Be warned: this is rough terrain. The world of Indian accounting, where you can be clean bowled by the language.
Consider, for instance, the following snatch from `significant accounting policies' of Reliance Capital (2004): "The assigned liabilities are accounted at discounted value. The difference between the assigned liability and the discounted value is charged to the Profit & Loss account proportionately on time period basis as discount on assigned liability."
Among the notes to accounts was this: "Discount on Assigned Liabilities include additional discount of Rs 18.35 crore (Previous Year Rs 50.26 crore) on transfer of Assigned Liability." Interest and finance charges in P&L account included `Discount on Assigned liability Rs 25.36 crore. (Previous Year Rs 123.01 crore).'
Let's consider another example, that of MilkFood Ltd (2005). In the notes to accounts for contingent liabilities, the company stated: "Claims not acknowledged as debts Rs 6,08,53,167 net of tax Rs 4,04,06,503 (Previous year - Rs 3,74,44,950 net of tax Rs 2,40,11,574)." Now, what are these taxes and have they been paid or to be paid? You can keep looking for answers to these questions, till the cows come home.
Read this paragraph: "The Company produced 75,37,840 watches (2004: 67,87,333 watches) sold 72,45,704 watches Rs 51,205.33 lakh (2004: 67,89,187 watches Rs 47,949.86 lakh) and had a Closing Stock of 5,49,714 watches Rs 3,521.95 lakh (2004: 2,57,578 watches Rs 1,967.07 lakh; 2003: 2,59,432 watches Rs 2,354.01 lakh)."
These are excerpts from the 2005 annual report of Titan Industries Ltd. The company has reported the details in respect to production, purchases, sales and closing stock figures, both quantitative and value, for all the years, in a paragraph form rather than in the tabular form, which could have been reader-friendly.
Zenith Ltd had this note in its 2005 annual report: "In pursuance of the Order dated August 12, 2005, received from the Hon'ble High Court of Judicature at Bombay approving the Scheme of Arrangement submitted under Sections 391 and 394 of the Companies Act, 1956, the following effects have been given in the accounts, from the appointed date, i.e., January 1, 2005... "
"(c) The balances appearing under Revaluation account, Capital Reserve account, and Central Subsidy account as on the appointed date stand credited to `Reconstruction Reserve account'."
"(d) The aggregate of debit balance in Profit and Loss account, Miscellaneous Expenses to the extent not written off, Deferred Tax Asset, Arrears of Service charges/Rent and impairment in the value of Fixed Assets as on the appointed date have been debited to `Reconstruction Reserve account'."
"(e) After the adjustments as set out in para 24 (c) and (d) above, an amount of Rs 2,000 lakh has been transferred to `Contingency Reserve' and balance Rs 1,368.87 lakh to `General Reserve'."
Ask an analyst what the effect was of the above adjustments, and he will point out that the company revalued its fixed assets in the current accounting period by Rs 6,935.28 lakh and the balance in this account of Rs 6,952.10 lakh as on March 31, 2005, was transferred to Reconstruction Reserve account.
Also, that the company transferred Rs 19.39 lakh and Rs 44.39 lakh from the Capital Reserve account and the Central Subsidy account to the Reconstruction Reserve account, respectively. Thereafter, the balance in the Reconstruction Reserve account was utilised for writing off expenditure, deferred tax asset and debit balance in the P&L account. The remaining amount was transferred to Contingency Reserve and General Reserve. Thus, indirectly the company wrote off the expenses/loss incurred against the revaluation account.
KEC International's 2005 report had a long note that spoke about "a Composite Scheme of Arrangement among the Company, Bespoke Finvest Ltd (subsidiary company), KEC Infrastructures Ltd, KEC Holdings Ltd and their respective shareholders."
The entire business and undertaking of Bespoke Finvest Ltd shall be transferred to KEC Holdings Ltd, informed KEC. "On the approval of the Scheme, all the employees of the Company will be employees of KEC Infrastructures Ltd and the name of the Company would be changed to KEC Infrastructures Ltd and that of KEC Infrastructures Ltd, would become KEC International Ltd," said the company.
Take care, therefore, when you navigate through the accounting jungle. Fog can get you.