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MEDIUM-SIZED ENTITIES

ILLUSTRATIVE FINANCIAL STATEMENTS


SEPTEMBER 2009

The Institute of
Chartered Accountants
of Pakistan
INDEX Page No.

Introduction i

Balance Sheet 1

Income Statement 2

Cash Flow Statement 3

Statement of Changes in Equity 4

Notes to the Financial Statements 5

1 Status and Nature of Business 5


2 Statement of Compliance 5
3 Summary of Significant Accounting Policies 5
3.1 Basis of Preparation 5
3.2 Revenue 5
3.3 Borrowing Costs 6
3.4 Foreign Exchange 6
3.5 Retirement Benefits 6
3.6 Taxation 7
3.7 Property, Plant and Equipment 7
3.8 Intangible Assets 8
3.9 Investments 8
3.10 Impairment of Assets 8
3.10 Leases 9
3.12 Stores, Spares and Loose Tools 9
3.13 Stock in Trade 9
3.14 Trade and other receivables 9
3.15 Provisions 10
3.16 Dividend 10
3.17 Cash and Cash Equivalents 10
3.18 Related party transactions 10
3.19 Offsetting 10
3.20 Financial instruments 10
4 Property, Plant & Equipment 12
5 Intangible Asset 13
6 Long-term Investment 14
7 Long-term Loans and Advances 15
8 Long term Derposits and Prepayments 16
9 Stores, Spares and Loose Tools 16
10 Stock in Trade 16
11 Trade Receivable 16
12 Short Term Loans and Aadvances 16
13 Short Term Deposits and Prepayments 16
14 Short Term Investments 17
15 Other Receivables 17
16 Cash and Bank Balances 17
INDEX Page No.

17 Share Capital 18
18 Capital Reserve 18
19 Revenue Reserve 18
20 Surplus on Revaluation of Fixed Assets 18
21 Long Term Borrowing-Secured 19
22 Liabilities against assets subject to Finance Leases 20
23 Deferred Liabilities 20
24 Trade and Other Payables 21
25 Interest and Markup Accrued 22
26 Short Term Borrowings - Secured 22
27 Current Portion of Long term Liabilities 22
28 Contingencies and Commitments 22
29 Revenue 23
30 Cost of Sales 23
31 General and Administration Expenses 24
32 Finance Costs 24
33 Other Income 25
34 Taxation 25
35 Related Party Transactions 25
36 Cash Generated from Operations 25
37 Cash and Cash Equivalent 26
38 Corresponding Figures 26
39 General 26
INTRODUCTION AND EXPLANATORY COMMENTS

This illustrative set of financial statements seeks to provide guidance to the reporting entities and
their auditors with regard to the disclosures to be made in the financial statements prepared in
accordance with the Accounting and Financial Reporting Standards for Medium Sized Entities
(MSEs) as defined in the Institute’s circular No. 06/2007 dated November 02, 2007 and the
requirements of the Companies Ordinance, 1984.

The illustrative is merely a technical practice aid and in no way represents the authoritative
pronouncements of the Institute. It does not aim at interpreting the statutory disclosure
requirements set out in the Fifth Schedule and the MSE Standard of ICAP.

This illustrative seeks to represent minimum requirements and does not purport to be all inclusive
and would need review in the light of changes in statutory requirements and accounting
standards from time to time. Users may need to modify the financial statements when further
accounting standards are issued or made applicable subsequently.

The specimen disclosures should not be considered as the only acceptable form of presentation.
The form and content of each reporting entity’s financial statements are the responsibility of the
entity’s management. Alternative presentations to those proposed in this illustrative may be
equally acceptable if they comply with the specific disclosure requirements prescribed in the
accounting standards for MSEs.

Use of the illustrative requires the exercise of individual professional judgment and may require
some modification based on the circumstances of individual reporting entities.

Each disclosure requirement listed in the illustrative, wherever applicable, is denoted by relevant
reference of the Accounting and Financial Reporting Standards for Medium Sized Entities
(MSEs).

i
MSE illustrative Financial Statements

MSE LIMITED
BALANCE SHEET
As at 31 December 20X8
Note 20X8 20X7 Para #
Rs. Rs. 1.1, 1.19
1.14
Non-current assets
Property, plant and equipment 4 XXX XXX
Intangible assets 5 XXX XXX 5.26
Long-term investments 6 XXX XXX
Long Term Loans and Advances 7 XXX XXX
Long term Deposits and prepayments 8 XXX XXX
XXX XXX
Current assets 1.16
Stores, Spares and Loose Tools 9 XXX XXX
Stock in Trade 10 XXX XXX
Trade Receivable 11 XXX XXX
Short term Loans and Advances 12 XXX XXX
Short term Deposits and Prepayments 13 XXX XXX
Short term investments 14 XXX XXX
Current portion of long term investments XXX XXX
Other Receivables 15 XXX XXX
Cash and bank balances 16 XXX XXX
XXX XXX
XXX XXX

Share capital & Reserves

Authorised: xxxx ordinary shares of Rs.10 each 17 XXX XXX 1.21a


Issued, subscribed & paid up capital 17 XXX XXX
Capital Reserve 18 XXX XXX 1.21b
Revenue Reserve 19 XXX XXX 1.21b
(XXX) (XXX)

Surplus on Revaluation of Fixed Assets 20 XXX XXX

Non-current liabilities
Long term Borrowing - Secured 21 (XXX) (XXX)
Liabilities against assets subject to Finance Leases 22 (XXX) (XXX) 4.9
Deferred Liabilities 23 (XXX) (XXX) 11.12
(XXX) (XXX)

Current liabilities 1.17


Trade and other payables 24 (XXX) (XXX)
Income tax payable (XXX) (XXX) 11.1
Due to related parties (XXX) (XXX) 15.4
Interest and Mark up Accrued 25 (XXX) (XXX)
Short term Borrowings - Secured 26 (XXX) (XXX)
Current portion of long term liabilities 27 (XXX) (XXX) 4.9
(XXX) (XXX)

Contingencies and Commitments 28


XXX XXX
The annexed notes 1 to 39 from an integral part of these financial statements.

____________________
Chairman Chief Executive Director

The Institute of Chartered Accountants of Pakistan 1


MSE Illustrative Financial Statements

MSE LIMITED
INCOME STATEMENT
For the year ended December 31,20X8

Note 20X8 20X7 Para #


Rs. Rs.
1.1, 1.22

Revenue 29 XXX XXX


Cost of sales 30 (XXX) (XXX)

Gross Profit XXX XXX

General and Administrative Expenses 31 (XXX) (XXX)


Other operating expenses (XXX) (XXX)

Profit /Loss from Operating Activities XXX XXX


Finance costs 32 (XXX) (XXX)

XXX XXX

Other income 33 XXX XXX

Profit before tax XXX XXX

Taxation 34 (XXX) (XXX) 11.9,


11.14
Profit after tax XXX XXX

The annexed notes 1 to 39 form an integral part of these financial statements.

____________________ ____________________ ____________________


Chairman Chief Executive Director

The Institute of Chartered Accountants of Pakistan 2


MSE Illustrative Financial Statements

MSE LIMITED
CASH FLOW STATEMENT
For the year ended December 31, 20X8

Note 20X8 20X7 Para#


1.1, 2.1,
Rs. Rs. 2.5(b)

CASH FLOWS FROM OPERATING ACTIVITIES 2.2

Cash generated from operations 36 XXX XXX


Finance cost paid (XXX) (XXX)
Income tax paid (XXX) (XXX) 2.12
Payment to gratuity fund (XXX) (XXX)
Net cash from operating activities XXX XXX

CASH FLOWS FROM INVESTING ACTIVITIES 2.3

Fixed capital expenditure (XXX) (XXX)


Proceeds from sale of property, plant and equipment XXX XXX
Interest received XXX XXX 2.11
Increase /Decrease in Investment XXX XXX
Dividend received XXX XXX 2.11
Net cash generated from investing activities XXX XXX

CASH FLOWS FROM FINANCING ACTIVITIES 2.4

Long term financing - proceeds XXX XXX


- repayments (XXX) (XXX)
Long term loans - repayments (XXX) (XXX)
Long term murabaha - repayments (XXX) (XXX)
Increase / (decrease) in short term borrowings XXX (XXX)
Dividend paid (XXX) (XXX) 2.11
Net cash used in financing activities (XXX) (XXX)

Net increase in cash and cash equivalents XXX XXX


Cash and cash equivalents at beginning of the year XXX XXX
Effect of exchange rate changes XXX XXX 2.8

Cash and cash equivalents at end of the year 37 XXX XXX

The annexed notes 1 to 39 form an integral part of these financial statements.

____________________ _______________ ______________


Chairman Chief Executive Director

The Institute of Chartered Accountants of Pakistan 3


MSE Illustrative Financial Statements

MSE LIMITED
STATEMENT OF CHANGES IN EQUITY
For the year ended December 31, 20X8

Un-
Share Capital Other General
appropriated Total Para#
Capital Reserve Reserve Reserve
profit
(Rupees)

Balance at December 31, 2006 XXX XXX XXX XXX XXX 1.1, 1.3
Net profit for the year ended Dec 31, 2007 XXX XXX
Transfer from general reserve (XXX) XXX XXX
Current year incremental depreciation- net of tax XXX XXX

Dividends
Final dividend 2006: Rs XXX per share (XXX) (XXX)
Interim dividend 2007 : Rs XXX per share (XXX) (XXX)

Balance at December 31, 2007 XXX XXX XXX XXX XXX

Net profit for the year ended Dec 31, 2008 XXX XXX 1.30(a)
Transfer from general reserve (XXX) XXX XXX
Current year incremental depreciation- net of tax XXX XXX
Gain / (loss) recognised directly in equity XXX XXX 1.30(b)

Dividends
Final dividend 2007: Rs XXX per share (XXX) (XXX)
Interim dividend 2008: Rs XXX per share (XXX) (XXX)

Balance at December 31, 2008 XXX XXX XXX XXX XXX XXX

The annexed notes 1 to 39 form an integral part of these financial statements.

____________________ ____________________ __________________


Chairman Chief Executive Director

The Institute of Chartered Accountants of Pakistan 4


MSE LIMITED MSE Illustrative Financial
NOTES TO THE FINANCIAL STATEMENTS Statements
For the year ended December 31, 2008
MSE Para #

1. STATUS AND NATURE OF BUSINESS

MSE Limited is a medium size company incorporated in Pakistan under the Companies 1.12
Ordinance 1984. The company’s registered office is located at xxxx Karachi, Pakistan. The 1.36
principal activity of the company is trading of toys. The company has adopted a trade name
(Registered) “xxx” for its business. The Company is a subsidiary of ABC Ltd (the holding
company) with shareholding of xxx%.

2. STATEMENT OF COMPLIANCE

These financial statements have been prepared in accordance with the Accounting and 1.3
Financial Reporting Standards for Medium-Sized Entities as applicable in Pakistan and the
requirements of the Companies Ordinance, 1984. These accounting standards are notified by
the Securities and Exchange Commission of Pakistan. In case requirements differ, the
provisions or directives of the Companies Ordinance, 1984 shall prevail.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation

These financial statements have been prepared under the historical cost convention 1.31(a)
except as other wise stated in the respective policies and notes given hereunder.

The preparation of financial statements is in conformity with the Accounting and 1.3
Financial Reporting Standards for Medium-Sized Entities issued by the Institute of 1.34
Chartered Accountants of Pakistan require management to make judgments, 1.35
estimates and assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and various other factors
that are believed to be reasonable under the circumstances, the results of which form
the basis of making the judgments about carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these
estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis.


Revisions to accounting estimates are recognised in the period in which the
estimates are revised.

Significant areas requiring the use of management estimates in these financial


statements relate to the useful life of depreciable assets, provision for doubtful
receivables and slow moving inventory. However, assumptions and judgments made
by management in the application of accounting policies that have significant effect
on the financial statements are not expected to result in material adjustment to the
carrying amounts of assets and liabilities in the next year.

3.2 Revenue

Revenue is recognised when it is probable that the economic benefits associated 9.10
with the transaction will flow to the company and the amount of revenue and the 9.11(a)
associated cost incurred or to be incurred can be measured reliably.

(i) sale of goods is recognised when the goods are delivered and the risks and 9.3(a)
rewards of ownership have passed to the customer;

(ii) rental income is recognised on a time proportion basis over the lease terms;

The Institute of Chartered Accountants of Pakistan 5


MSE LIMITED MSE Illustrative Financial
NOTES TO THE FINANCIAL STATEMENTS Statements
For the year ended December 31, 2008
MSE Para #
(iii) interest income is recognised on a time proportion basis taking into account the
principal outstanding and the interest applicable; and

(iv) dividend income is recognised when the shareholder’s right to receive payment 9.9(c)
is established.

3.3 Borrowing costs

Borrowing costs are recognised as an expense in the period in which these are 10.13a
incurred except to the extent of borrowing cost that are directly attributable to the 10.2 to
acquisition, construction or production of a qualifying assets. Such borrowing costs, if 10.4
any are capitalized as part of the cost of the asset.

3.4 Foreign exchange

Foreign currency transactions are recorded at the exchange rate applicable at the 13.2
transaction date. Monetary assets and liabilities are translated into rupees using 13.3
exchange rates applicable at the balance sheet date. All gains and losses on 13.4
settlement and translation at year end are recognised in the income statement.

3.5 Retirement benefits

a) The Company has the following plans for its employees:

Gratuity Scheme

The company operates an funded/unfunded gratuity scheme for its 17.1


employees who have completed the qualifying period as defined under the 17.12
respective scheme.

The amount of liability of each employee at year end is computed by number


of years completed multiplied by the last drawn monthly gross salary. The
difference between the current and the previous liability is charged to profit
and loss account as expense for the year.
OR
The entity operates a funded/unfunded gratuity scheme for its employees who
have completed the qualifying period as defined under the respective
scheme. The charge for the year is based on actuarial valuation conducted
on December 31, 20XX using the “Projected Unit Credit Method”.

The amount recognized in the balance sheet represents the present value of
defined benefit obligation as adjusted for unrecognized actuarial gains and
losses.

Pension Scheme

Defined benefit pension for all eligible employees who complete qualifying
period of service and age.

If the liability for retirement benefits is funded through creation of a


trust

These funds are administered by trustees. Annual contributions to the 17.8(b)


gratuity and management staff pension funds are based on actuarial
valuation using Projected Unit Credit Method. All contributions are charged to
profit and loss account for the year. Actuarial gains / losses in excess of
corridor limit (10% of the higher of fair value of assets and present value of
The Institute of Chartered Accountants of Pakistan 6
MSE LIMITED MSE Illustrative Financial
NOTES TO THE FINANCIAL STATEMENTS Statements
For the year ended December 31, 2008
MSE Para #
obligation) are recognised over the average remaining service life of the
employees. Where the contribution paid during a year is lower than the
amount required to be contributed during the year to meet the accrued
liability as certified by the actuary, the shortfall charged to the statement of
profit and loss for the year. If the contribution paid during a year is in excess
of the amount required to be contributed during the year to meet the accrued
liability as certified by the actuary, the excess treated as a prepayment.

If the employer has chosen to make payment for retirement benefits out
of his own funds 17.8(a)
An appropriate charge to the statement of profit and loss for the year shall be
made through a provision for the accruing liability. The accruing liability shall
be calculated according to actuarial valuation

Provident Fund

Defined contributory provident fund for all eligible employees for which 17.6
contributions are charged to profit and loss account.

b) Compensated absences

The Company has the policy to provide for encashable compensated


absences of its employees in accordance with respective entitlement on
cessation of service; related expected cost thereof has been included in the
financial statements.

3.6 Taxation

Income tax expense represents current tax expense. Provision for current taxation is
based on taxable income at the current rates of taxation after taking into account tax
credits and tax rebates, if any.

Deferred tax is accounted for using the liability method in respect of all taxable
temporary differences arising from differences between the carrying amount of assets
and liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax assets are recognised to the extent that it
is probable that taxable profits will be available against which the deductible
temporary differences, unused tax losses and tax credits can be utilized.

Deferred tax is calculated at the rates that are expected to apply to the period when
the differences reverse, based on tax rates that have been enacted.

3.7 Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and 3.3
accumulated impairment losses except freehold land and capital work in progress, 3.13
which are stated at cost. Cost comprises acquisition and other directly attributable
costs.

Depreciation is charged to income on straight line basis or reducing balance basis or 3.33
cost of asset is written off over its estimated useful life. Depreciation on additions to 3.38(b)
property, plant and equipment is charged from the month in which an item is put to 3.15
use while no depreciation is charged for the month in which the item is derecognized
/disposed off.

The assets’ residual values and useful lives are reviewed at each financial year end
and adjusted if impact on depreciation is significant.
The Institute of Chartered Accountants of Pakistan 7
MSE LIMITED MSE Illustrative Financial
NOTES TO THE FINANCIAL STATEMENTS Statements
For the year ended December 31, 2008
MSE Para #

Depreciation is calculated on a straight-line or reducing balance basis or to write off


the cost of an asset over its estimated useful life without taking into account any
residual value. Full year's depreciation is charged on normal additions, while no
depreciation is charged on items deleted during the year. Surplus on revaluation of
fixed assets relating to incremental depreciation (net of deferred tax) is transferred
directly to unappropriated profit.

Surplus on revaluation of Property, plant and equipment is credited to the surplus on 3.20
revaluation account. Revaluation is carried out with sufficient regularity to ensure that
the carrying amount of assets does not differ materially from the fair value. To the
extent of the incremental depreciation charged on the revalued assets the related
surplus on revaluation of property, plant and equipment (net of deferred tax) is
transferred directly to unappropriated profit.

Gains and losses on disposal of fixed assets are included in income currently, except 3.36
that the related surplus on revaluation of fixed assets (net of deferred tax) is
transferred directly to unappropriated profit.

Maintenance and repairs are charged to profit and loss account as and when 3.11
incurred. Major renewals and improvements are capitalised and the assets so 3.12
replaced, if any, are written off. Gains and losses on disposal of assets, if any, are
included in profit and loss account currently.

3.8 Intangible assets

Intangible assets are stated at cost less accumulated amortisation and accumulated 5.12
impairment losses. The depreciable amount of intangible asset is amortised on a 5.17
systematic basis over the estimated useful lives using the straight-line method. 5.26(b)

3.9 Investments 16.1

Investments available for sale

These are recognized at fair value. Gains or losses from changes in fair values are 16.3,16.19
taken to equity until disposal at which time these are recycled to profit and loss
account.

Investments held to maturity

Investments with fixed or determinable payments and fixed maturity, which the 16.3
Company has the positive intent and ability to hold to maturity, are carried at 16.11
amortised cost, using the effective interest rate method less impairment losses, if so 16.19(ii)
determined.

Investments at fair value through profit or loss

Investments which are acquired principally for the purpose of selling in the near term 16.3
or the investments that are part of a portfolio of financial instruments exhibiting short 16.19(ii)
term profit taking are classified as investments at fair value through profit or loss.
These are stated at fair values with any resulting gains or losses recognized directly
in the profit and loss account. The fair value of such investments representing listed
equity securities are determined on the basis of prevailing market prices.

The Institute of Chartered Accountants of Pakistan 8


MSE LIMITED MSE Illustrative Financial
NOTES TO THE FINANCIAL STATEMENTS Statements
For the year ended December 31, 2008
MSE Para #

3.10 Impairment of assets

An assessment is made at each balance sheet date to determine whether there is 3.34
any indication of impairment or reversal of previous impairment, including items of 16.11-
property, plant and equipment, intangible assets and long-term investments. In the 16.17
event that an asset’s carrying amount exceeds its recoverable amount, the carrying
amount is reduced to recoverable amount and an impairment loss is recognised in
the income statement. A previously recognised impairment loss is reversed only if
there has been a change in the estimates used to determine the recoverable amount,
however not to an amount higher than the carrying amount that would have been
determined (net of amortisation or depreciation), had no impairment losses been
recognised for the asset in prior years. Reversal of impairment loss is restricted to the
original cost of the asset.

3.11 Leases

Leases that transfer substantially all the rewards and risks of ownership of assets to 4.2
the company are accounted for as finance leases. At the inception of a finance lease, 4.4
the cost of the leased asset is capitalised at the fair value of the leased asset or, if
lower, at the present value of the minimum lease payments. Lease payments are
apportioned between the finance charges and reduction of the lease liability so as to 4.6
achieve a constant rate of interest on the remaining balance of the liability. Finance
charges are charged to the income statement. The lessor gives an option to
purchase assets at the end of lease term.

Sale and leaseback transaction


If a sale and leaseback transaction results in a finance lease, any excess of sales 4.14, 4.15
proceeds over the carrying amount is deferred and amortised over the lease term.
If a sale and leaseback transaction results in an operating lease and the transaction
is established at fair value, a profit or loss is recognised immediately.

3.12 Stores, spares and loose tools

These are valued at the lower of cost and net realisable value except for items in
transit, which are valued at invoice price and related expenses incurred upto the
balance sheet date. For items which are slow moving and / or identified as surplus to
the Company's requirement, a provision is made for excess of book value over
estimated realisable value.

3.13 Stock in Trade

Stocks are valued at the lower of cost and net realisable value except for stock in 6.1
transit which is valued at invoice price and related expenses incurred upto the 6.2
balance sheet date. The cost of inventories comprises all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to their present
location and condition.

Cost is determined as follows:

Raw materials at weighted average cost


Work in process at weighted average cost and 6.4
Finished goods applicable manufacturing expenses

Net realisable value signifies the estimated selling price in the ordinary course of 6.6
business less net of estimated cost of completion and selling expenses.

The Institute of Chartered Accountants of Pakistan 9


MSE LIMITED MSE Illustrative Financial
NOTES TO THE FINANCIAL STATEMENTS Statements
For the year ended December 31, 2008
MSE Para #

3.14 Trade and other receivables

Trade and other receivables are stated at estimated realisable value after each debt
has been considered individually. Where the payment of a debt becomes doubtful a
provision is made and charged to the income statement.

3.15 Provisions

Provisions are recognised when the Company has a present legal or constructive 8.1
obligation as a result of past events, it is probable that an out flow of resources
embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of obligation.

3.16 Dividend

Dividend is recognized as a liability in the period in which it is approved. 1.31(d)

3.17 Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purpose 2.13 -2.14
of cash flow statement, cash and cash equivalents comprise cash in hand, cash with
banks on current, saving and deposit accounts, short term running finance and other
short term highly liquid investments that are readily convertible to known amounts of
cash and which are subject to insignificant risk of change in value.

3.18 Related party transactions

All transactions involving related parties arising in the normal course of business are 15.6
conducted at arm's length at normal commercial rates on the same terms and
conditions as third party transactions using valuation modes, as admissible, except in
extremely rare circumstances where, subject to the approval of the Board of
Directors, it is in the interest of the Company to do so.

3.19 Offsetting

Financial assets and liabilities are offset and the net amount is reported in the 1.10
balance sheet, if the Company has a legally enforceable right to setoff the recognised
amounts and the Company intends to settle either on a net basis or realise the asset
and settle the liability simultaneously.

3.20 Financial instruments

Financial assets and liabilities are recognised when the Company becomes a party to 16.1
the contractual provisions of the instrument, the particular recognition methods 16.18
adopted are disclosed in the individual policy statements associated with each item.
The Company derecognizes the financial assets and liabilities when it ceases to be a
party to such contractual provisions of the instruments. The Company recognises the
regular way purchase or sale of financial assets using settlement date accounting.

a) Trade and other payables


Liabilities for trade and other payables are carried at cost which is the fair value of the
consideration to be paid in the future for goods and services received.

The Institute of Chartered Accountants of Pakistan 10


MSE LIMITED MSE Illustrative Financial
NOTES TO THE FINANCIAL STATEMENTS Statements
For the year ended December 31, 2008
MSE Para #

b) Trade and other receivables


Trade and other receivables are recognized and carried at original invoice amount /
cost less an allowance for any uncollectible amounts.

c) Derivative financial instruments


Any gain or loss from re-measuring the hedging instrument at fair value is recognised
in the profit and loss account.

d) Cash and cash equivalents


Cash in hand and at banks are carried at fair value. For the purpose of cash flow
statement, Cash and cash equivalents consist of cash in hand, balances in bank and
highly liquid short term investments.

The Institute of Chartered Accountants of Pakistan 11


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008

4. Property, Plant & Equipment

Land & Furniture &


Vehicles CWIP Total
Buildings Equipment

…………………………. Rupees ………………………………….


At January 1, 20X7
Cost XXX XXX XXX XXX XXX
Accumulated depreciation (XXX) (XXX) (XXX) (XXX) (XXX)
Net book amount XXX XXX XXX XXX XXX

Year ended December 20X7


Opening net book amount XXX XXX XXX XXX XXX
Additions XXX XXX XXX XXX XXX
Disposals (XXX) (XXX) (XXX) (XXX) (XXX)
Depreciation charge (XXX) (XXX) (XXX) (XXX) (XXX)
Exchange rate adjustments XXX XXX XXX XXX XXX
Closing net book amount XXX XXX XXX XXX XXX

At December 31, 20X7


Cost XXX XXX XXX XXX XXX
Accumulated depreciation (XXX) (XXX) (XXX) (XXX) (XXX)
Net book amount XXX XXX XXX XXX XXX

Year ended December 20X8


Opening net book amount XXX XXX XXX XXX XXX
Additions XXX XXX XXX XXX XXX
Disposals (XXX) (XXX) (XXX) (XXX) (XXX)
Depreciation charge (XXX) (XXX) (XXX) (XXX) (XXX)
Exchange rate adjustments XXX XXX XXX XXX XXX
Closing net book amount XXX XXX XXX XXX XXX

At December 31, 20X8


Cost XXX XXX XXX XXX XXX
Accumulated depreciation (XXX) (XXX) (XXX) (XXX) (XXX)
Net book amount XXX XXX XXX XXX XXX

The net carrying amount of assets under


finance lease included in 'Property and
Equipment' was:
20X8 XXX XXX XXX XXX
20X7 XXX XXX XXX XXX

CWIP includes net carrying values at:


20X8 XXX XXX XXX XXX
20X7 XXX XXX XXX XXX

The Institute of Chartered Accountants of Pakistan 12


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008

Note 20X8 20X7


Rs. Rs.

4.1 Depreciation charge has been allocated as follows:

Cost of sales XXX XXX 3.38(e)


General & Administrative Expenses XXX XXX

XXX XXX

5. Intangible assets

Software 5.1 XXX XXX


Others (brands etc) XXX XXX
XXX XXX

Outside Internal
5.1 Cost model / Revaluation model purchased development Total
software software

----------------- Rupees ------------------

Balance as at January 1, 20X8 XXX XXX XXX


Acquisition XXX XXX XXX
Internal development XXX XXX XXX
Transfer (to)/ from held for sale under IFRS 5 XXX XXX XXX
Surplus / (deficit) on revaluation of intangibles XXX XXX XXX
Exchange difference on foreign currency translation XXX XXX XXX
Balance as at December 31, 20X8 XXX XXX XXX

Balance as on January 1, 20X7 XXX XXX XXX


Acquisition XXX XXX XXX
Internal development XXX XXX XXX
Transfer (to)/ from held for sale under IFRS 5 XXX XXX XXX
Surplus / (deficit) on revaluation of intangibles XXX XXX XXX
Exchange difference on foreign currency translation XXX XXX XXX
Balance as at December 31, 20X7 XXX XXX XXX

Amortisation and Impairment Amortisation Impairment Total


Balance as at January 1, 20X8 XXX XXX XXX
Amortisation for the period XXX XXX XXX
Impairment loss recognised / (reversed) XXX XXX XXX
Incremental amortisation charge to revaluation XXX XXX XXX
Balance as at December 31, 20X8 XXX XXX XXX

Balance as at January 1, 20X7 XXX XXX XXX


Amortisation for the period XXX XXX XXX
Impairment loss recognised / (reversed) XXX XXX XXX
Incremental amortisation charge to revaluation XXX XXX XXX
Balance as at December 31, 20X7 XXX XXX XXX

Carrying Amount
Balance as at January 1, 20X7 XXX XXX XXX
Balance as at December 31, 20X7 XXX XXX XXX
Balance as at December 31, 20X8 XXX XXX XXX

The Institute of Chartered Accountants of Pakistan 13


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008

Note 20X8 20X7


Rs. Rs.

5.2 The amortization charge for the year has been allocated as follows:

Cost of sales XXX XXX


General & Administrative Expenses XXX XXX
XXX XXX

6. Long-term investments

Listed equity securities, at cost XXX XXX 16.1

Investments available for sale 6.1

Certificates of investment XXX XXX


Government of Pakistan Special US Dollar Bonds XXX XXX
National Savings Certificates XXX XXX
Investment in related parties XXX XXX
Investment in listed companies and modarabas XXX XXX
Investment in unlisted companies XXX XXX
XXX XXX
Investments held to maturity 6.2

Pakistan Investment Bonds (PIBs) XXX XXX


Government of Pakistan Sukuk Bonds XXX XXX
Term Finance Certificates XXX XXX
Investment in related parties XXX XXX
Other investments XXX XXX
Less: current portion shown in current assets (XXX ) (XXX )

XXX XXX
Investments in Associate
XYZ Company Limited 6.3 XXX XXX

Investments at cost XXX XXX


Less: Provision for impairment in value of investment (XXX ) (XXX )
XXX XXX

Note: Market value of listed securities and book value of unlisted securities are also required to be disclosed under Paragraph 2(B)(c) of P-II of
5th Schedule to the Companies Ordinance, 1984.

6.1 Investments available for sale

The Company has placements in certificates of investment of a financial institution for periods ranging from one and a 16.19
half to five years at profit rates ranging from 6% to 15% per annum.

Government of Pakistan Special US Dollar Bonds were issued for a period of three years. Profit was payable on these
bonds at a rate of xxx% above six months' LIBOR. These were fully encashed during the year.

National Saving Certificates were issued for 5 years. Monthly profit was payable on these certificates at the rate of xxx%
per annum. These were fully encashed during the year. Investments available for sale include Rs. Nil (2007: Rs. XXX)
under lien of financial institutions against long term loans and short term loans.

The Institute of Chartered Accountants of Pakistan 14


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008

6.2 Investments held to maturity

PIBs have been issued for 10 years (2007: 5 to 10 years). Half-yearly profit is payable on these bonds at rates ranging 16.19
from xxx% to xxx% per anum. These include Rs. xxx thousand (2007: Rs.xxx) under lien of a bank. Fair value of these
PIBs as at December 31, 2008 is Rs.xxx thousand (2007: Rs. xxx)

Investment in TFC represents XXX certificates of Rs XXX each of ABC Commercial Bank Limited. Half yearly profit is payable
on these TFCs at the rate of six months' KIBOR + 1.5% per annum. Fair value of the outstanding TFCs as at December 31, 2007
is Rs. XXX .

6.3 Investments in Associate

Investment in Associate represent xxx%(2007:xx) investment in equity of XYZ company Limited (market value as at December 31
2008:xxx ; 2007:xxx)

Note 20X8 20X7


Rs. Rs.
7. Long Term Loans and Advances 5th schedule
part II cl 3
Loans and advances, considered good, to:

Executives XXX XXX


Other employees XXX XXX
Suppliers XXX XXX

Less: Amount due within twelve months, shown under (XXX) (XXX)
current loans and advances
XXX XXX

7.1 Reconciliation of carrying amount of loans to executives and other employees:

Opening balance as Disbursements Repayments Closing balance as at December


at January 1, 2008 31, 2008
………………… ……..……..Rupees…………………………...…………………………….

Executives xxx xxx xxx xxx


Other employee xxx xxx xxx xxx
xxx xxx xxx xxx

2008 xxx xxx xxx xxx

2007 xxx xxx xxx xxx

These represent secured loans for house building and vehicle which are repayable within one to ten and one to five
years respectively. Mark-up at xx% per annum (2005: xx% per annum) was charged on loans for house building and vehicle
during the year.

The maximum amount of advances to executives outstanding at the end of any month during the year was Rs xxx (2007: Rs xxx).

The Institute of Chartered Accountants of Pakistan 15


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008
Note 20X8 20X7
Rs. Rs.

8. Long Term Deposits and Prepayments

Deposits XXX XXX


Prepayments XXX XXX
XXX XXX

9. Stores, Spares and Loose Tools

Stores XXX XXX


Spares XXX XXX
Provision for slow moving and surplus items (XXX) (XXX) 8.1
XXX XXX
Loose tools XXX XXX
Items in transit XXX XXX
XXX XXX

10. Stock In Trade 6.6

Raw materials XXX XXX


Work in process XXX XXX
Finished goods XXX XXX
XXX XXX
11. Trade Receivable

Considered good XXX XXX


Considered doubtful XXX XXX
Provision for doubtful debts 11.1 (XXX) (XXX) 8.1
XXX XXX

11.1 The Company has reversed a provision of Rs.-------- (20X7: recognised a provision of Rs.----------) for the doubtful debts

12. Short Term Loans and Advances

Secured and Considered good


Current portion of long term loans and advances :
Executives XXX XXX
Other employees XXX XXX
Suppliers XXX XXX
XXX XXX

Considered Doubtful
Suppliers XXX XXX

Provision for Doubtful Advances (XXX) (XXX)

XXX XXX

13. Short Term Deposits and Prepayments

Deposits XXX XXX


Prepayments XXX XXX
XXX XXX

The Institute of Chartered Accountants of Pakistan 16


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008
Note 20X8 20X7
Rs. Rs.
14. Short Term Investments

Investment at fair value through profit or loss:


Investment in related parties XXX XXX
Investment in listed companies and madarbas XXX XXX
Investment in unlisted companies XXX XXX
XXX XXX

Investments available for sale


Investment in related parties XXX XXX
Investment in listed companies and modarbas XXX XXX
XXX XXX

Investments held to maturity


Current portion of held to maturity investments XXX XXX
Pakistan Investment Bonds XXX XXX
Term Finance Certificates XXX XXX
Murabaha finance 14.1 XXX XXX
Musharika finance 14.1 XXX XXX

XXX XXX

14.1 These represent investments under murabaha and musharika basis for working capital. These are secured against hypothecation of
stock, demand promissory notes and personal guarantee of the directors. Expected rate of profit ranges between _____% to ____% (2007 :
_____% to _____%) per annum.

15. Other Receivables

Accrued income on investments and bank deposits XXX XXX


Advance tax XXX XXX
Sales Tax refund XXX XXX
Other receivables – considered good XXX XXX
– considered doubtful XXX XXX
XXX XXX

Provision for doubtful receivables (XXX) (XXX) 8.1


XXX XXX

16. Cash and Bank Balances

At banks:
Deposit accounts
Local currency XXX XXX
Foreign currency XXX XXX
XXX XXX

Current accounts XXX XXX


Local currency XXX XXX
Foreign currency XXX XXX
XXX XXX
Cash in hand XXX XXX
XXX XXX

The Institute of Chartered Accountants of Pakistan 17


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008
Note 20X8 20X7
Rs. Rs.
17. Share Capital

Authorised Share Capital

This represents XXX (2007: XXX) ordinary shares of Rs 10 each amounting to Rs. XXX.

Issued, Subscribed and Paid Up Capital

xxx shares (2007: xxx) Ordinary shares of Rs.10 each fully paid in cash XXX XXX 1.21(a) (ii)

xxx shares (2007: xxx) Ordinary shares of Rs.10 each issued 17.1 XXX XXX
for consideration other than cash

xxx shares (2007: xxx) Ordinary shares as fully paid bonus shares of Rs. 10 XXX XXX

XXX XXX

17.1 This represent the issuance of shares against the purchase of plant, machinery and other assets.

17.2 Reconciliation of issued, Subscribed and Paid Up Capital

Opening balance XXX XXX 1.21 (a) iv


Issued fully paid bonus shares XXX XXX
XXX XXX

18. Capital Reserve


Capital gain on sale of building XXX XXX 1.21b

19. Revenue Reserves

General reserve XXX XXX 1.21b


Unappropriated profit XXX XXX
XXX XXX

20. Surplus on Revaluation of Fixed Assets

This represents surplus arising on revaluation of freehold land, building on freehold land, plant and machinery both owned
and leased carried out in the year 1 2004 . This has been adjusted by surplus realized on disposal of revalued assets and
incremental depreciation arising due to revaluation net of deferred tax.

Note 20X8 20X7


Rs. Rs.

Surplus on revaluation assets as at 01 January XXX XXX

Surplus arising on revaluation of assets during the period XXX XXX

Surplus relating to incremental depreciation charged on related assets-


transferred to inappropriated profit

Net of deferred tax XXX XXX


Related deferred tax liability XXX XXX

The Institute of Chartered Accountants of Pakistan 18


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008
Note 20X8 20X7
Rs. Rs.

Surplus on revaluation of assets as at 31 December XXX XXX

Less : Related deferred tax liability on


Balance at the beginning of the year XXX XXX

Transferred to profit and loss account XXX XXX


incremental depreciation charged during the year XXX XXX
XXX XXX
21. Long Term Borrowing - Secured

Long term financing - secured 21.1 XXX XXX


Long term murabaha - secured 21.2 XXX XXX
Loan from Related party XXX XXX
XXX XXX

21.1 Long term financing – secured

Loans from banking companies

i) ABC Bank 21.1.1.1 XXX XXX


i) XYZ Bank 21.1.1.2 XXX XXX
XXX XXX
Other loans XXX XXX
Term Finance Certificates (TFCs) 21.1.2 XXX XXX
Government of Pakistan loan 21.1.3 XXX XXX
XXX XXX
Less: Current portion shown under current liabilities (XXX) (XXX)
XXX XXX

21.1.1 Terms and conditions of long term finances from banking companies are given below:

Lender Mark-up No of half- Date of final


rate p.a. yearly repayment
(%) installments
Outstanding

ABC xxx xx xxx


XYZ xxx xx xxx

21.1.1.1 Finance are secured by an equitable mortgage on the assets of the Company and hypothecation of 3.39
all assets including plant, machinery, tools and spares, and all other moveable properties situated at xxxx
including stocks and book debts ranking pari passu with each other. These loans have been
obtained for the acquisition of plant and machinery.

21.1.1.2 Finance has been obtained to meet the permanent working capital requirements of the Company.
Finance is secured by an equitable mortgage on the assets of the Company and hypothecation of
all assets including plant, machinery, tools and spares, and all other moveable properties situated
at xxx stocks and book debts ranking pari passu with each other. Finance is secured
against lien on Pakistan Investment Bonds

21.1.2 Term Finance Certificates (TFC's) represent private placement with 2 institutional investors 3.39
(2007: 3 institutional investors) for a period of 5 years (2007: periods ranging from 3 to 5 years)
The annual rate of profit is State Bank of Pakistan discount rate plus is State Bank of Pakistan
discount rate plus 1.5% with a floor of 11% and cap of 16%. The balance amount of principal of TFCs at
December 31, 2008 is to be repaid in 4 half-yearly installments in arrears. These are secured by an
equitable mortgage on the assets of the Company and hypothecation of all assets including plant,
machinery, tools and spares, and all other moveable properties situated at xxx including stocks and book
debts ranking pari passu with each other.

The Institute of Chartered Accountants of Pakistan 19


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008

21.1.3 Government of Pakistan loan – secured

This loan represented the on lent proceeds of credit obtained by the Government of Pakistan from
an international agency.

This loan was disbursed in foreign currency and was repayable in local currency. Disbursements 3.39
were determined for repayment in Rupees by translation at the rates of exchange prevailed on the
respective dates of disbursement. Interest on loan also include included the Government's exchange
risk commission. This loan was secured by a mortgage in favour of the Government of Pakistan over
the Company's fixed assets.

Note 20X8 20X7


Rs. Rs.

21.2 Long term murabaha – secured

Faysal Bank Limited XXX XXX


Less: Current portion shown under current liabilities (XXX) (XXX)
XXX XXX

The above murabaha financing carries mark-up at 4.5% p.a. Principal and mark-up are repayable in half yearly installments 3.39
upto May 31, 2010. This is secured by a registered charge on all present and future fixed and current moveable assets
of the Company

Note 20X8 20X7


Rs. Rs.

22. Liabilities against assets subject to Finance Leases

The present value of lease payments under finance leases are as follows:

Not later than one year XXX XXX 4.9(b)


Later than one year and later than five years XXX XXX
XXX XXX
Less: Financial charges allocated to the Future period XXX XXX
Net Lease Obligation XXX XXX
Less: Current portion shown under current liabilities XXX XXX
XXX XXX

23. Deferred Liabilities

Deferred Taxation 23.1 XXX XXX

Employee benefits
Post retirement medical benefits 23.2 XXX XXX
Compensated absences 23.3 XXX XXX
XXX XXX

23.1 Deferred Taxation

The balance of deferred tax is in respect of the following


major temporary differences:

Accelerated depreciation on property, plant and equipment XXX XXX 11.4


Provision for slow moving / surplus spares (XXX) (XXX)
Provision for doubtful debts, other receivables
and short term investments (XXX) (XXX)
XXX XXX

The Institute of Chartered Accountants of Pakistan 20


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008
Note 20X8 20X7
Rs. Rs.

23.2 Post retirement medical benefits

Movements in the liability recognized in the balance sheet


Balance at beginning of the year XXX XXX 17.8
Charge for the year XXX XXX
Benefits paid during the year (XXX) (XXX)
Net liability at end of the year XXX XXX

Reconciliation of the liability recognized in the balance sheet

Present value of defined benefit obligation XXX XXX


Net actuarial gains not recognized XXX XXX
Net liability at end of the year XXX XXX

Particulars of charge for the year


XXX XXX
Current service cost XXX XXX
Interest cost (XXX) (XXX)
Actuarial gains recognized XXX XXX

The latest actuarial valuation was carried out as at June 30, 2008. The rates of discount, medical cost increase and
expected inflation were assumed at XXX% (2007: XXX%), XXX% (2007: XXX%) and XXX% (2007: XXX%) per annum 17.9
respectively.

23.3 Compensated absences 17.3

Present value of defined benefit obligation XXX XXX


Charge for the year XXX XXX
Liability at end of the year XXX XXX
Payable to officers transferred to current liabilities XXX XXX
XXX XXX

24. Trade and Other Payables 1.17

Creditors XXX XXX


Accrued liabilities XXX XXX
Sales tax payable XXX XXX
Murabaha XXX XXX
Deposits XXX XXX
Retention money XXX XXX
Advances from customers XXX XXX
Workers' Profit Participation Fund 24.1 XXX XXX
Workers' Welfare Fund XXX XXX
Unclaimed dividend XXX XXX
Other liabilities XXX XXX
XXX XXX

24.1 Workers' Profit Participation Fund

Balance at beginning of the year XXX XXX


Interest on funds utilised in Company's business XXX XXX
Allocation for the year XXX XXX
Payment to the fund during the year (XXX) (XXX)
XXX XXX

The Institute of Chartered Accountants of Pakistan 21


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008
Note 20X8 20X7
Rs. Rs.
25. Interest and Mark-Up Accrued

On long term financing XXX XXX


On murabaha financing XXX XXX
On short term borrowings XXX XXX
XXX XXX

26. Short Term Borrowings – Secured

From banking companies

Short term loan -secured 26.1 XXX XXX


Short term import credit XXX XXX
Short term running finance 26.2 XXX XXX
XXX XXX

26.1 Short term loan -secured

This represents short term loan facility available from a bank by partial conversion of Running Finance line amounting to Rs. XXX 3.39
(2007: Rs xxx). This is secured by first pari passu charge on the current assets of the Company. This facility carries mark-up
at the rate of Rs. xxx (2007: Rs.xxx) per Rs. 1,000 per day.

26.2 Short term running finances -secured

Short term running finance facilities available from various banks under mark-up arrangements amounting to Rs. xxx which
represent the aggregate of sale prices of all mark-up agreements between the Company and the banks.

These facilities are secured by hypothecation of present and future current assets and fixed assets of the Company 3.39
ranking pari passu in all respects with the first charge holders. The rates of mark-up range from one month xxx% p.a. to
three months 'xxx% p.a. (2007: one month xxx% p.a. to three months' xxx% p.a.).

Note 20X8 20X7


Rs. Rs.

27. Current portion of Long term Liabilities

Long term financing - secured 21.1 XXX XXX


Long term murabaha - secured 21.2 XXX XXX
Lliabilities against assets subject to Finance Leases 22 XXX XXX
XXX XXX

28. Contingencies and Commitments

a) Contingencies

i) Guarantees issued by banks on behalf of the Company. XXX XXX 8.25


8.26
ii) Disputed demands for Income tax decided XXX XXX
in favour of the Company by the Income Tax Appellate
authorities, are currently in appeal by the department. The
Company is confident that there are reasonable grounds for a
favorable decision.

iii) Income tax demands, not acknowledged as debt, have been XXX XXX
challenged by the Company and are currently in appeal; the
Company expects favourable outcome of appeal.

The Institute of Chartered Accountants of Pakistan 22


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008
Note 20X8 20X7
Rs. Rs.

iv) Claims against the Company and / or potential exposure XXX XXX
not acknowledged as debt.

b) Commitments in respect of:

i) Capital expenditure XXX XXX

ii) Rentals under lease agreements: XXX XXX

Premises - not later than one year XXX XXX


- later than one year and not later than five years
2010 XXX XXX 4.9
2011 XXX XXX
2012 XXX XXX
2013 XXX XXX
2014 XXX XXX
- later than five years XXX XXX

Vehicles - not later than one year


- later than one year and not later than five years
2010 XXX XXX 4.9
2011 XXX XXX
2012 XXX XXX
2013 XXX XXX
2014 XXX XXX
- later than five years XXX XXX
XXX XXX

29. Revenue

Revenue include Rs xxxx million (2007: Rs xxxx) in respect of sale of purchased of goods and are exclusive of commission, trade 9.11b(i)
allowances and sales tax of Rs xxxx and Rs xxxx respectively (2007: Rs xxxx and Rs xxxx).

30. Cost of Sales

Raw materials consumed XXX XXX 1.27,6.6d


Fuel and power XXX XXX
Stores and supplies XXX XXX 3.2
1.27, 17.1-
Salaries, wages and benefits 30.1 XXX XXX 17.3, 17.7
Rent, rates and taxes XXX XXX
Insurance XXX XXX
Travel and conveyance XXX XXX
Repairs and maintenance XXX XXX 3.11
(includes stores and spares consumed of Rs.xxx
thousand; 2005: Rs xxx thousand)
Amortization of intangible assets XXX XXX 1.27, 5.17
Depreciation XXX XXX 3.26
Communication, establishment and other expenses XXX XXX
Provision for doubtful trade debts XXX XXX
Provision for obsolete and slow moving inventory XXX XXX
Provision / (reversal of provision) for doubtful advances XXX XXX
Opening stock - work in process XXX XXX 6.6d
Closing stock - work in process XXX XXX
Cost of goods manufactured XXX XXX

The Institute of Chartered Accountants of Pakistan 23


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008
Note 20X8 20X7
Rs. Rs.

Opening stock of Finished goods XXX XXX


Closing stock of Finished goods XXX XXX
XXX XXX

30.1 Inclusive of provision for gratuity Rs.-------------- (20X7---------) 17.8

31. General and Administration Expenses

1.27, 17.1-
Salaries, wages and benefits 31.1 XXX XXX 17.3, 17.7
Travelling and transportation XXX XXX
Repairs and maintenance XXX XXX 3.11
Rent and taxes XXX XXX
Communication XXX XXX
Utilities XXX XXX
Training XXX XXX
Legal services XXX XXX
Contract services XXX XXX
Auditors' remuneration 31.2 XXX XXX
Advertising XXX XXX
Insurance XXX XXX
Donations XXX XXX
Depreciation XXX XXX 1.27, 5.17
Amortisation of Intangible assets XXX XXX
Travel and conveyance XXX XXX
Sale promotion and advertising XXX XXX
Warehousing expenses XXX XXX
Other expenses XXX XXX
XXX XXX

31.1 These include amount in respect of provision for gratuity of Rs XXX (2007: Rs XXX ). 17.8

31.2 Auditors' remuneration:

Annual audit fee XXX XXX


Out of pocket expenses XXX XXX
XXX XXX

32. Finance costs

Interest on bank loan and overdraft XXX XXX


Interest on finance leases XXX XXX 4.6
Mark up on short term borrowings XXX XXX
Exchange loss XXX XXX 13.3, 13.5
Interest on Workers' Profit Participation Fund XXX XXX
Bank charges XXX XXX
XXX XXX

The Institute of Chartered Accountants of Pakistan 24


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008
Note 20X8 20X7
Rs. Rs.
33. Other Income

Income from financial assets


Income on loans, deposits and investments XXX XXX 9.11(b)
Income on tax-exempt investments XXX XXX 9.11(b)
(Loss) / gain on re-measurement of investments XXX XXX 16.9, 16.10
at fair value through profit or loss
Gain on sale of NIT units XXX XXX
Exchange gain on financial instruments XXX XXX
XXX XXX
Dividend Income XXX XXX 9.11(b)

Income from non-financial assets


Gain on sale of property, plant and equipment XXX XXX 3.36

Other income
Old liabilities written back XXX XXX
Scrap sales XXX XXX
Others XXX XXX
XXX XXX

34. Taxation

Provision for taxation - current year XXX XXX 11.14


- prior year XXX XXX
Deferred (XXX) (XXX)
Overprovision in prior years (XXX) (XXX)
XXX XXX

35. Related party transactions

The Company had the following transactions with related parties:

Goods sold to related companies XXX XXX 15.4(a)


Goods purchased from related companies XXX XXX 15.4(a)
XXX XXX

The amounts due to related parties are unsecured, interest-free and have no fixed terms of repayment. 15.4(b)(i)

36. Cash Generated From Operations

Net profit before taxation XXX XXX


Adjustments for:

Depreciation XXX XXX


Amortisation of goodwill and intangible asset XXX XXX
Provision for slow moving and surplus spares (XXX) (XXX)
Provision / (reversal of provision) for doubtful advances XXX (XXX)
Finance cost XXX XXX
Income on loans, deposits and investments (XXX) (XXX)
Gain on sale of property, plant and equipment (XXX) (XXX)
Property, plant and equipment written off XXX XXX
Provision for gratuity XXX XXX
Provision for pension XXX XXX
Exchange (gain) / loss (XXX) XXX
Loss / (gain) on remeasurement of XXX (XXX)
investment at fair value through profit or loss
Old liabilities written back (XXX) (XXX)
XXX XXX
XXX XXX

The Institute of Chartered Accountants of Pakistan 25


MSE Limited MSE Illustrative Financial Statements
Notes to the Financial Statements
For the Year Ended December 31, 2008
Note 20X8 20X7
Rs. Rs.
Changes in working capital
(Increase) / decrease in current assets:
Stores and spares (XXX) (XXX)
Stock in trade (XXX) XXX
Trade debts XXX XXX
Loans and advances XXX (XXX)
Deposits and prepayments (XXX) (XXX)
Other receivables XXX XXX
Increase in current liabilities: XXX XXX
Trade and other payables XXX XXX
XXX XXX

Changes in long term loans and advances XXX XXX


Changes in long term deposits and prepayments XXX XXX
XXX XXX

37. Cash and Cash Equivalents

Cash and bank balances XXX XXX 2.10


Short term highly liquid investments XXX XXX 2.14
XXX XXX

38. Corresponding Figures

38.1 The comparative figures have been rearranged and/or reclassified, wherever necessary, for the purpose of 1.11
comparison in the financial statements. Major changes in the financial statements are as follows:

38.2 Traveling and conveyance amounting to Rs. xxx which were previously included in Others have now been
reclassified and included as a separate line.

39. General

39.1 Figures have been rounded to the nearest thousand of rupees, unless otherwise stated.

39.2 The Board of Directors proposed final dividend at the rate of Rs xxx per share in their meeting 1.31 (d)
held on xxx

39.3 These financial statements were authorized for issue by the Board of Directors in their meeting
held on xxx.

____________________ ____________________ ____________________


Chairman Chief Executive Director

The Institute of Chartered Accountants of Pakistan 26