International Financial Reporting Standards (IFRS) are designed to provide a common global language for business financial reporting to make company accounts understandable and comparable internationally. IFRS are replacing many different national accounting standards. Pakistan has adopted most IFRS, with some exceptions. This document discusses the history and standard-setting bodies of IFRS and Generally Accepted Accounting Principles (GAAP), the objectives and concepts of financial reporting, and how accounting standards are set in different jurisdictions and institutions.

1. Research papers
Advanced financial accounting

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 criticism while IAS
29 is currently (March 2014) being implemented in its original ineffective form in Venezuela and
Belarus.
ADOPTION OF PAKISTAN :
All listed companies must follow all issued IAS/IFRS except the following:
IAS 39 and IAS 42: Implementation of these standards has been held in abeyance by State Bank of
Pakistan for Banks and DFIs
IFRS-1: Effective for the annual periods beginning on or after 1 January 2004. This IFRS is being
considered for adoption for all companies other than banks and DFIs.
IFRS-9: Under consideration of the relevant Committee of the Institutes (ICAP & ICMAP). This IFRS will
be effective for the annual periods beginning on or after 1 January 2013.
Pakistan has not adopted IFRIC 4 Determining whether an Arrangement Contains a Lease
Pakistan has not adopted IFRIC 12 Service Concession Arrangements.
ACCOUNTING / AUDITING / REPORTING STANDARDS AT VARIOUS INSTITUTIONS:
Generally Accepted Accounting Principles, US GAAP or GAAP stands for "generally accepted accounting
principles". Although the U.S. Securities and Exchange Commission (SEC) has stated that it intends to
move from US GAAP to the International Financial Reporting Standards (IFRS), they differ considerably
from GAAP and progress has been slow and uncertain.
The FASB expressed US GAAP in XBRL beginning in 2008.
Auditors took the leading role in developing GAAP for business enterprises.
Accounting standards have historically been set by the American Institute of Certified Public
Accountants (AICPA) subject to Securities and Exchange Commission regulations.[4]
The AICPA first
created the Committee on Accounting Procedure in 1939, and replaced that with the Accounting
Principles Board in 1959. In 1973, the Accounting Principles Board was replaced by the Financial
Accounting Standards Board (FASB) under the supervision of the Financial Accounting Foundation with
the Financial Accounting Standards Advisory Council serving to advise and provide input on the
accounting standards.Other organizations involved in determining United States accounting standards
include the Governmental Accounting Standards Board (GASB), formed in 1984, and the Public Company
Accounting Oversight Board (PCAOB).
Circa 2008, the FASB issued the FASB Accounting Standards Codification, which reorganized the
thousands of US GAAP pronouncements into roughly 90 accounting topics

5. In 2008, the Securities and Exchange Commission issued a preliminary "roadmap" that may lead the
United States to abandon Generally Accepted Accounting Principles in the future (to be determined in
2011), and to join more than 100 countries around the world instead in using the London-based
International Financial Reporting Standards.As of 2010, the convergence project was underway with the
FASB meeting routinely with the IASB.The SEC expressed their aim to fully adopt International Financial
Reporting Standards in the U.S. by 2014.With the convergence of the U.S. GAAP and the international
IFRS accounting systems, as the highest authority over International Financial Reporting Standards, the
International Accounting Standards Board is becoming more important in the United States.
BASIC OBJECTIVES :
Financial reporting should provide information that is:
 Useful to present to potential investors and creditors and other users in making rational
investment, credit, and other financial decisions
 Helpful to present to potential investors and creditors and other users in assessing the amounts,
timing, and uncertainty of prospective cash receipts about economic resources, the claims to
those resources, and the changes in them
 Helpful for making financial decisions
 Helpful in making long-term decisions
 Helpful in improving the performance of the business
 Useful in maintaining records
BASIC CONCEPTS:
To achieve basic objectives and implement fundamental qualities GAAP has four basic assumptions, four
basic principles, and four basic constraints.
ASSUMPTIONS:
 Accounting Entity: assumes that the business is separate from its owners or other businesses.
Revenue and expense should be kept separate from personal expenses.
 Going Concern: assumes that the business will be in operation indefinitely. This validates the
methods of asset capitalization, depreciation, and amortization. Only when liquidation is certain
this assumption is not applicable. The business will continue to exist in the unforeseeable future.
 Monetary Unit principle: assumes a stable currency is going to be the unit of record. The FASB
accepts the nominal value of the US Dollar as the monetary unit of record unadjusted for
inflation.
 The Time-period principle implies that the economic activities of an enterprise can be divided
into artificial time periods.
PRINCIPLES:
 Historical cost principle requires companies to account and report based on acquisition costs
rather than fair market value for most assets and liabilities. This principle provides information
that is reliable (removing opportunity to provide subjective and potentially biased market

6. values), but not very relevant. Thus there is a trend to use fair values. Most debts and securities
are now reported at market values.
 Revenue recognition principle holds that companies may not record revenue until (1) it is
realized or realizable and (2) when it is earned. The flow of cash does not have any bearing on
the recognition of revenue. This is the essence of accrual basis accounting. Conversely, however,
losses must be recognized when their occurrence becomes probable, whether or not it has
actually occurred. This comports with the constraint of conservatism, yet brings it into conflict
with the constraint of consistency, in that reflecting revenues/gains is inconsistent with the way
in which losses are reflected.
 Matching principle. Expenses have to be matched with revenues as long as it is reasonable to do
so. Expenses are recognized not when the work is performed, or when a product is produced,
but when the work or the product actually makes its contribution to revenue. Only if no
connection with revenue can be established, cost may be charged as expenses to the current
period (e.g. office salaries and other administrative expenses). This principle allows greater
evaluation of actual profitability and performance (shows how much was spent to earn
revenue). Depreciation and Cost of Goods Sold are good examples of application of this
principle.
 Full disclosure principle. Amount and kinds of information disclosed should be decided based on
trade-off analysis as a larger amount of information costs more to prepare and use. Information
disclosed should be enough to make a judgment while keeping costs reasonable. Information is
presented in the main body of financial statements, in the notes or as supplementary
information
CONSTRAINTS:
 Objectivity principle: the company financial statements provided by the accountants should be
based on objective evidence.
 Materiality principle: the significance of an item should be considered when it is reported. An
item is considered significant when it would affect the decision of a reasonable individual.
 Consistency principle: It means that the company uses the same accounting principles and
methods from period to period.
 Conservatism principle: when choosing between two solutions, the one which has the less
favorable outcome is the solution which should be chosen (see convention of conservatism).
Due to recent developments in the convergence of US GAAP and IFRS, SFAC No. 8 replaced SFAC No. 1
and 2 in September 2010. Chapter 3 of SFAC No 8 includes only the following constraint,
Cost Constraint- The benefits of reporting financial information should justify and be greater than the
costs imposed on supplying it. Conservatism is no longer a constraint, and materiality is a feature of
relevance that is determined at the entity-specific level.
REQUIRED DEPARTURES FROM GAAP:
Under the AICPA's Code of Professional Ethics under Rule 203 - Accounting Principles, a member must
depart from GAAP if following it would lead to a material misstatement on the financial statements, or
otherwise be misleading. In the departure the member must disclose, if practical, the reasons why
compliance with the accounting principle would result in a misleading financial statement. Under Rule

7. 203-1-Departures from Established Accounting Principles, the departures are rare, and usually take
place when there is new legislation, the evolution of new forms of business transactions, an unusual
degree of materiality, or the existence of conflicting industry practices
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
setting accounting standards. The SEC encouraged the establishment of 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 by the SEC, the AICPA appointed the Committee on Accounting Procedure (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, which summarizes the accounting practices of specific
industries (e.g. casinos, colleges, airlines, etc.) and provides specific guidance on matters
not addressed by FASB or GASB.
2. Statements of Position, which provides guidance on financial reporting topics until the
FASB or GASB sets standards on the issue.
3. Practice Bulletins, which indicate the AcSEC's views on narrow financial reporting issues
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 for its chair Francis Wheat). 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 Financial Accounting Foundation (FAF, it selects members of the FASB, funds
and oversees their activities), the Financial Accounting Standards Advisory Council (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. Statements of Financial Accounting Concepts - first issued in 1978. They are part of the
FASB's conceptual framework project and set forth fundamental objectives and
concepts that the FASB use in developing future standards. However, they are not a 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.
Usually solves some very specific accounting issue that will not have a significant, 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
Internet based companies). It acts more like a problem filter for the FASB - the EITF deals with
short-term, quickly resolvable issues, leaving long-term, more pervasive problems for the FASB.
 Governmental Accounting Standards Board (GASB)
Created in 1984, the GASB addresses state 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
influences financial policies for governments. Disagreements between the GFOA and GASB are
rare, but can continue for many years
PRECEDENCE OF GAAP - SETTING AUTHORITIES:
In the United States, GAAP derives, in order of importance, from:
1. issuances from an authoritative body designated by the American Institute of Certified Public
Accountants(AICPA) Council (for example, the Financial Accounting Standards Board Statements,
AICPA Accounting Principles Board Opinions, and AICPA Accounting Research Bulletins);
2. other AICPA issuances such as AICPA Industry Guides;
3. industry practice; and
4. into para-accounting literature in the form of books and articles.
Codification in Accounting - FASB Accounting Standards Codification
The Codification is effective for interim and annual periods ending after September 15, 2009. All existing
accounting standards documents are superseded as described in FASB Statement No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. All
other accounting literature not included in the Codification is nonauthoritative.
The Codification reorganizes the thousands of U.S. GAAP pronouncements into roughly 90 accounting
topics and displays all topics using a consistent structure. It also includes relevant Securities and

9. Exchange Commission (SEC), guidance that follows the same topical structure in separate sections in the
Codification.
To prepare users for the change, the AICPA[11]
has provided a number of tools and training resources.
While the Codification does not change GAAP, it introduces a new structure—one that is organized in an
easily accessible, user-friendly online research system. The FASB expects that the new system will
reduce the amount of time and effort required to research an accounting issue, mitigate the risk of
noncompliance with standards through improved usability of the literature, provide accurate
information with real-time updates as new standards are released, and assist the FASB with the research
efforts required during the standard-setting process.

10. RESEARCH PAPER NO 2

11. INTRODUCTION COMPANY
Thal Limited started its journey in 1966. A public listed entity, TL is listed on the Karachi and Lahore
Stock Exchanges.
Operating under the umbrella of the prestigious House of Habib Group, Thal Limited derives its strength
both from its parent group as well as its values and cherishes its own diversity. The House of Habib does
not need any introduction employing over 10,000 people, HOH is an established and mature corporate
player providing an array of products to people. From automobiles to audio media, building materials to
banking and computers to chemicals, HOH has its imprints across a variety of sectors. Managing a
network of public (listed on the Pakistan Stock Exchanges) and private companies, HOH has equity and
technical collaborations with Japanese, European and American companies, like Toyota, Denso, Koito,
Gabriel etc.; giving it a distinct edge on competition. Apart from this, the Group has a decentralized
organizational structure and has a progressive and dynamic philosophy.
Thal Limited is a diversified national conglomerate engaged in the manufacture of Engineering products
(Karachi), Jute products (Muzaffargarh), Laminate sheets (Hub) and Paper sacks (Hub & Gadoon).
The five businesses are engaged in the manufacturing of quality products serving a variety of segments.
The Engineering segment is engaged in the manufacturing of automotive parts such as car air-
conditioners, radiators and wiring systems while the Building Material and Allied product segment
overlooks the Jute, Papersack and Laminate operations. Apart from these key operational areas, Thal
Limited’s subsidiaries include renowned entities like Makro-Habib Pakistan Limited, Pakistan Industrial
Aids (Private) Ltd and Noble Computer Services (Pvt) Limited.
Its subsidiaries include makro habib Pakistan, noble computer services, Pakistan industrial aid, A one
enterprises, habib metro Pakistan. This paper deals with acquisition of makro habib by thal industries
limited Pakistan.

12. Makro-Habib Pakistan Limited
Makro-Habib Pakistan Limited was incorporated in Pakistan on June 29, 2005 as a Public Limited
Company. The Company was an associated undertaking of the Holding Company until April 30, 2008 and
became a subsidiary company with effect from May 01, 2008. The subsidiary is engaged in a chain of
wholesale / retail cash and carry store Thal industries acquired makro habib Pakistan in 2008. The fair
values of the assets of makro habib Pakistan on the date of combination are as follows

13. In the year 2008 thal Pakistan limited merged with makro habib Pakistan by acquiring 55% shares of the
company. The total nets assets of makro habib that were acquired by thal [Pakistan amounted to
1521075. The total cash that was paid by thal Pakistan limited to for acquisition of the 55% shares of the
company amounted to 1505,305.
The amount that was paid for the acquisition was less than current fair value of the assets therefore
negative goodwill was recognized which amounted to 15770. The current fair value of the assets was
estimated at 3,273,018 an increase of 28672 from the provisional value or the carrying value which
amounted to 3,244,346. The minority interest which was 45% of the current value of the assets which
amounted to (1,472,858). As a result of valuation of assets the minority interest in the company
increased by 12.902 million.
The total assets that were acquired by the thal Pakistan limited originally amounted to 1800160 but the
company had prior stake of 279085. After adjustments the total amount was 1521075.

15. Thal pakistan limited acquired makro habib in the year 2008. Above is the balance sheet of the meger
year. The current and the non current assets showed an increase and the total assets after merger
increased by 1340611000. The total equity also increased during the year. This was due to investment in
makro-habib 55% shares of the firm were bought by thal Pakistan limited. The minority interest which
amounted to 1439157 increased to 1601805 due to the revaluation of assets for the acquisition of
makro-habib Pakistan limited. The total liabilities of the company also showed an increase from
9026371 in 2008 to103366982 in 2009 . the increase in liabilities is also due to the merger with makro
habib Pakistan.

16. There was a drastic increase in the sales and the cost of sales in the merger year and the gross profit
showed an increase. However there was a drastic increase in the finance costs of the company due to
which the profit before taxation in 2009 was less than it was in 2008. However the profit after taxation
increases because of the deferred taxation in the year 2009. The basic earnings per share also increased
in 2009 due to the merger with Makro-habib Pakistan. 89% of the profit after taxation was attributable
to the equity holders of the holding whereas the remaining 11% was attributable to minority
stakeholders.

17. The balance of cashflow from investing activities showed a drastic change due to the acquisition of the
subsidiary i.e makro-habib. The net cash generated from operating activities increased drastically from
2008 due to the merger. The net cash from financing activities also increased. The company long term
finances increased and a part of the long term finance was repaid. The year 2009 showed a positive net

18. cash flow and the cash equivalent at the end of the year was also positive as opposed to the ending net
cashflow in 2008 which was negative.

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 Foods Limited, a 87.06% owned subsidiary of the Holding Company, was incorporated in Pakistan
on April 26, 2005, under the Companies Ordinance, 1984, as a private limited company and was
converted to an unlisted public 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 market as well; its first venture being to manage the halal food business, 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
Netherlands B.V., through which 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. Under the Master
Agreement, EFoods shall endeavor to purchase the entire shareholding of Engro Foods Netherlands B.V.
from the Holding Company by June 30, 2012 at the actual rupee amount invested in the said business till
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
Company in advance of actual share transfer taking place. Following payment of the purchase price and
receipt of all necessary regulatory approvals, the Holding Company shall promptly transfer the shares in
Engro Foods Netherlands B.V. to EFoods. Subsequent to the aforementioned supplemental agreement,
EFoods has paid an advance of Rs. 863,018 to the Holding Company during 2012.
During the year, the Company has made additional equity investment of Rs. 237,269 in its wholly owned
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
Netherlands during 2011. The principal activity of EF Netherlands is marketing and selling of Halal food
products. For this purpose, 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), a wholly owned subsidiary of EF Netherlands, 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
policies generally accompanying a shareholding of more than one half of the voting rights. The existence
and effect of potential voting rights that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity. 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 consolidated financial statements include Engro Corporation Limited (the Holding Company) and
all companies in which it directly or indirectly controls, 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
consideration transferred for the 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
includes the fair value of any asset or liability resulting from a contingent consideration arrangement.
Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities (including
contingent liabilities) assumed in a business combination are measured initially at their fair values at the
acquisition date. On an acquisition-by-acquisition basis, the Group recognizes any non-controlling
interest in the acquiree either at fair value or at the non-controlling interest’s proportionate 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
previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any
gains or losses arising from such re-measurement are recognized in profit and loss account. Goodwill is
initially measured as the excess of the aggregate of the consideration transferred and the fair value of
non-controlling interest over 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-company transactions, balances, income and expenses on transactions between 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
transactions with equity owners of the Group. The difference between fair value of any consideration
paid and the relevant share acquired of 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
remeasured to its fair value, with the change in carrying amount recognised in profit and loss account.
The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained
interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised
in other comprehensive income in respect of that entity are accounted for as if the Group had directly
disposed off the related assets or liabilities. This may mean that amounts previously recognised in other
comprehensive income are reclassified to profit and loss account.

23. Acquisition of additional land by Subsidiary (Engro Foods)
Engro Foods Limited (EFL), a subsidiary company, has acquired land measuring 537 Kanals, 37 Marlas
surrounding its Sahiwal plant through the Commissioner, Sahiwal Division, Government of Punjab (the
Government) action, by invoking provisions of 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 Government for purchase of land. The Government will in turn pay to the respective land
owners.
Financial statements of Subsidiary Company

26. Consolidated Financial Statements of Holding Company

32. During the year, the Company has made additional equity investment of Rs. 237,269 in its wholly owned
subsidiary, Engro Foods Netherlands B.V.
The Company entered into an agreement (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
which 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. 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
Netherlands B.V. by making payment of the actual investment amount of Rs. 863,018 to the Company in
advance of actual share transfer taking place. Following payment of the purchase price and receipt of all
necessary regulatory approvals, the Company shall promptly transfer the shares in Engro Foods
Netherlands B.V. to EFoods. Subsequent to the aforementioned supplemental agreement, EFoods has
paid an advance of Rs. 863,018 to the Company during 2012.
During the 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.
During the year, the Company disposed 5,625,000 ordinary shares of Rs. 10 each in Engro Foods Limited,
a public listed Subsidiary Company, representing 0.84% of total investment in the Subsidiary Company,
at a price of Rs. 140 per share. The gain on such disposal amounting to Rs. 730,076 has been reflected 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
primarily secured against ranking floating charge over all present and future 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).
During the year, Engro Foods Limited (EFL), a subsidiary company, carried out 100% physical verification
exercise of its entire 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 litres of milk from these biological assets with a fair value less estimated 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 valuation of dairy livestock as at December 31, 2013 has been carried out by an independent valuer.
In this regard, the valuer examined the physical condition of 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
valuer as a basis of his valuation. Immature male calves have not been included in the 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
primarily secured against ranking floating charge over all present and future loans, advances, receivables
and other current assets (excluding investments) of the Holding Company. 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 expenditure contracted by the Subsidiary but not incurred in the Holding company’s account as
above. Post dated cheques provided by subsidiary to the holding company have increased and so have
the letters of credit by the subsidiary to the holding company.