Videocon Industries Ltd

To

The Members of

VIDEOCON INDUSTRIES LIMITED

1. We have audited the attached Balance Sheet of VIDEOCON INDUSTRIES LIMITED, asat 31st December, 2010, Profit and Loss Account and also the Cash Flow Statement of theCompany for the period ended on that date annexed thereto. These financial statements arethe responsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally acceptedin India. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin financial statements. An audit also includes assessing the accounting principles usedand significant as well as evaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003, issued by theCentral Government in terms of Section 227(4A) of the Companies Act, 1956, on the basis ofsuch checks as considered appropriate and according to the information and explanationsgiven to us during the course of the audit, we give in the Annexure hereto a statement onthe matters specified in Paragraphs 4 and5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we reportthat:

a) We have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the pur pose of our audit;

b) In our opinion, proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books. Proper returns adequatefor the purpose of our audit have been received from branches not visited by us. Thebranch Auditors Reports have been forwarded to us and have been appropriately dealt with;

c) The Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with bythe report are in agreement with the books of account and with the audited returns fromthe foreign branches;

d) In our opinion, the Balance Sheet, Profit and Loss Account, and Cash Flow Statementdealt with by this report comply with the Accounting Standards referred to in Section211(3C) of the Companies Act, 1956;

e) According to the information and explanations given to us and on the basis ofwritten representations received from the directors and taken on record by the Board ofDirectors, we report that none of the directors is disqualified from being appointed as adirector in terms of Section 274(1)(g) of the Companies Act, 1956;

f) In our opinion and to the best of our information and according to explanationsgiven to us, the said financial statements, read together with the significant accountingpolicies, paragraph 4 above and notes thereon, give the information required by theCompanies Act, 1956, in the manner so required and give a true and fair view in conformitywith the accounting principles generally accepted in India:

(i) In the case of the Balance Sheet, of the state of affairs of the Company as at 31stDecember, 2010;

(ii) In the case of the Profit and Loss Account, of the profit for the period ended onthat date; and

(iii) In the case of the Cash Flow Statement, of the cash flows for the period ended onthat date.

ANNEXURE REFERRED TO THE AUDITORS’ REPORT

Statement referred to in paragraph 3 of the Auditors’ Report of even date to theMembers of VIDEOCON INDUSTRIES LIMITED on the financial statements for the period ended31st December, 2010.

(i) (a) The Company has maintained proper records showing full particul ars includingquantitative details and situation of fixed asset s.

(b) As per the information and explanations given to us, physical verification of fixedassets, other than those under joint venture, has been carried out at reasonable intervalsin terms of the phased programme of verification adopted by the Company and no materialdiscrepancies were noticed on such verification. opinion, the frequency of verification isreasonable, having regard to the size of the Company and nature of its business.

(c) In our opinion, during the period the Company has not disposed off any substantialpart of fixed assets.

(ii) (a) As per the information and explanation given to us, the inventories (excludingstock of crude oil lying at extraction site with the Operator) have been physicallyverified during the period by the management. In our opinion, having regard to the natureand location of stocks, the frequency of the physical verification is reasonable.

(b) In our opinion and according to the information and explanations given to us,procedures of physical verification of inventory followed by the management are reasonableand adequate in relation to the size of the Company and the nature of its business.

(c) The Company is maintaining proper records of inventory. As per the information andexplanations given to us, the discrepancies noticed on physical verification of stockswere not material in relation to the operations of the Company and the same have beenproperly dealt with in the books of account.

(iii) (a) As per the information and explanations given to us, the Company has notgranted or taken any loans, secured or unsecured, to/from Companies, firms or otherparties covered in the register maintained under Section 301 of the Companies Act, 1956.

(b) As the Company has neither granted nor taken any loans, secured or unsecuredto/from companies, firms or other parties covered in the register maintained under Section301 of the Companies Act, 1956, sub-clauses (b), (c), (d), (f) and (g) of Clause (iii) ofparagraph 4 of the Order are not applicable.

(iv) In our opinion and according to the information and explanations given to us,there are adequate internal control systems commensurate with the size of the Company andthe nature of its business with regard to purchases of inventory and fixed assets and forthe sales of goods and services. During the course of our audit, we have not observed anycontinuing failure to correct the major weakness in the internal controls systems.

(v) (a) Based on the audit procedures applied by us and according to the informationand explanations provided by the management, we are of the opinion that the particulars ofcontracts or arrangements referred to in Section 301 of the Companies Act, 1956, have beenentered in the register required to be maintained under that Section.

(b) In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of contracts or arrangements entered in the registermaintained under Section 301 of the Companies Act, 1956, and exceeding the value of RupeesFive Lakhs, in respect of any party during the period, have been made at prices which arereasonable having regard to prevailing market price at the relevant time.

(vi) The Company has not accepted any deposits from the public within the meaning ofthe provisions of Sections 58A and 58AA or any other relevant provision of the CompaniesAct, 1956 and rules made thereunder.

(vii) In our opinion, the Company has an internal audit system commen surate with itssize and nature of its business.

(viii) The Central Government has prescribed maintenance of the cost records underSection 209(1)(d) of the Companies Act, 1956, in respect of the Company’s products.

As per the information and explanations provided to us, we are of the opinion thatprima facie, the prescribed records have been made and maintained. We have however notmade a detailed examination of the records with a view to determine whether they areaccurate or complete.

(ix) (a) According to the information and explanations given to us and the recordsexamined by us, the Company is regular in depositing with appropriate authoritiesundisputed statutory dues including Provident Fund, Investor Education and ProtectionFund, Employees’ State Insurance, Income tax, Sales tax, Wealth tax, Service tax,Custom duty, Excise duty, Cess and other statutory dues wherever applicable. According tothe information and explanations given to us, no undisputed arrears of statutory dues wereoutstanding as on 31st December, 2010 for a period of more than six months from the datethey became payable.

(b) According to the records of the Company examined by us and information andexplanations given to us, the particulars of dues of Sales tax, Income tax, Wealth tax,Service tax, Custom duty, Excise duty, Cess which have not been deposited on account ofdisputes, are given below:

(x) There are no accumulated losses as at 31st December, 2010. The Company has notincurred any cash losses during the period covered by our audit and the immediatelypreceding financial year.

(xi) Based on our audit procedures and the information and explanations given by themanagement, we are of the opinion that the Company has not defaulted in repayment of duesto financial institutions, banks or to debenture holders during the period.

(xii) Based on our examination of the records and the information and explanationsgiven to us, the Company has not granted any loans and/or advances on the basis ofsecurity by way of pledge of shares, debentures and other securities.

(xiii) In our opinion, the Company is not a chit fund Company or nidhi/ mutual benefitfund/ society. Therefore the Clause (xiii) of paragraph 4 of the Order is not applicableto the Company.

(xiv) The Company has maintained proper records of transactions and contracts inrespect of dealing and trading in shares, securities, debentures and other investments andtimely entries have generally been made therein. All shares, debentures and othersecurities have been held by the Company in its own name except to the extent of theexemption granted under Section 49 of the Companies Act, 1956.

(xv) According to the information and explanations given to us, the terms andconditions of guarantees given by the Company for loans taken by others from banks orfinancial institutions are prima facie not prejudicial to the interest of the Company.

(xvi) According to the information and explanations given to us, the term loans raisedduring the period were applied, on an overall basis, for the purposes for which the loanswere obtained.

(xvii) According to the information and explanations given to us and on our overallexamination of the balance sheet of the Company, we report that the Company has not usedfunds raised on short term basis for long-term investments.

(xviii) The Company has not made any preferential allotment of shares during the periodto parties and companies covered in the register maintained under Section 301 of theCompanies Act, 1956.

(xix) The Company has not issued any secured debentures during the period. The Companyhas created security in respect of debentures issued in earlier years.

(xx) During the period, the Company has raised money through right issue. The Companyhas disclosed on the end use of money raised and have verified the same.

(xxi) According to the information and explanations given to us, no fraud on or by theCompany has been noticed or reported during the period.