Annual Report Two Thousand Ten

Transcription

1 Annual Report Two Thousand Ten

2 C O N T E N T S VISION AND MISSION STATEMENT 3 CORPORATE INFORMATION 4-5 DIRECTOR S REPORT AUDITOR S REPORT BALANCE SHEET PROFIT AND LOSS ACCOUNT STATEMENT OF OTHER COMPREHENSIVE INCOME CASH FLOW STATEMENT STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE 37 PATTERN OF CERTIFICATE HOLDING 38 CATEGORIES OF CERTIFICATE HOLDING 39 KEY OPERATING AND FINANCIAL DATA REVIEW REPORT OF AUDITORS ON COMPLIANCE OF CODE OF CORPORATE GOVERNANCE NOTICE OF ANNUAL REVIEW MEETING

3 VISION STATEMENT To develop into a leading small venture Islamic Financial Institution that will actively participate in the management of projects in addition to the conventional mode of Modaraba activities. MISSION STATEMENT Engage in activities that will maximize return on investment through Sharia mode of financing for Certificate holders of the Modaraba. 3

4 CORPORATE INFORMATION BOARD OF DIRECTORS OF MODARABA MANAGEMENT COMPANY Mr. Muneeb Ahmed Dar Mr. Aamir Iftikhar Khan Dr. Sardar Ahmad Khan Mr. Ghazanfar Farrokh Mr. Muhammad Javed Amin Mrs. Rukhsana Javed Amin Mrs. Shahana Javed Amin Chairman Chief Executive Director Director Director Director Director AUDIT COMMITTEE Mr. Muneeb Ahmed Dar Mr. Aamir Iftikhar Khan Mr. Muhammad Javed Amin Mrs. Shahana Javed Amin C h a i r m a n M e m b e r M e m b e r M e m b e r COMPANY SECRETARY Mr. Muhammad Arif Hilal LEGAL ADVISOR Mr. Haq Nawaz Chattha, International Legal Services 4

5 AUDITORS OF THE MODARABA Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants BANKERS OF THE MODARABA Allied Bank Limited Askari Bank Limited Habib Bank Limited KASB Bank Limited Samba Bank Limited Silk Bank Limited PRINCIPAL & REGISTERED OFFICE 31/10-A, Abu Baker Block, New Garden Town, Lahore - Pakistan Tel: , Fax: fecm@nexlinx.net.pk REGISTRAR Hassan Farooq Associates (Pvt.) Limited 7-G, Mushtaq Ahmad Gormani Road, Gulberg - II, Lahore. Tel: Fax:

6 DIRECTORS' REPORT TO THE CERTIFICATE HOLDERS Valued Certificate Holders The Board of Directors of Crescent Modaraba Management Company Limited, managers of First Elite Capital Modaraba presents the Nineteenth annual audited accounts of the Modaraba for the year ended June 30, Financial Results Financial results for the year ended June 30, 2010 are summarized as under: June 30, June 30, Rupees Rupees Total Income of Modaraba 48,178,317 41,064,058 Amortization of Assets Leased Out 26,090,039 19,692,146 Administrative & General Expenses 12,864,480 11,122,954 Impairment loss on available for sale financial assets 1,077,053 2,577,409 Financial Charges 13,155 13,175 Modaraba Company's Management Fee 813, ,837 Taxation - - Profit after Taxation 7,320,231 6,892,537 Profit Distribution The Board in its meeting held on September 30, 2010 has approved the distribution of profit of Rs (5%) per certificate of Rs.10 each, subject to deduction of Zakat and tax at source where applicable, for the year ended June 30, Review of Operations The economy of the country remained under pressure during the financial year. Despite the prevailing economic & business conditions the Modaraba has earned a net profit of Rs.7,320,231/= during the year as compared to Rs.6,892,537/= earned in the corresponding period of last year - an increase of Rs.427,694/=in the profit. The major activities of the Modaraba remained Murabahah & Ijarah during the period under review. The Modaraba earned a gross revenue of Rs.48,178,317/= during the period as against Rs.41,064,058/= to same period of last year. An impairment in marketable securities amounting to Rs.1,077,053/= charged to profit and loss account. Future Outlook Poor law & order situation & power shortage remained a challenge for the Government which are main causes for economic stability. Recently the worst floods of the history of Pakistan have badly destroyed its crops & infrastructure which will have significant impact on the overall economic position. However the Modaraba will remain focused on financing to best customers to enhance the profitability for all its stakeholders. Corporate Governance As required by the Code of Corporate Governance, your Directors are pleased to report that: 6 1). The financial statements, prepared by the management of the Modaraba present fairly its true state of affairs, the results of its operations, cash flows and changes in equity. 2). Proper books of account of the Modaraba have been maintained. 3). Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment. 4). International accounting standard, as applicable in Pakistan, have been followed in preparation of financial statements.

7 5). The system of internal control is sound and has been effectively implemented and monitored. 6). There are no doubts upon the Modaraba's ability to continue as a going concern. 7). There has been no material departure from the best practices of corporate governance as detailed in the listing regulation of the Stock Exchanges. 8). The Directors, CEO, CFO, Company Secretary and their spouses and minor children do not hold any interest in the certificates of Modaraba, other than that disclosed in the pattern of certificate holding. 9). A statement setting out the status of the compliance with the best practices of corporate governance is attached to the Annual Report. 10) During the year under review four meetings of the Board of Directors were held. Attendance by each Director is as follows:- Name of Director Number of Meetings Attended i. Mr. Aamir Iftikhar Khan 4 ii. Dr. Sardar Ahmad Khan - iii. Mr. Ghazanfar Farrokh 2 iv. Mr. Muhammad Javed Amin 3 v. Mr. Muneeb Ahmad Dar 4 vi. Mrs. Rukhsana Javed Amin - vii. Mrs. Shahana Javed Amin 4 Pattern of Certificate Holding A statement reflecting the pattern of holding of the certificates as on June 30, 2010 is annexed to this Report. Key Operating & Financial Data A statement summarizing key operating and financial data for the last six years is attached to the Annual Report. Auditors The board has approved the appointment of M/s Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants for the year subject to the approval of the Registrar of Modaraba Companies & Modarabas. Acknowledgment The Board thanks the regulatory authorities for their continuous guidance and co-operation and places on record its appreciation of the services rendered by the staff members for their hard work, dedication and commitment in discharge of their responsibilities in a difficult situation. On behalf of the Board AAMIR IFTIKHAR KHAN CHIEF EXECUTIVE Crescent Modaraba Management Company Limited Dated: September 30,

8 Auditors' Report to the Members We have audited the annexed balance sheet of FIRST ELITE CAPITAL MODARABA ( the Modaraba ) as at June 30, 2010 and the related profit and loss account, statement of other comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof (hereinafter referred to as the financial statements), for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purpose of our audit. These financial statements are the Modaraba Company's (Crescent Modaraba Management Company Limited) responsibility who is also responsible to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards as applicable in Pakistan and the requirements of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), and the Modaraba Companies and Modaraba Rules, Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by the Modaraba Company, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report thata) in our opinion, proper books of account have been kept by the Modaraba Company in respect of First Elite Capital Modaraba as required by the Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), and the Modaraba Companies and Modaraba Rules, 1981; b) in our opinion-- i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), and the Modaraba Companies and Modaraba Rules, 1981, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied; ii) iii) the expenditure incurred during the year was for the purpose of the Modaraba's business; and the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the Modaraba; c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, statement of other comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and, give the information required by the Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), and the Modaraba Companies and Modaraba Rules, 1981, in the manner so required and respectively give a true and fair view of the state of the Modaraba's affairs as at June 30, 2010 and of the profit, other comprehensive income, its cash flows and changes in equity for the year then ended; and d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980.), was deducted by the Modaraba and deposited in the Central Zakat Fund established under section 7 of that ordinance. RAHMAN SARFARAZ RAHIM IQBAL RAFIQ Chartered Accountants Engagement Partner: IRFAN RAHMAN MALIK Date: SEPTEMBER 30, 2010 Place: LAHORE 8

9 BALANCE SHEET AS AT JUNE 30, 2010 June 30, June 30, Note Rupees Rupees ASSETS Current assets Cash and bank balances 5 6,480,085 10,438,727 Short term investments 6 11,858,691 10,967,729 Short term finances under murabahah arrangements - secured 7 25,422,253 21,199,281 Ijarah rentals receivable - secured 8 1,113, ,267 Profit receivable on musharakah finances 9 75,833 77,291 Profit receivable on murabahah finances , ,394 Advances, deposits, prepayments and other receivables 11 2,735,072 1,840,508 Advance income tax 1,259,828 1,235,017 49,914,299 47,099,214 Non-current assets Long term finances under musharakah arrangements - secured 12 9,065,500 9,985,000 Long term finances under murabahah arrangements - secured 13 11,612,638 11,072,137 Assets leased out under ijarah contracts 14 82,673,259 75,342,450 Property and equipment 15 1,757,616 1,619, ,109,013 98,019,289 Total assets 155,023, ,118,503 LIABILITIES Current liabilities Accrued and other liabilities 16 4,056,728 6,805,517 Security deposits 17 5,974,736 2,997,409 Management fee payable 813, ,837 Unclaimed profit distribution 4,304,693 3,720,938 15,149,516 14,289,701 Non-current liabilities Security deposits 17 19,811,816 16,289,408 Employees retirement benefits 18 2,382,202 1,988,992 22,194,018 18,278,400 Contingencies and commitments Total liabilities 37,343,534 32,568,101 NET ASSETS 117,679, ,550,402 REPRESENTED BY Issued, subscribed and paid-up capital ,400, ,400,000 Reserves 4,279,778 (849,598) 117,679, ,550,402 The annexed notes 1 to 37 form an integral part of these financial statements. Muneeb Ahmed Dar Aamir Iftikhar Khan Muhammad Javed Amin Chairman Chief Executive Director CRESCENT MODARABA CRESCENT MODARABA CRESCENT MODARABA MANAGEMENT CO. LTD. MANAGEMENT CO. LTD. MANAGEMENT CO. LTD. 9

10 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED JUNE 30, 2010 INCOME June 30, June 30, Note Rupees Rupees Income from ijarah financing 35,663,846 27,654,609 Profit on musharakah financing 914,372 1,510,834 Profit on murabahah financing 9,276,870 9,954,260 Return on investments 22 1,588,574 1,138,892 Other income , ,463 48,178,317 41,064,058 EXPENSES Amortization of assets leased out under ijarah contracts 14 26,090,039 19,692,146 Administrative and general expenses 24 12,864,480 11,122,954 Impairment loss on available for sale financial assets 1,077,053 2,577,409 Financial charges 13,155 13,175 40,044,727 33,405,684 Operating profit 8,133,590 7,658,374 Management fee , ,837 Profit before taxation 7,320,231 6,892,537 Taxation Profit after taxation 7,320,231 6,892,537 Earnings per certificate - basic and diluted The annexed notes 1 to 37 form an integral part of these financial statements. Muneeb Ahmed Dar Aamir Iftikhar Khan Muhammad Javed Amin Chairman Chief Executive Director CRESCENT MODARABA CRESCENT MODARABA CRESCENT MODARABA MANAGEMENT CO. LTD. MANAGEMENT CO. LTD. MANAGEMENT CO. LTD. 10

11 STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED JUNE 30, 2010 June 30, June 30, Note Rupees Rupees Changes in fair value of available for sale investments 6 2,912,145 (5,720,074) Other comprehensive income/(loss) before taxation 2,912,145 (5,720,074) Taxation - - Other comprehensive income/(loss) after taxation 2,912,145 (5,720,074) Profit for the year 7,320,231 6,892,537 Total comprehensive income 10,232,376 1,172,463 The annexed notes 1 to 37 form an integral part of these financial statements. Muneeb Ahmed Dar Aamir Iftikhar Khan Muhammad Javed Amin Chairman Chief Executive Director CRESCENT MODARABA CRESCENT MODARABA CRESCENT MODARABA MANAGEMENT CO. LTD. MANAGEMENT CO. LTD. MANAGEMENT CO. LTD. 11

12 CASH FLOW STATEMENT FOR THE YEAR ENDED JUNE 30, 2010 June 30, June 30, Note Rupees Rupees CASH GENERATED FROM OPERATIONS 28 31,678,255 50,241,494 (Payments)/receipts for: Income taxes (24,811) (72,524) Employees retirement benefits (40,500) - Purchase of Ijarah assets (38,425,000) (52,962,139) Proceeds from transfer of Ijarah assets 5,252,465 7,458,787 Profit distribution (4,519,245) (6,261,032) Net cash used in operating activities (6,078,836) (1,595,414) CASH FLOW FROM INVESTING ACTIVITIES Purchase of property and equipment (412,510) (125,000) Purchase of investments (11,764,059) (8,653,924) Proceeds from sale of investments 13,273,007 6,045,990 Dividend received 1,023, ,344 Net cash flow from investing activities 2,120,194 (1,926,590) CASH FLOW FROM FINANCING ACTIVITIES - - Net decrease in cash and cash equivalents (3,958,642) (3,522,004) Cash and cash equivalents at the beginning of the year 10,438,727 13,960,731 Cash and cash equivalents at the end of the year 29 6,480,085 10,438,727 The annexed notes 1 to 37 form an integral part of these financial statements. Muneeb Ahmed Dar Aamir Iftikhar Khan Muhammad Javed Amin Chairman Chief Executive Director CRESCENT MODARABA CRESCENT MODARABA CRESCENT MODARABA MANAGEMENT CO. LTD. MANAGEMENT CO. LTD. MANAGEMENT CO. LTD. 12

13 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED JUNE 30, 2010 Reserves Issued Available Note Subscribed Statutory for sale Accumulated Total Total equity And paid-up reserve financial losses Capital assets Rupees Rupees Rupees Rupees Rupees Rupees As at July 01, ,400,000 17,361,297 (3,089,303) (9,490,055) 4,781, ,181,939 Profit for the year ended June 30, ,892,537 6,892,537 6,892,537 Transferred to statutory reserve 21-1,378,507 - (1,378,507) - - Profit distribution for the year ended June 30, (6,804,000) (6,804,000) (6,804,000) Other comprehensive loss for the year ended June 30, (5,720,074) - (5,720,074) (5,720,074) As at June 30, ,400,000 18,739,804 (8,809,377) (10,780,025) (849,598) 112,550,402 Profit for the year ended June 30, ,320,231 7,320,231 7,320,231 Transferred to statutory reserve 21-1,464,046 - (1,464,046) - - Profit distribution for the year ended June 30, (5,103,000) (5,103,000) (5,103,000) Other comprehensive income for the year ended June 30, ,912,145-2,912,145 2,912,145 As at June 30, ,400,000 20,203,850 (5,897,232) (10,026,840) 4,279, ,679,778 The annexed notes 1 to 37 form an integral part of these financial statements. Muneeb Ahmed Dar Aamir Iftikhar Khan Muhammad Javed Amin Chairman Chief Executive Director CRESCENT MODARABA CRESCENT MODARABA CRESCENT MODARABA MANAGEMENT CO. LTD. MANAGEMENT CO. LTD. MANAGEMENT CO. LTD. 13

14 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, REPORTING ENTITY First Elite Capital Modaraba ("the Modaraba") is a perpetual, multi-purpose and multi-dimensional non-trading modaraba formed under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 and the Rules framed there under and is managed by Crescent Modaraba Management Company Limited ("the Management Company"), a company incorporated in Pakistan under the Companies Ordinance The registered office of the Modaraba is situated at 31/10-A Abu Bakar Block, New Garden Town, Lahore. The Modaraba was floated on September 26, 1991 and is listed on Karachi, Lahore and Islamabad Stock Exchanges. The Modaraba is primarily engaged in the business of ijarah, musharakah and murabahah financing, investment in marketable securities and other related businesses. 2 BASIS OF PREPARATION Statement of compliance These financial statements have been prepared in accordance with the requirements of Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 ("the Ordinance"), the Modaraba Companies and Modaraba Rules, 1981 ("the Rules"), Prudential Regulations for Modarabas ("the Regulations") and other directives ("the Directives") issued by the Securities and Exchange Commission of Pakistan together with approved accounting standards as applicable in Pakistan to Modarabas. Approved accounting standards comprise of such International Financial Reporting Standards ("IFRSs"), the International Accounting Standards ("IASs") and the Islamic Financial Accounting Standards ("IFASs") as notified under the provisions of the Companies Ordinance, 1984 and made applicable to modarabas under the Ordinance, the Rules, the Regulations and the Directives. The requirements of the Ordinance, the Rules, the Regulations or the Directives take precedence wherever they differ from the requirements of approved standards. Further, where the requirements of IFAS differ from the requirements of other approved standards, the IFASs take precedence. The Securities and Exchange Commission of Pakistan vide Circular No. 10 of 2004 date February 13, 2004 has deferred, till further orders, the applicability of the IAS 17 "Leases" with effect from July 01, Accordingly, this IAS has not been considered for the purpose of preparation of these financial statements. 2.2 Basis of measurement These financial statements have been prepared under the historical cost convention except for certain financial assets at fair value, certain financial liabilities at amortized cost and employees retirement benefits at present value. In these financial statements, except for the cash flow statement, all transactions have been accounted for on accrual basis. 2.3 Judgments, estimates and assumptions The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions and judgments are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which forms the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. Judgments made by management in the application of approved accounting standards that have significant effect on the financial statements and estimates with a risk of material adjustment in subsequent years are as follows: Depreciation method, rates and useful lives of property and equipment The Modaraba reassesses useful lives, depreciation method and rates for each item of property and equipment annually by considering expected pattern of economic benefits that the Modaraba expects to derive from that item Recoverable amount of assets/cash generating units and impairment The Modaraba reviews carrying amounts of its assets and cash generating units for possible impairment and makes formal estimates of recoverable amount if there is any such indication Obligation under defined benefit plan The Modaraba's obligation under the defined benefit plan is based on valuation carried out periodically by independent actuaries. The valuation requires

15 assumptions to be made of future outcomes, the principal ones being in respect of increases in remuneration, remaining working lives of employees and discount rates to be used to determine present value of defined benefit obligation Provisions 2.4 Functional currency Provisions are based on best estimate of the expenditure required to settle the present obligation at the reporting date, that is, the amount that the Modaraba would rationally pay to settle the obligation at the reporting date or to transfer it to a third party. These financial statements are prepared in Pak Rupees which is the Modaraba's functional currency. 3 SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in the financial statements. 3.1 Property and equipment Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation and impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the item. Parts of an item of property and equipment having different useful lives are recognized as separate items. Major renewals and improvements to an item of property and equipment are recognized in the carrying amount of the item if it is probable that the embodied future economic benefits will flow to the Modaraba and the cost of renewal or improvement can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred. Depreciation Depreciation is recognized in profit or loss by applying reducing balance method over the useful life of each item of property and equipment using the rates specified in note 16 to the financial statements. Depreciation on additions to property and equipment is charged from the month in which the item becomes available for use. Depreciation is discontinued from the month in which it is disposed or classified as held for disposal. Depreciation method, useful lives and residual values are reviewed at each reporting date. De-recognition An item of property and equipment is de-recognized when permanently retired from use. Any gain or loss on disposal of property and equipment is recognized in profit or loss. 3.2 Assets leased out under ijarah contracts Assets leased out are stated at cost less accumulated amortization. Amortization is recognized in profit or loss over the period of lease by applying straight line method. In respect of additions and sales / transfers during the year, amortization is charged proportionately to the period of lease. 3.3 Certificate capital Certificate capital is recognized as equity. Incremental costs directly attributable to the issue of certificates are recognized as deduction from the equity. 3.4 Employees retirement benefits Short term employee benefits The Modaraba recognizes the undiscounted amount of short term employee benefits to be paid in exchange for services rendered by employees as a liability after deducting amount already paid and as an expense in profit or loss. If the amount paid exceeds the undiscounted amount of benefits, the excess is recognized as an asset to the extent that the prepayment would lead to a reduction in future payments or cash refund Post employment benefits The Modaraba operates an unfunded gratuity scheme (defined benefit plan) for all its employees who have completed the minimum qualifying service period. Liability is adjusted on each reporting date to cover the obligation and the adjustment is charged to profit or loss. The amount recognized on balance sheet represents the 15

16 present value of defined benefit obligation as adjusted for unrecognized actuarial gains or losses. Actuarial gains or loss are recognized using '10% corridor approach' as set out by International Accounting Standard 19 - Employee Benefits. The details of the scheme are referred to in note 18 to the financial statements. 3.5 Financial instruments Recognition A financial instrument is recognized when the Modaraba becomes a party to the contractual provisions of the instrument Classification The Modaraba classifies its financial instruments into following classes depending on the purpose for which the financial assets and liabilities are acquired or incurred. The Modaraba determines the classification of its financial assets and liabilities at initial recognition (a) 3.5.2(b) 3.5.2(c) Measurement Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Assets in this category are presented as current assets except for maturities greater than twelve months from the reporting date, where these are presented as non-current assets. Available for sale financial assets Available for sale financial assets are non-derivative financial assets that are designated as such on initial recognition or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Assets in this category are presented as non-current assets unless the management intends to dispose of the asset within twelve months from the reporting date. The particular measurement methods adopted are disclosed in the individual policy statements associated with each instrument Financial liabilities at amortized cost Non-derivative financial liabilities that are not financial liabilities at fair value through profit or loss are classified as financial liabilities at amortized cost. Financial liabilities in this category are presented as current liabilities except for maturities greater than twelve months from the reporting date where these are presented as non-current liabilities. The particular measurement methods adopted are disclosed in the individual policy statements associated with each instrument De-recognition Financial assets are de-recognized if the Modaraba's contractual rights to the cash flows from the financial assets expire or if the Modaraba transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Financial liabilities are de-recognized if the Modaraba's obligations specified in the contract expire or are discharged or cancelled. Any gain or loss on de-recognition of financial assets and financial liabilities is recognized in profit or loss Off-setting A financial asset and a financial liability is offset and the net amount reported in the balance sheet if the Modaraba has legally enforceable right to set-off the recognized amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously "Regular way" purchases and sales of financial assets All regular way purchases and sales of financial assets are recognized on trade date, i.e. the date the Modaraba commits to purchase or sell the asset. Regular way purchases or sales of financial assets are those contracts which require delivery of assets within the time frame generally established by the regulation or convention in the market. 3.6 Investments in equity securities Investments in equity securities, which are intended to be held for an indefinite period of time and may be sold in response to need for liquidity or significant changes in equity prices are 16

17 classified as 'available for sale financial assets'. On initial recognition these are measured at cost, being their fair value on date of acquisition, plus attributable transaction costs. Subsequent to initial recognition, these are measured at fair value subsequent to initial recognition. Changes in fair value are recognized in other comprehensive income until the investment is derecognized or impaired. Gains and losses on de-recognition and impairment losses are recognized in profit or loss. 3.7 Accrued and other liabilities Financial liabilities These are classified as 'financial liabilities at amortized cost'. On initial recognition, these are measured at cost, being their fair value at the date the liability is incurred, less attributable transaction costs. Subsequent to initial recognition, these are measured at amortized cost using the effective interest method, with interest recognized in profit or loss Non-financial liabilities These, both on initial recognition and subsequently, are measured at cost. 3.8 Advances and other receivables Financial assets These are classified as 'loans and receivables'. On initial recognition, these are measured at cost, being their fair value at the date of transaction, less attributable transaction costs. Subsequent to initial recognition, these are measured at amortized cost using the effective interest method, with interest recognized in profit or loss Non-financial assets These, on initial recognition and subsequently, are measured at cost. 3.9 Cash and cash equivalents Cash and cash equivalents comprise cash in hand and cash at banks. Cash and cash equivalents are carried at cost Revenue Revenue is measured at the fair value of the consideration received or receivable, net of returns allowances, trade discounts and rebates, and represents amounts received or receivable for goods and services provided and other operating income earned in the normal course of business. Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the Modaraba, and the amount of revenue and the associated costs incurred or to be incurred can be measured reliably. Revenue from different sources is recognized as follows: Ijarah rentals are recognized over the period of lease as and when the related rentals become due. Profit on murabahah finances is recognized on time proportion basis as and when accrued. Profit on musharakah finances is recognized on time proportion basis as and when accrued. Return on saving accounts is recognized on time proportion basis as and when accrued. Dividend income is recognized when right to receive payment is established Comprehensive income Comprehensive income is the change in equity resulting from transactions and other events, other than changes resulting from transactions with shareholders in their capacity as shareholders. Total comprehensive income comprises all components of profit or loss and other comprehensive income. Other comprehensive income comprises items of income and expense, including reclassification adjustments, that are not recognized in profit or loss as required or permitted by approved accounting standards, and is presented in 'statement of other comprehensive income' Income tax Income tax expense comprises current tax and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in other comprehensive income, in which case it is recognized in other comprehensive income Current taxation Current tax is the amount of tax payable on taxable income for the year and any adjustment to the tax payable in respect of previous years. Provision for current tax is based on current rates of taxation in Pakistan after taking into account tax 17

18 credits, rebates and exemptions available, if any. The amount of unpaid income tax in respect of the current or prior periods is recognized as a liability. Any excess paid over what is due in respect of the current or prior periods is recognized as an asset Deferred taxation Deferred tax is accounted for using the balance sheet approach providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. In this regard, the effects on deferred taxation of the portion of income that is subject to final tax regime is also considered in accordance with the treatment prescribed by the Institute of Chartered Accountants of Pakistan. Deferred tax is measured at rates that are expected to be applied to the temporary differences when they reverse, based on laws that have been enacted or substantively enacted by the reporting date. A deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for deductible temporary differences to the extent that future taxable profits will be available against which temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized Earnings per certificate (EPC) Basic EPC is calculated by dividing the profit or loss attributable to certificate holders of the Modaraba by the weighted average number of certificates outstanding during the period. Diluted EPC is calculated by adjusting basic EPC by the weighted average number of certificates that would be issued on conversion of all dilutive potential certificates into certificates and post-tax effect of changes in profit or loss attributable to certificate holders of the Modaraba that would result from conversion of all dilutive potential certificates into certificates Impairment Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of the asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment loss in respect of a financial asset measured at fair value is determined by reference to that fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognized in profit or loss. Any cumulative loss in respect of an available for sale financial asset recognized previously in equity is transferred to profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. An impairment loss is reversed only to the extent that the financial asset s carrying amount after the reversal does not exceed the carrying amount that would have been determined, net of amortization, if no impairment loss had been recognized Non-financial assets The carrying amount of the Modaraba s non financial assets, other than inventories and deferred tax assets, if any, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset s recoverable amount is estimated. The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit. An impairment loss is recognized if the carrying amount of the assets or its cash generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash generating units are allocated to reduce the carrying amounts of the assets in a unit on a pro rata basis. 18

19 Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used in determine the recoverable amount. An impairment loss is reversed only to that extent that the asset s carrying amount after the reversal does not exceed the carrying amount that would have been determined, net of depreciation and amortization, if no impairment loss had been recognized Provisions and contingencies Provisions are recognized when the Modaraba has a legal and constructive obligation as a result of past events and it is probable that outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Provision is recognized at an amount that is the best estimate of the expenditure required to settle the present obligation at the reporting date. Where outflow of resources embodying economic benefits is not probable, a contingent liability is disclosed, unless the possibility of outflow is remote Profit distribution to certificate holders Profit distribution to certificate holders is recognized as a deduction from accumulated profit in statement of changes in equity and as a liability, to the extent it is unclaimed/unpaid, in the Modaraba s financial statements in the year in which the dividends are approved by the Board of Directors of the Management Company. 4 NEW AND REVISED APPROVED ACCOUNTING STANDARDS, INTERPRETATIONS AND AMENDMENTS THERETO 4.1 New and revised approved accounting standards, interpretations and amendments thereto that are effective in the current year IAS 1 - Presentation of financial statements (Revised 2007) The revised standard has brought about terminology changes, and changes in format and content of the financial statements. A new term "Comprehensive Income", which represents changes in equity during a period other than those resulting from transactions with shareholders in their capacity as shareholders, has been introduced, along with new titles for the financial statements. The Modaraba has applied this standard retrospectively, but only to the extent it is consistent with the requirements of the Modaraba Companies and Modaraba (Floataion and Control) Ordinance, 1980 and the Rules and Regulations made thereunder. Certain requirements of the standard, including change of titles for financial statements, that are in conflict with the Modaraba Companies and Modaraba (Floataion and Control) Ordinance, 1980 and the Rules and Regulations made thereunder, have not been applied in presenting these financial statements. The application of this standard has resulted in presentation of all non-owner changes in equity, other than profit after taxation, which is presented in profit and loss account, separately from owner changes, in 'Statement of Other Comprehensive Income'. There are no other adjustments in current or prior periods, however the removal of above mentioned inconsistencies and conflicts in future, will cause further changes in content and format of these financial statements. 4.2 Approved accounting standards, interpretations and amendments thereto effective with no impact on Modaraba's financial statements Standards, interpretations and amendments IFRS 8 - Operating Segments IAS 23 - Borrowing Costs (Revised 2007) IFRIC 13 - Customer Loyalty Programmes IAS 27 - Consolidated and Separate Financial Statements (amendments) Description The standard introduces 'Management Approach' to sgement reporting. The revised standard has removed the option to expense out borrowing costs and requires an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of qualifying asset. This interpretation addresses accounting by entities that operate, or otherwise participate in, customer loyalty programmes for their customers. It relates to customer loyalty programmes under which the customer can redeem credits for awards such as free or discounted goods or services. The amendments deal with measurement of 19

20 IAS 38 - Intangible Assets (amendments) cost of investment in subsidiaries, jointly controlled entities. The amendment permits an entity to recognize a prepayment asset for advertising or promotional expenditure only up to the point at which the entity has the right to access the goods purchased or up to the point of receipt of services. IAS 40 - Investment Property (amendments) The standard has been amended to include within its scope investment property in the course of construction. IAS 20 - Government Grants (amendments) IAS 39 - Financial Instruments Recognition and Measurement (amendments) IFRS 2 - Share Based Payments (amendments) IAS 32 - Financial Instruments Presentation And IAS 1 - Presentation of Financial Statements (amendments) IFRIC 15 - Agreements for the Construction of Real Estate IFRIC 16 - Hedges of a Net Investment in a Foreign Operation IFRS 3 - Business Combinations (Revised 2008) IAS 27 - Consolidated and Separate Financial Statements (Revised 2008) The amendment requires that the benefit of a government loan at a below-market rate of interest be treated as government grant. The standard has been amended to permit an entity to reclassify non-derivative financial assets out of the 'fair value through profit or loss' and 'available for sale' categories in very limited circumstances. The amendment also clarifies accounting for embedded derivatives in case of such reclassification. The amendment clarifies the definition of vesting conditions and accounting treatment for cancellations, and introduce the concept of non-vesting conditions. These amendments require puttable instruments, and instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation, to be classified as equity if certain conditions are met. The interpretation addresses how entities should determine whether an agreement for the construction of real estate is within the scope of IAS 11 - Construction Contracts or IAS 18 - Revenue, and when revenue from the construction of real estate should be recognized. The interpretation provides guidance on detailed requirements for net investment hedging for certain hedge accounting designations. The revision broadens the definition of business combinations, provides guidance on measurement of contingent consideration, pre-existing interests in acquiree and noncontrolling interests and on accounting for transaction costs. The revisions principally address the accounting for transactions or events that result in a change in the Modaraba's interest in subsidiaries. 20

21 IAS 28 - Investments in Associates (Revised 2008) IAS 39 - Financial Instruments Recognition and Measurement (amendments) IFRIC 17 - Distribution of Non-Cash Assets to Owners The revisions principally address the accounting for transactions or events that result in a change in the Modaraba's interest in associates. The amendments provide clarification on two aspects of hedge accounting: identifying inflation as a hedged risk or portion, and hedging with options. The interpretation provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to its shareholders. 4.3 Approved accounting standards, interpretations and amendments thereto issued but not effective as at the reporting date The following standards, interpretations and amendments are in issue which are not effective as at the reporting date. Their impact on the Modaraba's financial statements cannot be ascertained as at the reporting date. Standards, interpretations and amendments IFRS 5 - Non-Current Asset Held for Sale and Discontinued Operations (amendments) IAS 7 - Statement of Cash Flows (amendments) 5 CASH AND BANK BALANCES Description The standard has been amended to modify disclosure requirements. The amendment is effective for annual period beginning on or after January 01, The amendments specify that only expenditures that result in a recognized asset in the balance sheet can be classified as cash flows from investing activities. The amendments are effective for annual period beginning on or after January 01, June 30, June 30, Note Rupees Rupees Cash in hand 172, ,209 Cash at banks in: local currency - current accounts 50,799 47,414 - saving accounts 5.1 6,256,332 10,221,104 6,307,131 10,268,518 6,480,085 10,438, Effective rate of return on saving accounts ranges from 4.5% to 9.5% (2009: 4.5% to 9.5%). 6 SHORT TERM INVESTMENTS These represent investments in listed equity securities and have been classified as available for sale financial assets. Cost ,410,385 22,354,515 Accumulated impairment losses (3,654,462) (2,577,409) Fair value adjustment (5,897,232) (8,809,377) 11,858,691 10,967,729 21

22 6.1 Particulars of investments Oil and Gas Producers Attock Petroleum Limited Oil and Gas Development Company Limited Pakistan State Oil Company Limited Pakistan Oilfield Limited Pakistan Petroleum Limited Pakistan Refinery Limited Chemicals Fauji Fertilizer Bin Qasim Limited Fauji Fertilizer Company Limited Industrial Metals and Mining Crescent Steel and Allied Products Limited Construction and Materials D.G.Khan Cement Company Limited Fauji Cement Company Limited Lafarge Pakistan Cement Limited Beverages Shakarganj Foods Limited Food Producers Hussain Sugar Mills Limited JDW Sugar Mills Limited Personal Goods Crescent Jute Products Limited Crescent Textile Mills Limited Libaas Textiles Limited Nishat Chunian Limited Sunrise Textiles Limited Suraj Cotton Mills Limited Pharma and Bio Tech Ferozsons Laboratories Limited Fixed Line Telecommunication Callmate Telips Telecom Limited Pakistan Telecommunication Company Limited Electricity Hub Power Company Limited Sitara Energy Limited Gas Water and Multiutilities Sui Northern Gas Pipelines Limited Sui Southern Gas Pipelines Limited Banks Bank Alfalah Limited Askari Bank Limited The Bank of Khyber The Bank of Punjab JS Bank Limited MCB Bank Limited NIB Bank Limited Samba Bank Limited United Bank Limited Non Life Insurance Adamjee Insurance Company Limited PICIC Insurance Company Limited Premier Insurance Limited Financial Services Dadabhoy Leasing Company Limited IGI Investment Bank Limited Invest Capital and Investment Bank Limited Al-Zamin Leasing Corporation Limited Javed Omer Vohra and Company Limited Jahangir Siddiqui and Company Limited Bankers Equity Limited Equity Investment Instruments First Equity Modaraba Mutual Funds National Investment Trust Limited TOTAL 22

23 No. Of Shares/ Certificates Average Cost Fair Value June 30, 2010 June 30, 2009 June 30, 2010 June 30, 2009 June 30, 2010 June 30, 2009 Rupees Rupees 1, , , ,500-1,200, ,720-1, , ,475 4,200 4,200 1,200,238 1,200, , ,780-2, , , ,561-44,900 61,000 20,000 1,992, ,062 1,588, ,800 20,000 17, , ,542 2,061,400 1,554,318 4,400 4, , , ,484 79,068 5, , ,100-10,000-85,280-45,500-26,100 26, , ,989 71,514 70,470 2,000 2,000 39,708 39,708 2,240 4,620 1,700 1,700 61,978 61,978 8,568 28,373 12,000 11, , , , , ,877 31, , , , ,599 82,000 82, , ,655 82, ,000 10,000 8, , , ,800 75, , ,900 2,023,076 2,023, , , , ,132-5,292 5,100 5, , ,323 9,690 9,690 52,000 52,000 3,555,002 3,555, , ,480 16,000 16, , , , ,440 10,000 10, , , , ,500 11,000 11, , , , ,450 11,275 11, , , , ,850 1, ,652 11,804 12,251 3,112 40,860 64, ,783 1,617, , ,407 15,240 15, , ,885 57,607 42,824-2,000-25,565-21,960 15,500 15, , ,183 43,555 93,465 2,000 3, , , , ,096 11,150 11, , ,583 33,338 52,963 40,371 40, , ,172 91, ,306 1,500-82,562-81, ,000-96,764-83, ,837 64,815 1,138,965 1,113, , ,242 1,000 1,000 9,000 9,000 1,400 1,400 7,000 7,000 36,358 36,358 14,980 29,260 36, ,169-31, , ,169-28,458 8,800 8,800 1,164,611 1,164,611 12, ,536 1,000-41,658-46,992-2,000 2,000 26,100 26, ,000 50, , ,523 62,500 49,500 13,700 13, , , , , , ,034 21,410,385 22,354,515 11,858,691 10,967,729 23