FSA Project

2012

Din Textile Mills Limited

ANA AKHLAQ 08U0561 DIN TEXTILE MILLS LIMITED

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2012

Executive Summary
The project is an attempt to analyze the financial position of DIN Textiles Limited by calculating some important ratios which will help gain an understanding into reasons for and effects of the trends followed in various financial statements over the period FY09FY11, (with the last year ending on June 30, 2011) .This will help us in generating operating results and determining the financial position of the company. Din Textiles is a public limited company incorporated in Pakistan and is listed on Lahore Stock Exchange and Karachi Stock Exchanges. Din Textiles Limited has consistently provided high quality, branded products and also is an exporter of the textiles from Pakistan. In addition, comparisons over time and with other companies in the industry are made. After analyzing ratios and interpreting them, we can conclude that in the FY09 was the worst for the company as profits declined due to the economic recession that hit the entire country but still the company managed to regain in FY10 and FY11.

DIN TEXTILE MILLS LIMITED

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FSA Project Din Textile Mills Limited

Income Statements

2012

Year 2011

Year 2010

Year 2009

Net Sales Cost of products sold Gross Profit

7,708,743,247 -6,099,469,105 1,609,274,142

4,691,884,420 -3,767,900,161 923,984,259

3,712,392,008 -3,324,877,658 387,514,350

Distribution costs Administrative expenses Other Operating Expenses Other Operating (income) Operating Profit Finance cost (loss)/profit before tax Taxation Provision for Taxation Profit after taxation Earnings per share- basic and diluted rupees Weighted Average of Common Stock Share

-219,763,163 -91,677,177 -56,637,058 14,569,747 1,255,766,491 330,083,322 925,683,169 -74,331,658

-195,200,541 -80,810,935 -31,954,167 11,486,916 627,505,532 213,463,132 414,042,400 -54,163,213

-115,091,974 -43,720,551 -11,082,788 9,735,260 227,354,297 142,461,027 84,893,270 -52,346,390

851,351,511 41.77 20381889.18

359,879,187 19.42 18,531,369

32,546,880 1.76 18492545.45

(Analysis)

The net income of the company shows an increasing trend over the five years, however it declined in year 2009 but again it boosted up in year 2010 and 2011. These rising net

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incomes are the result of increasing sales of the company at a rate that is higher than at which the total costs of the company have increased over time. The Gross profit of the company also increased over the five years. It is due to sales increasing more than the increase in cost of goods sold. The companys share value increased because EPS increased with the passage of time which shows that the companys performance is improving over the years.

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Balance Sheets

2012

Year 2011 Assets Non Current assets Property, Plant and Equipment Capital work in Progress Long term loans and Advances Long term Deposit
13,340,008 1,637,141,349

Year 2010

Year 2009

1,670,162,349

1,736,468,468

373,300 12,194,682

671,344 6,429,363

Total Non Current assets Current Assets Stores and spares Part and Loose Tools Stock in trade Trade Debts Loans and Advances Trade deposits and short term prepayments Other receivables Income Tax and Sale Tax Advance Income Tax-Net Tax refunds due from the Government Cash and bank balances Total current assets

1,650,481,357

1,682,730,331

1,743,569,175

183,799,894 1,798,763,867 1,000,964,780 874,219,423 4,117,850 141,611

140,651,363 864,829,665 547,899,636 90,106,436 2,462,807 163,824 63,972,483

105,354,466 515,264,284 560,982,844 193,507,133 2,077,356 8,592,642

23,143,692 66,774,334 57,830,178 3,986,611,937 24,665,598 1,734,751,812 14,403,051 1,423,325,468

Total assets Current Liabilities Trade and other payables Accrued Mark up and Interest

5,637,093,294

3,417,482,143

3,166,894,643

327,572,961 86,235,600

243,632,210 44,455,705

182,032,808 27,681,243

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Short term Borrowing Current Portion of Long term Financing Long Term Financing from Director and Others Liabilities against assets subject to finance lease Total Current Liabilities
13,848,202 3,043,396,031 129,543,818 2,486,195,450

2012
1,050,725,072 1,052,565,863

88,793,818 250,000,000 13,928,746 1,691,535,551

106,325,743

11,471,459 1,380,077,116

Working Capital

943,215,906

43,216,261

43,248,352

Total Capital Employed

2,593,697,263

1,725,946,592

1,786,817,527

Non - Current Liabilities Long term Financing Long term Loans from directors and others Liabilities against assets subject to finance lease Deferred liabilities Retirement benefits- obligation Deferred taxation Total non-current liabilities Contingencies and Commitments Equity Share Capital and Reserves Authorized Capital 50,000,000(2010: 50,000,000) ordinary shares of 10 each issued, subscribed and paid-up capital Reserve
500,000,000 203,833,530 2,073,006,524 500,000,000 185,303,210 1,277,245,975 500,000,000 185,303,210 917,366,788 64,972,067 53,967,522 316,857,209 49,728,712 53,967,522 263,397,407 52,008,160 48,397,233 684,147,529 24,067,681 16,307,416 173,849,939 143,393,757 64,245,675 500,000,000 19,496,461

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Total Owner Equity

2,276,840,054

1,462,549,185

1,102,669,998

Total Equity and Liabilities

5,637,093,294

3,417,482,143

3,166,894,643

(Analysis)

The Balance Sheet of Din Textiles Ltd for the three years showed an increasing trend in the companys Assets. The Non Current Assets declined over the years. This could be mainly the result of selling of some plant assets as their value declined over time. The long term loans declined from 2009 to 2010 which shows that some assets have been sold off due to the payment of loans. However, the Current Assets increased over the years which were mainly because Cash and Bank balances showed an increasing trend till in all the 3 years except for 2009, where it declined. On the other hand, the companys total owner equity also increased over the years as a result of raising Shareholders Investments and Reserves. The long term liabilities show a fluctuating trend. It declined continuously till 2010, which means that it is attributed to repayment of long term financing by the firm. However it increased in 2011, due to less long term loans. The total current liabilities showed an upward trend over these five years. This is due to the rapidly increasing accounts payable.

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Statement of Cash Flows

2012

Year 2011 Cash flows from operating activities Profit Before Taxation Adjustments for : Depreciation Staff Retirement benefit- Gratuity Provision for Doubtful Debts Workers Profit participation fund Finance Cost Loss/ (gain) on disposal of property, plant and equipment
-13,781,754 567,673,196 165,919,661 30,731,800 6,000,000 48,720,167 330,083,322 925,683,169

Year 2010

Year 2009

414,042,400

84,893,270

170,199,061 17,815,405 9,397,112 21,791,705 213,463,132

187,216,792 17,868,608 6,000,000 4,468,067 142,461,027

-2,779,883 429,886,532 843,928,932

-3,021,679 354,992,815 439,886,085

Profit before working capital changes Increase) / Decrease in current assets Store, spare parts and Loose tools Stock in Trade Trade Debts Loans and Advances Trade Deposits and Short Term Prepayments Other Receivables

1,493,356,365

-43,148,531 -933,934,202 -459,065,144 -784,112,987 -1,655,043 22,213 -2,221,893,694

-35,296,897 -349,565,381 3,686,096 103,400,697 -385,451 118,351 -278,042,585

9,316,525 44,002,000 -150,023,106 -104,382,506 1,045,194 -1,333,294 -201,375,187

(Decrease)/ increase in Current Liabilities Trades and Other payables Cash generated from/ (Used) in operations Finance cost paid Tax paid Dividend Paid
67,502,137 -661,035,192 -288,149,314 -88,092,229 -36,665,155 35,993,866 601,880,213 -196,607,942 -72,854,452 -1,350 32,688,972 271,199,870 -136,777,510 -26,547,095 -2,780,622

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Workers Profit participation fund paid Staff Retirement benefit- Gratuity paid Net Cash generated from/ (Used) in operations
-21,872,433 -15,488,445 -1,111,302,768 -4,522,343 -20,004,853 307,889,273

2012
-6,966,333 -11,152,896 86,975,414

Cash Flows From Investing Activities Proceeds from sale of Property, Plant and equipment Fixed capital expenditure Long term loans and advances Long term Deposit Net Cash Used in Investing activities CASH FLOWS FROM FINANCING ACTIVITIES Long Term Financing Long Term loan from directors and others Liabilities against asset subject to finance lease New Cash flows from financing activities
71,206,182 -250,000,000 7,679,721 -171,114,097 61,616,157 -250,000,000 -731,758 -189,115,601 -11,300,971 -354,138,471 -342,837,500 19,398,825 -138,515,732 373,300 -1,145,326 -119,888,933 5,346,500 -106,459,559 298,044 -5,765,319 -106,580,334 6,522,109 -27,999,878 812,256 -2,686,200 -23,351,713

Net increase/ (Decrease) in cash and equipments Cash and cash equivalents at the beginning of the year Cash and Cash equivalents at the end of the years CASH AND CASH EQUIVALENTS Cans and Bank balances Short term borrowings

-1,402,305,798 -1,026,059,474 -2,428,365,272

12,103,338 -1,038,162,812 -1,026,059,474

-290,514,770 -747,648,042 -1,038,162,812

57,830,178 -2,486,195,450 -2,428,365,272

24,665,598 -1,050,725,072 -1,026,059,474

14,403,051 -1,052,565,863 -1,038,162,812

(Analysis)

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The three years cash flows of the company presented that Din Textiles ltd has fluctuating net cash from operating activities due to sharp rise and fall from cash generated in operations. The major change took place due to increase in long term prepayments, loans, Trades and Other Payables. The net cash used in investing activities was also in negative for all the years and had fluctuating trends. It was due to fixed capital expenditures and long term deposits. The net cash used in financing activities also shows a fluctuating trend over the years. Cash at the end of the year is also fluctuating for all the years and shows a negative balance, which shows that the company does not have enough cash to finance its Operating, Investing and Financing activities.

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Common-Size Income Statement

2012

Year 2011

Year 2010

Year 2009

Net Sales Cost of products sold Gross Profit Distribution costs Administrative expenses Other Operating Expenses Other Operating (income) Operating Profit Finance cost (loss)/profit before tax Taxation Provision for Taxation Profit after taxation

100.00% 79.12% 20.88% 2.85% 1.19% 0.73% 0.19% 16.29% 4.28% 12.10% 0.96% 11.04%

100.00% 80.31% 19.61% 4.16% 1.72% 0.68% 0.24% 13.37% 4.55% 8.82% 1.15% 7.67%

100.00% 89.56% 10.44% 3.10% 1.18% 0.30% 0.26% 6.12% 3.84% 2.29% 1.41% 0.88%

(Analysis)
The exhibit presents all the income statement components as a percentage of the net sales of Din Textiles Ltd. The cost of sales showed a fluctuating pattern over the three years resulting in a fluctuating Gross Profit Margin. The operating profit increased over the five years, however a fall came in 2009 but it again increased in 2010 due to increase in gross profit ratio. The Net profit as a percentage of sales decreased drastically till 2009, being lowest in that year, but it again increased which showed good signs for the companys profitability.

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Common-Size Balance Sheets

2012

Year 2011 Assets

Year 2010

Year 2009

Non Current assets Property, Plant and Equipment Capital work in Progress Long term loans and Advances Long term Deposit Total Non Current assets Current Assets Stores and spares Part and Loose Tools Stock in trade Trade Debts Loans and Advances Trade deposits and short term prepayments Other receivables Income Tax and Sale Tax Advance Income Tax-Net Tax refunds due from the Government Cash and bank balances Total current assets 3.26% 31.91% 17.76% 15.51% 0.07% 0.003% 0.00% 0.00% 1.18% 1.03% 70.72% 4.12% 25.31% 16.03% 2.64% 0.07% 0.005% 1.87% 0.00% 0.00% 0.72% 50.77% 3.33% 16.27% 17.71% 6.11% 0.07% 0.27% 0.00% 0.73% 0.00% 0.45% 44.94% 0.24% 29.28% 0.01% 0.36% 49.24% 0.02% 0.20% 55.05% 29.04% 48.87% 54.83%

Total Assets

100.00%

100.00%

100.00%

Current Liabilities Trade and other payables Accrued Mark up and Interest Short term Borrowing 5.81% 1.53% 44.10% 7.12% 1.30% 30.74% 5.75% 0.87% 33.24%

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Current Portion of Long term Financing Long Term Financing from Director and Others Liabilities against assets subject to finance lease Total Current Liabilities 2.30% 0.00% 0.25% 53.99%

2012

2.59% 7.31% 0.40% 49.46%

3.36% 0.00% 0.36% 43.58%

Working Capital

16.73%

1.31%

1.36%

Total Capital Employed

46.01%

50.55%

56.41%

Non - Current Liabilities Long term Financing Long term Loans from directors and others Liabilities against assets subject to finance lease 3.08% 0.00% 0.43% 4.19% 0.00% 0.47% 2.03% 15.79% 0.62%

Deferred liabilities Retirement benefits- obligation Deferred Taxation Total non-current liabilities 1.15% 0.96% 5.62% 1.45% 1.57% 7.68% 1.64% 1.53% 21.61%

Contingencies and Commitments Equity Share Capital and Reserves Authorized Capital 50,000,000(2010: 50,000,000) ordinary shares of 10 each issued, subscribed and paid-up capital Reserve Total Owner Equity -------3.62% 36.77% 40.39% -----5.42% 37.37% 42.79% -------5.85% 28.97% 34.82%

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Total Equity and Liabilities

100.00%

100.00%

100.00%

(Analysis)
The common size balance sheet illustrates that the non-current assets of the company as the percentage of its total assets showed a declining trend over the years which was mainly due to a fall in the Value of the Non- Current Assets. The current assets as a percentage of total assets increased over the years due to an increase in inventories and loans and advances as a percentage of total assets. The total owners equity as the percentage of total assets showed instability throughout the period. It increased and decreased alternately over the years. However the total long term liabilities/total assets decreased while the total current liabilities/total assets increased over the years.

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Trend Index of Selected Accounts
Year 2011
Cash & Cash Equivalents Accounts Receivables Temporary Investments Inventory Total Current assets Total Current liabilities Working Capital Plant Assets, Net Other Assets Long Term Debt Total Liabilities Shareholder's Equity Net Sales Cost of Products Sold Administrative Expenses Marketing & Sales Expenses Interest Expense Total Cost & Expenses Earnings Before Taxes Net Income 674.81% 283.63% 0.00% 278.99% 346.05% 263.99% -114799.25% 81.61% 286.87% 19.73% 147.98% 255.47% 283.98% 251.93% 260.01% 36.88% 241.01% 499.81% 1022.51% 511.79%

2012

Year 2010
287.82% 155.25% 0.00% 134.14% 150.58% 146.73% -5259.87% 75.67% 270.27% 15.92% 86.09% 164.10% 172.85% 155.63% 229.19% 333.77% 155.86% 418.18% 457.35% 216.34%

Year 2009
168.07% 158.96% 0.00% 79.92% 123.55% 119.71% -5263.78% 89.23% 152.70% 58.19% 90.90% 123.72% 136.76% 137.33% 124.00% 67.57% 104.02% 230.70% 93.77% 19.57%

The trend index indicates that the cash and cash equivalents for Din Textiles limited increased over the years except for 2009, but the accounts receivable and inventory showed a similar pattern as both declined till 2009 but again increased in the preceding years, hence leading to a rising trend in total current assets. The finance cost increased

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sharply over the years which show us a bad sign for the company. Total costs and expenses of the company have also increased in comparison to the base year. The net sales of Din Textiles are increasing as compare to the base year which is a good sign for the company as more revenue is being generated.

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Short-Term Liquidity Analysis

2012

Units
1 Ratio 2 Ratio 3 Times 4 Times 5 Days 6 Days 7 Days 8 Percent 9 Percent 10 Times 11 $Thousand 12 Days 13 Days

Measure
Current Ratio Acid-Test Ratio Accounts Receivables Turnover Inventory Turnover Days' Sales Receivables Days' Sales in inventory Approximate Conversion Period Cash to Current Assets Cash to Current Liabilities Liquidity Index Working Capital Days' Purchases in A/P Average Net Trade cycle Cash Provided by Operations to

Year 2011
1.31 1.31 9.95 4.58 36.17 78.60 114.77 1.45% 1.90% 167.73 943,215,906 19.33 95.44

Year 2010
1.03 1.03 8.46 5.46 42.54 65.93 108.48 1.42% 1.46% 140.30 43,216,261 23.28 85.20

Year 2009
1.03 1.03 7.59 6.19 47.42 58.16 105.58 1.01% 1.04% 98.31 43,248,352 19.71 85.87

14 Percent

Average. Current Liabilities

-46.94%

20.05%

6.51%

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(Analysis)

2012

1.4 1.2 1 0.8 0.6 0.4 0.2 0 Year 2011 Year 2010 Year 2009 Current Ratio

Liquidity ratios are a set of ratios that measure a companys ability to pay off its short-term debt obligations. This is done by measuring a companys liquid assets against its short-term liabilities. In general, the greater the coverage of liquidity assets to short-term liabilities, the more likely it is that a business will be able to pay debts as they become due while still funding ongoing operations. Current ratio is current assets/current liabilities so a figure greater than one would indicate that current assets are greater than current liabilities and the company has the capacity to cover its short term obligations with current assets.
1.4 1.2 1 0.8 0.6 0.4 0.2 0 Year 2011 Year 2010 Year 2009 Acid-Test Ratio

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Acid-test ratio is a more sophisticated alternative to the current ratio, which measures the most liquid current assets excluding inventory but including accounts receivables and certain investments.

While comparing the firms liquidity position with that of the other firms in the industry it can be clearly inferred from the high current and acid ratio test ratios of Din Textiles ltd in comparison to the industry averages that the liquidity position of the firm is stronger as of the other firms. However, this company has high days sales in inventory, days sales in accounts receivable and liquidity index than that of an average in comparison to other firms which indicates a poor liquidity position of the company. The current ratio of Din Textiles Limited has been close to one over the five year period implying that the company has just enough assets to cover its current liabilities. The current ratio improved due to decline in current liabilities. Whereas the acid test ratio also shows a good liquidity position over the three years which means that the company without inventory liquidation would not be able to pay back its short term obligations. The accounts receivable turnover declined in 2009. This decline could be a result due to companys inclination towards conservative credit policy for its customers. The inventory turnover increased over the years which mean that the slight increase is indicative of Dins declining operational efficiency with growth in net sales lagging behind the growth in inventory kept by the company. The days sales in receivables showed significant fluctuations over the three years period. It increased in 2009 and again decreased in 2010 and 2011. Days sale in receivables was at its peak in 2009 which can be attributed to the longer credit time period allowance to its customers in that year. The days sales in inventory showed a declining trend over the years with a peak in 2009 due to higher idle stocks. The approximate conversion period didnt show major changes over the five years. It was almost constant signifying that the time taken by the company to convert both receivables and inventory to cash has not changed much. The cash to current assets ratio declined in 2009 revealing severe liquidity issue for the company as the cash balances have reduced. However, it increased in 2010 onwards. The cash to current liabilities showed the

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similar pattern as of cash to current assets. The liquidity index has fluctuated over the three years which signifies that the liquidity of the company was unstable. The cash available from operations shows a fluctuating trend. It was lowest in 2011, where it showed a negative figure.

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Common-Size Analysis of Current Assets and Current Liabilities

2012

Year 2011 Current assets:

Year 2010

Year 2009

Cash and Cash Equivalents Other Temporary Investments Accounts Receivable Inventories Prepaid Expenses Total Current Assets

1.45% 0.00% 25.11% 45.12% 0.10% 100.00%

1.42% 0.00% 31.58% 49.85% 0.14% 100.00%

1.01% 0.00% 39.41% 36.20% 0.15% 100.00%

Current Liabilities Notes Payable Payable to Suppliers and Other Accrued Liabilities Dividend Payable Accrued Income Taxes Total Current Liabilities 0.00% 10.76% 2.83% 0.00% 0.00% 100.00% 0.00% 14.40% 2.63% 0.00% 0.00% 100.00% 0.00% 13.19% 2.01% 0.00% 0.00% 100.00%

(Analysis)

The exhibit shows that the major portion of current assets consists of stock in trade which shows instability over the years. Accounts Receivables also follows the same pattern. Prepaid expenses show the smallest portion of current assets which is fluctuating over the

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years. On the other hand, in total current liabilities trade and other payables had a major chunk of whole percentage. They show an increasing trend over the years except for 2011, where it declined. Thus, this shows that the company has started to manage its creditors efficiently, which is a good sign for the growth of the company.

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Common-Size Statement of Cash Flows

Year 2011

Year 2010

Year 2009

Cash flows from operating activities Profit Before Taxation Adjustments for : Depreciation Staff Retirement benefit- Gratuity Provision for Doubtful Debts Workers Profit participation fund Finance Cost -11.82% -2.19% -0.43% -3.47% -23.51% 0.98% -40.44% Profit before working capital changes Increase) / Decrease in current assets Stock in Trade Trade Debts Loans and Advances Trade Deposits and Short Term Prepayments Other Receivables -106.36% 3.07% 66.51% 32.69% 55.84% 0.12% -0.002% -158.22% (Decrease)/ increase in Current Liabilities Trades and Other payables Cash generated from/ (Used) in operations Finance cost paid Tax paid Dividend Paid Workers Profit participation fund paid -4.80% 47.07% 20.51% 6.27% 2.61% 1.55% 295.19% 4936.14% -1612.42% -597.49% -0.01% -37.09% -11.25% -93.35% 47.08% 9.14% 0.96% 2.40% 1395.84% 146.11% 77.07% 178.72% 1750.65% -22.80% 3525.59% 6921.23% -289.48% -2866.86% 30.23% 848.01% -3.16% 0.97% 2280.28% -64.44% -6.15% -2.07% -1.54% -49.04% 1.04% -122.20% -151.42% -3.21% -15.15% 51.64% 35.93% -0.36% 0.46% -69.32% -65.92% 3395.64% -29.22%

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Staff Retirement benefit- Gratuity paid Net Cash generated from/ (Used) in operations Cash Flows From Investing Activities Proceeds from sale of Property, Plant and equipment Fixed capital expenditure Long term loans and advances Long term Deposit Net Cash Used in Investing activities -1.38% 9.86% -0.02% 0.08% 8.53% 1.10% 79.14%

2012
-164.06% 2525.06% 3.84% -29.94%

43.85% -873.10% 2.44% -47.28% -874.09%

-2.25% 9.64% -0.28% 0.92% 8.04%

CASH FLOWS FROM FINANCING ACTIVITIES Long Term Financing Long Term loan from directors and others Liabilities against asset subject to finance lease New Cash flows from financing activities Net increase/ (Decrease) in cash and equipments Cash and cash equivalents at the beginning of the year Cash and Cash equivalents at the end of the years CASH AND CASH EQUIVALENTS Cans and Bank balances Short term borrowings -4.11% 177.04% 172.92% 202.29% -8617.21% -8414.92% -4.96% 362.31% 357.35% -5.07% 17.80% -0.54% 12.18% 100.00% 73.06% 172.92% 505.33% -2050.30% -6.00% -1550.97% 100.00% -8514.18% -8414.92% 118.01% 0.00% 3.89% -121.90% 100.00% 257.35% 357.35%

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(Analysis)

2012

The cash generated from operations fluctuated over the years. It showed a deficit till 2009 and a surplus in the preceding years that is year 2010 and 2011. In year 2010, the Net Cash Flow from operations was exceptionally high due to the high level of income generated from operations. The net cash in investing activities shows a declining trend over the years, however it remained positive, but in the year 2010, it became negative due to an exceptionally high figure of the Fixed Capital Expenditures. The net cash in financing activities shows a fluctuating pattern over the years. The cash and cash equivalents were positive but declined over the years, being negative and exceptionally low in 2010. Thus, the company faced severe cash flow problems in the 2010.

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Revenue and Expense Recognition:

2012

These financial statements have been prepared on the basis of historical cost convention, Except for certain 'Available for Sale' investments which have been recognized at fair value and recognition of certain staff retirement benefits at present value. The preparation of financial statements in conformity with approved accounting standards, as applicable in Pakistan, requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amount of assets, 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 the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates underlying the assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. IAS 23 (Amendment), 'Borrowing Costs' is effective from January 1, 2009. The amendment requires an entity shall capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The allowed alternative treatment of recognition of borrowing cost has been removed. The company's current accounting policy is in compliance with this amendment, and therefore there is no impact on the company's financial statements. Income and expenses to be presented in one statement (a statement of comprehensive income) or in two statements (a separate income statement and a statement of comprehensive income). The company has preferred to present two statements; (a statement displaying components of profit or loss separate income statement) and a second statement beginning with profit or loss and

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displaying components of other comprehensive income (statement of comprehensive income). Comparative information has also been re presented/re arranged so it is in conformity with the revised standard. The amendment change only presentation aspects of the financial statements, it has no impact on profit or loss for the year. Amendment to IAS - 39 Financial Instruments : Recognition and Measurement - Eligible hedged items (effective for annual periods beginning on or after 01 July 2009) clarifies the application of existing principles that determine whether specific risks or portions of cash flows are eligible for designation in a hedging relationship. The amendment is not likely to have an effect on the company's financial statements. An item of property, plant and equipment is derecognized on disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and carrying amount of the assets) is included in the income statement in the year the assets is derecognized. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repair and maintenance costs are charged to income during the period in which they are incurred. Depreciation on additions is charged from the month in which the asset is acquired or capitilized while no depreciation is charged in the month of disposal. The significant accounting policies adopted in the preparation of theses financial statements are set out below. These policies have been consistently applied to all the years presented unless otherwise stated. Leases where the company has substantially all the risks and rewards of ownership are classified as finance lease. Assets subject to finance lease are initially recognized at the commencement of the lease term at the lower of present value of minimum lease payments under the lease agreements and the fair value of the leased assets, each determined at the inception of the lease. Subsequently these assets are stated at cost less accumulated depreciation and any identified impairment loss.

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2012

The related rental obligations, net off finance cost, are included in liabilities against assets subject to finance lease. The liabilities are classified as current and noncurrent depending upon the timing of payments. Property, plant and equipment except for freehold land are stated at cost less accumulated depreciation and any identified impairment loss. Freehold land is stated at cost less any identified impairment loss. Cost of tangible assets consists of historical cost pertaining to erection / construction period and other directly attributable cost of bringing the asset to working condition. Depreciation on all items of property, plant and equipment except for freehold land is charged to income applying the reducing balance method so as to write off historical cost of an asset over its estimated useful life at the rates as disclosed in note 5. Trade debts originated by the company are recognized and carried at original invoice value less any allowance for uncollectible amounts. An estimated provision for doubtful debts is made when there is objective evidence that collection of the full amount is no longer probable. Deferred tax asset and liability is measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on the rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date. Provision is made annually to cover the obligation on the basis of actuarial valuation and charged to income currently. The most recent actuarial valuation was carried on June 30, 2009 using the Projected Unit Credit Method. Deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences and carry forward of unused tax losses and tax credits to the extent that it is probable that future taxable profits will be available against which deferred tax asset can be utilized, except where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability that, at the time of transaction, affects neither the accounting nor taxable profits.

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2012

Net cumulative unrecognized actuarial gains / losses relating to previous reporting periods in excess of the highest of 10 percent of present value of defined benefit obligation or 10 percent of the fair value of plan assets are recognized as income or expense over the estimated remaining working lives of the employees. The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be utilized. A provision is recognized in the statement of financial position when the company has a legal or constructive obligation result of as a past event, and it is probable that an out flow of resource embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Borrowing costs are recognized as an expense in the period in which these are incurred except to the extent of the borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Such borrowing costs are capitalized as part of the cost of that asset up to the date of its commissioning. Borrowings are recorded at the proceeds received. Finance costs are accounted for on an accrual basis and are included in current liabilities to the extent of the amount remaining unpaid. Deferred tax is provided, using the balance sheet liability method, on all temporary differences at the statement of financial position date between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Provision for current taxation is based on taxability of certain income streams of the company under presumptive / final tax regime at the applicable tax rates and remaining income streams chargeable at current rate of taxation under the normal tax regime after taking into account tax credit and tax rebates available, if any. The charge for current tax includes any adjustment to past years liabilities. Liabilities for trade and other payable are carried at cost which is fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the company.

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Income tax expense comprises current and deferred tax. Income tax expense is recognized in the income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. The company operates an unfunded gratuity scheme covering for all its permanent employees who have attained the minimum qualifying period for entitlement to the gratuity.

Revenue is recognized on dispatch of goods or on performance of services. Return on deposits is recognized on a time proportion basis by reference to the principal outstanding and the applicable rate of return. The dividend distribution to the shareholders is recognized as a liability in the period in which it is approved by the shareholders. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined, had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately. Research and development cost is charged to income statement in the year in which it is incurred. All transactions with related parties are carried out by the company at arms' length price using the method prescribed under the Companies Ordinance, 1984 with the exception of loan taken from related parties which is interest / mark up free. Government grants for meeting revenue expenses are set off from respective expenses in the year in which they become receivable.

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A financial asset and financial liability is offset and the net amount is reported in the statement of financial position if the company has a legal enforceable right to set off the recognized amounts and intends either to settle on net basis or to realize the assets and the liabilities simultaneously. Financial assets and financial liabilities are recognized when the company becomes a party to the contractual provisions of the instrument and derecognized when the company loses control of contractual rights that comprise the financial assets and in case of financial liabilities when the obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on Derecognition of financial assets and financial liabilities is included in the income statement for the year. All financial assets and financial liabilities are initially measured at cost, which is the fair value of the consideration given and received respectively. These financial assets and liabilities are subsequently measured at fair value, amortized cost or cost, as the case may be. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item.

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Inventories

2012

Inventory means quantity of goods and materials on hand. A manufacturer's inventory represents those items that are ready and available for sale. Production includes those activities involved in conceptualizing, designing, and creating products and services. In recent years there have been dramatic changes in the way goods are produced. Today, computers help monitor, control, and even perform work. Flexible, high-tech machines can do in minutes what it used to take people hours to accomplish. Another important development has been the trend toward just-in-time inventory. The word inventory refers to the amount of goods a business keeps available for wholesale or retail. In just-in-time inventory, the firm stocks only what it needs for the next day or two. Many businesses rely on fast, global computer communications to allow them to respond quickly to changes in consumer demand. Inventories are thus minimized and businesses can invest more in product research, development, and marketing When corporation faces difficult times one of the first actions examined is lower inventory investment that is, reducing the organizational slack present in the form of buffer stock. We must tighten our belts. Q Reducing working capital requirements Q Demonstrating higher return on investment Q Increasing profit by decreasing carrying costs

There are two types of costing system i) Job order costing system, and ii) Process costing Din Textile Mills Limited use process costing.

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LONG TERM FIXED ASSETS

2012

long-term assets (those whose useful lives exceed a year) and discusses these types: land, buildings, leasehold improvements, intangibles, vehicles and other equipment. Land is not a wasting asset. That is, it does not get used up over time and rarely suffers damage such that it loses value. For that reason, it usually is recorded at cost at the time of purchase. Appreciation in its value over decades is not recorded and is not recognized in any way on the books of the owner. It is only after land has been sold that sale price and purchase cost are compared to calculate gain or loss on sale. Accepted accounting practice is to record the cost of the building determined at time of ownership transfer (purchase) or at conclusion of all costs of construction. Because buildings are frequently used for decades, and due to the need to be able to calculate gain or loss on sale, accounting practice preserves the original cost by not recording declines in value in the account containing the original purchase or construction cost. Vehicles or Equipment of all kinds usually last for several years, but their useful lives are much shorter than that of assets that have little movement in their functioning. Because they do wear out over time, common accounting practice in business is to record depreciation using life spans and depreciation methods appropriate to the nature and use of the asset. Frequently, the life and depreciation methods chosen are influenced by what is permitted per national tax regulations for the kind of asset being depreciated. The mechanics of accounting (debiting and crediting appropriate accounts) for these assets are relatively simple, much the same as for any of the above assets. Where the difficulty lies is in their valuation, which is an advanced topic and not something that individual persons and small businesses would likely encounter. For that reason further discussion of items such as patents, copyrights, goodwill, etc. are left out of this Guide

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2012

During the half year under review, the turnover of the company increased substantially as compared to the corresponding period of the preceding year. Cotton prices were higher as compared to the corresponding period of the last year. Cost of power increase due to increase in oil prices. Depreciation charges increased, due to the addition of the new unit, from Rs.32.359 million to 106.134 million. Your company earned a gross profit of Rs. 118.143 million (GP rate 9.95%). Finance cost for the period was substantially higher due to increase in the rate of mark-up and additional financing obtained for new unit and the working capital requirements. Nevertheless, your company has been able to earn a profit before tax of Rs. 19.476 million. After the reversal in deferred taxation and provision of taxation for current year, your Company has earned a profit after taxation of Rs. 21.602 million. This loan of Rs 800 million is secured against first pari passu hypothecation charge of Rs. 1.06 billion over all present and future overall existing and future fixed and floating assets of the company excluding land, and is repayable in 8 equal semi annual installments of Rs. 100 million each commenced from May 26, 2006. It carries mark up at the rate of 6.00% (June 30, 2009 : 6.00%) per annum payable quarterly, which is also the effective mark up rate. The loan has been paid during the year. During the year an additional loan of Rs. 23.047 million is obtained out of which Rs. 11.523 is under SBP-LTF-EOP scheme and Rs. 11.524 is under term finance facility. The new loan is secured against demand promissory note and first pari passu charge by way of hypothecation of Rs. 54.667 million over present and future plant and machinery of the company inclusive of 25% margin. The loan is repayable in 12 equal quarterly installments of Rs. 960,250 and Rs. 960,333 respectively commencing from August 2010. It carries mark up at the rate of SBP refinance rate plus 1.5% (June 30, 2009: Nil) against SBP-LTF-EOP and 15.24% (June 30, 2009: Nil) against term finance. The effective mark up rates computes to 10.30% (June 30, 2009:Nil) for SBP-LTF-EOP and 15.24% for term finance.

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