Professional Documents
Culture Documents
The Institute of
Chartered Accountants
of Pakistan
INDEX Page No.
Introduction i
Balance Sheet 1
Income Statement 2
17 Share Capital 18
18 Capital Reserve 18
19 Revenue Reserve 18
20 Surplus on Revaluation of Fixed Assets 18
21 Long Term Borrowing-Secured 19
22 Liabilities against assets subject to Finance Leases 20
23 Deferred Liabilities 20
24 Trade and Other Payables 21
25 Interest and Markup Accrued 22
26 Short Term Borrowings - Secured 22
27 Current Portion of Long term Liabilities 22
28 Contingencies and Commitments 22
29 Revenue 23
30 Cost of Sales 23
31 General and Administration Expenses 24
32 Finance Costs 24
33 Other Income 25
34 Taxation 25
35 Related Party Transactions 25
36 Cash Generated from Operations 25
37 Cash and Cash Equivalent 26
38 Corresponding Figures 26
39 General 26
INTRODUCTION AND EXPLANATORY COMMENTS
This illustrative set of financial statements seeks to provide guidance to the reporting entities and
their auditors with regard to the disclosures to be made in the financial statements prepared in
accordance with the Accounting and Financial Reporting Standards for Medium Sized Entities
(MSEs) as defined in the Institute’s circular No. 06/2007 dated November 02, 2007 and the
requirements of the Companies Ordinance, 1984.
The illustrative is merely a technical practice aid and in no way represents the authoritative
pronouncements of the Institute. It does not aim at interpreting the statutory disclosure
requirements set out in the Fifth Schedule and the MSE Standard of ICAP.
This illustrative seeks to represent minimum requirements and does not purport to be all inclusive
and would need review in the light of changes in statutory requirements and accounting
standards from time to time. Users may need to modify the financial statements when further
accounting standards are issued or made applicable subsequently.
The specimen disclosures should not be considered as the only acceptable form of presentation.
The form and content of each reporting entity’s financial statements are the responsibility of the
entity’s management. Alternative presentations to those proposed in this illustrative may be
equally acceptable if they comply with the specific disclosure requirements prescribed in the
accounting standards for MSEs.
Use of the illustrative requires the exercise of individual professional judgment and may require
some modification based on the circumstances of individual reporting entities.
Each disclosure requirement listed in the illustrative, wherever applicable, is denoted by relevant
reference of the Accounting and Financial Reporting Standards for Medium Sized Entities
(MSEs).
i
MSE illustrative Financial Statements
MSE LIMITED
BALANCE SHEET
As at 31 December 20X8
Note 20X8 20X7 Para #
Rs. Rs. 1.1, 1.19
1.14
Non-current assets
Property, plant and equipment 4 XXX XXX
Intangible assets 5 XXX XXX 5.26
Long-term investments 6 XXX XXX
Long Term Loans and Advances 7 XXX XXX
Long term Deposits and prepayments 8 XXX XXX
XXX XXX
Current assets 1.16
Stores, Spares and Loose Tools 9 XXX XXX
Stock in Trade 10 XXX XXX
Trade Receivable 11 XXX XXX
Short term Loans and Advances 12 XXX XXX
Short term Deposits and Prepayments 13 XXX XXX
Short term investments 14 XXX XXX
Current portion of long term investments XXX XXX
Other Receivables 15 XXX XXX
Cash and bank balances 16 XXX XXX
XXX XXX
XXX XXX
Non-current liabilities
Long term Borrowing - Secured 21 (XXX) (XXX)
Liabilities against assets subject to Finance Leases 22 (XXX) (XXX) 4.9
Deferred Liabilities 23 (XXX) (XXX) 11.12
(XXX) (XXX)
____________________
Chairman Chief Executive Director
MSE LIMITED
INCOME STATEMENT
For the year ended December 31,20X8
XXX XXX
MSE LIMITED
CASH FLOW STATEMENT
For the year ended December 31, 20X8
MSE LIMITED
STATEMENT OF CHANGES IN EQUITY
For the year ended December 31, 20X8
Un-
Share Capital Other General
appropriated Total Para#
Capital Reserve Reserve Reserve
profit
(Rupees)
Balance at December 31, 2006 XXX XXX XXX XXX XXX 1.1, 1.3
Net profit for the year ended Dec 31, 2007 XXX XXX
Transfer from general reserve (XXX) XXX XXX
Current year incremental depreciation- net of tax XXX XXX
Dividends
Final dividend 2006: Rs XXX per share (XXX) (XXX)
Interim dividend 2007 : Rs XXX per share (XXX) (XXX)
Net profit for the year ended Dec 31, 2008 XXX XXX 1.30(a)
Transfer from general reserve (XXX) XXX XXX
Current year incremental depreciation- net of tax XXX XXX
Gain / (loss) recognised directly in equity XXX XXX 1.30(b)
Dividends
Final dividend 2007: Rs XXX per share (XXX) (XXX)
Interim dividend 2008: Rs XXX per share (XXX) (XXX)
Balance at December 31, 2008 XXX XXX XXX XXX XXX XXX
MSE Limited is a medium size company incorporated in Pakistan under the Companies 1.12
Ordinance 1984. The company’s registered office is located at xxxx Karachi, Pakistan. The 1.36
principal activity of the company is trading of toys. The company has adopted a trade name
(Registered) “xxx” for its business. The Company is a subsidiary of ABC Ltd (the holding
company) with shareholding of xxx%.
2. STATEMENT OF COMPLIANCE
These financial statements have been prepared in accordance with the Accounting and 1.3
Financial Reporting Standards for Medium-Sized Entities as applicable in Pakistan and the
requirements of the Companies Ordinance, 1984. These accounting standards are notified by
the Securities and Exchange Commission of Pakistan. In case requirements differ, the
provisions or directives of the Companies Ordinance, 1984 shall prevail.
These financial statements have been prepared under the historical cost convention 1.31(a)
except as other wise stated in the respective policies and notes given hereunder.
The preparation of financial statements is in conformity with the Accounting and 1.3
Financial Reporting Standards for Medium-Sized Entities issued by the Institute of 1.34
Chartered Accountants of Pakistan require management to make judgments, 1.35
estimates and assumptions that affect the application of policies and reported
amounts of assets and 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 carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these
estimates.
3.2 Revenue
Revenue is recognised when it is probable that the economic benefits associated 9.10
with the transaction will flow to the company and the amount of revenue and the 9.11(a)
associated cost incurred or to be incurred can be measured reliably.
(i) sale of goods is recognised when the goods are delivered and the risks and 9.3(a)
rewards of ownership have passed to the customer;
(ii) rental income is recognised on a time proportion basis over the lease terms;
(iv) dividend income is recognised when the shareholder’s right to receive payment 9.9(c)
is established.
Borrowing costs are recognised as an expense in the period in which these are 10.13a
incurred except to the extent of borrowing cost that are directly attributable to the 10.2 to
acquisition, construction or production of a qualifying assets. Such borrowing costs, if 10.4
any are capitalized as part of the cost of the asset.
Foreign currency transactions are recorded at the exchange rate applicable at the 13.2
transaction date. Monetary assets and liabilities are translated into rupees using 13.3
exchange rates applicable at the balance sheet date. All gains and losses on 13.4
settlement and translation at year end are recognised in the income statement.
Gratuity Scheme
The amount recognized in the balance sheet represents the present value of
defined benefit obligation as adjusted for unrecognized actuarial gains and
losses.
Pension Scheme
Defined benefit pension for all eligible employees who complete qualifying
period of service and age.
If the employer has chosen to make payment for retirement benefits out
of his own funds 17.8(a)
An appropriate charge to the statement of profit and loss for the year shall be
made through a provision for the accruing liability. The accruing liability shall
be calculated according to actuarial valuation
Provident Fund
Defined contributory provident fund for all eligible employees for which 17.6
contributions are charged to profit and loss account.
b) Compensated absences
3.6 Taxation
Income tax expense represents current tax expense. Provision for current taxation is
based on taxable income at the current rates of taxation after taking into account tax
credits and tax rebates, if any.
Deferred tax is accounted for using the liability method in respect of all taxable
temporary differences arising from differences between the carrying amount of assets
and liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax assets are recognised to the extent that it
is probable that taxable profits will be available against which the deductible
temporary differences, unused tax losses and tax credits can be utilized.
Deferred tax is calculated at the rates that are expected to apply to the period when
the differences reverse, based on tax rates that have been enacted.
Property, plant and equipment are stated at cost less accumulated depreciation and 3.3
accumulated impairment losses except freehold land and capital work in progress, 3.13
which are stated at cost. Cost comprises acquisition and other directly attributable
costs.
Depreciation is charged to income on straight line basis or reducing balance basis or 3.33
cost of asset is written off over its estimated useful life. Depreciation on additions to 3.38(b)
property, plant and equipment is charged from the month in which an item is put to 3.15
use while no depreciation is charged for the month in which the item is derecognized
/disposed off.
The assets’ residual values and useful lives are reviewed at each financial year end
and adjusted if impact on depreciation is significant.
The Institute of Chartered Accountants of Pakistan 7
MSE LIMITED MSE Illustrative Financial
NOTES TO THE FINANCIAL STATEMENTS Statements
For the year ended December 31, 2008
MSE Para #
Surplus on revaluation of Property, plant and equipment is credited to the surplus on 3.20
revaluation account. Revaluation is carried out with sufficient regularity to ensure that
the carrying amount of assets does not differ materially from the fair value. To the
extent of the incremental depreciation charged on the revalued assets the related
surplus on revaluation of property, plant and equipment (net of deferred tax) is
transferred directly to unappropriated profit.
Gains and losses on disposal of fixed assets are included in income currently, except 3.36
that the related surplus on revaluation of fixed assets (net of deferred tax) is
transferred directly to unappropriated profit.
Maintenance and repairs are charged to profit and loss account as and when 3.11
incurred. Major renewals and improvements are capitalised and the assets so 3.12
replaced, if any, are written off. Gains and losses on disposal of assets, if any, are
included in profit and loss account currently.
Intangible assets are stated at cost less accumulated amortisation and accumulated 5.12
impairment losses. The depreciable amount of intangible asset is amortised on a 5.17
systematic basis over the estimated useful lives using the straight-line method. 5.26(b)
These are recognized at fair value. Gains or losses from changes in fair values are 16.3,16.19
taken to equity until disposal at which time these are recycled to profit and loss
account.
Investments with fixed or determinable payments and fixed maturity, which the 16.3
Company has the positive intent and ability to hold to maturity, are carried at 16.11
amortised cost, using the effective interest rate method less impairment losses, if so 16.19(ii)
determined.
Investments which are acquired principally for the purpose of selling in the near term 16.3
or the investments that are part of a portfolio of financial instruments exhibiting short 16.19(ii)
term profit taking are classified as investments at fair value through profit or loss.
These are stated at fair values with any resulting gains or losses recognized directly
in the profit and loss account. The fair value of such investments representing listed
equity securities are determined on the basis of prevailing market prices.
An assessment is made at each balance sheet date to determine whether there is 3.34
any indication of impairment or reversal of previous impairment, including items of 16.11-
property, plant and equipment, intangible assets and long-term investments. In the 16.17
event that an asset’s carrying amount exceeds its recoverable amount, the carrying
amount is reduced to recoverable amount and an impairment loss is recognised in
the income statement. A previously recognised impairment loss is reversed only if
there has been a change in the estimates used to determine the recoverable amount,
however not to an amount higher than the carrying amount that would have been
determined (net of amortisation or depreciation), had no impairment losses been
recognised for the asset in prior years. Reversal of impairment loss is restricted to the
original cost of the asset.
3.11 Leases
Leases that transfer substantially all the rewards and risks of ownership of assets to 4.2
the company are accounted for as finance leases. At the inception of a finance lease, 4.4
the cost of the leased asset is capitalised at the fair value of the leased asset or, if
lower, at the present value of the minimum lease payments. Lease payments are
apportioned between the finance charges and reduction of the lease liability so as to 4.6
achieve a constant rate of interest on the remaining balance of the liability. Finance
charges are charged to the income statement. The lessor gives an option to
purchase assets at the end of lease term.
These are valued at the lower of cost and net realisable value except for items in
transit, which are valued at invoice price and related expenses incurred upto the
balance sheet date. For items which are slow moving and / or identified as surplus to
the Company's requirement, a provision is made for excess of book value over
estimated realisable value.
Stocks are valued at the lower of cost and net realisable value except for stock in 6.1
transit which is valued at invoice price and related expenses incurred upto the 6.2
balance sheet date. The cost of inventories comprises all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to their present
location and condition.
Net realisable value signifies the estimated selling price in the ordinary course of 6.6
business less net of estimated cost of completion and selling expenses.
Trade and other receivables are stated at estimated realisable value after each debt
has been considered individually. Where the payment of a debt becomes doubtful a
provision is made and charged to the income statement.
3.15 Provisions
Provisions are recognised when the Company has a present legal or constructive 8.1
obligation as a result of past events, it is probable that an out flow of resources
embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of obligation.
3.16 Dividend
Cash and cash equivalents are carried in the balance sheet at cost. For the purpose 2.13 -2.14
of cash flow statement, cash and cash equivalents comprise cash in hand, cash with
banks on current, saving and deposit accounts, short term running finance and other
short term highly liquid investments that are readily convertible to known amounts of
cash and which are subject to insignificant risk of change in value.
All transactions involving related parties arising in the normal course of business are 15.6
conducted at arm's length at normal commercial rates on the same terms and
conditions as third party transactions using valuation modes, as admissible, except in
extremely rare circumstances where, subject to the approval of the Board of
Directors, it is in the interest of the Company to do so.
3.19 Offsetting
Financial assets and liabilities are offset and the net amount is reported in the 1.10
balance sheet, if the Company has a legally enforceable right to setoff the recognised
amounts and the Company intends to settle either on a net basis or realise the asset
and settle the liability simultaneously.
Financial assets and liabilities are recognised when the Company becomes a party to 16.1
the contractual provisions of the instrument, the particular recognition methods 16.18
adopted are disclosed in the individual policy statements associated with each item.
The Company derecognizes the financial assets and liabilities when it ceases to be a
party to such contractual provisions of the instruments. The Company recognises the
regular way purchase or sale of financial assets using settlement date accounting.
XXX XXX
5. Intangible assets
Outside Internal
5.1 Cost model / Revaluation model purchased development Total
software software
Carrying Amount
Balance as at January 1, 20X7 XXX XXX XXX
Balance as at December 31, 20X7 XXX XXX XXX
Balance as at December 31, 20X8 XXX XXX XXX
5.2 The amortization charge for the year has been allocated as follows:
6. Long-term investments
XXX XXX
Investments in Associate
XYZ Company Limited 6.3 XXX XXX
Note: Market value of listed securities and book value of unlisted securities are also required to be disclosed under Paragraph 2(B)(c) of P-II of
5th Schedule to the Companies Ordinance, 1984.
The Company has placements in certificates of investment of a financial institution for periods ranging from one and a 16.19
half to five years at profit rates ranging from 6% to 15% per annum.
Government of Pakistan Special US Dollar Bonds were issued for a period of three years. Profit was payable on these
bonds at a rate of xxx% above six months' LIBOR. These were fully encashed during the year.
National Saving Certificates were issued for 5 years. Monthly profit was payable on these certificates at the rate of xxx%
per annum. These were fully encashed during the year. Investments available for sale include Rs. Nil (2007: Rs. XXX)
under lien of financial institutions against long term loans and short term loans.
PIBs have been issued for 10 years (2007: 5 to 10 years). Half-yearly profit is payable on these bonds at rates ranging 16.19
from xxx% to xxx% per anum. These include Rs. xxx thousand (2007: Rs.xxx) under lien of a bank. Fair value of these
PIBs as at December 31, 2008 is Rs.xxx thousand (2007: Rs. xxx)
Investment in TFC represents XXX certificates of Rs XXX each of ABC Commercial Bank Limited. Half yearly profit is payable
on these TFCs at the rate of six months' KIBOR + 1.5% per annum. Fair value of the outstanding TFCs as at December 31, 2007
is Rs. XXX .
Investment in Associate represent xxx%(2007:xx) investment in equity of XYZ company Limited (market value as at December 31
2008:xxx ; 2007:xxx)
Less: Amount due within twelve months, shown under (XXX) (XXX)
current loans and advances
XXX XXX
These represent secured loans for house building and vehicle which are repayable within one to ten and one to five
years respectively. Mark-up at xx% per annum (2005: xx% per annum) was charged on loans for house building and vehicle
during the year.
The maximum amount of advances to executives outstanding at the end of any month during the year was Rs xxx (2007: Rs xxx).
11.1 The Company has reversed a provision of Rs.-------- (20X7: recognised a provision of Rs.----------) for the doubtful debts
Considered Doubtful
Suppliers XXX XXX
XXX XXX
XXX XXX
14.1 These represent investments under murabaha and musharika basis for working capital. These are secured against hypothecation of
stock, demand promissory notes and personal guarantee of the directors. Expected rate of profit ranges between _____% to ____% (2007 :
_____% to _____%) per annum.
At banks:
Deposit accounts
Local currency XXX XXX
Foreign currency XXX XXX
XXX XXX
This represents XXX (2007: XXX) ordinary shares of Rs 10 each amounting to Rs. XXX.
xxx shares (2007: xxx) Ordinary shares of Rs.10 each fully paid in cash XXX XXX 1.21(a) (ii)
xxx shares (2007: xxx) Ordinary shares of Rs.10 each issued 17.1 XXX XXX
for consideration other than cash
xxx shares (2007: xxx) Ordinary shares as fully paid bonus shares of Rs. 10 XXX XXX
XXX XXX
17.1 This represent the issuance of shares against the purchase of plant, machinery and other assets.
This represents surplus arising on revaluation of freehold land, building on freehold land, plant and machinery both owned
and leased carried out in the year 1 2004 . This has been adjusted by surplus realized on disposal of revalued assets and
incremental depreciation arising due to revaluation net of deferred tax.
21.1.1 Terms and conditions of long term finances from banking companies are given below:
21.1.1.1 Finance are secured by an equitable mortgage on the assets of the Company and hypothecation of 3.39
all assets including plant, machinery, tools and spares, and all other moveable properties situated at xxxx
including stocks and book debts ranking pari passu with each other. These loans have been
obtained for the acquisition of plant and machinery.
21.1.1.2 Finance has been obtained to meet the permanent working capital requirements of the Company.
Finance is secured by an equitable mortgage on the assets of the Company and hypothecation of
all assets including plant, machinery, tools and spares, and all other moveable properties situated
at xxx stocks and book debts ranking pari passu with each other. Finance is secured
against lien on Pakistan Investment Bonds
21.1.2 Term Finance Certificates (TFC's) represent private placement with 2 institutional investors 3.39
(2007: 3 institutional investors) for a period of 5 years (2007: periods ranging from 3 to 5 years)
The annual rate of profit is State Bank of Pakistan discount rate plus is State Bank of Pakistan
discount rate plus 1.5% with a floor of 11% and cap of 16%. The balance amount of principal of TFCs at
December 31, 2008 is to be repaid in 4 half-yearly installments in arrears. These are secured by an
equitable mortgage on the assets of the Company and hypothecation of all assets including plant,
machinery, tools and spares, and all other moveable properties situated at xxx including stocks and book
debts ranking pari passu with each other.
This loan represented the on lent proceeds of credit obtained by the Government of Pakistan from
an international agency.
This loan was disbursed in foreign currency and was repayable in local currency. Disbursements 3.39
were determined for repayment in Rupees by translation at the rates of exchange prevailed on the
respective dates of disbursement. Interest on loan also include included the Government's exchange
risk commission. This loan was secured by a mortgage in favour of the Government of Pakistan over
the Company's fixed assets.
The above murabaha financing carries mark-up at 4.5% p.a. Principal and mark-up are repayable in half yearly installments 3.39
upto May 31, 2010. This is secured by a registered charge on all present and future fixed and current moveable assets
of the Company
The present value of lease payments under finance leases are as follows:
Employee benefits
Post retirement medical benefits 23.2 XXX XXX
Compensated absences 23.3 XXX XXX
XXX XXX
The latest actuarial valuation was carried out as at June 30, 2008. The rates of discount, medical cost increase and
expected inflation were assumed at XXX% (2007: XXX%), XXX% (2007: XXX%) and XXX% (2007: XXX%) per annum 17.9
respectively.
This represents short term loan facility available from a bank by partial conversion of Running Finance line amounting to Rs. XXX 3.39
(2007: Rs xxx). This is secured by first pari passu charge on the current assets of the Company. This facility carries mark-up
at the rate of Rs. xxx (2007: Rs.xxx) per Rs. 1,000 per day.
Short term running finance facilities available from various banks under mark-up arrangements amounting to Rs. xxx which
represent the aggregate of sale prices of all mark-up agreements between the Company and the banks.
These facilities are secured by hypothecation of present and future current assets and fixed assets of the Company 3.39
ranking pari passu in all respects with the first charge holders. The rates of mark-up range from one month xxx% p.a. to
three months 'xxx% p.a. (2007: one month xxx% p.a. to three months' xxx% p.a.).
a) Contingencies
iii) Income tax demands, not acknowledged as debt, have been XXX XXX
challenged by the Company and are currently in appeal; the
Company expects favourable outcome of appeal.
iv) Claims against the Company and / or potential exposure XXX XXX
not acknowledged as debt.
29. Revenue
Revenue include Rs xxxx million (2007: Rs xxxx) in respect of sale of purchased of goods and are exclusive of commission, trade 9.11b(i)
allowances and sales tax of Rs xxxx and Rs xxxx respectively (2007: Rs xxxx and Rs xxxx).
1.27, 17.1-
Salaries, wages and benefits 31.1 XXX XXX 17.3, 17.7
Travelling and transportation XXX XXX
Repairs and maintenance XXX XXX 3.11
Rent and taxes XXX XXX
Communication XXX XXX
Utilities XXX XXX
Training XXX XXX
Legal services XXX XXX
Contract services XXX XXX
Auditors' remuneration 31.2 XXX XXX
Advertising XXX XXX
Insurance XXX XXX
Donations XXX XXX
Depreciation XXX XXX 1.27, 5.17
Amortisation of Intangible assets XXX XXX
Travel and conveyance XXX XXX
Sale promotion and advertising XXX XXX
Warehousing expenses XXX XXX
Other expenses XXX XXX
XXX XXX
31.1 These include amount in respect of provision for gratuity of Rs XXX (2007: Rs XXX ). 17.8
Other income
Old liabilities written back XXX XXX
Scrap sales XXX XXX
Others XXX XXX
XXX XXX
34. Taxation
The amounts due to related parties are unsecured, interest-free and have no fixed terms of repayment. 15.4(b)(i)
38.1 The comparative figures have been rearranged and/or reclassified, wherever necessary, for the purpose of 1.11
comparison in the financial statements. Major changes in the financial statements are as follows:
38.2 Traveling and conveyance amounting to Rs. xxx which were previously included in Others have now been
reclassified and included as a separate line.
39. General
39.1 Figures have been rounded to the nearest thousand of rupees, unless otherwise stated.
39.2 The Board of Directors proposed final dividend at the rate of Rs xxx per share in their meeting 1.31 (d)
held on xxx
39.3 These financial statements were authorized for issue by the Board of Directors in their meeting
held on xxx.