The document discusses International Financial Reporting Standards (IFRS) and accounting principles, regulations, and standards. It provides an introduction to IFRS and discusses their origins and adoption in different countries. It then summarizes criticisms of IFRS, Pakistan's adoption of various IFRS, accounting standards used in different institutions, and basic objectives and concepts of financial accounting standards like GAAP.

1. Research papers
Advanced financial accounting
Submitted to: Submitted by:
Mr Siddique Khatri Asad Ali Roomy 10877
Umair Ahmed 9964
Asim Khan 9793
Adil Shah 10072

2. RESEARCH PAPER # 1

3. ACCOUNTING PRINCIPLES, REGULATIONS AND
STANDARDS
INTERNATIONAL FINANCIAL REPORTING AND
INTERNATIONAL ACCOUNTING STANDARDS
INTRODUCTION:
International Financial Reporting Standards (IFRS) are designed as a common global language
for business affairs so that company accounts are understandable and comparable across
international boundaries. They are a consequence of growing international shareholding and
trade and are particularly important for companies that have dealings in several countries. They
are progressively replacing the many different national accounting standards. The rules to be
followed by accountants to maintain books of accounts which is comparable, understandable,
reliable and relevant as per the users internal or external.
IFRS, with the exception of IAS 29 Financial Reporting in Hyperinflationary Economies and IFRIC
7 Applying the Restatement Approach under IAS 29, are authorized in terms of the historical
cost paradigm. IAS 29 and IFRIC 7 are authorized in terms of the constant purchasing power
paradigm.
IFRS began as an attempt to harmonize accounting across the European Union but the value of
harmonization quickly made the concept attractive around the world. They are sometimes still
called by the original name of International Accounting Standards (IAS). IAS were issued
between 1973 and 2001 by the Board of the International Accounting Standards Committee
(IASC). On 1 April 2001, the new International Accounting Standards Board (IASB) took over
from the IASC the responsibility for setting International Accounting Standards. During its first
meeting the new Board adopted existing IAS and Standing Interpretations Committee standards
(SICs). The IASB has continued to develop standards calling the new standards International
Financial Reporting Standards.
In the absence of a Standard or an Interpretation that specifically applies to a transaction,
management must use its judgement in developing and applying an accounting policy that
results in information that is relevant and reliable. In making that judgement, IAS 8.11 requires
management to consider the definitions, recognition criteria, and measurement concepts for
assets, liabilities, income, and expenses in the Framework.
CRITICISM

4. Criticisms of IFRS are (1) that they are not being adopted in the US, (2) a number of criticisms
from France and (3) that IAS 29 Financial Reporting in Hyperinflationary Economies had no
positive effect at all during 6 years in Zimbabwe´s hyperinflationary economy. The IASB offered
responses to the first two criticisms, but has offered no response to the last criticismwhile IAS
29 is currently (March 2014) being implemented in its original ineffective form in Venezuela and
Belarus.
ADOPTION OF PAKISTAN :
All listedcompaniesmustfollowall issuedIAS/IFRSexceptthe following:
IAS39 and IAS42: Implementationof these standardshasbeenheldinabeyance byState Bankof
PakistanforBanksand DFIs
IFRS-1:Effective forthe annual periodsbeginningonorafter1 January2004. ThisIFRS isbeing
consideredforadoptionforall companiesotherthanbanksandDFIs.
IFRS-9:Under considerationof the relevantCommitteeof the Institutes(ICAP&ICMAP).ThisIFRSwill
be effective forthe annual periodsbeginningonorafter1 January2013.
Pakistanhasnot adoptedIFRIC4 DeterminingwhetheranArrangement ContainsaLease
Pakistanhasnot adoptedIFRIC12 Service ConcessionArrangements.
ACCOUNTING / AUDITING / REPORTING STANDARDS AT VARIOUS INSTITUTIONS:
GenerallyAcceptedAccountingPrinciples,USGAAPor GAAPstandsfor "generallyacceptedaccounting
principles".Althoughthe U.S.SecuritiesandExchange Commission (SEC) hasstatedthatitintendsto
move fromUS GAAPto the International Financial ReportingStandards (IFRS),theydifferconsiderably
fromGAAP andprogresshas beenslowanduncertain.
The FASB expressedUSGAAPin XBRL beginningin2008.
Auditorstookthe leadingrole indevelopingGAAPforbusinessenterprises.
Accountingstandardshave historicallybeensetbythe AmericanInstitute of CertifiedPublic
Accountants(AICPA) subjectto SecuritiesandExchange Commission regulations.[4]
The AICPA first
createdthe Committee onAccountingProcedurein1939, andreplacedthatwiththe Accounting
PrinciplesBoard in1959. In 1973, the AccountingPrinciplesBoardwasreplacedbythe Financial
AccountingStandardsBoard (FASB) underthe supervisionof the Financial AccountingFoundation with
the Financial AccountingStandardsAdvisoryCouncilservingtoadvise andprovide inputonthe
accountingstandards.OtherorganizationsinvolvedindeterminingUnitedStatesaccountingstandards
include the Governmental AccountingStandardsBoard (GASB),formedin1984, and the PublicCompany
AccountingOversightBoard (PCAOB).
Circa 2008, the FASBissuedthe FASBAccountingStandardsCodification,whichreorganizedthe
thousandsof US GAAPpronouncementsintoroughly90accountingtopics

5. In 2008, the SecuritiesandExchange Commissionissuedapreliminary"roadmap"thatmayleadthe
UnitedStatesto abandonGenerallyAccepted AccountingPrinciplesinthe future (tobe determinedin
2011), and to joinmore than100 countriesaroundthe worldinsteadinusingthe London-based
International Financial ReportingStandards.Asof 2010, the convergence projectwasunderwaywiththe
FASBmeetingroutinelywiththe IASB.TheSECexpressedtheiraimtofullyadoptInternational Financial
ReportingStandardsinthe U.S. by2014.With the convergence of the U.S.GAAP andthe international
IFRSaccountingsystems,asthe highestauthorityover International Financial ReportingStandards,the
International AccountingStandardsBoard isbecomingmore importantin the UnitedStates.
BASIC OBJECTIVES :
Financial reportingshouldprovideinformationthatis:
 Useful topresenttopotential investorsandcreditorsandotherusersinmakingrational
investment,credit,andotherfinancialdecisions
 Helpful topresentto potential investorsandcreditorsandotherusersinassessingthe amounts,
timing,anduncertaintyof prospectivecashreceiptsabouteconomicresources,the claimsto
those resources,andthe changesinthem
 Helpful formakingfinancialdecisions
 Helpful inmakinglong-termdecisions
 Helpful inimprovingthe performanceof the business
 Useful inmaintainingrecords
BASIC CONCEPTS:
To achieve basicobjectivesandimplementfundamentalqualitiesGAAPhasfourbasicassumptions,four
basicprinciples,andfourbasicconstraints.
ASSUMPTIONS:
 Accounting Entity: assumesthatthe businessisseparate fromitsownersorotherbusinesses.
Revenue andexpense shouldbe keptseparate frompersonal expenses.
 GoingConcern: assumesthatthe businesswill be inoperationindefinitely.Thisvalidatesthe
methodsof assetcapitalization,depreciation,and amortization.Onlywhenliquidationiscertain
thisassumptionisnotapplicable.The businesswillcontinuetoexistinthe unforeseeable future.
 Monetary Unitprinciple:assumesastable currency is goingtobe the unitof record.The FASB
acceptsthe nominal value of the USDollaras the monetaryunitof recordunadjustedfor
inflation.
 The Time-periodprinciple impliesthatthe economicactivitiesof anenterprise canbe divided
intoartificial time periods.
PRINCIPLES:
 Historical cost principle requirescompaniestoaccountand reportbasedonacquisitioncosts
rather than fairmarket value formostassetsand liabilities.Thisprinciple providesinformation
that isreliable (removingopportunitytoprovide subjective andpotentiallybiasedmarket

6. values),butnotveryrelevant.Thusthere isatrendto use fairvalues.Mostdebtsand securities
are nowreportedat marketvalues.
 Revenue recognition principle holdsthatcompaniesmaynotrecordrevenue until (1) itis
realizedorrealizableand(2) whenitis earned.The flow of cash doesnothave any bearingon
the recognitionof revenue.Thisisthe essence of accrual basisaccounting.Conversely,however,
lossesmustbe recognizedwhentheiroccurrence becomesprobable,whetherornot ithas
actuallyoccurred.Thiscomportswiththe constraintof conservatism,yetbringsitintoconflict
withthe constraintof consistency,inthat reflectingrevenues/gainsisinconsistentwiththe way
inwhichlossesare reflected.
 Matching principle.Expenses have tobe matchedwith revenues aslongasitis reasonable todo
so.Expensesare recognizednotwhenthe workisperformed,orwhenaproduct isproduced,
but whenthe workor the product actuallymakesitscontributiontorevenue.Onlyif no
connectionwithrevenue canbe established,costmaybe chargedas expensestothe current
period(e.g.office salariesandotheradministrative expenses).Thisprinciple allowsgreater
evaluationof actual profitabilityandperformance (showshow muchwasspenttoearn
revenue).DepreciationandCostof GoodsSoldare goodexamplesof applicationof this
principle.
 Full disclosure principle.Amountandkindsof informationdisclosedshouldbe decidedbasedon
trade-off analysisasa largeramountof informationcostsmore toprepare anduse.Information
disclosedshouldbe enoughtomake a judgmentwhile keepingcostsreasonable.Informationis
presentedinthe mainbodyof financial statements,inthe notesoras supplementary
information
CONSTRAINTS:
 Objectivityprinciple:the companyfinancial statementsprovidedbythe accountantsshouldbe
basedon objective evidence.
 Materialityprinciple:the significance of anitemshouldbe consideredwhenitisreported.An
itemisconsideredsignificantwhenitwouldaffectthe decisionof areasonable individual.
 Consistencyprinciple:Itmeansthat the company usesthe same accountingprinciplesand
methodsfromperiodtoperiod.
 Conservatismprinciple:whenchoosingbetweentwosolutions,the one whichhasthe less
favorable outcome isthe solutionwhichshouldbe chosen(see conventionof conservatism).
Due to recentdevelopmentsinthe convergence of USGAAPand IFRS,SFACNo.8 replacedSFACNo.1
and 2 inSeptember2010. Chapter3 of SFACNo 8 includesonlythe followingconstraint,
Cost Constraint- The benefitsof reportingfinancial informationshouldjustifyandbe greaterthanthe
costs imposedonsupplyingit.Conservatismisnolongeraconstraint,andmaterialityisafeature of
relevance thatisdeterminedatthe entity-specificlevel.
REQUIRED DEPARTURES FROM GAAP:
Under the AICPA'sCode of Professional EthicsunderRule 203- AccountingPrinciples,amembermust
departfromGAAP if followingitwouldleadtoamaterial misstatementonthe financial statements,or
otherwise be misleading.Inthe departure the membermustdisclose, if practical,the reasonswhy
compliance withthe accountingprinciple wouldresultinamisleadingfinancialstatement.UnderRule

7. 203-1-DeparturesfromEstablishedAccountingPrinciples,the departuresare rare,andusuallytake
place whenthere isnewlegislation,the evolutionof new formsof businesstransactions,anunusual
degree of materiality,orthe existence of conflictingindustrypractices
SETTING GAAP:
These organizations influence the development of GAAP in the United States.
 United States Securities and Exchange Commission (SEC)
The SEC was created as a result of the Great Depression. At that time there was no structure
settingaccountingstandards.The SECencouragedthe establishmentof private standard-setting
bodies through the AICPA and later the FASB, believing that the private sector had the proper
knowledge, resources, and talents. The SEC works closely with various private organizations
setting GAAP, but does not set GAAP itself.
 American Institute of Certified Public Accountants (AICPA)
In 1939, urged bythe SEC, the AICPA appointedthe Committee onAccountingProcedure (CAP).
During the years 1939 to 1959 CAP issued 51 Accounting Research Bulletins that dealt with a
variety of timely accounting problems. However, this problem-by-problem approach failed to
develop the much needed structured body of accounting principles. Thus, in 1959, the AICPA
created the Accounting Principles Board (APB), whose mission it was to develop an overall
conceptual framework. It issued 31 opinions and was dissolved in 1973 for lack of productivity
and failure to act promptly. After the creation of the FASB, the AICPA established the
Accounting Standards Executive Committee (AcSEC). It publishes:
1. Audit and Accounting Guidelines,whichsummarizesthe accountingpracticesof specific
industries(e.g.casinos,colleges,airlines,etc.) andprovidesspecificguidance onmatters
not addressed by FASB or GASB.
2. Statementsof Position,whichprovidesguidance on financial reporting topics until the
FASB or GASB sets standards on the issue.
3. Practice Bulletins,whichindicate the AcSEC'sviewsonnarrow financialreportingissues
not considered by the FASB or the GASB.
 Financial Accounting Standards Board (FASB)
Realizing the need to reform the APB, leaders in the accounting profession appointed a Study
Group on the Establishment of Accounting Principles (commonly known as the Wheat
Committee foritschair FrancisWheat). This group determined that the APB must be dissolved
and a new standard-setting structure be created. This structure is composed of three
organizations:the FinancialAccountingFoundation (FAF,itselects members of the FASB, funds
and overseestheiractivities),the Financial AccountingStandardsAdvisoryCouncil (FASAC), and
the major operating organization in this structure the Financial Accounting Standards Board
(FASB). FASB has 4 major types of publications:
1. Statements of Financial Accounting Standards - the most authoritative GAAP setting
publications. More than 150 have been issued to date.

8. 2. Statementsof Financial Accounting Concepts - first issued in 1978. They are part of the
FASB's conceptual framework project and set forth fundamental objectives and
conceptsthat the FASBuse in developingfuturestandards.However,theyare nota part
of GAAP. There have been 7 concepts published to date.
3. Interpretations - modify or extend existing standards. There have been around 50
interpretations published to date.
4. Technical Bulletins - guidelines on applying standards, interpretations, and opinions.
Usuallysolvessome veryspecificaccountingissue thatwill nothave asignificant,lasting
effect.
In 1984 the FASB created the Emerging Issues Task Force (EITF) which deals with new and
unusual financial transactions that have the potential to become common (e.g. accounting for
Internetbased companies). It acts more like a problem filter for the FASB - the EITF deals with
short-term,quicklyresolvableissues,leavinglong-term, more pervasive problems for the FASB.
 Governmental Accounting Standards Board (GASB)
Createdin1984, the GASB addressesstate and local government reporting issues. Its structure
is similar to that of the FASB's.
 Other influential organizations (e.g., American Accounting Association, Institute of
Management Accountants, Financial Executives Institute)
 Other influential organizations The Government Finance Officer's Association (GFOA) also
influencesfinancial policiesforgovernments. Disagreements between the GFOA and GASB are
rare, but can continue for many years
PRECEDENCE OF GAAP - SETTING AUTHORITIES:
In the UnitedStates,GAAPderives,inorderof importance,from:
1. issuancesfromanauthoritative bodydesignatedbythe AmericanInstituteof CertifiedPublic
Accountants(AICPA) Council (forexample,the Financial AccountingStandardsBoard Statements,
AICPA AccountingPrinciplesBoard Opinions,andAICPA AccountingResearchBulletins);
2. otherAICPA issuancessuchasAICPA IndustryGuides;
3. industrypractice;and
4. intopara-accountingliterature inthe formof booksandarticles.
Codification in Accounting - FASB Accounting Standards Codification
The Codificationiseffective forinterimandannual periodsendingafterSeptember15,2009. All existing
accountingstandardsdocumentsare supersededasdescribedinFASBStatementNo.168, The FASB
AccountingStandardsCodificationandthe Hierarchyof GenerallyAcceptedAccountingPrinciples.All
otheraccountingliterature notincludedinthe Codificationisnonauthoritative.
The Codificationreorganizes the thousandsof U.S.GAAPpronouncementsintoroughly90accounting
topicsand displaysall topicsusingaconsistentstructure.Italsoincludesrelevant Securitiesand

9. Exchange Commission (SEC),guidance thatfollowsthe same topical structure inseparate sectionsinthe
Codification.
To prepare usersforthe change,the AICPA[11]
hasprovidedanumberof toolsandtrainingresources.
While the Codificationdoesnotchange GAAP,itintroducesanew structure—onethatisorganizedinan
easilyaccessible,user-friendlyonline researchsystem.The FASBexpectsthatthe new systemwill
reduce the amountof time andeffortrequiredtoresearchanaccountingissue,mitigatethe riskof
noncompliance withstandardsthroughimprovedusabilityof the literature,provideaccurate
informationwithreal-time updatesasnew standardsare released,andassistthe FASBwiththe research
effortsrequiredduringthe standard-settingprocess.

10. RESEARCH PAPER NO 2

11. INTRODUCTION COMPANY
Thal Limitedstarteditsjourneyin1966. A publiclistedentity,TLislistedonthe Karachi and Lahore
Stock Exchanges.
Operatingunderthe umbrellaof the prestigious House of Habib Group,Thal Limitedderivesitsstrength
bothfrom itsparentgroup as well asitsvaluesandcherishesitsowndiversity.The House of Habibdoes
not needanyintroductionemployingover10,000 people,HOHisan establishedandmature corporate
playerprovidinganarrayof productsto people.Fromautomobilestoaudiomedia,buildingmaterialsto
bankingandcomputersto chemicals,HOHhas itsimprintsacrossa varietyof sectors.Managinga
networkof public(listedonthe PakistanStockExchanges) andprivate companies,HOH hasequityand
technical collaborationswithJapanese,EuropeanandAmericancompanies,like Toyota,Denso,Koito,
Gabriel etc.;givingita distinctedge oncompetition.Apartfromthis,the Grouphas a decentralized
organizational structure andhasa progressive anddynamicphilosophy.
Thal Limitedisadiversifiednational conglomerate engagedinthe manufacture of Engineeringproducts
(Karachi),Jute products(Muzaffargarh),Laminatesheets(Hub) andPapersacks(Hub& Gadoon).
The five businessesare engagedinthe manufacturingof qualityproductsservingavarietyof segments.
The Engineeringsegmentisengagedinthe manufacturingof automotivepartssuchas car air-
conditioners,radiatorsandwiringsystemswhilethe BuildingMaterial andAllied productsegment
overlooksthe Jute,PapersackandLaminate operations.Apartfromthese keyoperational areas,Thal
Limited’ssubsidiariesincluderenownedentitieslike Makro-HabibPakistanLimited,PakistanIndustrial
Aids(Private) LtdandNoble ComputerServices(Pvt) Limited.
Its subsidiariesinclude makrohabibPakistan, noblecomputerservices,Pakistanindustrialaid,A one
enterprises,habibmetroPakistan.Thispaperdealswithacquisitionof makrohabibbythal industries
limitedPakistan.

12. Makro-Habib Pakistan Limited
Makro-HabibPakistanLimitedwasincorporatedinPakistanonJune 29, 2005 as a PublicLimited
Company.The Companywasan associatedundertakingof the HoldingCompanyuntil April30,2008 and
became a subsidiarycompanywitheffectfromMay01, 2008. The subsidiary isengagedinachainof
wholesale/retail cashand carry store Thal industriesacquiredmakrohabibPakistanin2008. The fair
valuesof the assetsof makro habibPakistanonthe date of combinationare asfollows

13. In the year2008 thal PakistanlimitedmergedwithmakrohabibPakistanbyacquiring55% sharesof the
company.The total netsassetsof makrohabibthat were acquiredbythal [Pakistanamountedto
1521075. The total cash that waspaidby thal Pakistanlimitedtoforacquisitionof the 55% sharesof the
companyamountedto1505,305.
The amount that waspaidfor the acquisitionwaslessthancurrentfairvalue of the assetstherefore
negative goodwillwasrecognizedwhichamountedto15770. The current fairvalue of the assetswas
estimatedat3,273,018 an increase of 28672 from the provisional valueorthe carryingvalue which
amountedto3,244,346. The minorityinterestwhichwas45% of the current value of the assetswhich
amountedto(1,472,858). As a resultof valuationof assetsthe minorityinterestinthe company
increasedby12.902 million.
The total assetsthatwere acquiredbythe thal Pakistanlimitedoriginallyamountedto1800160 butthe
companyhad priorstake of 279085. Afteradjustmentsthe total amountwas1521075.

15. Thal pakistanlimitedacquiredmakrohabibinthe year2008. Above isthe balance sheetof the meger
year.The currentand the noncurrent assetsshowedanincrease andthe total assetsaftermerger
increasedby1340611000. The total equityalsoincreasedduringthe year.Thiswasdue to investmentin
makro-habib55%sharesof the firmwere boughtbythal Pakistanlimited.The minorityinterestwhich
amountedto1439157 increasedto1601805 due to the revaluationof assetsforthe acquisitionof
makro-habibPakistanlimited.The total liabilitiesof the companyalsoshowedanincrease from
9026371 in 2008 to103366982 in2009 . the increase in liabilitiesisalsodue tothe mergerwithmakro
habibPakistan.

16. There wasa drasticincrease inthe salesandthe cost of salesinthe mergeryearand the gross profit
showedanincrease.Howeverthere wasadrastic increase inthe finance costsof the companydue to
whichthe profitbefore taxationin2009 was lessthanit wasin 2008. Howeverthe profitaftertaxation
increasesbecause of the deferredtaxationinthe year2009. The basicearningspershare alsoincreased
in2009 due to the mergerwithMakro-habibPakistan.89% of the profitaftertaxationwasattributable
to the equityholdersof the holdingwhereasthe remaining11% was attributable tominority
stakeholders.

17. The balance of cashflowfrominvestingactivitiesshowedadrastic change due to the acquisitionof the
subsidiaryi.e makro-habib.The netcashgeneratedfromoperatingactivitiesincreaseddrasticallyfrom
2008 due to the merger.The net cash fromfinancingactivitiesalsoincreased.The companylongterm
financesincreasedandapart of the long termfinance wasrepaid.The year2009 showeda positive net

18. cash flowandthe cash equivalentatthe endof the yearwas alsopositive asopposedtothe endingnet
cashflowin2008 whichwasnegative.

19. Research paper 3
Analysis of Subsidiary company accounting by holding
company
Holding Company: Engro Corporation Limited
Subsidiary: Engro Foods Limited

20. Engro Foods Limited
Engro FoodsLimited,a87.06% ownedsubsidiaryof the HoldingCompany,was incorporated in Pakistan
on April 26, 2005, under the Companies Ordinance, 1984, as a private limited company and was
convertedtoan unlistedpublic limited company effective from April 27, 2006. The principal activity of
the subsidiary company is to manufacture, process and sell dairy products, beverages, ice cream and
frozen desserts. It also owns and operates a dairy farm. The subsidiary company has presence in the
international marketaswell;itsfirstventure beingtomanage the halal foodbusiness, Al Safa Halal, Inc.
(Al-Safa) in North America, which had been acquired by the Holding Company through Engro Foods
Netherlands B.V. (EF Netherlands).
The Holding Company entered into an agreement (Master Agreement) with its subsidiary company,
Engro Foods Limited (EFoods) on May 2, 2011 to invest up to Rs. 800,000 till December 31, 2011 in the
Global Business Unit (GBU) being set up in the Canada and USA via investment in Engro Foods
NetherlandsB.V.,throughwhichit has acquired an existing brand of halal meat business known as 'Al-
Safa', engaged in supplying a variety of packaged halal foods across North America. Under the Master
Agreement,EFoodsshallendeavortopurchase the entire shareholding of EngroFoodsNetherlands B.V.
fromthe HoldingCompanybyJune 30, 2012 at the actual rupee amountinvestedinthe saidbusinesstill
that day by the Holding Company or as mutually agreed by both parties.

21. On October 3, 2012, the Holding Company and EFoods entered into a supplemental agreement as the
investment requirements for the GBU had exceeded Rs. 800,000 as contemplated in the Master
Agreement. Under the supplemental agreement, EFoods shall purchase the shares in Engro Foods
Netherlands B.V. by making payment of the actual investment amount of Rs. 863,018 to the Holding
Companyinadvance of actual share transfertakingplace.Followingpayment of the purchase price and
receiptof all necessaryregulatoryapprovals,the HoldingCompanyshall promptlytransfer the shares in
Engro FoodsNetherlandsB.V.toEFoods.Subsequenttothe aforementioned supplemental agreement,
EFoods has paid an advance of Rs. 863,018 to the Holding Company during 2012.
Duringthe year,the Companyhasmade additional equityinvestmentof Rs.237,269 inits whollyowned
subsidiary, Engro Foods Netherlands B.V. which was also paid by Efoods. On November 22, 2013, SBP
approval was received by the Holding Company for transfer of the shares of Engro Foods Netherlands
B.V. to EFoods. Consequently, the share transfer was completed on December 16, 2013.
Engro Foods Netherlands B.V.
Engro Foods Netherlands B.V. (EF Netherlands), a wholly owned subsidiary, was incorporated in
Netherlandsduring2011. The principal activityof EF Netherlands is marketing and selling of Halal food
products.For thispurpose, it has acquired an existing brand of halal meat business known as 'Al-Safa',
engaged in supplying a variety of packaged halal foods across North America, through Engro Foods
Canada Limited(EFCL),awhollyownedsubsidiaryof EFNetherlands,incorporated in Canada on April 5,
2011 having its registered office situated at 1900 Minnesota Court, Unit No. 112, Mississauga, ON L5N
3C9; and Engro Foods US LLC, a wholly owned subsidiary of EFCL, incorporated as a limited liability
company on April 11, 2011 and registered in Delaware, USA.
As more fully explained in note 1.3.5 above, the Holding Company sold its entire shareholding in EF
Netherlands to Engro Foods Limited on December 16, 2013.
Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating
policiesgenerallyaccompanyingashareholdingof more thanone half of the votingrights.The existence
and effectof potential voting rights that are currently exercisable or convertible are considered when
assessingwhetherthe Groupcontrolsanotherentity. Subsidiaries are fully consolidated from the date
on which control is transferred to the Group. They are derecognized from the date the control ceases.
These consolidatedfinancial statementsincludeEngroCorporation Limited (the Holding Company) and
all companiesinwhichitdirectlyorindirectlycontrols,beneficially owns or holds more than 50% of the

22. voting securities or otherwise has power to elect and appoint more than 50% of its directors (the
Subsidiaries).
The Group uses the acquisition method of accounting to account for business combinations. The
considerationtransferredforthe acquisition of a subsidiary is the fair values of the assets transferred,
the liabilities incurred and the equity interests issued by the Group. The consideration transferred
includesthe fair value of any asset or liability resulting from a contingent consideration arrangement.
Acquisition-relatedcostsare expensedasincurred.Identifiableassetsacquiredandliabilities (including
contingentliabilities)assumedinabusinesscombinationare measuredinitiallyattheirfairvalues at the
acquisition date. On an acquisition-by-acquisition basis, the Group recognizes any non-controlling
interestinthe acquiree eitheratfairvalue orat the non-controllinginterest’sproportionate share of the
acquiree’s identifiable net assets.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's
previouslyheldequityinterest in the acquiree is re-measured to fair value at the acquisition date; any
gainsor lossesarisingfromsuchre-measurementare recognized in profit and loss account. Goodwill is
initiallymeasuredas the excess of the aggregate of the consideration transferred and the fair value of
non-controllinginterestover the net identifiable assets acquired and liabilities assumed. If this is less
than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the
difference is recognized in profit and loss account.
Inter-companytransactions,balances,income andexpensesontransactionsbetween group companies
are eliminated.Profits and losses (unrealised) are also eliminated. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies adopted by the Group.
ii) Transactions and non-controlling interests
The Group treats transactions with non-controlling interests that do not result in loss of control as
transactionswithequity owners of the Group. The difference between fair value of any consideration
paidand the relevantshare acquiredof the carrying value of net assets of the subsidiary is recorded in
equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
iii) Disposal of subsidiaries
When the Group ceases to have control or significant influence, any retained interest in the entity is
remeasuredtoits fair value, with the change in carrying amount recognised in profit and loss account.
The fair value isthe initial carryingamountforthe purposesof subsequentlyaccountingforthe retained
interestasan associate,jointventureorfinancial asset.Inaddition,anyamounts previously recognised
inother comprehensive income in respect of that entity are accounted for as if the Group had directly
disposedoff the relatedassetsorliabilities.Thismaymeanthatamountspreviouslyrecognised in other
comprehensive income are reclassified to profit and loss account.

23. Acquisitionof additional land by Subsidiary (Engro Foods)
Engro Foods Limited (EFL), a subsidiary company, has acquired land measuring 537 Kanals, 37 Marlas
surroundingitsSahiwal plantthroughthe Commissioner, Sahiwal Division, Government of Punjab (the
Government) action,byinvokingprovisionsof Land Acquisition Act, 1894. Under the said law, the price
of the nearby land was assessed by the Government authorities and the subsidiary company paid Rs.
212,514 to the Governmentforpurchase of land.The Governmentwillinturnpayto the respectiveland
owners.
Financial statements of Subsidiary Company

26. Consolidated Financial Statements of Holding Company

32. Duringthe year,the Companyhasmade additional equityinvestmentof Rs.237,269 inits whollyowned
subsidiary, Engro Foods Netherlands B.V.
The Companyenteredintoanagreement(Master Agreement) with its subsidiary, Engro Foods Limited
(EFoods) on May 2, 2011 to invest up to Rs. 800,000 till December 31, 2011 in the Global Business Unit
(GBU) being set up in the Canada and USA via investment in Engro Foods Netherlands B.V., through
whichithas acquiredan existingbrandof halal meatbusinessknownas 'Al-Safa',engagedinsupplyinga
variety of packaged halal foods across North America. Under the Master Agreement, EFoods shall
endeavor to purchase the entire shareholding of Engro Foods Netherlands B.V. from the Company by
June 30, 2012 at the actual rupee amount invested in the said business till that day by the Company or
as mutually agreed by both parties.
On October 3, 2012, the Company and EFoods entered into a supplemental agreement as the
investment requirements for the GBU had exceeded Rs. 800,000 as contemplated in the Master
Agreement. Under the supplemental agreement, EFoods shall purchase the shares in Engro Foods
NetherlandsB.V.bymakingpaymentof the actual investmentamountof Rs. 863,018 to the Company in
advance of actual share transfertakingplace.Followingpaymentof the purchase price andreceipt of all
necessary regulatory approvals, the Company shall promptly transfer the shares in Engro Foods
NetherlandsB.V.toEFoods.Subsequent to the aforementioned supplemental agreement, EFoods has
paid an advance of Rs. 863,018 to the Company during 2012.
Duringthe year, the additional equity of Rs 237,269 injected by the Company was also paid by EFoods.
On November 22, 2013, SBP approval was received by the Company for transfer of the shares of Engro
Foods Netherlands B.V. to EFoods. Consequently, the share transfer was completed on December 16,
2013.
Duringthe year,the Companydisposed5,625,000 ordinarysharesof Rs.10 eachin EngroFoodsLimited,
a publiclistedSubsidiaryCompany, representing0.84% of total investment in the Subsidiary Company,
at a price of Rs. 140 pershare.The gain onsuch disposal amountingtoRs.730,076 has beenreflected in
ther Income (note 19).

34. During the year, the Company has utilized its short-term finance facilities aggregating to Rs. 2,500,000
(2012: Rs. 1,500,000) from various banks to meet its working capital requirements. The facilities are
primarilysecuredagainstrankingfloatingcharge overall presentandfuture loans,advances,receivables
and other current assets (excluding investments) of the Company. Additionally the facilities are also
secured through a pledge over shares of Engro Foods Limited (a Subsidiary Company).
Duringthe year,Engro FoodsLimited(EFL),a subsidiarycompany,carriedout100% physical verification
exercise of itsentire livestock held at the dairy farm. Based on the results of this exercise, the carrying
values of livestock that were found missing has been written-off.
As at December 31, 2013, Engro Foods Limited (EFL), a subsidary company, held 2,058 (2012: 1,829)
mature assets able to produce milk and 1,729 (2012: 1,697) immature assets that are being raised to
produce milk in the future. During the year, EFL produced approximately 9,079,147 (2012: 9,224,185)
gross litresof milkfromthese biologicalassetswithafairvalue lessestimated point-of-sale costs of Rs.
496,095 (2012: Rs. 477,417), determined at the time of milking.
As at December 31, 2013, Engro Foods Limited (EFL), a subsidary company, held 586 (2012: 375)
immature male calves.
The valuationof dairylivestockasat December31,2013 hasbeencarriedoutby an independentvaluer.
In thisregard,the valuerexaminedthe physical conditionof the livestock,assessed the farm conditions
and relied on the representations made by EFL as at December 31, 2013. Further, in the absence of an
active market of EFL’s dairy livestock in Pakistan, market and replacement values of similar live stock
from active markets in USA, Germany, Argentina and Australia, have been used by the independent
valueras a basisof hisvaluation.Immature male calveshave notbeenincludedinthe fair valuation due
to the insignificant value in use.

35. During the year, the Holding Company has utilized its short-term finance facilities aggregating to Rs.
2,500,000 (2012: 1,500,000) from banks to meet its working capital requirements. The facilities are
primarilysecuredagainstrankingfloatingcharge overall presentandfuture loans,advances,receivables
and othercurrentassets(excludinginvestments) of the HoldingCompany.Additionally the facilities are
also secured through a pledge over shares of Engro Foods Limited (a subsidiary company).
Engro Foods Limited (EFL), a subsidiary company, has provided bank guarantees to:
 Sui Southern Gas Company Limited amounting to Rs. 55,242 (2012: Rs. 39,037) under the
contract for supply of gas; - Sui Northern Gas Company Limited amounting to Rs. 34,350 (2012:
Rs. 34,350) under the contract for supply of gas;
 Collector of Sales Tax, Large Tax Payers Unit (LTU), Karachi amounting to Rs. 258,712 (2012: Rs.
258,712) under Sales Tax Rules 2006, against refund claim of input sales tax. Against these
guarantees, sales tax refunds amounting to Rs. 172,000 (2012: Rs. 172,000) have been received
to-date;
 Controller Military Accounts, Rawalpindi amounting to Rs. 6,872 (2012: Rs. 4,680), as collateral
against supplies; and
 Collector of Customs, Model Customs Collectorate amounting to Rs. 54,081 (2012: Nil) against
payment of sales tax on import of plant and machinery.

36. Capital expenditurecontractedbythe Subsidiary but not incurred in the Holding company’s account as
above.Postdatedchequesprovidedby subsidiary to the holding company have increased and so have
the letters of credit by the subsidiary to the holding company.