Chapter 1

CHAPTER 1
ANALYSIS OF FINANCIAL STATEMENTS
LEARNING OBJECTIVES
After studying this chapter, you
should be able to :
l
Explain the meaning and

significance
of
financial
statements analysis;
Understand the contents of the

financial statements issued
quarterly, half-yearly and
annually;
Explain the contents of Directors

Report and state contents
thereof;
List the items related to corporate

gover nance disclosed in the
annual reports.
Financial statements are the end

products of the accounting process.
The last but not the least leg of the
accounting process is summarising
the accounting data in the form of
balance sheet, income statement and
statement of changes in the financial
position which help in analysis and
interpretation of the accounting data.
The last decade has been a watershed
for the evolution, refinement,
enrichment, not only of contents of
financial statements, but also about

the quality and reliability of the
information besides the harmonisation
of the financial statements across the
globe. This chapter seeks to present
the concept and contents of financial
statements, which are issued by
corporate enterprises as general
purpose financial statements to their
members and other users.
1.1 Meaning and Contents of

Financial Statements
(a) Meaning of Financial Statements :
Financial statements are the final
product of accounting work done
during the accounting period, i.e.,
quarterly, half-yearly or annually.
Financial statements normally include
Balance Sheet and Profit and Loss
Account. Profit and Loss Account is
also called income statement. Publicly
available financial statements do not
contain Manufacturing Account and
T rading Account. The annual
accounts also contain fund-flow and
cash flow statements. The financial
statements are historical documents
and relate to the past period.
ACCOUNTANCY
Balance Sheet is a sheet of balances of assets, liabilities and capital

indicating the financial position of the enterprise at a point in time. Profit and
Loss Account is a report of business activities for a given period, say a quarter
or a year, and is prepared to ascertain profit (or loss), earned (or sustained) by
the enterprise for that period. It contains items of sales and other incomes,
expenses and losses pertaining to the accounting period. The statement of
changes in financial position explains the inflow and outflow of working capital
and cash flow statement portrays the movement of cash. Financial statements
are prepared in monetary terms. In real life, some organizations refer to them
as Annual Accounts also, when they are prepared on a yearly basis. However,
interim financial statements are prepared for a shorter period, usually a quarter,
and hence called Quarterly Financial Statements. The financial statements
are prepared by the board of directors for reporting to shareholders in discharge
of their stewardship function and hence corporate law enjoins upon them the
responsibility of laying down them before annual general meeting of the
shareholders so as to give a true and fair view of the affairs of the company.
The profit and loss account shall be annexed to the balance sheet and auditors
report (including the auditors separate, special or supplementary report, if
any) shall be attached thereto.
(b) Contents of Financial Statements :
Following are the contents of financial statements:
(a) Boards Report
(b) Directors Responsibility Statement
(c)
Management Discussion and Analysis
(d) Auditors Report

(e)
Report on Corporate Governance
(f)
Accounting Policies
(g) Balance Sheet

(h) Profit and Loss Account
(i)
Cash Flow Statement
(j)
Segment Report
The above stated statement, account, reports are statutory requirements

to be complied with by the management. In some cases non-statutory
disclosures are also made which are voluntary in nature, such as, Human
Resource Accounting, Accounting for Changing Prices, Value Added Statement,
Social Accounting Report etc. Hereunder what follows is the discussion
essentially on statutory disclosures.
1.2 Boards Report

The board of directors is obliged to attach a report to every balance sheet laid
before a company in annual general meeting, with respect to:
(a)
The state of companys affairs in financial terms, i.e., revenues,

expenses, profit before tax, tax provision, profit after tax, transfer to
provisions and reserves and the balance to be carried forward;
(b)
The amounts, if any, which it proposes to carry to any reserves;
(c)
The amount, if any, recommended by way of dividends;
(d)
Material changes and commitments, if any, affecting the financial

position of the company which have occurred between the financial
year of the company to which the balance sheet relates and the date
of the report;
(e)
Conservation of energy, technology absorption, foreign exchange

earnings and outgo, in such manner as may be prescribed;
(f)
Any material information with regard to changes in the nature of

companys business or its subsidiaries;
(g)
Statement showing the name of every employee of the company who

was in receipt of remuneration which was not less than Rs. 12 lakhs
per annum or an employee who was employed for a part of the year
but was not in receipt of remuneration of Rs. 1 lakh per month
indicating whether any such employee was a relative of any director
or manager of the company and if so, the name of such director (This
limit has been subject to change from time to time).
1.3 Directors Responsibility Statement

The boards report shall also include a Directors Responsibility Statement,
indicating therein that the directors,
(a) In the preparation of annual accounts, the applicable accounting
standards have been followed along with proper explanation relating
to material departures. All the accounting standards issued by the
Institute of Chartered Accountants of India have to be observed in the
recording of transactions and disclosure of the financial information.
In case of departure from the previous practice/tradition either due
to new norms of accounting standards or application of a standard
will, call for explanation to be appended by a way of annexure or a
footnote to the relevant item shown in the balance sheet.
ACCOUNTANCY
Example :
In terms of Accounting Standard (AS22) Accounting for Tax on income
which is mandatory with effect from 01.04.2001, the company has made
provision of deferred tax liability arising out of temporary timing difference
of Rs. 1,305.57 lakhs upto 31st March, 2001, which is charged to the
General Reserve and Rs. 433.85 lakhs for the current year which is debited
to the profitand loss account.
The break up of deferred tax liability and assets are as follows:
Deferred tax liability:
On account of depreciation
Rs. 1,744.32 lakhs
Deferred tax assets:

On account of leave encashment provision
Rs. 4.90 lakhs
Annual Report 2001-2002; Gammon India Limited, (B. Other notes

number14, p. 47)
The company had in 1998 established an Employee Stock Option Plan
(ESOP) in terms of which 7,468,800 equity shares of the face value of
Re.1 each were allotted to employees of the company and employees of
associate companies and to Zee Network Employees Welfare Trust
(ZNEWT) in the year 1999-2000 at a price of Rs. 21.20 per share on
exercise of options. ZNEWT to hold 3,154,800 shares for the eventual
transfer to eligible employees to whom options are granted from time to
time by the ESOP Committee of the Company.
This stock option was established prior to SEBI guidelines on stock
options, which came into effect from June 1999, and hence these
guidelines are not applicable to the company as per the clarification from
SEBI. Accordingly, compensation cost of stock option granted is not
required to be accounted.
19th Annual Report (2000-01) Zee Telefilms Ltd., Note no. 18, p. 53.
(b) That the directors had selected such accounting policies and applied
them consistently and made judgements and estimates that are
reasonable and prudent so as to give a true and fair view of the state
of affairs of company at the end of the financial year and of the profit
or loss of the company for that period.
(c)
That the directors had taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act for safeguarding the assets of the

company and for preventing and detecting fraud and other
irregularities.
(d) That the directors had prepared the annual accounts on a going
concern basis.
(e)
The board shall give the fullest information and explanation in its
report on every reservation, qualification or adverse remark contained
in Auditors Report.
Exhibit : 1.1
WIPRO LIMITED
DIRECTORS REPORT
The Directors present the Annual Report of Wipro Limited for the year ended
March 31, 2001
FINANCIAL RESULTS
(Rs. in Mns)
2001
2000
30,922
22,921
Profit before tax

Provision for tax
7,655
992
3,507
501
Profit after tax before extraordinary items
6,663
3,006
16
(523)
6,679
2,483
18
116
14
250
6,281
26
69
10
2,378
Sales and other income (net of excise duty)
Extraordinary gains (Loss)

Profit for the year
Appropriations :
Interim dividend on preference shares
Interim dividend on equity shares
Proposed dividend on equity shares
Corporate tax on distributed dividend
Transfer to Capital Redemption Reserve
Transfer to General Reserve
Sales of the company in the year ended March 31, 2001 were Rs. 30,922 millions up
by 35% and Profit after Tax before extraordinary items was Rs. 6,663 millions up by
122% over the previous year. Over the last 10 years the sales have grown at an average
annual rate of 23% and profit after tax at 50%. The companys export at Rs. 18,134
millions has registered a growth of 73% compared to the previous year.
Dividend
The Directors recommended a dividend of Re 0.50 per equity share to be appropriated
from the profits of the year 2000-01 subject to the approval by the members at the
Annual General Meeting.
ACCOUNTANCY
Directors
Mr. Arun K. Thyagarajan, resigned as Director of the Company, with effect from
November 30, 2000. The Directors place on record their appreciation of the valuable
advice and guidance given by him while he was a Director of the Company.
Dr. Ashok Ganguly, Dr. Jagdish N. Sheth and Mr. P. S. Pai, retire by rotation and
being eligible offer themselves for re-appointment.
Fixed Deposits
Fixed deposits from public as at March 31, 2001 were Rs. 0.89 million and the
unclaimed deposits as at that date were Rs. 0.89 million.
Subsidiary Companies
As required under Section 212 of the Companies Act, 1956, the Annual Report for
the year 2000 -01 and accounts for the year ended March 31, 2001, of the subsidiary
companies Wipro Welfare Limited, Wipro Net Limited, Wipro Trademarks Holdings
Limited, Wipro Prosper Limited, Wipro Inc., Enthink Inc., and Wipro Japan KK are
attached.
Auditors
The auditors M/s. N. M. Raiji and Co., retire at the conclusion of the ensuing Annual
General Meeting and offer themselves for re appointment.
Personnel
Information as per Section 217(2A) of the Companies Act, 1956 read with the
Companies (Particulars of Employees) rules 1975 is given in the Annexure forming
part of this report.
Issue of American Depository Receipts and listing on New York Stock Exchange
(NYSE)
Your company had issued 3,162,500 American Depository Receipts representing
3,162,500 American Depository Shares each representing one Equity Share of Rs. 2
each which were issued and allotted at an offer price of US$ 41.375 and the same
were listed on the New York Stock Exchange (NYSE) on October 19, 2000. The ticker
symbol of Wipro in NYSE is WIT. The underlying equity shares were issued on all the
stock exchanges in India where the other equity shares of the Company are listed.
ADS 2000 Stock Option Plan
Under the ADS 2000 Stock Option Plan, 268,250 stock options representing 268,250
American Depository Shares each representing one equity share of Rs. 2 each were
granted to the employees. The details of options granted under the ADS Stock Option
Plan 2000 to senior management are given here :
Options granted to Senior Management

Name
Options
Vivek Paul
60,000
Suresh C. Senapaty
3,000
Research and Development

Our R&D efforts continued in the area of IEEE 1394, Bluetooth, SoC and Voice
Infrastructure. We have developed reusable components which enables us to deliver
a variety of high end design services to mention a few are the 1394 links, Bluetooth
broadband controllers, Ethernet Media Access Controller, 4 Port packet cables, etc.,
Significant investment of resources in developing an OSGi. Infrastructure for this is
being accepted as the framework for delivery of services to residential users.
The total expenditure on R&D during the year was Rs. 93.87 millions including
capital expenditure of Rs. 10.88 millions.
Foreign Exchange Earnings and Outgoings
The foreign exchange earnings of the company during the year were Rs. 18,134
millions while the outgoings were Rs. 8,330 millions (including materials imported).
Report on Corporate Governance
A detailed report on Corporate Governance has been included separately in the Annual
Report.
Directors Responsibility Statement
As required under Section 217 (2AA) of the Companies Act, 1956 it is hereby stated
that :
(a)
in the preparation of annual accounts, the applicable accounting standards

had been followed along with proper explanations relating to material departures;
(b)
the Directors had selected such accounting policies and applied them
consistently and made judgements and estimates that were reasonable and
prudent so as to give a true and fair view of the state of affairs of the company
at the end of the financial year and of the Profit or Loss of the Company for that
period;
(c)
the Directors had taken proper and sufficient care for the maintenance of
adequate accounting records in accordance with the provisions of this act for
safeguarding the assets of the company and for preventing and detecting fraud
and other irregularities; and
(d)
the Directors had prepared the annual accounts on a going concern basis.
ACCOUNTANCY
Acknowledgements
The Directors thank the Companys customers, suppliers, bankers, financial
institutions, Central and State Governments and shareholders for their consistent
support to the Company. The Directors also sincerely acknowledge the significant
contributions made by all the employees for their dedicated services to the Company.
On behalf of the Board
Bangalore, April 21, 2001
Azim H. Premji
Chairman
1.4 Management Discussion and Analysis

This section of the Annual Reports includes analysis and discussion of industry
structure and developments, opportunities and threats, spectrum of activities
carried on, future outlook, the risk and concerns which affect the business
growth and development, system of internal control and its efficacy, setting up
of audit committee, compensation committee, shareholder grievance committee,
employment committee, financial and operating performance, efforts for human
resource development and industrial relations climate. This section is very
important since it provides not only the operating analysis of the environment
in which company has operated but also highlights the important elements
that are likely to shape the future business environment in which company
will have to operate. A careful analysis of the contents may help one to assess
the future direction. However, this should not be construed as forward looking
information, since much of the information relates to the past.
1.5 Report on Corporate Governance

Corporate Governance deals with the manner in which companies are directed
and controlled by the Board of Directors in order to create stakeholder value
by appropriately crafting the corporate strategy that creates tomorrows
organization. The recent happenings in the corporate world leading to financial
scams, battles for corporate takeovers, accounting scandals, have questioned
the legitimacy of the manner in which the Directors work in the interest of
shareholders. Across the globe, the laws have been made and rules have been
modified so as to make the accountability of the Directors transparent and to
ensure that Directors work not in their own interest but work in the interest of
the shareholders, without sacrificing the interest of other stakeholders. In the
arena of accounting, the core of corporate governance relates to designing and
putting in place disclosures, monitoring, oversight, and corrective system that
ensures alignment of objectives of managers and other stakeholders. To this

end Securities and Exchange Board of India has caused the amendment of
Listing Agreement where by Clause 49 was inserted to ensure certain
disclosures on the part of listed companies with respect to corporate governance.
Following are the items of disclosure:
(i)
Composition of Board of Directors stating their names, typology

(executive/non-executive/nominee), experience and positions held;
(ii) Committees of the Board such as Audit Committee, Remuneration

Committee, Shareholder Grievance Committee, Compensation and
Benefits Committee;
(iii) Procedure of the Board meetings;
(iv) Management the executive has to give a detailed analysis of the
working of the company to the shareholders under the heading
Management Discussion and Analysis Report;
(v)
Compliance officer;
(vi) General Body Meeting stating the time, date and place;
(vii) Shareholder information indicating the notice to shareholders,
financial calendar, date of book closure, dividend payment date,
mode of voting name of stock exchanges where company is listed,
stock codes, market price data, name of depositories and custodians
along with addresses, location of production facilities; and
(viii) Auditors certificate on corporate governance.
Exhibit :1.2
WIPRO LIMITED
REPORT ON CORPORATE GOVERNANCE
INTRODUCTION
Good Corporate Governance is governance with the highest standards of professionalism,
integrity, accountability, fairness, transparency, social responsiveness and business ethics.
Good Corporate Governance, is a critical doctrine to the global economic system, enabling
the business to not only effectively and efficiently achieve its corporate objectives but also
provides it the structure and methodology to sustain its survival in globally competitive
environment. Your Company has always been managed with the principles of Good
Corporate Governance.
CORPORATE GOVERNANCE AT WIPRO
In 1999-2000, your Company initiated the process of making substantial disclosures on
the Company and its Board of Directors in the Annual Report and strengthened it further
ACCOUNTANCY
10
during 2000-2001. While continuing to make similar disclosures, we have benchmarked

your Companys corporate practices with the guidelines recommended by the SEBI
Committee on Corporate Governance. We are glad to inform you that the Company adheres
to all the mandatory recommendations made by the SEBI Committee.
I
BOARD OF DIRECTORS
The Board of Directors of the Company shall have an optimum combination of executive
and non-executive directors with not less than fifty per cent of the Board of Directors
comprising of non-executive directors. In case the Company has an executive chairman,
at least half of the Board should comprise of independent directors.
The details of the Directors on the Board of your Company for the year 2001-2002 are
given below :
Name
Category
Designation
Azim H. Premji
Promoter
Director
Chairman and
Managing Director
01.09.1968
11
P. S. Pai
Executive
Director
Vice Chairman
01.12.1998
Nil
Vivek Paul
Executive
Director
Vice Chairman
26.07.1999
Hamir K. Vissanji*
Non-Executive
Director
Director
21.09.1956
N. Vaghul
Non-Executive
Director
Director
09.06.1997
12
B. C. Prabhakar
Non-Executive
Director
Director
20.02.1997
Nil
Jagdish N. Sheth
Non-Executive
Director
Director
01.01.1999
Ashok Ganguly
Non-Executive
Director
Director
01.01.1999
Eisuke Sakakibara**
Non-Executive
Director
Additional Director 01.01.2002
Nil
P. M. Sinha**
Non-Executive
Director
Additional Director 01.01.2002
Nachiket Mor***
Nominee
Director
Director
*
**
***
Date of
Appointment
Number
of member
ship in Boards
of other public
companies
27.11.1996
resigned from the Board effective January 15, 2002.

appointed as Additional Directors with effect from January 1, 2002.
resigned from the Board effective July 19, 2001.

B
11
All pecuniary relationship or transactions of the non-executive directors vis-a-vis the

Company should be disclosed in the Annual Report.
None of the non-executive directors have any pecuniary relationship or transaction
with the Company.
II
AUDIT COMMITTEE
A qualified and independent Audit Committee shall be set up having a minimum of three
independent non-executive directors as members. The role of the Audit Committee shall
include the following :
Oversight of the Companys financial reporting process and the disclosure of its
financial information to ensure that the financial statement is correct, sufficient
and credible.
Recommending the appointment and removal of external auditor, fixation of audit

fee and also approval for repayment for any other services.
Reviewing with management the annual financial statements before submission

to the Board.
The Audit Committee of the Board of Directors reviews, acts and reports to the Board
of Directors with respect to various auditing and accounting matters, including the
recommendation for appointment of our independent auditors, the scope of the annual
audits, fees to be paid to the independent auditors, the performance of our independent
auditors and our accounting practices.
The Audit Committee also reviews audit observations of Wipros Internal Audit
department pertaining to various Business Units (BU) and discusses the same with BU
Management. Wipros Internal Audit is an ISO 9001:2000 certified function.
The Audit Committee comprises of the following three non-executive directors. The
Audit Committee reviews the audited quarterly and yearly financial results with the
Management before being submitted to the Board for its consideration and approval.
Mr. N. Vaghul
Chairman
Messrs B. C. Prabhakar and P. M. Sinha Members

Name
N. Vaghul
Nachiket Mor*
Hamir K. Vissanji**
B. C. Prabhakar***
P. M. Sinha****
Name of meeting held

during the year
4
4
4
4
4
Number of meetings attended

during the year
4
1
2
3
1
resigned with effect from July 19, 2001 and attended the meeting help up to that
date.
**
resigned with effect from January 15, 2002.
ACCOUNTANCY
12
***
co-opted with effect from July 19, 2001 and attended all the meeting held after that
date.
**** co-opted with effect from January 1, 2002 and attended all the meetings held after
that date.
III
REMUNERATION OF DIRECTORS
A.
The remuneration of the non-executive directors shall be decided by the Board of Directors.
Non-executive directors were paid professional fees for the services rendered by them
to the Company during the year 2001-02 which was approved by the Board of Directors
of the Company at their meetings held on April 19, 2001 and September 3, 2001.
B.
Appropriate disclosures on the remuneration of directors have to be made in the section

on the corporate governance of the annual report;
The details of actual payments made during the financial year 2001-02 to the directors
of the Company are given below :
a)
Remuneration paid to Proprietor and Executive Directors

(Rs. in 000s)
Name
Azim H.
Premji
Vivek Paul
P. S. Pai
Basic
Salary
Commission
Incentives
Allowance
Other
annual
compensation*
Deferred
benefits
No. of
options
granted
No. of ADS
options
granted
2,100
15,463
9,717
29,152
2,172
1,533
2,883
2,319
55,000
160,000
2,280
9,717
1,500
1,509
616
25,000
Expiration
Date
Feb.
2009
June 2006
In addition, the above directors were entitled to rent free furnished residential
accommodation or house rent allowance, leave travel concession, reimbursement of
medical expenses, personal accident insurance, fully maintained Company car with
driver, interest subsidy on housing loan, gardener, watchman, electricity, servant and
gratuity as per Company policy. Deferred benefits in the case of Mr. Vivek Paul was
Companys contribution to Deferred Compensation Plan. In the case of others, it was
Companys contribution to Pension and Provident Fund.
**
Figures mentioned are rupee equivalent as amounts were paid in US Dollars.
b)
Professional fees paid to Non-Executive Director
Six of our non-executive directors were paid professional fees as detailed hereunder :
Professional fees paid for the full year ( 2001-02)
(Rs. in 000s)
Ashok Ganguly
Professional
fees
*
800
B.C.Prabhakar
400
N. Vaghul
800
Dr. Jagdish N.Sheth*

1,221
Figures mentioned above are Rupee equivalent as amounts were paid in US$.
13
Professional fees paid for part of the year (2001-02)**
Professional fees
Prof. Eisulke Sakakibara***
P.M. Sinha
486
250
**
Professional fees paid only with effect from date of appointment i.e., January 1,2002.
***
Figures mentioned above are Rupee equivalent as amounts were paid in Yen.
IV. COMPENSATION AND BENEFITS COMMITTEE

The Compensation and Benefit Committee of the Board of Directors, which was formed
in 1987, determines the salaries, benefits and stock option grants for our employees,
directors and other individuals compensated by our Company. The Compensation
Committee also administers our compensation plans. The Compensation & Benefits
Committee comprises of the following three non-executive directors :
Mr. N. Vaghul
Chairman
Messrs B.C. Prbhakar and P.M. Sinha
Members
Name
N. Vaghul
Number of meetings held

during the year

during the year
Hamir K. Vissanji*
B.C. Prabhakar
P.M. Sinha**
resigned with effect from January 15, 2002.
**
co-opted with effect from January 1, 2002 and attended all the meetings held after
that date.
BOARD PROCEDURE
A.
The Board of Directors of a company shall meet at least four times a year, with a maximum
time gap of four months between any two meetings.
During the last financial year, our Board met at four meetings held on April 19,2001,
July 19,2001, October 17, 2001 and January 17, 2002. All the Board meetings were
held at our Registered Office at Bangalore.
Agenda papers along with explanatory statements were circulated to the Directors in
advance for each of these meetings. All relevant information, as recommended by the
SEBI Committee on Corporate Governance as well as items required under Clause 49
of the Listing Agreement were placed before the Board from time to time. The details of
Board meetings held during 2001-02 and attendance record of each of the Directors
are given below :
ACCOUNTANCY
14
Name of the Director

Azim H. Premji
Number of meetings held
P.S. Pai
Vivek Paul
Hamir K. Vissanji*
N. Vaghul
B.C. Prabhakar
Jagdish N. Sheth
Ashok Ganguly
Eisuke Sakakibara**
P.M. Sinha**
Nachiket Mor***
resigned with effect from January 15, 2002
**
appointed with effect from January 1,2002 and attended all meetings held after
that date.
*** resigned with effect from July 19,2001 and attended all meetings upto that date.
B. Company further agrees that a director shall not be a member in more than 10 committees
or act as chairman of more than five committees across all companies in which he is a
director.
None of the Directors of our Company were members in more than 10 committees nor
acted as chairman of more than five committees across all companies in which they were
directors. Details of Board memberships positions accupied by the Directors, accross all
companies, have been given at the beginning of the section.
VI MANAGEMENT
A.
Management discussion and analysis report shall form part of the annual Report to the
shareholders.
The Company has provided a detailed Management Discussion and Analysis in its
Annual Report for the year 2001-02 in pages 82 through 89.
B. Disclosures must be made by the management to the Board relating to all material financial
and commercial transactions, where they have personal interest, that may have a potential
conflict with interests of the Company.
During 2001-02, on transactions of material nature had been entered into by the
Company with the Management or their relatives that may have a potential conflict
with interests of the Company.
VII SHAREHOLDERS
A.
In the case of appointment of a new director or re-appointment of a director, the

shareholders must be provided with the following information :
15
a brief resume of the director
nature of companies in which the person also holds the directorship and the
membership of committees of the Board
The notice for the Annual General Meeting held on July 19,2001 complied with this
requirement.
B. All information like quarterly result, presentation made by companies to analyst shall be
put on Companys website.
Our Quarterly and Annual results as well as copies of the Press Releases and Company
Presentations were displayed on the following websites, i.,e. www. wiproindia.com and
www.wipro.com
Apart from the above, we also regularly provided the information to the stock exchanges
as per the requirements of the Listing Agreements and updated our websites periodically
to include information on new developments and business opportunities of the Company.
C. A Board committee under the chairmanship of a non-executive director shall be fonned
to specifically look into the redressing of shareholders and investors complaints like
transfer of shares, non receipt of balance sheet, non-receipt of declared dividends, etc.
This committee shall be designated as shareholders/investors grievance committee.
ADMINISTRATIVE AND SHAREHOLDERS/INVESTORS GRIEVANCES COMMITTEE
The Administrative and Shareholders/Investors Grievance Committee administered
the following :
a.
redress shareholder and investors compliants etc. relating to transfer of shares,

non receipt of balance sheet, non receipt of declared dividends
b.
consolidate and sub-divide share certificates
c.
approve transmission and issue of duplicate/fresh share certificate
d.
open and close bank accounts
e.
grant and revoke general, specific and banking powers of attorney
The composition of the Administrative and Shareholders/Investors Grievances

Committee is as follows :
Mr. B.C. Prabhakar
Chairman
Mr. Azim H. Premji
Members
D. The Board of the Company shall delegate the power of share transfer to an officer or a
committee or to the registrar and share transfer agents so as to expedite the process of
share transfers.
The Board has delegated the power of share transfer to Ragistrar and share transfer
agents to process transfers in less than 7 days from the date of lodgement in the case of
shares held in physical form.
VIII COMPLIANCE
A certification shall be obtained from the auditors of the Company regarding compliance
of conditions of corporate governance as stipulated and the same sent to the shareholders
ACCOUNTANCY
16
along with the directors report which is sent annually to all the shareholders of the
Company.
The certificate obtained from our statutory Auditors M/s. N.M. Raiji & Co., dated April
19, 2002 appears at page 50 of the Annual Report.
IX COMPLIANCE OFFICER AND ADDRESS FOR CORRESPONDENCE
The name and designation of the Compliance Officer of the Company is Mr. Suresh C.
Senapaty, Corporate Executive Vice President Finance.
In addition, shareholders/ADR holders can contact Mr. J. Shankar, Corporate Treasurer
in Indian and Mr. R. Sridhar in USA on financial matters and Mr. Satish Menon,
Corporate Vice President-Legal & Company Secretary on all legal and secretarial matter.
Their contact details are given below :
Name
Telephone Number
S.C. Senapaty
91-080-28440011-Extn113
91-080-28440055 (Direct)
Email id
suresh.senapaty@wipro.com
91-080-28440104
J. Shankar
91-080-28440011-Extn 170
91-080-28440079 (Direct)
shankar.jaganathan@wipro.com
91-080-28440051
Satish Menon
91-080-28440011-Extn 180
91-080-28440078 (Direct)
satish.menon@wipro.com
91-080-28440051
R. Sridhar
011-408 25574402
sridhar.ramabsubbu@wipro.com
001408 2615 7178
GENERAL BODY MEETINGS
1.
Details on Annual General Meetings (AGM) :
Fax No.
1.1 Location and time, where last three AGMs held :

Year
Location
Date
Time
1998-99
Taj Residency, Bangalore
July 29, 1999
4.30 pm
1999-00
July 27, 2000
4.30 pm
2000-01
Doddakannelli,
Sarjapur Road, Bangalore
July 19, 2001
4.30 pm
1.2 Whether special resolutions were put through postal ballot last year ? No Generally,
all the resolutions in the AGM are passed through show of hands.
Attendence of AGMs and EGMs during the last financial year :
July 19, 2001
At the Annual General Meeting, all the Directors were present.
July 19, 2001
At the Extra-Ordinary General Meeting, all the Directors were present.

2.
17
Details on Extraordinary General Meetings (EGM) :

2.1 Location and time, where last three EGMs held :
3.
Yeas
Location
Date
Time
1998-99
Ganesha Complex,
Madiwala, Bangalore
December 13, 1999
11.00 am
1999-00
April 26, 2000
4.30 pm
2000-01
Doddakannelli,
Sarjapur Road, Bangalore
July 19, 2001
5.30 pm
Details on resolutions passed through Postal Ballot :

Pursuant to the provisions of Section 192A of the Companies Act, 1956 read with the
Companies (Passing of the Resolution by Postal Ballot) Rules, 2001, consent of the
shareholders was obtained by way of Ordinary Resolutions passed under Section 293
(1) (a) of the Companies Act, 1956, for transfer of one of the Companys undertaking
engaged in the business of Fluid Power to Netkracker Limited with effect from opening
hours of March 1, 2002. The name of Netkracker Limited has since been changed to
Wipro Fluid Power Limited.
The Scrutinizer appointed for the purpose of conducting the Postal Ballot Exercise was
Mr. T.S. Suresh, Partner, King & Partridge, Advocates & Solicitors.
The Company complied with all the procedural formalities for the conduct of Postal
Ballot.
XI GENERAL SHAREHOLDERS INFORMATION

The following information would be useful to our shareholders :
1.
Annual General Meeting

- Date and Time
- Venue
July 18, 2002 at 4.30

Wipro Limited
Doddakannelli
Sarjapur Road
Bangalore 560 035
2.
Financial Calendar
(Tentative schedule)
- Financial reporting for the quarter
Second fortnight of July 2002
ending June 30, 2002

- Financial reporting for the half year
Second fortnight of October 2002
ending September 30, 2002

- Financial reporting for the half year
Second fortnight of January 2003
ending December 31, 2002

- Financial reporting for the year
ending March 31, 2003
Second fortnight of April 2003
ACCOUNTANCY
18
- Annual General Meeting for the year

ending March 31, 2003
Second fortnight of July 2003
3.
Book Closure Date :
July 3 July 18, 2002

(Both days inclusive)
4.
Dividend Payment Date :
Dividend as recommended by the

Board of Directors, if declared at
the meeting, will be payable on or
after July 18, 2002, subject to
deduction of tax, if any.
5.
Listing on Stock Exchanges at :

Equity Shares
Bangalore Stock Exchange Limited
No. 51, First Cross J.C. Road,
Bangalore 560 027
The Stock Exchange, Mumbai
Phiroze Jeejeebhoy Towers, Dalal Street
Mumbai 400 023
Stock Exchange, Ahmedabad

Opp. Sahajanand College
Kamadhenu Complex
Panjara Pole
Ahmedabad 380 015
National Stock Exchange of India Ltd.

Exchange Plaza, 5th Floor, Plot No. C/1,
G Block Bandra East, Mumbai 400 051
The Kolkata Stock Exchange

Association Ltd.
7, Lyons Range Kolkata 700 001
The Delhi Stock Exchange

Association Ltd.
3/1, Asaf Ali Road, DSE House
New Delhi 110002
Cochin Stock Exchange Ltd.

36/165, 4th Floor, MES Building
Judges Avenue, Kaloor
Cochin 682 017
American Depository Receipts (ADRs)

New York Stock Exchange
60 Wall Street
New York
Listing fees for the year 2001-02 and 2002-03 have been paid to the Indian Stock
Exchanges
Listing fees to New York Stock Exchange for listing of ADRs has been paid for the calendar
year 2002.
6.
Stock Code :
The Stock Exchange Mumbai
National Stock Exchange of india Ltd.
New York Stock Exchange (ADRs)
Wipro
Wipro
WIT

7.
19
Stock Market Data

Month
Price in NSE
during each month
S&P CNX Nifty Index

during each month
Wipro price
movement %
Nifty Index
movement %
High
Rs.
Low
Rs.
High
Rs.
Low
Rs.
High
Low
High
Low
April, 01
1,588
759
1,172
1,000
May, 01
1,868
1,451
1,226
1,096
18
91
10
June, 01
1,774
1,221
1,176
1,060
-5
-16
-4
-3
July, 01
1,459
1,367
1,127
1,047
-18
12
-4
-1
Aug., 01
1,565
1,362
1,084
1,052
-4
Sept., 01
1,525
802
1,059
849
-3
-41
-2
-19
Oct., 01
1,199
812
1,000
884
-21
-6
Nov., 01
1,564
1,010
1,098
974
30
24
10
10
Dec., 01
1,974
1,421
1,133
1,010
26
41
Jan., 02
1,875
1,461
1,122
1,052
-5
-1
Feb., 02
1,785
1,562
1,206
1,069
-5
Mar., 02
1,894
1,550
1,201
1,118
-1
Relative Performance of Wipro Share Price Vs. S&P CNX Nifty Index
Wipro Price
S&P CNX
Nifty Index
Wipro Price
S&P CNX Nifty Index
ACCOUNTANCY
20
8.
Registrar & Share Transfer Agents
Karvy Consultants Limited

51/2, Vanivilas Road
T.K.N. Complex
Opp. National College
Basavangudi
Bangalore
Tel : 080-26613400/26621192/93
Fax : 080-26621169
9.
Share Transfer System
The turnaround time for completion of

transfer of shares in physical form is
generally less than 7 days from the date
of receipt, if the documents are clear in
all respects.
We have internally fixed turnaround time
for closing the queries/complaints
received from the shareholders.
10. Details of queries/complaints received and resolved during the year 200 -2002
Name of queries /complaints
Received
Resolved
Unresolved
122
122
No. of requests for change of address

No. of requests for transmission
13
13
131
131
1*
17
17
Non-receipt of share certificates/bonus share

Non-receipt of Dividend/Revalidation of
Dividend Warrants
Letters from SEBI & Stock Exchanges
Issue of duplicate share certificates
Spliting of shares
11. Distribution of Shareholding as of March 31, 2002
Category
No. of
shareholders
Percentage
No. of shares
Percentage
1-500
54,729
96.26
1,514,402
0.65
501-1000
785
1.38
620,322
0.27
1001-2000
475
0.84
707,370
0.30
2001-3000
196
0.34
513,792
0.22
3001-4000
88
0.15
314,386
0.14
4001-5000
84
0.11
297,703
0.13
5001-10000
174
0.31
1,271,609
0.55
Above 10001
348
0.61
227,226,105
97.74
Total
56,879
100.00
232,465,689
100.00
21
12. Categories of Shareholding as on March 31, 2002 :

Sl.
Category
No.
A.
PROMOTERS HOLDING
1.
Promoters
No. of
% of
Shares held
shareholding
- Promoter in his capacity as partner of

Partnership firms
162,586,800
69.94
22,746,300
9,340,510
9.78
4.02
453,500
0.20
Multual Funds and UTI
1,713,774
0.74
Banks, Financial Institutions,

Insurance Companies
(Central/State Government Institutions/
Non-Government Institutions)
Flls*
1,210,715
0.52
6,806,985
293
4,007,959
1.72
16,549,183
7.11
- Promoter in his capacity as director of

Private Limited Companies
- Promoter in his individual capacity
- Promoter Directors Relatives
B. NON-PROMOTER HOLDING
INSTITUTIONAL INVESTORS
C. OTHERS
Private Corporate Bodies
Indian Public
NRIs/OCBs
Directors and Relatives
5,083,140
2.19
617,875
0.27
Trusts
1,348,948
0.58
TOTAL
232,465,689
100.00
* Includes 2,587,000 shares traded as ADRs.

13. Dematerialisation of Shares and Liquidity
Over 96% of our outstanding equity

shares have been dematerialized upto
March 31, 2002.
14. Outstanding convertible instruments
As of March 31, 2002, there are no

outstanding convertible instruments.
15. Outstanding ADRs as of March 31, 2002
Outstanding ADRs as of March 31,

2002 are 2,587,080. Each ADR
represents one underlying Equity
Share.
ACCOUNTANCY
22
16. Address of our depository for ADS
Morgan Guaranty Trust Company of

New York
60, Wall Street
New York, NY 10260
Tel : 011-(212) 648-3208
Fax : 011-(212) 648-5576
17. Name and address of the custodian

for ADS in India
ICICI Limited
ICICI Towers
Bandra Kurla Complex
Bandra East
Mumbai 400 051.
Tel : 91-22-26531414
Fax : 91-22-26531165
18. Plant locations

a. Our Software Development Facilities are located at :
Sl. No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Address
SB Towers, 88, MG Road
Information Technology Park, Whitefield
8, 7th Main Block, Koramangala
K-312, Koramangala Industrial Layout, V Block
Koramangala
271-271A, Sri Ganesh Complex,
Hosur Main Road, Madiwala I
26, Sri Chamundi Complex, Madiwala II,
Bommanahalli, Hosur Main Road
Madiwala Village, Bangalore-Hosur Road,
Madiwala III
111, Mount Road, Guindy
138, Shollinganallur, Old Mahabalipuram Road
A 314, Block III, KSSIDC Multistoried Complex,
Keonics Electronic City
1-8-448, Lakshmi Buildings,
SP Road, Begumpet
Survey Nos. 64, Serilingampalli Mandal,
Madhapur
Sharada Arcade, 685/2B & 685/2C,
Satara Road
Plot No. 2, MIDC, Infotech Park, Hingewadi
3rd Floor, International Technology Centre
Belapur, Navi Mumbai
Plot No. 480-481, Section 20,
Udyog Vihar Phase II
City
Bangalore 560 001
Bangalore 560 066
Bangalore 560 095
Bangalore 560 095
Bangalore 560 095
Bangalore 560 068
Bangalore 560 068
Chennai 600 032
Chennai 600 019
Bangalore 561 229
Secunderabad 500 016
Hyderabad 500 033
Pune 411 037
Pune 411 027
Mumbai 400 614
Gurgaon 122 015

b.
23
Our manufacturing facilities are located at :

Sl. No.
Address
City
1.
PO Box No. 12, Dist. Jalgaon
2.
L-8, MIDC, Waluj
3.
105, Hootagalli Industrial Areas
4.
A-28, Thattanchavady Industrial Estate
Pondicherry 605 102
5.
10, Thiruvandar Koil Village, Thirubhuvanai,

Villainur Taluk
Pondicherry 605 102
6.
120/1, Vellancheri
7.
Plot No. 4, Anthrasanahalli Industrial Area
Amalner 425 401

Aurangabad 431 136
Mysore 571 186
Guduvanchery 603 202

Tumkur 572 106
19. Members can contact us at our registered office :

Wipro Limited Doddakannelli
Sarjapur Road
Bangalore 560 035.
Telephone : (91-80) 28440011. Fax : (91-80) 28440051.
AUDITORSS CERTIFICATE ON CORPORATE GOVERNANCE
To the members of Wipro Limited
We have examined the compliance of conditions of Corporate Governance by Wipro
Limited (the Company) for the year ended on March 31, 2002, as stipulated in Clause 49
of the Listing Agreements of the Company with the stock exchanges.
The compliance of conditions of Corporate Governance is the responsibility of the
Management. Our examination was limited to procedures and implementation thereof,
adopted by the Company for ensuring the compliance of the conditions of Corporate
Governance. It is neither an audit nor an expression of opinion on the financial statement
of the Company.
In our opinion and to the best of our information and according to the explanations
given to us, we certify that the Company has complied with the conditions of Corporate
Governance as stipulated in the above mentioned Listing Agreements.
We have been explained that no investor grievances are pending for a period exceeding
one month against the Company as per the records maintained by the Company.
We further state that such compliance is neither an assurance as to the future viability of
the Company nor the efficiency or effectiveness with which the Management has conducted
the affairs of the Company.
for N.M. Raiji & Co.
Chartered Accountants
Mumbai, April 19, 2002
J.M. Gandhi
Partner
ACCOUNTANCY
24
1.6 Auditors Report

An Audit Report is an expression of professional opinion about the state of
financial affairs of the company which is formulated on the basis of the audit
carried on by the auditors on the basis of the books of accounts, records and
information and explanations examined. Under Section 227 of the Companies
Act, 1956 the Auditors Report must state that the Balance Sheet portrays true
and fair view of the state of affairs of the company and Profit & Loss Account
gives a true and fair view of the profit (loss) for the year and that these statements
have been prepared in compliance with the applicable accounting standards.
If the company is covered by Section 227 (4A) of the Companies Act, 1956, the
auditor has to report on matters relating to Manufacturing and Other
Companies (Auditors Report) Order 1988. They relate to the records of assets
and physical verification, valuation of stock, loans and interest, purchase
procedure of goods, system of internal control. The auditor has to state whether
a company is sick within the meaning of Section 3 (1) (o) of the Sick Industrial
Companies (Special Provisions) Act, 1985. The Audit Report has to indicate
the material departures and if need be, put qualifications to the report. If the
matters are raised by the auditors in their Audit Report, the Board of Directors
are required to give sufficient and reasonable explanation in the Directors
Report discussed above.
Exhibit :1.3
AUDITORS REPORT
To the members of WIPRO LIMITED
We have audited the attached Balance Sheet of Wipro Limited as at March 31, 2001 and
also the annexed Profit & Loss Account for the year ended on that date, and report that;
1.
We have obtained all the information and explanations which to the best of our
knowledge and belief were necessary for the purpose of our audit.
2.
In our opinion, proper books of accounts as required by law have been kept by the
Company so far appears from our examination of the books.
3.
The Balance Sheet and the Profit & Loss Account dealt with by this report are in
agreement with the books of account.
4.
In our opinion, the Profit and Loss Account dealt with by this report are in agreement
with the books of account.
5.
As per the information and explanations provided to us, none of the directors are
disqualified from being appointed as directors under Section 274(1) of the Companies
Act, 1956.

6.
7.
25
In our opinion and to the best of our information and according to the explanations
given to us, the said account, read together with the notes thereon give information
required by the Companies Act, 1956 and on the basis of such checks as we
considered appropriate we further state that:
a.
give a true and fair view of the state of affairs of the Company as at March 31,
2001; in case of the Balance Sheet, and
b.
give a true and fair view of the Profit for the year ended on that date, in case of
the Profit & Loss Account.
As required by the Manufacturing and Other Companies (Auditors Report) Order,

1988, issued by the Company Law Board in terms of Section 227(4A) of the
Companies Act, 1956 and on the basis of such checks as we considered appropriate,
we further state that:
(i)
The Company has maintained proper records showing quantitative details

and the situation of its fixed assets. A major portion of fixed assets have
been physically verified by the management during the year. In our opinion,
the frequency of verification of fixed assets by the management is reasonable,
having regard to the size of the Company and the nature of its assets. No
material discrepancy has been noticed between the book records and the
assets physically verified.
(ii)
None of the fixed assets of the Company have been revalued during the year.
(iii)
Stocks of finished goods, stores, spare parts and raw materials other than
with the third parties have been physically verified by the management at
reasonable intervals. There is a process of obtaining confirmation in respect
of stores with third parties.
(iv)
In our opinion and according to the information and explanations given to

us, the procedures for physical verification of stocks followed by the
management are reasonable and adequate in relation to the size of the
Company and the nature of its business.
(v)
The discrepancies between the physical stocks and the book stocks were not
material and have been properly dealt within the books of account.
(vi)
In our opinion, the valuation of stocks is fair and proper in accordance with
the normally accepted accounting principles, and is on the same basis as in
the preceding year.
(vii)
The Company has not taken any loans secured or unsecured from companies,
firms or other parties listed in the register maintained under section 301 of
the Companies Act, 1956. We have informed that there are no companies
under the same management as defined under Section 370(1-B) of the
Companies Act, 1956.
(viii) The Company has granted unsecured interest free/interest-bearing loans to

its subsidiaries and to companies which are listed in the register maintained
under Section 301 of the Companies Act, 1956. The terms and conditions of
such loans are prima facie, not prejudicial to the interest of the Company.
(ix)
In respect of loans and advances in the nature of loans given by the Company,
ACCOUNTANCY
26
the parties/employees have generally repaid the principle amount and interest
as per terms, wherever stipulated.
(x)
The Company has adequate internal control procedures commensurate with

its size and nature of its business for the purchase of stores, raw materials
including components, plant and machinery, equipment and other assets
and for the sale of goods.
(xi)
The transactions for purchase of goods and materials and sale of goods,
materials and services, made in pursuance of contracts or agreements entered
in the register maintained under Section 301 of the Companies Act, 1956, as
aggregating during the year to Rs. 50,000 or more in respect of each party,
have been made at prices which are generally reasonable having regard to
prevailing market prices for such goods, materials, or services or the prices
at which transactions for similar goods or services have been made with
other parties.
(xii) As explained to us, the Company has a regular procedure for determination
of unserviceable or damaged stores and raw material. In our opinion adequate
provision has been made in the accounts for the estimated loss on the items
so determined.
(xiii) The Company has not accepted any public deposits during the year. The
amount outstanding as on the balance sheet date is only in respect of
unclaimed deposits accepted in earlier years. On account of this no comment
is required for the compliance of the Section 58A of the Companies Act, 1956
and the Companies (Acceptance of Deposits) Rules, 1975 and directives issued
by the Reserve Bank of India with regard to the deposits accepted from the
public.
(xiv) In our opinion, the Company has maintained reasonable records for the sale
and disposal of realizable by-products and scrap.
(xv)
The Company has a system of internal audit which is commensurate with

its size and nature of business.
(xvi) We have broadly reviewed the books of account maintained by the Company
pursuant to the rules made by the Central Government for maintenance of
Cost records in respect of the Vanaspati, Soaps and Lighting products under
Section 209(1)(d) of the Companies Act, 1956 and are of the opinion that,
prima facie, the prescribed accounts and records have been maintained. We
have not, however, made a detailed examination of the records with a view to
determining whether they are accurate or complete.
(xvii) The Company has generally been regular in depositing Provident Fund and
Employees State Insurance dues with the appropriate authorities, except
that in a few cases there were minor delays in depositing the dues.
(xviii) There are no undisputed amounts in respect of Income Tax, Wealth Tax,
Sales Tax, Customs Duty and Excise Duty which, as at the Balance Sheet
date, were outstanding for a period of more than six months from the date
they become payable.
27
(xix) On the basis of our examination of the books of account and the information
and explanations given to us, there are no personal expenses which have
been charged to the revenue account other than those incurred in terms of
contractual obligations or in accordance with generally accepted business
practice.
(xx)
The Company is not a sick industrial Company within the meaning of Section
3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985.
(xxi) In respect of service activities, the Company has a reasonable system,

commensurate with its size and nature of business for :
a.
recording receipts, issues and consumption of materials and allocating

materials consumed to the relative jobs/projects.
b.
allocating manhours utilized to the respective jobs/projects.
c.
authorization at appropriate levels and an adequate system of internal control

on issue of stores and allocation of stores and man power to jobs/projects.
(xxii) The business activity carried on by the Company includes letting out
immovable property on rental basis. For such activities, maintenance of
records of materials, stores, man-hours etc., is not considered necessary.
(xxiii)As regards the trading activity of the Company during the year, damaged
goods were determined and suitable value adjustment was made in the books
of account.
for N.M. Raiji & Co.,
Chartered Accountants
J.M. Gandhi
Partner
Mumbai, April 20, 2001
1.7 Balance Sheet

A Balance Sheet gives the statement of shareholders equity (paid-up share
capital and reserves and surplus), loans, current liabilities and provisions,
fixed assets net of depreciation, investments, loans and advances, and current
assets. Briefly stated, a balance sheet is a listing of investing and financing
activities at a point in time. Every accounting transaction related to cash flows,
income, and shareholders equity affects the balance sheet. For example,
difference of revenues and expenses affects reserves and surplus, which in
turn affect shareholders equity. However, it is to be noted that the values
shown in the balance sheet are historical in nature and do not indicate their
current market value unless otherwise specified in a particular case.
The format of the Balance Sheet is prescribed in Schedule VI of the Companies
Act, which is appended at the end of the chapter.
ACCOUNTANCY
28
1.8 Profit and Loss Account

An income statement is a measure of financial performance between two points
in time. It lists revenues (sales and other incomes), gains, expenses and losses
over a period of time. Usually this period is a financial year. The profit is shown
before and after tax by making due adjustments for prior period transactions.
The net profit so arrived at is used for appropriation in various reserves
mandated by the law or decided upon by the Board of Directors. Surplus if
any, is carried forward to the next year.
1.9 Cash flow Statement

A cash flow statement indicates inflows and outflows of cash during an
accounting period. Under accrual system of accounting, the net profit shown
by Profit & Loss Account does not equal to net cash flow except over the lifetime
of the company. Since, Profit & Loss Account relates to the time segment, and
is based on certain accounting policies, it is necessary for periodic reporting of
cash inflows and outflows. A cash flow statement is required to be published
pursuant to Clause 32 of the listing agreement and should be based on and be
in agreement with corresponding Profit & Loss Account and balance sheet of
the company. The Institute of Chartered Accountants of India has issued
accounting standard related to cash flow statement AS3. The detailed
discussion on this topic is given in chapter entitled Statement of Changes in
Financial Position.
1.10 Notes and Annexure to Financial Statements

Formal financial statements are not sufficient to give a true and fair view of the
financial affairs of the business enterprise; hence these statements are
accompanied with schedules, annexure and notes forming part of balance
sheet and Profit & Loss Account. These are quite important for they provide
additional information and clarifications with regard to the numbers arrived.
One must read these notes very carefully to understand the application of
different accounting policies over a period of time concerning the recognition
of revenues and matching of different expenses.
1.11 Concept of Financial Analysis

Financial analysis forms an important part of business analysis, which is
preceded by accounting analysis and followed by prospective analysis.
29
Accounting analysis involves examining how generally accepted accounting

principles and conventions have been applied in arriving at the values of assets
liabilities revenues and expenses. An appreciation of the changes in accounting
rules and conventions significantly impact the values of assets and liabilities,
so also the net income/loss. The rules governing the valuation of assets,
matching of cost and revenue should be carefully examined so as to effectively
evaluate a companys accounting choices and accrual estimates.
Financial analysis involves how analytical tools and techniques such as
Ratios, Cash Flow measures can be used to evaluate the operating, financing
and investment performance of a business enterprise with a focus on
effectiveness and efficiency in the conduct of business affairs by the
management. Financial Analysis based on publicly available financial
statements is seriously handicapped by the quality and quantity of information
disclosed. The disclosed financial information reveals less than it conceals.
Therefore it is the experience and expertise of the financial analyst that comes
to his/her aid in carrying out sound, systematic scientific, and logical analysis
to permit informed decision making by the users of that information. It is for
this reason that all financial analysts and auditors use indirect statement of
disclaimer by stating, According to the information made available. Financial
analysis can also be carried out by comparing balance sheets and Profit &
Loss Account over a period of time either by preparing a common size statement
or comparative statements. These techniques are explained in detail in the
chapters that follow.
The next extension of financial analysis is prospective analysis, which
involves developing forecasted financial statements keeping in view the changes
that are likely to shape and affect the business given the assumptions about
these changes and the limitations of the forecasting techniques used. This is
quite complicated and requires good professional expertise.
1.12 Types of financial statements

The saga of financial reporting in India started with compliance reporting in
pursuance to the specific provisions of the law which required laying down of
Balance Sheet and income statement before the Annual General Body Meeting
of the shareholders along with Auditors Report and Directors Report in
discharge of the stewardship responsibility of the management towards the
shareholders. And the same are required to be filed by the board with the
Registrar of Companies (ROC). Generally, companies have been presenting
annual financial statements until the Securities and Exchange Board of India
(SEBI) made it mandatory in case of listed public companies to submit halfyearly
ACCOUNTANCY
30
unaudited reports and later on required them to submit quarterly reports.

Therefore on the basis of periodicity of publication of financial statements, we
have two types of financial statements :
1. Annual financial statements
2. Quarterly financial statements.
1.12.1 Annual Financial Statements
These are statements and accounts that are required to be presented in the
Annual General Body Meeting of members of the company who in turn are
required to adopt them. These statements include Balance Sheet, Profit &
Loss Account, Cash Flow Statement, Statement of Material Changes in the
Financial Position of the subsidiary company, if the date of closure of financial
year of subsidiary company is different from that of the parent company and
consolidated financial statement in case of holding company. Apart from these,
there are disclosures with respect to corporate governance, energy consumption,
export earnings, related party transactions, balance sheet, Profit & Loss
Account, directors report and auditors report of subsidiary company(ies).
1.12.2 Quarterly Financial Reports
The companies issue these reports at the end of each quarter and are also
known as Interim Financial Reports. Quarterly Financial Reports have been
mandated by SEBI and are required to be submitted to the stock exchanges
where the securities are listed. These reports are helpful in understanding the
current financial performance of the companies and help in the evaluation
and forecasting objectives. The quarterly reports added together should usually
lead to the portrayal of annual performance but this may not be true owing to
the seasonal, random, scheduled, cyclical and non-random factors.
Theoretically, it is believed that each interim period accounting results of
business operation should be determined in essentially the same manner as
results of annual accounting period. From this standpoint, the same principles
employed for annual reports should be used to report deferrals, accruals, and
estimations at the end of each interim period. While the other viewpoint is that
each interim period is in integral part of the annual period and hence deferrals,
accruals, and estimations at the end of each interim period depend on
judgments made at each interim date about the results of operations for the
entire annual period. The Accounting Standard (AS) 25 requires at a
minimum, the following components
(a)
condensed balance sheet;
(b)
condensed statement of profit and loss;
(c)
condensed cash flow statement; and
(d)
selected explanatory notes.
31
If an enterprise prepares and presents a complete set of financial statements

in its interim financial report, the form and content of those statements should
conform to the requirements as applicable to the annual complete set of financial
statements. If an enterprise prepares and presents a set of condensed financial
statements in its interim financial report, those condensed statements should
include all the headings and sub-headings that were included in its most recent
annual financial statements. Additional notes should be included if their
omission would make the condensed interim financial statements misleading.
An enterprise should include the following information in notes to its financial
statements, if material and if not disclosed elsewhere in the interim financial
report:
(a)
a statement that same accounting policies are followed in the interim

financial statement as those followed in the most recent annual financial
statements or, if those policies have been changed, a description of the
nature and effect of the change;
(b) explanatory comments about the seasonality of interim operations;

(c)
the nature and amount of items affecting assets, liabilities, equity, net
income or cash flows that are unusual because of their nature, size or
incidence;
(d) nature and amount of changes in the estimates of amounts reported

in prior interim periods of current financial year or changes in estimates
of amount reported in prior financial years,
(e)
issuance, buy-backs, repayments and restructuring of debt, equity

and potential equity shares;
(f)
dividend, aggregate or per share, separately for equity shares and

others;
(g)
segment revenue, capital employed and results for each segment;
(h) the effect of changes in the composition of the enterprise such as

amalgamation, acquisition or disposal of subsidiaries and long-term
investments, restructurings and discontinuance of operations; and
(i)
material changes in contingent liabilities since the last balance sheet.
It is to be noted that unless otherwise specified, we are of the view that, quarterly
reports must follow the same generally accepted accounting principles that
form the basis of the preparation for the annual reports. Hereunder, is presented
the format of quarterly financial reports issued by Infosys Technologies Limited.
ACCOUNTANCY
32
Exhibit 1.4 : Interim Report of Infosys Technologies Limited
Infosys
Infosys Technologies Limited
Regd. Office : Electronics City, Hosur Road
Bangalore 561 229, India
Audited financial results for the quarter and nine months
ended December 31, 2002
( Rs. in crore, except per share data)
Quarter ended
December 31,
Nine months ended

December 31,
Year ended
March 31,
2002
2001
2002
2001
2002
945.18
13.46
648.35
12.45
2,552.93
49.90
1,882.93
40.53
2,552.47
51.12
Total
958.64
660.80
2,602.83
1,923.46
2603.59
Software development expenses
481.62
309.50
1.283.50
902.01
1,224.82
Gross Profit
477.02
351.30
1,319.33
1,021.45
1,378.77
73.60
32.85
198.02
93.96
129.79
69.93
51.00
189,65
160.60
211.35
333.49
49.48
267.45
41.33
931.66
136.19
766.89
115.83
1.037.63
160.65
284.01
29.80
313.81
57.50
226.12
14.92
241.04
35.00
795.47
72.22
23.76
843.93
33.11
651.06
43.07
694.13
96.50
876.98
66.41
943.39
135.43
Income from software services

and products
Overseas
Domestic
Selling and marketing

expenses
General and administration
expenses
Operating profit before
interest, depreciation
and amortization
Interest
Depreciation and amortization
Operating profit after interest,
depreciation and
amortization
Other income
Provision for investments
Profit before tax
Provision for taxation
Profit after tax

Paid-up equity share capital
(par value Rs. 5 each,
fully paid)
Reserves
Earnings per share (par value
Rs. 5 each)
Basic
Diluted
Dividend per share (par value
Rs. each)
percentage (%)
Aggregate of non-promoters
shareholding
Number of shares
33
256.31
206.04
2,673.99
597.63
807.96
33.11
2,673.99
33.08
1,916.84
105.57
104.70
33.08
1,916.84
33.09
2,047.22
38.70
38.22
31.14
31.02
105.57
104.70
90.33
89.86
122.12
121.37
12.50
250
7.50
150
20.00
400
4,70,92,487 4,73,94,894 4,70,92,487
4,71,78,795
4,73,94,894
Percentage of
shareholding
71.56
71.17
71.56
71.17
71.28
Segment reporting
Quarter ended
December 31,
2002
Nine months ended

December 31,
Year ended
March 31,
2001
2002
2001
2002
Revenue by industry segment

Financial services
Manufacturing
Telecom
Retail
Others
360.79
166.23
134.60
112.82
184.20
226.20
104.76
100.07
89.83
139.94
982.25
442.36
379.19
300.59
498.44
700.23
329.00
301.73
232.63
359.87
953.98
445.94
406.79
320.40
476.48
Total
Less : Inter-segment revenue
958.64
-
660.80
-
2,602.83
-
1,923.46
-
2,603.59
-
Net revenue from operations
958.64
660.80
2,602.83
1,923.46
2,603.59
117.62
55.98
51.09
46.77
62.03
80.12
33.73
49.55
43.24
60.81
319.87
148.78
152.00
128.37
182.69
258.02
108.49
146.49
110.48
143.68
350.87
152.76
191.16
151.36
191.48
Total
Less : Interest
Less : Other un-allocable
expenditure
(excluding un-allocable income)
333.49
-
267.45
-
931.66
-
76689
-
1,037.63
-
49.48
41.33
136.19
115.83
160.65
Operating profit before tax
284.01
226.12
795.47
651.06
876.98
Segment profit / (Loss )before tax

and interest :
Financial services
Manufacturing
Telecom
Retail
Others
ACCOUNTANCY
34
Notes on segment information
Principal segments
The companys operations predominantly relate to providing technology services delivered

to clients globally, operating in various industry segments. Accordingly, revenues represented
along industry classes comprise the primary basis of the segmental information set out
above.
Segmental capital employed
Fixed assets used in the companys business or liabilities contracted have not been identified
to any of the reportable segments, as the fixed assets and support services are used
interchangeably between segments. Accordingly, no disclosure relating to total segment
assets and liabilities have been made.
Notes :
1.
The above audited results for the quarter and the nine months ended December 31,
2002 have been taken on record by the Board at its meeting held on January 10, 2003.
There are no qualifications in the auditors reports issued for these periods.
2.
Details of expenses.
Quarter ended
December 31,
2002
Staff costs
446.32
There are no other items exceeding
10% of aggregate expenditure
3.
2001
2002
2001
287.70
1,195.28
825.86
2002
1,117.87
Particulars of other income

Quarter ended
December 31,
2002
4.
Nine months ended Year ended

December 31,
March 31,
2001
Nine months ended Year ended

December 31,
March 31,
2002
2001
2002
Interest on deposits
Exchange difference
Miscellaneous income
19.52
8.87
1.41
12.36
2.07
0.49
55.89
13.74
2.59
35.96
5.89
1.22
51.23
13.26
1.92
Total
29.80
14.92
72.22
43.07
66.41
The company evaluates all investments for any diminution in their carrying values
that is other than temporary. Accordingly, the company provided for an aggregate
amount of Rs. 23.76 crore during the quarter ended September 30, 2002, which consists
of Rs. 0.75 crore to JASDIC Park Company, Japan; Rs. 6.85 crore to Asia Net Media,
the British Virgin Islands(BVI) Ltd.; Rs. 8.95 crore to on Mobile Systems, Inc. (formerly
On Scan, Inc.). USA; Rs. 7.21 crore to Workadia Inc., USA; Rs. 10,350 to The Saraswat
Co-operative Bank Limited ; and Rs. 10 to Software Services Support Education Center
Limited.
35
5.
Progeon Limited (Progeon) was incorporated on April 3,2002, and is a subsidiary

established to provide business process management and transitioning services. Infosys
(the company) has invested Rs. 12.25 crore in 1,22,49,993 fully paid equity shares of
Rs. 10 each in Progeon, at par. Progeon obtained its first round of financing by securing
funding of Rs. 49.00 crore from Citicorp International Finance Corporation, USA (CIFC)
in exchange for 43,75,000 cumulative, convertible, redeemable preferred shares of
face value Rs. 100 at a premium of Rs. 12 per share. The preference shares are convertible
to an equal number of equity shares based on certain events as agreed between the
company and CIFC.
6.
During the nine months, the company invested Rs. 0.27 crore in M-Commerce Ventures
Pte Limited, Singapore (M-Commerce) for 10 ordinary shares of face value Singapore
$ (S$) 1 each fully paid at par and 90 redeemable preference shares of face value
S$ 1 each fully paid for a premium of S$ 1,110. Accordingly, the aggregate investment
in M-Commerce as at December 31, 2002 amounts to Rs.. 2.11 crore (Rs. 1.84 crore as
at December 31, 2001 and March 31, 2002).
7.
During the nine months ended December 31, 2002, the company entered into
arrangements to purchase Intellectual Property Rights (IPR). Details of the
arrangements are as follows :
l
Purchase of IPR in Trade IQ, a treasury management product, from IQ Financial

Systems, Inc., USA (IQFS) in the first quarter, for the banking group. The aggregate
consideration paid was Rs. 18.94 crore (US$ 3.88 million). Management estimates
the useful life of the IPR as two years.
An agreement to purchase IPR in AUTOLAY, a commercial software application

product used in the design of high performance structural systems, with the
Aeronautical Development Agency, India (ADA) in the first quarter, for the
engineering service and consulting practice. The company has a firm commitment
to share revenues with ADA for a maximum of US$ 5 million (Rs. 24.50 crore)
payable by 10 years of the contract date. The ownership of intellectual property in
AUTOLAY will transfer to the company on remittance of the consideration to ADA.
The committed consideration is recorded as IPR. Management estimates the useful
life of the IPR as five years.
8.
Purchase of non-exclusive global license to Link, a signature display software,

from Integra Microsystems Private Limited, India in the third quarter. The
arrangement allows the company to make proprietary modifications to the source
code and transfer certain other rights in Link to third parties for use along with its
banking products. The consideration amounts to Rs. 0.65 crore. Management
estimates the useful life of the license as one year.
Effective the current fiscal year, the company has voluntarily adopted the applicable
accounting standard on intangible assets, which is mandatory effective the year
commencing April 1, 2003. Management has also evaluated the effect of other recently
issued accounting standards such as discontinuing operations and reporting of interests
in joint ventures (although all these accounting standards are not mandatory effective
the year commencing April 1, 2003). Management has also evaluated the effect of other
recently issued accounting standards such as discontinuing operations and reporting
of interests in joint ventures (although all these accounting standards are not mandatory
ACCOUNTANCY
36
for the fiscal year ending 2003). These accounting standards do not have a material
impact on the financial statements of the company.
9.
The approval of the Reserve Bank of India for the increase in the investment limit of
Foreign Institutional Investors from 49% to 100% was obtained on July 4, 2002.
10. During the quarter ended December 31, 2002, nine months ended December 31, 2002
and the year ended March 31, 2002, the company issued 24,309; 43,359 and 28,013
equity shares respectively pursuant to the exercise of stock options by certain employees.
11. The Board has approved a grant of 2,000 stock options to Mr. Claude Smadja,
Independent Director on July 10, 2002.
12. Mr. Phaneesh Murthy resigned from the companys Board of Directors and as HeadSales and Marketing and Head-Communication and Product Services (CAPS) effective
July 23, 2002.
13. The lawsuit filed by Reka Maximovitch against the company and its former director,
Mr. Phaneesh Murthy, is in the early stages of discovery. A September 2003 trial date
has been set. An unfavorable resolution could adversely impact Infosys results of
operations or financial condition.
Audited consolidated financial results of
Infosys Technologies Limited and subsidiary
(Rs. in crore, except per share date)
Quarter ended
December 31, 2002
Nine months ended

December 31, 2002
Income from software services,

products and Business Process
Managment(BPM)
Overseas
Domestic
951.56
13.46
2,560.41
49.90
Total
965.02
2,610.31
Software development and BPM expenses
486.04
1,289.46
Gross Profit
478.98
1,320.85
75.09
71.21
200.61
192.59
332.68
50.05
282.63
29.78
312.41
57.50
254.91
33.11
927.65
136.93
790.72
73.07
23.76
840.03
145.00
695.03
33.11
2,670.09
2,670.09
Selling and marketing expenses

General and administration expenses
Operating profit before interest
depreciation and amortization
Interest
Depreciation and amortization
Operating profit after interest,
depreciation and amortization
Other income
Provision for investments
Profit before tax
Provision for taxation
Profit after tax
Paid-up equity share capital

(par value Rs. 5 each, fully paid)
Reserves
Earnings per share (par value
Rs. 5 each)
Basic
Diluted
Dividend per share (par value
Rs. each)
percentage (%)
Aggregate of non-promoters
shareholding
Number of shares
Percentage of shareholding
37
38.49
38.01
-
104.98
104.12
12.50
250
4,73,94,894
71.56
4,73,94,894
71.56
Note :
1.
Progeon Limited, a subsidiary of Infosys Technologies Limited, was incorporated during

the first quarter and has prepared its financial statements from April 03, 2002 (the
date of incorporation) to December 31, 2002, which have been consolidated.
2.
Principles of consolidation : The financial statements are prepared in accordance with

the principles and procedures for the preparation and presentation of consolidated
financial statements as set out in the accounting standard on Consolidated Financial
Statements prescribed by the Institute of Chartered Accountants of India. This being
the first year of presentation of consolidated financial statements in line with the
accounting standards, figures for the prior period have not been provided as they are
unconsolidated and, therefore, do not permit meaningful comparison. The financial
statements of the parent company. Infosys Technologies Limited Infosys or company)
and Progeon Limited (Progeon or subsidiary) have been combined on a line by line
basis by adding together the book values of like items of assets, liabilities, income and
expenses after eliminating intra-group balances and transactions and resulting
unrealized gains / losses. The consolidated financial statements are prepared applying
uniform accounting policies used in Infosys and Progeon.
By order of the Board
for Infosys Technologies Limited
Bangalore, India
January 10, 2003
Nadan M. Nilekani
Chief Executive Officer,
President and Managing Director.
N.R. Narayana Murthy

Chairman and Chief Mentor
ACCOUNTANCY
38
The Board has also taken on record the unaudited consolidated results of Infosys
Technologies Limited and its subsidiary (Pregeon Limited) for the three months and nine
months ended December 31, 2002, prepared as per US GAAP. The summary of the above
financial statements is as follows :
(In US$ million, except per ADS data)
Consolidated financial
information
Revenues
Gross profit
Amortization of deferred stock
compensation expense
Net income
Earnings per American
Depositary Share
Basic
Diluted
Total assets
Cash and cash equivalents
(Unaudited)
(Unaudited)
(Audited)
Quarter ended
December 31,
Nine months ended

December 31,
Year ended
March 31,
2002
2001
2002
2001
2002
200.01
89.81
137.58
64.53
537.77
245.93
405.37
190.85
545.05
255.02
1.24
52.25
1.23
41.65
3.73
141.80
3.74
122.18
5.01
164.47
0.40
0.39
635.40
308.56
0.32
0.31
439.42
179.96
1.08
1.06
635.40
308.56
0.93
0.92
439.42
179.96
1.25
1.24
471.16
210.48
Note : Top American Depositary Shares (ADS) are equivalent to one equity share.
The reconciliation of net income as per Indian GAAP AND US GAAP is as follows :
(In US$ million)
Particulars
Net profit as per Indian GAAP

Amortization of deferred stock
compensation expense
Deferred taxes
Gain on forward foreign
exchange contracts
Net provision for investments
Profit/Loss) from Progeon Limited
Consolidated net income as per
US GAAP
Three months ended Nine months ended

December 31,
December 31,
Fiscal
year
2002
2001
2002
2001
2002
53.09
(1.24)
42.88
(1.23)
143.95
(3.73)
125.93
(3.75)
169.11
(5.01)
_
0.70
_
-
0.70
0.37
-
(0.30)
52.25
41.65
1.69
(0.81)
141.80
122.18
164.47
Certain statements in this release concerning our future growth prospects are forwardlooking statements, which involve a number of risks and uncertainties that could cause
actual results to differ materially from those in such forward-looking statements. The risks
and uncertainties relating to these statements include, but are not limited to, risks and
39
uncertainties regarding fluctuations in earnings, our ability to manage growth, intense

competition in IT services including those factors which may affect our cost advantage,
wage increases in India, our ability to attract and retain highly skilled professionals, lime
and cost over-runs on fixed-price, fixed-time frame contracts, client concentration,
restrictions on immigration, our ability to manage our international operations, reduced
demand for technology in our key focus areas, disruptions in telecommunication networks,
our ability to successfully complete and integrate potential acquisitions, liability for damages
on our service contracts, the success of the companies in which Infosys has made strategic
investments, withdrawal of governmental fiscal incentives, political instability, legal
restrictions on raising capital or acquiring companies outside India, and unauthorized use
of our Intellectual Property and general economic conditions affecting our industry.
Additional risks that could effect our future operating results are more fully described in
our United States Securities and Exchange Commission fillings Including our Annual Report
on form 20-F for the fiscal year ended March 31, 2002 and Quarterly reports on form 6 K
for the quarters ended June 30,2002 and September 30, 2002. These fillings are available
at www.sec.gov. Infosys may, from time to time, make additional written and oral forward
looking statements, including statements contained in the companys fillings with the
Securities and Exchange Commission and our reports to shareholders. The company does
not undertake to update any forward-looking statement that may be made from time to
time by or on behalf of the company.
1.12.3 Segment reports

Of lately, the business enterprises have been required to publish segment
information with a view to helping the users of financial statements in better
understanding the performance of the enterprise, better assessment of risk
and returns of the enterprise, and enable informed judgement about the
enterprise as a whole. Many enterprises provide multiple groups of products
and services or operate in geographical areas that are subject to differential
rates of profitability, opportunities for growth, future prospects and growth.
For example, Hindustan Lever Ltd. is a multi-product company while Infosys
Technologies Ltd. is a multi-market company because its products are sold in
different overseas markets having diverse characteristics. The information about
different types of products and services of an enterprise and its operations in
different geographical areas is called segment information. The segment
information is relevant to assessing the risk and returns of a diversified or
multi-locational enterprise. Therefore, reporting of segment information is widely
regarded as necessary for meeting the needs of users of financial statements.
Accounting Standard (AS 17) issued by the Council of the Institute of Chartered
Accountants of India applicable for accounting periods commencing on or after
1st April, 2001 is mandatory in nature and is to be observed in quarterly and
annual reporting.
ACCOUNTANCY
40
Concept of Segment
A business segment is a distinguishable component of an enterprise that is
engaged in providing an individual product or service or a group of related
products or services and that is subject to risk and returns that are different
from those of other business segments. The business segment could either be
on the basis of product or geographic location.
In order to determine a product/service segment, the following factors are to
be considered:
(a) nature of product/services
(b) nature of production processes
(c) the type or class of customers for the product/service
(d) the methods used to distribute the product or provide services
(e) the nature of regulatory environment, for example, banking, insurance,
or public utilities.
A geographical segment is a distinguishable component of an enterprise
operating in an economic environment that is subject to risk and returns that
are different from those operating in other economic environments. Usually
this is applicable conveniently in the case of multi-national enterprises or
multilocation enterprises. In order to determine a geographical segment,
following factors are to be considered :
(a) similarity of economic and political conditions;
(b) relationship between operations in different geographical areas;
(c) proximity of operations;
(d) special risks associated with operations in a particular area;
(e) exchange control regulations; and
(f) the underlying currency risk.
Segment revenue is the aggregate of the portion of enterprise revenue that is
directly attributable and allocable on a reasonable basis to a segment and
revenue from transactions with other segments of the enterprise. However,
this does not include prior period items, change in accounting policies, interest
or dividend income including interest earned on loans and advances to other
segments unless the operations of the segment are primarily of financial nature
and gains on sale of investments or extinguishment of debt.
Segment expense arises from the operating activities of a segment but does
not include prior period expenses or interest expense unless the operations
are of the segment. Segment expense does not include :
41
a. extraordinary items as defined in AS 5, Net Profit or Loss for the

Period, Prior Period Items and Changes in Accounting Policies;
b. interest expense, including interest incurred on advances or loans from
other segments, unless the operations of the segment are primarily of a
financial nature;
c. losses on sales of investments or losses on extinguishment of debt unless
the operations of the segment are primarily of a financial nature;
d. income tax expense; and
e. general administrative expenses, head-office expenses, and other
expenses that arise at the enterprise level and relate to the enterprise
as a whole. However, costs are sometimes incurred at the enterprise
level on behalf of a segment. Such costs are part of segment expense if
they relate to the operating activities of the segment and if they can be
directly attributed or allocated to the segment on a reasonable basis.
Segment result is segment revenue less segment expense.
Segment assets are those operating assets that are employed by a segment in
its operating activities and that either are directly attributable to the segment
or can be allocated to the segment on a reasonable basis. If the segment result
of a segment includes interest or dividend income, its segment assets include
the related receivables, loans, investments, or other interest or dividend
generating assets. Segment assets do not include income tax assets.
Segment assets are determined after deducting related allowances/provisions
that are reported as direct offsets in the balance sheet of the enterprise.
Segment liabilities are those operating liabilities that result from the operating
activities of a segment and that either are directly attributable to the segment
or can be allocated to the segment on a reasonable basis.
If the segment result of a segment includes interest expense, its segment
liabilities include the related interest-bearing liabilities. Segment liabilities do
not include income tax liabilities.
Segment accounting policies are the accounting policies adopted for preparing
and presenting the financial statements of the enterprise as well as those
accounting policies that relate specifically to segment reporting.
Disclosures in Segment Reports
Following are the summarised disclosures required for segment reporting :
ACCOUNTANCY
42
Primary format in business

segments
Primary format in geographi- Primary

formats
in
cal segments by location of geographical segments by
assets
location of customers
Required Primary Disclosures
Required Primary Disclo- Required Primary Disclosures

sures
Revenue from external customers by business segment
Revenue from external cus- Revenue from exter nal

tomers by location of assets customers by location of
customers
Revenue from transactions Revenue from transactions
with other segments by loca- with other segments by
tion of assets
Revenue from transactions

with other segments by business segment
Segment result by business
segment
Carrying amount of segment
assets by business segment
Segment liabilities
business segment
by
Cost to acquire tangible and

intangible fixed assets by
business segment
Segment result by location of Segment result by location of

customers
assets
Carrying amount of segment Carrying amount of segment
assets by location of assets assets by location of
customers
Segment liabilities by loca- Segment liabilities by
tion of assets
Cost to acquire tangible and Cost to acquire tangible and
intangible fixed assets by intangible fixed assets by
location of assets
Carrying amount of segment
assets by location of assets
if different from location of
customers
Cost to acquire tangible and
intangible fixed assets by
location of assets if different
from location of customers
Other Required Disclosures
Basis of pricing inter - Basis of pricing inter -seg- Basis of pricing inter segment transfers and any ment transfers and any segment transfers and any
change therein
change therein
change therein
Changes
in
segment Changes in segment account- Changes
in
segment
accounting policies
ing policies
accounting policies
Types of products and Types of products and Types of products and
services in each business services in each business services in each business
segment
segment
segment
Composition
of
each Composition
of
each Composition
of
each
geographical segment
43
1.13 Concept of Financial Analysis

The analysis includes establishing relationship, comparisons and ascertaining
trends. Financial analysis deals with the use of financial data in the evaluation
of current and past performance of an enterprise and to assess its sustainability
in future. This implies that the person attempting to make financial analysis
should not only be in command of the appropriate financial analysis tools and
techniques, but must be a master craftsman to make creative and imaginative
use of such tools and techniques. Besides, he should also be endowed with the
sound statistical knowledge to relate the current performance with the future
of the business, keeping in view the changes that are shaping in the business
environment of the firm.
To sum up, it requires two-fold exercise (a) analysis of past performance,
and (b) prospective analysis to predict the likely future. This book primarily
deals with the former but not the latter. In order to make analysis of the financial
data, one must know about the different techniques such as horizontal and
vertical analysis and tools of analysis such as accounting ratios, Statement of
Changes in Financial Position (SCFP) which are discussed in the following
chapters.
1.13.1 Uses of Financial Analysis
Financial Analysis can be used for a variety of decision contexts such as security
analysis, analysis of credit worthiness, credit analysis, debt analysis, dividend
decision, mergers, take-overs, acquisitions and general business analysis. These
are explained below :
1.13.1.1 Security Analysis
An investor would like to know whether the firm is fulfilling his expectations
with regard to payment of dividend, capital appreciation and security of money.
He would like to know whether his investment in a particular firm is enhancing
his wealth or not. If not, what are the reasons thereof ? If Yes, how well is he
being served in comparision to other firms in the same industry. Should he
continue to hold his investment or sell the same? In accounting terms, the
security analyst is interested in cash-generating ability, dividend payout policy
and the behaviour of share prices.
1.13.1.2 Credit Analysis
The manager of the firm may have to offer credit to a prospective dealer and
therefore he would like to know whether to extend credit to him or not. What is
44
ACCOUNTANCY
the risk associated in extending credit to the new customer/dealer. The same
type of questions can be raised by a banker when we approach for a loan.
1.13.1.3 Debt Analysis
The manager of the firm may be interested in knowing the borrowing capacity
of the firm which in turn requires analysis of the relationship of debt and
equity, capacity to repay and the capacity to borrow further.
1.13.1.4 Dividend Decisions
The management have to reward the shareholders of the company by paying
dividends (returns on equity) periodically. For this, management needs to assure
the sustainability of the rate of dividends in the future years as also the past
performance of the company and the practice of the industry. Dividend income
provides cash inflows to the shareholders to meet their consumption needs as
also it indicates the profitability of the firm and hence to some extent affects
the behaviour of share prices.
1.13.1.5 Mergers & Acquisitions
If the company is doing well in relation to its competitors and is generating
surplus cash flows, the management may be tempted to expand the business
by acquiring other companies or brands to expand the market and make the
profitable investment. This would require analysis of the competing/supporting
brands and products for horizontally or vertically linking the operations. For
example, Reliance Industries has acquired strategic stake in Indian
Petrochemicals Corporation Ltd. for horizontal expansion of the petrochemical
business. In the same way Hindustan Lever Ltd. has acquired products of
Lakme India Ltd.
1.13.1.6 General Business Analysis
The general business analysis aims at identifying the key profit drivers and
business risks in order to assess the profit potential of the firm. This analysis
is required to create sustainable competitive advantage. This analysis also
helps in developing future growth scenarios for the firm.
1.13.1.7 Regulatory Compliance
The regulators include the Registrar of Companies, Department of Company
Affairs, Stock Exchanges, SEBI use these reports for analyzing the contents to
ensure compliance with different rules and regulations enforced from time to
time.
45
1.14 Interest Groups in Financial Analysis

Financial Statement Analysis seeks to measure the enterprise liquidity,
profitability, solvency and other indicators to assess the efficiency and
performance of the business enterprise. Analysis of financial statements is
linked with the objective and interest of the individual/agency involved. Some
of the agencies interested in the enterprise include investors, bankers, lenders,
suppliers, customers, employees, management and regulatory authorities like,
tax authorities, stock exchanges, Company Law Board. Many of these agencies
have diverse and conflicting interests.
An Investor is interested in the profitability and safety of his investment
and would like to know whether the business is profitable, has growth potential
and is progressing on sound lines.
Bankers and lenders are interested in servicing of their loans by the
enterprise, i.e., regular payment of interest and repayment of principal amount
on scheduled dates. Banker and lenders would, also like to know the safety of
their investment and stability of returns.
Suppliers dealing with the enterprise are interested in receiving their
payments as and when become due and would like to know its ability to honour
its short-term commitments.
An Employees are interested in better emoluments, bonus and continuance
of business, would like to know its financial performance and profitability and
operating sustainability.
Management is interested in the financial performance and financial
condition of the enterprise. It would like to know about its viability as a going
concern, management of cash, debtors, inventory and fixed assets, and
adequacy of capital structure. Management would also be interested in the
overall financial position and profitability of the enterprise as a whole and its
various departments or divisions.
Regulatory authorities (such as, Company Law Board, SEBI, Stock
Exchanges, Tax Authorities etc.) would like that the financial statements
prepared are in conformity with the specified laws and rules, and are to
safeguard the interest of various concerned agencies. For example, taxation
authorities would be interested in ensuring proper assessment of tax liability
of the enterprise as per the laws in force from time to time.
Different agencies, thus look at the enterprise from their respective
viewpoint, and are interested in knowing its profitability and financial condition.
In short, a detailed cause and effect study of profitability and financial condition
is the overall objective of financial statement analysis.
ACCOUNTANCY
46
1.15 Limitations of Analysis of Financial Statements

Analysis of financial statements is a powerful mechanism to ascertain strengths
and weaknesses in the operations and financial position of an enterprise.
However, it suffers from certain limitations, which should be kept in mind
while making the analysis. Some of the major limitations are listed below :
1.
The quality of information disclosed in the published financial

statements is constrained by the accounting quality and rules. The
application of accounting rules, conventions and principles may
change from time to time, from firm to firm and from industry to
industry rendering the accounting numbers incomparable. This is
further complicated by the selective application of the accounting rules
by the management in order to smoothen the financial position and
income statement. There is a variety of reasons for tainted accounting
reports such as, tax considerations, managerial compensation, capital
market considerations, competition etc. In order to safeguard from
accounting creativity, the analyst need to ask the following questions:
(a) Does company provide adequate disclosures to assess
the economic performance?
(b) Does the firm adequately explain its current performance?
(c)
Does management highlight the risk factors associated with the

business?
(d) What is the quality of performance of the firm in different

segments?
(e)
How forthcoming is the management with respect to the bad

news?
(f)
How good is firms investor relations programme?
2.
The disclosure of accounting information is also constrained by the

quality of enforcement of regulation. If the regulations are not strictly
enforced and penalties are not sufficiently high, the management may
be motivated to manipulate the accounting numbers, which will further
complicate the financial analysis.
3.
The level of development of accounting standards and the required

level of disclosure will also affect the quality of financial analysis. For
example, in India, after the enactment of the SEBI Act, the accounting
disclosures and standardization thereof has come of age but is not as
good as in Europe.
47
4.
The Capital Market regulations also impact the quality and quantity
of disclosures. Before the insertion of Clause 32 and Clause 49, in
the Listing Agreement, companies were not disclosing about cash flow
and corporate governance matters.
5.
The development in corporate law and enforcement thereof also

impacts the quality of financial disclosures. For example, following
the recommendation of Naresh Chandra Committee on CompanyAuditor Relationship, the Chief Finance Officer (CFO) is required to
certify the correctness of the accounting numbers disclosed in the
periodic financial statements.
6.
Poor quality of auditing standards and professional ethics of the

chartered accountants also affects the quality of accounting reports.
The increase in accounting scandals across the globe has compelled
the Governments to tighten the Code of Conduct and quality standards
for audit both for Government and Private enterprises. The setting up
of the Public Oversight Board (POB) in the USA and proposed Review
Board in India in the Institutes of Chartered Accountants, Cost and
Works Accountants and Company Secretaries is a step towards
improving the compliance and quality.
7.
The level of maturity of profession of financial analysis also impacts

the quality of disclosures. The profession of financial analysts is in a
nascent stage in India as there are few professional houses to carry
out independent financial analysis and so are the regulations governing
the conduct of the financial analysts. We need to go a long way to
make financial analysts accountable for their professional services.
Terms Used In This Chapter
1.
Financial Statement
5.
Auditors Report
2.
Annual Reports
6.
Corporate Governance
3.
Directors Report
7.
Interim Reports
4.
Management Discussion
and Analysis
8.
9.
Segment Reports
Financial Analysis
Summary
Meaning: Financial statements are historical documents and are the final product
of accounting work done during the accounting period, say a year or a part of the
year such as a quarter or half-year or nine months. Expressing of one figure in
ACCOUNTANCY
48
relation to another in a cause and effect manner is a process of analysis, and

analysis of financial state of affairs of a business enterprise. The analysis includes
establishing relationship, comparisons and ascertaining trends.
Significance: Analysis of financial statements is carried out to measure enterprises
liquidity, performance and other indicators to assess its efficiency and performance.
It is linked with the objectives and interest of various agencies involved, like investors,
bankers, lenders, suppliers, regulatory authorities.
Contents of Financial Statements: The contents of financial statements are:
(a) Boards Report; (b) Directors Responsibility Statement; (c) Management
Discussion and Analysis; (d) Auditors Report; (e) Report on Corporate Governance;
(f) Accounting Policies; (g) Balance Sheet; (i) Profit & Loss Account; (j) Cash Flow
Statement; (k) Segment Report
Limitations: Financial statements analysis has limitations inherent in the financial
statements which are based on accounting concepts or principles. The financial
statements contain financial data and are devoid of qualitative aspects of
transactions covered. These relate to past, reflect values in terms of historical cost
and hence do not represent results in terms of precise measurement, and analysis
of the financial statements should be construed accordingly.
Exercises
A. Objective Type Questions
State whether the following statements are True or False.
(a) An accounting figure becomes meaningful when it is compared with another
figure.
(b) The Balance Sheet and the statement of financial position are anonymous.
(c) Analysis of financial statements does not ignore price level changes.
(d) Financial analysis is a tool that can be used for analyzing the past data.
(e) Financial analysis has no limitations.
(f)
Financial analysis suffers with the weaknesses of financial statements.
(g) Auditors Report is an opinion but not a certificate.

(h) Auditors Report on Governance is a certificate but not an opinion.
(i)
Segment relates to a geographic location, customer, or product.
(j)
Financial statements are sufficient for financial forecasting.
B. Short Answer Type Questions

1.
Explain the concept of financial statement.
2.
List the contents of balance sheet.
3.
List the items included in Corporate Governance Report.
4.
Explain briefly the meaning of financial statement analysis.

5.
Define financial analysis.
6.
What is income statement?
7.
What is interim report?
8.
What is segment report?
9.
What is segment revenue?
10. What is segment assets and liabilities?

11. List three limitations of financial statements.
C. Essay Type Questions
1.
Explain the purpose, significance of financial statements analysis.
2.
Discuss the limitations of financial statements analysis.
3.
What is the importance of financial statements for creditors, bankers and

financial institutions?
4.
What is corporate governance report? Discuss the contents of corporate

governance report.
5.
What is an interim report? Give a proforma of interim report.
D. Project Work
1.
Collect annual accounts (published) of a listed company. Compare the contents

for a period of three years.
2.
Surf the following websites and download the interim reports:

(i)
www.infy.com
(ii)
www.ril.com
(iii)
www.wipro.com
(iv)
www.bajajauto.com
(v)
www.hll.com
Compare the contents of first, second and third interim reports.

3.
Collect segment reports of five companies and write a comparative note on

the basis of segment choice and the items of disclosure.
Answers
Objective Type Questions

(a) True (b) False (c) False (d) False (e) False
(f) True (g) True (h) True (i) True (j) False
49
SCHEDULE VI
[See section 211]
4
[PART 1
FORM OF BALANCE SHEET

5
[The balance sheet of a company shall be either in horizontal form or vertical form] :
A. [HORIZONTAL FORM]
BALANCE SHEET OF .................................................
[Here enter the name of the comapny]
AS AT .......................................................
[ Here enter the date as at which the balance sheet is made out]
(1)
Instructions in accordance with

which liabilities should be
made out
(1)
*T er ms of redemption or
conversion (if any) of any
redeemable preference capital to
be stated, together with earliest
date of redemption or conversion.
(2)
(3)
LIABILITIES
ASSETS
Figures for
the
previous
year
Rs. (b)
Figures for
the
current
year
Rs. (b)
(2)
Figures for
the
previous
year
Rs. (b)
(4)
Figures of
the
current
Year
Rs. (b)
(3)
*SHARE CAPITAL:
*FIXED ASSETS
Authorised..............shares
of Rs. ........... each
+ Issued (distinguishing between
the various classes of capital and
stating the particulars specified
below, in respect of each
class).......
Distinguishing as far as between

expenditure upon (a) goodwill,
(b) land, (c) buildings, (d)
leaseholds, (e) railway sidings, (f)
plant and machinery, (g) furniture
4. Substituted by the Companies (Amendment) Act, 1960.

5. Inserted by Notification No. GSR 220 (E), dated 12.3.1979.
Instructions in accordance with

which assets should be
made out
(4)
* Under each head the original cost,

and the additions thereto and
deductions therefrom during the
year, and the total depreciation
written off or
Particulars of any option on

unissued share capital to be
specified.
+
Particulars of the dif ferent
classes of preference shares to be
given.
+
[*Specify the source from which

bonus shares are issued, e.g.,
capitalisation of profits or Reserves or from Share Premium
Account.]
shares of Rs. ... each.

Subscribed (distinguishing
between the various classes of
capital and stating the particulars
specified
below, in respect of
each class). (c)........shares of
Rs........... each.
Rs. ..........called up.
Of
the
above
shares................shares are
allotted as fully paid-up pursuant
to a contract without payments
being received in cash.]
+
[Of the above share.........shares

are allotted as fully paid-up by
way of bonus shares *]
Less : Calls unpaid :
$[(i) By managing agent or
secretaries and treasurers
and where the managing
agent or secretaries and
treasurers are a firm, by the
partners thereof, and where
the managing agent or
secretaries and treasurers
are a private company, by
the directors or members of
that company.]
(ii)
By directors.
(iii) By others.
[+Any capital profit on reissure of 10[+Add : Forfeited shares (amount

forfeited shares should be trans- originally paid-up.)]
ferred to Capital Reserve}
6.
7.
8.
Inserted by Notification No. GSR 414, dated 21-3-1961.

Substituted, ibid.
Inserted by Notification No. GSR 129, dated 3-1-1968
and fittings, (h) development of provided up to the end of the year

property, (i) patents, trade marks to be stated.
and designs, (i) livestock, and
(k) vehicles, etc
[Where the original cost aforesaid

and additions and deductions
thereto, relate to any fixed asset
which has been acquired from a
country outside India, and in
consequence of a change in the
rate of exchange at any time after
the acquisition of such asset,
there has been an increase or
reduction in the liability of the
company, as expressed in indian
currency, for
making payment
towards the whole or a part of the
cost of the asset or for repayment
of the whole or a part of moneys
borrowed by the company from
any person, directly or indirectly,
in any foreign currency specifically
for the purpose of acquiring the
assets (being in either case the
8
liability existing immediately

before the date on which the
change in the rate of exchange
takes effect), the amount by which
the liability is so increased or
reduced during the year, shall be
added to, or, as the case may be,
deducted from the cost, and the
amount arrived at after such
addition or deduction shall be
taken to be the cost of the fixed
asset.
Explanation 1 : This paragraph
shall apply in relation to all
balance-sheets that may be made
out as at the 6th day of June,
1966, or any day thereafter and
where, at the date of issue of the
notification of the Government of
India, in the Ministry of Industrial
Development and Company
Affairs (Department of Company
Affairs), G.S.R. No. 129, dated the
3rd day of January, 1968, any
balance sheet, in relation to which
this paragraph applies, has
already been made out and laid
before the company in Annual
General Meeting, the adjustment
referred to in this paragraph may
be made in the first balance sheet
made out after the issue of the
said notification.
9. Inserted by Notification No. GSR 414, dated 21-3-1961.

10. Substituted, ibid
Explanation 2 : In this paragraph,

unless the context otherwise
requires, the expressions rate of
exchange, foreign currency and
Indian currency shall have the
meanings respectively assigned to
them under sub-section (1) of
section 43 A of the Income-tax Act,
1961 (43 of 1961), and
Explanation 2 and Explanation 3
of the said sub-section shall, as
far as may be, apply in relation to
the said paragraph as they apply
to the said sub-section (1).
11
[In every case where the original
cost cannot be ascertained,
without unreasonable expense or
delay, the valuation shown by the
books shall be given. For the
purposes of this paragraph, such
valuation shall be the net amount
at which an asset stood in the
companys
books
at
the
commencement of this Act after
deduction of the amounts
previously provided or written off
for depreciation or diminution in
value, and where any such asset
is sold, the amount of sale
pr oceeds shall be shown as
deduction.]
Where sums have been written off
on a reduction of capital or a
revaluation of assets, every
balance sheet, (after the first
balance sheet) subsequent to the
11. Substituted by Notification No. GSR 414, dated 21-3-1961.
*Additions and deductions since * RESERVES AND SURPLUS :

last balance sheet to be 13 [(1 ) Capital Reserves.
shown,under each of the specified
(2 ) Capital
Redemption
heads.
Reserve.
(3 ) Share Premium Account
The word fund in relation to any
(cc).
Reserve should be used only
(4 ) Other reserves specifying
where such Reserve is specifically
the nature of each reserve
represented by ear marked
and the amount in respect
investments.
thereof.
Less : Debit balance in
profit and loss account (if
any) (h).
(5 ) Surplus, i.e., balance in
profit and loss account
after providing for proposed
allocations, namely,
Dividend,
bonus
or
reserves.
(6) Proposed additions to
reserves.
(7 ) Sinking Funds]
12.
13.
14.
15.
Inserted by Notification No. GSR 129, dated 3-1-1968.

Substituted by Notification No. GSR 414, dated 21-3-1961.
Inserted by Notification No. GSR 494 (E), dated 9-11-1973.
Inserted by Notification No. GSR 423(E) 13-9-1996
INVESTMENTS :
Showing nature of investments
and mode of valuation, for
example, cost or market value and
distinguishing between
* (1) Investments in Government or Trust Securities.
(2) Investments shares, debentures or bonds (showing separately shares, fully
paid-up and partly paidup and also distinguishing
the different classes of
shares and showing also in
similar details investments in shares, debentures or bonds of subsidiary companies.
(3) Immovable properties.
14
[(4) Investments in the capital
of partnership firms]
reduction or revaluation shall

show the reduced figures and with
the date of the reduction in place
of the original cost.
Each balance sheet for the first
five years subsequent to the date
of the reduction, shall show also
the amount of the reduction made.
Similarly, where sums have been
added by writing up the assets,
every balance sheet subsequent to
such writing up shall show the
increased figures with the date of
the increase in place of the original
cost. Each balance sheet for the
first five years subsequent to the
date of writing up shall also show
the amount of increase made.
12
[Explanation : Nothing contained
in the preceding two paragraphs
shall apply to any adjustment
made in accordance with the
second paragraph.]
*Aggregate amount of companys

quoted investment and also the
market value thereof shall be
shown.
Aggregate amount of companys
unquoted investments shall also
be shown.
16
17
[(5)
Balance of unutilised 15[ All unutilised monies out of the

issue must be separately
monies raised by issue]
disclosed in the balance sheet of
the company indicating the form
in which such unutilised funds
have been invested]
[Loans from Directors, $[the SECURED LOANS :

CURRENT ASSETS, LOANS AND
Managing Agents, Secretaries and
ADVANCES:
*
+
(1) Debentures
Treasurers,] Manager should be
*
(2) Loans and advances from (A) CURRENT ASSETS
shown separately.
banks.
(1) Interest accrued on
*
Interest accrued and due on
(3) Loans and advances from
Investments.
++
Secured Loans should be included
subsidiaries.
(2) Stores and spare parts.
*
under the appropriate sub-heads
(4) Other loans and advances. 17[ (3) Loose tools.
++
under the head SECURED
(4) Stock-in-trade.
**
LOANS.]
(5) Works-in-progress.
+
(6) Sundry debtors
*The nature of the security to be
(a) Debts outstanding for a
specified in each case.
period exceeding six
Where
loans
have
been
months.
$
guaranteed by [managing agents,
(b) Other debts.
secr etaries and treasurers,]
17
[Less : Provision]
managers and/or directors, a
mention thereof shall also be
made and also the aggregate
amount of such loans under each
head.
+
T er ms of redemption or
conversion (if any) of debentures
issued to be stated together with
earliest date of redemption or
conversion.
16. Inserted by Notification No. GSR 423(E), dated 13-9-1996.

++
Mode of valuation of stock shall
be stated and the amount in
respect of raw material shall also
be stated separately where
practicable.
**
Mode of valuation of works-inprogress shall be stated.
+
In regard to sundry debtors
particulars to be given separately
of (a) debts considered good and
in respect of which the company
is fully secured; and (b) debts
considered good for which the
company holds no security other
than the debtors personal
security; and (c) debts considered
doubtful or bad. Debts due by
directors or other officers of the
company or any of them either
severally or jointly with any other
person or debts due by firms or
private companies respectively in
which any director is a partner or
a director or a member to be
separately stated.
18
[Debts due from other
companies under the same
management within the meaning
of sub-section (1B) of section 370,
to be disclosed with the names of
the companies).
The maximum amount due by

directors or other officers of the
company at any time during the
year to be shown by way of a note.
The 19[provisions] to be shown
under this head should not
exceed the amount of debts stated
to be considered doubtful or bad
and any surplus of such
19
[provision], if already created,
should be shown at every closing
under Reserves and Surplus (in
the Liabilities side) under a
separate sub-head Reserve for
Doubtful or Bad Debts.
20
[ (7A) Cash balance on hand.

*(7B) Bank balances
(a) with
Scheduled
banks; and
(b) with others.]

20
[*In regard to bank balances,
particulars to be given separatly
of
(a)
the balances lying with

Scheduled Banks on
current accounts, call
accounts, and deposit
accounts;
(b)
The names of the bankers

other than Scheduled
Banksand the balance
lying with each such
21
[Loans from Directors, $[the UNSECURED LOANS :
Fixed deposits.
managing agents, secretaries and (1)
treasurers,] manager, should be +(2) Loans and advances from
subsidiaries.
shown separately. Interest
accrued and due on Unsecured +*(3) Short-ter m loans and
advances:
Loans should be included under
(a) From Banks.
the appropriate sub-heads under
(b) From others.
the head UNSECURED LOANS.]
+
(4) Other loans and advances:
(a) From Banks.
(b) From others.

banker on current accounts,

call accounts and deposit
accounts
and
the
maximum
amount
outstanding at any time
during the year from each
such banker; and
(c) the nature of the interest,
if any, of any director or his
relative $[or the managing
agent/secretaries and
treasurers of any associate
of the latter] in each of the
bankers (other than
Scheduled Banks) referred
to in (b) above.]
22
[All unutilised monies out of the
issue must be separately
disclosed in the balance sheet of
the company indicating the form
in which such unutilised funds
have been invested.]
+
The above instructions regarding
Sundry Debtors apply to Loans
and Advances also.
+
Where loans have been
guaranteed by $[managing agents,
secretaries and treasurers,]
managers and/or directors, a
mention thereof shall also be
made and also the aggregate
amount of such and also the
aggregate amount of such loans
under each head.
*See note (d) at foot of Form.

24
[The name(s) of small scale
industrial undertaking(s) to whom
the company owe
any sum together with interest
outstanding for more than thirty
days, are to be disclosed.]
CURRENT LIABILITIES AND

PROVISIONS :
A. CURRENT LIABILITIES :
25
[(1) Acceptances.
2)
Sundry creditors
25a
(i) Total outstanding
dues to small scale
industrial under taking (s); and (ii)
Total outstanding
dues of creditors
other than small
scale
industrial
undertaking(s);]
(3) Subsidiary companies.
(4)
Advance payments and
unexpired discounts for the
portion. for which value has
still to be given e.g., in the
case of the following classes
of companies : Newspaper, Fire Insurance,
theatres, clubs, banking,
steamship companies, etc.
+(B) LOANS AND ADVANCES

(8)23 (a) Advances and loans to
subsidiaries.
23
[(b) Advances and loans to
partnership fir ms in
which the company or
any of its subsidiaries is
a partner.]
(9)
Bills of Exchange.
(10) Avances recoverable in cash
or in kind or for value to be
received, e.g., rates, taxes,
insurance, etc.
$
(11) [Balances on current
account with managing
agents or secretaries and
treasurers]
(12) Balances with customs,
port trust, etc. (where
payable on demand)
23. Existing item 8 lettered as sub-item(a) and sub-item (b) inserted by

Notification No. GSR 494(E), dated 30-10-1973.
24. Substituted by Notification No. GSR 376(E), dated 22-5-2002. Earlier it
was inserted by Notification No. GSR 129(E), dated 22-2-1999.
25a. Inserted by Notification No. GSR 129(E), dated 22-2-1999.
(5)
(6)
(7)
Unclaimed dividends.
Other liabilities (if any)
Interest accrued but not
due on loans.]
B. PROVISIONS
26
[(8)
(9)
(10)
(11)
(12)
Provision for taxation.

Proposed dividends.
For contingencies.
For provident fund scheme.
For insurance, pension and
similar staff benefit
schemes.
(13) Other provisions.]
[ A foot note to the balance-sheet
may be added to show separately:
(1)
Claims against the
company not acknowledged as debts.
(2)
Uncalled liability on
shares partly paid.]
++
(3)
Arrears of fixed
cumulative dividends
(4)
Estimated amount of
contracts remaining
to be executed on
capital account and
not provided for.
+
(5) Other money for
which the company is
contingently liable.]
++
The period for which the
dividends are in arrear or if there
is more than one class of shares,
the dividends on each such class
are in arrear, shall be stated.
The amount shall be stated before
deduction of income-tax, except
that in the case of tax-free dividends the amount shall be shown
free of
income-tax and the fact
that it is so shown shall be stated.
+
The amount of any guarantees
given by the company on behalf
of directors or other officers of the
company shall be stated and
where practicable, the general
nature and amount of each such
contingent liability, if material,
shall also be specified.
MISCELLANEOUS
EXPENDITURE :
(to the extent not written off
[or adjusted]) :
(1) Preliminary expenses.
(2 Expenses including
commission or brokerage on
underwriting or subscription of shares or
debentures.
(3) Discount allowed on the
issue
of
shares
or
debentures.
(4) Interest paid out of capital
during construction (also
stating the rate of interest).
(5) Development expenditure not
adjusted.
(6) Other items (specifying
nature).
27
28 +
[ PROFIT AND LOSS ACCOUNT]

28. Substituted, ibid.
29. Inserted, ibid.
29 +
[ Show here the debit balance
of profit and loss account carried
forward after deduction of the
uncommitted reserves, if any.]
NOTES
General instructions for preparation of balance-sheet
(a)
The information required to be given under any of the items or sub-items in this Form, if it cannot be conveniently included in the
balance sheet itself, shall be furnished in a separate Schedule or Schedules to be annexed to and to form part of the balance sheet.
This is recommended when items are numerous.
(b)
Naye Paise can also be given in addition to Rupees, if desired.
(c)
In the case of 75 [subsidiary companies] the number of shares held by the holding company as well as by the ultimate holding
company and its subsidiaries must be separately stated.
The auditor is not required to certify the correctness of such shareholdings as certified by the management.
30
[(cc) The item Share Premium Account shall include details of its utilisation in the manner provided in section 78 in the year of utilisation.]
(d)
Short-term loans will include those which are due for not more than one year as at the date of the balance sheet.
(e)
Depreciation written off or provided shall be allocated under the different asset heads and deducted in arriving at the value of fixed
assets.
(f)
Dividends declared by subsidiary companies after the date of the balance sheet [should] not be included unless they are in respect of
period which closed on or before the date of the balance sheet.
(g)
Any reference to benefits expected from contracts to the extent not executed shall not be made in the balance sheet but shall be made
in the Boards report.
31
[(h) The debit balance in the Profit and Loss Account shall be shown as a deduction from the uncommitted reserves, if any.]
(i)
As regards Loans and Advances, [amounts due by the Managing Agents or Secretaries and Treasurers, either severally or jointly with
any other persons to be separately stated;] [the amounts due from other companies under the same management within the meaning
of sub-section (1B) of section 370 should also be given with the names of the companies] the maximum amount due from every one of
these at any time during the year must be shown.
(j)
Particulars of any redeemed debentures which the company has power to issue should be given.
(k)
Where any of the companys debentures are held by a nominee or a trustee for the company, the nominal amount of the debentures
and the amount at which they are stated in the books of the company shall be stated.
32
(i) A statement of investments (whether shown under Investment or under Current Assets as stock-in-trade) separately classifying
trade investments and other investments should be annexed to the balance sheet, showing the names of the bodies corporate (indicating
separately the names of the bodies corporate under the same management) in whose shares or debentures, investments have been
made (including all investments, whether existing or not, made subsequent to the date as at which the previous balance sheet was
made out) and the nature and extent of the investment so made in each such body corporate; provided that in the case of an
investment company, that is to say, a company whose principal business is the acquisition of shares, stock, debentures or other
securities, it shall be sufficient if the statement shows only the investments existing on the date as at which the balance sheet has
been made out. In regard to the investments in the capital of partnership firms, the names of the firms (with the names of all their
partners, total capital and the shares of each partner), shall be given in the statement.]
(m) If, in the opinion of the Board, any of the current assets, loans and advances have not a value on realisation in the ordinary course of
business at least equal to the amount at which they are stated, the fact that the Board is of that opinion shall be stated.
(n)
Except in the case of the first balance sheet laid before the company after the commencement of the Act, the corresponding amounts
for the immediately preceding financial year for all items shown in the balance sheet shall be also given in the balance sheet. The
requirement in this behalf shall, in the case of companies preparing quarterly or half-yearly accounts, etc., relate to the balance sheet
for the corresponding date in the previous year.
(o)
The amounts to be shown under Sundry Debtors shall include the amounts due in respect of goods sold or services rendered or in
respect of other contractual obligations but shall not include the amounts which are in the nature of loans or advances.
33
(p) Current accounts with directors $[, managing agents, secretaries and treasurers] and manager, whether they are in credit, or debit,
shall be shown separately.]
34
[(q) A small scale industrial undertaking has the same meaning as assigned to it under clause (j) of section 3 of the Industries (Development
and Regulation) Act, 1951.]
Note : $References to managing agents, secretaries & treasurers should be omitted.

VERTICAL FORM OF BALANCE SHEET

B. VERTICAL FORM
Name of the Company .....................
Balance Sheet as at .........................
I. Sources of Funds
(1) Shareholders funds :
(a) Capital
(b) Reserves and surplus
(2) Loan funds :
(a) Secured loans
(b) Unsecured loans
TOTAL
II.Application of funds
(I) Fixed assets :
(a)
(b)
(c)
(d)
Gross block
Less : Depreciation
Net block
Capital work-in-progress
(2) Investments
(3) Current assets, loans and advances :
(a)
(b)
(c)
(d)
(e)
Inventories
Sundry debtors
Cash and bank balance
Other current assets
Loans and advances
Less :
Current liabilities and provisions :
(a) Liabilities
(b) Provisions
Net current assets
(4) (a) Miscellaneous expenditure to
the extent not written off or adjusted
(b) Profit and loss account
TOTAL
Schedule
No.
Figures as at
the end of
current
financial
year
Figures as
at the end
of previous
financial
year

Chapter 1

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Chapter 1

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CHAPTER 1

ANALYSIS OF FINANCIAL STATEMENTS

Explain the meaning and

Understand the contents of the

Explain the contents of Directors

List the items related to corporate

Financial statements are the end

financial statements, but also about

1.1 Meaning and Contents of

Balance Sheet is a sheet of balances of assets, liabilities and capital

Management Discussion and Analysis

(d) Auditors Report

Report on Corporate Governance

(g) Balance Sheet

Cash Flow Statement

The above stated statement, account, reports are statutory requirements

ANALYSIS OF FINANCIAL STATEMENTS

1.2 Boards Report

The state of companys affairs in financial terms, i.e., revenues,

The amounts, if any, which it proposes to carry to any reserves;

The amount, if any, recommended by way of dividends;

Material changes and commitments, if any, affecting the financial

Conservation of energy, technology absorption, foreign exchange

Any material information with regard to changes in the nature of

Statement showing the name of every employee of the company who

1.3 Directors Responsibility Statement

Rs. 1,744.32 lakhs

Deferred tax assets:

Rs. 4.90 lakhs

Annual Report 2001-2002; Gammon India Limited, (B. Other notes

ANALYSIS OF FINANCIAL STATEMENTS

provisions of the Companies Act for safeguarding the assets of the

Profit before tax

Profit after tax before extraordinary items

Sales and other income (net of excise duty)

Extraordinary gains (Loss)

ANALYSIS OF FINANCIAL STATEMENTS

Options granted to Senior Management

Research and Development

in the preparation of annual accounts, the applicable accounting standards

1.4 Management Discussion and Analysis

1.5 Report on Corporate Governance

ANALYSIS OF FINANCIAL STATEMENTS

ensures alignment of objectives of managers and other stakeholders. To this

Composition of Board of Directors stating their names, typology

(ii) Committees of the Board such as Audit Committee, Remuneration

during 2000-2001. While continuing to make similar disclosures, we have benchmarked

Additional Director 01.01.2002

Additional Director 01.01.2002

resigned from the Board effective January 15, 2002.

ANALYSIS OF FINANCIAL STATEMENTS

All pecuniary relationship or transactions of the non-executive directors vis-a-vis the

Recommending the appointment and removal of external auditor, fixation of audit

Reviewing with management the annual financial statements before submission

Messrs B. C. Prabhakar and P. M. Sinha Members

Name of meeting held

Number of meetings attended

resigned with effect from January 15, 2002.

Appropriate disclosures on the remuneration of directors have to be made in the section

Remuneration paid to Proprietor and Executive Directors

Figures mentioned are rupee equivalent as amounts were paid in US Dollars.

Professional fees paid to Non-Executive Director

Dr. Jagdish N.Sheth*

ANALYSIS OF FINANCIAL STATEMENTS