aps star industries ltd Auditors report

1995 APS - STAR INDUSTRIES LIMITED AUDITORS REPORT We have audited the Balance Sheet of APS - STAR Industries Ltd., as at 30th June 1995 and the attached Profit and Loss Account for the period ended on that date wherein are incorporated the accounts of its U.S.A Representative Branch Office which has not been audited nor visited by us and report that : 1. Attention is invited to note 2(b) regarding the amalgamation of Star Industrial and Textile Enterprises Limited (SITEL) with the company effective retrospectively from 1st March 1994 and its treatment as an amalgamation by acquisition in the books of accounts based on the legal advice received by the company. The company has in consequence restated the corresponding figures for the previous year giving effect to the entries relating to amalgamation and incorporating the operating results of SITEL for the month of March 1994. In view of the retrospective nature of the scheme of amalgamation the companys sale during the period of 10,00,000 equity shares of the erstwhile SITEL, prior to the approval of the scheme of amalgamation have been treated as having been disposed off as of the date of the amalgamation and the loss arising thereon has been added to the goodwill on acquisition. The company has however not amortised the goodwill as recommended by the Institute of Chartered Accountants of India for the current period nor the restated previous year. Similarly the company has not amortised amalgamation expenses. We are informed that these too will be amortised prospectively. The company has further not made provision for taxation, estimated at Rs. 13,500 in respect of the year ended 31-3-94 in anticipation of the expected tax benefits arising out of the amalgamation under the provisions of section 72A of the Income Tax Act, 1961 pending approval by the Central Board of Direct Taxes. We express no opinion on the same. 2. Notwithstanding, the loss for the year and the excess of current liabilities over current assets, as explained to us the company has prepared the accounts on a going concern basis in view of its restructuring plans and the expected induction of funds (refer to Current operation, Restructuring and Modifying the amalgamation scheme in the directors report) 3. Attention is invited to note 19 regarding the treatment of assets sold and required under finance leases. 4. The company did not have a company secretary as prescribed by section 383A of the Companies Act, 1956 for part of the period under audit. We are informed that efforts are continuing to appoint a suitable replacement. 5. The company has on account of the amalgamation with the erstwhile STAR INDUSTRIAL & TEXTILE ENTERPRISES LIMITED (SITEL) referred to above, recorded certain assets and liabilities initially recorded in the books of SITEL. Pending confirmation and reconciliation of the amounts and the status, as successor, the company has recorded the same at the values stated in the books of STAR INDUSTRIAL AND TEXTILE ENTERPRISES LIMITED, sans qualification. We express no opinion on the same. The company has also disclosed claims not acknowledged as debts by the erstwhile SITEL, stepping into the shoes (position) of the same. 6. The non provision for tax and interest of the previous year in respect of capital gain on an unit V sold by erstwhile company. A) In respect of the turnkey project in Algeria :- i) D.A 1,313,568 (Rs 1,865,792) being the balance due to the company from sums remitted on invocation of the performance guarantee of the company and claimed by the Banque National DAlgeria not acknowledged as debt by the company. ii) (a) Claims against the subcontractor Som Dutt Builders Ltd. Rs. 315,426,390 and claims against the company Rs. 250,000,000 including Rs. 238,173,518 not acknowledged as debt pending in arbitration. (b) The invocation by the company of the performance guarantee given by the subcontractor stayed by the Delhi High Court against which the company as successor is in appeal. iii) The reconciliation of assets imported into Algeria on a temporary basis, their re-export and sale and the takeover of the liability for customs duty, amount indeterminate, by the customer. iv) The legal advice tendered to the company in respect of the restriction of its liability resulting from the invocation of the companys performance guarantee to Rs. 2,098,848 as confirmed by its bankers and the additional liability provided in its books of Rs. 18,972,125 as sought to be recovered by ECGC. We are informed that the company has not been made available records maintained by the bank and therefore the interest if any, chargeable on this account could not be ascertained. We offer no comment on whether any underprovision results. v) The claim of the company against the Banque National DAlgeria for Dm. 233,390 (equivalent to Rs. 4,710,581) and Rs. 1,107,121 in respect of the delays in remitting deferred receivables due to the company. B) As a result of the delays in externalisation of funds and the delays in settlement of claims beyond the due date the company has borne additional interest on the postshipment loans availed of by it against the deferred receivables and interest. The company has raised claims for excess interest borne on the ECGC and through its bankers on the National Bank of Commerce, Tanzania the guarantors of the deferred receivables. The company has not accounted the claims made on the National Bank of Commerce, Tanzania. In order to obtain the monies due to it the company had to appoint a collecting agency and has sought to recover a proportion of the recovery expenses from ECGC. The above transaction is part of a chain and has a consequential effect on other particularly we are informed that ECGC being the party providing cover to the company also for the contracts referred to in paras 6A (iv) and the effects on the dealings with that corporation and may have a bearing on, the proceedings before various authorities. C) The company could produce before us only a few balance confirmations for sundry debtors loans and advances, sundry creditors deposits and other personal accounts and advances given to employees against wages, salaries, bonus etc. 7. Subject to our above observations : 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) Except to the extent as stated in clause 6A (iii) and treatment of accrued leave salaries and wages (see below) referred to above 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 the books. C) The Balance Sheet and Profit and Loss account dealt with are in agreement with books of account. D) Subject to our observations in paragraphs 2 to 8 above an according to the information and explanations given to us the said accounts subject to : And read with other notes thereon give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view. (a) In the case of Balance sheet of the state of affairs of the company as at 30th June 1995. (b) In the case of the Profit and Loss Account of the loss for the period ended on that date. for NANUBHAI & CO. CHARTERED ACCOUNTANTS Abhay D. Desai Partner Place : Mumbai, Dated : 12th June, 1996.