By Himanshu V. Kishnadwala, Chartered Accountant
New Page 1
Suggestion of Expert Advisory Committee of ICAI for AS-22 not
followed pending revision of AS-22 by ICAI
Power Finance Corporation Ltd.
— (31-3-2008)
From Notes to Accounts :
20. The Deferred Tax Assets/Liabilities have been created
in terms of the Accounting Standard 22 issued by the Institute of Chartered
Accountants of India (ICAI) since the year it became applicable to the
company, i.e., 2001-02 except on account of ‘Special reserve created
and maintained under Section 36(1)(viii) of the Income Tax Act’ on which the
DTL was created by debiting profit & loss account for 2004-05 and by charging
revenue reserve for 2001-02 to 2003-04. However, PFC has taken up the issue
for total withdrawal of DTL on Special Reserve with the ICAI and with the
Ministry of Corporate Affairs. The Institute in its letter dated 4-4-2007
stated that the Accounting Standard Board examined AS-22, Accounting for Taxes
on Income, in the light of the opinion of the Expert Advisory Committee. It is
further stated that “the Board decided to take up the revision of the standard
on the lines of the corresponding IAS, namely, IAS-12, Income taxes, as a part
of its convergence with IFRS project. It was argued that since IAS-12 is based
on the ‘balance sheet approach’ as against ‘income statement approach’ on
which the existing AS-22 is based, the problem being encountered by the
company may not arise”. The Ministry of Corporate Affairs also endorsed the
letter issued by ICAI to PFC.
In view of this, rectification as suggested by the ICAI
vide their letter dated 31-1-2006 regarding creation of DTL on Special Reserve
created and maintained under Section 36(1)(viii) of the Income-tax Act, 1961
for the period 2001-02 to 2003-04 by charging to P&L Account and crediting the
reserves by Rs.539.39 crores has not been carried out and pending revision of
AS-22, the Company has maintained status quo and continued the practice
of creating the DTL on the Special Reserve created and maintained under
Section 36(1)(viii) of the Income-tax Act, 1961.
From Auditors’ Report :
Attention is drawn to the following Notes in Schedule 18 :
(j) Note No. 20 regarding the suggestion of the Expert
Advisory Committee of the ICAI suggesting the rectification by creating the
Deferred Tax Liability on ‘Special Reserve created and maintained’ under
Section 36(1)(viii) of the Income-tax Act, 1961 for the period 2001-02 to
2003-04, by charging the Profit & Loss Account (Prior Period Items) and
crediting the Reserves by Rs.539.39 crores, has not been carried out by the
Company pending the decision of the ICAI on the Company’s request for total
withdrawal of provision of AS-22 regarding creation of Deferred Tax Liability
for the Special Reserve Created and Maintained under Section 36(1)(viii) of
the Income-tax Act, 1961. Pending the decision of the ICAI, the Company has
not given effect to the suggestion of the Expert Advisory Committee of the
ICAI.
Intangible assets, etc. acquired under a Business Transfer
Agreement adjusted against General Reserve pursuant to High Court Order
Blue Star Ltd. — (31-3-2008)
From Notes to Accounts :
7. The Company has acquired the electrical contracting business of Naseer Electricals Private Ltd. (NEPL) under a business purchase agreement on a slump sale basis for Rs.48,09.77 lakhs (including Rs.5,00.00 lakhs held in Escrow account till the conditions stipulated in the said agreement are fulfilled) with effect from January 24, 2008. After adjusting the value of tangible fixed assets acquired of Rs.1,16.65 lakhs, the balance consideration along with the incidental expenses have been allocated towards various intangible assets and goodwill as valued by an independent valuer as detailed hereunder :
8. As per the Scheme of Arrangement approved by the shareholders at the Extra-ordinary General Meeting held on March 4,2008 and duly approved by the Hon’ble High Court at Bombay vide its order dated April 11, 2008, the Company has, in accordance with the accounting treatment prescribed therein, adjusted the following amounts against the General Reserve of the Company:
(a) The intangible assets of Rs.41,18.62 lakhs and Goodwill of Rs.8,32.32Iakhs arising on acquisition of electrical contracting busi-ness of NEPL.
(b) Loss of Rs.35.10 lakhs on sale of 3,98,000 equity shares of Blue Star Design & Engineering Ltd.
3. Qualification in Auditors’ Report on Consolidated Financial Statements
NAVIN FLUORINE INTERNATIONAL LTD. – (31-3-2008)
From Auditors’ Report:
5. Attention is invited to the following in Schedule 17, out of which points i and ii were also the subject matter of our report similarly modified in the previous year:
(i) Note 3.a, regarding accounts of the joint venture company not having been consolidated which is in contravention of the provisions of AS-27, ‘Financial Reporting of Interests in Joint Ventures’.
(ii) Note 16, regarding non-accounting of rent/ recovery of expenses of Rs.Nil; aggregate to date as at the year end, Rs.108.83 lacs (previous year, Rs.Nil; aggregate to date as at the previous year end, Rs.108.83 lacs);.
(iii) Note 12, regarding recognition of deferred tax asset of Rs.285.94 lacs (previous year, Rs.Nil) by the associate in respect of unabsorbed depreciation and carry-forward losses.
We further report that without considering item 5(i) above, the effect of which on the financial statements for the year ended 31st March 2008 and on the corresponding figures in the previous year ended 31st March, 2007, could not be determined, had the observation made by us in item 5(ii) and (iii) been considered, there would have been a loss of Rs.145.53 lacs, as against the reported profit of Rs.56.83 lacs (previous year, a profit of Rs.1,719.09 lacs, as against the reported figure of profit of Rs.1622.47 lacs), reserves and surplus would have been Rs.18,091.65 lacs, as against the reported figure of Rs.18,294.01 lacs (as at 31st March, 2007, Rs.18,450.90 lacs, as against the reported figure of Rs.18,354.28 lacs), investments would have been 1,464.55 lacs, as against the reported figure of Rs.1,750.49 lacs, loans and advances would have been Rs.6,227.21 lacs, as against the reported figure of Rs.6,118.38 lacs (as at 31st March, 2007, Rs.3,124.99lacs, as against the reported figure of Rs. 3,016.16 lacs) and provisions would have been Rs. 842.52 lacs, as against the reported figure of Rs.817.27lacs (as at 31st March, 2007, Rs.880.65 lacs, as against the reported figure of Rs.868.44 lacs).
Subject to the foregoing………….
