capital alliance finance plc · 7,049,702 14,356,355 other comprehensive income. actuarial...

Capital Alliance Finance PLCStatement of comprehensive income

For the Year ended 31st March 2013 2012Notes Rs. Rs.

Interest Income 3 139,933,099 84,639,954 Interest Expense 4 (82,758,285) (37,897,391) Net Interest Income 57,174,814 46,742,563

Fee and commission income 5 2,067,005 1,470,689 Fee and commission expenses 6 (193,194) (172,145) Net fee and commission income 1,873,811 1,298,544

Net gain/(loss) from financial instruments at fair value through profit or 7 6,526,075 (2,298,804)Other operating income 8 5,078,290 5,454,657 Impairment expenses for loans and advances and other losses 9 (955,095) 2,190,589

Net operating income 69,697,895 53,387,549

Operating Expenses

Personnel Costs 10 (21,055,098) (11,396,768) Depreciation of property plant and equipment (2,995,579) (1,114,820) Other expenses 11 (35,036,825) (24,807,325) Operating profit before VAT on financial services and Income Tax 10,610,393 16,068,636

Value added tax (VAT) on financial services (1,664,119) (1,709,977) Profit before Income Tax 8,946,274 14,358,659

Income tax expenses 12 (1,896,572) (2,304) Profit for the year 7,049,702 14,356,355

Other Comprehensive Income

Actuarial gains/(losses) on defined benefit plans 42,595 44,883

Total Comprehensive Income for the year 7,092,297 14,401,238

Earnings per Share 13 0.19 0.39

Figures in brackets indicate deductions.

The financial statements are to be read in conjunction with the related notes, which form an integral part of these financial statements of the Company.

Capital Alliance Finance PLCStatement of financial position

As at 31st March 2013 2012 April 1, 2011Note Rs. Rs. Rs.

Assets Cash and cash equivalents 15 24,077,042 61,954,629 76,749,139Investment In Repurchase Agreement 27,851,606 5,000,001 - Financial assets at fair value through profit or loss 16 2,838,409 3,238,341 5,537,145Loans and Advances 17 661,071,577 494,249,038 246,047,994Financial investments - Available-for-sale 18 345,775 2,500 2,500Financial investments - Held To Maturity 19 40,051,678 27,015,169 15,738,601Other Financial Assets 20 203,927,347 - 7,330,236Property, plant and equipments 21 39,623,608 23,712,285 15,255,842Other assets 22 23,394,485 24,189,662 15,613,358Total assets 1,023,181,527 639,361,625 382,274,814

Liabilities Deposits From Customers 23 516,459,336 311,708,097 139,648,487 Other borrowings 24 153,107,428 71,158,388 - Retirement benefit obligation 25 1,161,936 990,172 929,786 Deferred tax liability 26 6,318,021 6,241,057 6,667,208 Other liabilities 27 31,304,288 14,212,000 14,378,660 Total liabilities 708,351,009 404,309,714 161,624,141

Equity Stated capital 28 193,590,566 120,904,256 120,904,256Statutory reserve fund 10,685,145 10,330,530 9,502,538Other reserves 60,487,469 60,354,339 60,217,541Retained earnings 50,067,338 43,462,786 30,026,339Total equity 314,830,519 235,051,911 220,650,673Total equity and liabilities 1,023,181,527 639,361,625 382,274,814


B.G.P. SamanthaChief Financial Officer (Sgd)

Approved and signed for on behalf of the Board:

W.A.T.FernandoDirector / CEO (Sgd) Director

The financial statements are to be read in conjunction with the related notes, which form an integral part of these financial statements of the Company.

It is certified that the financial statements have been prepared in compliance with the requirements of the Companies Act No. 07 of 2007.

The Board of Directors is responsible for the preparation of these Financial Statements.

Kandy - 30th July 2013

…………………………

………..…………………… ………..…………………… E.R.G.C.G.Hemachandra (Sgd)

Capital Alliance Finance PLCStatement of changes in equity

Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 01st of April 2011 120,904,256 26,298,758 9,502,538 217,540 60,000,000 216,923,092

Adjustment due to first time adoption of SLFRS/LKAS (Note A) - 6,465,859 - - - 6,465,859

Prior year adjustments (Note 22.1) - (2,738,278) - - - (2,738,278)

Balance as at 01st April 2011 120,904,256 30,026,339 9,502,538 217,540 60,000,000 220,650,673

Total comprehensive income - 14,401,238 - - - 14,401,238

Transferred to Investment Fund - (136,798) - 136,798 - -

Transferred to Statutory Reserve Fund - (827,992) 827,992 - - -

Balance as at 31st March 2012 120,904,256 43,462,786 10,330,530 354,338 60,000,000 235,051,911

Balance as at 01st April 2012 120,904,256 43,462,786 10,330,530 354,338 60,000,000 235,051,911

Total comprehensive income - 7,092,297 - - - 7,092,297

Right Issue of Shares 72,686,310 - - - - 72,686,310

Transferred to Investment Fund - (133,130) - 133,130 - -

Transferred to Statutory Reserve Fund - (354,615) 354,615 - - -

Balance as at 31st March 2013 193,590,566 50,067,339 10,685,145 487,468 60,000,000 314,830,518

Note A

Reversal of interest in suspense 8,544,188 Adjustment for deposists from customers 277,924 Adjustment for impairment based on net flow method for the previous period (11,012,911) Fair value adjustment on dealing securities (305,161) Effective Interest Rate Adjustment for Loans and Advances 8,961,818

6,465,859

Figures in brackets indicate deductions.The financial statements are to be read in conjunction with the related notes, which form an integral part of these financial statements of the Company.

The company adopted Sri lanka Accounting standards comprising of LKAS and SLFRS with effective from 1 April 2011. Adjustment due to first time adoption of SLFRS/LKAS as follows

TotalStated Capital Retained Earnings

Statutory Reserve Fund

Investment Reserve

FundGeneral Reserve

For the year ended 31st March

CAPITAL ALLIANCE FINANCE PLCStatement of cash flows

For the year ended 31st March 2013 2012Notes Rs. Rs.

Cash Flow From Operating ActivitiesProfit Before Income Tax 8,946,274 14,358,659 Adjustment For,Depreciation 2,995,579 1,114,820 Investment Income (29,539,595) (7,346,904) Provision for retiement benefits obligation 335,359 224,069 Gain/(Loss) on sale of inventories (1,002,160) (211,044) Net (6,526,075) 2,298,804 Impairment on loans and advances 955,095 (2,190,589) Operating Profit Before Working Capital Changes (23,835,523) 8,247,815

(Increase)/ Decrease in Loans and Advances (212,696,826) (29,100,926) (Increase) / Decrease in Margin Trading Receivable 44,919,191 (216,909,529) (Increase)/ Decrease in Inventories 4,326,642 (1,048,810) (Increase) / Decrease in Other Assets (2,730,197) (5,730,674) Increase / (Decrease) in deposits from Customers 204,751,239 172,059,610 Increase/ (Decrease) in Other Liabilities 4,275,960 (1,494,519)Increase / (Decrease) in Trade and Other Payables 3,616,337 2,429,101 Cash Generated from Operations 22,626,823 (71,547,932)

Payment of retirement gratuity (121,000) (118,800) Income Tax Paid (1,618,714) (2,014,232) Net Cash Flows from Operating Activities 20,887,109 (73,680,964)

Cash Flows from Investing ActivitiesProceeds from Sale of Investment Securities 6,582,732 - Acquisition of Property Plant & Equipment (18,906,903) (9,571,263) Acquisition of Treasury Bills (13,036,509) (11,276,568) Investment Income Received 29,539,595 7,346,904 Investment in Government Security (22,851,605) (5,000,001) Investment in commercial Papers (203,927,347) 7,330,236 Net Cash Flows from Investing Activities (222,600,036) (11,170,693) Cash Flows from Financing Activities

Cash Flows from Financing ActivitiesRight Issue of Shares 72,686,310 - Cash Received from Borrowings 81,949,040 71,158,388 Net Cash Flows from Financing Activities 154,635,350 71,158,388

Net Increase/(Decrease) in Cash and Cash Equivalents (47,077,577) (13,693,269) Cash and Cash Equivalents at the Beginning of the Year A 61,528,939 75,222,208 Cash and cash equivalents at the end of the year 14,451,363 61,528,939

Note AAnalysis of cash and cash equivalentsCash and Bank Balances (Note 15) 24,077,043 61,954,629 Bank Overdraft (Note 27) (9,625,680) (425,689)

14,451,363 61,528,939


The financial statements are to be read in conjunction with the related notes on pages, which form an integral part of these financialstatements of the Company.

Capital Alliance Finance PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2013 1. Corporate Information

1.1 General

Capital Alliance Finance PLC is a public limited liability company incorporated and domiciled in Sri Lanka, incorporated under the Companies Act No 07 of 2007 and Finance Business Act No 42 of 2011.The registered office of the Company is located at No 21, Kumara Veediya, Kandy.

As a registered finance company, it is supervised by the Department of supervision of Non Bank Financial Institutions of the Central Bank of Sri Lanka.

1.2 Principal Activities During the year, the principal activities of the Company were acceptance of Deposits, granting Lease facilities, Hire Purchase, Margin Trading, Mortgage Loans, Demand Loans and other credit facilities.

1.3 Parent Entity and Ultimate Parent Entity The Parent entity is Capital Alliance Holdings Limited In the opinion of the directors, the Company’s ultimate parent undertaking and controlling party.

1.4 Date of Authorization of Issue The financial statements of Capital Alliance Finance PLC, for the year ended 31 March 2013 were authorized for issue in accordance with a resolution of the Board of Directors on July 30,2013

Capital Alliance Finance PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2013 2. Accounting policies 2.1 Basis of preparation

The financial statements have been prepared on a historical cost basis, except for available–for–sale investments, other financial assets and liabilities held for trading, financial assets and liabilities designated at fair value through profit or loss. The financial statements are presented in Sri Lankan Rupees (Rs.) and all values are rounded to the nearest rupee, except when otherwise indicated.

2.1.1 First-time adoption of Sri Lanka Accounting Standards (SLFRSs/LKASs)

For all periods up to and including the year ended 31 March 2012, the Company has prepared its financial statements in accordance with Sri Lanka Accounting Standards (SLASs). These financial statements, for the year ended 31 March 2013 are the first the Company has prepared in accordance with SLFRSs and LKASs (hereafter “SLFRSs”). Accordingly, the Company has prepared financial statements which comply with SLFRSs applicable for periods ending on or after 31 March 2013, together with the comparative period date as at and for the year ended 31 March 2012, as described in accounting policies. In preparing these financial statements, the Company’s opening statement of financial position was prepared as at 1 April 2011, which was the Company’s date of transition from SLASs to SLFRSs.

2.1.2 Statement of Compliance

The Financial Statements of the Company are prepared in accordance with Sri Lanka Accounting Standards (LKASs and SLFRSs) as issued by the Institute of Chartered Accountants of Sri Lanka. and the requirements of the Companies Act, No. 7 of 2007, Finance Companies Act, No 78 of 1988 which is replaced by the new Finance Business Act No 42 of 2011 and Finance Leasing Act No, 56 of 2000 and the amendments to these acts and provide appropriate disclosures as required by the Central Bank of Sri Lanka and Listing rules of Colombo Stock Exchange.

2.1.3 Comparative information

Previous period figures and Notes have been restated and reclassified wherever necessary to conform to the current year’s presentation. The Company has applied the exception given by the Institute of Chartered Accountants of Sri Lanka in applying comparative figures for SLFRS 7-Financial Instruments Disclosures. Accordingly the comparative disclosure required (Nature and extent of risk arising from Financial Instruments) will not be disclosed for comparative period due to difficulty of gathering such information.

Capital Alliance Finance PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2013 2.2 Significant accounting judgments, estimates and assumptions

In the process of applying the Company's accounting policies, management has exercised judgment and estimates in determining the amounts recognized in the financial statements. The most significant uses of judgment and estimates are as follows:

(a) Going concern

The Company’s management has made an assessment of the Company’s ability to continue as a going concern and is satisfied that the Company has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis.

(b) Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using judgment is required to establish fair values. The judgments include considerations of liquidity and model inputs such as volatility for longer dated derivatives and discount rates, prepayment rates and default rate assumptions for asset backed securities.

(c) Impairment losses on loans and advances

The Company reviews its individually significant loans and advances at each statement of financial position date to assess whether an impairment loss should be recorded in the income statement. In particular, management judgment is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.

Loans and advances that have been assessed individually and found to be impaired have been provide for The impairment loss on loans and advances as disclosed in Note 09 and Note 17. All individually not insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as levels of arrears, credit utilization, loan to collateral ratios, etc.), and judgments to the effect of concentrations of risks and economic data (including levels of unemployment, real estate prices indices, country risk and the performance of different individual groups).

(d) Impairment of available–for–sale investments

The Company records impairment charges on available–for–sale equity investments when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. In making this judgment, the Company evaluates, among other factors, historical share price movements and duration and extent to which the fair value of an investment is less than its cost.

Capital Alliance Finance PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2013

(e) Deferred tax assets Deferred tax assets are recognized in respect of tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits, together with future tax planning strategies.

(f) Taxation

The Company is subject to income taxes and other taxes including VAT on financial services. Significant judgment was required to determine the total provision for current, deferred and other taxes pending the issue of tax guideline on the treatment of the adoption of SLFRSs in the financial statements and the taxable profit for the purpose of imposition of taxes. Uncertainties exist, with respect to the interpretation of the applicability of tax laws, at the time of the preparation of these financial statements. The Company recognized assets and liabilities for current deferred and other taxes based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income. (g) Defined Benefit plan

The cost of the defined benefit plan is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, Salary Increment Rate, Age of Retirement, and Mortality Rates. Due to the long–term nature of these plans, such estimates are subject to significant uncertainty. (h) Useful life-time of the Property and equipment

The Company reviews the residual values, useful lives and methods of depreciation of assets as at each reporting date. Judgment of the management is exercised in the estimation of these values, rates, methods and hence they are subject to uncertainty.

Capital Alliance Finance PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2013 2.3 Summary of significant accounting policies 2.3.1 Foreign currency translation

The financial statements are presented in Sri Lankan Rupees (Rs.) Transactions and balances Transactions in foreign currencies are initially recorded at the functional currency rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the statement of financial position date. All differences arising on non–trading activities are taken to ‘Other operating income’ in the income statement.

2.3.2 Financial instruments

2.3.2.1 Initial recognition and subsequent measurement

(a) Date of recognition

All financial assets and liabilities are initially recognized on the trade date, i.e., the date that the company becomes a party to the contractual provisions of the instrument. This includes “regular way trades”: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

(b) Initial measurement of financial instruments

The classification of financial instruments at initial recognition depends on the purpose and the management’s intention for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.

(c) Subsequent measurement The subsequent measurement of financial assets depends on their classification as described below:

(i) Financial assets or financial liabilities held–for–trading

Financial assets or financial liabilities held–for–trading are recorded in the statement of financial position at fair value. Changes in fair value are recognized in ‘Net operating income’. Interest and dividend income or expense is recorded in ‘Net trading income’ according to the terms of the contract, or when the right to the payment has been established. Included in this classification are debt securities, equities and short positions.

(ii) Financial assets and financial liabilities designated at fair value through profit or loss Financial assets and financial liabilities classified in this category are those that have been designated by management on initial recognition. Management designates an instrument at fair value through profit or loss upon initial recognition when the following criteria are met, and designation is determined on an instrument by instrument basis:


The designation eliminates or significantly reduces the inconsistent treatment that would

otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them on a different basis.

The assets and liabilities are part of financial assets, financial liabilities or both which

are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.

Financial assets and financial liabilities at fair value through profit or loss are recorded in the statement of financial position at fair value. Changes in fair value are recorded in ‘Net gain or loss on financial assets and Liabilities designated at fair value through profit or losses. Interest is earned or incurred is accrued in ‘Interest Income’ or ‘Interest expense’, respectively, using the effective interest rate (EIR), while dividend income is Recorded in ‘Other operating income’ when the right to the payment has been established. The Company has not designated any financial assets and liabilities upon initial recognition as at fair value through profit or loss (iii) ‘Day 1’ profit or loss When the transaction price differs from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets, the Company immediately recognizes the difference between the transaction price and fair value (‘Day 1’ profit or loss) in ‘Net operating income’. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognized in the income statement when the inputs become observable, or when the instrument is derecognized.

(iv) Held–to–maturity financial investments

Held–to–maturity financial investments are non–derivative financial assets with fixed or determinable payments and fixed maturities, which the Company has the intention and ability to hold to maturity. After initial measurement, held–to–maturity financial investments are subsequently measured at amortized cost using the EIR, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. The amortization is included in ‘Interest and similar income’ in the income statement. The losses arising from impairment of such investments are recognized in the income statement line ‘Impairment for loans and other losses’. If the Company were to sell or reclassify more than an insignificant amount of held–to–maturity investments before maturity (other than in certain specific circumstances), the entire category would be tainted and would have to be reclassified as available–for–sale. Furthermore, the Company would be prohibited from classifying any financial asset as held to maturity during the following two years.

Included in this classification is Government securities – Treasury Bills


(iv) Loans and advances to customers (Loans and Receivables)

‘Loans and advances to customers’ include non–derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

Those that the Company intends to sell immediately or in the near term and those that the Company upon initial recognition designates as at fair value through profit or loss. Those that the Company, upon initial recognition, designates as available for sale. Those for which the Company may not recover substantially all of its initial investment,

other than because of credit deterioration.

After initial measurement, amounts ‘Loans and advances to customers' are subsequently measured at amortized cost using the EIR, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortization is included in ‘Interest income’ in the comprehensive income. The losses arising from impairment are recognized in the comprehensive income in ‘Impairment expenses for loans and advances and other losses’.

Included in this classification are Leases, Hire purchase, Margin trading receivable & other loans and advances.

(v) Debt issued and other borrowed funds

Financial instruments issued by the Company, that are not designated at fair value through profit or loss, are classified as liabilities under ‘Deposits from customers and Other borrowings’, where the substance of the contractual arrangement results in the Company having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

After initial measurement, debt issued and other borrowings are subsequently measured at amortized cost using the EIR. Amortized cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the EIR.

(vi) Available–for–sale financial investments

Available–for–sale investments include equity and debt securities. Equity investments classified as available–for–sale are those which are neither classified as held–for–trading nor designated at fair value through profit or loss. The Company has not designated any loans or receivables as available–for–sale. After initial measurement, available–for–sale financial investments are subsequently measured at fair value.

Unrealized gains and losses are recognized directly in equity in the ‘Available–for– sale reserve’. When the investment is disposed of, the cumulative gain or loss previously recognized in equity is recognized in the income statement in ‘Other operating income’. Where the Company holds more than one investment in the same security they are deemed to be disposed of on a first–in first–out basis. Dividends earned whilst holding available–for–sale financial investments are recognized in the income statement as ‘Other operating income’ when the right of the payment has been established. The losses arising from impairment of such investments are recognized in the income statement in ‘Impairment losses on financial investments’ and removed from the ‘Available–for–sale reserve’.

Capital Alliance Finance PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2013 2.3.2.2 Determination of fair value

The fair value for financial instruments traded in active markets at the statement of financial position date is based on their quoted market price. For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market observable prices exist, options pricing models, credit models and other relevant valuation models.

Certain financial instruments are recorded at fair value using valuation techniques in which current market transactions or observable market data are not available. Their fair value is determined using a valuation model that has been tested against prices or inputs to actual market transactions and using the Company’s best estimate of the most appropriate model assumptions. Models are adjusted to reflect the spread for bid and ask prices to reflect costs to close out positions, credit and debit valuation adjustments, liquidity spread and limitations in the models. Also, profit or loss calculated when such financial instruments are first recorded (‘Day 1’ profit or loss) is deferred and recognized only when the inputs become observable or on de recognition of the instrument.

2.3.2.3 Impairment of financial assets

The Company assesses at each statement of financial position date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, the probability that they will enter bankruptcy or other financial reorganization, default or delinquency in interest or principal payments and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

(a) Financial assets carried at amortized cost

For financial assets carried at amortized cost (such as loans and advances to customers as well as held–to–maturity investments), the Company first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment


loss. The interest income is recorded as part of ‘Interest Income’. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write–off is later recovered, the recovery is credited to the ’Income Statement’. The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR. If the Company has reclassified trading assets to loans and advances, the discount rate for measuring any impairment loss is the new EIR determined at the reclassification date. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Company’s credit risk characteristics such as asset type, industry, geographical location, past–due status and other relevant factors. Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

(b) Available–for–sale financial investments

For available for sale financial investments, the Company assesses at each reporting date whether there is objective evidence that an investment is impaired. In the case of debt instruments classified as available for sale, the Company assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the income statement. Future profit income is based on the reduced carrying amount and is accrued using the rate of return used to discount the future cash flows for the purpose of measuring the impairment loss. In the case of equity investments classified as available for sale, objective evidence would also include a ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that


investment previously recognized in the income statement – is removed from equity and recognized in the income statement. Impairment losses on equity investments are not reversed through the income statement; increases in the fair value after impairment are recognized in other comprehensive income.

(c) Renegotiated loans

Where possible, the Company seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated any impairment is measured using the original EIR as calculated before the modification of terms and the loan is no longer considered past due. Management continually reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original EIR.

(d) Collateral valuation

The Company seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as cash, securities, letters of credit/guarantees, real estate, receivables, inventories, other non-financial assets and credit enhancements such as netting agreements. Non-financial collateral, such as real estate, is valued based on data provided by third parties such as Independent valuers, audited financial statements.

2.3.2.4 Derecognition of financial assets and financial liabilities

(a) Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:

- The rights to receive cash flows from the asset have expired. - The Company has transferred its rights to receive cash flows from the asset or has

assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass–through’ arrangement; and either:

- The Company has transferred substantially all the risks and rewards of the asset, or - The Company has neither transferred nor retained substantially all the risks and

rewards of the asset, but has transferred control of the asset.

When the company has transferred its rights to receive cash flows from an asset or has entered into a pass–through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the company’s continuing involvement in the asset. In that case, the company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the company could be required to repay.


(b) Financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognized in profit or loss.

2.3.2.5 Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore, the related assets and liabilities are presented gross in statement of financial position.

2.3.3 Repurchase and reverse repurchase agreements

Securities sold under agreements to repurchase at a specified future date are not derecognized from the statement of financial position as the company retains substantially all the risks and rewards of ownership. The corresponding cash received is recognized in the statement of financial position as an asset with a corresponding obligation to return it, including accrued interest as a liability within ‘repurchase agreements’, reflecting the transaction’s economic substance as a loan to the company. The difference between the sale and repurchase prices is treated as interest expense and is accrued over the life of agreement using the EIR. When the counterparty has the right to sell or re - pledge the securities, the company reclassifies those securities in its statement of financial position to ‘Financial assets held–for–trading pledged as collateral’ or to ‘Financial investments available–for–sale pledged as collateral’, as appropriate. Conversely, securities purchased under agreements to resell at a specified future date are not recognized in the statement of financial position. The consideration paid, including accrued interest, is recorded in the statement of financial position, within ‘reverse repurchase agreements’, reflecting the transaction’s economic substance as a loan by the company.

2.3.4 Leases

The determination of whether an arrangement is a lease or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Capital Alliance Finance PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2013 2.3.4.1 Operating Leases

Company as a lessor Leases where the company does not transfer substantially all the risk and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

2.3.4.2 Finance Leases

Company as a lessor

Assets leased to customers whom transfer substantially all the risks and rewards associated with ownership Other than legal title, are classified as ‘Finance Leases’. Amounts receivable under finance leases are included under ‘Loans and Advances’ in the Statement of Financial Position after deduction of initial rentals received, unearned lease income and the accumulated impairment losses. When assets are held subject to a finance lease, the present value of the lease payments, discounted at the rate of interest implicit in the lease, is recognized as a receivable. The difference between the total payments receivable under the lease and the present value of the receivable is recognized as unearned finance income, which is allocated to accounting periods reflect a constant periodic rate of return.

2.3.5 Cash and cash equivalents

Cash and cash equivalents as referred to in the cash flow statement comprises cash on hand and balances with banks on demand or with an original maturity of three months or less.

2.3.6 Property, Plant and equipment

Property, plant and equipment (including equipment under operating leases where the company is the lessor) is stated at cost excluding the costs of day–to–day servicing, less accumulated depreciation and accumulated impairment in value. Changes in the expected useful life are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. Depreciation

The provision for depreciation is calculated by using the reducing balance method on the cost of all property, plant and equipment other than freehold land, in order to write off such amounts over the following estimated useful lives by equal installments.

Building - 25 years

Air Conditioner - 04 years

Office Equipment - 12.5 years

Office Furniture and Fittings - 08 years

Plant & Machinery - 04 years


Motor Vehicles - 04 years

Property and equipment is derecognized on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on de recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in ‘Other operating income' in the income statement in the year the asset is derecognized.

2.3.7 Impairment of non–financial assets

The company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash–generating units (CGU) fair value less costs to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre–tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used.

For assets, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the company estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the income statement

2.3.8 Provisions

Provisions are recognized when the company has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the income statement net of any reimbursement.

2.3.9 Retirement Benefit Obligations

(a) Defined Benefit Plan- Gratuity Based on the Sri Lanka Accounting Standard LKAS19- Employee Benefits, the company has adopted the actuarial valuation method for employee benefit liability an actuarial valuation is carried out every three years to ascertain the full liability. A separate fund is not maintained for this purpose.

The principal assumptions, which have the most significant effects on the valuation, are the rate of discount, rate of increase in salary, rate of turnover at the selected ages, rate of disability, death benefits and expenses.


The liability is measured on an actuarial basis using the projected unit credit method, adjusted for unrecognized actuarial gains and losses. The defined benefit plan liability is discounted using rates equivalent to the market yields at the date of statement of financial position that are denominated in the currency in which benefits will be paid, and that have a maturity approximating to the terms of the related pension liability. The company recognizes all actuarial gains and losses arising from the defined benefit plan in other comprehensive income (OCI) and all other expenses related to defined benefit plans are recognize as personnel expenses in income statement.

(b) Defined Contribution Plan - Employees' Provident Fund and Employees' Trust Fund

Employees are eligible for Employees' Provident Fund Contributions and Employees' Trust Fund Contributions in line with the respective Statutes and Regulations. The company contributes a minimum 12% and 3%.

2.3.10 Recognition of income and expenses

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized.

(a) Interest and similar income and expense

For all financial instruments measured at amortized cost, interest bearing financial assets classified as available–for–sale and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses. The carrying amount of the financial asset or financial liability is adjusted if the company revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as ’Interest and similar income’. However, for a reclassified financial asset for which the company subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the EIR from the date of the change in estimate. Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an Impairment loss, interest income continues to be recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.


(b) Fee and commission income

The company earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories:

- Fee income earned from services that are provided over a certain period of time

- Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees.

Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognized as an adjustment to the EIR on the loan. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognized over the commitment period on a straight line basis.

- Fee income from providing transaction services

(c) Dividend income

Dividend income is recognized when the company’s right to receive the payment is established.

(e) Net operating income Results arising from trading activities include all gains and losses from changes in fair value and related interest income or expense and dividends for financial assets and financial liabilities ‘held–for–trading’.

2.3.11 Taxes

(a) Current tax Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the statement of financial position date.

(b) Deferred tax

Deferred tax is provided on temporary differences at the statement of financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences.

Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.

The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax


assets are reassessed at each statement of financial position date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date.

Current tax and deferred tax relating to items recognized directly in equity are also recognized in equity and not in the income statement.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

(c) VAT on Financial Services

VAT on Financial Services is calculated in accordance with VAT Act No. 14 of 2002 and subsequent amendment thereto.

2.3.12 Dividends on ordinary shares

Dividends on ordinary shares are recognized as a liability and deducted from equity when they are approved by the company’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the company. Dividends for the year that are approved after the statement of financial position date are disclosed as an event after the reporting date.

2.3.13 Segment reporting

A segment is a distinguishable component of the company that is engaged in providing services (Business Segments) or in providing services within a particular economic environment (Geographical Segment) which is subject to risks and rewards that are different from those of other segments.

In accordance with the Sri Lankan Accounting Standard SLFRS 8- ‘Segmental Reporting’, segmental information is presented in respect of the company based on company management and internal reporting structure.

The company’s segmental reporting is based on the following operating segments. - Leasing : lease and Hire Purchase facility customers - Treasury : Placements of funds with other financial institutions, equity

Investments - Margin Trading : Margin advances to customers

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss of respective segment.

Capital Alliance Finance PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2013 2.3.14 Events after reporting period

Events after the reporting period are those events, favorable and unfavorable, that occur between the reporting date and the date when the financial statements are authorized for issue.

In this regard, all material and important events that occurred after the reporting period have been considered and appropriate disclosures are made.

2.3.15 Commitments and contingencies

All discernible risks are accounted for in determining the amount of all known liabilities. Contingent Liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent Liabilities are not recognized in the Balance Sheet but are disclosed unless they are remote.

2.3.16 Statement of Cash flow

The Cash Flow Statement has been prepared using the 'Indirect Method' of preparing Cash Flows in accordance with the LKAS – 7- 'Cash Flow Statements.' Cash and cash equivalents comprise short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

Cash and cash equivalents comprise of cash in hand and cash at banks and other highly liquid financial assets which are held for the purpose of meeting short-term cash commitments with original maturities of less than three months which are subject to insignificant risk of changes in their fair value.

Capital Alliance Finance PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2013 2.4 Standards issued but not yet effective

Standards issued but not yet effective up to the date of issuance of the financial statements are set out below. The company will adopt these standards when they become effective. Pending a detailed review the financial impact is not reasonably estimable as at the date of publication of these financial statements. (i) SLFRS 9 -Financial Instruments: Classification and Measurement SLFRS 9, as issued reflects the first phase of work on replacement of LKAS 39 and applies to classification and measurement of financial assets and liabilities. (ii) SLFRS 10 -Consolidated Financial Statements SLFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by SLFRS 10 will require management to exercise significant judgment to determine which entities are controlled and therefore are required to be consolidated by a parent, compared with the requirements in LKAS 27. (iii) SLFRS 11 – Joint Arrangements SLFRS 11 replaces LKAS 31 and SIC 13. SLFRS 11 uses the principle of control in SLFRS 10 to define control, and accordingly the determination of whether joint control exists may change. (iv) SLFRS 12 -Disclosure of Interests in Other Entities SLFRS 12encompasses all disclosures related to consolidated financial statements in LKAS 27, 28 and 31. These disclosures relate to an entity's interest in subsidiaries, joint arrangements, associates and structured entities. (v)SLFRS 13 -Fair Value Measurement SLFRS 13 establishes a single source of guidance under SLFRS for all fair value measurements. SLFRS 13 provides guidance on all fair value measurements under SLFRS. SLFRS 9 will be effective for financial periods beginning on or after 01 January 2015 whilst SLFRS 10, 11, 12 and 13 will be effective for financial periods beginning on or after 01 January 2014.

Capital Alliance Finance PLCNotes to the financial statements


3 Interest income Money market 1,027,856 2,535,932 Hire Purchase 36,053,907 17,891,314 Finance Leases 34,228,182 26,686,645 Mortgage Loan 4,626,558 4,775,755 Demand Loan 798,063 1,812,877 Margin Trading 32,846,292 25,609,954 Business loan 650,904 - Fixed deposits Loan 1,189,598 513,313 Sri Lanka Government Securities 3.1 4,962,031 1,274,571 Commercial Papers 20,058,492 3,536,401 Repurchase Agreement 3,491,216 - Other Interest Income - 3,192

Total interest income 139,933,099 84,639,954

3.1 Notional Tax Credit for With holding Tax on Government Securities on Secondary Market Transactions

4 Interest expensesDeposits from customers 68,065,421 23,957,683 Interest on commercial paper 14,597,920 153,826 Others 94,944 13,785,882

82,758,285 37,897,391

5 Fee and commission income Commission received 388,766 569,719 Finance charges-Hire Purchase. 979,613 293,123 Finance charges -Lease 681,126 604,847 Finance charges -Demand Loan 12,500 - Finance charges -Mortgage Loan 5,000 3,000

2,067,005 1,470,689

6 Fee and commission expenses Commission expenses 193,194 172,145

193,194 172,145

The Inland Revenue Act No.10 of 2007, provided that a company which derives interest income from the secondary market transactions in Government Securities ( on or after April 1, 2002 ) would be entitled to a notional tax credit (being one ninth of the net interest income) provided such interest income forms part of the statutory income of the Company for that year of assessment.

Accordingly the net interest income earned from the secondary market transactions in Government Securities for the year, has been grossed up in the Financial Statement & the resulting notional Tax credit amounts to Rs.1,493,417/-



7 Net Gain/(Loss) from Financial Instruments at Fair Value through Profit or Loss Government Debt Securities-Treasury Bills and Bonds 6,406,404 - Financial assets designated at fair value through profit and loss 119,671 (2,298,804)

6,526,075 (2,298,804)

8 Other Operating IncomeGain/(Loss) on sale of inventory (Three wheel) 1,002,160 211,044 Default charges 3,387,012 4,813,392 Documentation charges 347,139 85,678 Valuation charges 1,300 12,330 Other charges Lease 5,059 - Sundry income 324,240 225,874 Other chargers 11,380 106,339

5,078,290 5,454,657

9 Impairment expenses for loans and advances and other lossesImpairment charge/(reversal) on individual impairment 1,463,287 (1,236,433) Impairment charge/(reversal) on collective impairment 5,595,756 6,743,797 Recovery of loans previously writen-off (1,557,345) (440,484) Reversal of bad debt (4,546,603) (7,257,469)

955,095 (2,190,589)

10 Personnel Expenses Salary and bonus 15,839,298 8,418,263 Directors emoluments 1,721,214 668,500 Contributions to defined contribution plans 2,050,673 1,307,658 Contributions to defined benefit plans 335,359 224,069 Others 1,108,554 778,278

21,055,098 11,396,768

11 Other Expenses Auditor's remunerations 350,000 290,000 Professional and legal expenses 1,656,497 967,153 Office administration and establishment expenses 25,553,756 20,277,449 Provision for Unrecoverable VAT 22.1 7,476,572 3,272,723

35,036,825 24,807,325

21


For the year ended 31st March 2013 2012Note Rs. Rs.

12 Income tax expensesCurrent tax expense 12.1 1,819,608 1,441,770Under/(Over) provision - (1,013,315) Deferred tax expense 12.2 76,964 (426,151)

1,896,572 2,304

12.1 Reconciliation of effective tax rate

Net profit before income tax 8,946,274 14,358,659

Add - disallowable expenses 57,037,799 44,161,796 Less - allowable expenses (62,877,937) (46,306,242)

3,106,136 12,214,213 Loss from lease business during the year 7,129,488 - Business loss claimed during the year - Taxable income 10,235,624 12,214,213

Current tax @ 28% 1,819,608 1,441,770

Effective tax rate 17.78% 11.80%

12.2 Deferred tax expenseCharged/(Reversal) of deferred taxation for the year 76,964 (426,151)

76,964 (426,151) 13 Earnings Per Share

Profit attributable to the equity holders of the Company (Rs.) 7,049,702 14,356,355 Weighted average number of ordinary shares 37,288,439 36,687,346

Basic earnings per share 0.19 0.39

Tax charge is based on taxable profit which differs from profit for financial reporting purposes. These differences are explained inthe following reconciliation statement.

Basic earnings per share have been calculated by dividing the net profit for the period attributable to the ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year.


14 Measurement of financial instruments

As at 31st March 2013Others


AssetsCash and cash equivalents - - - - 24,077,042 24,077,042 Investment In Repurchase Agreement - - - - 27,851,606 27,851,606 Financial assets at fair value through profit or loss 2,838,409 - - - - 2,838,409 Loans and Advances - - 661,071,577 - - 661,071,577 Financial assets - available for sale - - - 345,775 - 345,775 Financial investments - Held To Maturity - 40,051,678 - - - 40,051,678 Other Financial Assets - - - - 203,927,347 203,927,347 Property, plant and equipments - - - - 39,623,608 39,623,608 Other assets - - - - 23,394,485 23,394,485 Total assets 2,838,409 40,051,678 661,071,577 345,775 318,874,088 1,023,181,527

As at 31st March 2013 Others Total

Rs. Rs. Rs.

LiabilitiesDeposit From Customers 516,459,336 - 516,459,336Other borrowings - 153,107,428 153,107,428Retirement benefit obligation - 1,161,936 1,161,936Deferred tax liability - 6,318,021 6,318,021Other liabilities - 31,304,288 31,304,288Total liabilities 516,459,336 191,891,673 708,351,009

As at 31st March 2012Others


AssetsCash and cash equivalents - - - - 61,954,629 61,954,629 Investment In Repurchase Agreement - - - - 5,000,001 5,000,001 Financial assets at fair value through profit or loss 3,238,341 - - - - 3,238,341 Loans and Advances - - 494,249,038 - - 494,249,038 Financial assets - available for sale - - - 2,500 - 2,500 Financial investments - Held To Maturity - 27,015,169 - - - 27,015,169

Property, plant and equipments - - - - 23,712,285 23,712,285 Other assets - - - - 24,189,662 24,189,662

Total assets 3,238,341 27,015,169 494,249,038 2,500 114,856,577 639,361,625

As at 31st March 2012 Others Total

Rs. Rs. Rs.

LiabilitiesDeposit From Customers 311,708,097 - 311,708,097Other borrowings - 71,158,388.32 71,158,388Retirement benefit obligation - 990,172 990,172Deferred tax liability - 6,241,057 6,241,057Other liabilities - 14,212,000 14,212,000

Total liabilities 311,708,097 92,601,617 404,309,714

Total

Amortized Cost

Amortized Cost

Total

Held for Trading (HFT)

Held to Maturity

(HTM)

Loan and Receivables

(L&R)

Available for Sale (AFS)

Held for Trading (HFT)

Held to Maturity

(HTM)

Loan and Receivables

(L&R)

Available for Sale (AFS)


As at 31st March 2013 2012 April 1, 2011Notes Rs. Rs. Rs.

15 Cash and Cash Equivalents Cash in hand 3,530,791 14,083,821 1,005,379Balances with banks 20,546,251 47,870,808 75,743,760

24,077,042 61,954,629 76,749,139

16 Financial Assets at Fair Value through Profit or Loss Quoted Equities 16.1 2,838,409 3,238,341 5,537,145

2,838,409 3,238,341 5,537,145

16.1 Ordinary Shares- Quoted

No of Market Cost of No of Market Cost of No of Market CostShares Value Investment Shares Value Investment Shares Value

Rs. Rs. Rs. Rs. Rs. Rs. Rs.Sunshine Holdings PLC 31000 824,600 1,681,283 31000 778,100 1,681,283 31000 1,305,100 1,681,283 Balangoda Plantations PLC 22000 739,200 1,471,372 22000 536,800 1,471,372 22000 1,234,200 1,471,372 Tokyo Cements Company (Lanka) PLC 8000 188,000 419,435 8000 320,000 419,435 8000 486,400 419,435 Richard Pieris & Company PLC - - - 67500 540,000 505,619 67500 918,000 505,619 ACL Cables PLC 5800 379,900 552,361 5800 362,500 552,361 5800 545,200 552,361 Ceylon Hotel Copra. 4500 75,600 177,296 4500 103,500 177,296 4500 141,300 177,296 Hotel Services cey. 15000 201,000 437,395 15000 232,500 437,395 15000 346,500 437,395 Keells Hotels- JKH 32584 430,109 597,545 32584 364,941 597,545 32584 560,445 597,545 Total cost and market value 2,838,409 5,336,687 3,238,341 5,842,305 5,537,145 5,842,305

2013 2012 2011


As at 31 March 2013 2012 April 1, 2011Notes Rs. Rs. Rs.

17 Loans and AdvanceLeases 17.1 211,493,581 144,873,000 124,977,503 Hire purchase 17.2 236,707,720 109,771,997 87,407,123 Other loans and advances 17.3 40,879,938 22,694,511 33,663,368 Margin trading receivable 17.4 171,990,338 216,909,529 -

661,071,577 494,249,038 246,047,994

17.1 Lease ReceivablesGross investment in leases receivable within one year 93,680,406 66,841,263 48,260,198 Gross investment in leases receivable between one and five years 179,328,977 113,764,053 111,056,309 Gross investment in leases receivable in respect of non performing leases 12,665,672 12,437,581 12,996,875 Leases receivable in arrears 12,245,152 5,864,516 5,826,386

297,920,207 198,907,413 178,139,768 Unearned lease income (75,319,920) (42,569,753) (39,716,951) Net investment in finance leases 222,600,287 156,337,660 138,422,817Impairment losses

Provision for individual impairment (2,323,907) (2,868,532) (4,378,295) Provision for collective impairment (8,782,799) (8,596,127) (9,067,018)

Net investment in finance leases after impairment 211,493,581 144,873,000 124,977,503

17.2 Hire purchaseGross investment in hire purchase receivable within one year 112,050,025 48,779,343 36,477,802 Gross investment in hire purchase receivable between one and five years 238,756,637 99,809,560 85,440,014 Gross investment in hire purchase receivable in respect of non performing HPs 1,572,663 751,206 961,927 Hire purchase receivable in arrears 15,761,582 4,182,412 3,223,665

368,140,907 153,522,521 126,103,408Unearned hire purchase income (126,464,842) (41,173,443) (36,381,928)Net investment in hire purchase 241,676,065 112,349,078 89,721,480Impairment losses

Provision for individual impairment (3,269,240) (1,261,327) (987,996)Provision for collective impairment (1,699,105) (1,315,753) (1,326,361)

Net investment in Hire Purchase after impairment 236,707,720 109,771,997 87,407,123

17.3 Other Loans and ReceivablesGross investment in othe Loan and receivables 55,238,612 27,719,094 52,452,524Gross investment in other Loans and receivable in respect of non performing loans 13,218,073 12,159,388 11,770,712other Loans and receivable in arrears 2,632,773 2,516,381 4,469,754

71,089,458 42,394,863 68,692,990Unearned loan income (20,079,861) (10,049,823) (25,346,919)

51,009,597 32,345,040 43,346,071Impairment losses

Provision for individual impairment - - Provision for collective impairment (10,129,659) (9,650,529) (9,682,703)

Net investment in other Loans and Receivable after impairment 40,879,938 22,694,511 33,663,368

17.4 Margin trading receivablesOpening balance 216,909,529 - - Increase in Net Position 274,283,552 423,848,671 - Settlements (319,202,743) (206,939,142) - Closing Balance 171,990,338 216,909,529 -

Net investment in other loans and advances


As at 31 March 2013 2012 April 1, 2011Notes Rs. Rs. Rs.

17.5Individual

impairment Collective

impairment Total

impairment Rs. Rs. Rs.

At 1 Apr 2011 5,366,292 20,076,082 25,442,375 Charge/(Write back) to income statement (1,236,433) 6,743,797 5,507,364 Reversal of Provision During the Year - (7,257,469) (7,257,469) At 31 Mar 2012 4,129,859 19,562,410 23,692,269

At 1 Apr 2012 4,129,859 19,562,410 23,692,269 Charge/(Write back) to income statement 1,463,287 5,595,756 7,059,043 Reversal of Provision During the Year (4,546,603) (4,546,603) At 31 Mar 2013 5,593,146 20,611,563 26,204,709

2013 2012 April 1, 2011Rs. Rs. Rs.

18 Financial Investments-Available-for-Sale

Credit information bureau 345,775 2,500 2,500 345,775 2,500 2,500.00

19 Financial investments - Held To Maturity

Government securities - Treasury Bills 40,051,678 27,015,169 15,738,600 40,051,678 27,015,169 15,738,600

20

Investment In Commercial Papers 203,927,347 - 7,330,236 203,927,347 - 7,330,236

Other Financial Assets

Movements in Individual and Collective Impairment during the Year


21 Property, Plant and Equipment

Land Buildings Computer

hardware and software

Machinery & Equipments

Furniture and fittings

Office Equipments Vehicles Total

Cost/fair value

Opening balance at 01.04.2012 8,312,500 3,661,595 - 5,900,589 1,608,573 4,025,583 755,679 24,264,519 Additions - 11,861,068 4,832,914 - 3,620,545 4,515,272 - 24,829,799 Closing balance at 31.03.2013 8,312,500 15,522,663 4,832,914 5,900,589 5,229,118 8,540,855 755,679 49,094,318


hardwares and softwares




Cost/fair value Opening balance at 01.04.2011 8,312,500 3,661,595 - 4,075,567 1,514,573 2,210,083 1,428,720 21,203,038 Additions - - - 1,825,026 94,000 1,815,500 2,800 3,737,326 Disposals - - - - - - (675,844) (675,844) Closing balance at 31.03.2012 8,312,500 3,661,595 5,900,593 1,608,573 4,025,583 755,676 24,264,520






Cost/fair value Opening balance at 01.04.2010 8,312,500 3,661,595 - 3,370,282 728,450 1,015,207 1,112,755 18,200,789 Additions - - - 705,285 786,123 1,194,876 315,965 3,002,249 Closing balance at 31.03.2011 8,312,500 3,661,595 - 4,075,567 1,514,573 2,210,083 1,428,720 21,203,038


21 Property, Plant and Equipment (Contd.)

Buildings Computer

hardware and software




Accumulated depreciation

Opening balance at 01.04.2012 1,245,808 - 3,333,557 625,538 864,228 405,999 6,475,130 Charge for the year 715,264 1,071,139 292,219 338,753 497,149 81,055 2,995,579 Closing balance at 31.03.2013 1,961,072 1,071,139 3,625,776 964,291 1,361,377 487,054 9,470,709

Opening balance at 01.04.2011 1,145,150 - 2,821,140 491,708 612,187.03 877,009 5,947,194 Charge for the year 100,658 - 512,417 133,830 252,041.45 115,875 1,114,821 Disposals - - - - - (586,885) (586,885) Closing balance at 31.03.2012 1,245,808 3,333,557 625,538 864,228 405,999 6,475,130

Opening balance at 01.04.2010 1,040,298 - 2,613,040 453,044 547,053.03 733,791 5,387,226 Charge for the year 104,852 - 208,102 38,664 65,134.00 143,218 559,970 Closing balance at 31.03.2011 1,145,150 2,821,142 491,708 612,187 877,009 5,947,196

21.1 Work in Progress 2013 2012 2011Rs. Rs. Rs.

Software Development - - - Building - 5,922,895 -

- 5,922,895 -

21.2 Net book value






Net book value at 31.03.2011 8,312,500 2,516,445 - 1,254,425 1,022,865 1,597,896 551,711 15,255,842 Work in Progress - - - - - - - Total net book value 31.03.2011 8,312,500 2,516,445 - 1,254,425 1,022,865 1,597,896 551,711 15,255,842

Net book value at 31.03.2012 8,312,500 2,415,787 - 2,567,036 983,035 3,161,355 349,677 17,789,390

Total net book value 31.03.2012 8,312,500 8,338,682 - 2,567,036 983,035 3,161,355 349,677 23,712,285

Net book value at 31.03.2013 8,312,500 13,561,591 3,761,775 2,274,813 4,264,826 7,179,477 268,625 39,623,608 Work in Progress - - - - - - - Total net book value 31.03.2013 8,312,500 13,561,591 3,761,775 2,274,813 4,264,826 7,179,477 268,625 39,623,608


As at 31 March 2013 2013 2012 April 1, 2011Notes Rs. Rs. Rs.

22 Other Assets Vat Control Account 16,493,014 9,677,631 6,579,716 Provision for Unrecoverable VAT 22.1 (13,487,573) (6,011,001) (2,738,278)

3,005,441 3,666,630 3,841,438 Deposits and prepayments 11,921,431 8,792,137 2,865,958 Inventory 2,667,419 5,991,900 4,732,047 Tax Receivable 2,291,514 2,492,407 - ESC Receivables - - 906,630 Assets Held For Sale 2,569,506 2,569,506 2,569,506 Other Receivable 939,174 677,083 697,779

23,394,485 24,189,662 15,613,358

22.1 Provision for estimated unrecovarable input VAT

Provision for estimated unrecovarabale Input Vat (7,476,572) (3,272,723) (2,738,278)

23 Deposits From CustomersDeposits from customers 516,736,321 312,063,766 139,926,410 (less): Amortised interest payable (276,985) (355,669) (277,923) Total 516,459,336 311,708,097 139,648,487

24 Other Borrowings Commercial Paper Borrowings 153,107,428 25,818,474 - Inter company borrowing - 45,339,914 -

153,107,428 71,158,388 -

Provision have been made for estimated unrecoverable input VAT from year 2010/11 to 2012/13.Retained Earning has been adjusted for 2010/11 and comprehensive income statement directly adjusted for other two years. The balance VAT input Asset is agreed with the return submitted with inland Revanue and the total adjustment for whole three years were as follows.


For the year ended 31st March 2013 2012 April 1, 2011Notes Rs. Rs. Rs.

25 Retirement benifit obligation Defined Benefit Plan - Retiring Gratuity Obligations 1,161,936 990,172 929,786

1,161,936 990,172 929,786

25.1 Defined Benefit Plan - Retiring Gratuity ObligationsAs at the Beginning of the Year 990,172 929,786 1,195,221 Current Service Cost 226,440 121,793 98,609 Interest Cost 108,919 102,276 131,474 Benefits Paid or Payable (121,000) (118,800) (446,250) Actuarial (Gains)/Losses (42,595) (44,883) (49,268) As at the End of the Year 1,161,936 990,172 929,786

25.1.1 Contribution for defined benefit plan recognised in the statements comprehensive incomeCurrent service cost 226,440 121,793 98,609 Interest cost 108,919 102,276 131,474

335,359 224,069 230,083

25.1.2 Contribution for defined benefit plan recognised in the statement of other comprehensive income Actuarial (gain)/loss at the end of the year (42,595) (44,883) (49,268)

(42,595) (44,883) (49,268)

Details of actuarial assumptions are as follows,Discount rate per annum 11% 11% 11%Future salary increases 10% 10% 10%Retirement age (years) 55 years 55 years 55 years

26 Deferred Tax LiabilityBalance at the beginning of the year 6,241,057 6,667,208 757,213 Amount originating/(reversal) during the period 76,964 (426,151) 5,909,995

6,318,021 6,241,057 6,667,208

Taxable Temporary differences on Leases 27,022,661 7,566,345 21,436,732 6,002,284 43,729,200 12,244,176 Taxable Temporary differences on fixed Assets 6,539,296 1,831,003 1,842,931 516,021 1,470,292 411,682 Deductible Temporary difference on defined benefit obligation (1,161,936) (325,342) (990,172) (277,248) (20,458,248) (5,728,309) Deferred Tax Assets on Current Period Tax Losses (Leasing) (7,129,488) (1,996,257) - - (929,786) (260,340) Deferred Tax Assets on B/F disallowed Bad debt provision (2,706,172) (757,728) - - - -

22,564,361 6,318,021 22,289,491 6,241,057 23,811,458 6,667,208

27 Other Liabilities Accruals & Other Payables 13,444,541 9,828,204 7,399,103Rental Received in Advance 8,234,067 3,958,107 5,452,626Bank overdraft 9,625,680 425,689 1,526,931

31,304,288 14,212,000 14,378,660

Rs. Rs. Rs.28 Stated capital

38,766,036 ordinary shares 193,590,566 120,904,256 120,904,256

Number of Shares

Value of Shares

Number of Shares

Value of Shares

Number of Shares

Value of Shares

(No:) Rs. (No:) Rs. (No:) Rs.

At the beginning of the year 33,920,282 120,904,256 6,167,324 120,904,256 6,167,324 120,904,256 Sub Division of Shares - - 27,752,958 - - - Right Issue During the Year 28.1 4,845,754 72,686,310 - - - - Balance at the End of the Year 38,766,036 193,590,566 33,920,282 120,904,256 6,167,324 120,904,256

28.1 Right Issue

28.2 Shares Held by the Parent Company and its Subsidiaries & Associate Companies.

The ordinary shares of the Company held by the parent company is as follows.

Holding %

Number of Shares

Nu

Holding %

Number of Shares

Held by Parent CompanyCapital Alliance Holdings Limited 68.43% 26,528,468 68.06 23,086,144

Messrs M Poopalanathan and Associates, a firm of professional actuary has carried out an independent actuarial valuation of the defined benefit gratuity on June 28, 2013. The valuation was carried out using the Projected Unit Credit Method, the method recommended by Sri Lanka Accounting Standard No 16 of (Revised 2006) on Employee benefit

Temporary difference

Temporary difference

Temporary differenceTax effect Tax effect

The Company allotted 4,845,754 ordinary shares at Rs. 15/- each on 17th December 2012 under a Rights Issue and as a result the stated capital has increased to Rs. 193,590,566 representing 38,766,036 ordinary shares.

20122013

31.03.2012 31.03.201131.03.2013

Tax effect

2013 2012 2011


29 RELATED PARTY DISCLOSUREDetails of significant related party disclosures are as follows:

29.1 Transactions with the Parent and Related Entities

2013 2012 2013 2012 2,011 Rs. Rs. Rs. Rs. Rs.

Capital Alliance Holdings Limited Parent Loan - Obtained 90,529,706 - Loan - Settlements (135,869,620) - - (45,339,914) -

Margin Trading Business - 398,238,717 Margin Trading Business - (352,898,803) - 45,339,914 -

Capital Alliance Limited Related Company Treasury Bill Purchases and Repo -Investments 856,040,278 31,218,826 Treasury Bill Purchases and Repo - Withdrawals (822,404,877) - 64,854,227 31,218,826 -

Capital Alliance Securities Limited Related Company Margin Trading Business - Increase in net position 274,283,552 398,238,717 Margin Trading Business - Settlement (319,202,743) (181,329,189) 171,990,338 216,909,529 -

Ceylon Tea Brokers PLC Related Company Commercial Papers-Investment 534,073,653 - Commercial Papers-withdrawal (411,847,795) - 128,854,234 - -

29.2 Transactions with Key Managerial persons

29.2.1 Compensation to Key Managerial Personnel 2013 2012 2011Rs. Rs. Rs.

Short Term Employment Benefits Paid 1,126,500 668,500 241,000

29.2.2 Other transactions with Key Managerial Personnel

Fixed Deposits Held at the end of the year 62,020,978 50,100,000 -

30 Events occuring after the reporting date

Amount (paid)/ received during the yearBalance (payable)/ receivable

The Key Managerial personnel of the Company are the members of its Board of Directors. Following transactions are entered between the company and its Key ManagementPersonnel and their close family members.

There have been no material events occurring after the statement of finacial position date that require adjustments or disclosure in the financial statements.

RelationshipNature of the Company Nature of transaction

5


Year ended 31 March 2013

31 FINANCIAL REPORTING BY SEGMENT

2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012Income FromExternal OperationsInterest 34,228,182 26,686,645 36,053,907 17,891,314 7,265,123 7,101,945 28,511,739 4,810,972 32,846,292 25,609,954 1,027,856 2,539,124 139,933,099 84,639,954 Fee Base Income & Others 681,126 604,847 979,613 293,123 17,500 3,000 - - - - 388,766 569,719 2,067,005 1,470,689 Capital gains - - - - - - - - - - - - - - Dividends - - - - - - - - - - - - - - Other 5,059 - - - - - - - - - 5,073,230 5,454,657 5,078,290 5,454,657 Total Revenue 34,914,367 27,291,492 37,033,520 18,184,437 7,282,623 7,104,945 28,511,739 4,810,972 32,846,292 25,609,954 6,489,852 8,563,500 147,078,394 91,565,299

Profit before tax - - - - - - - - - - - - 8,946,274 14,358,659

Taxation - - - - - - - - - - - - (1,896,572) (2,304)

Profit after tax 7,049,702 14,356,355 Other InformationAs at 31st MarchSegment assets 211,493,581 144,873,000 236,707,720 109,771,997 40,879,938 22,694,511 275,014,815 35,256,012 171,990,338 216,909,529 87,095,135 109,856,576 1,023,181,527 639,361,625

21% 23% 23% 17% 4% 4% 27% 6% 17% 34% 9% 17% 100% 100%

Segment Liabilities 146,177,336 91,388,206 163,604,511 69,245,932 28,254,855 14,316,061 190,081,102 22,240,056 118,874,007 136,830,001 61,359,199 70,289,458 708,351,009 404,309,714

Unallocated TotalLoans & AdvancesFor the Period Ended 31st March Finance Lease Hire Purchase Investments Margin Trading


32 Maturity AnalysisAssets Less than 3 Months 3 - 12 M 1 - 3 Year Over 3 years Total 2013 Total 2012

Cash and cash equivalents 24,077,042 - - - 24,077,042 61,954,629 Investment In Repurchase Agreement 27,851,606 - - - 27,851,606 5,000,001 Financial assets fair value through profit or loss 2,838,409 - - - 2,838,409 3,238,341 Other Financial Asset 203,927,347 - - - 203,927,347 - Loans and Advance 52,269,795 121,336,512 414,663,362 72,801,907 661,071,577 494,249,038 Financial investments - Available-for-sale - - - 345,775 345,775 2,500 Financial investments - Held To Maturity - 40,051,678 - - 40,051,678 27,015,169 Property, plant and equipment - - - 39,623,608 39,623,608 23,712,285 Other assets 5,898,106 17,496,378 - - 23,394,485 24,189,662

Total assets 316,862,306 178,884,568 414,663,362 112,771,290 1,023,181,527 639,361,625

Liabilities Deposit From Customer 308,188,446 201,447,782 4,963,417 1,859,691 516,459,336 311,708,097 Other borrowings 153,107,428 - - 153,107,428 71,158,388 Deferred tax liabilities - - - 6,318,021 6,318,021 6,241,057

Defined Benefit Plan - Retiring Gratuity Obligations - - - 1,161,936 1,161,936 990,172 Other liabilities 17,847,819 13,456,469 - - 31,304,288 14,212,000

Total liabilities 479,143,693 214,904,251 4,963,417 9,339,648 708,351,009 404,309,714

Equity Stated capital/Assigned capital - - - 193,590,566 193,590,566 120,904,256 Statutory reserve fund - - - 10,685,145 10,685,145 10,330,530 Retained earnings - - - 50,067,338 50,067,338 43,462,786 Other reserves - - - 60,487,469 60,487,469 60,354,339

Total equity - - - 314,830,519 314,830,519 235,051,911

Total equity and liabilities 479,143,693 214,904,251 4,963,417 324,170,166 1,023,181,527 639,361,625


33 Risk management

33.1 Introduction

More specifically, the committee is responsible for ensuring

• Integrity and adequacy of the risk management function of the company• Adequacy of the company’s capital

• The compliance of the company’s operations with relevant laws, regulations and standards

The company is primarily exposed to credit risk, market risk, liquidity risk, operational risk and regulatory risk.

33.2 Credit risk

Impairment assesment

• Significant financial difficulty of the customer• A breach of contract such as a default of payment• It becomes probable that the customer will enter bankruptcy or other financial reorganization• Observable data that suggest that there is a decrease in the estimated future cash flow from the loans

Individually assessed allowances

The company’s risk management strategy is based on a clear understanding of various risks, disciplined risk assessment and measurement procedures and continuous monitoring. Risk is an integral component of the business model of any finance company. Accordingly, the purpose of risk management is that the institution properly identifies measures and handles risk and prepares adequate reports on all these efforts so that the extent of risks which the company has assumed have been compensated with adequate return.

With this in mind, the company has established and operates mechanisms, which ensure the ongoing assessment of relevant risk types on an individual basis and of the overall risk position of the organisation.

• Risk exposures and risk profiles of the company are within acceptable parameters ant to make recommendations to the board of directors onany action required

The company uses Net Flow Rate model for the recognision of losses on impaired financial assets. The losses can only be recognized when objective evidence of a specific loss event has been observed. This includes,

It is determined the allowances appropriate for each individually significant loan or advance on an individual basis, including any overdue payments of interests, credit rating downgrades, or infringement of the original terms of the contract. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance if it is in a financial difficulty. Projected receipts and the expected payout should bankruptcy ensue, the availability of other financial support, the realizable value of collateral and the timing of the expected cash flows. Impairment allowances are evaluated at each reporting date, unless unforeseen circumstances require more careful attention.


Risk management (Cont)

33.2 Credit risk (Cont.)

Collectively assessed allowances

33.3 Credit Quality by class of financial assetsNeither past due nor impaired

Pass due but not impaired

Individually Impaired Total

Cash and cash equivalents 24,077,042 24,077,042 Investment In Repurchase Agreement 27,851,606 27,851,606

2,838,409 2,838,409 Loans and Advance 578,421,168 77,057,263 5,593,146 661,071,577 Financial investments - Available-for-sale 345,775 345,775 Financial investments - Held To Maturity 40,051,678 40,051,678 Other Financial Asset 203,927,347 203,927,347 Total 877,513,025 77,057,263 5,593,146 960,163,434

Allowances are assessed collectively for losses on loans and advances and advances and for held to maturity debt investments that are not individually significant.

The general bases its analyses on historical experience. However, when there are significant market developments, macro economic factor changes has to be considered. These factors include, current level of bad debts, changes in law, changes in regulations and other customer data. The company may use the aforementioned factors as appropriate to adjust the impairment allowances

The collective assessment is made for groups of assets with similar risk characteristics, in order to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident in the individual loans assessments. The collective assessment takes account of data from the loan portfolio (such as historical losses on the portfolio, levels of arrears, credit utilization, loan to collateral ratios and expected receipts and recoveries once impaired) or economic data (such as current economic conditions, unemployment levels and recoveries once impaired) or economic data ( such as current economic conditions, unemployment levels and recoveries once impaired) or economic conditions, unemployment levels and local or industry-specific problems). The approximate delay between the time a loss is likely to have been incurred and the time it will be identified as requiring an individually assessed impairment allowance is also taken into consideration. Management is responsible for deciding the length of this period, which can extend for as long as one year. The impairment allowance is then reviewed by credit management to ensure alignment with the company overall policy.

Financial assets at fair value through profit or


Risk management (Cont)

33.4 Liquidity risk and fund management

33.4.1 Statutory liquid assets ratio

As at 31st March 2013, the Company maintained Statutory Liquid Asset ratio at 12.4%

Liquidity risk is the risk of inadequate resources to meet financial obligations in time and in full, at an acceptable cost. As was seen in some registered finance companies in the recent past, liquidity risk can pose serious threats to the existence of finance companies. The company understands the importance of a robust liquidity risk management policy and constantly monitors the liquidity position of the company.

Further, It is the difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial assets. Liquidity risk arises because of the possibility that the company might be unable to meet its payment obligations when they fall due under both normal and stress circumstances. To limit the risk, management has arranged diversified funding sources in addition to its core deposit base, and adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a daily basis.

As per the requirements of Finance Companies (Liquid Assets) Direction No. 01 of 2009, Company has to maintain minimum liquid assets, not less than 7.5% of the average of the month end total deposit liabilities of the twelve months of the preceding financial year.


33.4.2 Analysis of financial assets and liabilities by remaining contractual maturities

Less than 03 Months 03-12 Months 01-03 Years Over 03 Years Total

Rs. Rs. Rs. Rs. Rs.Financial AssetsCash and Cash equivalents 24,077,042 - - - 24,077,042 Investment in repurchase agreement 27,851,606 - - - 27,851,606 Financial Investments - Held for fair value 2,838,409 - - - 2,838,409 Loans and Advances 52,269,795 121,336,512 414,663,362 72,801,907 661,071,577 Financial Investments - Available for Sale - - - 345,775 345,775 Financial Investments - Held to Maturity - 40,051,678 - - 40,051,678 Other financial assets 203,927,347 - - - 203,927,347 Total Financial Assets 310,964,199 161,388,190 414,663,362 73,147,682 960,163,434

Financial Liabilities Deposit From Customer 308,188,446 201,447,782 4,963,417 1,859,691 516,459,336 Other borrowings 153,107,428 153,107,428 Total Financial Liabilities 461,295,874 201,447,782 4,963,417 1,859,691 669,566,764

Total Net Financial Assets/(Liabilities) (150,331,675) (40,059,592) 409,699,946 71,287,991 290,596,670

33.5 Market risk

The table below summarizes the maturity profile of the undiscounted cash flows of the Company’s financial assets and liabilities as at 31 March 2013.

Market risk is the risk of potential losses accruing through adverse fluctuation in market interest rates, equity prices and exchange rates. Of these markets risks, the more frequent and most likely is the risk of adverse fluctuation of interest rates. The effect of such adverse movements could have an immediate and direct bearing on the company. Interest rate risk is the risk of loss in the net interest income of the company due to adverse changes in market interest rates. The company routinely assesses its assets and liability profile in terms of interest rate risk and depending on this assessment, necessary realignments in the assets and liability structure are undertaken.

Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and equity prices.

Equity price risk is that the fair value of equities decreases as the result of changes in the level of equity indices and individual stocks. The non-trading equity price risk exposure arises from equity securities classified as available for sale.


34 Operational riskThe company has in place a process of continuous internal audit utilizing the services of Messrs. Ernst & Young, Chartered Accountants.

34.1 Regulatory risk

34.2 Reputation risk

In this latter process, the Compliance Officer is supported and assisted by the company’s internal auditors, Messrs. Ernst & Young who also report on any issues of non-compliance, with both internal and external regulations. Compliance with regulatory requirements is also documented through formal procedure manuals for each business unit.

Reputation risk is the risk to earning, capital or brand arising from negative public or employee opinion. A company’s reputation is a valuable business asset in its own right, essential to optimising shareholder value. Reputation risk cannot be managed in isolation from other forms of risks, since all risks can have an impact on reputation, which in turn can impact the brand, earning and capital. Credit, liquidity, interest rate, operational, and regulatory risk must all be managed effectively in order to safeguard the company’s reputation.


35 Capital adequacy and management

Capital and risk weighted assets

As at 31 March Minimum Requirement 2013 2012

Capital to risk weighted asset ratioTier I (%) 33 49 Deduction - Tier I (%)Core capital 5.00 33 49

Tier II (%) - - Deduction - Tier II (%)Total capital base 10.00 33 49

Capital adequacy measures the Company's aggregate capital in relation to the risk, which may arise from its assets and off balance sheet transactions, its dealing operations and its human activities, technology and natural incidents. The Central Bank of Sri Lanka has prescribed the minimum risk sensitive capital with effective from January 2006. This guidelines required Company's to maintained minimum capital ratio of 5% and minimum risk weighted core capital of 10%.


36 FIRST- TIME ADOPTION OF LKAS AND SLFRSs

36.1 Reconciliation of Income Statement for the year ended 31 March 2012

SLAS Remeasurements

Reclassifications SLFRS/LKAS

Interest Income 83,953,842 686,111 0.00 84,639,954 Interest IncomeInterest Expenses (37,975,136) 77,745 - (37,897,391) Interest ExpenseNet Interest Income 45,978,706 763,857 0.00 46,742,563 Net Interest Income

1,470,689 1,470,689 Fee and commission income (172,145) (172,145) Fee and commission expenses

1,298,544 Net fee and commission income

305,161 (2,298,804) (2,298,804)Net gain/(loss) from financial instruments at fair value through profit or loss

- - Net gain/(loss) from financial investments Other Operating Income 14,623,298 (9,168,641) 5,454,657 Other operating income (net) Net Income from Operations 60,602,004 763,856.60 (10,168,901) 51,196,959 Total operating income

Less: Operating ExpensesPersonal Costs (10,539,697) - (857,070) (11,396,768) Personnel CostsProvision for Staff Retirement Benefits (179,186) - 224,069 44,883 Actuarial gains/(losses) on defined benefit plans General & Administration Expenses (25,612,471) - 805,145 (24,807,325) Other expenses Provision for Fall in Value of Investments (2,298,804) 2,298,804 - Depreciation (1,114,821) - - (1,114,820) Other expenses Provision for Bad and Doubtful Debts (5,552,464) 45,100 7,697,953 2,190,589 Impairment for loans and other losses Profit from Operations 15,304,561 45,100 10,168,901 16,113,519 Operating profit/(loss) before value added tax (VAT)

Value Added Tax on Financial Services (1,709,977) (1,709,977) Value added tax (VAT) on financial services

Profit Before Taxation 13,594,584 14,403,542 Profit/(loss) before tax

Provision for Income Taxation (2,304) (2,304) Tax expenses

Profit for the Year 13,592,281 808,957 (0) 14,401,238


FIRST- TIME ADOPTION OF LKAS AND SLFRSs (Contd.)

36.2

SLAS Remeasurements Reclassifications SLFRS/LKAS

Cash and Bank Balances 61,957,668 - (3,040) 61,954,629 Cash and cash equivalentsTreasury Bills/Bonds 26,218,825 - 796,344 27,015,169 Financial investments - Held To MaturityReverse repurchase agreements 5,000,001 - - 5,000,001 Repurchase AgreementInvestment in commercial Papers - - - - Other Financial AssetInvestment Securities-Quoted share 3,238,341 - - 3,238,341 Financial assets fair value through profit or lossInvestment Securities-Unquoted share 2,500 - - 2,500 Financial investments - Available-for-sale Loans and Advances 105,731,519 - 132,466,509 Loans and AdvanceNet Investment in Leases 138,035,564 7,224,308 26,348,118 144,873,000 Loans and AdvanceMargin Trading Receivables 216,909,529 216,909,529 Loans and AdvanceAssets Held For Sale 2,569,506 - - 2,569,506 Other assets Inventories 5,991,900 - - 5,991,900 Other assets Trade and Other Receivables 40,277,270 - (27,141,422) 13,135,848 Other assets Income Tax Receivables 2,492,407 - - 2,492,407 Other assets Property, Plant and Equipment 23,712,286 - - 23,712,286 Property, plant and equipment Total Assets 632,137,316 7,224,308 0 639,361,625

Liabilities

Fixed Deposits 303,368,409 (355,668) 8,695,356 311,708,097 Deposit From CustomerRental Received in Advance 3,569,041 - 389,066 3,958,107 Other liabilities Commercial Paper Borrowings - - 25,818,474 25,818,474 Other borrowings Trade and Other Payables 44,731,100 - (34,902,896) 9,828,204 Other liabilities Amounts Due to Related Parties 45,339,914 - 45,339,914 Other borrowings Deferred Tax Liabilities 6,241,057 - 0 6,241,057 Deferred tax liabilities Defined Benefit Liabilities 990,172 - - 990,172 Other liabilities Borrowings 425,689 - - 425,689 Other liabilities Total Liabilities 404,665,382 (355,668) 0 404,309,714

Shareholders' Funds

Stated Capital 120,904,256 - - 120,904,256 Stated capital/Assigned capital Statutory reserve fund 10,330,530 - - 10,330,530 Statutory reserve fundReserves 60,354,338 - - 60,354,338 Other reserves Retained Earnings 35,882,810 7,579,976 - 43,462,786 Retained earnings

227,471,934 235,051,910 Total Liabilities & Shareholders' Funds 632,137,316 7,224,308 - 639,361,624

Reconciliation of Statement of Financial Position as at 01 April 2012


FIRST- TIME ADOPTION OF LKAS AND SLFRSs (Contd.)

36.3

SLAS Remeasurements Reclassifications SLFRS/LKAS

Cash and Bank Balances 76,749,139 - 0 76,749,139 Cash and cash equivalentsTreasury Bills/Bonds 15,230,307 - 508,294 15,738,601 Financial investments - Held To MaturityReverse repurchase agreements - - - Repurchase AgreementInvestment in commercial Papers 7,330,236 - - 7,330,236 Other Financial AssetInvestment Securities-Quoted share 5,842,305 (305,161) - 5,537,145 Financial assets fair value through profit or lossInvestment Securities-Unquoted share 2,500 - - 2,500 Financial investments - Available-for-sale Loans and Advances 95,458,005 - 121,070,490 Loans and AdvanceNet Investment in Leases 119,599,556 6,493,097 24,497,336 124,977,503 Loans and AdvanceAssets Held For Sale 7,048,401 - (4,478,895) 2,569,506 Other assets Trade and Other Receivables 33,570,587 - (21,433,366) 12,137,222 Other assets Income Tax Receivables - - 906,630 906,630 Other assets Property, Plant and Equipment 15,255,842 - (0) 15,255,842 Property, plant and equipment Total Assets 376,086,878 6,187,936 (1) 382,274,814 -

Liabilities

Fixed Deposits 136,750,096 (277,924) 3,176,314 139,648,486 Deposit From CustomerIncome Tax Liabilities 967,752 - (0) 967,752 Other liabilities Rental Received in Advance 3,847,740 - 3,847,740 Commercial Paper Borrowings - - - Other borrowings Trade and Other Payables 11,212,551 - (3,176,314) 8,036,237 Other liabilities Amounts Due to Related Parties - - Other borrowings Deferred Tax Liabilities 6,667,208 - - 6,667,208 Deferred tax liabilities Defined Benefit Liabilities 929,786 - - 929,786 Other liabilities Borrowings 1,526,931 - - 1,526,931 Other liabilities Total Liabilities 161,902,064 (277,924) 0 161,624,141

Shareholders' Funds

Stated Capital 120,904,256 - - 120,904,256 Stated capital/Assigned capital Statutory reserve fund 9,502,538 - - 9,502,538 Statutory reserve fundReserves 60,217,540 - - 60,217,541 Other reserves Retained Earnings 23,560,480 6,465,859 (0) 30,026,339 Retained earnings

214,184,813 220,650,673 Total Liabilities & Shareholders' Funds 376,086,878 6,187,936 (0) 382,274,814

Reconciliation of Statement of Financial Position as at 01 April 2011

capital alliance finance plc · 7,049,702 14,356,355 other comprehensive income. actuarial...

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