The Company has exposure to the following risks from its use of financial instruments:

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Jemimah Little
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1 38 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT The Company has exposure to the following risks from its use of financial instruments: 38.1 Credit risk 38.2 Liquidity risk 38.3 Market risk This note presents information about the Company s exposure to each of the above risks, the Company s objectives, policies and processes for measuring and managing risk, and the Company s management of capital. Further quantitative disclosures are included throughout these financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Company s risk management framework. The Board is responsible for developing and monitoring the Company s risk management policies. The Company s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company's activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Company's Audit Committee oversees how management monitors compliance with the Company s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. To manage credit risk the Company maintains procedures covering the application for credit approvals, granting and renewal of counterparty limits and monitoring of exposures against these limits. As part of these processes the financial viability of all counterparties is regularly monitored and assessed. The Company believes that it is not exposed to major concentration of credit risk. The Company controls its credit risk by the following methods: - Ascertainment of credit worthiness of customers. - Monitoring of debt on a continuous basis. - Legal notices and follow-up. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the balance sheet date was: Long term deposits 3,480 2,704 Trade debts - considered good 38,885 86,697 Interest accrued 2, Other receivables - considered good 1,079 1,725 Investments held for trading 74,704 69,083 Cash at banks 552, , , ,347 The maximum exposure to credit risk for trade debts at the reporting date by type of customers was: Domestic 38,885 86,697

2 The aging of trade debts at the reporting date was: Gross debts Impaired Gross debts Impaired Not past due 2,841-62,223 - Past due 0-30 days 21,745-8,639 - Past due days 8,719-15,791 - Past due days 3, More than 360 days 4,392 2,423 2,544 2,500 41,308 2,423 89,197 2,500 (iv) Impairment losses movement Balance as at 01 July 2,500 2,500 Impairment loss recognized during the year - - Debts written off during the year (77) - Balance at 30 June 2,423 2,500 The Company believes that no impairment allowance is necessary in respect of trade debts past due more than 360 days other than the amounts provided. Trade debts are essentially due from hotels and authorized distributors and the Company is actively pursuing for recovery of debts and accordingly does not expect these companies to fail to meet their obligations Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding to an adequate amount of committed credit facilities and the ability to close out market positions due to dynamic nature of the business. The Company s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company s reputation. The maturity profile of the Company s financial liabilities based on the contractual amounts is as follows: Carrying Contractual Maturity 1 year to 2 years to amounts cash flows Upto one year 2 years 5 years (Rs.'000) Finance lease liabilities 2,683 2,904 1,042 1, Trade and other payables 211, , , , , ,300 1, (Rs.'000) Finance lease liabilities 3,194 3,550 2, Trade and other payables 135, , , , , ,

3 38.3 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Company s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk. (a) (b) Interest rate risk management Currency rate risk management (a) Interest rate risk management The interest rate risk is the risk that the fair value or the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate exposure arises from short term running finance, liabilities against assets subject to finance lease and balances in deposit and saving accounts. At the balance sheet date the interest rate risk profile of the Company s interest bearing financial instruments is: Fixed rate instruments Carrying amounts Financial assets 477, ,453 Variable rate instruments Financial liabilities 2,683 3,194 Fair value sensitivity analysis for fixed rate instruments The Company does not account for any fixed rate financial assets and liabilities at fair value through profit and loss. Therefore, a change in interest rates at the reporting date would not effect profit and loss account for the year. (iv) Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates would have increased or decreased accumulated profit by Rs. 26,826 (2009: Rs. 31,941). This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Profit and loss account 100 Basis 100 Basis points points Increase Decrease 30 June 2010 Cash flow sensitivity - variable rate instruments 26,826 (26,826)

4 (b) Currency risk management Exposure to currency risk The Company is exposed to currency risk on bank balances which is denominated in currency other than the functional currency of the Company. The Company's exposure to foreign currency risk is as follows: (Rs.'000) (USD. '000) (Rs.'000) (USD. '000) Financial assets in USD 3, The following significant exchange rate applied during the year: Average rates Balance sheet rates United States Dollar (USD) Sensitivity analysis A 10% strengthening of the functional currency against foreign currencies at 30 June 2010 would have decreased profit or loss by Rs. 302,164 (2009: Rs.nil). A 10% weakening of the functional currency against foreign currencies at 30 June 2010 would have had the equal but opposite effect of these amounts. The analysis assumes that all other variables remain constant Fair value The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows: Assets carried at amortized cost Carrying Fair Carrying Fair Value Value Value Value Long term deposits 3,480 3,480 2,704 2,704 Trade debts - considered good 38,885 38,885 86,697 86,697 Other receivables - considered good 3,787 3,787 2,743 2,743 Interest accrued 2,087 2, Investments held for trading 74,704 74,704 69,083 69,083 Cash and bank balances 552, , , , , , , ,417 Liabilities carried at amortized cost Deferred liabilities - staff retirement benefits 23,713 23,713 15,769 15,769 Liabilities against assets subject to finance lease 2,683 2,683 3,194 3,194 Trade and other payables 211, , , , , , , ,142

5 Determination of fair values A number of the Company s accounting policies and disclosures require the determination of fair value, for both financial and non financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. Non derivative financial assets The fair value of non derivative financial assets is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes. Non derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. 39 CAPITAL RISK MANAGEMENT The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders, and to maintain a strong capital base to support the sustained development of its businesses. The Company manages its capital structure which comprises capital and reserves by monitoring return on net assets and makes adjustments to it in the light of changes in economic conditions. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividend paid to shareholders and/or issue new shares. There were no changes to Company's approach to capital management during the year and the Company is not subject to externally imposed capital requirement.

46. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

258 Annual Report 2013 Franshion Properties (China) Limited 46. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The s principal financial instruments comprise bank loans and other borrowings and cash