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K R M International Ltd.

BSE: 526055 Sector: Others
NSE: N.A. ISIN Code: N.A.
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K R M International Ltd. (KRMINTL) - Auditors Report

Company auditors report

KRM INTERNATIONAL LIMITED ANNUAL REPORT 2005-2006 AUDITORS' REPORT To The members, KRM International Limited We have audited the attached Balance Sheet of KRM International Limited as at 31st March, 2006 and the Profit and Loss Account for the year ended on that date annexed thereto and Cash Flow Statement for the year ended on that date. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. 1. We have conducted our audit in accordance with Auditing Standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 2. As required by the Companies (Auditor's Report) Order 2003 as amended by the Companies (Auditor's Report) Order 2004, issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act 1956, we enclose in the Annexure hereto a statement on the matters specified in paragraphs 4 & 5 of the said Order. 3. Further to our comments in the Annexure referred to in paragraph 2 above, we report that: a) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. b) In our opinion proper books of account, as required by law, have been kept by the company, so far as appears from our examination of those books except for i) Incomplete Fixed assets register, as far as location of the assets is concerned in respect of Furniture & Fixtures and Office Equipments. ii) Stock records which does not give details of day to day stock, consumption of material and rate of inventory. iii) Cost Records to give details required u/s 209(1) (d) of the Companies Act, 1956. iv) Register Under Section 301 of Companies Act, 1956. c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; d] In our opinion, the attached Balance Sheet and Profit & Loss Account and Cash Flow Statement dealt with by this report comply with the mandatory Accounting Standards referred in sub-section (3C)of Section 211 of the Companies Act, 1956, except 1). Accounting Standard - 2 Valuation of Inventories i). The company has valued Stores and Spares, at cost instead of cost or net realizable value whichever is lower. 2). Accounting Standard - 9 - Revenue recognition. i). Incomes in the nature of income from investments are accounted on cash basis. 3). Accounting Standard - 11 - Accounting for effects of changes in foreign exchange rates. i). The export sales are accounted on amount realised on discounting of bills with bankers. 4). Accounting Standard - 22 - Accounting for Taxes on Income The company has not followed the Accounting Standard since the management does not foresee any taxable profits in the near future and the losses of the past are also substantial. e) The company has failed to redeem its debentures on the due date. This failure has continued for a period of more than two years and hence we report that the directors are disqualified from being appointed as directors of the company as on 31.03.2006 under clause (g) of sub-section (1) of Section 274 of the Companies Act 1956. f) In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with the Significant Accounting Policies and other notes thereon, and subject to Note no. A1 of Schedule 18 regarding preparation of accounts on the basis that the company is a going concern, we are unable to express an opinion since the basis stated in the clause is only a view of the management. Note No. A5 Clause 4 Schedule 18 regarding valuation of Stores and Spares which has been valued at cost instead of lower of cost or net realizable value. In the absence of data we are unable to quantify the overstatement or understatement in stock valuation. Note No. B8 of Schedule 18 regarding defraud of Rs. 10.00 lakhs by a third party in 1993 -1994 not accounted as irrecoverable Note No. 139 of Schedule 18 regarding non-provision on diminution of value of investment of Rs. 5.53 lakhs. To this extent the loss in understated. Note No. B13 Clause E of Schedule 18 regarding shrinkage and trimming waste, we rely on the opinion of the management in the absence of complete stock records. Note No. B14 of Schedule 18 regarding the amounts due from Small Scale Industries. The details are given on the basis of and to the extent of information available with the company. Note No. B17 of Schedule No.18 regarding non-provision of interest on IDBI NCD Loan & Terming for the year 2005-06. Hence the loss is understated to that extent. Note No. B19 of Schedule 18 regarding Sundry Debtors, Sundry Creditors, and Loans from IDBI & KSFC and other Loans and Advances which are subject to reconciliation and confirmation. Give a true and fair view i) In so far as it relates to Balance Sheet, of the state of affairs of Company as at 31st March, 2006; ii) In so far as it relates to the Profit and Loss account, of the Loss of the company for the year ended on that date; and iii) In so far as it relates to the Cash Flow Statement, of the cash flows of the Company for the year ended on that date. For SHARMA & PAGARIA Chartered Accountants Date : 30-10-2006 (PAWAN PAGARIA) Place : Bangalore Partner M. No.: 201781 Annexure to the Auditor's Report (Referred to in paragraph (3) of our report of even dates 1. In respect of its fixed assets: a) We have been informed that the fixed assets register showing full particulars including quantitative details and situations is updated, except in respect of Furniture & Fixtures and Office Equipment as far as location is concerned. Further we are informed that the physical verification of these assets will be carried only after completion of the fixed assets register and any discrepancy if any, will be adjusted thereafter. b) We are unable to state whether there is any material discrepancy between physical count and fixed assets records. c) During the year substantial part of the fixed asset has been disposed of by the Company, though as per information & explanation given by the management the disposal of assets does not effect the going concern status of the Company. 2. In respect of its inventories: Physical verification of finished products, stores, spare parts and raw materials has been conducted by the management only at the close of accounting period. In our opinion, having regard to the nature and location of stocks, the frequency of verification need to be more in commensurate with size and operation of the company. In our opinion and according to the information and explanations given to us, the procedures of verification of stocks followed by the management need to be streamlined by drawing up a periodical programme of verification and reporting so as to be reasonable and adequate in relation to the size of the company and nature of its business. According to the information given to us, no material discrepancies were noticed on physical verification of stocks as compared to book records. 3. The company has not taken any loans, secured or unsecured, to / from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, except the following a) Interest free loans from Director. In our opinion, interest free loans taken from directors is not prima facie prejudicial to the interest of the company. The other terms and conditions of such loan have not been stipulated. The loan taken from Directors are as follows: Name of the Directors Maximum Balance Closing Balance 1) Shashi Kumar Modi Rs. 1,14,07,000/- Rs. 1,14,07,000/- 2) Sunil Kumar Modi Rs. 66,11,161/- Rs. 65,61,161/- b) The other terms and conditions of such loan have not been stipulated. c) In respect of loans taken, terms of repayment of interest and repayment of principal amounts have not been stipulated in writing. d) The Company has granted interest free loan to the subsidiary company, Bipin Textile Processing Limited, listed in the register maintained under Section 301 of the Companies Act, 1956. The company is not collecting interest from this company. The amount of advance to the subsidiary at the year end was Rs. 298.07 Lakhs Maximum Balance Rs.298.07 lakhs (on account of sale of building and other assets to subsidiary of Rs. 261.25 lakhs) Non collection of interest from the company, is in our opinion prejudicial to the interest of the Company. e) The other terms and conditions have not been stipulated., f) In respect of loans granted terms for payment of interest and repayment of principal amounts have not been stipulated in writing. 4. In our opinion and according to the information and explanations given to us, and as per our checks with respect to internal control system we are of the view that the same is not sufficient commensurate with the size of the company and nature of its business with regard to purchase of stores, raw materials including components, plant and machinery, equipment and other assets and for the sale of goods and services. 5. In respect of transactions covered under section 301 of the Companies Act 1956: a) The Company has not maintained Register U/s 301 of the Companies Act, 1956. b) We are unable to comment on transaction above Rs.5,00,000.00/- with parties listed in the Register U/s 301. 6. Based on our scrutiny of the company's records and according to the information and explanations provided by the management, in our opinion, the company has not accepted any deposits so far upto 315' March 2006, except interest free loan from Directors. 7. In our opinion, the Company does not have a formal internal audit system commensurate with its size and nature of its business. 8. We have been informed, that the central Government has prescribed maintenance of cost records under section 209 (1) (d) of the Companies Act, 1956 for the product 'FOOTWEAR' of the company and the company has abided the order of Central Govt. as per section 2338 (1) of the company's act of 1956 and appointed a cost auditor to conduct the cost audit. The Company has not properly maintained accounts and records prescribed by the central Government under Section 209 (1) (d) of the companies Act, 1956, during the course of the audit. 9. In respect of statutory dues: a) According to the records of the company, the company is irregular in depositing undisputed statutory dues of Provident Fund, and Employee State Insurance, Tax Deducted at Source and Sales Tax. b) Details of arrears of statutory dues as at 31st March 2006 which are outstanding for a period of more than six months from the date they become payable as follows: T.D.S Payable Rs. 14.58 lacs ESI Contractor Rs. 0.11 lacs ESI Contribution Rs. 0.23 lacs Saes Tax Rs. 2.00 lacs Professional Tax Rs. 0.23 lacs Provident Contribution Rs. 0.03 lacs c) According to the information and explanation given to us, there are no dues of sales tax, income tax, custom duty, wealth tax, excise duty cess on account of any dispute, other than the following: Customs duty payable Rs.3.14 lacs for which the case is pending with CEGAT Chennai 10. The Company has accumulated losses exceeding fifty percent of its net worth as at 31st March 2006. The Company has incurred a cash loss of Rs. 303.07 lacs in the current financial year and Rs. 181.46 lacs in the immediately preceding financial year. In arriving at the accumulated losses and net worth as above, we have considered the qualifications which are quantifiable in the audit reports of the years to which these losses pertain. 11. According to the information and explanation given to us, the Company has defaulted in repayment of dues to Name of the Institutions Nature of Due Since Default amount Payment Debentures issued to KSFC Principal 2000-2001 Rs. 30.00 lacs Debentures issued to KSFC Principal 2000-2001 Rs. 30.00 lacs Debentures interest to KSFC 2000-2001 Rs. 8.35 lacs Debentures interest to KSFC 2001-2002 Rs. 17.36 lacs Debentures interest to KSFC 2002-2003 Rs. 20.42 lacs Debentures interest to KSFC 2003-2004 Rs. 26.42 lacs Debentures interest to KSFC 2004-2005 Rs. 31.02 lacs Debentures interest to KSFC 2005-2006 Rs. 37.60 lacs Note: As informed by the management the company will make the timely payment of the amounts due to the IDBI avail the OTS. In view of this the company has not provided interest due to IDBI to the extent of Rs. 764.25 lakhs for the year. 12. According to the information and explanation given to us, the company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other investments. 13. In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, clause 4(xiii) & 4(iv) of the Companies (Auditor's Report) Order 2003 is not applicable to the Company. 14. In our opinion, the company is not dealing in or trading in shares, securities debentures and other investments. Accordingly the provisions of clause 4(xiv) of the Companies (Auditor's Report) Order, 2003 are not applicable to the company. 15. According to the information and explanations given to us, the Company has not given any guarantees for loans taken by its subsidiaries and associates from bank or financial institutions. 16. Based on information and explanations given to us by the Management, no fresh term loans were obtained by the company during the year. 17. According to the information and explanations given to us and on an overall examination of the balance sheet of the company, we report that the no funds raised during the year on short-term basis have been used for long-term investment. 18. According to the information and explanations given to us, the company has not made preferential allotment of shares during the year. 19. Based on books and records produced to us by the management, securities have been created in respect of debentures issued to Industrial Development Bank of India, through for the debentures issued to Karnataka Financial Institution the security has not created by the Company. 20. The company has not raised any money through a public issue during the year. 21. According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the course of our audit. For SHARMA & PAGARIA Chattered Accountants Date : 30.10.2006 (PAWAN PAGARIA) Place : Bangalore PARTNER M. No. 201781