arlabs ltd Auditors report

ARLABS LIMITED AUDITORS REPORT To, The Members of Arlabs Limited, We have audited the attached Balance Sheet of Arlabs Limited as at 31st December,1998 and the Profit and Loss Account for the financial year ended on that date annexed thereto. We report that: 1. (a) No provision has been made in accounts for doubtful debts to the tune of RS.62,58,586/-. The losses have wiped out the Companys networth (Exclusive of Revaluation Reserve of Rs. 21,14,69,789/-. Inspite of these facts accounts have been prepared on going concern basis (vide note no 14 (i) (1) accounting policies - Refer Schedule 14) in view of the future plans, prospects and profitability which the management considers achievable in a reasonable time frame. (b) Complete and up-to-date, itemwise particulars of Fixed Assets (refer para (i) of Annexure hereto) are not available. (c) Balances in the account of the parties under Creditors, other parties under Loans and Advances and Current Liabilities as also from the parties from whom assets have been acquired under the lease agreement are subject to confirmation / reconciliation. As regards Debtors, balances in some of the accounts are subject to confirmation/reconciliation. (d) Gross Block/Cost of Fixed Assets includes interest in respect of earlier year, calculated notionally Rs.16,39,399/-. In our opinion, the same should not have been capitalised. Consequently, the fixed assets are overstated by Rs.16,39,399/- and depreciation charge of the current year has been higher by Rs. 86,560/-. 2. As required by the Manufacturing and Other Companies (Auditors Report) Order,1988 issued by the Company Law Board in terms of section 227(4A) of the Companies Act,1956, we annex hereto a statement on the matters specified in paragraphs 4 and 5 of the said Order. 3. Subject to our remarks in paragraphs l(b), I(c) above and note no. 12 of notes on accounts in schedule 14 relating to unreconciled FCD Allotment amount, we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. 4. In our opinion proper books of accounts as required by law have been kept by the Company so far as it appears from our examination of these books. 5. The Balance Sheet and Profit & Loss Account dealt with by this report are in agreement with the books of account. 6. Except treatment regarding capitalisation of interest as stated in paragraph I (d) above which has resulted in deviation from Accounting Standard 10 "Accounting for Fixed Assets", in our opinion, the Profit and Loss Account and Balance Sheet dealt with by this report, comply with the accounting standards recommended by the Institute of Chartered Accountants of India. 7. In our opinion and to the best of our information and according to the explanations given to us, the said Balance Sheet and Profit & Loss Account subject to our remarks in paragraphs I (a), l (c) and I (d) foregoing and read together with Note No.12 in Schedule 14 relating to unreconciled FCD Allotment Amount and read together with the other notes thereon give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view of the state of the companys affairs as at the close of the year and of the Loss for the year. For M P CHITALE & CO Chartered Accountants ULHAS R. CHITALE Pune, February 25,1999 Partner Annexure to the Auditors Report (Referred to in paragraph (2) of our report of even date) (i) The company has maintained records showing particulars of plant and equipments installed after June 30,1976. These records are not complete in all respects as they do not indicate annual/accumulated depreciation and location of items. No records are maintained in respect of assets other than plant and equipments. As such, these records do not facilitate physical verification of fixed assets and their reconciliation with the books of account. However, we are informed that physical verification of certain major assets was conducted by the management at the end of the year and that there were no discrepancies. In our opinion frequency of physical verification of assets (at least once in two years) is reasonable. (ii) None of the fixed assets has been revalued during the year. (iii) Physical verification has been conducted by the management at the end of the year in respect of finished goods, stores, spare parts and raw materials. (iv) As explained to us the procedures of physical verification of stocks followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business. (v) The discrepancies noticed on verification between the physical stocks and book records were not material in relation to the operations of the company and the same have been properly dealt with in the books of account. (vi) On the basis of our examination of stock records, we are of the opinion that the valuation of stocks is fair and proper in accordance with the normally accepted accounting principles and is on the same basis as in the preceding year. (vii) The company has not taken loans from companies covered by the provisions of section 301 of the Companies Act,1956. We have been informed that there are no companies under the same management as defined under Section 370 (1B) of the Companies Act, 1956. (viii) The Company has not granted loans to companies covered by the provisions of sections 301 of the Companies Act,1956. We have been informed that there are no companies under the same management as defined under Section 370 (IB) of the Companies Act,1956. x) The company has given loans or advances in the nature of loans to employees and other parties. Recovery of the principal and interest is generally being made as stipulated. (x) As explained to us procedures and systems have been laid down in the matters of purchase of stores,raw materials and fixed assets and for the sale of goods. However, in our opinion, internal control over these matters is not adequate/commensurate with the size of the company and nature of its business, primarily due to instances of non- observance of such procedures and systems. (xi) According to the information and explanations given to us, the transactions of purchase and sale of goods and materials made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 aggregating during the year to Rs.50,000/- or more in respect of each party, have been made at prices which are reasonable, having regard to prevailing market prices for such goods and materials, or the prices, at which transactions for similar goods have been entered into with other parties. (xii) The company has determined unserviceable or damaged stores, raw materials and finished goods and the required provision for loss has been made in the accounts. (xiii) According to the information and explanations given to us, the company has not accepted any deposits as defined under section 58-A of the Companies Act, 1956 and the rules framed thereunder, during the year under review. However, the Company has not filed return of deposits with the appropriate authorities in time. (xiv) We are informed that no scrap is generated in the manufacturing process and therefore no records in respect thereof are kept. Scrap consisting of empty drums, barrels and carboys etc. and metal scrap generated during maintenance/ fabrication jobs is accounted for when sold. We are further informed that there are no realisable by-products. (xv) The company has appointed an independent professional to carry out internal audit. In our opinion, the system of internal audit in operation is generally commensurate with the size and nature of business of the company. However, effective follow-up action needs to be taken on weaknesses in controls observed by internal audit. (xvi) We have broadly reviewed the books of account maintained by the company pursuant to the rules made by the Central Government for maintenance of cost records under section 209(1)(d) of the Companies Act,1956 and are of the opinion that, prima facie, the prescribed records are maintained. We have not,however,made a detailed examination of these records. (xvii) The Company is regular in depositing the provident fund dues with appropriate authorities. As explained to us, Employees State Insurance Scheme is not applicable to the companys Bhor factory establishment. In respect of employees at Head Office the company has regularly deposited ESI dues with appropriate authorities. (xviii) As per information and explanations given to us, the following undisputed amounts were outstanding as at the end of the year for six months or more from the date they became payable Particulars Amount (Rs.) 1. Sales Tax 49,030 2. Income Tax 9,46,574 3. Central Excise Duty 49,553 There were no undisputed amounts outstanding in respect of Wealth Tax and Customs Duty which were outstanding as at the end of the year for six months or more from the date they became payable. (xix) According to the information and explanations given to us and the records of the company examined by us, no personal expenses have been charged to revenue account. (xx) The company is a sick company within the meaning of section 3 (1) (o) of the Sick Industrial Companies (Special Provisions) Act, 1985. (xxi) As explained to us, there were no damaged goods relating to the Companys trading activities as at the end of the year. For M P CHITALE & CO Chartered Accountants ULHAS R. CHITALE Pune, February 25,1999 Partner