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SARITA SYNTHETICS AND INDUSTRIES LIMITED ANNUAL REPORT 2010-2011 AUDITORS REPORT To The Members, M/s Sarita Synthetics and Industries Ltd., RAJAM. 1. We have audited the attached Balance Sheet of Sarita Synthetics & Industries Ltd., as at 31st March 2011 Profit and Loss Account and also the cash flow statement for the yearended on that date annexed thereto. These financial statements are the responsibility of the Companys Management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with auditing standards generally accepted in India These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by COMPANIES (AUDITORS REPORT) ORDER 2003 issued by the Central Government of India in terms of sub section (4A) of Section 227 of The Companies Act 1956 we enclose the Annexure hereto a statement on the matters specified in the paragraphs 4 &5 of the said Order. 4. Further to our comments in the annexure referred to in paragraph 3 above, we state that: a. 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. b. In our opinion, proper books of accounts, as required by the law have been maintained by the Company so far as it appears from our examination of the books. c. The Balance Sheet, Profit and Loss Account and cash flow statement dealt with by this report are in agreement with the Books of Account. d. In our opinion the Balance Sheet, Profit & Loss Account and Cash Flow Statements dealt with by this report comply with the mandatory Accounting Standards referred in sub section (3C) of Section 211 of The Companies Act, 1956 subject to i. As stated in Note No.1(4) of Schedule-V, the non-confirmation in respect of Sundry Debtors, Loans and Advances and other receivables and payables and the consequent extent of realiasability. ii. Excise duty relatable to closing stock of finished goods is not included and is accounted on removal. However, there is no impact on profit or loss of the Company. iii. As stated in note No.II (1) of Schedule-V, the company has not made provision towards disputed amounts including interest and penalties payable to Sales Tax, Central Sales Tax and Central Excise & Customs and APEPDCL etc. amounting to Rs.834 Lakhs (excluding Bank Guarantees and Corporate Guarantees) iv. As stated in Note No. II 19 of Schedule- V, the company has not made provision for interest on interest, Over-due interest and penal interest payable to Banks and Financial Institutions. We are unable to quantify the amount and other consequences i.e. going concern. v. As stated in Note No. I (3) and No.ll(16) of Schedule-V,the Company has not followed the Accounting Standard AS 21 and AS 13 consolidation of accounts. We are unable to express an opinion on the impact on the financial statements and impact on Loss for the year in respect of the matters stated At Para Nos. from d (i) to d (v). e. In our opinion and to the best of our information and according to the explanations given to us and on the basis of the written representations from the directors, taken on record by the Board of Directors, none of the Directors is disqualified as at March 31,2011 from being appointed as a Director U/s 274(1) (g) of the Companies Act, 1956. f. In our opinion and to the best of our information and according to the explanations given to us the said accounts read together with the significant accounting policies and other Notes thereon give the information required by the Companies Act, 1956 in the manner so required, give a true and fair view in conformity with accounting principles generally accepted in India. i. In the case of the Balance Sheet, of the state of the affairs of the Company as at 31st March 2011 and; ii. In the case of the Profit and Loss Account, of the Loss of the Company for the year ended on that date. iii. In so far it relates to Cash Flow Statement, of the cash-flows of the Company for the year ended on that date. For BALAJI ASSOCIATES Chartered Accountants Firm Regn. No. 05929S Sd/- Place: Vizianagaram (D. BALAJI) Date : 16.08.2011 Partner M.No. 022743 Annexure to Auditors Report Referred to in Paragraph 3 of our report of even date I. In respect of its fixed assets: a. The Company has maintained proper records showing the full particulars including Quantitative details and situation of fixed assets. b. As explained to us the fixed assets have been physically verified by the management during the year, which in our opinion is reasonable, having regard to the size of the Company and nature of its assets. No material discrepancies were noticed on such physical verification. c. The Company has not disposed substantial portion of Its fixed assets. II. In respect of Inventories: a. As explained to us, inventories have been physically verified by the management at regular intervals during the year. b. In our opinion and according to the information and explanations given to us, the procedure of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. c. The Company has maintained proper records of inventories. As explained to us there were no material discrepancies noticed on physical verification on inventory as compared to the book records. III. In respect of loans, secured or unsecured, granted or taken by the Company to/from Companies,Firms or other Parties covered in the register maintained Under Section 301 of the Companies Act, 1956: The Company neither granted nor taken any loans, secured or unsecured to/from companies, firms or other parties covered in the register maintained under Section 301 of the Act. IV. In our opinion and according to the information and explanations given to us, there are adequate Internal control procedures commensurate with the size of the Company and nature of its business for the purchase of inventory, fixed assets and also for the sale of goods. During the course of our audit, we have not observed any major weaknesses in internal controls. V. In respect of transactions covered Under Section 301 of the Companies Act, 1956: a. In our opinion and according to the information and explanations given to us there are certain transactions made in pursuance of contracts or arrangements, that needed to be entered into in the register maintained Under Section 301 of the Companies Act, 1956. b. In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements and exceeding the value of Rs.500000 in respect of any party during the year have been made at prices which are, prima facie, reasonable having regard to the prevailing market prices where ever available at the relevant time. VI. The Company has not accepted any deposits from the public. VII. In our opinion, the internal audit system of the company is commensurate with its size and nature of its business. VIII. The Central Government has prescribed maintenance of Cost Records Under Section 209 (1) (d) of the Companies Act 1956. It has informed to us that the company has maintained the integrated cost records. However, we have not made a detailed examination of the same. IX. In respect of Statutory Dues: a. In our opinion and according to the information and explanations given to us there are certain transactions made in pursuance of contracts or arrangements, that needed to be entered into in the register maintained Under Section 301 of the Companies Act, 1956. b. In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements and exceeding the value of Rs.500000 in respect of any party during the year have been made at prices which are, prima facie, reasonable having regard to the prevailing market prices where ever available at the relevant time. ii) Sales Tax Rs.281.88 Lakhs ii) Interest on FBT Rs. 0.26 Lakhs b. The disputed statutory dues including interest & penalties is aggregating to Rs. 834.00 lacs. Out of which Rs.818,78 lacs has not been deposited on account of matters pending before appropriate authorities are as under:- Name of the Nature of the Forum where Disputed Amount statute Dues dispute is Rs. in lacs Pending 1. Central Sales CST & APGST DC (Appeals) 60.94 Tax & APGST 2. Central Sales CST & APGST STAT 376.65 Tax & APGST 3. Central Excise Excise & A.C., VZM.. 369.21 Custom Duties Commissioner, VSP 4. VSEZ Duty Drawback VSEZ 7.19 5. APEPDCL Electrical dues The Honble 20.01 High Court of AP Total 834.00 X. The accumulated losses of the company are more than its net-worth. Thecompany has incurred cash losses during the financial year covered by our Audit and in the immediately preceding financial year. XI. In our opinion, according to information given to us the company has defaulted in repayment of dues to financial institutions and Banks. The company has submitted OTS proposal to the various banks and financial institutions. XII. In our opinion and according to the information and explanations given to us no loans and advances have been granted by the company on the basis of Security by way of pledge of shares, debentures and other sscuriti6S XIII. In our opinion, the company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore, clause 4(xiii) of the Companies (Auditors Report) Order 2003 is not applicable to the company. XIV. In our opinion, the company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4 (xiv) of the Companies (Auditor s Report) Order 2003 is not applicable to the company. XV. The Company has given Corporate Guarantees for loans taken by others from Banks and Financial Institutions According to the information and explanation given to us the terms and conditions there of are not prejudicial to the interest of the Company and the same is reported in Note No.20, Part II of the Schedule V. XVI. The Company has not raised any new term loans during the year. XVII. According to the information and explanations given to us and on an overall examination of the Balance Sheet of the Company. We report that no funds raised on short terms basis have been used for long term investment by the company. XVIII. During the year, the Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956. XIX. According to the information and explanations given to us the company is not having any debentures. Therefore, the provisions of clause 4 (xix) of the Companies (Auditors Report) Order, 2003 are not applicable to the Company. XX. The Company has not raised any money by way of Public issue during the year. XXI. In our opinion and according to the information and explanations given to us no fraud on or by the Company has been noticed or reported during the year, that causes the financial statements to be materially misstated. For BALAJI ASSOCIATES Chartered Accountants Firm Regn. No. 05929S Sd/- Place: Vizianagaram (D. BALAJI) Date : 16.08.2011 Partner M.No. 022743