Mohsin Annual Report-Final 1-91:Layout 1.qxd - Siemens Pakistan

Notes to the Financial Statements 103Siemens (Pakistan) Engineering Company LimitedNotes to the Financial StatementsFor the year ended September 30, 20071. LEGAL STATUS AND OPERATIONS1.1 Siemens (Pakistan) Engineering Company Limited (the Company) is incorporated in Pakistan as a public limited company and its shares are quotedon the Karachi, Islamabad and Lahore Stock Exchanges. The Company is principally engaged in execution of projects under contracts and in themanufacture, installation and sale of electronic and electrical capital goods.1.2 The Company had acquired 52.51 percent shareholding in Carrier Telephone Industries (Private) Limited (CTI) for Rs 500 million during the yearended September 30, 2006 and took over the management on December 9, 2005. During the current year the shareholders of the Company, intheir Extra-ordinary General meeting held on December 1, 2006, approved the merger of CTI into the Company with effect from October 1, 2006.The Lahore High Court Rawalpindi Bench, vide its order dated November 2, 2007, sanctioned the Scheme of Arrangement of Amalgamation (thescheme) of the Company and CTI with effect from October 1, 2006. Accordingly, the entire undertaking of CTI including its business and all itsassets, properties, rights, privileges, powers, bank and other accounts, trade marks, patents and licenses as of October 1, 2006 stand transferredto the Company.2. BASIS OF PREPARATION2.1 Statement of complianceThese financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accountingstandards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as arenotified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984. In case requirementsdiffer, the provisions or directives of the Companies Ordinance, 1984 shall prevail.Standards early adopted by the CompanyThe Securities and Exchange Commission of Pakistan has notified the adoption of IFRS - 2, 'Share based payment', IFRS - 3, 'Business Combinations'and IFRS - 5, 'Non-current Assets Held for Sale and Discontinued Operations' on December 6, 2006 and is applicable on the Company for annualperiods beginning on or after October 1, 2007. The Company has adopted these standards for the preparation of these financial statements.The accounting policies on adoption of IFRS - 2 and IFRS - 5 are described in notes 3.19 and 3.20 respectively. The change in accounting policieshave no impact other than reclassifications and additional disclosures. The accounting policy and the resulting impact of change therein onadoption of IFRS-3 is described in note 3.5.2.2.2 Basis of measurementThese financial statements have been prepared under the 'historical cost' convention.2.3 Functional and presentation currencyThese financial statements are presented in Pakistan Rupees which is the functional currency of the Company and figures are rounded off to thenearest thousand of rupees.2.4 Use of estimates and judgementsThe preparation of financial statements in conformity with approved accounting standards requires management to make judgements, estimatesand assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actualresults may differ from these estimates.Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in whichthe estimate is revised and in any future periods affected.In preparing these financial statements, the significant judgements made by the management in applying accounting policies include:- Warranty obligations (note 3.2)- Provision for liquidated damages aggregating Rs 651.932 million as at September 30, 2007 (note 3.2)- Provision against inventories and doubtful receivables (notes 3.10 and 3.11)- Actuarial assumptions for the gratuity scheme and provision thereagainst (note 7)- Provision for taxes and deferred taxation (note 26.2)- Cost of completion of contracts in progress and their results (note 33)