Part III

Creative Accounting

Earnings Manipulation
The following changes have been done to manipulate the earnings from ` 75. 43 cr to ` 150.1 cr 1. Provision for Bad Debts We have reduced the earlier management estimates of Provision for Bad Debts. AS-4 & AS29 clearly states that the recognition of this impairment of receivable depends on the management estimate. We believe that all new receivables should be considered default free. Provision provided for in previous years has not been written back. 2. Capitalization of Expenses We have capitalized Repair & Maintenance expenses to an amount of ` 2171 Lakhs and Stores & Tools expenses (partly) to an amount of ` 3363.25 Lakhs in the financial year. The rationale behind this capitalization is that these expenses will help in increasing the useful life of the assets and there benefits will be derived over an extended period of time.

AS 10 (Accounting for Fixed Assets) clearly states that: Only expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value, e.g., an increase in capacity. The cost of an addition or extension to an existing asset which is of a capital nature and which becomes an integral part of the existing asset is usually added to its gross book value.

3. Capitalization of Selling & Distribution Expenses We have also capitalized Advertising, Marketing & Distribution expenses to an amount of ` 1373.4 Lakhs, assuming that these expenses will create future benefits by creating brand value for the company.

AS 26 (Accounting of Intangible Assets) state that:

The following are not components of the cost of an internally generated intangible asset:

(a) Selling, administrative and other general overhead expenditure unless this expenditure can be directly attributed to making the asset ready for use; (b) Clearly identified inefficiencies and initial operating losses incurred before an asset achieves planned performance; and (c) Expenditure on training the staff to operate the asset. 1|Page

4. Provision for diminution in value of investment We have reduced the earlier management estimates of Provision for diminution in value of Investment. AS-13 clearly states that the recognition of impairment of investment depends on the management estimate. We believe that there will not be any permanent reduction in the fair value of investment. 5. Provision for leave salary We have reduced the management estimate of provision for leave salary. AS 15 clearly states that the recognition of provision for leave salary depends on the expectation of management based on their past experience. We believe that this year there will not be any short term employee benefits due to unused entitlement. AS -15 (Accounting for Employee benefits) states that: Short-term employee benefits include items such as: (a) Wages, salaries and social security contributions;

(b) Short-term compensated absences (such as paid annual leave)where the absences are expected to occur within twelve months after the end of the period in which the employees render the related employee service;

(c) Profit-sharing and bonuses payable within twelve months after the end of the period in which the employees render the related service; and

(c) Non-monetary benefits (such as medical care, housing, cars and free or subsidized goods or services) for current employees.

6. Impairment of Assets We have reduced the management estimate of impairment of assets. AS -28 clearly states that the recognition of impairment of assets depends on the management estimate of the recoverable amount of the asset. We believe that the recoverable amount of the asset is more than the carrying amount of the asset. AS-10 (Accounting for Impairment of Assets) states that:

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset should be reduced to its recoverable amount. That reduction is an impairment loss.

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Income Sheet
Particulars Income Net Sales Other Income Net income Expenses Attributable Material Cost Wages & Salaries Energy Cost Advertising, Marketing & Distribution Expenses Other Overhead Expenses Total PBDIT (Interest) PBDT (Amortization) (Depreciation) PBT (Tax ) PAT 2010 (in ` crores) Actual Manipulated 1333.86 17.70 1351.56 1333.86 17.70 1351.56

761.60 124.27 62.29 91.56 128.60 1168.32 183.24 27.91 155.33 0.00 47.48 107.85 32.42 75.43

727.97 119.79 62.29 77.83 102.32 1090.19 261.37 27.91 233.46 0.69 50.25 182.52 32.42 150.10

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Balance Sheet
2010 (in ` crores) Actual Manipulated 579.78 142.39 596.14 0.00 1318.31 632.42 143.88 599.83 13.05 1389.18

Particulars Assets Net Fixed Assets Investments Current Assets Miscellaneous Assets Total Liabilities Share Capital Reserves & surpluses Loan funds CL Total

21.01 459.14 567.91 270.25 1318.31

21.01 533.81 567.91 265.77 1389.18

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Cash Flow Statement

A. Cash Flow From Operating Activities Net Profit Before Tax Adjustments for: Depreciation & Amortization Interest Expense Loss on sale of investments Loss on sale of assets Interest & Dividend received Unrealized exchange loss FGFO Adjustments for changes in working capital: Trade and other receivables Inventories Increase in provision Increase in Loans & Advances Trade Payables Cash Generated from operations Direct taxes paid Net Cash From Operating Activities B. Cash Flow From Investing Activities Purchase of fixed assets Sale of fixed assets Purchase of Other Asset Increase in Capital WIP Sale of Investments Interest received Dividend Received Net Cash Used in Investing Activities C. Cash Flow From Financing Activities Proceeds from term loans Proceeds from other borrowings Interest Paid Dividend and corporate dividend taxes paid Net Cash Used in Financing Activities Net increase in cash and cash equivalents Cash and cash equivalents - Opening balance Cash and cash equivalents - Closing balance 2010 in ` Cr Actual Manipulated 107.85 182.52 47.48 30.73 (0.09) (0.07) (2.53) (15.74) 170.05 23.88 (11.96) 0.00 0.01 (67.38) 225.51 30.89 194.62 50.94 30.73 (0.09) (0.07) (2.53) (15.74) 248.18 27.57 (11.96) 0.00 0.01 (62.90) 295.46 30.89 264.58

(59.67) 0.45 0.15 2.42 0.11 (56.53)

(115.09) 0.45 (13.73) (1.49) 2.42 0.11 (127.32)

(25.71) (58.03) (37.99) (22.13) (143.85) (5.74) 10.78 5.03

(25.71) (58.03) (37.99) (22.13) (143.85) (5.74) 10.78 5.03

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Schedule 2 : Reserves & Surplus Particulars General Reserve : At the beginning of the year Add : From Profit & Loss Account Surplus as per Profit & Loss Account

2010 in ` Lakhs Actual Manipulated 37,974.96 5,000.00 42974.96 2,939.21 45,914.17 37,974.96 12466.92 50441.88 2,939.21 53,381.09

Schedule 6 : Fixed Assets Particulars

2010 - In ` Lakhs Actual Gross Block Depreciation Net Block 276.23 79.64 196.59 4,607.05 26.33 4580.72 10,399.07 2,495.03 7904.04 73,010.53 30,832.07 42178.46 1,976.15 1,389.59 586.56 329.41 490.38 91088.82 0.00 147.52 104.71 35074.89 0.00 181.89 385.67 56013.93 1964.08 Manipulated Gross Block Depreciation Net Block 276 79.64 197 4607 26.33 4581 10399 2,495.03 7904 78552 31,109.13 47443 1976 1,389.59 587 329 490 96630.07 0.00 147.52 104.71 35351.95 0.00 182 386 61278.12 1964.08

Aircraft Land Buildings Plant And Machinery Furniture Fixtures & office Equipment Vehicles Technical know-How Total Capital Work In Progress Other Assets Brand value (Advt. Expenses Capitalized) Total

Gross Block Amortization Net Block 0.00 0.00 0.00

Gross Block Amortization Net Block 1373.40 68.67 1304.73

91088.82

35074.89

57978.01

98003.47

35420.62

64546.93

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Schedule 7 : investments Particulars Non-trade (Unquoted) - Subsidiary Companies 3,50,000 Ordinary Shares of RM 1 each in Sundram RBI Sdn. Bhd., Kuala Lumpur, (Formerly RBI Autoparts Sdn. Bhd., Kuala Lumpur, Malayasia) Less: Provision for diminution in value of investments

2010 in ` Lakhs Actual Manipulated

68

68

-68 0

0 68 81.46

18,215 Shares of US $ 10 each in Sundram International Inc., Michigan, USA Less: Provision for diminution in value of investments

81.46

-81.46 0

0 81.46 14388.00

Total Investment

14239.00

Schedule 9 : Sundry Debtors Particulars Considered Good Debts outstanding for a period exceeding six months Other debts

2010 in ` Lakhs Actual Manipulated 1,245.65 24,791.09 26,036.74 1546.65 24,791.09 26,337.74

Schedule 13 : Provisions Particulars Leave Salary

2010 in ` Lakhs Actual Manipulated 447.93 0

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Schedule 17 : Salaries & Wages, Stores Consumed And Other Expenses Particulars Stores and Tools consumed Repairs & Maintenance: a) Building b) Machinery c) Other assets 2010 in ` Lakhs Actual Manipulated 13,452.87 10,089.62

817.33 1,180.94 172.87 2,171.14 300.52 10,422.52 5,805.51 760.00 1,244.15 6,228.94 263.69 545.12 10,180.36 1,146.11 226.60 558.06 3.90 36.07 22.35 784.69 54,152.60

0.00 0.00 0.00 0.00 0.00 9,974.52 5,798.51 760.00 1,244.15 6,228.94 263.69 545.12 10,180.36 1,146.11 226.60 558.06 3.90 36.07 22.35 784.69 47,862.69

Bad Debts Salaries, Wages, Bonus and Allowances Miscellaneous expenses Employees Provident and Other Funds Staff & Labour welfare expenses Power & Fuel Rent Rates & Taxes Sub-contract expenses Freight & Cartage Insurance Commission on sales Directors Sitting Fees Remuneration to Auditors Loss on sale of assets / investments Research and Development Expenditure Total

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Accounting policies / compliance of Accounting Standards issued by the Institute of Chartered Accountants of India
AS 10: Accounting for fixed assets
Original The gross blocks of fixed assets are disclosed at the cost of acquisition, which includes taxes, duties (net of excise duty credit availed) and other identifiable direct expenses incurred up to the date the asset is put to use. Manipulated (Same as Above) Repair & Maintenance cost are fully capitalized in Plant & Machinery, since they increase the useful life of the asset and leads to future benefits. Stores & tools expenses which contribute in increasing the useful life of assets is capitalized in Plant & Machinery. Details of expenditure incurred during construction period and capitalized during the year in respect of Tappet Plant at Hosur: Particulars Raw Material Consumption Salaries, Wages, Bonus & Allowance Contribution to Employees provident & other funds Staff & Labour Welfare Expenses Stores & Tools consumed Power & Fuel Rent Rates & Taxes Freight & Cartage Interest & Exchange fluctuation Insurance Repairs & Maintenance Depreciation Travel expenses Miscellaneous Expenses Sales 2010(Actual) 2010 (Manipulated) 14.65 14.65 17.19 17.19 0.94 0.94 2.16 2.16 18.58 3381.83 31.18 31.18 0.64 0.64 3.07 3.07 1.02 1.02 30.28 30.28 5.66 2176.66 56.68 56.68

a) b) c) d) e) f) g) h) i) j) k) l) m) n) o) p)

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AS 13: Accounting of Investments

Original Investments are accounted at the cost of acquisition which includes stamp fees, etc. All the investments are long term investments. Diminution in the market value of long term investments is provided for only when there is a permanent diminution in the value of such investments. Manipulated (Same as above)Provision for diminution in the book value of investment is provided for only when there is a permanent reduction in the fair value of such investment. Provision made towards diminution in the value of investments in subsidiaries Particulars Sundram International Inc., Michigan, USA Sundram RBI Sdn Bhd, Kuala Lumpur, Malaysia 2010 (Actual) 81.46 68.00 2010 (Manipulated) 0 0

AS 26: Intangible Assets

Original The Company has not acquired any intangible asset during the year. With respect to fees paid for acquiring Technical Know-how before 1-4-2003, the amount capitalized has been amortized over the currency of the collaboration agreement. The Company entered into a Technical agreement for manufacture of Valve Lifters, the technical knowhow fees paid for acquiring Technical Know-how has been grouped under Technical Know-how fees. Manipulated (Same as above) Part of Marketing, Advertising & Distribution expense, which can be directly linked to creation of brand value, has been capitalized as an internally generated Intangible Asset as Brand Value. This asset will be amortized over a period of 20 years.

NOTE: We have not provided disclosures for manipulations that are related to changes in management estimates.

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AUDITORS' REPORT TO THE MEMBERS OF SUNDRAM FASTENERS LIMITED, CHENNAI FOR THE YEAR ENDED MARCH 31, 2010
(Same as original) Original 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 give the information required by the Act, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: Manipulated Reasons for qualification: Marketing, Advertising & Distribution expense of ` 1373.4 has been capitalized as Brand Value, like the treatment of Deferred Revenue Expenditure. This treatment is in deviation with AS 26 as mentioned below: The following are not components of the cost of an internally generated intangible asset: (a) Selling, administrative and other general overhead expenditure unless this expenditure can be directly attributed to making the asset ready for use; (b) Clearly identified inefficiencies and initial operating losses incurred before an asset achieves planned performance; and (c) Expenditure on training the staff to operate the asset. In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the adjustment on the financial statement, if any, as mentioned in the preceding paragraph the said accounts read together with the Significant Accounting Policies, and other notes thereon give the information required by the Act, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (Same as Original) For SUNDARAM & SRINIVASAN Regd No. 004207S Chartered Accountants M BALASUBRAMANIYAM Partner Membership No. F7945

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