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C.R. Sukumar

HYDERABAD, Nov. 13

WHILE qualifying the accounts of Hyderabad Industries Ltd for the first-half of the current fiscal ended September 30, 2002, the company auditors pointed out that some of the accounting methods adopted were not in tune with the guidelines of the Institute of Chartered Accountants of India (ICAI), showing thereby increase in profit, reserves and surplus during the half-year.

While the auditors were not in a position to ascertain the exact impact on the profit of the company owing to lack of provisions towards debtors, they could also not ascertain the amount of diminution in value of the investments in Nepal Metal Company in the absence of provisions.

These qualifications and observations were part of the limited review report for the unaudited financial results for the six-month period, the company informed the stock exchanges.

The auditors observed that the company had not made provision towards leave liability amounting to Rs 77.45 lakh (net of deferred tax Rs 48.99 lakh) and shortfall in the contribution of gratuity liability amounting to Rs 10.55 crore (net of deferred tax Rs 6.67crore).

According to the auditors, the company continued to follow the Cenvat inclusive method of accounting in respect of purchases, inventories, consumption etc, while excise duty payment was reduced to the extent of Cenvat credit utilised for such payment. This has resulted in an increase in profit for the six month period ended September 30, 2002 by Rs 11.32 lakh (net of deferred tax Rs 7.16 lakh) and increase in reserves and surplus as at the end of the year by Rs 83.77 lakh (net of deferred tax Rs 52.98 lakh).

The auditors have also pointed out that this treatment, however, was not in accordance with the guidelines of ICAI. Further, the company did not make provision for debtors, against whom legal action has been instituted amounting to Rs 1.61 crore and `doubtful' debtors amounting to Rs 1.41 crore. As a result, the auditors were of the view that the exact impact of this on the company's profit was not ascertainable at present.

As the company did not provide for diminution in the value of investment of Rs 1.15 crore made in Nepal Metal Company Ltd, the amount in respect thereof was not ascertainable at this stage, the auditors pointed out.

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