E2-E3/Management/Capital budgeting & Revenue budgeting

Rev date: 01-04-2011

E2-E3: MANAGEMENT
CHAPTER-13
CAPITAL BUDGETING AND REVENUE
BUDGETING
(Date of creation: 01-04-2011)

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Capital Budgeting And Revenue Budgeting

Lesson Objectives:

Scope of Revenue and Capital budgeting

Classification of items of expenditure under capital and revenue

Budget estimates and revised estimates

Control of Expenditure
Budget: Its Importance And Meaning:

Planning is essential for every enterprise and is a passport to its success.

The Budget operationalises the plan and lays down the path to be followed for the
achievements of the planned objectives.

It contains quantitative, financial as well as non-financial results to be expected in

future.

It spells the mechanism for laying down the standards, achieving and
implementing plans and also provides feed back on the attainment or otherwise of
the planned targets and standards.

Budget classified on the basis of the nature of activities can be capital or revenue.

Capital Budget relates to planning for the acquisition or constructions of

infrastructure like buildings, machinery and projects having a longer life.

Planning for activities of a recurring nature for the purposes of maintenance of the
infrastructure is covered by revenue Budget.
There are mainly two types of budget in BSNL:
1.
Capital Budget
2.
Revenue Budget
Detailed guidelines for the preparation of these estimates are as under:
Revenue Budget:
Revised Estimate and Budget Estimates under various objects and schedules pertaining to
Revenue Receipts and Working Expenses of BSNL are required to be sent to Corporate
Office latest by 15th September each year. The following points may be kept in mind
while preparing the statements.

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The actual expenditure up to end of august (five months) and estimated

expenditure from september to march (seven months) for every year are required to
be furnished in the prescribed formats.
the term revised estimate is used both in revenue and capital budgetting
What is Revised Estimate (RE) and Budget Estimate (BE)
Actual expenditure for 5 months of current financial year ( April to August ) and
estimated expenditure for 7 months ( September to March) of current financial year is
called Revised Estimate (E) and simultaneously Budget Estimate for the ensuing
financial year i.e. next financial year is also required to be prepared.
Guidelines for Preparation of RE and BE:
i)
The figures should be shown in the statement in Thousands of Rupees for
Working Expenses and in Lakhs of Rupees for Revenue Receipts.
ii)
The particulars should be furnished object-wise and the statement should be
prepared in the same manner as in the prescribed proformae.
iii)
It is generally seen that estimates are over projected and finally savings are shown
at the end of the year. Hence, the Estimates should be projected on realistic basis,
to enable us to finalize cash flow efficiently.
iv)
In case, any additional allotment is authorized after Budget Allotment, the same
must be shown in the relevant column of the Statements.
v)
The economy instructions for keeping the expenditure controlled issued from time
to time must be kept in view while framing the estimates.
vi)
Estimates of License Fee and Spectrum Charges payable is to be exhibited
separately.
vii)
The requirement of funds under pension contribution for the staff and officers and
under leave salary contribution in respect unabsorbed officers may be calculated
as per provisions in FRs as well as Corporate Office instructions on the subject
issued from time to time and included in the proposals.
viii) In the present competitive environment, cutting down cost is of paramount
importance. Therefore, there is very limited scope of additional allotment at RE
stage under Working Expenses.
ix)
In case of OTA particularly, no additional funds be sought.
x)
As regards Honorarium, the status quo will be maintained as at Budget Allotment.
Keeping in view the economy instructions and reductions in profitability of the
Corporation, no provision may be made in RE BE for Honorarium for general
purpose. However, if any Circle/Unit requires allotment under honorarium on

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account of item of work for which rate of honorarium has been fixed such as
payment for setting of questions papers, Election duty for membership
verification (back log, if any), completion of departmental enquiries, arbitration
cases, it will be considered as and when they are demanded. If increase in
allotment in any object is sought from BSNL CO, full justification may be
furnished along with matching savings. The IFAs of the circles are required to
ensure the above while forwarding the Revised Estimates.
Revenue Receipts:
In order to have proper estimate of Revenue, it is necessary that in addition to the trend of
Actuals which is usually taken into consideration, the estimates of Revenue are worked
out on the basis of number of telephone lines, WLL lines and CMTS working as well as
proposed to be given and by applying average Revenue per such line. The targets for
additional Telephone, WLL lines and CMTS for each year is provided by the BSNL
Corporate Office and the likely expansion of these services would be available with the
Circles/Units. Keeping in view the BSNL Accounting policy the Estimates in prescribed
FORMATS should be framed duly supported by a statement showing the detailed
calculation separately for urban/rural, CMTS and other schemes to show how the Revised
Estimates for the current year and the Budget Estimates for the next year have been
worked out.
Capital Budget:
a)
Allotment of Funds under Capital Works:
Every year, the proposals in respect of Capital outlay are to be forwarded by each circle
in Prescribed formats in respect of various components such as LAND, BUILDING,
A&P, MVL (Motor Vehicles & Launches), CABLES, LINES & WIRES, SUBSCRIBER
INSTALLIATIONS., TELEPHONE EQUIPMENTS, OFFICE EQUIPMENT &
MACHINERY, ELECTRICAL FITTINGS & ELECTRICAL APPLIANCES,
FURNITURE FITTINGS, COMPUTER AND M&A ( Mast & Aerials) to Planning
Branches of of BSNL Corporate Office viz LTP, Switching, Core Network, Cellular
Mobile, Building Works, Broad Band etc. in the month of October. Subsequently all
these branches of BSNL Corporate Office assess/recommend and project a consolidated
demand in respect of all the circles to the Capital Budget Section of BSNL Corporate
office for allotment of funds.

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(b) Compilation of Capital works Programme:

Capital works programme shall be compiled only for works costing Rs.20 crores and
above instead of Rs. 5 crores and above (previously). The details are to be submitted to
BBF division of Corporate Office by the respective Circles every year in the prescribed
format to enable Corporate Office to monitor the progress of ongoing and new projects
costing more than 20 crores.
(c) Budgetary Control:
Capital Budget section will furnish details of expenditure ( as obtained from Corporate
accounts Branch) to the concerned circles and respective Planning branches of Corporate
office, on quarterly basis for monitoring physical targets via-a-viz capital expenditure
recommended by planning branches. This pro-active measure will ensure quarterly
review or reasons for budgetary variance and a periodical and centralized Budgetary
Control.
Experience has revealed that proposal for funds often contain discrepancies. Utmost care
should be taken to formulate the proposals as accurately as possible keeping in view the
actual expenditure up to August and anticipated requirements from September to March
with special reference to the estimates of Civil Wing, ITI Ltd., and imports including
freight, insurance, customs and also escalation charges, overhead charges etc. The
DFG/CWP Numbers may be mentioned in scheme/service wise/chronological order.
Further, the components are also to be arranged in the following order only.

The proposals for RE and BE have to be finalized in consultation with the Planning Cell
of the Circle/Unit and closely scrutinized by the Internal Financial Advisor in order to
ensure realistic provision of funds. IFA has to issue a certificate in this regard.
Each year service wise physical targets are communicated to the circles by Corporate
Office, the RE demand should be commensurate with the service-wise requirement of
funds for achieving the targets.
Cash Budget:
Cash Flow statement and Cash budget are two important tools used in financial planning
and cash projections. The concept of cash budget is futuristic in approach whereas cash
flow statement is based on historical (past) data.

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In BSNL, the Circles/units will please note that the cash drawl authorizations will be
restricted not only under working expenses but also under government transactions etc.
Following are the main guidelines:
1.

2.

4.
5.

Budget allotments are taken as base for determining of cash drawls and will be
regulated equivalent to proportionate allotment in each period of drawl especially
under Working Expenses.
Taking the trend of past recoveries from pay and allowances, an amount
equivalent to 60% of gross pay and allowances is taken as net pay and allowances
for disbursement in cash at the end of the month.
Expenditure under Working Expenses other than salaries and wages will be
restricted to proportionate periodical allotment unless specified for unusual
demand.
Five Percent of telephone revenue realization based on targets communicated will
be authorized for drawals towards service tax payment.
Authorisation under Payment of Loans and Advances including HBA will be
restricted to budget allotment to each circle/unit.

Control over expenditure:

In DoT period, control over expenditure was with reference to budget allotment only but
in BSNL two fold control over expenditure has been prescribed at various statges viz.
Corporate Office level, circle level and SSAs level for which 10 days funds authorization
is being allowed proportionately by the Corporate Office and cash is authorized based on
the budget allotment/ Revised Allotment/Final Grant. Circles are required to sent their
cash requisition to BSNL CO on 8th, 18th and 28th of each month. Proportionate
Authorisation is made by BSNL CO on 1st, 11th and 21st of each month. DDOs are not
authorized to incur expenditure out of the revenue collected. Revenue collected is
transferred to BSNL CO on day to day basis through local bank branch to nodal branch of
the Bank at Delhi where the amount is credited in the account of BSNL. Similarly for
operational purpose, cash is authorized by BSNL CO periodically as above. Cash is
requisitioned to BSNL CO on the following objects:
Objects:1.
Pay
2.
IDA/PLI
3.
Payment to DoT Cell
4.
GPF Advance/Withdrawal

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5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.

Rev date: 01-04-2011

Leave Salary contribution

Pension Contribution
Water, Electricity and Fuel Charges
Vehicle Running Expenses
Repair and Maintenance
Overtime allowance
Other Working Expenses
Service Tax
HBA/Loans and Advances
Refund of EMD/SD/Telephone Revenue
Interconnect Usage Charges
Others to be specified (IT etc.)
Payment for purchase of Stores/ Raw Materials
Payment of Excise Duty and other levies
Wages
Suppliers/contractors bills
Others to be specified

Economy Measures: The following measures for fiscal prudence and economy will
also come into force with immediate effect as per BSNL Corporate Office orders:

The prescribed expenditure ceilings for holding seminars, conferences, workshops

etc. should be enforced and a 10% CUT ON THE BUDGETARY ALLOCATION
FOR SEMINARS AND CONFERENCES SHALL BE EFFECTED.

Holding of exhibitions/seminars/conferences abroad is strongly discouraged

except in the case of exhibitions for trade promotion.

There will be a complete ban on holding of meetings and conferences at five star
hotels.

No travel on government account by air will take place by first class. All domestic
travel on government account air will take place only by economy class,
irrespective of the entitlement.

Where travel is unavoidable, it will be ensured that officers of the appropriate

level dealing with the subject are sponsored instead of those at higher levels. The
size of delegation and the duration of visit will be kept to the absolute minimum.

Proposals
for
participation
in
study
tours,
workshops/
conferences/seminars/presentation of papers abroad at government cost will not
be entertained except those that are fully funded by sponsoring agencies.

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Purchase of vehicles, except for operational requirements of the Defence Forces,

Central Para Military Forces and security related organizations will not be
permitted.

Expenditure Management- Economy Measures and Rationalization of Expenditure

as per Govt. Of India Orders received from BSNL Corporate Office: Cut in Non
Plan Expenditure: For the year 2009-2010, every Ministry / Department shall effect
mandatory 10% cut in non Plan expenditure under the following heads:a)
Domestic and Foreign Travel Expenses
b)
Publications
c)
Professional Services
d)
Advertising and publicity
e)
Office expenses
f)
Police ( except for security related requirement)
g)
Other administrative expenses.
h)
The remaining portion of non plan expenditure is 5% mandatory cut.
i)
No increase in the budgetary allocations under the heads of non plan expenditure,
particularly where cuts are now being imposed, will be allowed at RE Stage ,
except under very extra-ordinary and compelling circumstances.
Introduction of Fleet Card: As a part of expenditure control BSNL has introduced cash
less purchase of diesel / petrol through Fleet card. As per directives of CMD, Heads of
Circles are requested to implement this scheme throughout their circle w.e.f 01-10-2009.
Heads of Circles may enter into arrangement for Fleet card programme with companies
like IOC and in places where IOC dealers are not available through BPCL / HPCL etc so
as to have coverage under the scheme throughout the circle and ensure that from 01-102009, purchase of fuel is effected only through the Corporate Smart Card system.
Drawing and disbursing Officers were suitably instructed that no cash purchase of fuel is
made directly or through imprest / Temporary advance. Further, any cash payments made
through imprest / Temporary advance after 01-10-2009 are to be disallowed by DDOs
and recovery made from the salary of the officer concerned.
In accordance with the Agreement executed by BSNL & IOC Ltd, M/S IOC Ltd. will
issue corporate Smart Cards,"XtraPower"- to all BSNL Units for purchase of
Diesel/Petrol from their designated 'Retail Outlets, for running DG sets and vehicles. The
circles will assess the requirement of cards in all their units and place a supply order on

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IOC Ltd for the same. The card fee will be Rs.100/- (one hundred) per card and the
validity of the cards is for three years from the dale of issue. The Scheme will be
operational immediately and will be for Six months. It may be extended further based on
the experience of field units.
The Pay & Accounts officer of each SSA/Unit will hold the Master Card and will arrange
to issue user cards to their indenting units based on bonafide requirement for purchase of
Diesel/ Petrol for vehicles/DG Sets. The daily transaction limit as well as weekly /
monthly transaction limit will be fixed and controlled by him through Web based user ID/
Password. He will also authorize his bank the weekly charging of cash up to the
permitted limit on the Master card by depositing the amount by cheque or use RTGS and
also allocate through web, the transaction limit for each of his user card holder. The user
card authentication for transaction will be controlled by a four digit PIN which will be
held confidential by the authorized card holder. He will be responsible for any
unauthorized use of the card. The Charge slip for every transaction he makes should be
obtained by him which will be the basic voucher for accounting.
M/S IOC Ltd. allows rebate or discount on fuel purchase which will be reflected in their
monthly statement of transactions. The centralized MIS information can be accessed by
the Master card holder. Help on issue and usage of these cards can be obtained by visiting
www.iocxtrapower.com.

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Chapter 13:Capital Budgeting & Revenue Budgeting

Sample self study Questions
Part-A
Fill in the blanks
1.
There are mainly following two types of budget in BSNL:
(a)__________________________________(b) ________________________________
2.
In REBE statement for Working Expenses, the figures should be shown in
_________________ of rupees.
3.
Capital Works Programme shall be compiled only for works costing Rs.
__________________ and above.
4.
Under economy measures, holding of exhibitions in abroad is strongly discouragd
except in case of exhibition for _________________________.
5.
As a part of expenditure control BSNL has introduced cash less purchase of
__________________________ through Fleet Card.
6.
Fleet/Smart Card fee will be Rs. __________ per card and validity of the card is
for ____________ years from the date of issue.
7.
In REBE statement Revised Estimate is for ____________ financial year and
Budget Estimate for _____________ financial year.
Part-B
State True or False.
1.
Cash Flow statement is based on historical (past) dats.
2.
Budget allotment are taken as base for determining cash drawal.
3.
Drawing & Disbursing Officers (DDOs) are authorised to incure expenditure out
of the revenue collected.
4.
Any cash payments made through Imprest/Temporary Advance towards purchase
of fuel after 1-10-2009 are to be disallowed by DDOs.

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5.
6.

1.
2.

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Under Fleet card scheme, the Pay & Accounts Officer of each SSA will hold the
master card & will arrrange to issue user card to their intending units.
Planning for activities of a recurring nature is covered by Capital budget.
Part-C
What is Revised Estimate (RE) and Budget Estimate (BE)?
Mention any four measures come into force as per BSNL Corporate offer orders
for fiscal prudence and economy.

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