I. We have audited the attached Balance Sheet of B S Appliances
 Limited, as at March 31, 2003, and also the Profit and Loss Account and
 the Cash Flow Statement of the Company for the 18 months period ended
 on that date annexed thereto. These financial statements are the
 responsibility of the Companys management. Our responsibility is to
 express an opinion on these financial statements based on our audit.
 
 II. We 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 whether the financial
 statements are prepared, in all material respects, in accordance with
 an identified financial reporting framework and 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 the management as well as evaluating the
 overall financial statement presentation. We believe that our audit
 provides a reasonable basis for our opinion.
 
 III. As required by the Manufacturing and Other Companies (Auditors
 Report) Order, 1988 issued by the Company Law Board in terms of Sub
 Section (4A) of Section 227 of the Companies Act, 1956 and on the basis
 of such examination of the books and records of the Company as we
 considered appropriate and according to the information and
 explanations given to us during the course of the audit, we annexe
 hereto a statement on the matters specified in paragraphs 4 and 5 of
 the said Order.
 
 IV Further, to our comments in the Annexure referred to in para III
 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;
 
 c. The Balance Sheet, Profit and Loss Account and the Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;
 
 d. On the basis of written representations received from the •
 Directors of the Company, as at 31st March, 2003 and taken on record by
 the Board of Directors, we report that none of the Directors are
 disqualified as on 31st March 2003 from being appointed as a Director
 in terms of clause (g) of sub-section (1) of section 274 of the
 Companies Act 1956.
 
 e. In our opinion, the Balance Sheet, Profit and Loss Account and the
 Cash Flow Statement dealt with by this report comply with the
 Accounting Standards referred to in Sub Section (3C) of Section 211 of
 the Companies Act, 1956, to the extent applicable except that:
 
 i. As stated in Note No.10 to the accounts, deferred tax asset has been
 ascertained by including therein the amount of business losses for
 which virtual certainty of absorption within the statutory time limit
 is required as per Accounting Standard 22. In our opinion such
 certainty does not exist at this stage. If the business loss for the
 period and carried forward business losses are excluded, there will be
 a deferred tax liability of Rs. 336.35 lacs which has not been
 adjusted in the accounts. If the same were adjusted, liabilities and
 debit balance in Profit and Loss Account would increase by a like
 amount.;
 
 ii. The company has not charged off any part of the market development
 expenses included under deferred revenue expenditure in Schedule No. 13
 to the accounts eventhough the expenditure was incurred in earlier
 years, as according to the management, the economic benefit will accrue
 only in later years when commercial production of new products relating
 to which these expenses were incurred will commence. This contention of
 the management is not in accordance with the Accounting Standard 10,
 which stipulates that such expenditure has to be written off over a
 period not exceeding 5 years. The effect thereof on the accounts of the
 Company for the period is not ascertainable:
 
 iii. As stated in Note No. 4 to the accounts the Company is yet to
 determine realisable value of old/non moving inventories valued at cost
 Rs. 1165.46 lacs and hence these stocks are not valued at lower of cost
 or net realisable value as required in Accounting Standard 2. The
 effect thereof on the accounts of the Company could not be ascertained
 at this stage.
 
 f. i. As stated in Note No. 4 of the accounts, the Company is in the
 process of reviewing its inventories and other current assets and
 reconciling its accounts with many of its major suppliers, customers
 and other parties.  Pending determination of ultimately reasliable
 amount if any, no provision has been made in the accounts/or the losses
 that may arise on this account, the ultimate effect thereof on the
 accounts of the Company for the period is not ascertainable at present.
 
 ii. As stated in Note No. 9 to the accounts no provision is made/or
 diminution in the market value of investments for the reasons stated
 therein, the extent of permanent decline if any thereof, cannot be
 ascertained at present;
 
 iii. As stated in Note No. 19 to the accounts no provision is made/or
 certain demands/claims not accepted and included under contingent
 liabilities, ultimate liability in respect of which could not be
 ascertained at present;
 
 g. Subject to the reservations/limitations expressed in Para e. and/,
 above, the ultimate effect whereof on the accounts of the Company/or
 the period under report could not be ascertained except to the extent
 stated in eft) above, in our opinion and to the best of our information
 and according to the explanations given to us, the said accounts read
 with the notes thereon give the information required by the Companies
 Act, 1956, in the manner so required and give a true and fair view in
 conformity with the accounting principles generally accepted in India;
 
 (a) in the case of the Balance Sheet, of the state of affairs of the
 Company as at March 31, 2003;
 
 (b) in the case of the Profit and Loss Account of the loss for the
 period ended on that date; and
 
 (c) in the case of Cash Flow Statement, of the cash flows for the
 period ended on that date.
                                                       For VARMA & VARMA
                                                   Chartered Accountants
 Bangalore                                                CHERIAN K BABY
 20-8-2003                                          Partner M. No. 16043
 
 Annexnre to Auditors Report
 
 Statement referred to in paragraph III of our Report of even date to
 the members of BS Appliances Limited on the accounts for the period
 ended March 31, 2003.
 
 1. The Company has maintained proper records showing particulars
 including quantitative details where applicable and situation of its
 fixed assets which requires to be updated to give alt required
 particulars. As explained to us, the Company has conducted physical
 verification of fixed assets during the period and no material
 discrepancies were noticed on such verification;
 
 2. None of the fixed assets of the Company have been revalued during
 the period;
 
 3. As explained to us, the stocks of finished goods, stores, spare
 parts and raw materials of the Company, have been physically verified
 by the management during the period at reasonable intervals, except for
 stocks at branches, which are new not Junctioning, Rs. 920.84 lacs;
 
 4. The procedure of physical verification of the aforesaid stocks
 followed by the management are reasonable and adequate in relation to
 the size of the Company and the nature of its business;
 
 5. The discrepancies between the physical balances and book balances
 of stocks in respect of the items physically verified, to the extent
 identified, have been properly dealt with in the books of account;
 
 6. In our opinion and on the basis of our examination of the stock
 records maintained, the valuation of stocks is fair and proper and in
 accordance with the normally accepted accounting principles and is on
 the same basis as in the preceeding period except that old non moving
 stocks are not valued at realisable value;
 
 7. The Company has taken interest free unsecured loan from a company,
 listed in the register maintained under Section 301 of the Companies
 Act, 1956, the conditions of which are not prima facie prejudicial to
 the interests of the Company;
 
 8. The Company had advanced in an earlier year to a Company listed in
 the register maintained under Section 301 of the Companies Act, 1956 a
 sum of Rs. 6975/- lacs in pursuance of a proposal for amalgamation,
 since withdrawn, as stated in Note No. 6 to the accounts. Hence we do
 not offer our opinion on the advance. Loans and advances include a
 further sum of Rs. 4.52 lacs recoverable from a Company listed in the
 register maintained under section 301 of the Companies Act, 1956 in
 respect of which the management has not stipulated terms of repayment
 or interest;
 
 9. In respect of other interest free loans or advances in the nature
 of loans given by the Company to the employees and third parties, the
 principal amounts are generally being repaid/adjusted as stipulated by
 the management;
 
 10. In our opinion and on the basis of the checks carried, out during
 the course of our audit, the internal control procedures for the
 purchase of stores, spares and raw materials and for the sale of goods
 is fairly adequate and commensurate with the size of the Company and
 the nature of its business;
 
 11. In our opinion and according to the information and explanations
 given to us, the purchase/sale/service transactions with Companies in
 pursuance of contracts entered in the register maintained under section
 301 of the Companies Act, 1956 and aggregating during the period to
 more than Rs. 50,000/- were made at negotiated rates and in the absence
 of similar transactions with others are not comparable;
 
 12. As explained to us, the Company has put in place a system of
 determining unserviceable or damaged stores, raw materials and finished
 goods and no provision is made in respect of such items identified as
 slaw, non moving and obsolete pending determination of realisable
 value.
 
 13. The Company has not accepted any deposits from the public during
 the year. The provisions of Section 58A of the Companies Act, 1956 and
 rules framed thereunder have been complied with to the extent
 applicable;
 
 14. In our opinion, reasonable records have been maintained by the
 Company for the sale and disposal of realisable scrap. The Company does
 not have any by-products;
 
 15. In our opinion, the Company has an internal audit system, the scope
 and coverage of which is considered to be fairly adequate having regard
 to the size and nature of business of the Company;
 
 16. As explained to us, the Central Government has not prescribed
 maintenance of cost records under clause (d) of Sub Section (1) of
 Section 209 of the Companies Act, 1956, for the products of the
 Company;
 
 17. According to the records of the Company, it has been regular in
 depositing Provident Fund and Employees State Insurance dues with the
 appropriate authorities during the period;
 
 18. According to the information and explanations given to us, there
 were no undisputed amounts payable in respect of Income Tax, Sales Tax,
 Customs Duty and Excise Duty which have remained outstanding as at 31st
 March 2003 for a period of more than six months from the date they
 became payable;
 
 19. According to the information and explanations given to us and the
 records of the Company examined by us, no personal expenses of
 employees or directors have been charged to revenue account, other than
 those payable under Contractual obligations or in accordance with
 generally accepted business practices of the Company;
 
 20. The Company is not a Sick Industrial Company within the meaning of
 clause (o) of sub-section (1) of Section 3 of the Sick Industrial
 Companies (Special Provisions) Act, 1985 on the basis of the Balance
 Sheet as adopted by the Board of Directors.
 
                                                       For VARMA & VARMA
                                                   Chartered Accountants
 Bangalore                                              CHERIAN. K. BABY
 20-8-2003                                          Partner M. No. 16043