INTRODUCTION OF NESCO LTD Nesco Ltd established in 1939 April as the new standard engineering co. Ltd.

, the company is known as a pioneer in the tool manufacturing segment, as it brought into the country, world class processes and designs for the manufacture of a number of engineering products. Equipment such as forging hammers and presses, blow room lines and high production cards for the textile industry; and sucker rod pumps for on-shore oil recovery were some of the main product lines that emerged as market leaders. As the products manufactured were high in quality, the company soon saw an incremental rise in its exports, and not only is it products market leaders in India, but also has found a niche overseas. Nesco ltd is a diversified Indian-based company with business interests in the engineering, realty, and services sectors. The company's manufacturing group includes Nesco engineering and services groups include Bombay convention & exhibition center and Nesco realty. The company manufactures engineering products, including forging hammers and presses, blow room lines and high production cards for textile industry, and sucker rod pumps for onshore oil recovery. Their manufacturing facilities are located at Karamsad and vishnoli in Gujarat and Mumbai in Maharashtra. Nesco engineering provides equipment to Indian railways, ordnance factories, forging plants and others. The company's Bombay exhibition center is situated along the western express highway in Goregaon, which is a permanent venue for conventions, exhibitions and trade fairs in India. Nesco realty operates in realty business, including developing and providing built up spaces for multinational companies and corporate at their various properties. Nesco ltd was incorporated in the year 1946 as new standard engineering co ltd. Initially, the company was operated from Byculla and then they set up two more plants at Parel and Santacruz. In order to reflect on the various new avenues that the company was entering into, the promoters of the new standard engineering company, decided to change the name to Nesco limited. This reflected in the company's transformation from a pure play engineering company to that of a diversified one, whose diversification entailed it to be a player in the services segment.
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Today, the engineering group of Nesco continues to be a leading provider of this equipment to the Indian railways, numerous ordnance factories, and forging plants. In 1959 it consolidated all these three operations and moved to a 70 acre estate on the western express highway at Goregaon in Mumbai. In 1986, the company diversified into the realty business by developing and providing customized built-up space for multinational companies and leading corporate at Goregaon. In 1992, the company setup an exhibition centre - known as the Bombay exhibition centre - at its complex on the western express highway at Goregaon, Mumbai. Starting with a hall area of 2, 00,000 sq. Ft., this has now been expanded to over 5, 00,000 sq. Ft. This venue holds the distinction of being the largest exhibition center promoted by the private sector in India and has hosted over 500 national and international exhibitions, trade fairs, and events since inception. What sets this venue apart from the rest is the presence of various permanently air conditioned hall's ranging from an area of 2,000 sq. Mts to 20,000 sq. Mts.

During the year 2004-05, the indabrator ltd along with their two plants in Gujarat and an 85,000 sq ft premises in Mumbai merged with the company with effect from July 1, 2004. Indabrator ltd was a market leader in surface preparation equipment. The company completed their convention centre in convention centre which is a fully air-conditioned hall, measuring about 25,000 sq ft, which accommodate about 1,500 persons. During the year 2005-06, the company upgraded their Bombay exhibition centre for Rs 12 crore. Also, they divested 3,750 shares of housing and investment private ltd and thus housing and investment private ltd ceased to be a subsidiary company. During the year 2007-08, the company completed the construction of third unit at vishnoli in Gujarat, which commenced their operations. Also, the company modernized and upgraded the four convention and exhibition center halls covering an area of over 450,000 sq ft. The company decided to expand the production capacity by installing new machinery
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and machine tools. Also, the company is also in the process of construction of it building no 3 admeasuring about 800,000 sq ft, in which the construction is expected to start shortly.

Milestones achieved: first to bring into India, world class manufacturing process and product designs for forging tools and pumps for on-shore oil recovery. First private exhibition center located in the heart of Mumbai, just adjacent to the western express highway, which serves as an important arterial road transporting goods to and from the city. A 100% debt free company with considerable cash reserves.

Nesco Ltd. Balance Sheet As On 2011 & 2012( ` In Cr) Particulars Owner's fund Equity share capital Reserves & surplus Loan funds Secured loans Total Uses of funds Gross block Less : accumulated depreciation Net block Capital work-in-progress Investments Net current assets Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total Note Book value of unquoted investments Market value of quoted investments Contingent liabilities Number of equity shares outstanding (in lacs) 2011 14.09 213.68 0 227.77 63.47 29.28 34.19 89.91 158.58 30.97 85.89 -54.92 0 227.77 0.03 0.14 36.54 140.92 2012 14.09 276.04 0 290.13 76.43 32.49 43.94 103.73 210.17 23.23 90.94 -67.71 0 290.13 0.03 215.22 18.32 140.92

Nesco Ltd. Balance Sheet As On 2011 & 2013( ` In Cr) Particulars Owner's fund Equity share capital Reserves & surplus Loan funds Secured loans Total Uses of funds Gross block Less : accumulated depreciation Net block Capital work-in-progress Investments Net current assets Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total Note Book value of unquoted investments Market value of quoted investments Contingent liabilities Number of equity shares outstanding (in lacs) 2012 14.09 276.04 0 290.13 76.43 32.49 43.94 103.73 210.17 23.23 90.94 -67.71 0 290.13 0.03 215.22 18.32 140.92 2013 14.09 351.93 0 366.02 196.51 38.09 158.42 4.03 258.44 26.24 81.1 -54.86 0 366.02 0.03 267.46 6.17 140.92

Nesco Ltd. Revenue Statement For The Year Ended 2011 & 2012( ` In Cr) Particulars Income Operating income Expenses Material consumed Manufacturing expenses Personnel expenses Selling expenses Administrative expenses Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted pat Nonrecurring items Other non cash adjustments Reported net profit Earnings before appropriation Equity dividend Retained earnings 11.68 4.4 7.75 0.34 17.55 41.72 92.67 8.91 101.58 0.62 2.26 0 98.7 31.39 67.32 1.41 -1.16 68.62 68.07 3.52 63.78 12.7 3.69 6.17 0 15.27 37.84 90.62 11.02 101.64 1.37 3.42 0 96.85 29.49 67.36 -0.02 0 67.34 67.84 4.23 62.91 134.39 128.46 2011 2012

Nesco Ltd. Revenue Statement For The Year Ended 2011 & 2013( ` In Cr) Particulars Income Operating income Expenses Material consumed Manufacturing expenses Personnel expenses Selling expenses Administrative expenses Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted pat Nonrecurring items Other non cash adjustments Reported net profit Earnings before appropriation Equity dividend Retained earnings 12.7 3.69 6.17 0 15.27 37.84 90.62 11.02 101.64 1.37 3.42 0 96.85 29.49 67.36 -0.02 0 67.34 67.84 4.23 62.91 11.99 4.84 6.59 0 19.1 42.53 100.94 19.28 120.22 0.72 5.83 0 113.67 31.99 81.69 0 0 81.69 82.19 4.93 76.42 128.46 143.46 2012 2013

Nesco Ltd. Cash Flow FOR THE YEAR 2011 & 2012( ` In Cr)

Particulars

2011

2012

Net profit before tax

100.12

96.85

Net cash from operating activities

78.41

72.56

Net cash (used in)/ from investing activities

-70.45

-78.47

Net cash (used in)/ from financing activities

Net (decrease)/increase in cash and cash equivalents

7.96

-5.91

Nesco Ltd. Cash Flow FOR THE YEAR 2011 & 2012( ` In Cr)

Particulars Net profit before tax Net cash from operating activities Net cash (used in)/ from investing activities

2012 96.85 72.56 -78.47

2013 113.67 48.87 -50.98

Net cash (used in)/ from financing activities

Net (decrease)/increase in cash and cash equivalents

-5.91

-2.11

Financial Ratios Of Nesco Ltd For The Year 2011 & 2012 1. Investment Valuation Ratios Particulars Face value Dividend per share Operating profit per share (rs) Net operating profit per share (rs) Free reserves per share (rs) Bonus in equity capital 2011 10 2.5 65.76 95.37 146.78 80.77 2012 10 3 64.3 91.15 -80.77

2. Profitability Ratios Particulars Operating profit margin (%) Profit before interest and tax margin (%) Gross profit margin (%) Cash profit margin (%) Adjusted cash margin (%) Net profit margin (%) Adjusted net profit margin (%) Return on capital employed (%) Return on net worth (%) Adjusted return on net worth (%) Return on assets excluding revaluations
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2011 68.95 63.09 67.27 48.55 48.55 47.88 47.88 43.6 30.12 29.55 161.63

2012 70.54 62.52 67.88 50.74 50.74 48.27 48.27 33.85 23.2 23.21 205.88

Return on assets including revaluations Return on long term funds (%) 3. Liquidity And Solvency Ratios Particulars Current ratio Quick ratio Debt equity ratio Long term debt equity ratio

161.63 43.6

205.88 33.85

2011 0.36 0.31 ---

2012 0.26 0.21 ---

4. Debt Coverage Ratios Particulars Interest cover Total debt to owners fund Financial charges coverage ratio Financial charges coverage ratio post tax 2011 178.33 -163.89 115.36 2012 71.61 -74.11 52.59

5. Management Efficiency Ratios

Particulars Inventory turnover ratio Debtors turnover ratio Investments turnover ratio

2011 30.11 11.41 30.11

2012 29.64 14.57 29.64

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Fixed assets turnover ratio Total assets turnover ratio Asset turnover ratio Average raw material holding Average finished goods held Number of days in working capital

2.12 0.59 0.69 44.12 --147

1.68 0.44 0.5 ---190

6. Profit & Loss Account Ratios Particulars Material cost composition Imported composition of raw materials consumed Selling distribution cost composition Expenses as composition of total sales 2011 9.22 2012 9.03

-0.25 0.29

--0.79

7. Cash Flow Indicator Ratios Particulars Dividend payout ratio net profit Dividend payout ratio cash profit Earning retention ratio Cash earnings retention ratio Adjusted cash flow times 2011 6.24 6.04 93.64 93.85 -2012 7.32 6.96 92.69 93.04 --

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Financial Ratios Of Nesco Ltd For The Year 2012 & 2013 1. Investment Valuation Ratios Particulars Face value Dividend per share Operating profit per share (rs) Net operating profit per share (rs) Free reserves per share (rs) Bonus in equity capital 2. Profitability Ratios 2012 10 3 64.3 91.15 -80.77 2013 10 3.5 71.63 101.8 -80.77

Particulars Operating profit margin (%) Profit before interest and tax margin (%) Gross profit margin (%) Cash profit margin (%) Adjusted cash margin (%) Net profit margin (%) Adjusted net profit margin (%) Return on capital employed (%) Return on net worth (%) Adjusted return on net worth (%) Return on assets excluding revaluations
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2012 70.54 62.52 67.88 50.74 50.74 48.27 48.27 33.85 23.2 23.21 205.88

2013 70.35 58.44 66.29 53.77 53.77 50.19 50.19 31.25 22.31 22.31 259.74

Return on assets including revaluations Return on long term funds (%)

205.88 33.85

259.74 31.25

3. Liquidity And Solvency Ratios Particulars Current ratio Quick ratio Debt equity ratio Long term debt equity ratio 2012 0.26 0.21 --2013 0.32 0.26 ---

4. Debt Coverage Ratios Particulars Interest cover Total debt to owners fund Financial charges coverage ratio Financial charges coverage ratio post tax 2012 71.61 -74.11 52.59 2013 159.5 -167.62 123.02

5. Management Efficiency Ratios

Particulars Inventory turnover ratio Debtors turnover ratio Investments turnover ratio
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2012 29.64 14.57 29.64

2013 30.19 16.14 30.19

Fixed assets turnover ratio Total assets turnover ratio Asset turnover ratio Average raw material holding Average finished goods held Number of days in working capital

1.68 0.44 0.5 ---190

0.73 0.39 0.44 ---138

6. Profit & Loss Account Ratios Particulars Material cost composition Imported composition of raw materials consumed Selling distribution cost composition Expenses as composition of total sales 2012 9.03 2013 9.02 0.49 -0.94

--0.79

7. Cash Flow Indicator Ratios Particulars Dividend payout ratio net profit Dividend payout ratio cash profit Earning retention ratio Cash earnings retention ratio Adjusted cash flow times 2012 7.32 6.96 92.69 93.04 -2013 7.06 6.59 92.94 93.41 --

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Comments On Balance Sheet Statement 1. The share capital of the company remained same during both the year. 2. The non-current liabilities increased in the year 2013 from 3697.31 in 2012 to 3946.77 in 2013. 3. The company showed an increase in the current liabilities by 39.09%. 4. In non-current asses i.e. Tangible assets and intangible assets capital work-inprogress are increasing in the current year. 5. The company showed an increase in the long term loans and advances in the current year by 8.95% from the previous year. 6. Whereas current assets of the company increasing during the current year as compared to the previous year.

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Comments On Revenue Statement 1. Revenue from operations increased by 12.09% as against in year 12798.26 in year 2012 to 14346.08 in 2013. 2. However total revenue of the company also increased by 16.68%. 3. Total expenses in the year 2013 were 4907.04 showing an increase of 15.12% as against total expenses of 4262.61 in the year 2012. 4. The company had an increase in the profit before tax in the current year by 17.37% from the previous year. 5. However due to good performance of the company, it showed an increase in the profits after tax for the current year of 21.31% in 2013. 6. The earnings per share of the company also showed an increase in the current year as against previous year due to good performance of the company.

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AUDITORS REPORTS & OPINION We have audited the accompanying financial statements of NESCO LIMITED ("the Company"), which comprise the Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of the Significant accounting policies and other explanatory information. Management`s Responsibility for the Financial Statements The Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. Auditors` Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor`s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control relevant to the Company`s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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VOUCHING REVENUE ACCOUNT: It is comparatively an easy matter to verify different forms of income earned by the client during the year in totality. In respect of some of the incomes which are collected regularly, e.g., rents on lockers in the case of Safe Deposit Vault, dividends on shares, subscription in case of clubs, advertisement revenue in case of publishers of newspapers, a record of income the basis on which it has been collected and the particulars of the party through whom it has been received are contained in a Demand Register; there is a separate Demand Register for each such form of income. For the verification of such an income, it should be seen that the Demand Register has been checked and the balance that was outstanding for collection at the close of the year has been adjusted as an asset. In cases where the income earned represent charges for services rendered, the particulars of services rendered by the client to different customers would generally be recorded in a separate statistical register, e.g., Job Register in case of the printer and Repairs Register in the case of a workshop, Patients Register in case of a doctor, Clients Register in the case of solicitors, etc. By reference thereto it should be verified that the amount receivable in respect of services rendered before the close of the year have either been called or adjusted as an outstanding asset. The auditor should therefore see that discounting charges of bills of exchange earned on such sales, profits on contracts not completed, etc., have been distributed over their periods of accrual on a reasonable basis. Capital profit, e.g., profit arising on sale of assets, reissue of forfeited shares, etc., not available for distribution as dividend, is credited to the Capital Reserve. Any transfer to Capital Reserve out of amounts credited to the Profit and Loss Account should be separately disclosed. Similarly, income of an extraordinary and non-recurring character should be separately shown in the Profit and Loss Account. THE AUDITOR SHOULD MAKE THE FOLLOWING ENQUIRIES: (i) Who opens letter, what record is kept, and whether all cheques and postal orders are immediately endorsed to bankers and crossed Account Payee Only?

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(ii) Whose duty is to enter cash, cheques and other forms of remittance in the Payin-Slip and who deposited it in the bank? (iii) Are receipts banked daily? (iv) Who prepares receipts and who countersigns the same before these are issued to the parties from whom the amounts have been received? (v) Whether printed receipts with counterfoils, numbered serially by a machine, are used and who maintains the stock of unused receipts? (vi) Are the receipts books kept in safe custody and are they issued only when the current receipt book has been used up? (vii) What internal check is being exercised over the collection of cash sales and miscellaneous income? (viii) Are travelling salesmen allowed to collect any advance against orders booked and what control exists over such collections? (ix) How often are the banks statements checked and compared with the Cash Book? (x) Who controls the preparation and dispatch of monthly statements of account to customers? (xi) Are ledgers posted by the cashier or some other person? While vouching cash receipts, it should be seen that the date of each receipt as it is entered in the cash memo or the counterfoil of the receipt issued in respect thereof corresponds with the date on which it is entered in the Cash Book. If there is a time lag between them, it is possible that the person who had collected the amount had failed to deposit it with the cashier immediately thereafter. When such a discrepancy is observed, the cause thereof should be ascertained.

CASH SALES: Primarily, the system of internal check should be examined with the objective of finding out loopholes therein, if any, whereby cash sales could be misappropriated.
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Further, the practice followed in the manner cash memos are issued should be ascertained. Because in case, cash memos are issued not only for cash sales but also for credit sales, the amount whereof if collected long after, there would be no guarantee that all the amount of cash sales has been collected before the close of year or that some of the amounts collected have not been misappropriated. Cash sales usually are verified with carbon copies of cash memos. If sales are quite voluminous then a Cash Sales Summary Book is maintained and the cash memos are traced into it; the totals of the Summary Book are verified and the daily totals of the Summary book traced into the Cash Book. One of the matters, to which attention of the auditor should be paid in the process, is that the dates on the cash memos should tally with those on which cash collected in respect thereof has been entered in the Cash Book. DEBTORS: Receipt of cash from the customers against price of goods sold is checked with the counterfoils of receipt issued to them. At the same time, it is also verified that there is a system of internal check in operation which acts as a safeguard against amounts collected being misappropriated. One of the common devices for misappropriating cash collections from customers is the one known as Teeming and Lading. Such a fraud, usually, remains undetected for long since the cashier is able to make good the amounts misappropriated before the cash balance is checked. At times, the cashier who has committed such a fraud may cover up the amounts misappropriated, by raising a fictitious debit in an expense account. When such a fraud is suspected, the first step in its investigation should be making comparison of the entries of amounts deposited in the bank account with those on counterfoils of the Pay-in-Slip Book. If the composition of the deposits is different from that shown on the counterfoils of the Pay-in-Slip Book, it would be a prima facie evidence of the fact that the amounts collected were not deposited as soon as these were received. Another evidence of the existence of such a fraud can be the fact that debits in customers acc ounts, which ought to have collected in whole, are cleared in small installments.

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RENTAL RECEIPT Before proceeding to vouch rental receipts, copies of bills issued to tenants should be test checked by reference to copies of tenancy agreements and bills of charges paid by the landlord on behalf of the tenants, i.e., house tax, water tax, tax deducted at source, electricity consumed, etc. The entries in the Rental Register in respect of rents accrued afterwards should be verified by reference to copies of rental bills. The amounts collected from tenants on account of rent should be checked by reference to receipts issued to them. These afterwards should be traced into the Rental Register. At the end, the register should be scrutinized to find amount or rents which have not been recovered and are considered bad or irrecoverable, for deciding whether these should be written off or as provision against the same should be made.

EXPENSE ACCOUNTS: The structure of each expense account should be thoroughly scrutinized and the distribution of the total expense over different methods comprised in the period under audit. Where there are significant variations between different months, the cause thereof should be ascertained. At times, it may be found that an expense account has a few credit entries. These may represent recovery of the share of common expenses from one or more participants, refund of rebate obtained from a supplier of an entry made to exclude the expense relating to the succeeding period. All these entries should be verified. Where there has been a change in the basis of accounting, as compared to that in the previous year, the reasons thereof should be ascertained and if any item is shown in the Profit and Loss Account has been affected by any change in the basis of accounting, the amount of the difference should be shown separately by way of a note. The different elements of cost (material, labour and manufacturing expenses) generally known as direct expenses. Normally, there exists a direct relationship between the cost of each element and total cost of manufacture of the
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article. Therefore, where there has been a significant variation in the relationship the reasons thereof should be ascertained. It may be due to some of the expenses having been left out or having been included in excess. This could be ascertained on a verification of the entries relative to adjustments of different types of expenses. The causes of variation in the proportion of direct expenses usually can be readily ascertained but this is not practicable in the case of indirect expenses, for these often are the results of a variety of factors unconnected with manufacturing process. For instance, the change in indirect expenses may be the effect of the change in the rate of turnover or that in the structure of the management. Quite often office expenses increase with that in the rate of turnover, but they may not do so in proportion thereto. For example, if a business owned by a partnership is taken over by a company or machines are introduced to perform certain routine functions which were previously carried out manually, the cost of administration may increase. Small variations therein may also take place due to substitution of one form of expenditure by another either as a measure of economy or on consideration of good management. For example, a company may decide to raise a part of its working capital by issuing debentures and to pay off its overdraft account on which it was paying a higher rate of interest. The management may otherwise decide that local letters should be delivered by hand even though the cost of peon delivery is greater. Normally, every increase in an expense is accompanied by that in income, e.g., an increase in selling commission, freight and packing charges is usually the outcome of an increase in sales. At times, however, an item of expense may not immediately result in revenue. For example, the trip of managing director abroad to find a foreign market for the articles manufactured by the company may not start showing results until some time has passed. SALARIES AND WAGES: Payments on account of salaries and wages need to be vouched carefully, since amounts which were either not due or in excess of those due may have been paid by the client. The evidence in support of such payments generally is internal. Therefore, before proceeding to verify payment made on account of salaries and
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wages, the auditor should examine the internal control procedure as regards the following: (a) Appointment, promotion, transfer and discharge of employees. (b) Recording attendance of workers engaged on the time basis, as well as particulars of jobs performed by piece workers. (c) Arrangement for the preparation of wages and salaries bills and their analysis. (d) Sanctioning the disbursement of wages and salaries. (e) Arrangement for disbursement of wages and salaries for workers and employees not present on the pay day. (f) Custody of the wages records.

AUDITORS DUTY WHILE VERIFICATION OF ASSETS VERIFICATION OF ASSETS: GENERAL PRINCIPLES: Verification of assets is an important audit process: by convention its scope has been limited to inspection of assets, where it is practicable, and collection of information about them on an examination of documentary and other evidence so as to confirm: (a) That the assets were in existence on the date of the balance sheet; (b) That the assets had been acquired for the purpose of the business and under a proper authority; (c) That the right of ownership of the assets vested in or belonged to the undertaking; (d) That they were free from any lien or charge not disclosed in the balance sheet; (e) That they had been correctly valued having regard to their physical condition; and (f) That their values are correctly disclosed in the balance sheet.
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Verification of assets is primarily the responsibility of the management since the proprietor or the officials of the entity are expected to have a much greater intimate knowledge of the assets of the business as regards location, condition, etc. than that which an outsider might be able to acquire on their inspection. They alone thus are competent to determine the values at which these should be included in the Balance Sheet. The auditor is required to verify the original cost of assets and to confirm, as far as practicable, that such a valuation is fair and reasonable. As regards the manner in which the original cost should be ascertained, there are well defined modes of valuation which he is expected to follow. It should also be verified that purchase of assets or addition to them have been duly sanctioned by the concerned sanctioning authority. Where the entire undertaking of a business had been taken over, the value placed by the management on different assets and particularly the amount debited to Goodwill. FIXED ASSETS: The auditor should see that the fixed assets have been valued and disclosed as per the requirements of law and generally accepted accounting principles. The auditor should test check the calculations of depreciation and the total depreciation arrived at should be compared with that of the preceding years to identify reasons for variations. He should particularly examine whether the depreciation charge is adequate keeping in view the generally accepted basis of accounting for depreciation. The Institute has also recommended that the company should provide depreciation so as to write off the asset over its normal working life. Physical verification of the assets has to be made by the management and not by the auditor. It is, however, necessary that the auditor satisfies himself that such verification was done and that there is adequate evidence on the basis of which he can arrive at such a conclusion. The auditor may prefer to observe the verification, particularly when verification of all assets can be made by the management on a single day or within a relatively short period of time. If, however, verification is a continuous process or if the auditor is not present when verification is made, then he should examine the instructions issued to the staff (which should, therefore, be in writing) by the management and should examine the working papers of the staff to
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substantiate the fact that verification was done and to determine the name and competence of the person who did the verification. In making this examination, it is necessary to ensure that the person making the verification had the necessary technical knowledge where such knowledge is required. It is not necessary that only the companys staff should make verification. It is also possible for verification to be made by outside expert agencies engaged by the management for the purpose. The auditor should examine whether the method of verification was reasonable in the circumstances relating to each asset. INVESTMENTS: Investments are assets held by an entity for accretion of wealth by way of interest, royalties, dividends and rentals, for capital appreciation or for other benefits to the investing entity. (a) The auditor should ascertain whether the investments made by entity are within its authority. (b) The auditor himself should also be satisfied that the transactions for the purchase/sale of investments are supported by due authority and documentation. (c) The acquisition/disposal of investments should be verified with reference to the brokers.

CASH AND CASH EQUIVALENTS 1. Classification of Cash and Cash Equivalents into: - Balances with Bank - Cheques, Drafts on hand - Cash on hand - Others (specifying nature) 2. The following shall be shown separately: -Earmarked balances with bank.
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-Balances with bank held as margin money or security against borrowing, guarantees and other commitments. - Repatriation restrictions, if any, in respect of cash and bank balances. - Bank deposits with more than 12 months maturity. The auditor should satisfy himself that cash and bank balances have been valued and disclosed in the financial statements in accordance with recognized accounting policies and practices and relevant statutory requirements, if any. In this regard, the auditor should examine that following items are not included in cash and bank balances. (a) Temporary advances. (b) Stale or dishonored of cheques.

AUDITORS DUTY WHILE VERIFICATION OF LIABILITIES VERIFICATION OF LIABILITIES: The auditor should obtain a certificate from the client that all the liabilities which had accrued due till the close of the year have been taken into account and contingent liabilities, if any, have been fully disclosed. It should be verified that the liabilities have been appropriately grouped under different heads for the purpose of disclosure in the Balance Sheet; secured and unsecured liabilities have been segregated; and against the first, nature of security and its amount have been stated. LOANS AND BORROWINGS: The auditor should satisfy himself that the loans obtained are within the borrowing powers of the entity. The auditor should carry out an examination of the relevant records to judge the validity and accuracy of the loans. In respect of loans and advances from banks, financial institutions and others, the auditor should examine that the book balances agree with the statements of the lenders. He should also examine the reconciliation statements, if any, prepared by the entity in this regard. The auditor should examine the important terms in the loan agreements and the documents, if any, evidencing charge in respect of such loans and advances. He should particularly
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examine whether the requirements of the applicable statute regarding creation and registration of charges have been complied with. TRADE CREDITORS AND OTHER CURRENT LIABILITIES: The auditor should check the adequacy of cut-off procedures adopted by the entity in relation to transactions affecting the creditor accounts. For example, the auditor may examine the documents relating to receipt of goods from suppliers during a few days immediately before the year-end and verify that the related invoices have been recorded as purchases of the current year. The auditor should check that the total of the creditors' balances agrees with the related control account, if any; the difference, if any, should be examined. The auditor should examine the correspondence and other relevant documentary evidence to satisfy him about the validity, accuracy and completeness of creditors/acceptances. The auditor should verify that in cases where income is collected in advance for services to be rendered in future, the unearned portion, not applicable to the period under audit, is not recognized as income of the period under audit but is shown in the balance sheet as a part of current liabilities. While examining schedule of creditors and other schedules such as those relating to advance payments, unclaimed dividends and other liabilities, the auditor should pay special attention to the following aspects: (a) Long outstanding items; (b) Unadjusted claims for short supplies, poor quality, discount, commission, etc. (c) Liabilities not correlated/adjusted against related advances; (d) Authorization and correctness of transfers from one account to another.

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OPINION In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (a) In the case of the Balance Sheet, of the state of affairs of the Company as at 31 st March, 2013; (b) In the case of the Statement of Profit and Loss, of the "PROFIT" of the Company for the year ended on that date, and (c) In the case of the Cash Flow Statement, of the cash flows of the Company for the Year ended on that date.

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