| EQUITY INTERNATIONAL MODARABA |
|
|
|
|
|
|
|
| Annual
Report 1997 |
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| CONTENTS |
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|
|
| Corporate
Information |
|
|
| Report
of the Directors |
|
|
| Auditors'
Report |
|
|
| Balance Sheet |
|
|
| Profit
and Loss Account |
|
|
| Cash
Flow Statement |
|
|
| Notes to the Accounts |
|
|
| Pattern
of Certificate Holding |
|
|
|
|
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|
|
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| Corporate
Information |
|
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|
|
| Modaraba
Company |
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| Equity
International (Private) Limited |
|
|
| Chairman |
|
|
| Mr.
Siddique Dawood |
|
|
| Chief
Executive |
|
| Mr.
Safdar Rashid |
|
|
| Directors |
|
|
| Mr.
Khalid A. Mirza |
|
| (Nominee
of International Finance |
|
| Corporation
- USA) |
|
| Mr.
John R. Style |
|
| (Nominee
of Robert Fleming |
|
| Nominees
Ltd. - U.K.) |
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| Mr.
Muhammad Rashid Zahir |
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| (Nominee
of Saudi Pak Industrial & |
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| Agricultural
Investment Co. (Pvt.)Ltd.) |
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|
|
|
| Auditors |
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| A.F.
Ferguson & Co. |
|
| Chartered
Accountants |
|
|
| Bankers |
|
|
| Al-Towfeek
Investment Bank Ltd. |
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| American
Express Bank Ltd. |
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| Askari
Commercial Bank Ltd. |
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| Atlas
Investment Bank Ltd. |
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| Faysal
Bank Ltd. |
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| First
International Investment Bank Ltd. |
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| National
Bank of Pakistan |
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| Saudi
Pak Industrial & Agricultural |
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| Investment
Co. (Pvt) Ltd. |
|
| Standard
Chartered Bank |
|
|
| Registrars |
|
|
| Gangjees
Computer Services |
|
| 513
Clifton Centre, |
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| Khayaban-e-Roomi, |
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| Kehkeshan,
Block 5, |
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| Clifton,
Karachi. |
|
|
| Registered
Office |
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| Dean
Arcade, Kehkeshan, |
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| Clifton,
Karachi-75600. |
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|
| Report
of the Directors |
|
|
| The
Board of Directors of Equity International (Private) Limited takes pleasure
in presenting the |
|
| Fourth
Report of Equity International Modaraba together with the audited accounts
for the year ended |
|
| June
30, 1997. |
|
|
| FINANCIAL
RESULTS |
|
|
| The
financial results of your Modaraba for the year ended June 30, 1997 are
summarised as follows: |
|
|
|
|
|
1997 |
1996 |
|
|
|
|
Rupees |
Rupees |
|
|
| Paid
up Capital |
|
|
150,000,000 |
150,000,000 |
|
|
|
|
========== |
========== |
|
| Operating
Income |
|
|
27,596,781 |
23,530,591 |
|
| Operating
Expenses |
|
|
|
3,913,851 |
4,424,240 |
|
| Financial
Charges |
|
|
|
6,193 |
6,532 |
|
|
---------- |
---------- |
|
|
|
|
3,920,044 |
4,430,772 |
|
|
|
|
---------- |
---------- |
|
|
|
|
23,676,737 |
19,099,819 |
|
| Modaraba
Company's Management Fee |
|
2,152,431 |
1,736,347 |
|
|
|
|
---------- |
---------- |
|
| Profit
before taxation |
|
|
21,524,306 |
17,363,472 |
|
| Provision
for taxation |
|
|
2,900,000 |
-- |
|
|
|
|
---------- |
---------- |
|
| Profit
after taxation |
|
|
18,624,306 |
17,363,472 |
|
| Unappropriated
profit brought forward |
|
377,666 |
1,486,888 |
|
|
---------- |
---------- |
|
|
|
|
|
|
19,001,972 |
18,850,360 |
|
| Appropriations: |
|
|
|
|
|
|
| Cash
Profit Distribution @ 10% (1996 @ 10%) |
|
|
15,000,000 |
15,000,000 |
|
| Transfer
to Statutory Reserve |
|
|
|
3,724,861 |
3,472,694 |
|
|
|
|
|
|
---------- |
---------- |
|
|
|
|
|
|
18,724,861 |
18,472,694 |
|
|
|
|
|
|
---------- |
---------- |
|
| Unappropriated
profit carried forward |
|
|
277,111 |
377,666 |
|
|
|
|
|
|
========== |
========== |
|
| The
Board is pleased to declare a profit distribution in cash of Rs. 1 per
Modaraba Certificate |
|
| (1996:
Rs. 1) aggregating Rs. 15 Million (1996 = Rs. 15 Million). This has been
arrived at after |
|
| transferring
20% of the net profit to Statutory Reserve which is a mandatory requirement
in terms of |
|
|
| State
Bank Prudential Regulations. The break-up value of your Certificate now
stands at |
|
| Rs.
11.56 ( 1996 = Rs. 11.32) against a face value of Rs. 10 each. |
|
|
| OPERATIONS
OF THE PERIOD UNDER REVIEW |
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| We
examined in detail several enquiries from investors prospectively seeking
equity type of |
|
| investments
in their projects. These include power projects, both general and captive.
Also in the |
|
| textile
sector and the tanning industry. We also examined software development. Your
Modaraba has |
|
| made
a commitment to invest Rs. 5 Million in an International Food Chain, which
will be in addition |
|
| to
investments made by other investment banks. |
|
|
| In
view of the difficult market conditions, your Modaraba has followed a very
cautious approach in |
|
| making
investment decisions. During the year, we therefore continued with Treasury
operations. |
|
|
| TAXATION |
|
| The
Income Tax Authorities have raised a demand of Rs. 1,220,132 for the
assessment year 1994-95 |
|
| which
they have based for a deemed year ended December 31, 1993. Your Modaraba has
contested |
|
| this
demand and has appealed with the Income Tax Appellate Tribunal. We are
hopeful of a |
|
| satisfactory
resolution to the case. |
|
|
| FUTURE
PROSPECTS |
|
| During
the. year under review, the Management Company took a decision to merge your
Modaraba |
|
| with
B.R.R. Capital Modaraba. This decision was taken with the best interests of
the certificate |
|
| holders
in mind. The merger will lead to a substantial cost saving, and will create
the largest Modaraba |
|
| in
the country which will provide the merged entity, with an equity base of over
Rs. 500 million, and |
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| total
assets over Rs. 2.0 Billion, a new direction. However, we will not lose sight
of our original goal |
|
| of
providing venture capital finance and this will be undertaken by the merged
entity. |
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|
| AUDITORS |
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| The
present auditors Messrs A.F. Ferguson & Co. Chartered Accountants, are
due for retirement and |
|
| being
eligible offer themselves for reappointment for the year ending June 30,
1998. This appointment |
|
| has
been confirmed by the Board subject to the approval of the Registrar,
Modaraba Companies and |
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| Modarabas. |
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|
| ACKNOWLEDGMENTS |
|
| In
conclusion, the Board expresses its appreciation for the hard work and
positive efforts made by the |
|
| staff
and thanks them for their dedication. |
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|
|
| Auditors'
Report to the Members |
|
|
| We
have audited the annexed Balance Sheet as at June 30, 1997 and the related
Profit and Loss |
|
| Account
and Cash Flow Statement together with the Notes to the Accounts for the year
ended June 30, |
|
| 1997
of Equity International Modaraba which are Modaraba Company's [Equity
International (Private) |
|
| Limited]
representation and we state that we have obtained all the information and
explanation which |
|
| we
required and, after due verification thereof, we report that: |
|
|
| (a)
In our opinion proper books of account have been kept by the Modaraba Company
in respect of |
|
| Equity
International Modaraba as required by the Modaraba Companies and Modaraba |
|
| (Floatation
and Control) Ordinance, 1980; and Modaraba Companies and Modaraba Rules, |
|
| 1981; |
|
|
|
| (b)
In our opinion the Balance Sheet and the Profit and Loss account have been
drawn up in |
|
| conformity
with the Modaraba C~9mpanies and Modaraba (Floatation and Control) Ordinance, |
|
| 1980;
and Modaraba Companies and Modaraba Rules, 1981; and |
|
|
| In
our opinion and to the best of our information and according to the
explanations given to us: |
|
|
| (i)
the Balance Sheet and the related Profit and Loss account and Cash Flow
Statement |
|
| which
are in agreement with the books of account, exhibit respectively a true and
fair |
|
| view
of the state of the Modaraba's affairs as at June 30, 1997; and the profit
and the |
|
| cash
flows for the year ended on that date; |
|
|
| (ii)
in our opinion Zakat deductible at source under the Zakat & Ushr
Ordinance, 1980, was |
|
| deducted
by the Modaraba and deposited in the Central Zakat Fund established under |
|
| Section
7 of that Ordinance; and |
|
|
| (iii)
the business conducted, investments made and expenditure incurred by the
Modaraba are |
|
| in
accordance with the objects, terms and conditions of the Modaraba. |
|
|
|
|
|
|
A.F. FERGUSON & CO. |
|
| KARACHI:
December 5, 1997 |
|
Chartered Accountants |
|
|
|
| Balance
Sheet as at June 30, 1997 |
|
|
|
|
1997 |
1996 |
|
|
Note |
Rupees |
Rupees |
|
| CAPITAL
AND RESERVES |
|
|
| Certificate
capital |
|
|
| Authorised |
|
| 25,000,000
modaraba certificates |
|
| of
Rs. 10 each |
|
|
|
250,000,000 |
250,000,000 |
|
|
========== |
========== |
|
| Issued,
subscribed and paid up |
|
3 |
150,000,000 |
150,000,000 |
|
| Capital
reserves |
|
4 |
23,142,836 |
19,417,975 |
|
| Unappropriated
profit |
|
|
277,111 |
377,666 |
|
|
|
|
---------- |
---------- |
|
|
|
|
173,419,947 |
169,795,641 |
|
| CURRENT
LIABILITIES |
|
|
|
|
| Management
fee payable |
|
|
2,152,431 |
1,736,347 |
|
| Taxation |
|
|
|
27,832 |
-- |
|
| Accrued
liabilities |
|
|
334,239 |
108,782 |
|
| Unclaimed
profit distribution |
|
|
55,839 |
I 1,918 |
|
| Proposed
profit distribution |
|
|
15,000,000 |
15,000,000 |
|
|
|
|
---------- |
---------- |
|
|
|
|
17,570,341 |
16,857,047 |
|
| CONTINGENT
LIABILITY |
|
5 |
-- |
-- |
|
|
|
|
---------- |
---------- |
|
|
|
|
190,990,288 |
186,652,688 |
|
|
|
|
========== |
========== |
|
|
| FIXED
ASSETS |
|
|
6 |
212,053 |
379,(184 |
|
| DEFERRED
EXPENDITURE |
|
|
7 |
1,297,366 |
2,270,391 |
|
| INVESTMENTS |
|
|
8 |
31,720,951 |
31,952,637 |
|
| CURRENT
ASSETS |
|
|
|
|
|
| Morabaha
transactions |
|
|
9 |
12,112,885 |
1,916,666 |
|
| Advance |
|
|
|
150,574 |
-- |
|
| Prepayments |
|
|
|
37, 183 |
47,167 |
|
| Taxation |
|
|
|
-- |
1,101,713 |
|
| Other
receivables |
|
|
10 |
6,072,084 |
2,956,779 |
|
| Short-term
investments |
|
|
11 |
57,000,000 |
37,500,000 |
|
| Cash
and bank balances |
|
|
12 |
82,387,192 |
108,528,251 |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
157,759,918 |
152,050,576 |
|
|
---------- |
---------- |
|
|
|
190,990,288 |
186,652,688 |
|
|
========== |
========== |
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
| Profit
and Loss Account for the year ended June 30, 1997 |
|
|
|
|
|
|
1997 |
1996 |
|
|
|
Note |
Rupees |
Rupees |
|
|
| Income
on musharaka arrangements |
|
-- |
351,370 |
|
| Income
on morabaha transactions |
|
1,735,678 |
313,312 |
|
| Return
on deposits |
|
|
17,267,994 |
19,928,030 |
|
| Return
on certificates of investment |
|
8,088,051 |
2,172,672 |
|
| Profit
on term finance certificates |
|
205,739 |
103,975 |
|
| Gain
on sale of investment |
|
6,632 |
-- |
|
| Gain
on sale of term finance certificates |
|
176,440 |
-- |
|
| Consultancy
fee |
|
|
-- |
540,000 |
|
| Dividend
income |
|
|
8,247 |
6,482 |
|
| Other
income |
|
|
108,000 |
114,750 |
|
|
----------- |
----------- |
|
|
|
|
27,596,781 |
23,530,591 |
|
| Operating
expenses |
|
|
13 |
3,913,851 |
4,424,240 |
|
| Financial
charges |
|
|
6,193 |
6,532 |
|
|
|
|
----------- |
----------- |
|
|
|
|
3,920,044 |
4,430,772 |
|
|
|
|
----------- |
----------- |
|
|
|
|
23,676,737 |
19,099,819 |
|
| Modaraba
company's management fee |
|
|
2,152,431 |
1,736,347 |
|
|
|
|
----------- |
----------- |
|
| Profit
before taxation |
|
|
21,524,306 |
17,363,472 |
|
| Taxation |
|
|
(2,900,000) |
-- |
|
|
|
|
----------- |
----------- |
|
|
|
|
|
|
| Profit
after taxation |
|
|
18,624,306 |
17,363,472 |
|
| Unappropriated
profit brought forward |
|
377,666 |
1,486,888 |
|
|
|
|
----------- |
----------- |
|
| Profit
available for appropriation |
|
|
19,001,972 |
18,850,360 |
|
| Appropriations: |
|
|
|
|
| Transfer
to statutory reserve |
|
|
3,724,861 |
3,472,694 |
|
| Final
profit distribution @ 10% (1996: 10%) |
|
|
15,000,000 |
15,000,000 |
|
|
|
|
----------- |
----------- |
|
|
|
|
18,724,861 |
18,472,694 |
|
|
|
|
----------- |
----------- |
|
| Unappropriated
profit carried forward |
|
277,111 |
377,666 |
|
|
|
|
========== |
========== |
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
| Cash Flow
Statement for the year ended June 30, 1997 |
|
|
|
|
|
|
|
|
1997 |
1996 |
|
|
|
|
|
Note |
Rupees |
Rupees |
|
|
| CASH
FLOW FROM OPERATING ACTIVITIES |
|
| Cash
(used in)/generated from operations |
|
15 |
(9,438,374) |
8,171,731 |
|
| Taxes paid |
|
|
|
(1,770,455) |
(908,477) |
|
| Net
cash (outflow)/inflow from |
|
----------- |
----------- |
|
| operating
activities |
|
|
(11,208,829) |
7,263,254 |
|
|
| CASH
FLOW FROM INVESTING ACTIVITIES |
|
|
| Investment
in shares/certificates |
|
(9,750) |
(1,009,825) |
|
| Proceeds
on disposal of marketable securities |
|
25,352 |
-- |
|
| Dividend
received |
|
|
8,247 |
6,482 |
|
|
----------- |
----------- |
|
| Net
cash inflow/(outflow) from investing activities |
|
23,849 |
(1,003,343) |
|
|
|
|
|
|
| CASH
OUTFLOW FROM FINANCING ACTIVITIES |
|
| Profits
paid |
|
|
(14,956,079) |
(15,720,597) |
|
|
|
|
----------- |
----------- |
|
| Net
decrease in cash and cash equivalents |
|
(26,141,059) |
(9,460,686) |
|
| Cash
and cash equivalents at the beginning of the year |
|
108,528,251 |
117,988,937 |
|
|
|
|
----------- |
----------- |
|
| Cash
and cash equivalents at the end of the year |
|
82,387,192 |
108,528,251 |
|
|
========== |
========== |
|
|
| Notes
to the Accounts for the year ended June 30, 1997 |
|
|
| 1.
LEGAL STATUS AND NATURE OF BUSINESS |
|
|
| Equity
International Modaraba is a perpetual multipurpose Modaraba floated under the |
|
| Modaraba
Companies and Modaraba (Floatation and Control) Ordinance, 1980 and the Rules |
|
| framed
thereunder and is managed by Equity International (Private) Limited, a
company |
|
| incorporated
in Pakistan. The Modaraba is listed on the Karachi and Lahore Stock
Exchanges. |
|
|
|
|
| The
Modaraba is engaged in the deployment of funds in Musharakas, Morabahas,
Equity |
|
| Participation
and short term investments. |
|
|
| The
Directors of the Equity International (Private) Limited have decided to
amalgamate the |
|
| operations
of Equity International Modaraba (Modaraba) with B.R.R. Capital Modaraba |
|
| managed
by B.R.R. Investments (Pvt) Limited. In this connection a petition has been
filed in |
|
| the
High Court of Sindh by the Modaraba, its management company, B.R.R. Capital
Modaraba, |
|
| B.R.R.
Second Modaraba and their management company, B.R.R. Investments (Pvt)
Limited. |
|
|
| 2.
SIGNIFICANT ACCOUNTING POLICIES |
|
|
| (a)
Overall valuation policy |
|
| These accounts have been prepared under the
historical cost convention. |
|
| (b)
Operating fixed assets and depreciation |
|
|
| Operating
assets are stated at cost less accumulated depreciation. Depreciation is |
|
| charged
to income applying the straight-line method whereby the cost of an asset is |
|
| written
off over its estimated useful life. In respect of additions and disposals
during the |
|
| year,
depreciation is charged proportionately to the period of use. |
|
|
| Profit
and loss on disposal of assets is included in income currently. |
|
| (c)
Investments |
|
|
| Investments
are stated at cost and provision is made for permanent diminution in value, |
|
| if
any. Profit or loss on sale of investments is taken to profit and loss
account. |
|
|
|
|
| (d)
Revenue recognition |
|
|
| (i)
Income from Morabaha transactions is recognised on the basis of pro-rata
accrual |
|
| of
the profit estimated for the transactions over the period. |
|
|
| (ii)
Profit or loss on Musharaka arrangements is shared by the customer and the |
|
| Modaraba in an agreed ratio. |
|
|
| (iii)
Dividend income is recognised as and when received. |
|
|
|
|
| (e)
Deferred expenditure |
|
| Expenses
incurred in connection with floatation of the Modaraba are being written off |
|
| over
a period of 60 months commencing from November 1993. |
|
|
| 3.
ISSUED, SUBSCRIBED AND PAID-UP CAPITAL |
|
|
1997 |
1996 |
|
|
|
|
Rupees |
Rupees |
|
| Modaraba
certificates of Rs. 10 each |
|
| 15,000,000
certificates fully paid in cash |
|
|
150,000,000 |
150,000,000 |
|
|
=========== |
=========== |
|
| 4.
CAPITAL RESERVES |
|
|
|
|
Profit |
Statutory |
|
Total |
|
|
|
|
|
prior to |
reserve |
1997 |
1996 |
|
|
|
|
|
floatation |
|
|
|
|
|
|
Rupees |
|
|
|
|
|
|
| At July 1 |
|
9,761,059 |
9,656,916 |
19,417,975 |
15,945,281 |
|
|
| Appropriated
from profits |
-- |
3,724,861 |
3,724,861 |
3,472,694 |
|
|
|
|
----------- |
----------- |
----------- |
----------- |
|
|
|
|
9,761,059 |
13,381,777 |
23,142,836 |
19,417,975 |
|
|
|
|
=========== |
=========== |
=========== |
=========== |
|
|
| Statutory
reserve represents profits set aside to comply with the State Bank of
Pakistan's |
|
| Regulations
for Non-Banking Financial Institutions. |
|
|
| 5.
CONTINGENT LIABILITY |
|
|
| 5.1
TAXATION |
|
|
| The
Modaraba filed its first tax return for the assessment year 1995-96 (period
of 20 months |
|
| ended
June 30, 1995) claiming tax exemption. The assessing officer, however,
considered the |
|
| period
of two months ended December 31, 1993 as a separate assessment for 1994-95.
In so |
|
| finalizing
the assessment for 1994-95, the assessing officer treated the Capital Reserve
relating |
|
| to
profits prior to floatation as income and raised a tax demand of Rs.
1,220,132. In deciding |
|
| the
appeal the Commissioner of Income Tax-Appeals (CHIT) has maintained the
action of the |
|
| assessing
officer. The Modaraba has filed an appeal with the Income Tax Appellate
Tribunal |
|
| against
the Cites order. |
|
|
| No
provision has been made in these accounts as the Management of the Modaraba
is confident |
|
| that
the ultimate decision in respect of the above will be in its favor. |
|
|
| 6.
FIXED ASSETS |
|
|
|
|
|
Cost as at |
Additions/ |
Cost as at |
Accumulated |
Deeper- |
Accumulated |
Written down |
Deeper- |
|
|
July 1, 1996 |
(disposals) |
June |
depreciation |
citation |
depreciation |
value as at |
elation |
|
|
|
30, 1997 |
as at July |
for the |
as at June |
June |
rate |
|
|
|
1,1996 |
year |
30, 1997 |
30. 1997 |
|
|
|
|
Rupees |
|
|
| Vehicle |
|
748,434 |
-- |
748,434 |
386.69 |
149,688 |
536,382 |
212,052 |
20% |
|
|
|
|
|
|
| Office
equipment |
|
|
|
| and
appliances |
69,400 |
-- |
69.40 |
52,056 |
17,343 |
69,399 |
1 |
33.33% |
|
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
|
| Rupees |
|
817,834 |
-- |
817,834 |
438.75 |
167,031 |
605,781 |
212,053 |
|
|
|
|
========== |
========== |
========== |
========== |
========== |
========== |
========== |
|
|
| 1996 Rupees |
|
817,834 |
-- |
817,834 |
265,926 |
172,824 |
438,750 |
379,084 |
|
|
|
========== |
========== |
========== |
========== |
========== |
========== |
========== |
|
|
| 7.
DEFERRED EXPENDITURE |
|
|
1997 |
1996 |
|
|
|
|
Rupees |
Rupees |
|
| Floatation
cost, commission and brokerage |
|
| on
issue of Modaraba certificates |
|
|
|
|
| Opening
balance |
|
|
2,270,391 |
3,243,416 |
|
| Less:
Amortized during the year |
|
|
973,025 |
973,025 |
|
|
|
|
---------- |
---------- |
|
|
|
|
1,297,366 |
2,270,391 |
|
|
|
========== |
========== |
|
| 8.
INVESTMENTS |
|
|
|
| Shares
and certificates of listed companies |
|
| and
Modarabas - note 8.1 |
|
|
805,051 |
1,036,737 |
|
| Shares
of unlisted companies -note 8.2 |
|
30,915,900 |
30,915,900 |
|
|
|
|
---------- |
---------- |
|
|
|
|
31,720,951 |
31,952,637 |
|
|
| 8.1
Investments in listed companies and modarabas include the following: |
|
|
