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CAPITAL ASSETS LEASING CORPORATION LIMITED
ANNUAL REPORT - 2003
CONTENTS
Company Information
Vision / Mission Statement
Notice of Annual General Meeting
Directors' Report
Review Report to the Members on Statement of
Compliance with Best practice of Code of Corporate Governance
Auditors' Reports
Balance Sheet
Profit & Loss Account
Cash Flow Statement
Statement of Changes in Equity
Notes to the Accounts
Six Years at a Glance
Pattern of Shareholding
COMPANY INFORMATION
Board of Directors Mr. Salman Qureshi (Chairman)
Mr. Mohammad Kalim
Mr. I.M. Mohsin
Mr. Anwar Shafi
Mr. Aamir Qureshi
Col (retd.) Abid Saeed Khan
Mr. Jehangir Shah
Audit Committee Mr. Salman Qureshi (Chairman)
Mr. Aamir Qureshi
Mr. Anwar Shafi
Managing Director & CEO Mr. Jehangir Shah
Company Secretary Mr. Shahzad Ismail
Auditors M/s. Khalid Majid Rahman Sarfaraz Rahim Iqbal Rafiq
Chartered Accountants
Plot No. 180, Block-A,
S.M.C.H.S., Karachi-74400.
Registrars & Share Transfer Office M/s Corplink (Pvt) Limited
Wings Arcade, 1 -K (Commercial)
Model Town, Lahore.
Tel: 5839182-5887262, Fax: 5869037
Legal Advisors M/s Mohsin Tayebally & Co., Advocates
Main Bankers Faysal Bank Limited
National Bank of Pakistan
PICIC Commercial Bank Limited
Registered Office 10/11-B, 3rd Floor, LDA Flats,
Lawrence Road, Lahore.
Tel: 6311604-5, Fax: 6370017
Email: calcorp@nexlinx.net.pk
Principal Branch Office Hiltop Arcade Suite 4 & 5, Plot # 4-D/II
Gizri Boulevard, Phase IV, DHA, Karachi.
Tel: 5863234 & 5863235 Fax: 5863351
E-mail: calcorp@cyber.net.pk
VISION / MISSION STATEMENTS OF
CAPITAL ASSETS LEASING CORPORATION LIMITED
Vision Statement
To become a leading Leasing services Company by making a sizeable contribution to the
development and growth of the Country's economy, by providing financial and technical
assistance to our customers, combined with innovative ideas and services, thus enabling the
customers and the Company to achieve their objectives.
Mission Statement
To achieve the role of a leading Leasing services Company by delivering quality service at
competitive rates to its customers whilst maintaining the highest levels of professionalism, ethical
standards and corporate individuality, thereby also rewarding the Shareholders, Employees, and
other Stakeholders.
NOTICE OF 11™ ANNUAL GENERAL MEETING
Notice is hereby given that the eleventh (ll'h) Annual General Meeting of the Shareholders of
CAPITAL ASSETS LEASING CORPORATION LIMITED will be held at the Registered
Office of the Company located at 10/11-B, 3rd Floor, LDA Flats, Lawrence Road, Lahore on
Monday, 29th September 2003 11:00 a.m. to transact the following business:-
1.      To confirm the minutes of fourth (4th) Extra Ordinary General Meeting of the Shareholers
held on October 25, 2002.
2.      To receive, consider and adopt the Audited Accounts of the Company for the year ended
June 30, 2003 together with the Director's and Auditor's Reports thereon.
3.      To appoint Auditors of the Comapny and to fix their remuneration. The present Auditors
M/s Khalid, Majid, Rahman, Sarfaraz, Rahim, Iqbal, Rafiq, Chartered Accountants, retire
and being eligible, offer themselves for re-appointment.
4.      To review the progress on Paid-up Capital.
5.      To transact any other business with the permission of the chair.
By Order of the Board
Lahore                                                                                             Shahzad Ismail
August 30, 2003                                                                             Company Secretary
Notes:
1.      The Share Transfer Books of the Company will remain closed from 27lh September 2003
to 3rd October 2003 (both days inclusive)
2.      A member eligible to attend and vote at this meeting is entitled to appoint another member
as his/her proxy to attend and vote instead of him/her. A proxy must be a member of the
Company. Proxies in order to be effective, must be received at the Registered Office of the
Company not less than 48 hours before the time of holding the meeting.
3.      CDC account holders will in addition have to follow the under mentioned guidelines as laid
down in Circular No. 1 dated 26 January 2000 of the Securities and Exchange Commission
of Pakistan for attending the meeting.:
i) In case of individual, the account holders or sub account holders and/or the person whose
securities are in group account and their registration details are unloaded as per the
regulations, shall authenticate his/her identity by showing his/her original National
Identity Card (NIC) or original Passport at the time of attending the meeting. The
shareholders registered on CDS are also requested to bring their Participants ID
numbers and account numbers in CDS.
ii) In case of corporate entity, the Board of Directors resolution/power of attorney with
specimen signature of nominee shall be produced (unless it has been provided earlier) at
the time of meeting.
4.      Members are requested to notify any change in their address, to the Company's Share
Registrars M/s Corplink (Pvt.) Ltd., Wings Arcade, 1-K (Commercial) Model Town, Lahore,
immediately.
DIRECTORS' REPORT
The Board of Directors takes pleasure in presenting the 11th Annual Report along with the
Audited Financial Statements for the year ended June 30, 2003:
Financial Results: 2003 2002
Rupees Rupees
Gross revenues 38,376,583 32,063,613
Administrative expenses 19,760,546 18,854,645
Financial and other Charges 21,457,951 14,394,796
Provision / (Reversals) for potential losses -1,594,183 -3,046,926
Operating Profit / (Loss) for the year -1,247,731 1,861,098
Provision / (Reversals) for taxation 600,000 550,000
Profit / (Loss) after tax -1,847,731 1,311,098
Un appropriated profits (Brought Forward) 17,521,622 14,397,544
Prior years adjustment - 2,990,000
Un-appropriated profits (B/F) Restated 17,521,622 17,387,544
Appropriations :
Transfer to Statutory Reserve - -781,020
Transfer to Deferred Tax Reserve 1,104,428 -396,000
Un-appropriated Profit (Carried Forward) 16,778,319 17,521,622
Review of Operations:
The Balance Sheet size of the Company grew to Rs. 358.892 mln. (2002: Rs. 284.163 mln.)
registering a 26 % increase. The attention of the Management remained centered on Leasing
business and required extra efforts to be made due to the competitive rates environment which
has resulted in substantial decrease of leasing rates in the market. Efforts continued to find new
sources for resource mobilization at low rates to enable the Company to pass-on the benefits to
its lessees. The main focus of financing remained the education sector, which is very viable, and
the Company has had encouraging experience leasing to educational institutions. SME's is
another sector to which lease financing has been extended and in the short period that we have
been financing such businesses, the relationships have been very satisfactory.
The leased-assets portfolio of the Company remains well - diversified, though vehicles, both
private and commercial, are the major part of the portfolio. In the SME's sector machinery &
equipment are the main assets leased-out. The reducing rates in the Market, but in comparison
the slower decline in our borrowing rates, besides other factors, played a role resulting in an
operational loss during the year, and efforts are afoot to convert the loss into profit during the
new financial year. We continued to be on the rating watch list of our rating company and
therefore there has been no change in our Ratings during the period under review.
The paid-up capital of the Company has increased to Rs. 104,431,6807- from
Rs. 77,831,410/- due to the Right Issue of Shares at 30% discount, which were issued in three
tranches beginning October 2002. The discount is to be amortized over a period of 5 years. The
total Shareholders Equity has increased as on June 30, 2003 to Rs. 131,435,185/-. Inspite of the
increase in the Paid-up Capital, the Company has been unable to comply with the requirements of
the Securities & Exchange Commission of Pakistan, which set the minimum amount for Paid-up
Capital at Rs. 200 million. The main reason for this short fall has unfortunately been International
Multi Leasing Corporation (IML), whose Management has refused to cooperate with us for
perfecting the Merger between the two companies as per the undertakings and decisions of the
respective Shareholders; Lahore High Court; main Sponsors and respective Managements of both
Companies. All these formalities were completed as per requirements. The Major Sponsor of
IML has also not honoured his commitments with regard to the Right Shares of the Company
and undertakings he had committed to provide.
IML filed an Application before the Merger sanctioning Bench of the Lahore High Court for
withdrawal of the Merger Orders. The Honourable Judge dismissed the Application and directed
IML to abide by the Merger conditionalities. However IML has now filed an Appeal before a
Division Bench of the Lahore High Court, which is to be heard in September. As a result of these
circumstances the Merger between the two companies is presently not perfected. We are hopeful,
however, for a positive outcome of the hearing, because of our faith and confidence in the
honorable Court, and also our belief that the Merger is in the common interests and benefit of all
the Share holders of both Companies.
Statement in Compliance With Code of Corporate Governance:
With the introduction of the Code of Corporate Governance, stronger controls and transparency
will come into the corporate culture of the Company and we welcome the SECP's initiative in
introducing this Code which will be helpful for the Shareholders, Directors & the Management of
the Company.
The Directors of your Company are pleased to state, in compliance of the best practices under the
Code of Corporate Governance, that:-
1.    The annexed financial statements, prepared by the management of your Company,
present fairly its state of affairs, result of its operation, cash flow and changes in its equity.
2.    The Company has maintained proper books of accounts.
3.    Appropriate accounting policies have been applied in preparation of financial statements
and   accounting   estimates   are   based   on   reasonable   and   prudent  judgment.
4.    International Accounting Standards, as applicable in Pakistan, have been followed in
preparation of financial statements & any departure there from has been adequately
disclosed.
5.    The system of internal control is sound in design and has been effectively implemented
and monitored. It is being continuously reviewed and weaknesses, if any, will be
removed.
6.    There are no significant doubts upon the Company's ability to continue as a going
concern.
7.      There   has   been   no   material   departure   from   the   best   practices   of  Corporate
Governance as detailed in the Listing Regulations.
8.      Summary of key operating and financial data of last six years is annexed to this report.
9.      The Company has issued 2,660,027 Right Shares at Discount of 30%.
10.    During the year under review six meetings of the Board of Directors were held.
Attendance by each director is as follows:-
Name of Director Number of Meetings
Attended
i)          Mr. Salman Qureshi 6
ii)        Mr. Jehangir Shah 6
iii)        Mr. Aamir Qureshi 6
iv)        Mr. Anwar Shafi 6
v)         Col. (retd) Abid Saeed Khan 5
vi)        Mr. I.M. Mohsin 4
vii)       Mr. Mohammad Kalim 1
11. During the fiscal year the trading in shares of the company by the Directors, CEO,
Company Secretary and Employees and their spouses and minor children is none.
Auditors:
The Company's Auditors M/s Khalid Majid Rahman Sarfaraz Rahim Iqbal Rafiq, Chartered
Accountants, retire and being eligible offer themselves for reappointment.
Pattern of Shareholding:
Pattern of shareholding as on June 30, 2003 is annexed to this report.
Acknowledgements:
We thank our valued customers, shareholders, creditor financial institutions, the Securities &
Exchange Commission of Pakistan, State Bank of Pakistan, Leasing Association of Pakistan, and
all three Stock Exchanges of Pakistan, for their continued support and guidance.
The Board expresses its appreciation for the efforts of the management and staff of the Company.
It is due to their dedication that we have been able to present these results to you.
On behalf of the Board of Directors
Jehangir Shah                                                                                         Salman Qureshi
Managing Director & CEO                                                                          Chairman
Lahore
August 30, 2003
REVIEW REPORT TO THE MEMBERS ON STATEMENT
OF COMPLIANCE WITH BEST PRACTICES OF CODE OF
CORPORATE GOVERNANCE
We have reviewed the Statement of Compliance with the best practices contained in the Code of
Corporate Governance prepared by the Board of Directors of Capital Assets Leasing Corporation
Limited, to comply with the Listing Regulation No. 37, 40, and 36 of the Karachi stock Exchange
(Guarantee) Limited, Lahore Stock Exchange (Guarantee) Limited and Islamabad Stock Exchange
(Guarantee) Limited respectively, where the Company is listed.
The responsibility for compliance with the Code of Corporate Governance is that of the Board
of Directors of the Company. Our responsibility is to review, to the extent where such compliance
can be objectively verified, whether the Statement of Compliance reflects the status of the
Company's compliance with the provisions of the Code of Corporate Governance and report if it
does not. A review is limited primarily to inquiries of the Company personnel and review of
various documents prepared by the Company to comply with the Code.
As part of the audit of financial statements we are required to obtain an understanding of the
accounting and internal control systems sufficient to plan the audit and develop an effective audit
approach. We have not carried out any special review of the internal control system to enable us
to express an opinion as to whether the Board's statement on internal control covers all controls
and the effectiveness of such internal controls.
Based on our review, nothing has come to our attention, which causes us to believe that the
Statement of Compliance does not appropriately reflect the Company's compliance, in all
material respects, with the best practices contained in the Code of Corporate Governance as
applicable to the Company for the year ended June 30, 2003.
Karachi                                                 Khalid Majid Rahman Sarfaraz Rahim Iqbal Raflq
August 29, 2003                                                                                     Chartered Accountants
AUDITORS' REPORT TO THE MEMBERS
We have audited the annexed balance sheet of CAPITAL ASSETS LEASING CORPORATION
LIMITED as at June 30, 2003, and the related profit & loss account, cash flow statement and
statement of changes in equity together with the notes forming part thereof, for the year then
ended and we state that we have obtained all the information and explanations which, to the best
of our knowledge and belief, were necessary for the purposes of our audit.
It is the responsibility of the company's management to establish and maintain a system of
internal control, and prepare and present the above said statements in conformity with the
approved accounting standard and the requirements of the Companies Ordinance, 1984, and Rule 7
of the Non Banking Finance Companies (Establishment & Regulations) Rule, 2003. Our
responsibility is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with the auditing standards as applicable in Pakistan.
These standards require that we plan and perform the audit to obtain reasonable assurance about
whether the above said statements are free of any material misstatement. An audit included
examining, on a test basis, evidence supporting the amounts and disclosures in the above said
statements. An audit also includes assessing the accounting policies and significant estimates made
by management as well as evaluating the overall presentation of the above said statements.
We believe that our audit provides a reasonable basis for our opinion and, after due verification,
we report that:
(a)   in our opinion proper books of accounts have been kept by the company as required by
the Companies Ordinance, 1984 and Rule 7 (l)(a) of the Non Banking Finance Companies
(Establishment & Regulations) Rules 2003.
(b)   in our opinion:
( i) the balance sheet and profit and loss account together with the notes there on have been
drawn up in conformity with the Companies Ordinance, 1984, and are in agreement
with the books of account and are further in accordance with accounting policies
consistently applied;
(ii) the expenditure incurred during the year was for the purpose of the company's business;
and
(iii) the business conducted, investments made and the expenditure incurred during the year
were in accordance with the objects of the company;
(c)   in our opinion and to the best of our information and according to the explanations
given to us, the balance sheet, profit & loss account, cash flow statement and statement of
changes in equity together with the notes forming part thereof conform with approved
accounting standards as" applicable in Pakistan, and, give the information required by
Companies Ordinance, 1984, in the manner so required and respectively give a true and
fair view of the state of the company's affairs as at June 30, 2003, and of the loss, its cash
flows and changes in equity for the year then ended; and
(d)   In our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980.
The accounts of the company for the year ended June 30, 2002 were audited by another auditor who
expressed an unqualified opinion thereon.
Without qualifying our opinion, we draw attention to Note: 1.2 to the financial statements relating
to the requirement of raising minimum paid up capital to Rs. 200 millions and the current status of
the measures being taken to meet the said requirement.
August 30 2003                                       Khalid Majid Rahman Sarfaraz Rahim Iqbal Raflq
Chartered Accountants
BALANCE SHEET
2003 2002
Rupees Rupees
(Restated)
SHARE CAPITAL & RESERVES Note
Authorised Capital
20,000,000 (2002: 20,000,00 ordinary
Shares of Rs. 107- each 200,000,000 200,000,000
Issued, subscribed and paid-up capital 3 104,431,680 77,831,410
Reserves 4 27,002,259 28,849,990
Share Application Money 5 1,246 -
131,435,185 106,681,400
LONG TERM LOANS 6 5,000,000 1,250,006
LIABILITIES AGAINST ASSETS
SUBJECT TO FINANCE LEASE 7 2,045,018 2,718,558
CERTIFICATES OF INVESTMENT 8 19,040,000 19,040,000
DEFERRED LIABILITY 57,887 67,770
LONG TERM DEPOSITS 9 40,002,053 26,223,552
CURRENT LIABILITIES:
Current portion of long term liabilities 10 43,871,698 43,106,457
Short term loans and running finances 11 107,658,058 76,323,639
Creditors, accrued and other liabilities 12 6,191,244 5,604,509
Provision for taxation 3,058,000 2,608,000
Unclaimed Dividends 532,890 539,098
161,311,890 128,181,703
CONTINGENCIES AND COMMITMENTS 13
358,892,033 284,162,989
AS AT JUNE 30, 2003
2003 2002
Rupees Rupees
Note (Restated)
TANGIBLE FIXED ASSETS 14 9,214,725 6,560,863
INVESTMENT IN LEASE AND HIRE
PURCHASE FINANCES 15 128,781,218 110,805,388
INVESTMENTS 16 451,436 133,000
LONG TERM ADVANCES 17 1,388,800 4,112,083
LONG TERM DEPOSITS 18 803,540 893,860
DEFERRED COST 19 7,084,517 -
CURRENT ASSETS:
Current portion of long term investment in
lease and advances 20 150,658,335 136,177,466
Morabaha and short term finances 21 26,873,073 9,810,156
Investment held for trading 22 2,588,880 -
Advances, deposits, prepayments and
other receivables 23 17,865,819 9,972,800
Cash & bank balances 24 13,181,690 5,697,373
211,167,797 161,657,795
358,892,033 284,162,989
PROFIT & LOSS ACCOUT
FOR THE YEAR ENDED JUNE 30, 2003
2003 2002
Rupees Rupees
(Restated)
REVENUES Note
Income from Leasing operations 25 35,071,115 28,532,665
Other Income 26 3,305,468 3,530,948
38, 376,583 32,063,613
EXPENSES
Administrative & operating expenses 27 19,760,546 18,854,645
Financial charges 28 19,861,935 14,394,796
Other charges 29 1,596,016 -
Provision/(reversal) for doubtful debts 30 -1,594,183 -3,046,926
39,624,314 30,202,515
Operating profit for the period -1,247,731 1,861,098
Provision for taxation - current 600,000 550,000
Net profit after tax for the period -1,847,731 1,311,098
Profit reported in previous financial statements 17,521,622 14,397,544
Prior year adjustment - 2,990,000
Restated Balance 17,521,622 17,387,544
15,673,891 18,698,642
Appropriations
Statutory Reserve - -781,020
Capital Reserve for Deferred Tex 1,104,428 -396,000
1,104,428 -1,177,020
Profit Carried Forward 16,778,319 17,521,622
Earning per share - basic -0.18 0.17
CASH FLOW STATMENT
FOR THE YEAR ENDED JUNE 30, 2003
2003 2002
Rupees                Rupees
CASH FLOW FROM OPERATING ACTIVITIES
Profit before taxation (1,247,731)           1,861,098
Adjustments for:
Depreciation 2,898,842           2,326,119
Financial Charges 21,457,951          14,394,796
Provision against losses (net reversal) (1,559,841)        (3,048,926)
Provision for diminution in value of investment-net reversal (34,342)                  2,000
Gain on disposal of fixed assets (270,221)           (537,327)
21,244,658          14,997,760
(Increase) in current assets
Advances, deposits, prepayments and other receivables (8,332,145)              459,547
(Decrease) in current liabilities
Accrued and other liabilities (377,256)               307,462
Cash generated from operations 12,535,257          15,764,769
Financial charges paid (18,789,743)      (14,362,957)
Tax paid (1,450,050)           (851,770)
Gratuity Paid -9,884
Net investment in lease and hire purchase finances (28,032,398)      (23,714,239)
Morabaha and short term finances (16,984,157)           2,193,134
Lease security deposits 13,686,108           6,841,943
Certificate of investment - 8,488,000
Net Cash used in operating activities (39,044,867)         (5,641,120)
CASH FLOW FROM INVESTING ACTIVITIES
Additions to fixed assets -3,643,285 -2,082,007
Proceeds from sale of fixed assets 717,301 2,367,095
Long term advances 462,000 900,000
Long term deposits -119,150 -54,590
Proceeds from Investments matured - 100,000
Investments in PIB's / FIB's / DMMF -2,872,974 -
Net cash from investing activities (5,456,108)            1,230,498
2003 2002
Rupees Rupees
CASH FLOW FROM FINANCING ACTIVITIES
Repayment of liabilities against assets subject to fin. lease -1,430,569 -2,441,604
Dividend Paid -6,208 -152,631
Short term loans and running finances 31,334,419 10,381,821
Expenses on merger arrangements -700,452 -
Share Application Money 1,246 -
Proceeds form issue of Right Shares 18,620,189 -
Long term loans 4,166,667 -8,749,996
Net cash from financing activities 51,985,292 -962,410
Net increase in cash and cash equivalents 7,484,317 -5,373,032
Cash and cash equivalents at the beginning of the period 5,697,373 11,070,405
Cash and cash equivalents at the end of the period 13,181,690 5,697,373
Issued Subscribed and paid up Capital Statutory Reserves Capital Reserve for Deferred Tax Reserve for Proposed Issue of Bonus Shares Share Application Money Un Appropriated Profits Total
----- Rupees -----
Balance Reported in previous financial
statements as at June 30, 2001 66,239,500 8,567,348 - 11,591,910 - 14,397,544 100,796,302
Prior year adjustment - - 1,584,000 - - 2,990,000 4,574,000
Restated Balance as at July 01, 2001 66,239,500 8,567,348 1,584,000 11,591,910 - 17,387,544 105,370,302
Transfer from reserve for issue of bonus shares 11,591,910 - - -11,591,910 - - -
profit after taxation - - - - - 1,311,098 1,311,098
Capital reserve for deferred tax liability - - 396,000 - - -396,000 -
Transfer to statutory reserves - 781,020 - - - -781,020 -
11,591,910 781,020 396,000 11,591,910 - 134,078 1,311,098
Balance as at June 30, 2002 77,831,410 9,348,368 1,980,000 - - 17,521,622 106,681,400
Issue of Right Shares 26,600,270 _ _ _ _ _ 26,600,270
Profit / (loss) after taxation - - - - - -1,847,731 -1,847,731
Capital reserve for deferred tax liability - - -1,104,428 - - 1,104,428 -
Share application money - - - - 1,246 - 1,246
26,600,270 -1,104,428 1,246 -743,303 24,753,785
Balance at June 30, 2003 104,431,680 9,348,368 875,572 1,246 16,778,319 131,435,185
NOTES TO THE ACCOUNTS
FOR THE PERIOD ENDED JUNE 30, 2003
1.             NATURE AND STATUS OF BUSINESS
1.1          The Company was incorporated on April  1,  1992 in Pakistan as a public limited
company and its shares are quoted on all Stock Exchanges in Pakistan. The principal
activity of the Company is to carry on leasing business. The registered office of the
Company is situated at 10/11-B 3rd Floor, LDA Flats, Lawrence Road, Lahore and the
principal office is located at Hilltop Arcade, Suite 4 & 5 Plot No. 4-D/ll  Gizri
Boulevard, Phase IV, DMA, Karachi.
1.2          The minimum paid up capital is required to be raised to Rs. 200 million latest by
December 31, 2003 under the Non Banking Finance Companies (establishment and
Regulation) Rules, 2003 dated April 01, 2003. Both CALCORP and IML decided to
merge in order to meet the said requirement. All legal formalities for the amalgamation
were completed and the scheme was approved by Honourable Lahore High Court on
March 4, 2003 and relevant documents filed with the Registrar of Companies, Lahore
on March 17, 2003. Implementation of the scheme is, however, pending owing to
petition filed by IML    subsequently seeking to set aside the amalgamation. IML's
petition was  dismissed by High Court of Lahore on June  12,  2003  in favor of
CALCORP. IML's Intra Court appeal before the Division Bench of Lahore High Court
in this respect is pending, while status quo has been ordered to be maintained till the
final judgment.
During the year, the company issued right shares at a discount of 30% and raised its paid
up capital to Rs. 104.431 million. The company expects that it shall be able to comply
with the minimum capital requirement (MCR) of Rs. 200 million as soon as
implementation of above scheme of arrangement is completed. In case any foreseeable
delay, it shall seek suitable extension from SECP for such compliance in terms of Sub
Rule (3) of Rule 7 of NBFC's Rules, 2003.
2.             SIGNIFICANT ACCOUNTING POLICIES
2.1           Basis of preparation
These accounts have been prepared in accordance with requirements of the
Companies Ordinance, 1984, the accounting standards issued by the International
Accounting Standards Committee (IASC) and interpretations issued by Standing
Interpretations Committee of the IASC, as applicable in Pakistan.
2.2          Basis of measurement
These accounts have been prepared under the historical cost convention except for
investments which are measured on fair value basis as mentioned in note 2.11.
2.3          Staff retirement benefits
Effective July 01, 1998, the company operates an approved defined contribution
provident fund covering all its permanent employees. Contribution to the fund are made
@8.33% per month of basic salary of employees. Contribution for the year amounted to
Rs. 218, 3557- (2002: Rs. 134,1557-). Till June 30, 1998 the company operated a gratuity
scheme for its employees. Gratuity is paid at the time of retirement.
2.4          Compensated absences and Leave fare assistance
Liability in respect of accumulated compensated absences of employees is accounted for
in the period in which these absences are earned. Amount provided for compensated
absences at year end amounted to Rs.95,524 (2002: Rs.95,524). Company also
provides for non accumulating leave fare assistance payable on actual basis. Amount
provided for LFA for the year amounted to Rs. 145,986 (2002: Rs.558,766) to
permanent employees.
2.5          Revenue Recognition
The Company recognizes all direct leases, sale and lease back and hire purchase
contracts of financing nature as finance leases. The total unearned income which
consists of excess of aggregate lease rentals over the cost of the leased asset is
deferred and amortized to income over the lease term using annuity method so as to
produce a systematic return on net investment in lease finance. Front-end fees, lease
document fees, commitment and other charges are taken to income on receipt basis.
Other income is accounted for when it becomes receivable.
Profit on morabaha and short-term finances is recognized on prorata basis taking into
account relevant buy-back date.
Front end fee, project examination fee and other commissions are recognized as
income on receipt.
Taxation
2.6          Current
The charge for current taxation is based on taxable income at the current rate of taxation
after taking into account allowances and credits available, if any, or minimum tax on the
basis of turnover.
Deferred
The Company accounts for deferred taxation using the liability method on all significant
timing differences according to SECP Circular No. 16 dated September 09, 1999.
2.7          Tangible Fixed Assets
These are stated at cost less accumulated depreciation. Depreciation is charged to
income applying the straight line method whereby the cost of an asset is written off
over its estimated useful life at the rates given in relevant note. The Company during the
year has changed its accounting policy in relation to additions and disposal of fixed
assets to comply with the requirements of the circular No. 10/2002 November 11, 2002
issued by the Institute of Chartered Accountant of Pakistan and started to charge
depreciation on fixed assets on half yearly basis.
Normal repairs and maintenance are charged to revenue. Major repairs, renewals and
improvements are capitalized. Gains and losses on disposal of fixed assets are
charged to income.
2.8        Accounting for leases
The Company accounts for assets acquired under financial leases by recording the
assets and related liabilities. The amounts are determined on the basis of discounted
value of total minimum lease payments and residual value of the assets at the end of
the lease period to be paid by the Company.
Financial charges are allocated to accounting periods in a manner so as to provide
constant periodic rate of charge on the outstanding liability.
Depreciation is charged at rates specified in the related note to write off the assets
over its estimated useful life in view of certainty of the ownership of the assets at the
end of the lease.
2.9        Provision for potential losses
Provision for losses against leases, morabaha finances, short term finances, long term
advances is made according to the Prudential Regulations of Leasing Rules, 2000 and
other receivables is made on the best judgement of the management represents provision
which in the opinion of the management, is required to cover potential losses that can be
reasonably anticipated. The allowance is increased by provision charged to income and
decreased by charge-off and net of recoveries. The amounts are shown under respective
heads as a deduction from gross amounts of receivables.
2.10      Deferred Cost
The company has policy to amortize all deferred costs over the period of five years.
2.11       Investments
The Company classifies its investments as follows and are measured at fair value.
Held for Trading
These are investments, which are acquired principally for the purpose of generating
profit from short-term fluctuations in price.
Held to maturity
These are securities with fixed or determinable payments and fixed maturity and
company has the positive intent and ability to hold it to maturity.
Available for sale
These are investments that do not fall under the trading or held to maturity categories.
Adjustment to fair value of these investments is charged to profit and loss account.
2.12      Cash and cash equivalents
For the purposes of cash flow statement, cash and cash equivalent consists of cash
in hand and balances with banks net of borrowing not considered to be in the nature
of financing activities.
2.13       Financial Instruments
a)           Financial assets
Financial assets are cash and bank balances, net investment in lease and hire
purchase, long term advances, investments, morabaha and short term finances,
advances, deposits and other receivables. These are stated at their nominal
value as reduced by appropriate provision for doubtful amounts.
b)           Financial liabilities
Financial liabilities are classified according to the substance of the contractual
arrangement entered into. Significant financial liabilities include loans, liabilities
against assets subject to finance lease, security deposits, certificates of
investment, running finances, creditors, accrued expenses and other payables.
Interest bearing loans and finances are recorded at gross proceeds received.
Other liabilities are stated at their nominal value. Financial charges are
accounted for on accrual basis. Any gain or loss on the de-recognition of the
financial assets and liabilities is included in the net profit and loss for the period
in which it arises.
c)           Offsetting of financial assets and financial liabilities
A financial asset and a financial liability is offset and the net amount is reported
in the balance sheet if the Company has legally enforceable right to setoff the
recognized amount and intend either to settle on a net basis or to realize the
asset and settle the liability simultaneously.
3.           ISSUED, SUBSCRIBED AND 2003 2002
PAID UP CAPITAL Rupees Rupees
7,783,141(2002: 6,623,950) ordinary share of Rs. 10/=
each issued for cash 77,831,410 66,239,500
1,159,191 ordinary share of Rs. 10/= each issued
as bonus shares - 11,591,910
2,660,027 ordinary shares of Rs. 10/= each issued as
right shares 26,600,270 -
104,431,680 77,831,410
4.           RESERVE
Statutory Reserve                                            4.1 9,348,368 9,348,368
Capital Reserve for Deferred Taxation           4.2 875,572 1,980,000
Unappropriated Profit 16,778,319 17,521,622
27,002,259 28,849,990
4.1         This represents statutory reserve created by transferring 20% of the after tax profit till the
amount of reserves equals the paid up capital.
4.2         Correction of Fundamental Error-Capital Reserve for Deferred Taxation
Till June 30, 2003 company had been making provision for deferred tax directly as charge
to the profit and loss account as against the directions contained in the SECP circular 16
dated September 19, 1999 to create capital reserve against it and transfer the amount
appropriated as reserve through profit and loss appropriation account.
Necessary correction has been made to reflect the amount of deferred tax liability of
Rs.875,572/- (2002: Rs. 1,980,0007-) as capital reserve appropriation of profit and loss
account and comparative figures restated accordingly.
Adjustment of Rs.2.990 million has also been made in deferred tax liabilities balance of
Rs.4,574,000/- (2001) to reflect it correctly at Rs. 1,980,0007- as at June 30, 2002.
5.          SHARE APPLICATION MONEY
This represents the amount received against right shares pending allotment of 178
Ordinary Shares of Rs. 10 each.
6.           LONG TERM LOANS
Financial Institution - Secured
Morabaha financing                                  6. 1 10,416,673 6,250,006
Less: Current portion shown under current liabilities 5,416,673 5,000,000
5,000,000 1,250,006
6.1 These loans are secured against first pari passu charge on leased assets and related
receivables. These loans carry mark-up ranging 14 to 17.50 percent per annum and are
repayable in equal quarterly installment.
7.          LIABILITIES AGAINST ASSETS
SUBJECT TO FINANCE LEASE
2003 2002
More than More than
within one year one year and upto five Total within one year one year and upto five Total
year year
Minimum
lease payments 3,440,620 2,240,152 5,680,772 3,203,146 3,040,425 6,243,571
Less: Financial
charges allocated
to future periods 456,844 195,134 651,978 660,331 321,867 982,198
Present value
of minimum
lease payments 2,983,776 2,045,018 5,028,794 2,542,815 2,718,558 5,261,373
The above liability represents assets acquired under Lease agreements from Leasing
Companies. Lease rentals include financial charges ranging between 10.49 percent to
19.00 percent per annum which have been used as discounting factor, rentals are repayable
on monthly basis. The cost of operating and maintaining the leased assets is borne by the
company. The company has an option to purchase the assets at the end of lease period on
payment of residual value and has intention to exercise the option.
No restriction placed on the company under the agreement.
8.       CERTIFICATE OF INVESTMENT
These represent COIs maturing at various dates in the year 2004 at a profit reduced from
15 % to 8.75% per annum payable on six monthly basis. Last year these were classified as
short-term COI's despite written request for renewal till the year 2004 from the depositors
received by the company prior to suspension of company's licence by SECP to issue/
rollever COI's. The management expects to succeed in its efforts for restoring its licence as
its credit rating is likely to be upgraded as soon as the amalgamation scheme is
implemented (refer note 1.2).
2003 2002
9.       LONG TERM DEPOSITS Rupees Rupees
Lease security deposits 75,473,302 61,787,194
Less: Current portion shown under current liabilities 35,471,249 35,563,642
40,002,053 26,223,552
These represent interest free security deposits received from lessees under lease contracts and are
adjustable at the expiry of the respective lease period.
10.     CURRENT PORTION OF LONG TERM LIABILITIES
Long term loans 5,416,673 5,000,000
Liabilities against assets subject to finance lease 2,983,776 2,542,815
Long term deposits 35,471,249 35,563,642
43,871,698 43,106,457
SHORT TERM LOANS AND RUNNING FINANCES
Short term loans
Unsecured
Non Banking Financial Companies                              11.1 71,500,000 39,500,000
Running finances under markup arrangements
Secured
Banking Company                                                      11.2 36,158,058 36,823,639
107,658,058 76,323,639
11.1    These facilities carry mark up rates ranging from 8.75 to 13.75 percent per annum. These
balances are repayable on various dates.
11.2    Represents running finance facilities Rs. 37 million (2002: Rs. 37.0 million) and carry mark-
up @ Paisa 43.836 Per Thousand Daily Product (PTDP) or @ Paisa 43 PTDP on timely
payment of mark-up. These facilities are secured by first pari passu charge on Company's
leased assets, fixed assets and receivables.
2003 2002
12     CREDITORS, ACCRUED Rupees Rupees
AND OTHER LIABILITIES
Accrued expenses 343,851 916,976
Mark-up on short term loans and running finance 4,873,505 3,733,402
Mark-up on assets subject to finance lease 25,211 25,211
Accrued return on Certificates of Investment 672,451 740,362
Gratuity Payable - 108,201
Others 276,226 80,357
6,191,244 5,604,509
13.    CONTINGENCIES AND COMMITMENTS
Contingencies
a)      Special Officer of Income/Wealth Tax of Salary Circle has passed orders u/s 52/86 of the
Income Tax Ordinance  1979 creating demand of Rs.356,3547- for the assessment years
1997-1998 to 2000-01. Appeals have been filed against the orders with the Commissioner
of Income Tax (Appeals). In the opinion of the company's legal counsel, orders of the
special officer were passed without jurisdiction and hence liable to be set aside. No
provision in the financial statement have been made in view of expected favorable outcome.
b)      Company's appeals against assessment year 1997-98 to 1999-2000 completed by taxing
lease key money were upheld by the CIT (Appeals) and the orders of DCIT set aside. The
company, however, filed appeals in this respect with the Income Tax Appellate Tribunal for
deletion of lease key money from its taxable income. Company's appeal has been heard and
in the opinion of the legal counsel a favorable decision is expected
No provision has hence been made in the financial statement against the demand of Rs. 13.17
million created. In addition to above, company's appeal against assessment completed for the
year 2001 by taxing lease key money is pending before CIT (Appeals) which is expected to
be set aside on similar grounds by CIT (Appeals).
14. TANGIBLE FIXED ASSETS
COST DEPRICIATION WRITTEN
Particulars AS AT l-JUL-02 ADDITIONS DISPOSALS AS AT 30-JUN-03 AS AT l-JUL-02 DISPOSALS FOR THE YEAR AS AT 30-JUN-03 - DOWN VALUE 30-JUN-03 RATE
OWNED ASSETS
Air-conditioners & Refrigerator 584,805 481,560 -82,900 983,465 380,339 -80,746 109,575 409,168 574,297 15%
Electric Fittings & Installations 32,040 102,303 -18,400 115,943 29,411 -17,943 9,081 20,549 95,394 15%
Motor Vehicles 1,079,593 - - 1,079,593 256,952 - 215,610 472,562 607,031 20%
Office Machines & Equipments 1,115,434 380,951 -180,445 1,315,940 722,838 -168,476 158,032 712,395 603,546 15%
Furniture & Fixtures 1,018,567 1,337,913 -287,444 2,069,036 708,005 -229,634 156,507 634,878 1,434,158 10%
Computer & Allied Equipments 1,824,288 261,558 - 2,085,846 1,308,498 - 301,197 1,609,695 476,151 30%
TOTAL           A 5,654,727 2,564,285 -569,189 7,649,823 3,406,043 -496,799 950,002 3,859,247 3,790,577
LEASED ASSETS
Vehicles 6,579,240 4,036,010 -1,964,000 8,651,250 2,452,496 -933,800 1,811,230 3,329,926 5,321,324 20%
Office Equipments 75,000 55,000 - 130,000 33,750 - 39,000 72,750 57,250 15%
Computer & Allied Equipment 328,700 - - 328,700 184,515 - 98,610 283,125 45,575 30%
TOTAL     B 6,982,940 4,091,010 -1,964,000 9,109,950 2,670,761 -933,800 1,948,840 3,685,801 5,424,149
GRAND TOTAL      A + B 12,637,667 6,655,295 -2,533,189 16,759,773 6,076,804 -1,430,599 2,898,842 7,545,048 9,214,726
Total 2002 13,110,141 4,540,020 -5,012,494 12,637,667 6,581,186 -2,830,501 2,326,119 6,076,804 6,560,863
DETAIL OF DISPOSAL
PARTICULARS COST ACCUMULATED DEPRECIATION BOOK VALUE SALE PROCEEDS /TRANSFER PROFIT / (LOSS) MODE OF DISPOSAL SOLD TO / TRANSFER TO
OWNED ASSETS
Xerox Photo Copier 77,800 77,799 1 10,000 9,999 Tender M/s Residency
Mobile Phone 8,100 2,430 5,670 6,000 330 Loss New Jublee Insurance
Air-conditioner & Refregration 82,900 80,746 2,154 17,700 15,546 Tender Mr. Ilyas
Electrical Fitting & Installation 18,400 17,943 457 340 -117 Tender Mr. Aamir
Office Machines & Equipments 94,545 88,247 6,298 3,240 -3,058 Tender Mr. Himmat Khan
Furniture & Fixture 287,444 229,634 57,810 51,257 -6,553 Tender Mr. Himmat Khan
TOTAL       -A 569,189 496,799 72,390 88,537 16,147
Leased Assets
Toyota Corrola 741,000 444,600 296,400 450,000 153,600 Tender Mr. Jamil
Honda VTI 1,223,000 489,200 733,800 834,274 100,474 Terminate M/s Paramount Leasing
TOTAL        -B 1,964,000 933,800 1,030,200 1,284,274 254,074
GRAND TOTAL      -A + B 2,533,189 1,430,599 1,102,590 1,372,811 270,221
15.     INVESTMENT IN LEASE AND HIRE PURCHASE FINANCES
2003 2002
More than More than
within one year one year and upto five Total within one year one year and upto five Total
year year
Minimum lease and hire purchase
rentals receivable 131.187,39: 107,877,930 239,065,323 114,971,671 119.459,612 234,431,283
Add: Residual value 35,471,245 43,679,795 79,151,044 35,563,642 26,223,552 61,787,194
Gross investment in lease and hire
purchase finances 166,658,642 151,557,725 318,216,367 150,535,313 145,683,164 296,218,477
Less: Unearned finance income (25,076,488 -22,776,507 -47,852,995 -22,907,694 -32,058,809 -54,966,503
Net investment in lease and hire
purchase finances 141,582,154 128,781,218 270,363,372 127,627,619 113,624,355 241,251,974
Less: Provision for lease losses (15.1 -1,819,949 - -1,819,949 - -2,818,967 -2,818,967
Present value of minimum lease
payments 139,762,205 128,781,218 268,543,423 127,627,619 110,805,388 238,433,007
These represent investment in lease finance and hire purchase under various lease
agreements with mark-up rates ranging from 13.00 percent to 32.5 percent per annum.
These agreements usually are for a three years period. In certain cases the company has
security, in addition to leased assets, in the form of corporate/personal guarantee.
2003 2002
15.1   Provision for Lease Losses Rupees Rupees
Opening Balance 2,818,967 5,665,655
Reversal during the year -999,018 -2,119,688
Written off during the year - -727,000
1,819,949 2,818,967
16.    INVESTMENTS
Held to Maturity
Federal Investment Bonds                                        1 6. 1 100,000 100,000
Available for Sale
5,000 ordinary shares of Commercial Union life - -
Assurance Company Limited at the cost of Rs. 50,0007- - 33,000
Pakistan Investment Bonds - -
Dawood Money Market Mutual Funds                    16.2 351,436 -
451,436 133
16.1  Federal Investment Bonds have been issued by Government of Pakistan and carry profit at
the rate of 15 percent per annum.
16.2  This represents the breake up value (cost Rs.350,0007-) of the funds at the balance sheet date.
17.  LONG TERM ADVANCES
2003 2002
Rupees Rupees
Secured
Advances to customers 17.1 13,121,130 13,583,130
Less: Current portion -10,896,130 -8,549,847
2,225,000 5,033,283
Less: Provision for doubtful advance -836,200 -921,200
1,388,800 4,112,083
17.1 These advances are secured by equitable mortgage of immovable properties and carry mark
-up at 17.50 percent per annum. These are repayable in equal quarterly installments by
November, 2004.
18.     LONG TERM DEPOSITS
Security deposits 1,221,310 1,102,160
Less: Current portion shown under current assets -417,770 -208,300
803,540 893,860
19.     DEFERRED COST
Unallocated expenses on merger 19.1 700,452 -
Discount on Right Shares 19.2 7,980,161 -
Amortised during the year -1,596,096 _
6,384,065 -
7,084,517 -
19.1    These expenses are incurred for the purpose of merger arrangements and will be allocated
after implementation of the scheme.
19.2   The amount represents   discount of 30% on right shares issued during the period being
amortized over the period of five years in the effect from current year.
20.     CURRENT PORTION OF INVESTMENT
IN LEASE, ADVANCES AND INVESTMENTS
Investment in leases and hire purchase 139,762,205 127,627,619
Long term advances 10,896,130 8,549,847
150,658,335 136,177,466
21.     MORAHABA AND SHORT TERM FINANCES
Secured
Morabaha finances                                                  21.1 1,923,073 2,160,156
Short term finances                                                 2 1 .2 24,967,500 7,746,260
26,890,573 9,906,416
Less: Provision for doubtful receivables -17,500 -96,260
26,873,073 9,810,156
21.1   These represent amounts receivables against morabaha transactions i.e. sale of goods on
deferred payment basis at specified profit margin. These are secured against equitable
mortgage of property.
21.2   These finances are secured against   by equitable mortgage of property and first charge on
machinery and carry mark-up rates ranging from 10 to 18 percent per annum.
22.     INVESTMENTS HELD FOR TRADING 2003 2002
Rupees Rupees
Government bonds
Pakistan Investment Bonds                                          22.1 2,495,880 -
Share in listed company
5,000 ordinary shares of Commercial Union Life Assurance
Company Limited at cost of Rs. 50,000                      22.2 93,000 -
2,588,880 -
22.1    Fair value of PIB's has been ascertained by discounting the expected future cash flows at
market yield.
22.2   Classification of these securities has been changed from available for sale to held for trading
as these were sold subsequent to the balance sheet date.
23      ADVANCES, DEPOSIT, PREPAYMENTS
AND OTHER RECEIVABLES
Advances Unsecured - considered good
Against salary
Chief Executive 795,000 992,000
Executives 63,000 74,400
Staff 99,339 79,618
957,339 1,146,018
Against expenses
Executives 542,000 537,431
Staff 37,883 89,399
579,883 626,830
Against supplies and services 2,638,620 1,039,000
Income tax 7,020,529 5,295,511
11,196,371 8,107,359
Security deposits 417,770 208,300
Prepayments 596,715 321,563
Other receivables - considered good
Accrued return on bank deposits and short term finances 1,407,983 571,048
Income tax refundable 248,680 274,968
Others 3,998,300 489,562
5,654,963 1,335,578
2003 2002
Rupees Rupees
Others considered doubtful 1,738,064 1,907,317
Less: Provisions for doubtful receivables -1,738,064 -1,907,317
5,654,963 1,335,578
17,865,819 9,972,800
23.1      The maximum amount due from Chief Executive at the end of any month during the year
was Rs.0.595 million .
23.2      The maximum amount due from an Executives at the end of any month during the year
was Rs. 1.022 million.
24.       CASH AND BANK BALANCES
Cash in hand 701,180 446,860
Cash at banks
- in current accounts 548,594 602,136
- in deposit accounts 11,931,916 4,648,377
12,480,510 5,250,513
13,181,690 5,697,373
25.       INCOME FROM LEASING OPERATIONS
Income on lease contracts 34,238,552 27,397,110
Income from hire purchase contracts 51,704 56,855
Front-end fee 330,433 358,942
Documentation charges 200,486 113,280
Late payment and other charges 249,940 606,478
35,071,115 28,532,665
26.       OTHER INCOME
Profit on morabaha and term finances 1,835,967 1,746,003
Return on bank deposits 961,617 1,213,780
Gain on sale of fixed assets 270,221 537,327
Profit on Govt. Securities 49,863 15,000
Miscellaneous 187,800 18,838
3,305,468 3,530,948
2003 2002
27.     ADMINISTRATIVE AND OPERATING EXPENSES Rupees Rupees
Salaries, allowances and benefits 7,394,445 7,214,390
Traveling and conveyance charges 977,905 698,209
Training and seminars 15,500 10,350
Rent, rates and taxes 1,213,116 1,015,938
Electricity, gas and water 975,338 947,639
Repairs and maintenance 330,049 550,610
Printing and stationery 342,623 392,993
Telephone and postage expenses 1,467,834 1,310,038
Advertising expenses 235,137 122,940
Legal and professional charges 1,454,503 1,790,700
Vehicle running expenses 981,108 1,123,707
Insurance expenses 554,326 530,246
Entertainment expenses 206,976 271,093
Computer consultancy and maintenance 3,550 3,220
Donation                                                            27.1 3,000 11,000
Auditor's Remuneration
Audit Fee 118,500 75,000