We have audited the attached Balance Sheet of SOUTHERN MAGNESIUM AND
CHEMICALS LIMITED, HYDERABAD (A.P) as at 31st March, 2012 and also the
Statement of Profit and Loss for the year ended on that date annexed
thereto and the cash flow statement for the period 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.
We conducted our audit in accordance with the 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 misstatement. 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 and report that:
1. As required by the Companies (Auditors'' Report) Order, 2003, issued
by the Central Government of India in terms of Section 227(4A) of the
Companies Act, 1956, we enclose in the Annexure a statement on the
matters specified in paragraphs 4 and 5 of the said Order.
2. Further to our comments in the Annexure referred to in paragraph 1
a. We have obtained all the information and explanations which to the
best of our knowledge and belief were necessary for the purposes of our
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
c. The Balance Sheet, the Statement of Profit and Loss and Cash Flow
statement dealt with by this report are in agreement with the books of
d. In our opinion, the Balance Sheet, the Statement of Profit and Loss
and 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 excepting AS-15, Employee Benefits.
e. On the basis of the written representations received from the
Directors as on 31st March, 2012 and taken on record by the Board of
Directors, we report that, none of the Directors is disqualified as on
31st March, 2012 from being appointed as a Director in terms of clause
(g) of sub-section (1) of Section 274 of the Companies Act, 1956.
f. The company has not adopted and complied with the requirements of
AS-15 ''Employee Benefits'' in respect of gratuity liability. In view
of this the liability of the company in this regard could not be
ascertained. Consequently, we are unable to comment about the impact of
this on the Loss for the year.
g. In our opinion and to the best of our information and according to
the explanations given to us, the said accounts read in conjunction
with the Schedules annexed therewith and subject to our comments given
in para f above, 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 :
i) In the case of the Balance Sheet, of the state of affairs of the
Company as at 31st March, 2012;
ii) In the case of the Statement of Profit and Loss of the Loss of the
Company for the year ended on that date; and
iii) In the case of Cash Flow Statement of the cash flows for the year
ended on that date.
ANNEXURE REFERRED TO IN PARAGRAPH 1 OF OUR REPORT OF EVEN DATE
(i) (a) The Company maintains proper records showing full particulars,
including quantitative details and situation of fixed assets;
(b) The fixed assets have been physically verified by the management at
reasonable intervals; no material discrepancies were noticed on such
(c) During the year the company had disposed off substitutional part of
factory building. In our opinion, this does not affect the going
concern assumption, since the company buys magnesium ingots, process
them and self the processed products.
ii) (a) Management had physically verified the inventory at reasonable
(b) In our opinion the procedures of physical verification of inventory
followed by the management are reasonable and adequate in relation to
the size of the company and the nature of its business.
(c) The Company maintains proper records of inventory and no material
discrepancies were noticed on physical verification.
(iii) (a) to (d) Since the Company has not granted any loans, our
comments do not arise with regard to the principal recoveries and
overdue amounts in respect of loans granted.
(e) The Company has taken unsecured loans from two Companies and other
three parties covered in the register maintained under section 301 of
the Act. The amount involved in transactions is Rs.262.5 lakhs, year
end balances was Rs.260.50 lakhs and
(f) In our opinion the terms and conditions on which the unsecured
loans were availed by the Company are not prima facie prejudicial to
the interest of the company.
(g) The company has not repaid principal amount and the loans are
(iv) In our opinion there are adequate internal control systems
commensurate with the size of the company and the nature of its
business, for the purchase of inventory and fixed assets and for the
sale of goods and there were no weaknesses in internal control system.
(v) (a) There were no transactions that need to be entered into a
register required to be maintained under section 301 of the Act during
the year except acceptance of unsecured loans from directors and
(b) In view of the above comment Clause - V(b) is not applicable.
(vi) The Company has not accepted deposits from the public, so the
directives issued by the Reserve Bank of India and the provisions of
sections 58A, 58AA or any other relevant provisions of the Act and the
rules framed there under are not applicable to the Company during the
year under report.
(vii) The Company has no internal audit system. However, there are
adequate internal control procedures commensurate with its size and
nature of its business.
(viii) In our opinion the maintenance of Cost Records rules 2011 are
not applicable to the company for the year under report.
(ix) (a) The Company is not regular in depositing undisputed statutory
dues including Provident Fund and Sales Tax.
Undisputed amount of Rs.4,04,665/- in respect of interest on Sales Tax
was in arrears as at 31.03.2012 for a period of more than six months
from the date they became payable.
The company deposits regularly Excise Duty, Service Tax and Income Tax.
During the year under report there were no amounts depositable in
respect of Investor Protection Fund, Employee''s State Insurance,
Wealth Tax, Customs Duty.
(b) There are no dues of sales tax, income tax, custom tax, wealth tax,
cess which have not been deposited on accoun of any dispute.
(x) Company''s accumulated losses at the end of the financial year
were more than 50% of its net worth and it had not incurred cash loss
in the period under report and incurred cash loss in the immediately
preceeding financial year.
(xi) Company has not borrowed money from a financial institution or
from a bank. Hence, clause (xi), of the above said order is not
applicable with regard to defaults in repayments of dues.
(xii) The Company has not granted loans and advances on the basis of
security by way of pledge of shares, debentures and other securities.
(xiii) This clause is not applicable to the Company since this Company
is neither a Chit Fund nor Nidhi/ mutual benefit fund Society.
(xiv) The Company is not dealing or trading in shares, securities,
debentures and other investments.
(xv) As per the information given by the Company it has not given any
guarantee for loans taken by others from bank or financial
(xvi) During the year under report the Company has not availed term
loans. Hence clause (xvi) of the above said order is not applicable.
(xvii) In our opinion the funds raised on short-term basis were not
used for long term investment.
(xviii) During the period under report the company had not made any
preferential allotment of shares to parties and companies covered in
the Register maintained under section 301 of the Act.
(xix) This clause is not applicable since the Company has not issued
(xx) During the period under report the management has not raised any
money through public issue.
(xxi) During the year under report no fraud on or by the company has
been either noticed or reported.
for K.S.Rao & Co.,
Firms'' Regn. No. 003109S
Place : Hyderabad (P. Govardhan Reddy)
Date : 30-05-2012 Partner
Membership No. 029193