Page 65 - DMGT302_FUNDAMENTALS_OF_PROJECT_MANAGEMENT

Fundamentals of Project Management

Notes 12. Write-off of Preliminary Expenses: Preliminary expenses up to 2.5 per cent of the cost of
project or capital employed, whichever is higher, can be amortised in ten equal annual
installments.
13. Profit-Loss before Taxation: This is equal to: Operating profit + Other income – Write-off
of preliminary expenses.
14. Provision for Taxation: To figure out the tax burden, a sound understanding of the Income
Tax Act a complicated legislation and relevant case laws is required. While calculating the
taxable income, a variety of incentives and concessions have to be taken into account.
Once the taxable income, as per the Income Tax Act, is calculated, the tax burden can be
figured out fairly easily by applying the appropriate tax rates.
15. Profit after Taxation: This is simply profit/loss before taxation minus provision for
taxation. A part of profit after tax is usually paid out as dividend – dividend on preference
capital and dividend on equity capital.

16. Retained Profit: The difference between profit after tax and dividend payment is referred
to as retained profit. It is also called ploughed back earnings.

17. Net Cash Accrual: The net cash accrual from operations is equal to: Retained profit +
Depreciation + Write off of preliminary expenses + Other non cash charges.

Projected Balance Sheet

The balance sheet, showing the balance in various asset and liability accounts, reflects the
financial condition of the firm at a given point of time. The format of a balance sheet as prescribed
by the Companies Act is given below:

Table 4.1: Format of Balance Sheet
Liabilities Assets
Share capital Fixed assets
Reserves and surplus Investments
Secured loans Current assets, loans and advances
Unsecured loans Miscellaneous expenditures and losses
Current liabilities and provisions

The liabilities side of the balance sheet shows the sources of finance employed by the business.
Share capital consists of paid-up equity and preference capital. Reserves and surplus represent
mainly the accumulated retained earnings. They are shown in different accounts like the capital
reserve, the investment allowance reserve, and the general reserve. Secured loans represent the
borrowing; of the firm against which security has been provided. The important components of
secured loans are debentures, term loans from financial institutions, and loans from commercial
banks. Unsecured loans represent borrowings against which no specific security has been
provided. The important constituents are fixed deposits from public and unsecured loans from
promoters. Current liabilities are obligations which mature in the near future, usually a year.
These obligations arise mainly from items which enter the operating cycle: payables from
acquiring materials and supplies used in production, and accruals of wages, salaries, and rentals.
Provisions include mainly tax provision, provision for provident fund, provision for pension
and gratuity, and provision for proposed dividends.

60 LOVELY PROFESSIONAL UNIVERSITY