Financial Information. Shaukat Khanum Memorial Trust

Transcription

1 2010 ANNUAL REPORT

2

3 Financial Information Shaukat Khanum Memorial Trust

4 HONORARY AUDITORS REPORT TO THE BOARD OF GOVERNORS We have audited the annexed balance sheet of Shaukat Khanum Memorial Trust ( the Trust ) as at December 31, 2010 and the related income and expenditure account, statement of comprehensive income, statement of changes in funds and cash flow statement together with the notes forming part thereof (hereinafter referred to as the financial statements ) for the year then ended. It is the responsibility of the Board of Governors to establish and maintain a system of internal control, and prepare and present the financial statements in conformity with the approved accounting standards as applicable in Pakistan. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Trust as at December 31, 2010 and of its surplus and cash flow for the year then ended in accordance with the approved accounting standards as applicable in Pakistan. Lahore, October 18, 2011 A. F. Ferguson & Co. Chartered Accountants

5 Financial Information SHAUKAT KHANUM MEMORIAL TRUST -BALANCE SHEET AS AT DECEMBER 31, 2010 General Endowment fund fund Note FUND BALANCE REPRESENTED BY 2,536,652, ,490,674 3,528,142,983 3,365,733,921 NON-CURRENT ASSETS Property, plant and equipment 6 2,264,045,521-2,264,045,521 1,998,405,326 Assets subject to finance lease 7 228,030, ,030, ,409,281 Intangible assets 8 9,306,677-9,306,677 - Capital work-in-progress 9 139,853, ,853, ,002,080 Long term advances, receivables and security deposits 10 5,613,301-5,613,301 4,634,552 Investments 11 33,215, ,984, ,200, ,219,464 2,680,064, ,984,857 3,311,049,506 2,938,670,703 CURRENT ASSETS Stores and spares 21,627,316-21,627,316 21,752,387 Stocks ,496, ,496, ,437,991 Donations in kind 13 62,229,000-62,229,000 58,022,000 Trade receivables 14 94,996,507-94,996,507 61,206,961 Advances, deposits, prepayments and other receivables 15 62,249,696 2,927,402 65,177,098 48,077,033 Investments 16 1,808,967 96,800,000 98,608, ,370,518 Cash and bank balances ,067, ,778, ,845, ,272, ,474, ,505,817 1,121,980,548 1,215,139,679 LESS: CURRENT LIABILITIES Current maturity of long term loans -secured 20 50,782,570-50,782,570 51,136,281 Current maturity of lease liabilities 21 73,002,190-73,002,190 46,937,038 Short term borrowings - secured 18 80,780,847-80,780, ,316,527 Trade and other payables ,121, ,121, ,862, ,686, ,686, ,252,384 LESS: NON-CURRENT LIABILITIES Long term loans - secured ,063, ,063, ,859,254 Liabilities against assets subject to finance lease 21 84,015,753-84,015,753 42,436,794 Long term advances 22 43,323,600-43,323,600 - Deferred government grant ,000, ,000,000 - Deferred liabilities 24 29,797,279-29,797,279 25,528, ,200, ,200, ,824,077 Contingencies and commitments 25 2,536,652, ,490,674 3,528,142,983 3,365,733,921 The annexed notes 1 to 37 form an integral part of these financial statements. 28

6 SHAUKAT KHANUM MEMORIAL TRUST INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2010 General Endowment fund fund Note CLINICAL INCOME 26 1,553,844,162-1,553,844,162 1,280,870,988 OTHER INCOME 27 1,459,145,471 33,783,967 1,492,929,438 1,573,012,374 TOTAL INCOME 3,012,989,633 33,783,967 3,046,773,600 2,853,883,362 EXPENSES Clinical expenses 28 2,202,776,678-2,202,776,678 1,841,772,644 General and administrative expenses ,052, ,052, ,916,893 Marketing expenses ,354, ,354,159 79,830,569 Finance cost 31 40,706,793 2,975,192 43,681,985 68,717,897 2,903,890,057 2,975,192 2,906,865,249 2,422,238,003 Surplus before taxation 109,099,576 30,808, ,908, ,645,359 Provision for taxation Surplus of income over expenditure 109,099,576 30,808, ,908, ,645,359 The annexed notes 1 to 37 form an integral part of these financial statements. STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2010 General Endowment fund fund Surplus of income over expenditure 109,099,576 30,808, ,908, ,645,359 Other comprehensive income: Revaluation surplus on land ,741,250 Unrealized (loss)/gain on investments (1,730) 31,798,146 31,796,416 57,025,215 Gain transferred to comprehensive income on disposal - (9,295,705) (9,295,705) - Other comprehensive income for the year (1,730) 22,502,441 22,500, ,766,465 Total comprehensive income for the year 109,097,846 53,311, ,409, ,411,824 The annexed notes 1 to 37 form an integral part of these financial statements. 29

7 SHAUKAT KHANUM MEMORIAL TRUST STATEMENT OF CHANGES IN FUNDS FOR THE YEAR ENDED DECEMBER 31, 2010 Revaluation surplus on land (Note 5) Unrealized (loss)/gain on investments General Fund Endowment Fund Accumulated surplus of income over expenditure Total General Fund Unrealized (loss)/gain on investments Accumulated surplus of income over expenditure Total Endowment Fund Total Balance as on January 01, ,085,000 (56,893) 981,744,715 1,670,772,822 (58,710,002) 862,259, ,549,275 2,474,322,097 Total comprehensive income for the year 402,741,250 (35,609) 398,845, ,551,057 57,060,824 32,799,943 89,860, ,411,824 Transfer from general fund to endowment fund - - (43,069,416) (43,069,416) - 43,069,416 43,069,416 - Balance as on December 31, ,091,826,250 (92,502) 1,337,520,715 2,429,254,463 (1,649,178) 938,128, ,479,458 3,365,733,921 Total comprehensive income for the year - (1,730) 109,099, ,097,846 22,502,441 30,808,775 53,311, ,409,062 Transfer from general fund to endowment fund (1,700,000) (1,700,000) - 1,700,000 1,700,000 - Balance as on December 31, ,091,826,250 (94,232) 1,444,920,291 2,536,652,309 20,853, ,637, ,490,674 3,528,142,983 The annexed notes 1 to 37 form an integral part of these financial statements. 30

8 SHAUKAT KHANUM MEMORIAL TRUST CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, Note Cash flows from operating activities Operating surplus 139,908, ,645,359 Adjustments for: Depreciation on property, plant and equipment 187,104, ,279,728 Depreciation on assets subject to finance lease 28,862,697 18,652,258 Amortisation on intangible assets 2,605,967 - (Gain)/loss on disposal of property, plant and equipment (1,337,360) (82,622) Finance cost 43,681,985 68,717,897 Exchange gain (10,624,885) (42,783,138) Interest income (26,870,640) (20,364,463) Amortisation of gain on investment (218,440) - Provision for deferred liabilities 46,394,873 38,449,565 Provision against investment unrealisable - 10,500,000 Provision for donation unrealisable 1,440,000 Provisions and unclaimed balances written back (104,550) - Revaluation loss on property, plant and equipment - 1,428,000 Provision against doubtful receivables - 2,471,508 Receivables written off - 377,528 Advances written off 2,877,416 - Revaluation (gain)/loss on donations in kind (2,790,000) 1,252,150 Surplus before working capital changes 410,929, ,543,770 Effect on cash flow due to working capital changes (Increase)/decrease in current assets: Stores and spares 125,071 3,681,354 Stocks 49,941,913 (83,240,618) Donations in kind (2,857,000) (9,033,150) Trade receivables (33,789,546) (29,833,175) Advances, deposits, prepayments and other receivables (16,271,940) 31,060,226 Increase/(decrease) in current liabilities: Trade and other payables 74,727,963 (123,017,940) 71,876,461 (210,383,303) Cash generated from operations 482,806, ,160,467 Finance cost paid (47,151,259) (75,157,571) Taxes paid (829,502) (581,821) Payments for retirement benefits (42,021,073) (34,438,844) Net cash inflow from operating activities 392,804, ,982,231 Cash flows from investing activities Fixed capital expenditure (238,508,649) (168,632,500) Sale proceeds of property, plant and equipment disposed off 2,109, ,094 Long term advances and security deposits (5,633,382) 1,821,240 Proceeds from the disposal of investment 590,964,770 - Investments purchased (125,840,000) (94,432,399) Interest received 28,649,234 20,262,677 Net cash inflow/(outflow) from investing activities 251,741,064 (240,507,888) Cash flows from financing activities Repayment of long term loans (57,149,360) (64,793,926) Repayments of finance lease liabilities (112,611,219) (79,186,837) Proceeds from long term advances 43,323,600 - Net cash outflow from financing activities (126,436,979) (143,980,763) Net increase/(decrease) in cash and cash equivalents 518,108,473 (31,506,420) Cash and cash equivalents at the beginning of the year (33,043,738) (1,537,318) Cash and cash equivalents at the end of the year ,064,735 (33,043,738) The annexed notes 1 to 37 form an integral part of these financial statements. 31

9 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, Legal status and nature of business Shaukat Khanum Memorial Trust ('the Trust') was registered in Pakistan on April 3, 1989 with the Registrar of Trusts. The primary purpose of the Trust is to raise funds in Pakistan and abroad for establishing and maintaining a general hospital with emphasis on cancer specialist centres in Pakistan. Funds raised in the United Kingdom and United States of America are incorporated in the accounts of charitable trusts that are separate legal entities registered in the respective countries. The Trust also has a branch office in Dubai which is registered with Jebel Ali Free Zone Authority, Dubai, for creating awareness about the Trust, its hospital and for fundraising. Currently, the Trust is managing Shaukat Khanum Memorial Cancer Hospital and Research Centre in Lahore and a diagnostic center and chemotherapy facility in Karachi whereas it is also in the process of constructing a cancer hospital in Peshawar and Karachi. 2. Basis of preparation 2.1 These financial statements have been prepared in accordance with the requirements of International Financial Reporting Standards as applicable in Pakistan. 2.2 Initial application of standards, amendments, or an interpretation to existing standards The following amendments to existing standards have been published that are applicable to the Trust's financial statements covering annual periods, beginning on or after the following dates: Amendments to published standards that are effective in the current year New and amended standards, and interpretations mandatory for the first time for the financial year beginning January 01, 2010 but not currently relevant to the Trust (although they may affect the accounting for future transactions and events): IFRS 2 (amendments), Group cash-settled share-based payment transactions is effective from January 1, In addition to incorporating IFRIC 8, Scope of IFRS 2, and IFRIC 11, IFRS 2 Group and treasury share transactions, the amendments expand on the guidance in IFRIC 11 to address the classification of group arrangements that were not covered by that interpretation. IFRS 3 (revised), Business Combinations is effective from July 1, The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the noncontrolling interest in the acquiree at fair value or at the non-controlling interest s proportionate share of the acquiree s net assets. All acquisition-related costs should be expensed. IFRS 5 (amendment), Measurement of non-current assets (or disposal groups) classified as held-for-sale. The amendment is part of the IASB s annual improvements project published in April The amendment provides clarification that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, particularly paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1. IAS 1 (amendment), Presentation of Financial Statements. The amendment is part of the IASB s annual improvements project published in April The amendment provides clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non current. By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer 32

10 settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time. IAS 7 (amendment), 'Statement of Cash Flows' is effective from January 1, The amendment provides clarification that only expenditure that results in a recognised asset in the balance sheet can be classified as a cash flow from investing activity. The clarification results in an improvement in the alignment of the classification of cash flows from investing activities in the cash flow statement and the presentation of recognised assets in the balance sheet. IAS 17 (amendment), 'Leases' is effective from January 1, Prior to the amendment, IAS 17 generally required a lease of land with an indefinite useful life to be classified as an operating lease, unless title passed at the end of the lease term. The amendment provides clarification that when a lease includes both land and buildings, classification as a finance or operating lease is performed separately in accordance with IAS 17 s general principles. A lease newly classified as a finance lease should be recognised retrospectively. IAS 27 (revised), Consolidated and Separate Financial Statements, requires the effects of all transactions with noncontrolling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in income statement. IAS 36 (amendment), Impairment of Assets, is effective from January 1, The amendment clarifies that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as defined by paragraph 5 of IFRS 8, Operating segments (that is, before the aggregation of segments with similar economic characteristics). IAS 38 (amendment), Intangible Assets. The amendment is part of the IASB s annual improvements project published in April The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. IAS 39 (amendment), 'Cash flow hedge accounting'. This amendment provides clarification when to recognise gains or losses on hedging instruments as a reclassification adjustments in a cash flow hedge of a forecast transaction that results subsequently in the recognition of a financial instrument. The amendment clarifies that gains or losses should be reclassified from equity to income statement in the period in which the hedged forecast cash flow affects income statement. IFRIC 17, 'Distribution of non-cash assets to owners' is effective from July 1, It sets out requirements as to how an entity should measure distributions of assets other than cash made as a dividend to its owners. The amendment requires the Trust to recognise a liability for a non-cash distribution to owners when the dividend is authorised and is no longer at the discretion of the entity. The dividend payable is measured at the fair value of the net assets to be distributed and the difference between the dividend paid and the carrying amount of the net assets distributed, is recognised in profit or loss. IFRIC 18 'Transfers of assets from customers' is effective from July 01, The interpretation provides guidance on how to account for items of property, plant and equipment received from customers or cash that is received and used to acquire or construct specific assets. This interpretation is only applicable to such assets that are used to connect the customer to a network or to provide ongoing access to a supply of goods or services or both. There are a number of minor amendments in other IFRS and IAS which are part of annual improvement project published in April 2009 (not addressed above). These amendments are unlikely to have any impact on the Trust's financial statements and therefore have not been analysed in detail. 33

11 2.2.2 Standards, amendments, and interpretations to existing standards that are not yet effective and have not been early adopted by the Trust The following amendments and interpretations to existing standards have been published and are mandatory for the Trust's accounting periods beginning on or after January 01, 2011 or later periods, but the Trust has not early adopted them: IFRS 9, Financial Instruments, issued in December This addresses the classification and measurement of financial assets and is likely to affect the Trust s accounting for its financial assets. The standard is not applicable until January 1, 2013 but is available for early adoption. IFRS 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. Fair value gains and losses on available-for-sale debt investments, for example, will therefore have to be recognised directly in profit or loss. The Trust has not yet decided when to adopt IFRS 9. Revised IAS 24, Related Party Disclosures, issued in November It supersedes IAS 24, Related Party Disclosures, issued in The revised IAS 24 is required to be applied from January 1, Earlier application, in whole or in part, is permitted. It is not expected to have any material impact on the Trust's financial statements. Classification of rights issues (Amendment to IAS 32), issued in October For rights issues offered for a fixed amount of foreign currency, current practice appears to require such issues to be accounted for as derivative liabilities. The amendment states that if such rights are issued pro rata to all the entity s existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated. The amendment should be applied for annual periods beginning on or after February 1, Earlier application is permitted. It is not expected to have any impact on the Trust's financial statements. Prepayments of a minimum funding requirement (Amendments to IFRIC 14), issued in November The amendments correct an unintended consequence of IFRIC 14, IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct the problem. The amendments are effective for annual periods beginning January 1, Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented. IFRIC 19, Extinguishing financial liabilities with equity instruments. This clarifies the requirements of IFRSs when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity s shares or other equity instruments to settle the financial liability fully or partially. The interpretation is effective for annual periods beginning on or after July 1, Earlier application is permitted. Improvements to International Financial Reporting Standards 2010, issued in May Basis of measurement 3.1 These financial statements have been prepared under the historical cost convention modified by the revaluation of certain financial instruments, freehold land and properties included in donations in kind at fair value. 3.2 The Trust's significant accounting policies are stated in note 4. Not all of these significant policies require the management to make difficult, subjective or complex judgments or estimates. The following is intended to provide an understanding of the policies the management considers critical because of their complexity, judgment of estimation involved in their application and their impact on these financial statements. Estimates and judgments are continually evaluated and are based on historical experience, including expectations of future events that are believed to be reasonable under the circumstances. These judgments involve assumptions or estimates in respect of future events and 34

12 the actual results may differ from these estimates. a) Provision for taxation The Trust takes into account the current income tax law and the decisions taken by appellate authorities. Instances where the Trust's view differs from the view taken by the income tax department at the assessment stage and where the Trust considers that its views on items of material nature is in accordance with law, the amounts are shown as contingent liabilities. b) Useful lives and residual values of property, plant, and equipment The Trust reviews the useful lives of property, plant and equipment on regular basis. Any change in estimates in future years might affect the carrying amounts of the respective items of property, plant and equipment with a corresponding effect on the depreciation charge and impairment. 4. Significant accounting policies The significant accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 4.1 Taxation The income of the Trust from donations, voluntary contributions, subscriptions, house property and investment in government securities is exempt from tax under clause 58(1) of Part I of the Second Schedule to the Income Tax Ordinance, Property, plant and equipment Property, plant and equipment except freehold land is stated at cost less accumulated depreciation and any identified impairment loss. Freehold land is stated at revalued amount. Expenditure attributable to acquisition of medical equipment till its commissioning is capitalized to form part of the cost of the asset. Depreciation on property, plant and equipment is charged to income using the straight line method so as to write off the depreciable amount of the assets over their estimated useful lives, without taking into account any residual value as considered immaterial, at the rates given in note 6. The assets' residual values and useful lives are reviewed, at each year end, and adjusted if impact on depreciation is significant. The Trust's estimate of the residual value of its property, plant and equipment as at December 31, 2010 has not required any adjustment as its impact is considered insignificant. Depreciation on additions to property, plant and equipment is charged from the month in which the asset is available for use, while no depreciation is charged for the month in which the asset is disposed off. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (note 4.4). Subsequent costs are included in the assets' carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Trust and the cost of the item can be measured reliably. All other repair and maintenance costs are charged to income during the period in which they are incurred. The gain or loss on disposal or retirement of an asset represented by the difference between the sale proceeds and the carrying amount of the asset is recognised as an income or expense. 4.3 Capital work-in-progress Capital work-in-progress is stated at cost less any identified impairment loss. All expenditure connected with specific assets incurred during installation and construction period are carried under capital work-in-progress. These are transferred to property, plant and equipment as and when these are available for use. 35

13 4.3 Intangible Assets Computer Software Expenditure incurred to acquire computer software is capitalised as intangible asset and stated at cost less accumulated amortisation and any identified impairment loss. Computer software is amortised using the straight line method over a period of three years. Amortisation on additions to computer software is charged from the month in which the asset is available for use while no amortisation is charged for the month in which the asset is disposed off. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (note 4.4). 4.4 Impairment of non-financial assets Assets that have an indefinite useful life, for example land, are not subject to depreciation/amortization and are tested annually for impairment. Assets that are subject to depreciation/amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. 4.5 Leases The Trust is the lessee: Finance leases Leases where the Trust has substantially all the risks and rewards of ownership are classified as finance leases. At inception, finance leases are capitalised at the lower of present value of minimum lease payments under the lease agreements and the fair value of the assets. The related rental obligations, net of finance cost, are included in liabilities against assets subject to finance lease as referred to in note 21. The liabilities are classified as current and non-current depending upon the timing of the payment. Each lease payment is allocated between the liability and finance cost so as to achieve a constant rate on the balance outstanding. The interest element of the rental is charged to income over the lease term. Assets acquired under a finance lease are depreciated over the useful life of the asset on straight line method at the rates given in note 7. Depreciation of leased assets is charged to income. Depreciation on additions to leased assets is charged from the month in which an asset is available for use while no depreciation is charged for the month in which the asset is disposed off Operating leases Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to income on a straight-line basis over the lease term. 4.6 Investments Investments intended to be held for less than twelve months from the balance sheet date or to be sold to raise operating capital are included in current assets, all other investments are classified as non-current. Management determines the 36

14 appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments made by the Trust are classified for the purpose of measurement into the following categories as explained in note Financial Instruments Financial assets The Trust classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, available for sale and held to maturity. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at the time of initial recognition. a. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term. Assets in this category are classified as current assets if expected to be settled within twelve months, otherwise, they are classified as non-current. b. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the balance sheet date, which are classified as non-current assets. Loans and receivables comprise loans, advances, deposits and other receivables and cash and cash equivalents in the balance sheet. c. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investments within twelve months from the balance sheet date. d. Held to maturity Financial assets with fixed or determinable payments and fixed maturity, where management has the intention and ability to hold till maturity are classified as held to maturity and are stated at amortised cost. All financial assets are recognised at the time when the Trust becomes a party to the contractual provisions of the instrument. Regular purchases and sales of investments are recognised on trade-date the date on which the Trust commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income and expenditure account. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Trust has transferred substantially all the risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and heldto-maturity investments are carried at amortised cost using the effective interest rate method. Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented in the income and expenditure account in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income and expenditure account as part of other income when the Trust's right to receive payments is established. Changes in the fair value of securities classified as available-for-sale are recognised in other comprehensive income. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in 37

15 the fund are reclassified from the fund to income and expenditure account as a reclassification adjustment. Interest on available-for-sale securities calculated using the effective interest method is recognised in the income and expenditure account. Dividends on available-for-sale equity instruments are recognised in the income and expenditure account when the Trust s right to receive payments is established. The fair values of quoted investments are based on current prices. If the market for a financial asset is not active (and for unlisted securities), the Trust measures the investments at cost less impairment in value, if any. The Trust assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss is removed from the fund and recognised in the income and expenditure account. Impairment losses recognised in the income and expenditure account on equity instruments are not reversed through the income and expenditure account. Impairment testing of trade debts and other receivables is described in note Financial liabilities All financial liabilities are recognised at the time when the Trust becomes a party to the contractual provisions of the instrument. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in respective carrying amounts is recognised in the income and expenditure account Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is reported in the financial statements only when there is a legally enforceable right to set off the recognized amount and the Trust intends either to settle on a net basis or to realize the assets and to settle the liabilities simultaneously. 4.8 Sale and repurchase agreements Securities purchased under an agreement to resell (reverse repo) are not recognised in the financial statements as investments and the amount extended to the counter party is included in advances, deposits, prepayments and other receivables. The difference between the sale and repurchase price is recognised as markup earned and included in other income. 4.9 Employees benefit Provident fund (defined contribution plan) The Trust operates a funded contributory provident fund scheme for all permanent employees. Equal monthly contributions, at the rate of 7.5 percent of gross salary, are made both by the Trust and employees. The Trust has also provided liability for gratuity for the period prior to the introduction of provident fund scheme Accumulating compensated absences Provisions are made annually to cover the obligation for accumulating compensated absences and are charged to income. Retirement benefits are payable to staff on completion of prescribed qualifying period of service under these schemes Donations in kind Land and properties received as donations are initially measured at the market value prevailing at the time of acquisition of the property. At subsequent reporting dates, these are remeasured at their fair value prevailing at the balance sheet 38

16 date and the difference in the fair values is charged to income Stores and spares Usable stores and spares are valued principally at moving average cost, while items considered obsolete are carried at nil value. Items in transit are valued at cost comprising invoice value plus other charges incurred thereon Stocks Stocks are valued principally at the lower of weighted average cost and net realisable value. Cost is arrived at on a moving average basis. Materials in transit are stated at cost comprising invoice value plus other charges incurred thereon. Net realisable value signifies the estimated selling price in the ordinary course of operation less costs necessary to be incurred in order to make a sale Trade debts and other receivables Trade debts and other receivables are recognised initially at invoice value, which approximates fair value, and subsequently measured at amortised cost using the effective interest method, less provision for doubtful debts. A provision for doubtful debts is established when there is objective evidence that the Trust will not be able to collect all the amount due according to the original terms of the receivable. Significant financial difficulties of the debtors, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade debt is impaired. The provision is recognised in the income and expenditure account. When a trade debt is uncollectible, it is written off against the provision. Subsequent recoveries of amounts previously written off are credited to the income and expenditure account Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts / short term borrowings. Bank overdrafts are shown within short term borrowings in current liabilities on the balance sheet Trade and other payables Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Exchange gains and losses arising on translation in respect of liabilities in foreign currency are added to the carrying amount of the respective liabilities Provisions Provisions are recognized when the Trust has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Trust will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to property, plant and equipment are included in non-current liabilities as deferred government grants and are credited to the income statement on a straight-line basis over the expected lives of the related assets. 39

17 4.18 Income recognition Income is recognised when it is probable that the economic benefits will flow to the entity and the income can be measured reliably. Clinical income is recognized at the time when services are rendered. Zakat and donations are recognised when received. Return on deposits is accrued on a time proportion basis by reference to the principal outstanding and the applicable rate of return. Dividend income on equity investments is recognized as income when the right of receipt is established. Service revenue in respect of sale of software is recognised over the contractual period or as and when services are rendered to customers Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost, any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income and expenditure account over the period of the borrowings using the effective interest method. Finance costs are accounted for on an accrual basis and are reported under trade and other payables to the extent of the amount remaining unpaid. Borrowings are classified as current liabilities unless the Trust has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed in the income and expenditure account in the period in which they arise Foreign currency transactions and translation a. Functional and presentation currency Items included in the financial statements of the Trust are measured using the currency of the primary economic environment in which the Trust operates (the functional currency). The financial statements are presented in Pak, which is the Trust s functional and presentation currency. b. Transactions and balances Foreign currency transactions are translated into Pak using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income and expenditure account Endowment Fund This is a restricted fund. The main objective of the fund is to generate income for the operating expenses of Shaukat Khanum Memorial Cancer Hospital and Research Centre. 5. Revaluation reserve on land This represents the surplus on revaluations the following lands: Donated to the Trust by the Government of Punjab for the purpose of construction of a cancer hospital only, in Johar Town, Lahore. Used for the diagnostic centre at Jail Road, Lahore. Used for the diagnostic centre in Defence Housing Authority, Karachi. Used for Karachi Hospital located at Bin Qasim Town, Education City, Karachi. The revaluations had been done as at December 31, 2009 by an independent professional valuer on the basis of open market value. 40

18 6. Property, Plant and Equipment Freehold land Buildings on freehold land Medical and surgical equipment Support services equipment Office equipment HVAC and electrical equipment Furniture and fixtures Vehicles Total COST/REVALUED AMOUNT Balance as at January 01, ,941, ,576, ,754,440 83,389,223 67,042, ,100,940 25,380,589 23,473,853 2,487,659,843 Additions during the year - 15,728, ,087,387 18,595,379 6,766,437 34,175,560 3,030,600 7,334, ,718,523 Surplus on revaluation - note 5 402,741, ,741,250 Loss on revaluation - note 29 (1,428,000) (1,428,000) Disposals during the year - - (88,470) - (173,535) (147,375) - (1,938,945) (2,348,325) Transfer in from leased assets ,718, ,718,618 Balance as at December 31, ,118,255, ,305,373 1,312,471, ,984,602 73,635, ,129,125 28,411,189 28,869,311 3,338,061,909 Balance as at January 01, ,118,255, ,305,373 1,312,471, ,984,602 73,635, ,129,125 28,411,189 28,869,311 3,338,061,909 Additions during the year - note 6.3 & ,000, ,482,338 56,919,410 31,794,376 19,926,841 68,094,553 5,213,245 3,085, ,516,273 Disposals during the year (69,000) - - (4,344,101) (4,413,101) Balance as at December 31, ,243,255, ,787,711 1,369,391, ,778,978 93,493, ,223,678 33,624,434 27,610,720 3,787,165,081 DEPRECIATION Balance as at January 01, ,523, ,191,507 58,911,356 47,086, ,745,788 11,690,230 18,647,944 1,165,796,882 Charge for the year - 20,811, ,967,065 6,508,133 8,033,853 10,344,627 2,312,632 2,302, ,279,728 Depreciation on disposals (109,630) (12,828) - (1,835,395) (1,957,853) Transfer in from leased assets ,537, ,537,826 Balance as at December 31, ,334, ,696,398 65,419,489 55,011, ,077,587 14,002,862 19,114,795 1,339,656,583 Balance as at January 01, ,334, ,696,398 65,419,489 55,011, ,077,587 14,002,862 19,114,795 1,339,656,583 Charge for the year - 22,012, ,534,628 10,444,281 8,855,154 14,815,170 2,510,470 2,931, ,104,347 Depreciation on disposals (69,000) - - (3,572,370) (3,641,370) Balance as at December 31, ,346, ,231,026 75,863,770 63,797, ,892,757 16,513,332 18,474,374 1,523,119,560 Book value as at December 31, ,118,255, ,971, ,775,577 36,565,113 18,624,122 80,051,538 14,408,327 9,754,516 1,998,405,326 Book value as at December 31, ,243,255, ,440, ,160,359 57,915,208 29,695, ,330,921 17,111,102 9,136,346 2,264,045,521 Annual depreciation rate % to

19 6.1 The carrying amount of freehold land as at December 31, 2010 would have been Rs million (2009: Rs million) had there been no revaluation. 6.2 The cost of fully depreciated assets which are still in use as at December 31, 2010 is Rs million (2009: Rs million). 6.3 Included in additions is land of Rs 125 million measuring 50 kanals located at Hayatabad, Phase V, Peshawar which has been granted to the Trust by the Government of Khyber Pakhtunkhwa to develop, build and operate a cancer hospital as referred to in note Included in additions are vehicles aggregating Rs million which have been purchased from Indus Motors Company Limited, a related party. 6.5 The depreciation charge for the year has been allocated as follows: Note Clinical expenses ,116, ,972,595 General and administrative expenses 29 33,040,750 29,544,425 Marketing expenses 30 1,947,241 1,762, ,104, ,279,728 42

20 7. Assets subject to finance lease Medical and surgical equipment Support services equipment Office equipment HVAC and electrical equipment Total COST Balance as at January 01, ,895,653-25,619,375-89,515,028 Additions during the year 36,627,017 3,804,451-40,585,660 81,017,128 Transfer to property, plant and equipment (25,718,618) (25,718,618) Balance as at December 31, ,804,052 3,804,451 25,619,375 40,585, ,813,538 Balance as at January 01, ,804,052 3,804,451 25,619,375 40,585, ,813,538 Additions during the year 106,289,875 8,819,106-19,374, ,483,683 Balance as at December 31, ,093,927 12,623,557 25,619,375 59,960, ,297,221 DEPRECIATION Balance as at January 01, ,936,652-3,353,173-16,289,825 Charge for the year 12,060, ,561 5,123, ,368 18,652,258 Transfer to property, plant and equipment (12,537,826) (12,537,826) Balance as at December 31, ,459, ,561 8,477, ,368 22,404,257 Balance as at January 01, ,459, ,561 8,477, ,368 22,404,257 Charge for the year 18,225, ,792 5,123,875 4,519,769 28,862,697 Balance as at December 31, ,684,541 1,469,353 13,600,923 5,512,137 51,266,954 Book value as at December 31, ,344,772 3,328,890 17,142,327 39,593, ,409,281 Book value as at December 31, ,409,386 11,154,204 12,018,452 54,448, ,030,267 Annual depreciation rate % The depreciation charge for the year has been allocated as follows: Note Clinical expenses 28 20,482,817 13,009,926 General and administrative expenses 29 8,379,880 5,642,332 28,862,697 18,652,258 43

21 8. Intangible Assets () Computer software COST Balance as at January 01, Additions during the year 11,912,644 Balance as at December 31, ,912,644 AMORTISATION Balance as at January 01, Charge for the year 2,605,967 Balance as at December 31, ,605,967 Book value as at December 31, ,306,677 Annual amortisation rate % The amortisation charge for the year has been allocated as follows: Note Clinical expenses ,619 - General and administrative expenses 29 2,482,348-2,605, Capital work-in-progress Note Advances to suppliers 6,829,802 22,653,858 Advances to contractors - 2,242,404 Medical and surgical equipment in transit ,203,286 - Civil works - Diagnostic centre, Karachi - 130,177,272 - Fourth POD building 11,649,990 11,649,990 - Pet Scan 4,178, Karachi hospital 4,880,244 4,880,244 - Peshawar hospital 587, Nursing inpatient rooms 67,992,893 2,422,817 89,288, ,130,323 HVAC and electrical equipment - Diagnostic centre, Karachi - 21,455,815 - In transit ,531,379-19,531,379 21,455,815 Furniture and fixture - Diagnostic centre, Karachi - 519, ,853, ,002, This represents the cost of 'medical and surgical equipment' and 'HVAC and electrical equipment' which is financed 44

22 through advances from Meezan Bank Limited as referred to in note 22 and will be capitalised upon receipt of the assets. 10 Long term advances, receivables, and security deposits Note Advances to employees - unsecured and considered good ,368,255 5,594,693 Receivables from patients - unsecured and considered good 6,072,294 3,776,590 11,440,549 9,371,283 Less: Current maturity - Advances to employees 15 2,953,706 3,948,520 - Receivables from patients 15 5,913,612 3,141,581 8,867,318 7,090,101 2,573,231 2,281,182 Security deposits 3,040,070 2,353,370 5,613,301 4,634, Includes an interest free advance of Rs 700,000 (2009: Rs 278,193) to the Chief Financial Officer, which has been repaid subsequent to the year end. 45