— (31-3-2009)
From Notes to Accounts :
(2a) The global economy in general and the real estate industry in particular is passing through recession, which has resulted into financial meltdown of an un-precedental scale. During the previous financial years the Company had entered into various agreements for sale of its real estate, plots, properties, development rights and constructed premises, held by it as stock in trade. In accordance with the consistently followed accounting practice of the Company, sales revenue and profit thereon were recognised at the time of entering into such agreement to sell. Due to the above-mentioned financial meltdown some of the parties to whom sales had been effected have failed to meet their commitment. Considering the overall interest of the Company, the management decided to reacquire the properties by mutually terminating the agreements for sale entered into in the previous financial years. During the current financial year the Company has entered into 53 agreements resulting into cancellations of sale. These agreements for cancellation of sales pertain to sales and revenue/profits recognised during financial year 2006-07 and 2007-08. Though the cancellation of sales was effected during the current year and accordingly in normal course the sales return and reversal of profit thereon should be effected during the current financial year. However, the Company has been legally advised that on the doctrine of ‘Real Income’ and ‘Relation Back’, the cancellation effect should be effected in the year in which the sales and profits were originally recognised and not in the year in which the actual cancellation has taken place (that is the current financial year). Accordingly the Company has revised and re-casted its financial statements for financial years 2006-07 and 2007-08 on the above-mentioned principles. Accordingly, during the year under review, sales return and reversal of profit are not reflected, though the cancellations of sales have occurred during this financial year. The aggregate value of sales return and profit reversal as mentioned above are Rs.181.56 crores and Rs.91.23 crores, respectively for financial year 2006-07 and Rs.100.58 crores and Rs.77.78 crores, respectively for financial year 2007-08. The auditors do not concur with the above view of revising the financial statements of earlier years on the principle of ‘Relation Back’ and ‘Real Income’, instead are of the opinion that the sales return and its consequence on the profit and loss account should be reflected in the year in which such sales return takes place (cancellation of sales agreements), accordingly in the opinion of the auditors the sales return and reversal of profit thereon should be accounted/reflected during the current financial year and not in the earlier years as done by the Company.
(2b) The Company has revised its financial statements for financial years 2006-07 and 2007-08, giving effect of cancellation of sales, in the respective years, in the manner stated in note 2(a) above. The revised financial statements are already approved by the Board of Directors at its meeting held on 30th March 2009, However the revised financial statements 2006-07 and 2007-08 are not yet adopted and approved by the shareholders. It is proposed to get the revised financial statements for financial years 2006-07 and 2007-08 at the forthcoming Annual General Meeting, along with the financial statements for 2008-09. The act of revision of the Financial Statements for F.Y. 2006-07 and 2007-08 is in accordance with the Circular No. 17/75/2002-CL.V, dated 13-1-2003 issued by the Ministry of Finance and Company Affairs permitting revision of financial statements under certain circumstances.
From Auditors’ Report :
(e) In our opinion and to the best of our knowledge and according to the explanation given to us and subject to the specific reference being drawn on :
(i) note # 2(a) regarding non-accounting of sales returns of Rs.2,82,14.46 lacs effected during the year under review (instead of sales return being accounted in earlier years). The resulting impact being that sales/gross revenue for the year is over-stated by Rs.2,82,14.46 lacs and the net loss after tax is under-stated by Rs.1,69,01.50 lacs, however the reserves and surplus and inventories remaining the same; and
(ii) note # 2(b) regarding the current financial statements for financial year 2008-09 are subject to the approval of the revised financial statements of financial year 2006-2007 and 2007-2008 by the shareholders at the forthcoming general meeting of the shareholders;
(iii) . . . .
(iv) . . . .
(v) . . . .
the said Balance Sheet, Profit and Loss Account and Cash Flow Statement read together . . . .
From Directors’ Report :
Review of Operations :
. . . .
In Financial Year 2008-09, number of agreements for sale have been cancelled, such agreements pertaining to Financial Years 2006-2007 and 2007-2008. The Company has been legally advised that since cancellation of sales pertains to sales recognised earlier, the financial statements of the period during which sales and profits were recognised need re-construction/amendment on the doctrine of ‘Relation-back’ to determine ‘Real-income’. Accordingly the Company has amended the financial statements of the relevant previous years i.e., 2006-2007 and 2007-2008 and shall submit them before the shareholders to adopt the same in this forthcoming Annual General Meeting. An elaborate explanation in this respect has been given in the Explanatory Statement of Notice convening this Annual General Meeting. (not reproduced here)
Lok Housing and Constructions Ltd.
— (31-3-2008 — revised)
From Notes to Accounts :
During the year under review the Company had entered into several ,agreements in respect of sale of residential flats, commercial shops, properties and developments rights. Sales and revenue in respect of which is accounted in accordance with the consistently followed method of revenue recognition as mentioned in note no. 1 above. During the financial year 2008-09 the Company has entered into 48 agreements having aggregate sales value Rs.100,58.14Iacs, resulting into cancellation of sales recognised during the year under review. This cancellation of agreements have resulted into reduction in gross sales by Rs.100,58.14 lacs and corresponding reduction in net profit after tax by Rs.77,78.03 lacs. Though the cancellation of sales in respect of sales effected during the year under review has happened during the financial year 2008-2009, the Company has been legally advised that on the doctrine of ‘Real Income’ and ‘Relation Back’, the cancellation effect in respect of the above transaction should be effected in the year under review and not at the time when actual cancellation took place. Accordingly the Company has redrafted its financial statements on the above-mentioned principles as if the transaction for sales had not occurred at all. Consequently during the year under review, sales and net profit before tax is reduced compared to the original financial statements prepared for the year under review. In view of the amendment to the financial statements of the Company giving effect to the above-mentioned cancellation transactions, the Company is once against presenting the amended financial statements to the members for their approval.
The financial statements are revised in accordance with the Circular number 1/2003, dated 13th January 2003, issued by the Ministry of Finance and Company Affairs. The auditors have relied on the management’s interpretation of the said Circular that the proposed revision of the financial statements is in accordance with the letter and spirit of the said Circular, thereby the revision of financial statements is in accordance with the provisions of the Companies Act, 1956.
From Auditors’ Report:
As per our opinion, which opinion is also supported by the Institute of Chartered Accountants of India, a company cannot reopen and revise the accounts once adopted by the shareholders at an Annual General Meeting. Contrary to this opinion, the Board of Directors of the Company has reopened and revised the aforesaid accounts in terms of Circular of the Ministry of Finance and Company Affairs dated 13-1-2003 in compliance with the accounting standards.
We have considered the earlier Auditor’s Report dated 30th June 2008 on the original accounts and have examined the changes made therein, which are as under:
Cancellation of sale amounting to Rs.l00,58.14 lacs reversal of cost of sales thereto amounting to Rs.22,80.10 lacs and resulting reduction in profit after tax by Rs.77,78.03 lacs.
e) In our opinion and to the best of our knowledge and according to the explanation given to us and subject to the specific reference being drawn on note # 2(a) regarding the treatment for cancellation of sale agreements aggregating to Rs.100,58.14 lacs and resulting reduction in profit after tax by Rs.77,78.03 lacs and thereby revising the financial statements of the said year, the said Balance Sheet, Profit & Loss Account and Cash Flow Statement read together with the notes ….
From Directors’ Report:
Your Company had entered into several transactions for sale of various real estate products and properties during the year under review, when the market situations were at its pinnacle. As it is the practice in the real estate industries the payments are deferred and paid over a period of time. In accordance with the consistent accounting practice of the Company as mentioned in the notes to account the sale and profit in respect of these sale transactions were recorded. However, after the sub-prime crises, fall of giant financial institutions like Fannie Mai, Freddi Mac, Lehman Brothers, the world economy has gone into severe recession and financial meltdown, consequent of which the prices in all markets and real estate in particular have fallen by over 50-60%. The parties who had transacted in the past started defaulting on their payments. Considering the peculiarity of our business and the over-all interest of the Company, your management thought of mutually terminating some of the transactions for sale, so as to avoid the property from going into prolonged and unproductive litigation.
These cancellations of sales happened during November-December 2008, that is falling into the financial year 2008-09. In normal and regular course these sales would be shown as sales return during financial year 2008-09, however the Company has been legally advised that on the principle of ‘Real income’ and on the doctrine of ‘Relation back’, the Company should revise its financial statements for the year in which the original sales transaction hapened. Accordingly the financials statements of financial year 2007-08 are revised.
The Company has approached the shareholders to consider and adopt the Revised Annual Accounts and relevant Report there on for the financial Year 2007-2008.
Lok Housing and Constructions Ltd. – (31-3-2007 – revised)
From Notes to Accounts:
During the year under review the company had entered into several agreements in respect of sale of residential flats, commercial shops, properties and development rights. Sales and revenue in respect of which is accounted in accordance with the consistently followed method of revenue recognition as mentioned in note no. 1 above. During the financial year 2008-2009 the Company has entered into agreements having aggregate sales value Rs.1,81,5633 lacs resulting into cancellation of sales recognised during the year under review. This cancellation of agreements has resulted into reduction in gross sales by Rs.1,81,56331acs and corresponding reduction in net profit after tax by Rs.91,23.47 lacs. Though the cancellation of sales effected during the year under review has happened during the financial year 2008-2009, the Company has been legally advised that on the doctrine of ‘Real Income’ and ‘Relation Back’, the cancellation effect in respect of the above transactions should be effected in the year under review and not at the time when actual cancellation took place. Accordingly the Company has redrafted its financial statements on the above-mentioned principles as if the transaction for sales had not occurred at all. Consequently during the year under review, sales and net profit before tax is reduced compared to the original financial statements prepared for the year under review. In view of the amendment to the financial statements of the Company giving effect to the above-mentioned cancellation transactions, the Company is once again presenting the amended financial statements to the members for their approval.
The financial statements are revised in accordance with the Circular number 1/2003, dated 13th January 2003, issued by the Ministry of Finance and Company Affairs. The auditors have relied on the management’s interpretation of the said Circular, that the proposed revision of the financial statements is in accordance with the letter and spirit of the said Circular, thereby the revision of financial statements is in accordance with the provisions of the Companies Act, 1956.
From Auditors’ Report:
As per our opinion, which opinion is also supported by the Institute of Chartered Accountants of India, a company cannot reopen and revise the accounts once adopted by the shareholders at an Annual General Meeting. Contrary to this opinion, the Board of Directors of the Company. has reopened and revised the aforesaid accounts in terms of the Circular of the Ministry of Finance and Company Affairs dated 13-1-2003 in compliance with the accounting standards.
We have considered the earlier Auditor’s Report dated 28th June, 2007 on the original accounts and have examined the changes made therein which are as under:
Cancellation of sales amounting to Rs.l,81,56.333Iacs reversal of cost of sales thereto amounting to Rs.90,32.86 lacs and resulting in reduction in profit after tax by Rs.91,23.47 lacs.
These financials statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
e) In our opinion and to the best of our knowledge and according to the explanation given to us and subject to the specific reference being drawn on note # 2, regarding the treatment for cancellation of certain sale agreements aggregating to Rs.l,81,56.33 lacs and resulting into reduction in profit after tax by Rs.91,23.47 lacs and thereby revising the financial statements of said year, the said Balance Sheet, Profit & Loss Account and Cash Flow Statement read together with the notes …
From Directors’ Report:
Not reproduced since similar to disclosures in Directors’ Report for 31-3-2008 (revised).
