Page 278 - MANUAL OF SOP

Determination of Non Injurious Price

9.6.18. Format-K (Calculation of Capital Employed): Format-K indicates the
details regarding the calculation of capital employed, which forms the basis for
computation of return. It contains two tables viz., one for the details regarding the
Working Capital and the other one for Net Fixed Assets. The format requires that
the details of Components of Working Capital/NFA including NPUC claimed, PUC
claimed (plant wise) and basis of allocation between PUC and NPUC be furnished
head wise for company as a whole. An additional information on the impact of
revaluation of assets, if any, is also to be furnished in the NFA part. The above
information is used for calculation of average capital employed, which will then be
used for computation of return. It must be ensured that no return is allowed for
facilities not deployed on the production of the subject goods. The figures should
reconcile with the audited/certified records of the company. The following issues
may merit consideration in this regard:

(a) Efforts should be made to identify the direct working capital for the PUC.
Sometimes, it is seen that the figures for product wise working capital are
not available with the companies and therefore, working capital is worked
out for the company as a whole. This figure is then allocated to different
products on the basis of turnover of the respective products (including
captive consumption) or any other appropriate basis. It must be seen in all
such cases that the allocation bases adopted are reasonable considering the
credit period allowed for each product of the company. Further, the share
of working capital is preferably allocated to all the activities of the company
including the trading activity, if any. It may be noted here that trading
activity of PUC is considered as NPUC only for all injury analysis. The current
assets for determination of working capital do not include investments/
deposits outside the business. Similarly, huge cash/bank balance/FDR etc.
should also be excluded on merits.
(b) Sometimes, it is seen that the amount of net working capital works out in a
negative figure. This is more prevalent in the case of sick companies or other
companies facing a liquidity crunch. The working capital is taken as zero in
all such cases and return is allowed on NFA portion only. The terms of loans
received or extended to the related parties must also be seen to ensure their
reasonability.
(c) Efforts should be made to directly identify the assets used for the production
of PUC. No impact of revaluation is to be considered for return purposes.

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