8.1. LIQUIDITY RATIOS


6.8.1.1. 1996 1997 1998
CURRENT RATIO (Rs.) (Rs.) (Rs.)
Current Assets 16,415,232 19,755,432 25,894,804
Formula = ---------------------- ------------------ ------------------- --------------------
Current liabilities 33,620,234 53,151,293 53,448,099

RATIO 0.49 0.37 0.48


CONCLUSION

Dane Foods Ltd. Current ratio is very low which is .49%, 0.37% and 0.48% in 1996, 1997 and

1998 respectively. The firm may have difficulties in meeting short-run commitments. It also

indicates that they have no sufficient funds to meet the current liabilities easily.

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6.8.1.2. QUICK RATIO OR ACID TEST RATIO

Current Assets-Inventory
Formula = -------------------------------
Current liabilities

INVENTORY 1996 1997 1998


(Rs.) (Rs.) (Rs.)
Stock in trade 9,263,715 9,946,450 9,281,949
Current Assets 16,415,232 19,755,432 25,894,804

Net Current Assets 7,151,517 9,808,982 16,612,855

7,151,517 9,808,982 16,612,855


----------------- ----------------- -----------------
33,620,234 53,151,293 53,448,099

RATIO 0.21 0.18 0.31


CONCLUSION

It also indicates the poor position of the company to meet it current liabilities with most liquid

assets.

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6.8.1.3. LIQUIDITY OF RECEIVABLES

Receivable x 365 1,955,006,430 2,978,350,360 5,218,405,365


Formula = ------------------------- ----------------- ----------------- -----------------
Annual credit sales 54,854,556 64,601,475 78,440,834

RATIO 36 46 67

CONCLUSION

No. Of days outstanding shows that company has to fail to collect their money in time. Every
year Receivable collection days increases which means that debtors are not paying the company’s
amount in time

6.8.1.4. RECEIVABLE TURNOVER RATIO


1996 1997 1998
(Rs.) (Rs.) (Rs.)
Annual credit sales 54,854,556 64,601,475 78,440,834
Formula = ------------------------- ----------------- ----------------- -----------------
Receivable 5,356,182 8,159,864 14,297,001

10.24 7.92 5.49


CONCLUSION

Receivable collection ratio is also decreasing every year, which shows inefficient collection from

debtors. The ratio in 1996, 1997, & 1998 are 10.24, 7.92 and 5.49respectively.

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6.8.1.5. AGING OF ACCOUNTS PAYABLE

Accounts payable x 365


Formula = --------------------------------
Purchase of raw materials

1996 1997 1998


(Rs.) (Rs.) (Rs.)
ACCOUNT S PAYABLE 7798248 X 365 2846360520 3981420730 4,118,528,600
10908002 X 365
11283640 X 365

Purchases of raw materials

Add: Consumption 33,092,185 38,911,901 42,548,316


Add: Closing 7,496,200 7,970,188 8,312,822
Less Opening 7,654,224 7,496,200 7,970,188

Purchases 32,934,161 39,385,889 42,890,950

Accounts payable x 365 2,846,360,520 3,981,420,730 4,118,528,600


Formula = ------------------------------- ----------------- ----------------- -----------------
Purchase of raw materials 32,934,161 39,385,889 42,890,950

86.43 101.09 96.02

CONCLUSION

This ratio analysis shows that company has no sufficient funds to pay the creditors their

outstanding amount in time. Most of the creditors have 60 days credit but the ratio in 1996, 1997,

& 1998 are 86.43, 101.09, 96.02 days respectively.

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6.8.1.6. PAYABLE TURNOVER RATIO

1996 1997 1998


(Rs.) (Rs.) (Rs.)
Annual Purchases 32,934,161 39,385,889 42,890,950
Formula = ----------------------- ----------------- ----------------- -----------------
Payable 7,798,248 10,908,002 11,283,640

4.22 3.61 3.80

CONCLUSION
Payable ratio is also decreasing every year, which shows inefficient payments to creditors. The
ratio in 1996, 1997, 1998 are 4.22, 3.61, 3.80.

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6.8.2. LEVERAGE RATIOS

6.8.2.1. DEBT TO TOTAL ASSETS RATIO

This ratio equals total debt (total liabilities) divided by total assets

1996 1997 1998


(Rs.) (Rs.) (Rs.)
Short term running finances-secured 21,514,008 35,274,218 33,836,657
Creditors, accrued and other liabilities 11,991,196 17,877,075 19,611,442
Provision for taxation 115,030

Total debt or 33,620,234 53,151,293 53,448,099


liabilities

DEBT TO TOTAL ASSETS RATIO


TOTAL DEBTS 33,620,234 53,151,293 53,448,099
= ---------------------- ----------------- ----------------- -----------------
TOTAL ASSETS 63,457,719 64,810,192 63,265,947

0.53 0.82 0.84

CONCLUSION

Dane Foods Ltd. Debt to total assets are very poor which do creditors not prefer, it imply the loss

protection of their position. The higher debt ratio means that company must pay higher rate of

interest on its borrowing beyond some points, the company will not able to borrow at all. The

ratio of 0.53 0.82 and 0.84 in 1996, 1997 and 1998 years respectively are not satisfactory.

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6.8.2.2. DEBT EQUITY RATIO

The ratio equals the firm's debt divided by its equity, where debts can be defined as total debt or

as long-term debt. We will use long-term debt since it is so frequently employed and because it

provides added information not provided by debt ratio.

1996 1997 1998


(Rs.) (Rs.) (Rs.)
DEBT EQUITY RATIO 616,283
LONG TERM DEBT
= ------------------------- ---------------- ---------------- ----------------
SHARE HOLDER'S EQUITY 29,834,485 11,658,899 9,201,565

0.00 0.00 0.07

CONCLUSION

A low debt equity ratio implies that low proportion of long term financing is from debt sources,

that company did not sign great deal of financial leverage. Long term creditor prefers to see

modest debt equity ratio. Since it means greater protection and a great stake in the company’s

future for equity holders.

Dane Foods Ltd. Equity ratio is satisfactory since it less than maximum limits. Therefore,

Company can increase its long-term borrowing.

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6.8.3. ACTIVITY RATIO

LIQUIDITY OF INVENTORIES

6.8.3.1. INVENTORY TURNOVER RATIO

It equals cost of goods sold divided by average inventory.

AVERAGE INVENTORY

=OPENING+CLOSING (FINISHED GOODS)


-----------------------------------------------------------
2
1996 1997 1998
(Rs.) (Rs.) (Rs.)
OPENING 3,305,000 1,767,515 1,976,262
CLOSING 1,767,515 1,976,262 969,127

TOTAL 5,072,515 3,743,777 2,945,389


----------------- ----------------- -----------------
2 2 2
AVERAGE INVENTORY 2,536,258 1,871,889 1,472,695

INVENTORY TURNOVER

COST OF GOODS SOLDS 48,136,761 53,400,114 59,859,566


Formula = ---------------------------------- ----------------- ----------------- -----------------
AVERAGE INVENTORY 2,536,258 1,871,889 1,472,695

RATIO 18.98 28.53 40.65


CONCLUSION

It tells us how raw material is used. In 1996, 1997, & 1998 it is 18.98, 28.53 and 40.65 which is

beneficial for the company.

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6.8.3.2. AVERAGE COLLECTION PERIOD

1996 1997 1998


(Rs.) (Rs.) (Rs.)
AVERAGE CREDIT ANNUAL CREDIT SALES 54,854,556 64,601,475 78,440,834
SALES PER DAY = ---------------------------------- ----------------- ----------------- -----------------
360 DAYS 360 360 360

PER DAY SALES 152,374 179,449 217,891

AVERAGE COLLECTION PERIOD

ACCOUNTS RECEIVABLE 5,356,182 8,159,864 14,297,001


= ------------------------------------------------- ----------------- ---------------- -----------------
AVERAGE CREDIT SALES PER DAY 152,374 179,449 217,891

RATIO 35.15 45.47 65.62


CONCLUSION

The average collection period indicates that Dane Foods Limited is not efficient in collection

matter. But longer period not necessarily bad. Faster pay policy can be reducing customers. So.

Company policy is right to some extend.

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6.8.3.4. FIXED ASSETS TURNOVER

This ratio is computed by dividing net sales by fixed assets

FIXED ASSETS TURN OVER


SALES (NET)
= --------------------------------------
FIXED ASSETS (AVERAGE)

1996 1997 1998


(Rs.) (Rs.) (Rs.)
Operating fixed assets 46,727,757 42,292,655 36,520,523
Capital work in process 545,390

TOTAL 46,727,757 42,292,655 37,065,913

LONG TERM DEPOSITS AND DEFFERED COSTS 314,730 2,762,105 305,230

TOTAL 47,042,487 45,054,760 37,371,143

OPENING 49,704,896 47,042,487 45,054,760


CLOSING 47,042,487 45,054,760 37,371,143

TOTAL 96,747,383 92,097,247 82,425,903


---------------- --------------- -------------
2 2 2

AVERAGE FIXED 48,373,692 46,048,624 41,212,952


ASSETS

FIXED ASSETS TURNOVER

SALES (NET) 54,854,556 64,601,475 78,440,834


= -------------------------------- ---------------- --------------- -------------
FIXED ASSETS (AVERAGE) 48,373,692 46,048,624 41,212,952

1 1 2

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CONCLUSION

Company has an exceptionally low fixed assets turnover of 1, 1, & 2 in 1996, 1997, & 1998

respectively. It indicates that plant; machinery and land have significant unused capacity. The

implication is that the company would do better move to smaller facilities unless it anticipates a

significant increase in production and sales.

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6.8.4. PROFITABILITY RATIOS

6.8.4.1. GROSS MARGIN RATIO

1996 1997 1998


(Rs.) (Rs.) (Rs.)
SALES-COST OF GOODS SOLD 6,717,795 11,201,361 18,581,268
GROSS MARGIN = ------------------------------------------- ---------------- ----------------- -----------------
SALES 54,854,556 64,601,475 78,440,834

GROSS PROFIT MARGIN 0.12 0.17 0.24

CONCLUSION

In the review period though it is increasing every year, but gross profit margin is very low. It

indicates production inefficiency and non-effective marketing strategies. They should improve

production efficiency by motivating the labor and utilizing the plant up to maximum limits. In

this way they should increase gross margin.

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6.8.4.2. NET OPERATING MARGIN


OPERATOMG INCOME
= ---------------------------------
SALES
CONCLUSION

As concerned Dane Foods limited it has operating loss during the review period.

6.8.4.3. PROFIT MARGIN ON SALES

NET INCOME ON SALES


= ----------------------------------
SALES
In the case of Dane Foods Ltd.
1996 1997 1998
(Rs.) (Rs.) (Rs.)
NET LOSS ON SALES (24,448,775) (18,178,586) (9,775,974)
= -------------------------------- ----------------- ----------------- -----------------
SALES 54,854,556 64,601,475 78,440,834

(0.45) (0.28) (0.12)


CONCLUSION

In the review period company made some improvements in this. The losses ratios are 0.45, 0.25

and 0.12 in 1996, 1997, and 1998 respectively. This shows the improvement in the company.

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6.8.4.4. RETURN ON EQUITY

NET INCOME TO SHAREHOLDER


= ----------------------------------------------
COMMON STOCK EQUITY

In the case of Dane Foods Ltd.


1996 1997 1998
(Rs.) (Rs.) (Rs.)
NET LOSS TO SHAREHOLDER (24,448,775) (18,178,586) (9,775,974)
= ---------------------------------------- ----------------- ----------------- -----------------
COMMON STOCK EQUITY 73,186,170 73,186,170 80,504,810

(0.33) (0.25) (0.12)


CONCLUSION

This ratio indicates that there is no return on equity. The ratio of (0.33), (0.25), (0.12) in 1996,

1997, & 1998 shows that in near future the company will be in a position to make some return on

equity rather than there is no return.

6.8.4.5. BREAK UP VALUE


TOTAL EQUITY
= -----------------------
NO. OF SHARES

EQUITY OF ORDIDNARY SHARES HOLDERS


1996 1997 1998
(Rs.) (Rs.) (Rs.)
PAID UP CAPITAL 73,186,170 73,186,170 80,504,810

LESS: ACCUMULATED LOSS (43,348,685) (61,527,271) (71,303,245)

NET EQUITY 29,837,485 11,658,899 9,201,565

29,837,485 11,658,899 9,201,565


----------------- ----------------- -----------------
73,186,170 73,186,170 80,504,810

RATIO 0.41 0.16 0.11

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CONCLUSION

Due to heavy losses Dane Foods Ltd. share’s value has decrease from par value of Rs. 10 to Rs.

0.41, 0.16 and 0.11 in 1996, 1997, & 1998 respectively. This indicates the failure of

management.

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CHAPTER 7: SWOT ANALYSIS


STRENGTHS:
1. High quality of products

2. Image/trusted brand name

3. Market innovators

4. Form fresh pure ingredients, no artificial flavoring

5. Cost effective production

6. Regular product development/improvement

7. On time delivery service

8. Achieve economies of scale, and better communication and coordination between

geographic operating units

9. Line filling with better and improved products in the market on continual basis.

10. Better shelf pace because of a full range of products offered

11. Has adopted total quality management in all functional and operational area

12. Improved research & development department.

13. Maximum no. of flavors as compared to competitors

14. Strong distribution channel

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WEAKNESSES

1. Unable to meet the supply. i.e. supply is excess than demand.

2. Low profit margin for their dealers

3. No trade discount to dealers

4. Relatively high price as compared to competitors

5. Low cost of switching

6. No electronic & print media advertisement

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OPPORTUNITES
Dane Foods Ltd. takes up opportunities as soon as it spots one. The production of Royal

Dane Cookies in the Cookie was a very good opportunity for them, they took it up readily

and they are leaders in butter cookies of Pakistan. Further opportunities prevailing in the

market are:

1. Forward integration’ they can open up their own outlets in the market. And they

have a trustworthy image it will attract more customers and it will also save them

the profit margin that they give the dealers.

2. Expansion in product line to market.

3. Export their product to countries like Dubai, Saudi Arabia, as large numbers of

Pakistanis are settled there.

4. Expansion in production plant.

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THREATS

1 Recession in economy.

2 Easily available substitute products

3 Any advancement made their competitors

4 Their innovations get copied by competitors

5 Imported Cookies

6 Low market growth.

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CHAPTER 8: SUGGESTION AND RECOMMENDATIONS

8.1. WEAKNESS OF THE FINANCIAL ACCOUNTING SYSTEM

1 Internal audit department is not functioning in the company.

2 Similarly cost accounting department is also not in the company

3 Strength of accounts staff is insufficient.

4 Claims from distributors are not settled on monthly basis.

5 It has been observed Cheques are issued to suppliers without knowing the bank balance.

6 Reconciliation of accounts is not made on monthly basis.

7 Consumption report of packing & raw material is not prepared on monthly basis. So,

favorable and unfavorable items did not adjusted in the particular months.

8 Company has no personnel department, so proper leave record of employees are not

maintained.

9 It has been observed that damage stock actual value is not taken into accounts in every

month.

10 A factory purchase, which is made by the commercial officer, is not systematic. Often it

was seen the goods not entered in the Daily Receipt register and also not in the

knowledge of storekeeper

11 Cash receipts and payments done by the account officer at factory. In this way fraud

chances arises, because an effective internal systems says another one must check the

work done by one.

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12 Company delivery terms are Ex-Godown. When transporter’s submit the bill receipted

copy from the distributors not submitted by him. In this way there is no assurance

whether the goods have been reached at the distributors end in safe and sound condition.

13 Workers attendance is not systematic. It has been observed that in some cases a worker’s

attendance is made, whereas he/she is absent from the duty. Similarly, overtime is not

workout systematically.

14 The company does not maintain stock ledgers for spare parts and tools. It has been

observed that costly tools and spareparts of the machinery directly charged to the repair

& maintenance account in the particular month

15 Company produces cookies and uses process costing. There are eighteen brands of

cookies in different packaging. Batch costing is not done in the accounts.

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8.2. SUGGESTION & RECOMMENDATIONS

1 Internal audit department plays a vital role in any organization. It is suggested that

company should form it. This department will look after the internal control systems and

give suggestion for their improvement.

2 For better products costing, cost & management accounting also important for any

organization. It is suggested that company should consider on this matter.

3 Strength of accounts staff in any organization depends on the volume of the business.

There are only six persons including Manager Accounts and one account officer at

factory exists in the company. This insufficient staff could not perform efficiently due to

heavy load of work. It is suggested that the post of Assistant Manager Account at Head

Office and Accounts Assistant to be created so work can be done in a better way.

4 It is suggested that distributor’s claim to be adjusted in the same month so actual

outstanding against each distributors shown in the books of accounts.

5 It is suggested that bank balances to be updated on every day. So they will be in a good

position to issue the Cheques to suppliers.

6 For the true picture of accounts it is recommended that trial balance errors to be rectified

on monthly basis. In this way actual figure stands in each account.

7 Consumption report of raw & packing materials to be made on monthly basis.

Accordingly it is adjusted in the said month.

8 Personnel record of employees to be updated so provision for leaves payable to the

employees can be maintained.

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9 It is suggested that to know about the actual sales return damage stock from distributors

to be updated on monthly basis so actual sales return to be known by the company in the

current month.

10 It is suggested that purchases made by one person to be checked by another persons. In

the company there is no crosscheck on the purchaser.

11 It is suggested those cash receipts & payments from accounts made by one person and

checked by accounts officer. So, checks and control to be balanced. In Dane Foods cash

receipts & payments are made by accounts officer at factory and he has no assistant.

12 It is suggested that payments not to be made to the transporter’s until unless he did not

submit all receipted copies of the dispatch notes with the particular bill.

13 It is suggested that attendance of workers to be made systematically. A time punching

card machine can solve this problem.

14 For better allocation of expenses it is suggested that stock ledgers of spareparts and tools

to be maintained, so in this way their charges would be spread over a period of time not

in the same month.

15 It is suggested that for better costing of cookies and biscuits batch costing should be

applied rather than process costing.

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8.3. CONCLUSION

After making a depth review of the financial accounting systems and financial analysis of the

Balance sheet and profit and loss accounts statements I come on the final conclusion which is.

 Internal control systems of the organization are weak.

 Checks and control systems are also weak.

 Financial position is not stable because it sustained heavy losses since its formation.

 Due to heavy losses they are unable to get long term loans from investment companies

and other financial institutions.

 They are also not in position to issue new shares for raising there capital.

 Their liquidity position not stable i.e. they are not able to pay current liabilities with

current assets.

 On the other hand the positive sign can be seen in the company that is they reduced

operating expenses every year, which shows company will be in the break even in near

future.

 Similarly, with the increasing of sale every year their cost of production reduced every

year which also shows an improvement in the company.

I hope that in near future they will stable their financial position and also improve their financial

accounting systems if they consider the suggestion and recommendation given in the report

earlier.

THANKS

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