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CHENNAI, Dec. 10

THE board of directors of Ashok Leyland Ltd has approved a proposal to write off a sum of Rs 160 crore from the balance in the share premium account, against deferred revenue expenditure and diminution in value of investments and fixed assets.

This, however, will be done only after getting the approval from the High Court of Madras and the shareholders of the company.

As on March 31, 2002, Ashok Leyland had Rs 638.83 crore in its Share Premium Account (part of the reserves).

It had a `deferred revenue expenditure' (the part of an expenditure already incurred, but not yet charged to the profit and loss account) of Rs 3.07 crore.

The company has said in a communication to the stock exchanges that the deferred revenue expenditure related mainly to VRS payments.

However, the impact of the severance payments to the 1,000-odd VRS optees would be felt in the current year's balance sheet.

Ashok Leyland's Executive Director-Finance, Mr T. Ananthanarayanan, told Business Line today that the VRS burden would be around Rs 60 crore. Besides, the shift towards lower emission (Euro-I, Euro-II) engines would render some of the fixed assets obsolete.

Furthermore, the `diminution in the value of investments' has also grown this year - the company provided Rs 3.6 crore for this last year, and this year it might need to provide another Rs 5 crore.

"Our accounting policy allows us to write off these over three years," Mr Ananthanarayanan said.

However, the availability of sufficient funds in the Share Premium Account gives the company an opportunity to write-off these expenditures in one go.

Otherwise, they would have to be charged to the Profit and Loss Account, part by part, for three years.

The main advantage in doing this lies in avoiding a drop in the profit after tax, which these charges would have otherwise caused.

As a result, the earnings per share would also be correspondingly higher.

"The profit and loss accounts of the future years would reflect more the operations of the respective years, rather than the effect of VRS and obsolescence," Mr Ananthanarayanan said.

It may be remembered that in February, Telco had done precisely what Ashok Leyland has proposed to do now.

Telco had written-off Rs 1,180 crore from the Share Premium Account, and correspondingly wiped off the fall in the value of investments and fixed assets.

At that time, senior officials of Ashok Leyland, speaking privately to this correspondent, had commended Telco's move, but said that Ashok Leyland had no need to follow suit, at that point in time.

Then came the VRS and the Rs 60-crore burden.

Other than Telco, Mahindra & Mahindra and Voltas have also taken this route to protect their future profits.

Some other companies, such as Henkel SPIC Ltd, have also proposed to do so.

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