CkBooks Online – Free Online Books

Presentation and Disclosure Requirements of Financial Statements – Revision (Contd)
Disclosure Requirements – IAS 02

• The accounting policy adopted
• The total carrying amount and the carrying amount in classification appropriate to the enterprise.
• The carrying amount of the inventories carried at NRV.
• The amount of any reversal of any write down that is recognized as the income.
• The circumstances and events that led to the reversal of write down
• The carrying amount of any securities pledged for security.
• If the inventories are recorded using allowed alternative treatment then the difference of inventories under benchmark treatment and allowed alternative treatment is also required to be disclosed.

• The financial statements should also disclose the cost of inventories recognized as expense during the period.

Disclosure – IAS 18
• An entity shall disclose;
a) The accounting policies adopted for the recognition of revenue, including the methods adopted to determine the stage of completion of transitions involving rendering of services;

b) The amount of each significant category of revenue recognized during the period including revenue arising from;
i. The sale of goods;
ii. The rendering of services;
iii. Interest;
iv. Royalties;
v. Dividend;

c) The amount of revenue arising from exchanges of goods or services included in each significant category of revenue.
Recognition of Borrowing Costs

• Under the benchmark treatment of IAS 23 borrowing cost should be treated as expense in the period they are incurred regardless of how the loan is used.

Disclosure Requirements- Borrowing Cost

• If benchmark treatment is used the enterprise is only required to disclose the policy adopted for borrowing costs.

Disclosure of EPS

• Disclosure must still be made where the EPS figures (basic and/or diluted) are negative (i.e. a loss per share)
• The amounts used as the numerators in calculating basic and diluted EPS, and a reconciliation of those amounts to the net profit or loss for the period.
• The weighted average number of ordinary shares used as the denominator in calculating basic and diluted EPS, and a reconciliation of these denominators to each other.

Disclosures – Cash Flows
• All entities should disclose, together with a commentary by management, any other information likely to be of importance, for example:
a) Restrictions on the use of or access to any part of cash equivalents.
b) The amount of un-drawn borrowing facilities which are available.
c) The separate disclosure of cash flows that represent increases in operating capacity and cash flows that are required to maintain operating capacity is useful in enabling the user to determine whether the entity is investing adequately in the maintenance of its operating capacity. An entity that does not invest adequately in the maintenance of its operating capacity may be prejudicing future profitability for the sake of current liquidity and distributions to owners.
d) The disclosure of segmental cash flows enables users to obtain a better understanding of the relationship between the cash flows of the business as a whole and those of its components parts and the availability and variability of segmental cash flows.
Retrospective Application – IAS 8

• (Para 22) subject to Para 23, when a change in accounting policy is applied retrospectively in accordance with Para 19, the entity shall adjust the opening balance of each affected component of equity for the earliest period presented and the other comparative amounts disclosed for each prior periods presented as if the new accounting policy has always been applied.

Notes to the accounts
1. Legal status and nature of business
The company is incorporated in Pakistan and is listed on Karachi, Lahore and Islamabad Stock Exchanges. It is principally engaged in the manufacture and sale of paper, paperboard, packaging materials and tissue products.
2. Significant accounting policies
2.1 Basis of preparation
2.1.1 These financial statements have been prepared in accordance with the requirements of the Companies Ordinance, 1984 and International Accounting Standards (IAS) as applicable in Pakistan.

Approved
Accounting Standards comprise of such IASs as notified under the provisions of the Companies Ordinance, 1984. Wherever, the requirements of the Companies Ordinance, 1984 or directives issued by the Securities and Exchange Commission of Pakistan (SECP) differ with the requirements of these standards, the requirements of the Companies Ordinance, 1984 or the requirements of the said directives take precedence.
2.1.2 During the year, the SECP substituted the Fourth Schedule to the Companies Ordinance, 1984 which is effective from financial year ending on or after July 5, 2004. This has resulted in the change in accounting policy pertaining to the recognition of dividends proposed subsequent to year end (note 11.1) and capitalization of exchange differences (note 2.19).
2.2 Accounting convention
These financial statements have been prepared under the historical cost convention, except for revaluation of certain financial instruments at fair value and recognition of certain employee retirement benefits at present value.
2.3 Taxation
Provision of current tax is based on the taxable income for the year determined in accordance with the prevailing law for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year if enacted. The charge for current tax also includes adjustments, where considered necessary, to provision for tax made in previous years arising from assessments framed during the year for such years.
2.4 Fixed capital expenditure and depreciation/amortization
2.4.1 Property, plant and equipment
Property, plant and equipment except freehold land are stated at cost less accumulated depreciation and any identified impairment loss. Freehold land is stated at cost less any identified impairment loss. Cost in relation to certain plant and machinery signifies historical cost and interest, mark up etc. as referred to in note 2.20. Depreciation on all operating property, plant and equipment is charged to profit on the straight-line method so as to write off the historical cost of an asset over its estimated useful life at the following annual rates:
Plant and machinery 6.25% to 20%
Buildings 2.5% to 10%
Other equipment 10% to 33.33%
Furniture and fixtures 10% to 20%
Vehicles 20%
Depreciation on additions to property, plant and equipment is charged from the month in which an asset is acquired or capitalized while no depreciation is charged for the month in which the asset is disposed off. Impairment loss or its reversal, if any, is also charged to income. Where an impairment loss is recognized, the depreciation charge is adjusted in the future periods to allocate
the asset’s revised carrying amount over its estimated useful life. Major repairs and improvements are capitalized. Minor repairs and renewals are charged to income. 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 recognized as an income or expense.
2.4.2 Intangible assets
Expenditure incurred to acquire computer software and Enterprise Resource Planning System (ERP) are capitalized as intangible assets and stated at cost less accumulated amortization and any identified impairment loss. Intangible assets are amortized using the straight line method over a period of three years. Amortization on additions to intangible assets is charged from the month in which an asset is acquired or  capitalized while no amortization is charged for the month in which the asset is disposed off. Impairment loss or its reversal, if any, is also charged to income. Where an impairment loss is recognized, the amortization charge is adjusted in the future periods to allocate the asset’s revised carrying amount over its estimated useful life.
2.4.3 Capital work in progress
Capital work in progress is stated at cost less any identified impairment loss.
2.5 Leases
Finance leases
A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Assets subject to finance lease are stated 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 charges, are included in liabilities against assets subject to finance lease as referred to in note 6. The liabilities are classified as current and long-term depending upon the timing of the payment. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the balance outstanding. The interest element of the rental is charged to profit over the lease term. Assets acquired under a finance lease are depreciated over the useful life of the asset on a straight-line method at the rates given in note 2.4.1. Depreciation of leased assets is charged to profit.
Depreciation on additions to leased assets is charged from the month in which an asset is acquired 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 profit on a straight line basis over the lease term.

2.6 Investments
Investments in equity instruments of subsidiaries and associated companies Investments are initially measured at cost. Cost in relation to investments made in foreign currency is determined by translating the consideration paid in foreign currency into rupees at exchange rates prevailing on the date of transactions.
Other investments
The other investments made by the company are classified for the purpose of measurement into the following categories: Held to maturity Investments with fixed maturity that the management has the intent and ability to hold to maturity are classified as held to maturity and are initially measured at cost and at subsequent reporting dates measured at amortized cost using the effective yield method.
Available for sale Investments classified as available for sale are initially measured at cost, being the fair value of consideration given. At subsequent reporting dates, these investments are re-measured at fair value (quoted market price), unless fair value cannot be reliably measured. The investment for which a quoted market price is not available, are measured at cost as it is not possible to apply any other valuation methodology. Realized and un-realized gains and losses arising from changes in fair value are included in the net profit or loss for the period in which these arise.
All purchases and sales of investments are recognized on the trade date which is the date that the company commits to purchase or sell the investment. Cost of purchase includes transaction cost.
At subsequent reporting dates, the company reviews the carrying amounts of the investments to assess whether there is any indication that such investments have suffered an impairment loss. If any such indication exists, the recoverable amount is estimated in order to determine the extent of the im  pairment loss if any. Impairment losses are recognized as expense. Where an impairment loss subsequently reverses, the carrying  amount of the investment is increased to the revised recoverable amount but limited to the extent of initial cost of the investment. A reversal of the impairment loss is recognized in income.
2.7 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 paid thereon.
2.8 Stock-in-trade
Stock of raw materials, except for those in transit, work-in-process and finished goods are valued principally at the lower of weighted average cost and net realizable value. Cost of work-in-process and finished goods  comprises, cost of direct materials, labour and appropriate manufacturing overheads. Materials in transit are stated at cost comprising invoice value plus other charges paid thereon.
Net realizable value signifies the estimated selling price in the ordinary course of business less costs necessarily to be incurred in order to make a sale.
2.9 Financial instruments
Financial assets and financial liabilities are recognized when the company becomes a party to the contractual provisions of the instrument. The particular measurement methods adopted are disclosed in the individual policy statements associated with each item.
2.10 Trade debts
Trade debts are carried at original invoice amount less an estimate made for doubtful debts based on a review of all outstanding amounts at the year end. Bad debts are written off when identified.
2.11 Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of cash flow statement cash and cash equivalents comprise cash in hand, demand deposits, other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value and finances under mark up arrangements. In the balance sheet, finances under mark up arrangements are included in current liabilities.
2.12 Borrowings
Loans and borrowings are recorded at the proceeds received. In subsequent periods, borrowings are stated at amortized cost using the effective yield method. Finance costs are accounted for on an accrual basis and are included in creditors, accrued and other liabilities to the extent of the amount remaining unpaid.
2.13 Creditors, accrued and other liabilities
Liabilities for trade and other amounts payable are carried at cost which is the fair value of the consideration to be paid in future for goods and services.
2.14 Provisions
Provisions are recognized when the company has a present obligation as a result of past event which it is probable will result in an outflow of economic benefits and a reliable estimate can be made of the amount of the obligation.
2.15 Revenue recognition
Revenue is recognized on dispatch of goods or on the performance of services except for management fee, which is recognized on receipt. 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.
2.16 Borrowing costs
Mark up, interest and other charges on long-term borrowings are capitalized up-to the date of commissioning of the related plant and machinery, acquired out of the proceeds of such long-term borrowings. All other mark up, interest and other charges are charged to profit.