FINANCIAL STATEMENTS

Transcription

1 ASIA ASSET FINANCE PLC FINANCIAL STATEMENTS 31 MARCH 2013

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4 STATEMENT OF COMPREHENSIVE INCOME Note Income 626,800, ,341,934 Interest Income 4 589,316, ,483,748 Interest Expense 5 (336,876,108) (207,019,231) Net Interest Income 252,439, ,464,517 Net Trading Loss on Equity Securities (2,679,882) (24,957,371) Other Operating Income 6 37,484,291 56,858,186 Less: Operating Expenses Personnel Costs (101,338,608) (76,401,233) Provision for Staff Retirement Benefits (1,558,420) (489,287) General and Administration Expenses (103,791,037) (81,167,316) Impairment Charge for Lease Rentals Receivable, Hire Purchase and Loans 7 (25,973,097) (21,624,545) and Advances (8,081,851) Operating Profit before Value Added Tax on Financial Services 8 54,583,177 23,682,951 Value Added Tax on Financial Services (9,316,115) (7,125,027) Profit before Taxation 45,267,062 16,557,924 Income Tax (Charge)/Reversal 9 16,394,679 31,428,577 Profit for the Year 61,661,741 47,986,501 Other Comprehensive Income - - Income Tax on Other Comprehensive Income - - Other Comprehensive Income for the Year Net of Tax - - Total Comprehensive Income for the Year 61,661,741 47,986,501 Earning Per Share - Basic The Accounting Policies and notes on pages 07 through 39 form an integral part of the Financial Statements. -3-

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6 STATEMENT OF CHANGES IN EQUITY Stated General Reserve Investment Accumulated Total Note Capital Reserve Fund Fund Reserve Profit/(Loss) Balance as at 1 April ,538,748 3,000,000 19,783,549 1,173,333 (387,136,366) 217,359,264 Total Comprehensive Income for the Year ,986,501 47,986,501 Right Issue of Shares ,971, ,971,516 Issue of Shares for Cash Considertaion ,790, ,790,000 Direct Costs relating to Issue of Shares (21,169,979) (21,169,979) Transferred to/from during the Year - - 3,581,641 4,885,665 (8,467,306) - Balance as at 31 March ,130,285 3,000,000 23,365,190 6,058,998 (347,617,171) 629,937,302 Total Comprehensive Income for the Year ,661,741 61,661,741 Transferred to/from during the Year ,083,087 7,588,215 (10,671,302) - Balance as at 31 March ,130,285 3,000,000 26,448,277 13,647,213 (296,626,732) 691,599,043 The Accounting Policies and notes on pages 07 through 39 form an integral part of the Financial Statements. -5-

7 STATEMENT OF CASH FLOWS Cash Flows From / (Used in) Operating Activities Note Profit Before Tax 45,267,062 16,557,924 Adjustments for Depreciation ,853,472 8,629,266 Impairment of Loans, Lease and Hire Purchase 12, 13 23,781,624 14,356,284 Profit on Sale of Quoted Equity Shares (1,265,399) (417,842) Write off of Available for Sale - Financial Assets - 177,396 Loss on Fair Valuation of Held for Trading Securities 3,945,282 25,374,276 Loss/(Profit) from Sale of Property, Plant and Equipment and Investment Property (1,455,920) 316,356 Provision for Retirement Benefit Liability 24 1,558, ,287 Finance Cost 2,033, ,342 Profit from operation before Working Capital Changes 88,718,197 65,908,290 Decrease in Vehicle Stock 14,179,690 10,183,107 Increase in Lease Rentals Receivable and Stock out on hire (22,265,275) (555,811,350) Increase in Loans and Advances (500,334,557) (323,979,495) Decrease/(Increase) in Other Receivables 9,162,206 (31,051,815) Decrease in Deposits and Prepayments 8,497,264 7,444,170 Increase in Financial Assets - Loans and Receivables (37,985,594) (163,803,786) Increase in Deposits from Customers 669,715, ,787,843 Increase in Commercial Papaers 3,344,285 26,125,775 Increase/ (Decrease) in Other Liabilities (12,866,734) 11,643,215 Net Cash From/(Used in) Operating Activities before Income Tax Payments 220,165,142 (383,554,047) Taxes Paid (7,026,821) (6,053,413) Net Cash From/ (Used in) Operating Activities 213,138,321 (389,607,460) Cash Flows from / (Used in) Investing Activities Acquisition of Property, Plant and Equipment 18 (23,355,769) (39,740,021) Investment in Available for Sale -Financial Assets 15 (306,659) - Proceeds from Redemption of Preference Share 15 7,500,000 - Proceeds from Sales of Quoted Shares 13,868,126 7,930,176 Proceeds from Sales of Property, Plant and Equipment 11,216,643 15,082,369 Net Cash Flows From/(Used in) Investing Activities 8,922,341 (16,727,476) Cash Flows from / (Used in) Financing Activities Proceeds from Issue of Shares ,790,000 Proceeds from the Right Issue of Shares 25-89,971,516 Direct Costs relating to Issue of Shares 25 - (21,169,979) Repayment of Term Loan Borrowings 21 (53,384,845) - Proceeds from Term Loans Borrowings 21 20,000,000 50,000,000 Net Cash Flows From/(Used in) Financing Activities (33,384,845) 414,591,537 Net Increase in Cash and Cash Equivalents 188,675,817 8,256,601 Cash and Cash Equivalents at the beginning of the year ,829, ,572,454 Cash and Cash Equivalents at the end of the year ,504, ,829,055 The Accounting Policies and notes on pages 07 through 39 form an integral part of the Financial Statements. -6-

8 1. CORPORATE INFORMATION 1.1 General Asia Asset Finance PLC is a limited company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The Company has been registered with the Central Bank of Sri Lanka as a Finance Company under the provisions of the Finance Business Act No. 42 of 2011 (formerly the Finance Companies Act No.78 of 1988). The registered office of the Company and the principle place of business is located at No 76/1, Dharmapala Mawatha, Colombo Principal Activities and Nature of Operations The principal activities of the Company comprised of granting leases, hire purchase, mortgage loans, personnel loans, group personal loans, pledge loans, cheque and invoice discounting and mobilization of public deposits. 1.3 Parent Enterprise and Ultimate Parent Enterprise The Company's immediate and ultimate parent undertaking is Asia Capital PLC which is incorporated in Sri Lanka. 1.4 Date of Authorization for Issue The Financial Statement of Asia Asset Finance PLC for year ended 31 March 2013 was authorized for issue in accordance with a resolution of the Board of Directors dated 07 November

9 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Statement of Compliance The Financial Statements of the Company have been prepared in accordance with the Sri Lanka Accounting Standards ( SLFRS ) as issued by the Institute of Chartered Accountants of Sri Lanka. The preparation and presentation of these financial statements is in compliance with the requirements of the Companies Act No.07 of Basis of preparation and adoption of SLAS (SLFRS and LKAS) effective for the financial period beginning on or after 01 April 2011 The Financial Statements of the Company have been prepared in accordance with Sri Lanka Accounting Standards comprising SLFRS and LKAS (hereafter "SLFRS"), as issued by the Institute of Chartered Accountants of Sri Lanka. For all periods up to and including the year ended 31 March 2012, the Company prepared its Financial Statements in accordance with previous SLASs. These Financial Statements for the year ended 31 March 2013 are the first, the Company has prepared in accordance with SLFRS effective for the periods beginning on or after 01 April (Refer Note 3 for an explanation of the transition). The Company has consistently applied the accounting policies used in preparation of its opening SLFRS Statement of Financial Position as at 01 April 2011 through all periods presented, as if these policies had always been in effect. Note 2.7 discloses the impact of the transition to SLFRS on the Company's reported financial position and performance including the nature and effect of significant changes in accounting policies from those used in the Company's Financial Statements for the year ended 31 March 2012 prepared under previous SLAS. The financial statements of the Company have been prepared on a historical cost basis, unless otherwise indicated. 2.3 Presentation of Financial Statements The Company presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non current) is presented in Note 28 to the financial statements. Each material class of similar items is presented separately in the financial Statements. Items of dissimilar nature or functions are presented separately, unless they are immaterial. Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expenses are not offset in the Statement of Comprehensive Income unless required or permitted by any accounting standard or interpretation. -8-

10 2.4 Significant Accounting Policies Foreign Currency Translation The Financial Statements are presented in Sri Lankan Rupees, which is the Company s functional and presentation currency. Transactions in foreign currencies are initially recorded by the Company at the functional currency spot rate ruling at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss. Non monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The gain or loss arising on translation of non-monetary measured at fair value is treated in line with the recognition of gain or loss on change in fair value in the item (i.e., the translation differences on items whose fair value gain or loss is recognised in other comprehensive income (OCI) or profit or loss are also recognised in OCI or profit or loss, respectively) Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. a) Interest Income and Expenses For all financial instruments interest income or expense is recorded using effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. The calculation takes in to account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future impairment loss. The carrying amount of the financial asset or liability is adjusted if the Company revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as Interest Income for financial assets and Interest Expense for financial liabilities. b) Dividend Income Dividend income is recognised when the Company s right to receive the payment is established. c) Other Income Other income is recognised on an accrual basis. d) Other Expenses All other expenses have been recognised in the financial statements as they are incurred in the period to which they relate. All expenditure incurred in the operation of the business and in maintaining capital assets in a state of efficiency has been charged to revenue in arriving at the Company s profit for the year. -9-

11 2.4.3 Taxes Current Income Tax Current income tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Deferred tax Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Value Added Tax (VAT) on Financial Services During the year, Company s total value addition was subjected to 12% VAT on financial services as per Section 25A of the Value Added Tax Act No. 14 of 2002 and amendments there to Financial instruments - initial recognition and subsequent measurement i) Financial Assets Initial Recognition and Measurement Financial assets within the scope of LKAS 39 are classified as financial assets held for trading, loans and receivables, held-to-maturity, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial assets at initial recognition. All financial assets are recognized initially at fair value plus transaction costs, in the case of assets not at fair value through profit or loss. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset. The Company s financial assets include cash and bank balances, lease, hire purchase, loans and advances, financial assets held for trading and available-for-sale financial assets. -10-

12 Subsequent Measurement The subsequent measurement of financial assets depends on their classification as described below. a) Lease, Hire Purchase and Loans and Advances to Customers Lease Rental Receivable, Hire Purchase and Loans and Advances to Customers are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method EIR, less allowance for impairment. Amortised cost is calculated taking in to account any fees and cost that are integral part of the EIR. The amortisation is included in the Interest Income in the Statement of Comprehensive Income. The losses arising from impairment are recognized in the Statement of Comprehensive Income in Impairment Charge. b) Financial Assets Held for Trading Financial assets are classified as held-for-trading if they are acquired for the purpose of selling in the near term and are measured at fair value. c) Financial Assets Available for Sale Available-for-sale financial investments include equity securities. Equity investments classified as availablefor-sale are those, neither classified as held-for-trading nor designated at fair value through profit or loss. After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income in the available-for-sale reserve until the investment is derecognised, at which time, the cumulative gain or loss is recognised in other operating income, or determined to be impaired, at which time the cumulative loss is reclassified to the income statement in finance costs and removed from the available-for-sale reserve. Derecognition - Financial Assets A financial asset is derecognised when the rights to receive cash flows from the asset have expired or Company has transferred substantially all the risks and rewards of the asset. Impairment of Financial Assets The Company assesses, at each reporting date, whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, the probability that they will enter bankruptcy or other financial reorganisation, default in interest or principal payments, and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. -11-

13 Financial Assets Carried at Amortised Cost For financial assets carried at amortised cost (such as, Lease, Hire Purchase and Loans and Advances). The Company first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the Statement of Comprehensive Income. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of Interest Income in the financial statements. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is recognised in the Other Operating Income in the Statement of Comprehensive Income. The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the interest rate prevailed at the last reprising date. For the purpose of collective evaluation of impairment, future cash flows of financial assets are collectively evaluated based on the historical loss experience of assets with similar credit risk characteristics. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based on and to remove the effects of conditions in the historical period that do not exist currently. Refer Note 12.1 and 13.3 to the financial statements for details of impairment losses on financial assets carried at amortised cost. Available-for-Sale Financial Instruments For available-for-sale financial investments, the Company assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. 'Significant is evaluated against the original cost of the investment and 'prolonged against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement is removed from other comprehensive income and recognised in the income statement. Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairment are recognised directly in other comprehensive income. -12-

14 ii) Financial Liabilities Initial Recognition and Measurement Financial liabilities within the scope of LKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition. The Company's financial liabilities include due to customers, bank overdrafts, interest bearing loans and borrowings and other financial liabilities. Financial liabilities are recognised initially at fair value plus, in the case of loans and borrowings, directly attributable transaction costs. Subsequent measurement The measurement of financial liabilities depends on their classification as follows: Due to Customers Due Customers include term deposits and are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the Statement of Comprehensive Income through the effective interest rate method (EIR) amortisation process. Other Borrowed Funds After initial measurement, Other Borrowings are subsequently measured at amortised cost using EIR. Derecognition Financial Liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in profit or loss. Fair Value of Financial Instruments The fair value of financial instruments traded in an active market at the reporting date is based on their average quoted market price or average dealer price quotations without any deduction for transaction costs. For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques such as discounted cash flow method. (Refer Note 29 to the financial statements for details of fair value of the financial instruments) Reverse Repurchase Agreements Securities purchased under agreements to resell at a specified future date are not recognized in the statement of financial position. The consideration paid, including accrued interest, is recorded in the statement of financial position, within Reverse Repurchase Agreements, reflecting the transaction s economic substance as a loan by the Company. The difference between the purchase and resale prices is recorded in Interest Income and is accrued over the life of the agreement using the EIR. -13-

15 2.4.6 Property, Plant and Equipment Property, plant and equipment are initially stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing parts of the property, plant and equipment if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Company recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the Statement of Comprehensive Income as incurred. An item of Property, Plant and Equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognizing of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in Statement of Comprehensive Income in the year the asset is derecognized. The asset's residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end. The estimated useful lives of the assets by equal annual installments are as follows. Furniture and Fittings Office Equipment Motor Vehicles Computer Hardware 8 Years 8 Years 4 Years 8 Years Impairment of Non Financial Assets The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s fair value less costs to sell and its value in use. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount Investment Property Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, an investment property is stated at cost and to provide the required disclosure on fair value in compliance with Sec 79 of LKAS 40, Company uses an independent valuer to measure the fair value Vehicle Stock Unsold vehicles at the reporting date are valued at lower of cost and net realizable value after making due allowances for obsolete and slow moving items. Net realizable value is the price at which inventories can be sold in the ordinary course of business less the estimated cost necessary to make the sale Cash and Cash Equivalents Cash and Cash Equivalents are defined as cash in hand, demand deposits and short-term highly liquid investments, readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purpose of Cash Flow Statement, Cash and Cash Equivalents consist of the above net of outstanding bank overdrafts. Investments with short maturities (i.e. three months or less from the date of acquisition) are also treated as Cash Equivalents. -14-

16 Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Company expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Statement of Comprehensive Income net of any reimbursement Retirement Benefit Obligations a) Defined Benefit Plan Gratuity The Company measures the present value of the promised retirement benefits of gratuity which is a defined benefit plan with the advice of an independent professional actuary at the end of every financial year using the Projected Unit Credit Method (PUC) as recommended by LKAS 19 Employee benefits. Accordingly, the employee benefit liability is based on the actuarial valuation carried out by Messrs Actuarial and Management Consultants (Pvt) Ltd., Actuaries. The actuarial valuation involves making assumptions about discount rate, future salary increase rate and mortality rates etc. All assumptions are reviewed at each reporting date. The Company s accounting policy for defined benefit plans is to recognise actuarial gains and losses in the period in which they occur in full in the Statement of Comprehensive Income. The gratuity liability is not funded. b) Defined Contribution Plans Employees Provident Fund & Employees Trust Fund Employees are eligible for Employees Provident Fund Contributions and Employees Trust Fund Contributions in line with respective Statutes and Regulations. The Company contributes 12% and 3% of gross emoluments of employees to Employees Provident Fund and Employees Trust Fund respectively Contingent Liabilities and Commitments In the normal course of business, the Company makes various commitments and incurs contingent liabilities. (Refer Note 30 to the financial statements) Cash Flow Statement The Cash Flow Statement has been prepared by using the Indirect Method in accordance with LKAS 7 on Statement of Cash Flows, whereby gross cash receipts and gross cash payments of operating activities, financing activities and investing activities have been recognised. Cash and Cash Equivalents mainly comprise of cash in hand, balances at banks and bank overdrafts Segment Reporting An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company s other components. All operating segments operating results are reviewed regularly by the senior management to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the senior management and board of directors include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The relevant disclosures are given in Note 32 to the Financial Statements. -15-

17 2.5 SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements of the Company require the management to make judgments, estimates and assumptions, which may affect the amounts of income, expenditure, assets, liabilities and the disclosure of contingent liabilities, at the end of the reporting period. In the process of applying the Company s accounting policies, the key assumptions made relating to the future and the sources of estimation at the reporting date together with the related judgments that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below Going Concern The Company s management has made an assessment on the Company s ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Company s ability to continue as a going concern. Therefore, the Financial Statements continue to be prepared on the going concern basis Impairment Losses on Lease, Hire Purchase and Loans and Advances The Company reviews its individually significant lease, hire purchase and loans and advances at each statement of financial position date to assess whether an impairment loss should be recorded in the Statement of Comprehensive Income. In particular, management s judgement is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Loans and advances that have been assessed individually and found to be not impaired and all individually insignificant loans and advances are assessed collectively, in groups of assets with similar characteristics, to determine whether provision should be made based on incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The collective assessment takes account of data from the loan portfolio (such as levels of arrears, credit utilisation, loan-to-collateral ratios, etc.), and judgements on the effect of concentrations of risks. The impairment loss on loans and advances, lease rentals receivables and hire purchase is disclosed in more detail in Note 12.1 and Note 13.2 to the financial statements Taxation The Company is subject to income tax and other taxes including VAT on financial services. Significant judgment was required to determine the total provision for current, deferred and other taxes pending the issue of tax guidelines on the treatment of the adoption of SLFRS in the Financial Statements and the taxable profit for the purpose of imposition of taxes. Uncertainties exist, with respect to the interpretation of the applicability of tax laws, at the time of the preparation of these financial statements. The Company recognized assets and liabilities for current, deferred and other taxes based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income and deferred tax amounts in the period in which the determination is made. -16-

18 2.5.4 Defined Benefit Plans The cost of the retirement benefit plan of employees is determined using an actuarial valuation. The actuarial valuation is based on assumptions concerning the rate of interest, rate of salary increase, staff turnover, and retirement age and going concern of the Company. Due to the long term nature of the plan, such estimates are subject to significant uncertainty. (Refer Note 24 to the financial statements) 2.6 Standards Issued but not yet Effective The following SLFRS have been issued by the Institute of Chartered Accountants of Sri Lanka that have an effective date in the future. Those SLFRS will have an effect on the accounting policies currently adopted by the Company and may have an impact on the future financial statements. a) SLFRS 9 - Financial Instruments : Classification and Measurement SLFRS 9, as issued reflects the first phase of work on replacement of LKAS 39 and applies to classification and measurement of financial assets and liabilities. b) SLFRS 13 - Fair Value Measurement SLFRS 13 establishes a single source of guidance under SLFRS for all fair value measurements. SLFRS 9 will be effective for financial periods beginning on or after 1 January 2015 whilst SLFRS 13 will be effective for financial periods beginning on or after 1 January In addition to the above, following standards have also been issued and will be effective from 01 January SLFRS 10- Consolidated Financial Statements SLFRS 11- Joint Arrangements SLFRS 12- Disclosure of Interest in Other Entities Pending a detailed review, the financial impact is not reasonably estimable as at the date of issue of these financial statements. -17-

19 2.7 FIRST TIME ADOPTION OF SLFRSs (Contd ) Company Reconciliation of Statement of Financial Position as at 01 April 2011 (date of transition) Previous SLAS Reclassifications Remeasurements SLAS ASSETS Note Cash and Cash Equivalents 31,979, ,979,594 Investment in Reverse Repurchase Agreements against Treasury Bills and Bonds 94,592, ,592,860 Placements with Other Banks and Financial Institutions A 40,000,000 (40,000,000) - - Other Financial Assets A - 40,863,010-40,863,010 Loans and Advances C 571,818,624-4,479, ,298,145 Lease Rentals Receivable and Hire Purchase C 594,322,591 - (16,825,103) 577,497,488 Financial Assets - Available for Sale D - 14,449,894 (6,500,000) 7,949,894 Vehicle Stock 33,118, ,118,250 Financial Assets - Held for Trading B 56,210, ,210,473 Investment Securities D 10,449,894 (10,449,894) - - Other Debtors, Deposits and Prepayments G 103,575,959 (103,575,959) - - Other Assets G - 26,506,859 (3,250,000) 23,256,859 Advances and Prepayments G - 61,171,432-61,171,432 Income Tax Receivable G - 9,175,825-9,175,825 Property, Plant and Equipment 28,264, ,264,509 Investment Property 32,934, ,934,517 Deferred Tax Assets L 7,222,164-6,665,770 13,887,934 Total Assets 1,604,489,435 (1,858,833) (15,429,812) 1,587,200,790 LIABILITIES Due to Customers E 1,309,544,405 44,626,405 (2,508,760) 1,351,662,050 Other Liabilities E 60,051,131 (44,626,405) - 15,424,726 Tax Payable G 1,858,833 (1,858,833) - - Retirement Benefit Liability 2,754, ,754,750 Total Liabilities 1,374,209,119 (1,858,833) (2,508,760) 1,369,841,526 SHAREHOLDERS' FUNDS Stated Capital 580,538, ,538,748 Retained Earnings C/E/K (374,215,314) - (12,921,052) (387,136,366) Other Reserves 23,956, ,956,882 Total Equity 230,280,316 - (12,921,052) 217,359,264 Total Equity and Liabilities 1,604,489,435 (1,858,833) (15,429,812) 1,587,200,

20 2.7 FIRST TIME ADOPTION OF SLFRSs (Contd ) Company Reconciliation of Statement of Financial Position as at 31 March 2012 Previous SLAS Reclassifications Remeasurements SLAS ASSETS Note Cash and Cash Equivalents 66,804, ,804,910 Investment in Reverse Repurchase Agreements against Treasury Bills and Bonds 88,255, ,255,490 Placements with Other Banks and Financial Institutions A 204,666,796 (204,666,796) - - Other Financial Assets A - 204,666, ,666,796 Loans and Advances C,H 835,407,982 48,078,450 (2,501,696) 880,984,736 Lease Rentals Receivable and Hire Purchase C 1,148,892,946 - (27,346,948) 1,121,545,998 Financial Assets - Available for Sale D - 14,271,958 (6,500,000) 7,771,958 Vehicle Stock 22,935, ,935,143 Financial Assets - Held for Trading B 23,323, ,323,863 Investment Securities D 10,271,958 (10,271,958) - - Other Debtors, Deposits and Prepayments G 130,020,225 (130,020,225) - - Other Assets G - 61,240,937 (6,932,263) 54,308,674 Advances and Prepayments G - 58,019,589 (4,292,327) 53,727,262 Income Tax Receivables G - 6,759,699-6,759,699 Property, Plant and Equipment 50,676, ,676,540 Investment Property H 91,012,967 (48,078,450) - 42,934,517 Deferred Tax Assets L 45,428,429-8,357,621 53,786,050 Total Assets 2,717,697,249 - (39,215,614) 2,678,481,636 LIABILITIES Due to Customers E 1,881,706,478 42,391,663 (2,648,248) 1,921,449,893 Due to Banks 20,231, ,231,345 Other Borrowed Funds F 50,000,000 26,551,117-76,551,117 Other Liabilities E/F 95,155,846 (68,942,780) 854,875 27,067,941 Retirement Benefit Liability 3,244, ,244,037 Total Liabilities 2,050,337,706 - (1,793,373) 2,048,544,333 SHAREHOLDERS' FUNDS Stated Capital I 945,985,160 - (854,875) 945,130,285 Retained Earnings C/E/G/K (311,049,805) - (36,567,366) (347,617,171) Other Reserves 32,424, ,424,188 Total Equity 667,359,543 - (37,422,241) 629,937,303 Total Equity and Liabilities 2,717,697,249 - (39,215,614) 2,678,481,

21 2.7 FIRST TIME ADOPTION OF SLFRSs (Contd ) Reconciliation of Total Comprehensive Income for the year ended 31 Previous March 2012 SLAS Reclassifications Remeasurements SLAS Income 435,759,776 (417,842) - 435,341,934 Interest Income 378,483, ,483,748 Interest Expense E (207,158,719) - 139,488 (207,019,231) Net Interest Income 171,325, ,464,517 Net Trading Loss B - (24,957,371) - (24,957,371) Other Operating Income B 57,276,028 (417,842) - 56,858,186 Less: Operating Expenses Personnel Costs J (61,244,057) (15,157,176) - (76,401,233) Provision for Staff Retirement Benefits (489,287) - - (489,287) General and Administration Expenses B,J (113,725,115) 40,532,389 (7,974,590) (81,167,316) Purchase and Loans and Advances C (4,121,482) - (17,503,063) (21,624,545) Operating Profit before Value Added Tax on Financial Services 49,021,116 23,682,951 Value Added Tax on Financial Services (7,125,027) - - (7,125,027) Profit before Taxation 41,896,089 16,557,924 Income Tax (Charge)/Reversal L 29,736,726-1,691,851 31,428,577 Profit for the Year 71,632,815 - (23,646,314) 47,986,501 Other Comprehensive Income Other Comprehensive Income for the Year, Net of Tax 71,632,815 - (23,646,314) 47,986, A B Notes to the Reconciliation of Equity as at 01 April 2011, 31 March 2012 and Total Comprehensive Income for the year ended 31 March 2012 Other Financial Assets As per LKAS 39, non derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as Loans and Receivables. Accordingly, Fixed Deposits and Commercial Paper Investments has been classified as Other Financial Assets and measured at amortised cost using effective interest rate amounting to 40,863,010/- and 204,666,796/- as at 01 April 2011 and 31 March Financial Assets - Held for Trading and Net Trading Loss The investment in quoted equity shares has been reclassified as Financial Assets -Held for Trading amounting to 56,210,473/- and 23,323,863/- as at 01 April 2011 and 31 March Accordingly loss on fair valuation amounting to 25,375,213/- for the financial year ended 31 March 2012 has been reclassified from Administrative Expenses to Net Trading Loss. -20-

22 2.7 FIRST TIME ADOPTION OF SLFRSs (Contd ) C D E F G Lease Rentals Receivable, Hire Purchase and Loans and Advances As per LKAS 39, Company has assessed the impairment of Lease Rentals Receivable, Hire Purchase and Loans and Advances on an individual as well as collective basis based on objective evidence that there has been an impairment. Accordingly the impairment charge/(reversal) for Loans and Advances amounted to (Rs 1,715,560) and 6,981,217/- as at 01April 2011and 31 March Further Cheque Discounting difference between sub ledger and the general ledger amounting to 3,985,735/- has been impaired as at 01 April Further interest suspended onpledge Loans amounting to 6,749,696/- has been reversed as at 01 April 2011 based on the assessment of the recoverability of the balance. The impairment charge for Lease Rental Receivables and Hire Purchase amounted to Rs 16,825,103/- and 10,521,846/- as at 01April 2011and 31 March Financial Assets - Available for Sale The investment in unquoted equity shares has been reclassified as Financial Assets -Available for Sale amounting to 14,449,894/- and 14,271,958/- as at 01 April 2011 and 31 March 2012 in line with LKAS 39. Further Investment in Preference Shares of Platinum Reality Investment Limited amounting to 6,500,000/- has been impaired as at 01 April Due to Customers The interest payable on Due to Customers amounting to 44,626,405/- and 68,942,780/- has beenreclassified from Other Liabilities to Due to Customers as at 01 April 2011 and 31 March Due to Customers balance has been remeasured at amortised cost based on EIR and balance amounting to 2,508,760/- and 139,488/- has been adjusted to the Statement of Financial Position as at 01 April 2011 and 31 March Other Borrowed Funds Commercial paper issued by the Company and related interest payable amounting to 26,125,775/- has been reclassified as Other Borrowed Funds as at 31 March 2012 from Due to Customers. Other Debtors, Deposits and Prepayments Advances and Prepayments do not fall withinthe definitionof Financial Assets as defined inlkas 39. Accordingly balances amounting to 61,171,432/- and 58,019,589/- has been reclassified as Advances and Prepayments in the Statement of Financial Position as at 01 April 2011 and 31 March 2012 respectively. Other Assets amounting to 26,506,859/- and 61,240,937/- has been separately disclosed in the Statement of Financial Position as at 01 April 2011 and 31 March Other Assets amounting to 3,250,000/- and 6,923,263/- has been impaired as at 01 April 2011 and 31 March Further Advances and Prepayments balance amounting to 2,702,609/- have been impaired as at 31 March Income Tax Receivables has beenclassified separately inthe Statement of Financial Positionamounting to 9,175,825/- and 6,759,699/- as at 01 April 2011 and 31 March 2012 respectively. H I J K L Investment Property The investment property balance amounting to 48,078,450/- has been reclassified as Loans and Advances (Sale and Lease Back) upon agreement entered in to with the customer for the settlement of the facility. Stated Capital The unrecorded expenses related to Initial Public Offering amounting to 854,875/- has been adjusted as at 31 March General and Administration Expenses Personal Cost amounting to 15,157,176/- has been reclassified from General and Administration Expenses for the financial year ended 31 March Retained Earning The Change in Retained Earnings is as follows, Impairment Reversal/(Charge) Lease, Hire Purchase (27,346,948) (16,825,103) Impairment Reversal/(Charge) of Loans and Advances (2,501,696) 4,479,521 Fixed Deposits EIR Adjustment 2,648,248 2,508,760 Impairment of Available for Sale - Financial Assets (6,500,000) (6,500,000) Impairment of Other Assets (6,932,263) (3,250,000) Impairment of Advances and Prepayments (4,292,327) - Deferred Tax Reversal 8,357,621 6,665,770 (36,567,366) (12,921,052) Deferred Tax Assets This represents the effect on taxes arising on adjustments following the adoption of Sri Lanka Accounting Standards. Pending the issue of tax guidelines, suchimpact ontaxes has beenassessed based onthe currently applicable tax laws and regulations. Accordingly Deffered Tax Asset of 6,665,770/- and 1,691,851/- has been recognised on impairment of lease, hire purchase and loans and advances as at 01 April 2011 and 31 March 2012 respectively. -21-

23 3. ANALYSIS OF FINANCIAL INSTRUMENTS BY MEASUREMENT BASIS 3.1 As at 31 March 2013 AFS at Fair Value HFT at Fair Value L&R at Amortised Cost Assets Cash and Bank Balances - 193,568, ,568,463 Investment in Repurchase Agreements against Treasury Bills and Bonds ,938, ,938,359 Other Financial Assets ,652, ,652,390 Financial Assets - Held For Trading - 6,775,855-6,775,855 Loans and Advances - - 1,375,481,605 1,375,481,605 Lease Rentals Receivable and Hire Purchase - - 1,125,867,338 1,125,867,338 Financial Assets - Available for Sale 578, ,617 Total Financial Assets 578,617 6,775,855 3,067,508,155 3,074,862,627 Total Financial Liabilities at Amortised Cost Total Liabilities Due to Customers 2,591,165,554 2,591,165,554 Due to Banks 1,950 1,950 Other Borrowed Funds 48,544,214 48,544,214 Total Financial Liabilities 2,639,711,718 2,639,711, As at 31 March 2012 AFS at Fair Value HFT at Fair Value L&R at Amortised Cost Assets Cash and Bank Balances ,804,910 66,804,910 Investment in Repurchase Agreements against Treasury Bills and Bonds ,255,490 88,255,490 Financial Assets - Loans and Receivables ,666, ,666,796 Financial Assets - Held For Trading - 23,323,863 23,323,863 Loans and Advances ,984, ,984,736 Lease Rentals Receivable and Hire Purchase - - 1,121,545,998 1,121,545,998 Financial Assets - Available for Sale 7,771, ,771,958 Total Financial Assets 7,771,958 23,323,863 2,362,257,930 2,393,353,751 Total Financial Liabilities at Amortised Cost Total Liabilities Due to Banks 1,921,449,893 1,921,449,893 Due to Customers 20,231,345 20,231,345 Debt Instruments Issued and Other borrowed funds 76,551,117 76,551,117 Total Financial Liabilities 2,018,232,355 2,018,232,355 HFT - Held for Trading L & R - Loans and Receivables AFS - Available for Sale -22-

24 4. INCOME FROM INTEREST BEARING ACTIVITIES Interest on Leases 128,086, ,807,864 Interest on Hire Purchase 148,850,230 96,663,195 Interest on Loans 235,665, ,039,804 Overdue Interest 17,864,434 17,039,593 Interest on Treasury Bill Repurchase Agreements 12,980,965 8,514,033 Interest on Bank Deposits 24,169,428 2,184,271 Interest on Commercial Papers 21,698,958 5,234, ,316, ,483, Notional Tax Credit on Government Securities on Secondary Market Transactions The Inland Revenue Act No.10 of 2007, provided that acompany which derives interest income from the secondary market transactions in Government Securities(on or after April 1, 2002 )would be entitled toanotionaltax credit(beingone ninethofthenet interestincome )provided such interest income forms part of the statutory income of the Company for that year of assessment. Accordingly the net interest income earned from the secondary market transactions in Government Securities for the year, has been grossed up in the Financial Statements and the resulting notional tax credit amounts to 1,298,097/- ( ,403/-) INTEREST EXPENSES Interest on Fixed Deposits 331,073, ,879,957 Interest on Other Borrowings 5,802,127 3,139, ,876, ,019, OTHER OPERATING INCOME Documentation Charges and Service Charges 10,600,516 14,649,351 Profit from Sale of Property, Plant and Equipment and Investment Property 4,335,631 97,785 Profit on Settled Contracts 6,126,999 15,190,768 Dividend Income 232,128 1,263,826 Operating Lease Income 2,946,604 4,566,355 Rent Income 1,142,000 1,008,250 Insurance Commission Income 2,538,423 2,021,721 Threewheeler Transportation Income 1,193,530 5,517,736 Sundry Income 6,013,403 10,745,439 Cheque Discounting Administration Income 2,355, ,869 Recovery of Security Charges - 1,123,086 37,484,291 56,858, IMPAIRMENT CHARGE FOR LEASE RENTAL RECEIVABLES, HIRE PURCHASE AND LOANS AND ADVANCES Lease Rentals Receivable, Hire Purchase 17,951,304 8,393,729 Loans and Advances 7,262,055 8,317,599 Reversals in respect of settled contracts during the year 759,738 4,913,216 25,973,097 21,624, PROFIT BEFORE TAXATION stated after charging the following, Included in Personnel Cost, Salaries and Bonus 49,161,105 40,366,084 Defined Contribution Plan Costs - EPF and ETF 6,433,791 4,830,824 Other Satff related Allowances 33,737,711 22,091,793 Included in General and Administration Expenses, Depreciation 14,869,297 8,629,267 Auditors' Remuneration - Audit 870, ,100 - Non Audit 382, ,200 Advertising and Business Promortion 5,233,348 4,023,877 Professional and Legal Fees 11,572,873 9,932,

25 9. PROVISION FOR INCOME TAX The major components of income tax expense for the years ended 31 March are as follows, Income Statement Current Income Tax Current Income Tax charge (Note 9.1) 7,467,217 9,043,340 Under/(Over) Provision of current taxes in respect of prior years 66,534 (573,801) Deferred Income Tax Deferred Taxation Reversal (Note 9.2) (23,928,429) (39,898,116) Income Tax Expense reported in the Income Statement (16,394,679) (31,428,577) 9.1 Reconciliation of Accounting Profit and Taxable Income Accounting Profit (Profit before Income Tax ) 45,183,104 41,896,089 Add : Disallowable Expenses 281,516, ,609,546 Less: Allowable Expenses (268,782,165) (217,943,323) Less: Exempt Income (16,889,274) (6,873,627) Less: Exempt Income Statutory Income 41,028,663 49,688,685 Tax Loss Brought Forward and Utilized ( 35% of Statutory Income) (14,360,032) (17,391,039) Taxable Income 26,668,631 32,297,646 Income 28% 7,467,217 9,043,340 7,467,217 9,043,340 Effective Income Tax Rate 17% 22% 9.2 Deferred Tax Assets, Liabilities and Income Tax relates to the followings Balance Sheet Income Statement Deferred Tax Liability Lease Rental Receivable 8,544,442 34,558,548 20,580,678 (26,014,106) 13,977,870 Property Plant & Equipment 5,783,945 1,638,959 1,600,389 4,144,986 38,570 14,328,387 36,197,507 22,181,067 (21,869,120) 14,016,440 Deferred Tax Assets Defined Benefit Plans 1,344, , , , ,000 Tax Loss * 63,958,394 61,256,609 28,631,901 (5,655,836) 32,624,708 Specific Provisions for doubtful debts ( LLP) 26,739,784 27,818,618 6,665,770 7,278,787 19,460,997 92,042,866 89,983,557 36,069,000 2,059,310 52,222,705 Deferred Tax Reversal (23,928,429) (38,206,265) Net Deferred Tax Asset 77,714,479 53,786,050 13,887,934 Deferred tax has been determined based on the effective tax rate of 28%. *As of 31 March 2013, the Company has atax loss amounting to 640,561,905/- ( ,758,978/-) which is available indefinitelyfor offsetting against future StatutoryIncome of the Companysubject to alimit of 35% of StatutoryIncome in each year of assessment. Adeferred tax asset has been recognised up to tax loss of 228,422,835/- which has arisen from Non Finance Leasing Business. However, deferred tax assets have not been recognised for the tax losses amounting to 210,411,503/- and 201,727,567/- arising from the Finance Leasing Business and Non Finance Leasing Business respectively. Thecarryingamountofdeferredincometaxassetsis reviewedbythemanagement ateach reportingdate andrecognised tothe extentof probable taxable profits in future. -24-

26 10. INVESTMENT IN REVERSE REPURCHASE AGREEMENTS AGAINST TREASURY BILLS AND BONDS As at April 2011 Reverse Repurchase Agreements against Treasury Bills and Bonds 129,938,359 88,255,490 94,592, ,938,359 88,255,490 94,592,860 As at 11. OTHER FINANCIAL ASSETS April 2011 Fixed Deposits 85,790,616 30,852,988 40,863,010 Commercial Papers 156,861, ,813, ,652, ,666,796 40,863,010 As at 12. LOANS AND ADVANCES April 2011 Mortgage Loans 219,450, ,494,471 70,225,703 Pledge Loans * 268,669, ,290, ,121,058 Personal and Corporate Loans 372,994, ,655, ,619,805 Consumer Loans 11,966,616 13,383,584 13,641,385 Group Personal Loans 322,896, ,078,522 26,811,630 Cheque and Invoice Discounting 97,205,870 32,102,707 2,791,719 Micro Finance Loans 16,993, Sale and Lease Back Loans 60,145,140 89,073,479 85,587,347 Import and Other Loans 64,091, ,434,413, ,078, ,798,647 Less : Allowance for Impairment Losses (Note 12.1) TB ####### (58,931,635) (53,093,947) (50,500,502) J/E ####### 1,375,481, ,984, ,298,145 ####### 1,363,446, Impairment Allowance for Loans and Advances to CustomersPERSONAL (36,144,576) PLEDGE 1,350, GPL 102,922 CD Advance (1,557,394) As at 01 April 53,093,947 50,500,502 Net Charge / (Reversal) for the year 5,837,688 2,593,445 As at 31 March 58,931,635 53,093,947 Individual Impairment 8,233,248 8,233,248 Collective Impairment 50,698,387 44,860,699 Total Impairement 58,931,635 53,093,947 *As of 31 March 2013 Pledge Loans balance includes securities held bythe Companyunder share trading executed for customers of Fellow Subsidiary, Asia Securities ( Private) Limited amounting to 12,741,229/- ( ,746,594/- ). -25-

27 13. LEASE RENTALS RECEIVABLE AND HIRE PURCHASE As at April 2011 Lease Rentals Receivables (Note 13.1) 445,564, ,095, ,730,201 Hire Purchases (Note 13.2) 680,302, ,450, ,767,286 1,125,867,338 1,121,545, ,497, Lease Rentals Receivables Gross rentals receivable 658,713, ,596, ,747,244 Less: Unearned income (148,719,697) (215,850,924) (144,103,028) Pre-paid rentals (900,154) (6,350,552) (4,390,250) Allowance for Impairment Losses (41,467,112) TB (63,528,797) (59,298,966) (57,523,765) (2,410,439) J/E 445,564, ,095, ,730,201 (5,351,847) Cum Hire Purchase (43,877,551) Gross rentals receivable 981,544, ,226, ,764,134 Less: Unearned income (210,313,329) (233,224,012) (118,589,214) Pre-paid rentals (25,785,697) (15,123,104) (7,966,457) Allowance for Impairment Losses (21,824,183) TB (65,142,920) (51,428,815) (41,441,177) (11,864,104) J/E 680,302, ,450, ,767,286 (21,995,102) Cum 13.3 Allowance for Impairment Losses Lease Rentals Receivables As at 01 April 59,298,966 57,523,765 Net Charge / (Reversal) for the year 4,229,831 1,775,201 As at 31 March 63,528,797 59,298,966 Individual Impairment - - Collective Impairment 63,528,797 59,298,966 Total Allowance for Impairment Losses 63,528,797 59,298, Hire Purchase As at 01 April 51,428,815 41,441,177 Net Charge / (Reversal) for the year 13,714,104 9,987,639 As at 31 March 65,142,920 51,428,815 Individual Impairment - - Collective Impairment 65,142,920 51,428,815 Total Allowance for Impairment Losses 65,142,920 51,428,815 As at Lease and Hire Purchase Receivable not later than 1 year April 2011 Gross rentals receivable 226,755, ,928, ,199,168 Less: Unearned income (11,161,570) (6,268,565) (127,786,249) Pre-paid rentals (3,354,168) (2,063,978) (12,356,707) Allowance for Impairment Losses (17,788,101) (15,940,143) (6,035,811) 194,452, ,655, ,020, Lease and Hire Purchase Receivable later than 1 year and not later than 5 years Gross rentals receivable 1,413,502,012 1,533,127, ,915,022 Less: Unearned income (347,871,456) (442,806,371) (134,905,993) Pre-paid rentals (23,331,683) (19,409,678) - Allowance for Impairment Losses (110,883,615) (1,288,714) (15,800,999) 931,415,258 1,069,622, ,208,

28 14. FINANCIAL INVESTMENTS-HELD FOR TRADING As at 01 April 2011 Quoted Equity Securities Number of Market Value Number of Market Value Number of Market Value Shares Shares Shares Bank Finance and Insurance Asia Capital PLC 116,400 2,653, ,400 4,365, ,400 10,219,920 Commercial Bank of Ceylon PLC , ,290 Sampath Bank PLC , ,730 Seylan Bank PLC ,000 2,900, ,000 3,930, ,400 2,653, ,506 7,276, ,456 14,164,940 Manufacturing Ceylon Grain Elevators PLC , ,722 Dipped Products PLC ,200 9,311,220 Lanka Ceramic PLC 63,400 4,121,000 63,400 4,514,080 63,400 9,281,760 Lanka Walltiles PLC ,600 7,042, ,600 17,102,000 Samson International PLC , ,600 10,040 1,004,000 Richard Pieris and Company PLC , ,832 Pugoda Textiles Lanka PLC ,424 4,121, ,438 12,497, ,614 36,795,534 Services - - Dialog Axiata PLC ,000 3,550, ,000 5,250, ,000 3,550, ,000 5,250,000 Total 179,824 6,775, ,944 23,323, ,070 56,210, FINANCIAL ASSETS - AVAILABLE FOR SALE As at 01 April 2011 Number of Directors Number of Directors Number of Directors Shares Valuation* Shares Valuation* Shares Valuation* Unquoted Cumulative Redeemable Preference Shares Platinum Reality Investment Limited 25,000 6,500, ,000 14,000, ,000 14,000,000 Less - Impairment Charge (6,500,000) (6,500,000) (6,500,000) - 7,500,000 7,500,000 Unquoted Ordinary Shares Siedles T.V Industries Limited 2,000 28,000 2,000 28,000 2,000 28,000 Pure Beverages Company Limited , , ,958 Finance Houses Consortium Private Limited 20, ,000 20, ,000 20, ,000 Credit Information Bureau of SL (CRIB) , Compak Morison Lanka Limited ,000 70,000 Gem Exports Limited ,000 National Unit Trust , ,000 Pugoda Textiles Lanka PLC , , ,709 7,771, ,433 7,949,894 *The Directors valuation of non quoted securities based on cost of investment less impairment and amounts to 578,617/- (2012-7,771,958/-). As at 16. OTHER ASSETS April 2011 Other Debtors - Related Party (Note 16.1) 911,015 8,499, ,765 Other Receivables 46,500,812 45,809,483 23,096,094 47,411,827 54,308,674 23,256, Other Debtors - Related Party Relationship Asia Securities Private Limited Fellow Subsidiary 911,015 8,499, , DEPOSITS AND PREPAYMENTS As at April 2011 Advances, Deposits and Prepayments 45,229,998 53,727,262 61,171,432 45,229,998 53,727,262 61,171,

29 18. PROPERTY, PLANT AND EQUIPMENT 18.1 Gross Carrying Amounts Balance Balance Balance as at as at as at Additions Disposals Additions Disposals Freehold Assets Cost Motor Vehicle 18,869,832 35,067,867 15,514,052 38,423,647 7,734,640 (12,764,548) 33,393,739 Office Equipment 8,623,307 6,296,379-14,919,686 5,684,947-20,604,633 Computer Hardware and Software 6,758,421 2,149,147-8,907,568 16,212,712 (197,838) 24,922,442 Furniture and Fittings 4,463,720 2,926,628-7,390,348 1,458,111-8,848,459 Total Value of Depreciable Assets 38,715,280 46,440,021 15,514,052 69,641,249 31,090,409 (12,962,385) 87,769, Depreciation Balance Balance Charge Balance as at as at for the as at Additions Disposals Year Disposals Motor Vehicle 3,000,879 5,379, ,328 8,264,587 8,459,610 (3,078,014) 13,646,183 Office Equipment 2,387,770 1,531,106-3,918,876 2,388,974-6,307,850 Computer Hardware and Software 3,294, ,720-4,272,492 3,006,400 (123,648) 7,155,244 Furniture and Fittings 1,767, ,404-2,508, ,488-3,507,242 Total Value of Depreciable Assets 10,450,771 8,629, ,328 18,964,709 14,853,472 (3,201,663) 30,616,518 As at Net Book Value April 2011 Motor Vehicle 19,747,557 30,159,060 15,868,953 Office Equipment 14,296,783 11,000,810 6,235,537 Computer Hardware and Software 17,767,198 4,635,076 3,463,649 Furniture and Fittings 5,341,217 4,881,594 2,696,370 57,152,755 50,676,540 28,264, During the financial year, the Company acquired Property, Plant and Equipment to the aggregate value of 31,090,409/- ( ,440,021/-). Cash payments amounting to 23,355,769 /- ( ,740,021/-) was paid during the year for purchases of Property, Plant and Equipment. Property, Plant and Equipment includes fully depreciated assets having a gross carrying amount of 4,310,517/- (2012-4,179,217/-). -28-

30 As at 19. INVESTMENT PROPERTY April 2011 Balance at the beginning of the year 42,934,517 32,934,517 27,039,000 Acquisitions during the year - 10,000,000 32,934,517 Disposals during the year (10,000,000) - (27,039,000) Balance at the end of the year 32,934,517 42,934,517 32,934,517 Fair value of the investment property for purpose of disclosure is ascertained by valuations carried out by the independent valuers as required by LKAS As at Location of the Land Valuers Name and Report Date Fair Value Cost Fair Value Cost 01 April 2011 Dungahahena Land, Andigama Bazar Junction, Anamaduwa, Puttalam. D. Jayawardene ( Incorporated Valuer) - valuation report dated 17 May ,080,000 1,250,000 4,080,000 1,250,000 1,250,000 Kekunegawatte Land, Wattegedara Road, Maharagama. Delgahawaththa Land, Walpitamulla, Dewalapola, Naiwala, Gampaha No 25/20, Kalyani Mawatha, Mabola, Wattala. S. Nimal De Silva auctioneer's conveyance No 243 dated 26 March 2010 ( Court Determination) D. Jayawardana (Incorporated Valuer) valuation report dated 12 May 2012 I.P Kumara Edward auctioneer's conveyance No 182 dated 22 November 2010 (Court Determination) 17,732,500 15,453,317 17,732,500 15,453,317 15,453,317 1,300, ,000 1,300, , ,000 18,305,000 15,731,200 18,305,000 15,731,200 15,731,200 Godapeellee Estate, Madagedaragoda Village, Ratnapura, Sabaragamuwa. D. Jayawardana (Incorporated Valuer) valuation report dated 12 May ,000,000 10,000,000-41,417,500 32,934,517 51,417,500 42,934,517 32,934, The amounts recognised to profit or loss on investment property is as follows, Direct expenses ( including security charges and other utility charges) 555, , As at 20. DUE TO CUSTOMERS April 2011 Fixed Deposits 2,591,165,554 1,921,449,893 1,351,662,050 2,591,165,554 1,921,449,893 1,351,662,

31 As at 21. OTHER BORROWED FUNDS April 2011 Bank Loans (Note 21.1) 19,074,154 50,425,342 - Commercial Papers (Note 21.2) 29,470,060 26,125,775-48,544,214 76,551, Bank Loans As at Loans Interest for Repayments As at Loans Interest for Repayments As at Obtained the year Obtained the year Term Loan Seylan Bank PLC - 50,000, ,342-50,425,342-1,257,718 (51,683,060) - DFCC Vardhana Bank ,000, ,939 (1,701,785) 19,074,154-50,000, ,342-50,425,342 20,000,000 2,033,657 (53,384,845) 19,074, Term Loan Details Approved Term of the Security Amount Purpose Security Bank Facility Loan Seylan Bank PLC 50 Mn working capital requirements Short Term Corporate Guarantee of Asia Capital PLC 40 Mn 90 Days DFCC Vardhana Bank 40 Mn working capital requirements Long Term Corporate Guarantee of Asia Capital PLC 40 Mn 36 monthly installements 21.2 Company has issued Commercial Papers to Softlogic Finance PLC amounting to 29,470,060/- as at 31 March 2013 ( ,125,775/-). -30-

32 22. CASH AND CASH EQUIVALENTS FOR THE PURPOSE OF THE CASH FLOW STATEMENT As at April Favourable Cash and Cash Equivalents Balances Cash & Bank Balances 193,568,463 66,804,910 31,979,594 Re-Purchase Agreements ( less than 3 months) 129,938,359 88,255,490 94,592, Unfavourable Cash and Cash Equivalent Balances Due to Banks (1,950) (20,231,345) - Total Cash and Cash Equivalents for the Purpose of Cash Flow Statements 323,504, ,829, ,572,454 As at 23. OTHER LIABILITIES April 2011 Other Payables - Related Party ( 23.1) 1,782,357 14,839,492 1,484,337 Accrued Expenses and Other Payables 12,418,849 12,228,449 13,940,389 14,201,207 27,067,941 15,424, Other Payables - Related Party Relationship Asia Capital PLC Parent Company 1,782,357 14,839,492 1,484,337 As at 24. RETIREMENT BENEFIT LIABILITY April 2011 Retirement Benefit Obligations - Gratuity Balance at the beginning of the year 3,244,037 2,754,750 1,813,375 Amount Charged/(Reversed) for the year 1,558, , ,375 Payments made during the year - - (40,000) Balance at the end of the year 4,802,457 3,244,037 2,754, Expenses on Defined Benefit Plan Current Service Cost for the Year 1,159, ,517 Interest Cost for the Year 356, ,023 Acturial Gain/Loss for the Year 41,739 (640,253) 1,558, , Messrs. Actuarialand Management Consultants (Pvt) Ltd, Actuaries, carried out an actuarialvaluation for Asia Asset Finance PLC of the defined benefit plan gratuity as at 31 March Appropriate and compatible assumptions were used in determining the cost of retirement benefits. The principal assumptions used are as follows, Actuarial assumptions Discount Rate 11.5% 11% 9.15% Salary Increment Rate 8% 8% 10% Staff Turnover 5% 5% 5% Retirement age 55 Years 55 Years 55 Years Mortality 67/70 Mortality Table (Institute of Acturiaries London) -31-

33 25. STATED CAPITAL As at 01 April 2011 Number Number Number 25.1 Fully Paid Ordinary Shares 559,471, ,130, ,471, ,130, ,730, ,538, As at 01 April 2011 Number Number Number Balance at beginning of the year 559,471, ,130, ,730, ,538, ,534, ,342,860 Rights Issue of shares ,425,715 89,971, ,195, ,195,888 Issue of Shares for Cash Consideration ,316, ,790, Direct Costs relating to Issue of Shares (21,169,979) - - Balance at end of the year 559,471, ,130, ,471, ,130, ,730, ,538, Rights of Shareholders The holders of ordinary shares confer their right to receive dividends as declared from time to time and are entitled to one vote per share at the meeting. All shares rank equally with regard to the Company's residual assets. 26. RESERVES Reserve General Investment Accumilated Total Fund Reserve Fund Reserve Profits/Losses As at 01 April ,783,549 3,000,000 1,173,333 (387,136,366) (363,179,484) Total Comprehensive Income for the Year ,986,501 47,986,501 Transfers to/(from) during the year 3,581,641-4,885,665 (8,467,306) - As at 01 April ,365,190 3,000,000 6,058,998 (347,617,171) (315,192,983) Total Comprehensive Income for the Year ,661,741 61,661,741 Transfers to/(from) during the year 3,083,087-7,588,215 (10,671,302) - As at 31 March ,448,277 3,000,000 13,647,213 (296,626,732) (253,531,243) Reserve Fund is acapital reserve which contains profits transferred as required by Section 3(b) (i) of Finance Companies Capital Funds Direction No. 1 of 2003 of Finance Business Act No 42 of Investment Fund Reserve is established and operated based on the Guidelines on Operation of Investment Fund Account issued by Central Bank of Sri Lanka with concurrence with Commissioner-General of Inland Revenue. Tax saving on the reduction of tax rates is transferred to the Investment Fund as per the guidelines issued by the Department of Inland Revenue and Central Bank of Sri Lanka. 27. EARNINGS PER SHARE EARNING PER SHARE 27.1 Basic Earnings Per Share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year The following reflects the Income & Share data used in the Basic Earnings Per Share computation Amounts Used as the Numerators: Net Profit Attributable to Ordinary Shareholders for Basic Earnings Per Share 61,661,741 47,986, Number of Ordinary Shares Used as Denominators for Basic Earnings per share Number Number Weighted Average number of Ordinary Shares in issue 559,471, ,734,889 Applicable to Basic Earnings Per Share

34 28. MATURITY ANALYSIS An analysis of the total assets employed and total liabilities at the year end,based on the remaining at the balance sheet date to the respective contractual maturity dates are given below. Less than over 3 Total months months years years Cash and Bank Balances 193,568, ,568,463 Investment in Repurchase Agreements against Treasury Bills and Bonds 129,938, ,938,359 Other Financial Assets 242,652, ,652,390 Financial Assets - Held For Trading 6,775, ,775,855 Loans and Advances 563,602, ,944, ,275,211 44,389,158 1,323,211,519 Lease Rentals Receivable and Hire Purchase 257,631, ,293, ,059,470 69,153,114 1,178,137,424 Financial Assets - Available for Sale , ,617 Vehicle Stock - 4,341,810 4,413,643-8,755,453 Other Assets 18,428, ,000 28,333,796 47,411,827 Deposits and Prepayments 8,725,376 10,121,523 6,665,054 19,718,045 45,229,998 Income Tax Receivable - - 6,252,769-6,252,769 Property, Plant and Equipment ,152,755 57,152,755 Investment Property ,934,517 32,934,517 Deferred Tax Asset ,714,479 77,714,479 As at ,421,322, ,700, ,316, ,974,481 3,350,314,427 As at ,140, ,361, ,942, ,037,490 2,678,481,636 Liabilities Due to Customers 712,375,760 1,118,825, ,433,053 38,530,774 2,591,165,554 Due to Banks 1, ,950 Other Borrowed Funds 31,321,994 5,000,004 12,222,216-48,544,214 Other Liabilities 14,285, ,285,165 Retirement Benefit Liability ,802,457 4,802,457 As at ,984,870 1,123,825, ,655,269 43,333,231 2,658,799,340 As at ,537, ,052, ,200,495 30,754,167 2,048,544, Fair Value of Financial Instruments 29.1 Determination of Fair Value and Fair Value Hierarchy As at 31 March 2013, the Company held the following financial instruments carried at fair value on the statement of financial position; The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data Assets Measured at Fair Value 31 March 2013 Level 1 Level 2 Level 3 Financial Assets - Held For Trading 6,775,855 6,775, Financial Assets - Available for Sale 578, , March 2012 Level 1 Level 2 Level 3 Financial Assets - Held For Trading 23,323,863 23,323, Financial Assets - Available for Sale 7,771, ,771,958 1 April 2011 Level 1 Level 2 Level 3 Financial Assets - Held For Trading 56,210,473 56,210, Financial Assets - Available for Sale 7,949, ,949,

35 29.2 Fair Value of Financial Assets and Liabilities not Carried at Fair Value Set out below is a comparison, by class, of the carrying amounts and fair values of the Company s financial instruments that are not carried at fair value in the Financial Statements. This does not include the fair values of non financial assets and non financial liabilities Carrying Value Fair Value Carrying Value Fair Value Assets Cash and Cash Equivalents 193,568, ,568,463 66,804,910 66,804,910 Investment in Repurchase Agreements against Treasury Bills and Bonds 129,938, ,938,359 88,255,490 88,255,490 Other Financial Assets 242,652, ,652, ,666, ,666,796 Financial Assets - Held For Trading 6,775,855 6,775,855 23,323,863 23,323,863 Loans and Advances 1,375,481,605 1,209,135, ,970, ,938,571 Lease Rentals Receivable and Hire Purchase 1,125,867,338 1,003,823,078 1,121,545,998 1,027,336,261 Financial Assets - Available for Sale 578, ,617 7,771,958 7,771,958 3,074,862,627 2,786,471,958 2,397,339,486 2,254,097,849 Liabilities Due to Customers 2,591,165,554 2,544,471,734 1,921,449,893 1,910,955,692 Due to Banks 1,950 1,950 20,231,345 20,231,345 Other Borrowed Funds 48,544,214 48,544,214 76,551,117 76,551,117 Total Financial Liabilities 2,639,711,718 2,593,017,899 2,018,232,355 2,007,738,154 The following describes the methodologies and assumptions used to determine the fair values for those financial instruments which are not already recorded at fair value in the Financial Statements. Assets for which Fair Value Approximates Carrying Value For financial assets and financial liabilities that have a short term maturity (original maturities less than a year), it is assumed that the carrying amounts approximate their fair values. Further other borrowed funds with a variable interest rate are also considered to be carried at fair value. Fixed Rate Financial Instruments It is assumed that the carrying amounts approximate their fair values for short term financial assets and liabilities. In fair valuing fixed rate lease rentals receivable,hire purchase, loans and advances the market rates at which Company granted new credit facilities at the last quarter of the reporting year were used. In fair valuing fixed deposits with tenor above one year, the cashflows were discounted using current market interest rates offered by the Company during the last quarter of the reporting year. Financial Assets - Available for Sale Fair value of Unquoted Shares has been determined based on the cost of investment adjusted for impairment as at the reporting date. 30. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company makes various commitments and incurs contingent liabilities. No material losses are anticipated as aresult of these transactions Commitments Undrawn Commitments 34,398,921 29,632,953 Capital Commitments for Software 18,135,902 20,456,590 52,534,823 50,089,543 Undrawn commitments are consists of facilities granted to customers where the Company reserves the right to unconditionally cancel or recall the facility at it's discretion Contingent Liabilities The Company does not have significant contingencies as at the reporting date. 31. ASSETS PLEDGED There are no significant assets pledged as at the reporting date. -34-

36 32. FINANCIAL REPORTING BY SEGMENT Finance Lease Hire Purchase Loans and Advances Investment Other Total Interest Income 132,847, ,632, ,832, ,951, ,785, ,966,552 58,849,351 15,933, ,316, ,483,748 Other Income 11,059,415 27,273,490 5,587,037 9,264,535 11,209,080 12,260, ,128 1,263,826 9,396,631 6,795,476 37,484,291 56,858,185 Total Revenue 143,907, ,905, ,420, ,216, ,994, ,227,409 59,081,479 17,197,118 9,396,631 6,795, ,800, ,341,933 Segmental Result 11,705,267 16,659,289 9,864,134 10,403,835 26,600,085 17,704,756 5,165,862 (22,181,729) 1,247,829 1,096,800 54,583,177 23,682,951 Value Added Tax on Financial Services 9,316,115 7,125,027 Profits from Operations 45,267,062 16,557,924 Income Tax Reversal for the Year 16,394,679 31,428,577 Net profit for the Year 61,661,740 47,986,501 Segment Assets 445,564, ,095, ,302, ,450,242 1,323,211, ,984, ,945, ,018, ,829,024,078 2,326,548,841 Unallocated Assets ,290, ,575, ,290, ,932,795 Total Assets 445,564, ,382, ,302, ,445,343 1,323,211, ,407, ,945, ,518, ,290, ,943,071 3,350,314,427 2,678,481,636 Segment Liabilities 408,102, ,193, ,104, ,069,135 1,211,958, ,587, ,000, ,600, ,591,165,554 1,921,449,893 Unallocated Liabilities ,549, ,094,440 67,549, ,094,440 Total Liabilities 408,102, ,878, ,104, ,194,916 1,211,958, ,264, ,000, ,338,103 67,549, ,661,756 2,658,715,382 2,048,544,333 In determining segment results, expenses have been allocated proportionately based on interest income and Segment Liabilities has been proportionately allocated based on the segment assets. 33. EVENTS OCCURRING AFTER THE REPORTING DATE There have been no material events occurring after the reporting date that require adjustments to or disclosure in the Financial Statements. -35-

37 34. RELATED PARTY DISCLOSURES The Company carries out transactions in the ordinary course of business on an arm s length basis at commercial rates with related parties. Details of significant related party disclosures are as follows: Transactions with Related Entities Parent Fellow Parent Fellow Company Subsidiary Company Subsidiary Opening receivable/(payable) balance (14,839,492) 8,499,191 (1,484,337) 160,765 Operating lease rental income 1,212,516-1,397,516 - Reimbursement of payment made for developing a software 8,312, Settlement of lease facilities to directors of Asia Capital PLC 3,532, Rent income - 462, ,250 Rent income received during the year - (120,000) - - Proceeds from Sale of Company's quoted investment on its behalf - 13,868,124-7,930,176 Settlement of proceeds from sale of quoted investments - (21,798,300) - - Operating lease rentals received - - (404,171) - Expenses incurred for Related Party ,100 - Payments made on behalf of the Company - - (14,359,600) - Opening receivable/(payable) balance (1,782,357) 911,015 (14,839,492) 8,499,191 Included In Other Payable Other Receivable Other Payable Other Receivable Balance Sheet Items Parent Fellow * Parent Fellow * Company Subsidiaries Company Subsidiaries Assets Investment in Repurchase Agreements against Treasury Bills and Bonds 97,762,673-88,255,490 - Other Financial Assets (Note (a) ) - 20,480,418-90,952,634 Financial Assets - Held for Trading 2,653,920-4,365,000 - Loans and Advances (Note (b)) - 102,366, Lease Rentals Receivable and Hire Purchase (Note (c)) - 14,915,857-11,253, Balances held by fellow subsidiaries of the Company (a) (b) (c) Company has invested incommercial Papers of Asia Fort Sri Lanka Direct Investment Fund Ltd amounting to 20,480,418/- as at 31 March (As at 31 March ,952,634/-). Company has granted corporate loans to Asia Leisure Holding (Private) Limited (As at 31 March ,583,335/-), Lanka Fortune Residencies (Private) Limited (As at 31 March ,583,335/- )and Asia Wealth Management Company (Private) Limited (As at 31 March ,200,000/- ). Further the loans granted to Asia Leisure Holding (Private) Limited and Lanka Fortune Residencies (Private) Limited have been guaranteed by Asia Capital PLC. Company has granted hire purchase facility to Asia Tea Packaging (Private) Limited amounting to 14,915,857/- as at 31 March 2013 (As at 31 March ,253,993/-). Further the facility has been guaranteed by Asia Securities ( Private) Limited. Refer Note 12 to the Financial Statements on Loans and Advances for pledge loans securities held by the Company under share trading executed for customers of fellow subsidiary, Asia Securities ( Private) Limited. -36-

38 34. RELATED PARTY DISCLOSURES (Contd..) DFCC Vardhana Bank Loan 20 Mn has been obtained under the approved facility limit of 40 Mn with asecurity of acorporate Guarantee from Asia Capital PLC for 40 Mn. (2012 -Seylan Bank Loan Rs 50 Mn has been obtained with asecurity of acorporate Guarantee from Asia Capital PLC for 40 Mn). Refer Note Parent Fellow * Parent Fellow * Income Statement Items Company Subsidiaries Company Subsidiaries Interest Income 12,980,965 25,883,374 8,514,033 4,691,593 Interest Expense - - 2,160,592 2,131,655 Other Income 1,082, ,000 1,082, ,250 Expenses - Professional fees 2,264, Rentals Received - 9,146,199-32,468,749 *The fellow subsidiaries includes Asia Securities (Private) Limited, Asia Fort Sri Lanka Direct Investment Fund (Private) Limited, Asia Tea Packaging (Private) Limited, Asia Leisure Holding (Private) Limited, Lanka Fortune Residencies (Private) Limited and Asia Wealth Management Company (Private) Limited Transactions with Key Management Personnel of the Company The Key Managerial Personnel of the Company are the members of its Board of Directors and the Parent Company. Following transactions are entered between the Company and its Key Management Personnel and their close family members Key Management Personnel Compensation Short Term Employment Benefits Paid 23,110,000 12,315,000 Post Employment Benefits 530, , Other transactions with Key Management Personnel Fixed Deposits held as at the end of the year 1,100,000 9,000,000 Outstanding Lease Facilities as at the end of the year 3,345,407 2,594,059 Upliftment of Fixed Deposits during the year 9,000,000 - Interest Expense for the year 516,086 - Interest Income for the year 501,765 - Operating Lease Facility obtained and repaid during the year - 12,746,194 Operating Lease Rental Income - 1,492,828 Lease Settlements during the year 821,

39 35. RISK MANAGEMENT The Management of the Company considers the Risk Management as an important factor behind the recent success of the Company. The Company has developed aculture within the organization, which shapes influences the risk decisions taken by the management and the employees. The adequacy and the effectiveness of the risk management decisions taken by the Company's management will be reviewed regularly through its committees and reported to the Integrated Risk Management Committee for reference and guidance. We believe successful Risk Management will enable the Company to be resilient to any unfavorable event caused by internal or external factors Risk Management Committees The Company s risk management structure comprise of the following committees, Integrated Risk Management Committee Audit Committee This is a committee appointed from the Board of Directors, where the main aim is to assess the adequacy and the effectiveness of the risk management decisions taken by the Management. This is a committee appointed from the Board of Directors and is responsible for overseeing the adequacy and the effectiveness of the internal controls placed within the Company. Credit Evaluation Committee Compliance Committee Assets and Liabilities Committee Credit Evaluation Committee is responsible for evaluating the credit quality of the company. This committee is appointed from the Management. This committee is responsible for ensuring whether the company is complied with all the regulatory requirements. This committee is responsible to monitor and evaluate the practices relating to managing the Assets and the Liabilities of the Company Credit Risk Credit risk is the likelihood that aborrower or counterparty will not honor its obligations in accordance with the terms of agreement. i.e the risk of default which isone of the most vulnerable riskfaced byanyfinancialinstitution. Credit riskisinherent to all financialinstitutions where the main business islending. The main aim of the Credit Risk Management is to minimize the risk and to maximize the risk adjusted rate of return of the Financial Institution. Company's approach to Credit Risk The Company caters to mainly the Small and Medium Corporate Sector and to the Retail Sector. Therefore Company has adopted aprocess where the credit evaluation is not restricted to its financials but also on qualitative factors, giving Company the opportunity to evaluate customer's operations, product feasibility, management structure etc. In order to mitigate the riskof exposingin to high risksectors, AAF has imposed sector restrictionsand exposure ceilings. Effective Management of portfolio ensures that Company avoids the risk of concentration of exposures. Further Company iscontinuously conductingenvironment analysisand periodic reviews to monitor credit exposures, portfolio performance and to identify emerging credit risks. The recoveries department consistently monitors portfolio delinquency and the collections. Amonthly report is submitted to the Chief Executive officer on the performance of individual marketer. The Credit Policy of the Company recommends an innovative approach in evaluating aborrower without hindering the credit quality. The Company has introduced exposure ceilings, delegated authority levels for credit approval internal risk rating model and risk based pricing through the Credit Policy Credit Quality by Class of Financial Assets Neither past due Past due Individually 2013 nor impaired but not impaired Impaired Total Cash and Cash Equivalents 193,568, ,568,463 Investment in Reverse Repurchase Agreements against Treasury Bills and 129,938, ,938,359 Other Financial Assets 242,652, ,652,390 Financial Assets - Held For Trading 6,775, ,775,855 Loans and Advances Gross Loans and Advances 543,755, ,270,276 8,117,440 1,382,143,154 Less - Impairment Charge (1,656,155) (49,158,039) (8,117,440) (58,931,635) 542,099, ,112,237-1,323,211,519 Lease Rentals Receivable and Hire Purchase Gross Lease Rentals Receivable and Hire Purchase 431,745, ,793,859-1,254,539,054 Less - Impairment Charge (2,660,347) (126,011,370) - (128,671,716) 429,084, ,782,489-1,125,867,338 Financial Assets - Available for Sale Financial Assets - Available for Sale 578,617-6,500,000 7,078,617 Less - Impairment Charge - - (6,500,000) (6,500,000) 578, ,617 Note :Neither past due not impaired lease rental receivables, hire purchase and loans include any facility that is not in arrears as at the reporting date and assessed for impairment on acollective basis. Past due but not impaired lease rental receivable, hire purchase and loans include any facility that is in arrears for more than one day and assessed for impairment on a collective basis. -38-

40 Concentration of Credit Risk The Company's concentration of risk in relation to the lending portfolio is managed by the industry sector which is detailed below, Textile and Wearing Apparel 33,361,070 39,727,242 Manufacturing 281,271,240 60,020,974 Metals, Chemicals and Engineering - 38,916,962 Transport 404,989, ,322,963 Services 363,986, ,286,314 Agro-Business and Fisheries 293,643, ,048,843 Construction 36,621, ,650,178 Commercial Trading 207,065,204 26,672,286 Others 1,042,428, ,166,091 Total Lending Portfolio as at 31 March 2,663,368,060 2,191,811,853 Gross Receivable Loans and Advances 1,434,413, ,078,683 Lease 509,993, ,745,274 Hire Purchase Receivables 771,231, ,002,161 2,715,638,146 2,187,826, Market Risk Market risk is identified by the Company as the possibility of loss to the Company caused by changes in the market variables. Market Risk mainly includes Interest Rate risk, Liquidity risk, Foreign exchange Risk and Country Risk Interest Rate Risk Interest rate risk is the potential negative impact on the net interest income based on rate fluctuations and impact to the profitability of the Company. The Company does not have variable interest rates and all facilities granted are on fixed interest rates. When all borrowings and lending are done on fixed rates the net interest margin is affected due to the following reasons, Maturity Mismatch/GAP One of the major concerns in financial business is the maturity mismatch, where the average loan period is over 2 years whilst the average deposit period is less than one year. Hence where the interests are on an increasing trend the company net interest margin will reduce. Please refer Note 28 to the financial statements for the Maturity Analysis. Re-Investment Risk These are uncertainties with regard to interest rate at which the future cash flows could be re-invested. On an increasing trend, this would be beneficial for Asia Asset Finance PLC. Net Interest Position When the market rates on a downward trend and the company earning assets are higher than its liabilities, the risk of net interest position falling is high. Liquidity Risk Liquidity is the ability to efficiently accommodate deposit as also reduction in liabilities and to fund the loan growth and possible funding of the off-balance sheet claims Liquidity risk arises through maturity mismatch of loans and deposits. Foreign Exchange & Country Risk FOREX is the risk that finance companies may suffer loss as aresult of adverse exchange rate movements. Country risk is the risk that arises due to cross border transactions. Asia Asset Finance does not have any foreign borrowings or foreign transactions overseas except for Oracle financials licensing fee, which does not consists asubstantial impact on the company to conduct in-depth analysis. However there isaslight impact when budgeting for this cost. The above risks are triggered by the treasury operations. -39-