senkadagala - introductory listing final · senkadagala finance company limited introductory...

SSEENNKKAADDAAGGAALLAA FFIINNAANNCCEE CCOOMMPPAANNYY LLIIMMIITTEEDD

Incorporated under the Companies Ordinance No.51 of 1938 and registered under the Finance Companies

Act No. 78 of 1988. The Company is re-registered under the Companies Act No.07 of 2007

IINNTTRROODDUUCCTTOORRYY DDOOCCUUMMEENNTT

For obtaining the listing of

53,368,000

Ordinary Voting Shares

on the Diri Savi Board of the Colombo Stock Exchange.

For further inquiries, please contact the Managers to the Introduction

If you are in any doubt regarding the contents of this document you should consult your stockbroker, bank

manager, lawyer or any other professional advisor.

The delivery of this Introductory Document shall not under any circumstance constitute a representation or

create any implication or suggestion, that there has been no material change in the affairs of the Company since

the date of this document.

MANAGERS TO THE INTRODUCTION

Capital Alliance Limited,

Level 05, “Millennium House”,

46/58, Navam Mawatha,

Colombo 02.

Tel: 2317777

Fax: 2317788

��

SENKADAGALA FINANCE COMPANY LIMITEDINTRODUCTORY DOCUMENT

3

DECLARATION

This Introductory Document has been prepared by Capital Alliance Limited from Information

supplied by Senkadagala Finance Company Limited (The Company) or which is publicly available.

The Directors of the Company, collectively and individually, having made all reasonable inquiries,

confirm that to the best of their knowledge and belief, the information contained herein is true and

correct in all material respects and that there are no other material facts, the omission of which, would

make any statement herein misleading. While Capital Alliance Limited has taken reasonable care to

ensure full and fair disclosure it does not assume any responsibility for any investment decision made

by investors based on information contained herein. In making an investment decision, prospective

investors must rely on their own examination and assessments of the Company including the risks

involved.

No person is authorized to give any information or to make any representations not contained in this

Introductory Document and if given or made, any such information or representation must not be

relied upon as having been authorized by the Company.

�

�

The Colombo Stock Exchange (CSE) has taken reasonable care to ensure full and fair

disclosure of information in this Introductory Document. However, the CSE assumes

no responsibility for the accuracy of the statements made, opinions expressed or reports

included in this Introductory Document.


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ABBREVIATIONS USED IN THIS INTRODUCTORY DOCUMENT

CDS - Central Depository Systems (Pvt.) Limited

CSE - Colombo Stock Exchange

SFCL or the “Company” - Senkadagala Finance Company Limited

SEC - Securities & Exchange Commission of Sri Lanka

CBSL - Central Bank of Sri Lanka

Ordinary Share(s) - Ordinary Voting Share(s) of the Company

EGM - Extraordinary General Meeting


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TABLE OF CONTENTS�1 CORPORATE INFORMATION 6��2 INFORMATION RELEVANT TO THE INTRODUCTION 7�

2.1 Introduction of Ordinary Voting Shares for Listing 7�2.2 Collection Points 7�

�3 FINANCIAL SECTOR 11�

Registered Finance Companies 11��4 PROFILE OF THE ENTITY 13�

4.1 Overview of the Company and Nature of the Business 13�4.2 Degree of Dependence 15�4.3 Corporate Structure 15�4.4 Human Resources 17�4.5 Future Plans & Prospects 17�4.6 Assumptions on which future plans are based 18�4.7 Associated risks to future plans 19�

�5 DETAILS OF THE BOARD OF DIRECTORS 21�

5.1 Directors’ Profiles 22�5.2 Directors’ interest in assets 24�5.3 Founder/ Management/ Deferred Shares of the Company 24�5.4 Articles pertaining to the Directors 24�5.5 Statement – Board of Directors 24�

�6 SENIOR MANAGEMENT TEAM 25��7 CAPITAL STRUCTURE 27�

7.1 Stated Capital 27�7.2 Details of the Ten Largest Ordinary Shareholders as at 28th January 2011 27�7.3 Capitalization of Reserves 28�

�8 STATUTORY AND OTHER GENERAL INFORMATION 31�

8.1 Litigation, Disputes And Contingent Liabilities 31�8.2 Material Contracts 31�8.3 Details of Commissions Paid and Benefits Paid to Promoters 31�8.4 Management Agreements 31�8.5 Inspection of Documents 32�

�9 FINANCIAL INFORMATION 33�

9.1 Auditor Report on the Five Year Financial Performance of Senkadagala Finance Company Limited 33�9.2 Ratios and Share Information 36�9.3 Receivables 37�9.3.1 Policy for classification of non-performing receivables 37�9.3.2 Composition of Receivables: 37�9.4 Maturity Analysis of Deposits & Borrowings 38�

�10 CORPORATE GOVERNANCE PRACTICES 39�

10.1 Directors 39�10.2 Remuneration Committee 39�10.3 Audit Committee 40�

�11 DECLARATION BY THE DIRECTORS 41�FINANCIAL STATEMENTS 42�AUDITED FINANCIAL STATEMENTS AS AT 31ST MARCH 2008 43�AUDITED FINANCIAL STATEMENTS AS AT 31ST MARCH 2009 71�AUDITED FINANCIAL STATEMENTS AS AT 31ST MARCH 2010 99�UN-AUDITED INTERIM FINANCIAL STATEMENTS AS AT 31ST DECEMBER 2010 131�


6

1

CORPORATE INFORMATION

Name of the Company Senkadagala Finance Company Limited

Incorporation & Legal Form A Public Limited Liability Company domiciled in Sri Lanka, incorporated under the

Companies Ordinance No.51 of 1938 on 29th December 1968. The Company is re-

registered under the Companies Act No. 7 of 2007.

Registered as a Finance Company by the Monetary Board of Sri Lanka under the

Finance Companies Act No.78 of 1988. Registered under the Finance Leasing Act

No.56 of 2000. It is also an approved Credit Agency under the Mortgage Act No.06 of

1949 and the Trust Receipt Ordinance No.12 of 1947.

Company Registration No. PB 238

Registered Office 2nd Floor, No. 267, Galle Road, Colombo 3.

Telephone 011-2301301

Fax 011-2301937

Company Secretary Managers & Secretaries (Pvt) Limited

No.08, Tickell Road,

Colombo 08.

Company Auditors KPMG Ford Rhodes Thornton & Co.,

Chartered Accountants,

Sir Mohamed Macan Makar Mawatha,

Colombo 03.

Internal Auditors Ernst & Young Advisory Services (Pvt) Ltd.

No.839/2, Peradeniya Road,

Kandy.

Bankers Commercial Bank of Ceylon PLC

Hatton National Bank PLC

Sampath Bank PLC

Honkong & Shanghai Banking Corporation Limited


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2

INFORMATION RELEVANT TO THE INTRODUCTION

2.1 INTRODUCTION OF ORDINARY VOTING SHARES FOR LISTING

This Introductory Document dated 03rd March 2011 is published for the purpose of obtaining

a listing on the Colombo Stock Exchange for the Ordinary Voting Shares of Senkadagala

Finance Company Limited.

The shares are to be listed on the Diri Savi Board of the Colombo Stock Exchange.

2.2 COLLECTION POINTS

Copies of the Introductory Document may be obtained from the Manager or any member firm

and trading member firm of the Colombo Stock Exchange

2.2.1 MANAGERS TO THE INTRODUCTION

Capital Alliance Limited Level 5, ‘Millennium House’


Colombo 02.

Telephone : 011-2317777

Fax : 011-2317788


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2.2.2 MEMBERS AND TRADING MEMBERS OF THE CSE

Members of the CSE

Acuity Stockbrokers (Pvt) Limited Level 6, Acuity House,

53, Dharmapala Mawatha,

Colombo 03.

Telephone: 2206206

Fax: 2206298/9

E-mail: [email protected]

Asha Phillip Securities Limited Level 4, "Millennium House"


Colombo 02

Telephone: 2429100

Fax: 2429199


Asia Securities (Pvt) LimitedLevel 21, West Tower,

World Trade Center,

Echelon Square, Colombo 1.

Telephone: 2423905,5320000

Fax: 2336018


Assetline Securities (Pvt) Limited 282, Kaduwela Road,

Battaramulla.

Telephone: 4700111, 2307366

Fax: 4700112


Bartleet Mallory Stockbrokers (Pvt) Ltd. Level "G", Bartleet House,

65, Braybrooke Place,

Colombo 2.

Telephone: 5220200

Fax: 2434985


Capital TRUST Securities (Pvt) Limited 42, Sir Mohamed Macan Marker Mawatha,

Colombo 3.

Telephone: 5335225

Fax: 5365725


Ceylinco Stockbrokers (Pvt) Limited Ceylinco House, Level 9,

69, Janadhipathi Mawatha,

Colombo 1.

Telephone: 4714300, 4714388, 4714389

Fax: 2387228


CT Smith Stockbrokers (Pvt) Limited 4-14, Majestic City,

10, Station Road,

Colombo 4.

Telephone: 2552290-4

Fax: 2552289


D N H Financial (Pvt) Limited Level 16, West Tower,

World Trade Centre,

Colombo 01.

Telephone: 5732222

Fax: 5736264


J B Securities (Pvt) Limited150, St. Joseph Street,

Colombo 14.

Telephone: 2490900, 0772490900

Fax: 2430070, 2446085,2447875



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John Keells Stockbrokers (Pvt) Limited130, Glennie Street,

Colombo 2.

Telephone: 2306250,2342066-7,2446694-5

Fax: 2342068, 2326863


Lanka Securities (Pvt) Limited 228/2, Galle Road

Colombo 4.

Telephone: 4706757,2554942

Fax: 4706767


NDB Stockbrokers (Pvt) Limited 5th Floor, NDB Building,

40, Navam Mawatha,

Colombo 2.

Telephone: 2314170-8

Fax: 2314180


SC Securities (Pvt) Limited2nd Floor,

55, D.R. Wijewardena Mawatha,

Colombo 10.

Telephone: 4711000

Fax: 2394405


Somerville Stockbrokers (Pvt) Limited 137, Vauxhall Street,

Colombo 2.

Telephone: 2329201-5, 2332827, 2338292-3

Fax: 2338921



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Trading Members of the CSE

Capital Alliance Securities (Pvt) LimitedLevel 5, "Millennium House",

46/58 Navam Mawatha,

Colombo 02

Tel: 2317777

Fax: 2317788


First Guardian Equities (Pvt) Limited 32nd Floor, East Tower,

World Trade Centre,

Colombo 01

Tel: 5884400

Fax: 5884401


Heraymila Securities Limited Level 8, South Wing,

‘Millennium House’


Colombo 02

Tel: 2359100

Fax: 2305522


IIFL Securities Ceylon (Pvt) Limited27th Floor, East Tower,

World Trade Centre,

Colombo 01

Tel: 2333000

Fax: 2333383


Richard Pieris Securities (Pvt) Limited 69, Hyde Park Corner,

Colombo 02

Tel: 0777 281281

E-mail : [email protected]

SKM Lanka Holdings (Pvt) Limited377/3, Galle Road,

Colombo 03

Tel: 2372413-4

Fax: 2372416


SMB Securities (Pvt) Limited47, Dharmapala Mawatha,

Colombo 03

Tel: 5539593

Fax: 2339292


Taprobane Securities (Pvt) Limited 2nd Floor, 10, Gothami Road,

Colombo 08

Tel: 5328200

Fax: 5328277


TKS Securities (Pvt) Limited 14, Reid Avenue,

Colombo 07

Tel: 2675200

Fax: 2682553


Claridge Stockbrokers (Pvt) Limited 10, Gnanartha Pradeepa Mawatha,

Colombo 08

Tel: 2697974

Fax: 2677576



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3

FINANCIAL SECTOR

The financial sector in the country, including the Central Bank of Sri Lanka, mainly

comprises of the following major financial institutions – Licensed Commercial Banks,

Licensed Specialized Banks, Specialized Leasing Companies, Registered Finance

Companies, Insurance Companies and Pension and Provident Funds. In total, the asset base

of the country’s major financial institutions amounted to Rs. 5,616 billion as at end of

December 2009.

REGISTERED FINANCE COMPANIES

The core activities of Registered Finance Companies (RFCs) revolve around providing

financing to customers that do not have easy access to bank finance, through leasing and hire

purchase facilities. RFCs are regulated under the Finance Companies Act No.78 of 1988.

The total number of RFCs in operation as at end December 2009 was recorded at 35, carrying

out operations through a network of 289 branches spread island wide. Out of the total asset

base of Rs. 5,616 billion, the total asset base of RFCs for the year 2009 was recorded at

Rs.185 billion, accounting for 3.3% of the total assets of the country’s major financial

institutions.

Market share of the two largest RFCs accounted for approximately 37% of the total assets of

the industry during 2009, a reduction of 9% from 46% during 2008. The largest nine RFCs

accounted for approximately 73% of the total assets, whilst eighteen medium size RFCs

accounted for only 24% of total assets.

The sector is steadily recovering, with the performance of most of the companies in the sector

having been adversely affected in 2009 due to the resultant high interest rates and the

heightened credit and liquidity risks which were caused by the collapse of certain unregulated

finance companies. The financial distress caused by the collapse of the unregulated finance

companies, resulted in a loss of investor confidence in all finance companies and cast a

negative outlook on the entire sector.


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This resulted in most of the Companies scaling down business operations to mitigate their

risk factor. Hire Purchase and Lease facilities which accounted for approximately 63% of the

RFC industry’s assets saw a slowdown in growth, with many companies curtailing lending

and adopting a conservative approach. Thus the growth of total assets of RFCs was recorded

at 5% as opposed to a 23% growth in 2008.

However, amidst these challenges most of the RFCs have continued to generate positive

returns, with 27 of the 35 RFCs complying with the increased minimum capital requirement,

and maintaining the capital adequacy well above the statutory minimum indicating the

sector’s resilience and ability to withstand its challenges.

The sector recovered significantly as a result of the good governance and well adopted

business practices undertaken by RFCs. The stability of the sector was preserved primarily

through the timely intervention and stringent regulations and supervision undertaken by the

CBSL, which undertook several measures to restore the public confidence in the sector and

provided advisory services on the recovery process.

Further, to enhance and strengthen the regulatory framework of the financial sector, CBSL

have proposed certain changes to the framework, which include closely monitoring the

compliance with the Finance Companies (Corporate Governance) Direction and making the

board of directors more accountable for the companies’ performance and risk management

practices. In addition, RFCs have been required to list on the Colombo Stock Exchange by

the end of June 2011 to broad base the share ownership structure and to improve transparency

as well as the imposition of the Finance Companies (Reporting Requirement) Direction No.

05 of 2009 to grant more powers to the CBSL to regulate RFCs.

Source: Central Bank of Sri Lanka


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4

PROFILE OF THE ENTITY

4.1 OVERVIEW OF THE COMPANY AND NATURE OF THE BUSINESS

Senkadagala Finance Company Limited (SFCL) is a medium-sized Registered Finance

Company (RFC) licensed by the Central Bank of Sri Lanka. Based on publicly available

information published by finance companies, SFCL is the seventh largest RFC in Sri Lanka,

in terms of its asset size, accounting for 3.3% of sector assets at the financial year ended

2009.

A public limited company incorporated in 1968 under the Companies Ordinance No.51 of

1938, and registered under the Finance Companies Act No.78 of 1988. The Company re-

registered under the Companies Act No.7 of 2007. SFCL is also a registered Finance Leasing

Establishment in terms of the Finance Leasing Act No. 56 of 2000.

Senkadagala Finance Company Limited, as denoted by its name, has its roots in Kandy.

Nevertheless, the Company has expanded its presence to encompass an island-wide network

of 30 branches, located in seven provinces. During the course of last year, the network grew

by four branches in the Western province to cater to the commercial boom in the province.

The principal lines of business that the Company engages in can be broadly classified into

fund-based and fee-based categories.

Fund-based services include Lease Finance, Hire Purchase Finance, Trade Loans and Pledge

Loans. Since inception, SFCL has been primarily involved in the provision of vehicle finance

through lease and hire purchase agreements, and remains so, with vehicle finance accounting

for 95% of its loan book as at the financial year ended 2009.

Fee-based services include Insurance Brokering Services and IT-related consultancy. The

Company acts as an agent for reputed insurance companies, providing an insurance brokering

service to its own clientele. In terms of IT, the Company is under agreement with IBM and


14

0

1000

2000

3000

4000

5000

6000

7000

2006 2007 2008 2009 2010

Total�Assets�(Rs�Mn.)

0

1000

2000

3000

4000

5000

2006 2007 2008 2009 2010

Lending�Assets�Portfolio�(Rs.�Mn.)

0

500

1000

1500

2000

2500

2006 2007 2008 2009 2010

Term�Deposits�(Rs.�Mn)

Keells Business Systems Ltd. to offer software engineering solutions. In addition, the

Company also provides IT consultancy services to associate companies and outside clients.

Further it has been observed based on publicly available information published by finance

companies that SFCL is amongst the largest licensed deposit-taking institutions registered

with the Central Bank of Sri Lanka (CBSL) and is supervised by the Department of

Supervision of Non-Bank Financial Institutions. The target clientele of RFCs is primarily the

Small and Medium Enterprise sector which lies beyond the risk appetite of traditional

commercial banks. Competition is therefore largely limited to other RFCs and specialised

leasing companies. Operating in a very competitive environment against 35 registered

finance companies, the Company holds a noteworthy 3% of the country’s financing assets.

The Company has been affirmed a long-term rating of ‘BBB+ (lka)’, with a stable outlook by

Fitch Ratings Lanka Limited.

In addition, SFCL, having recently introduced a fully automated state-of-the-art Savings

Account system with ATM card facility, is the first finance company in Sri Lanka to issue an

ATM card which can be accessed at over 23 million ATM locations worldwide.

The following graphs depicting the growth in the assets, term deposits and lending assets

portfolio of SFCL indicate the resilience of the Company despite external challenges faced by

the industry during the recent financial turmoil in both international and domestic financial

markets.


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4.2 DEGREE OF DEPENDENCE

The principal input of the Company’s operations is the funds employed. These funds are

obtained through deposits from the public and from bank borrowings. The Company received

45% from public deposits and 31% from bank borrowings for the financial year ended 31st

March 2010. The balance 24% constitutes of other institutional borrowings. The Company

ensures that both avenues of funds are obtained from a number of different sources so as to

avoid dependence on any one particular group of suppliers.

Similarly, the Company has also ensured a wide spread customer base, by utilising its

network of branches. In addition, it also maintains a significantly low single borrower limit

which is applicable to both individuals and to groups such that no single borrower or group of

borrowers has a significant share of the Company’s portfolio of receivables.

Therefore it can be firmly established that there is no significant dependency by the Company

on any one or group of its customers or suppliers.

4.3 CORPORATE STRUCTURE

Senkadagala Finance Company Limited is a subsidiary of E.W. Balasuriya & Co. (Pvt)

Limited, which owns 30,088,050 shares amounting to 56.38% of the share capital of the

Company as at 31st December 2010.

E. W. Balasuriya & Co. (Pvt) Limited was incorporated on 27th April 1984, under the

Companies Ordinance No.51 of 1938 and re-registered under the Companies Act. No. 07 of

2007. The principle business of E. W. Balasuriya & Co. (Pvt) Limited includes the purchase

and sale of gems, jewellery and other precious stones both locally and abroad. In addition, the

Company also manufactures jewellery and exports the same worldwide, and test the gems for

identifications using valuation reports and necessary certificates required by the state gem

corporations and other Government authorities.


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4.3.1 SHAREHOLDERS OF E.W. BALASURIYA & COMPANY LIMITED

ORDINARY SHAREHOLDERS AS AT NUMBER OF SHARE31st December 2010 SHARES PERCENTAGE

00.03 100,081 )desaeceD( ayirusalaB .W.E .rM )1(

00.01 100,06 ayirusalaB .L .rM )2(

00.01 000,06 )desaeceD( ayirusalaB .J .srM )3(

00.01 000,06 ayirusalaB .A .rD )4(

00.01 000,06 ayirusalaB .R .rM )5(

00.01 000,06 odnanreF .L .srM )6(

00.01 000,06 ayirusalaB .M .rD )7(

00.01 000,06 nahoM nadaM .G ).srM( .rD )8(

TOTAL 600,002 100.00

4.3.2 BOARD OF DIRECTORS OF E.W. BALASURIYA & COMPANY LIMITED

Name of Director Address

Mr. L. Balasuriya No. 14, Claessen Place, Colombo 05

Dr. A. Balasuriya No. 03, Galkanda Lane, Anniewatte, Kandy

Mr. R. Balasuriya No.53/7, Ward Place, Colombo 07

Mrs. L. Fernando No. 30/3, Ward Place, Colombo 07

Dr. M. Balasuriya No. 81, Kynsey Road, Colombo 07

Dr. (Mrs.) G. Madan Mohan No.43, Ward Place, Colombo 07


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Senior�Managers�� 5%

Managers�� 4%Branch�Managers�

� 13%

Assistant�Managers�� 3%

Executives�� 38%

Trainee�Executives�&�Others�� 3%

Analysis�of�Employees�by�levels�of�responsibility

4.4 HUMAN RESOURCES

The number of employees of the Company as at 31st December 2010 was 215, in comparison

to 213 employees as at 31st March 2010.

The analysis of employees based on the level of responsibility is as follows:

The Company does not have any Labour Unions and has not entered into any collective

agreement.

4.5 FUTURE PLANS & PROSPECTS

The local economy, after experiencing a period of high interest rates together with high

inflation during the beginning of the financial year, slowly declined. This in turn, had a

negative effect on many of the customers of SFCL and brought about an increase in

delinquency in repayment of loans and payment of rentals. However, with the improvement

of macro-economic conditions and the effective remedial steps taken by the Central Bank of

Sri Lanka, a fall in interest rates was experienced during the second half of the year which

eased the pressures in the market.

Further, a reduction in the rates of customs duty on imported motor vehicles, which was

announced previously by the government, came into effect part way during the year. This

brought immediate relief to the industry, which up to that point, was facing difficult times.


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Automobile dealers reduced the prices of stocks immediately resulting in a surge in demand.

As the vast majority of these vehicle acquisitions were funded through leases, SFCL is geared

up to obtain a fair portion of this surge.

The Company has also embarked on a continuous training programme for its staff in order to

achieve increased levels of service quality. Towards this end, several residential training

programmes and workshops have been planned for the year ahead.

The Company will be taking a number of steps in the near future designed to increase the

level and frequency of interaction with clients. The objective of this endeavour is to

strengthen and personalise the bond with clientele. An analysis of SFCL’s portfolio has

revealed that the major source of new business of the Company is through repeat business

from existing customers. Therefore, it is the intention of the Company to ensure that there

will be a continuous benefit from this avenue of business.

The Company also has plans to expand its existing network so as to better service its clients,

and has applied to the Central Bank of Sri Lanka for approval to open five new service

centres.

4.6 ASSUMPTIONS ON WHICH FUTURE PLANS ARE BASED

The future plans and prospects of the Company are based on the assumption that there will be

an increased demand for its products and services inline with the expectations of the

Company. In addition, the Company anticipates that the current improvement in the macro-

economic environment will sustain, with inflation and interest rates maintained at below

double digit figures for the financial year 2011/12. Further, these future plans are expected to

be sustainable on the assumption that changes in Government regulations or changes in

directions to finance companies will not have severe adverse affects to the operations and

profitability of the Company.


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4.7 ASSOCIATED RISKS TO FUTURE PLANS

Risk management can be simply defined as the process of analyzing risk and determining the

best method of managing the exposure to such risks.

Financial institutions like SFCL are constantly exposed to numerous risks. These include,

inflation risk which alter the disposable income, saving and spending patterns of consumers,

thereby impacting the leasing and lending portfolio of the Company, as there is a direct

impact on the level of deposits and the tendency for customers to invest in vehicles financing.

This will in turn affect the expected levels of performance of the Company

Other risks to which financial institutions are exposed include exchange rates, imposition of

taxes and changes in the rates of applicable taxes, as they are indirectly affected by the

performance of the auto industry and any regulations imposed in terms of the industry.

In addition, the Company is exposed to amendments in legislation and directions issued by

the Central Bank of Sri Lanka to finance companies. Volatility of future interest rates will

also have an impact on the achievement of future plans of the Company, as this will have a

direct impact on the Company’s rate of borrowing and lending. As a result, SFCL needs to be

cognizant of the risks it can be exposed to in an evolving macro environment.

The risk management framework of SFCL was formulated taking into account the changes in

business activity and macro decisions, policy changes and market trends. Accordingly, an

effective risk management framework was prepared taking into account the following:

(a) a clearly defined organizational structure with unambiguous roles and responsibilities

pertaining to the SFCL staff involved in risk taking and management.

(b) an effective MIS (Management Information System) system that ensures a flow of

information between operational levels to top management of SFCL.

(c) clearly defined risk management policies and procedures covering risk identification,

acceptance measurement, monitoring, reporting and control.

(d) a mechanism to ensure an ongoing review of systems, policies and procedures and

the ability to adopt changes in the future at SFCL


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In compliance with regulatory requirements and the risk profile of products and services

under the SFCL umbrella, the board of directors of SFCL established an Integrated Risk

Management Committee. This committee is tasked with protecting and growing SFCL’s

solvency while ensuring the Company is sufficiently liquid to meet its obligations on time. It

also improves the Company’s ability to identify, measure, monitor and control the overall

levels of risk, while being responsible for implementing a comprehensive action plan on

matters referred by the line management on issues requiring immediate action. The

committee which meets quarterly will also whenever necessary recommend further stress

testing/sensitivity analyses to be conducted on diverse scenarios, assessing the impact of

same.


21

5

DETAILS OF THE BOARD OF DIRECTORS

As at the date of the Introductory Document, the board of directors of Senkadagala Finance

Company Limited constitutes of one (01) executive director and eight (08) non-executive

directors, which include a Non-Executive Chairman. The Managing Director is the only

executive director and is also the Chief Executive Officer of the Company. The directors

bring in a range of talents, skills and expertise needed to guide the Company in the interest of

all stakeholders.

Name of Director Age Address

Mr. S. K. Wickremesinghe 82 8, Claessen Place, Colombo 5.

Mr. L. Balasuriya 56 14, Claessen Place, Colombo 5.

Mr. C.L.S. Herath 77 No.64, Old Kesbewa Road, Nugegoda.

Dr. A. Balasuriya 57 3, Galkanda Lane, Anniewatte, Kandy.

Mrs. L. Fernando 52 30/3, Ward Place, Colombo 7.

Mr. R. Balasuriya 54 53/7, Ward Place, Colombo 7.

Dr. (Mrs.) G. M. Mohan 51 43, Ward Place, Colombo 7.

Dr. M. Balasuriya 53 81, Kynsey Road, Colombo 7.

Mr. W.A.T. Fernando 46 24A, Iceland Residencies, Galle Road, Colombo 3.


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5.1 DIRECTORS’ PROFILES

MR. SARATH KUSUM WICKREMESINGHE - CHAIRMAN

B.Sc. (Cey.)

Mr. Wickremesinghe is a well-known business leader, who has in the past chaired the Boards

of several blue-chip companies including National Development Bank PLC, Commercial

Bank of Ceylon PLC, Ceylon Tobacco Company PLC, Chemical Industries (Colombo) PLC,

and Sri Lankan Airlines. He was also Sri Lanka’s High Commissioner to the UK from 1995

to 1999.

MR. LAKSHMAN BALASURIYA – MANAGING DIRECTOR/CEO

B.Sc. (Lond.), M.Sc. (Lancaster)

He is a director of Senkadagala Hotels Limited, E.W. Balasuriya & Co. (Pvt) Ltd. and

Thompsons Beach Hotels Ltd. He has over 27 years of experience in Finance, Hotels and

other commercial fields.

DR. ASOKA BALASURIYA - DIRECTOR

B.Sc. (Lond.), Ph.D. (Lond.)

Dr. Balasuriya has over 30 years’ experience in the field of gems and jewellery. He is also a

director of Senkadagala Hotels Limited, Thompsons Beach Hotels Ltd and is Chairman of

E.W. Balasuriya & Co. (Pvt) Ltd.

MRS. LAKSHMI FERNANDO - DIRECTOR

B.Sc. (Hons.)

Mrs. Fernando has many years’ experience in the field of finance as well as in hotel

management. She is a director of Thompsons Beach Hotels Limited, Senkadagala Hotels

Limited and E.W. Balasuriya & Co. (Pvt) Ltd.


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DR. MAHENDRA BALASURIYA - DIRECTOR

B.V.Sc.

Dr. Balasuriya is a director of Senkadagala Hotels Limited, E.W. Balasuriya & Co. (Pvt) Ltd.

and Thompsons Beach Hotels Ltd. He has over 27 years of experience in hotels and other

related fields.

MR. WIDANALAGE AJITH TERENCE FERNANDO – DIRECTOR

FCMA (UK), MA (Colombo)

Mr. Fernando is a Fellow of the Chartered Institute of Management Accountants of the

United Kingdom and has a MA in Financial Economics from the University of Colombo. He

counts over 20 years’ experience in capital markets of Sri Lanka. In 2000, he founded Capital

Alliance in partnership with Asia Capital Ltd. Currently he is the group CEO of the Capital

Alliance group which includes Capital Alliance Holdings Ltd, Capital Alliance Ltd., a

primary dealer for Government securities, appointed by the Central Bank of Sri Lanka and

Capital Alliance Securities (Pvt) Ltd, a trading member of the Colombo Stock Exchange. In

addition, he serves on the boards of many private companies including ADZ Insurance

Brokers (Pvt) Ltd, Ashthi Holdings (Pvt) Ltd, Ceylon Tea Brokers PLC, First Alliance

Money Brokers (Pvt) Ltd and Shift Solutions (Pvt) Ltd. He is Deputy Chairman of the

Financial Ombudsman’s office and a director of the Lanka Financial Services Bureau.

MR. CYRIL LIONEL SRIMANNE HERATH - DIRECTOR

B.A. (Cey.)

Mr. Herath is a distinguished public servant having served for many years as the Inspector

General of Police of Sri Lanka. He was later appointed the Secretary of Defense. From 1994

to 2004, Mr. Herath served as Chairman of the National Savings Bank of Sri Lanka.

MR. ROHAN BALASURIYA - DIRECTOR

B.Sc. (E. Ang.), M.Sc. (E. Ang.)

Mr. Balasuriya is a director of Senkadagala Hotels Limited, E.W. Balasuriya & Co. (Pvt)

Limited and Thompsons Beach Hotels Ltd. He has over 25 years of experience in finance and

other related fields.


24

DR. (MRS.) GAYATHRI MADAN MOHAN - DIRECTOR

M.B.B.S.

Dr. Madan Mohan is an experienced medical consultant working in the USA. She is also a

director of Senkadagala Hotels Limited, E.W. Balasuriya & Co. (Pvt) Ltd. and Thompsons

Beach Hotels Ltd.

5.2 DIRECTORS’ INTEREST IN ASSETS

The directors of SFCL hold no interest in any assets acquired, disposed or leased by the

Company during the past two years preceding the date of this Introductory Document.

Furthermore, it is not proposed that the directors will hold any interest in assets to be

acquired, disposed or leased by the Company in the two years subsequent to the Issue.

5.3 FOUNDER/ MANAGEMENT/ DEFERRED SHARES OF THE COMPANY

There are no founder or management or deferred shares of Senkadagala Finance Company

Limited.

5.4 ARTICLES PERTAINING TO THE DIRECTORS

As per the Articles of Association of Senkadagala Finance Company Limited, the share

qualification of directors may be fixed by the Company at a general meeting, and unless and

until so fixed no share qualification shall be required.

Further, the Board shall determine the payment of remuneration and other benefits by the

Company to a director for services as a director or in any other capacity (outside the scope of

the ordinary duties of a director) in the manner as set out in Section 216 of the Act, if the

Board is satisfied that to do is fair to the Company.

5.5 STATEMENT – BOARD OF DIRECTORS

The Chairman nor any director of the Company has been or is involved in any of the

following events:

� a petition under any bankruptcy laws filed against such person or any partnership in

which he was a partner or any corporation of which he was an executive officer;

� conviction for fraud, misappropriation or breach of trust or any other similar offence

which the CSE considers a disqualification.


25

6

SENIOR MANAGEMENT TEAM

Lakshman Balasuriya – Managing Director/Chief Executive Officer

B.Sc. (Lond.), M.Sc. (Lancaster)

14, Claessen Place, Colombo 05.

Mr. Balasuriya is a director of Senkadagala Hotels Limited, E.W. Balasuriya & Co. (Pvt) Ltd.

and Thompsons Beach Hotels Ltd. He has over 27 years of experience in finance, hotels and

other commercial fields.

The Chief Executive Officer nor any person nominated to become the Chief Executive

Officer is or was involved in the following events:

� petition under bankruptcy laws filed against such person or any partnership in which

he was a partner or any corporation of which he was an executive officer.

� convicted for fraud, misappropriation or breach of trust or any other similar offence

which the CSE considers a disqualification.

Lalith J de Alwis – Deputy Chief Executive Officer

ACA, FCMA (UK)

Lalith de Alwis is Deputy Chief Executive Officer of the company reporting to the Managing

Director/Chief Executive Officer, Mr. Lakshman Balasuriya. He has responsibility for the

entire organization and the General Manager reports directly to him.

He has many years’ experience in the field of financial services, having been Managing

Director of Lanka ORIX Leasing Co. Ltd. (LOLC), the pioneer leasing company in Sri Lanka

which he joined in its initial stage and subsequently set up the Bank of Ceylon subsidiary,

Ceylease Financial Services Ltd., in collaboration with the Bank of Ceylon. While at LOLC,

Mr. de Alwis initiated the commencement of the first factoring company in Sri Lanka,

LOFAC. In the UK, Mr. de Alwis worked for the Local Investment Fund, a fund set up by a

number of British banks in collaboration with the UK government to promote investment in

SMEs.


26

Pradeep Ikiriwatte – General Manager

Over 25 years of experience in the leasing and operational activities of SFCL and four years’

audit experience at KPMG Ford Rhodes and Thornton & Co., Chartered Accountants.

Jagath Jayatilake – Assistant General Manager – Operations

Over 25 years of experience in the leasing and operational activities of SFCL.

Keerthi Athurupana – Assistant General Manager – Accounts

Over 25 Years with SFCL. Five years’ audit experience at Ford Rhodes and Thornton & Co.,

Chartered Accountants.

Timothy de Silva – Assistant General Manager – Information Technology

A pioneer in the Sri Lankan software industry. Over 25 years’ experience in the IT field. Past

head of the Software department of Keells Business Systems Ltd. Member of a number of

professional computer bodies.

Kumudu Rajapakse – Chief Financial Officer

B. Sc. (Special) Hon, ACA, ACMA, MCPM

Associate member of the Institute of Chartered Accountants of Sri Lanka and a graduate from

the University of Sri Jayawardenepura. Over 8 years of financial experience at SFCL and

four years of audit experience at KPMG Ford Rhodes and Thornton & Co., Chartered

Accountants.


27

7

CAPITAL STRUCTURE

7.1 STATED CAPITAL

Ordinary Shareholding Structure as at 28th January 2011

Level of Shareholding

No. of No. of % of Shareholders Shares Shareholding

1 - 1,000 1 4 0.00

1,001 - 5,000 2 9,600 0.02

5,001 - 10,000 1 6,100 0.01

10,001 - 50,000 2 64,060 0.12

50,001 - 100,000 0 - -

100,001 - 500,000 4 1,196,030 2.24

500,001 - 1,000,000 0 - -

Over 1,000,000 9 52,092,206 97.61

Total 19 �53,368,000 � 100.00

7.2 DETAILS OF THE TEN LARGEST ORDINARY SHAREHOLDERS AS AT 28TH JANUARY 2011

ORDINARY SHAREHOLDERS AS AT NUMBER OF SHARE28th January 2011 SHARES PERCENTAGE

E.W. Balasuriya & Co. (Pvt) Limited 30,088,050 56.38

Mr. L. Balasuriya 3,065,832 5.74

Dr. A. Balasuriya 3,065,832 5.74

Mr. R. Balasuriya 3,065,832 5.74

Mr. M. Balasuriya 3,065,832 5.74

Dr. (Mrs.) G. Madan Mohan 3,065,832 5.74

Mrs. L. Fernando 2,570,002 4.82

Mr. P.P.K. Ikiriwatte 2,052,502 3.85

Mr. J.K. Jayatileke 2,052,492 3.85

Mr. D.K.C.R. Fernando 495,830 0.93

Others 779,964 1.46

TOTAL 53,368,000� 100.00

The public holding percentage as at the date of the Introductory Document was 10.08%


28

7.3 CAPITALIZATION OF RESERVES

Senkadagala Finance Company Limited (hereinafter sometimes referred to as the

“Company”) issued ordinary voting shares by way of a capitalization of revenue reserves in

the proportion of three (3) new ordinary voting shares for every two (2) ordinary voting

shares held. The objective of the issue was to enhance the stated capital of the Company. The

shares were allotted to the existing shareholders of the Company as 0at 29th September 2010.

The total number of shares allotted were 32,020,800 for which a consideration of Rs.10.00

per share was capitalized.

The Company and the directors were of the opinion that the issue price of Rs. 10.00 per share

is fair and reasonable for the Company and to all the existing shareholders of the Company.

The shares will rank equal to the existing shares issued by the Company and will include full

voting rights and the right to participate in any dividend or distribution that may be declared

after the allotment of shares.

Prior to the issue of shares by way of the Capitalization of Reserves the Company had

21,347,200 ordinary voting shares.

There were no preliminary expenses incurred in the Capitalization of Reserves of the

Company.


29

Shareholdingprior to

Capitalization of Reserves

Entitlement of Shares 3:2

Shares Allotted

Shareholding after

Capitalization

% of Shares held subsequent

to the Issue

E.W. Balasuriya & Co. (Pvt) Limited 12,035,220 18,052,830.00 18,052,830 30,088,050 56.38%

Mr. L. Balasuriya 1,226,333 1,839,499.50 1,839,499 3,065,832 5.74%

Dr. A. Balasuriya 1,226,333 1,839,499.50 1,839,499 3,065,832 5.74%

Mr. R. Balasuriya 1,226,333 1,839,499.50 1,839,499 3,065,832 5.74%

Mr. M. Balasuriya 1,226,333 1,839,499.50 1,839,499 3,065,832 5.74%

Dr. (Mrs.) G. Madan Mohan 1,226,333 1,839,499.50 1,839,499 3,065,832 5.74%

Mrs. L. Fernando 1,028,001 1,542,001.50 1,542,001 2,570,002 4.82%

Mr. P.P.K. Ikiriwatte 821,001 1,231,501.50 1,231,501 2,052,502 3.85%

Mr. J.K. Jayatileke 820,997 1,231,495.50 1,231,495 2,052,492 3.85%

Mr. D.K.C.R. Fernando 198,332 297,498.00 297,498 495,830 0.93%

Mrs. S. Thaha 155,600 233,400.00 233,400 389,000 0.73%

Mr. D.G.K. Hewamallika (Deceased) 62,240 93,360.00 93,360 155,600 0.29%

Mrs. C. Fernando 62,240 93,360.00 93,360 155,600 0.29%

Mr. E.W. Balasuriya (Deceased) 16,664 24,996.00 24,996 41,660 0.08%

Mr. M.M. Ariyaratne 8,960 13,440.00 13,440 22,400 0.04%

Mrs. R. Dullewe 2,440 3,660.00 3,660 6,100 0.01%

Mrs. S.I. Ching 1,920 2,880.00 2,880 4,800 0.01%

Mr. C.Y. Ching 1,920 2,880.00 2,880 4,800 0.01%

Mr. L. Balasuriya - Trustee of the Bonus Issue 2010 - - 4 4 0.00%

TOTAL 21,347,200 32,020,800 32,020,800 53,368,000 100.00%

7.3.1 DETAILS OF THE SHARE ISSUE

The details of the share issue are as follows:

Further, it should be noted that apart from the Capitalization of Reserves, the Company has

not issued any classes of shares during the two years preceding the date of the Introductory

Document.

It should also be noted that 62,240 Ordinary Voting Shares belonging to the late Mr. D.G.

Suraweera was purchased by E.W.Balasuriya & Co. (Pvt) Limited for a consideration of Rs.

45/- per share, amounting to a total consideration of Rs.2,800,800.00 on 02nd June 2009.

There has not been a reduction in the stated capital of the Company, in the two years

preceding the date of this Introductory Document nor are there any statutory restrictions on

the free transferability of the Shares to be listed on the CSE. Further there are no restrictions

applicable to non-residents shareholders holding shares of the Company.

Further, the Company does not have any outstanding convertible debt securities, nor has

Securities of the same class or another class been subscribed or sold privately in conjunction


30

with the listing of Shares on the Colombo Stock Exchange, as at the date of this Introductory

Document.

It should also be noted that as at the date of this Introductory Document, SFCL has no

outstanding options to subscribe for the shares of the Company.


31

8

STATUTORY AND OTHER GENERAL INFORMATION

8.1 LITIGATION, DISPUTES AND CONTINGENT LIABILITIES

The Company has not been involved, nor is it currently involved in any legal arbitration or

mediation proceedings in the recent past, which may have had a significant effect on the

Company's financial position and profitability.

There have been no penalties imposed by Regulatory or State Authorities on the Company.

The Company does not have any contingent liabilities that would affect its current and future

profits in any such proceedings.

8.2 MATERIAL CONTRACTS

The Company has not entered into any material contracts and does not intend to enter any

material contracts except for those contracts entered into as part of the ordinary course of

business, within the last two years preceding the date of this Introductory Document.

8.3 DETAILS OF COMMISSIONS PAID AND BENEFITS PAID TO PROMOTERS

The Company has not paid commission to anyone for subscribing or agreeing to subscribe, or

procuring or agreeing to procure subscriptions, for any shares of the Company, within the last

two years preceding the date of this Introductory Document.

Further, no benefit has been paid or given within the two years preceding the date of this

Introductory Document and there are no benefits intended to be paid or given to any

promoter.

8.4 MANAGEMENT AGREEMENTS

There are no management agreements presently in force as at the date of this Introductory

Document and at present no such agreements are under consideration.


32

8.5 INSPECTION OF DOCUMENTS

The Introductory Document and Articles of Association of Senkadagala Finance Company

Limited will be hosted on the Company’s website at www.senfin.com and on the CSE

website at www.cse.lk for a period of not less than fourteen (14) days.


33

9 FINANCIAL INFORMATION

9.1 AUDITOR REPORT ON THE FIVE YEAR FINANCIAL PERFORMANCE OF SENKADAGALA

FINANCE COMPANY LIMITED FROM 2006 TO 2010


34


35


36

9.2 RATIOS AND SHARE INFORMATION

*All the provisions have been considered except provision for Income Tax.

Source: SFCL

Year Ended Latest

Interim

31.12.2010

Comparative

Interim

31.12.2009

31.03.2010 31.03.2009

Net Interest Income / Total Average Assets (%) 10.40 10.79 13.12 9.98

Non-Interest Income / Total Average Assets (%) 1.63 1.47 2.62 1.45

Personnel & Other Non-Interest Expenses / Net

Interest Income & Non-Interest Income (%)*

81.08 84.35 63.65 77.95

Gross NPL Ratio (%) 4.31 3.53 3.35 7.29

General & Specific Loan Loss Revenues (B/S) /

(Total Non-Performing Loans – Interest-In-

Suspense) (%)

79.54 51.61 89.64 95.56

Liquid Assets / Customer Deposits & Short –

Term Funds

0.32:1 0.27:1 0.25:1 0.26:1

Capital Adequacy Ratio (%) 17.36 16.55 18.22 17.22

Debt/Equity Ratio 2.81:1 3.67:1 2.33:1 3.11:1

Book Value per Share (Rs.) 42.02 41.43 19.28 42.44

Earnings per Share (Rs.) 2.29 2.79 6.47 2.71

Profit after Tax / Average Equity (%) 5.50 6.65 22.30 8.62

Return on Average Assets (%) 2.27 1.92 5.72 2.52

Effective Tax Rate (%) 59.00 23.00 39.21 39.34

Dividends / Profit after Tax (%) 74.09 53.86 15.24 62.74


37

9.3 RECEIVABLES

9.3.1 POLICY FOR CLASSIFICATION OF NON-PERFORMING RECEIVABLES

Provision for possible loan losses are made on the basis of a continuous review of all advances to

customers in accordance with the Finance Company Direction No.3 of 2006 (Provision for bad and

doubtful debt) issued by the Central Bank of Sri Lanka and in accordance with Sri Lanka Accounting

Standard No. 33, Revenue Recognition and Disclosure in the Financial Statements of Finance

Companies. Accordingly, specific provisions have been made as follows:

All advances in arrears for a period of 6-12 months 50%

All advances in arrears for over 12 months 100%

In addition, wherever it is considered prudent, further provisions are made for specifically identified

loans and advances.

9.3.2 COMPOSITION OF RECEIVABLES:

YE

31.03.2010

(%)

YE

31.03.2009

(%)

Latest

Interims

31.12.2010

(%)

Comparative

Interims

31.12.2009

(%)

Performing Loans & Advances

Less than 3 months 92.25 90.83 94.89 89.93

3-6 months 7.75 9.17 5.11 10.07

7-12 months - - - -

13-18 months - - - -

More than 18 months - - - -

Total (%) 100.00 100.00 100.00 100.00Total Performing Loans (Rs.) 4,460,445,720 4,567,517,176 4,946,651,868 4,316,854,630

Non Performing Loans & Advances

1-2 months - - - -

3-6 months - - - -

6-7 moths 13.74 9.15 3.79 1.34

7-12 months 34.58 38.18 22.17 21.33

13-18 months 51.69 52.66 74.04 77.33

Total (%) 100.00 100.00 100.00 100.00

Total Non-Performing Loans (Rs.) 39,113,734 96,441,531 56,363,716 124,234,949

Total (Rs.) 4,499,559,454 4,663,958,707 5,003,015,585 4,441,089,580


38

9.4 MATURITY ANALYSIS OF DEPOSITS & BORROWINGS

YE

31.03.2010

(%)

YE

31.03.2009

(%)

Latest

Interims

31.12.2010

(%)

Comparative

Interims

31.12.2009

(%)

Maturity Period

Less than or equal to 1 month 4.72 6.26 2.80 5.11

More than 1 month less than or equal to 3 months 10.09 12.92 7.83 10.58

More than 3 months less than or equal to 6 months 8.30 8.67 8.28 9.13

More than 6 months less than or equal to 1 year 38.26 23.71 39.94 34.05

More than 1 year less than or equal to 3 years 32.83 31.23 34.88 26.68

More than 3 years less than or equal to 5 years 5.80 17.21 6.26 14.45

Matured (waiting for customer instructions) - - - -

TOTAL 100.00 100.00 100.00 100.00


39

10

CORPORATE GOVERNANCE PRACTICES

The Company maintains high standards of Corporate Governance Practices and is committed

to ensure the prevalence of such practices. The Company’s policy of good governance

ensures that its affairs are conducted in an efficient and transparent manner and is

communicated throughout the organization.

The board of directors strives to ensure that the operations of the Company are carried out in

keeping with the highest ethical standards and in the best interest of all stakeholders.

The board of directors is responsible for directing the Company at a strategic level, assuring

long-term value creation. Each division of the Company is headed by a member of the

Corporate Management team. Targets are set for major profit and cost centres and are

reviewed at regular intervals, to identify and rectify any variances.

The board of directors comprises of nine (9) members, one (1) executive director and eight

(8) non-executive directors.

10.1 DIRECTORS

The independent, non-executive directors of Senkadagala Finance Company Limited

compromise of the following directors:

� Mr. Sarath Kusum Wickremesinghe – Independent & Non-Executive

� Mr. Cyril Lionel Srimanne Herath – Independent & Non-Executive

� Mr. Widanalage Ajith Terernce Fernando – Independent & Non-Executive

10.2 REMUNERATION COMMITTEE

The Remuneration Committee constitutes of the following directors and is headed by Mr.

S.K. Wickremesinghe

� Mr. Sarath Kusum Wickremesinghe – Independent Non-Executive Director

� Mr. Cyril Lionel Srimanne Herath – Independent Non-Executive Director

� Dr. Mahendra Balasuriya – Non-Executive Director


40

Statement of the Remuneration Policy

The Committee deliberates and determines the remuneration policy and the criteria relevant

to the emoluments of executive directors and non-executive directors, and the salaries and

perquisites of Corporate Management. The recommendations made by the Remuneration

committee will be reviewed and approved by the board of directors, if the directors are of the

view that the emoluments are fair and reasonable.

The aggregate of the remuneration paid to executive and non-executive directors amounts to

Rs. 317,500/- per month.

Further it should also be noted that the post employment benefits attributable to the key

management personnel amounts to is Rs. 5,080,642.00 as at 31st March 2010

10.3 AUDIT COMMITTEE

The Audit Committee constitutes of the following four (4) non-executive directors and is

headed by Mr. S.K. Wickremesinghe

� Mr. Sarath Kusum Wickremesinghe – Independent Non-Executive Director

� Mr. Cyril Lionel Srimanne Herath – Independent Non-Executive Director

� Mr. Widanalage Ajith Terernce Fernando – Independent Non-Executive Director

� Ms. Lakshmi Fernando – Non-Executive Director

The Audit Committee plays a key role in reviewing the internal control system that will

guarantee the prevalence of effective internal controls. The Committee constantly reviews the

system and controls and makes recommendations for improvements where necessary.

The Committee has reviewed all audited financial statements which include quarterly interim

statements in order to ensure that they comply with all statutory provisions, Sri Lanka

Accounting Standards and Central Bank mandated directives. In addition, the Audit Plan and

the Management Letter submitted by the External Auditors have been reviewed by the Audit

Committee.


41

11

DECLARATION BY THE DIRECTORS

We, the undersigned, who are named in the Introductory Document as directors of

Senkadagala Finance Company Limited, hereby declare and confirm that we have read the

provisions of the Companies Act No. 07 of 2007 and the Colombo Stock Exchange Listing

Rules and any amendments to it relating to the issue of this Introductory Document and that

those provisions have been complied with.

This Introductory Document has been seen and approved by us and we collectively and

individually accept full responsibility for the accuracy of the information given and confirm

that provisions of the CSE Listing Rules and of the Companies Act No. 7 of 2007 and any

amendments to it from time to time have been complied with after making all reasonable

enquiries and to the best of our knowledge and belief, there are no other facts, the omission of

which would make any statement herein misleading or inaccurate.

Mr. Sarath Kusum Wickremesinghe (Sgd.)

Mr. Lakshman Balasuriya (Sgd.)

Mr. Cyril Lionel Sirimanne Herath (Sgd.)

Dr. Asoka Balasuriya (Sgd.)

Mrs. Lakshmi Fernando (Sgd.)

Mr. Rohan Balasuriya (Sgd.)

Dr. (Mrs.) Gayathri Madan Mohan (Sgd.)

Dr. Mahendra Balasuriya (Sgd.)

Mr. Widanalage Ajith Terence Fernando (Sgd.)


42

FINANCIAL

STATEMENTS


43

AUDITED FINANCIAL STATEMENTS AS AT 31ST MARCH 2008


44

Income statement

For the year ended 31st March 2008 2007Note Rs Rs

924,661,651,1140,203,293,11emocnI

Interest income 2 1,259,892,987 1,058,869,613

Interest expenses 3 (668,736,623) (499,470,631)

289,893,955463,651,195emocni tseretni teN

Other operating income 4 126,692,550 100,999,039

Other operating expenses 5 (23,673,563) (25,555,571)

054,248,436153,571,496snoitarepo morf emocni teN

)153,969,47()825,530,69(tsoc lennosreP

)393,575,05()323,438,55(tnempiuqe dna tnalp ,ytreporp fo noitaicerpeD

)898,621,6()178,761,4(ytiutarg gniriter rof noisivorP

)548,641,771()545,855,451(sesnepxe rehtO

6 (310,596,267) (308,818,487)

369,320,623480,975,383emocni rehto erofeb tiforP

Other income 7 11,642,140 3,488,177

041,215,923422,122,593snoisivorp erofeb tiforP

)800,148,86()856,143,19(snoisivorp dna sessol naoL

303,879,566 260,671,132

)064,129,2()502,826,1(secivres laicnanif no xaT deddA eulaV

276,947,752163,152,203noitaxat erofeb tiforPTaxation 8 (16,497,436) 31,115,985

756,568,882529,357,582raey eht rof tiforp teN

Earnings per share 9 13.39 13.53

Dividend per share 10 3.27 3.86

Figures in brackets indicates deductions.

The accounting policies from page 49 to 56 and the notes from page 57 to 70 form an integral part of thesefinancial statements.

Senkadagala Finance Company Limited


45


46

For the year ended 31st March 2008 2007Rs Rs

Cash flow from operating activitiesInterest and commission receipts 1,122,596,837 934,853,165

Interest payments (668,736,623) (499,470,631)

Recoveries of bad debts 20,573,509 12,468,458

Other income 200,420,539 172,139,448

Operating expenditure (23,673,563) (25,555,571)

Cash payments to employees and suppliers (238,214,600) (246,035,351)

Operating profit before changes in operating assets 412,966,099 348,399,518

(Increase) / Decrease in operating assetsIncrease in Short term funds (13,919,221) (8,244,152)

Increase in Funds advanced to customers (730,681,869) (554,844,851)

Decrease in Amounts Due from Related Party - 14,938,131

Increase in Other receivables (15,110,170) (4,703,398)

Increase in Deferred expenses (10,812,847) (4,111,296)

Increase in Trade debtors (100,060,047) (280,310)

Increase in Other assets (37,968,311) (109,126,337)

(908,552,465) (666,372,213)

Increase / (Decrease) in operating liabilitiesIncrease in Deposits from customers 172,965,546 77,608,541

Gratuity Paid (1,822,500) (500,000)

Increase / (Decrease) in Advances received (12,981,687) (7,404,575)

Increase in Other liabilities 90,453,433 22,665,182

248,614,792 92,369,148

Net cash from operating activities (246,971,574) (225,603,547) Taxes paid (Value added tax & SRL) (1,648,573) (2,921,460)

WHT Paid (15,247,705) (2,615,032)

Net Cash Outflow from operating activities (263,867,852) (231,140,039)

Cash flow from investing activitiesDividends received 270,207 73,374

Interest received from Treasury Activities 44,644,445 42,254,207

Investment securities acquired during the year (3,939,625) (10,140,000)

Purchase of property, plant and equipment (216,888,281) (122,612,212)

Proceeds from sale of property, plant and equipment 18,001,999 6,515,000

Net Cash Outflow from investing activities (157,911,255) (83,909,631)

Cash flow from financing activitiesSecuritization loans obtained 1,830,200,717 1,351,714,700

Debentures 241,000,000 259,000,000

Repayment of securitization loans (1,476,851,908) (1,295,961,509)

Dividends paid (62,355,968) (73,747,055)

Net cash flow from financing activities 531,992,841 241,006,136

Senkadagala Finance Company LimitedStatement of Cash flow


47

Senkadagala Finance Company LimitedStatement of Cash flow Continued


337,312,011stnelaviuqe hsac dna hsac ni )esaerceD( /esaercnI teN (74,043,534)

Cash and cash equivalents at the beginning of the period (Note 11) 307,212,787 381,256,321

Cash and cash equivalents at the end of the period (Note 11) 417,426,520 307,212,787

Reconciliation of cash and cash equivalents025,624,714sdnuf mret trohs dna hsaC 307,212,787

417,426,520 307,212,787

Reconciliation of operating profit163,152,203noitaxat erofeb tiforP 257,749,672

Dividends (270,207) (73,374)

018,018,97noisivorp stbed daB 68,841,008

848,035,11tnemriapmi rof noisivorP -

502,826,1tiforp no xaT deddA eulaV 2,921,460

323,438,55noitaicerpeD 50,575,393

178,761,4ytiutarg rof noisivorP 6,126,898

)544,446,44(emocni tnemtsevnI (42,254,207)

)041,227,9(selcihev rotom fo lasopsid no tiforP (1,568,177)

374,973,21seef larutcurts fo noitazitromA 6,080,845

Cash flows from operating activities before changes in operating assets 412,966,099 348,399,518


The accounting policies from page 49 to 56 and the notes from page 57 to 70 form an integral part of these financialstatements.


48

Stated Statutory General Retained Totalcapital reserve reserve profit

Rs Rs Rs Rs Rs

Balance as at 1st April 2006 213,472,000 43,593,997 275,696,300 (54,727,394) 478,034,903

Profit after tax for the year - - - 288,865,657 288,865,657

Transfer to reserve - 17,431,578 130,000,000 (147,431,578) -

Interim dividend paid - - - (82,400,192) (82,400,192)

Balance as at 31st March 2007 213,472,000 61,025,575 405,696,300 4,306,493 684,500,368

Balance as at 1st April 2007 213,472,000 61,025,575 405,696,300 4,306,493 684,500,368

Profit after tax for the year - - - 285,753,925 285,753,925

Transfer to reserve - 18,510,458 197,322,092 (215,832,550) -

Interim dividend paid - - - (69,698,608) (69,698,608)

Balance as at 31st March 2008 213,472,000 79,536,033 603,018,392 4,529,260 900,555,685

Note


Sri Lanka Accounting Standard No. 14 (Revised - 2005) Income Taxes - effective from 1st January 2006 requires to

recognize deferred tax for assets leased out by the Company under Finance Lease Agreements. The same adjustment

created a negative value in opening retained profit 2006/2007 that was brought forward from restated value 2005/2006.


For the year ended 31 st March 2008Statement of changes in Equity


49

1.0 Corporate Information

1.1 General Information

Senkadagala Finance Company Limited was incorporated on December 29, 1968 and

domiciled in Sri Lanka. Its registered office is situated at No. 12, Kotugodella

Veediya, Kandy.

1.2 Principal Activities and Nature of Operations

The principal lines of business of the company include providing of financial

accommodations in the form of lease finance, hire purchase, trade loans and pledge

loans.

1.3 Number of Employees

The number of employees of the Company at the end of the year was 148 (2007 –

105).

2.0 Summary of Significant Accounting Policies

2.1 General Policies

2.1.1 Basis of Preparation

The financial statements of the Company are prepared under the historical cost

convention in conformity with Sri Lanka Accounting Standards adopted by The

Institute of Chartered Accountants of Sri Lanka.

No adjustments have been made for inflationary factors affecting the financial

statements.

The accounting principles are applied consistently with due regard to prudence,

materiality and substance over form criteria as explained in Sri Lanka Accounting

Standard No.3 (revised 2005), on Presentation of Financial Statements.

These financial statements are prepared and presented in Sri Lanka Rupees unless

otherwise stated.

Senkadagala Finance Company LimitedSignificant Accounting Polices


50

Where appropriate the accounting policies are disclosed in the succeeding notes and

have been consistently applied by the Company, except for the changes in accounting

policies discussed under 2.1.4 below.

These Financial Statements of Senkadagala Finance Company Ltd for the year ended

31st March 2008 where authorized for issue in accordance with resolution of the

Board of Directors on 6th June, 2008.

2.1.2 Going Concern

The Directors have made an assessment of the Company’s ability to continue as a

going concern and they do not intend either to liquidate or to cease operations.

2.1.3 Comparative Figures

Where necessary amounts shown in the previous year have been reclassified to

facilitate comparison.

2.1.4 Changes in Accounting Policies The Company has adopted the following Sri Lanka Accounting Standards (SLAS’s)

in presenting these financial statements for fair presentations.

� SLAS No. 14 (Revised - 2005) - Income Taxes

� SLAS No. 33 - Revenue Recognition and Disclosures in the Financial Statements of Finance Companies.

The effects in adopting the above two Sri Lanka Accounting Standards have been

accounted in accordance with SLAS No. 10 (Revised - 2005) Accounting Policies,

Changes in Accounting Estimates and errors as discussed in the notes 2.1.6 Deferred

Taxation and 2.5.3 Provision for Bad and Doubtful Debts.

(a) SLAS 14 (Revised - 2005) – Income Taxes

The Company adopted the amendments to Sri Lanka Accounting Standard No. 14 on

Income Taxes under which deferred tax is calculated on all temporary differences.

Thus, deferred tax on assets leased to customers was provided. The effect of this

change as at March 31, 2007 and March 31, 2006 has been incorporated in the

Financial Statements.

2.1 General Accounting Policies (Continued)

2.1.1 Basis of Preparation (Continued)



51

(b) SLAS 33 – Revenue Recognition and Disclosures in the Financial Statements

of Finance Companies.

The Company has provided full specific provision for capital outstanding which are

more than six months, in accordance with Sri Lanka Accounting Standard No 33,

Revenue Recognition and Disclosures in the financial statements of Finance

Companies (SLAS 33) and they were treated as written offs for accounting purposes.

During the year, the Company has adopted SLAS 33 for bad debts provision on

percentage bases as described in 2.3.3.

The effects of the changes in Accounting Policies have been accounted in accordance

with SLAS 10 (Revised - 2005) – Accounting Policies, Changes in Accounting

Estimates and errors.

2.1.5 Post-Balance Sheet Events

All the material post Balance Sheets events have been considered and appropriate

adjustments/ disclosures have been made in the Accounts, wherever necessary.

2.1.6 Taxation

(a) Current Taxes

Provision for taxation is based on the elements of income and expenditure as reported

in the financial statements and computed in terms of the provisions of the Inland

Revenue Act No, 10 of 2006 and amendments thereto, at the rate of 35% (2007 –

35%).

(b) Deferred Taxation

Sri Lanka Accounting Standard No. 14 (Revised - 2005) Income Taxes – effective

from 1st January 2006 requires to recognize Deferred Tax for all temporary

differences arises between tax bases of Assets and Liabilities and their carrying value

for financial reporting purpose.

Accordingly deferred tax arising from assets leased out by the Company under

finance lease agreements has been recognized in these financial statements and effect

has been accounted in accordance with Sri Lanka Accounting Standard No. 10

(Revised 2005) Accounting Policies, Changes in Accounting Estimates and errors.


2.1.4 Changes in Accounting Policies (Continued)

Senkadagala Finance Company LimitedSignificant Accounting Polices (Continued)


52

Deferred Tax is provided on temporary differences as at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized on all temporary differences.

Deferred tax assets are recognized for all deductible 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 income tax assets is reviewed at each balance sheet 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 income tax assets to be utilized.

Deferred Tax assets and liabilities are measured at the tax rate that are expected to apply in the year when the assets are recognized, or the liabilities are settled, based on tax rate and tax laws that have been enacted or substantially enacted at the balance sheet 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 liabilities are set off 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.

2.2 Assets and Bases of their Valuation

2.2.1 Leases

Assets leased to the customers under agreements that transfer substantially all the

risks and rewards associated with ownership other than legal title, are classified as

finance leases.

Lease rentals receivable under finance leases net of unearned lease interest income i.e.

not accrued to revenue, (interest in suspense), provisions for doubtful recovery of

rentals and initial rentals received are classified as stock out on hire in the Balance

Sheet.


2.1.6 Taxation (Continued)



53

Provision for bad and doubtful recoveries is made as described under 2.3.3

2.2.2 Investments

(a) Dealing Securities

These are marketable securities acquired and held with the intention of resale over a short period of time. Such securities are recorded at the lower of cost and market value on an aggregate portfolio basis.

(b) Fall in value of Investments

Unrealized losses on revaluation of dealing securities at the lower of cost and market value are taken to the Income Statement as per the provision of Sri Lanka accounting Standard No. 22 on Accounting for Investments. (c) Investments in Associates

Investments in associates are stated at cost in the company’s financial statement in accordance with the Allowed Alternative Treatment as prescribed by Sri Lanka accounting Standard No.27, Accounting for Investments in Associates.

(d) Investment Securities

Investment securities are stated at cost in the Company’s financial statements in accordance with Sri Lanka Accounting Standard No. 22, Accounting for Investments.

2.2.3 Property, Plant and Equipment

Property, Plant and Equipment are recorded at cost of purchase or construction or valuation together with any incidental expenses thereon. These assets are stated at cost less accumulated depreciation, which is provided for on the basis specified below.

Depreciation is provided at the following rates on straight line basis over the periods appropriate to the estimated useful lives of the different types of assets:

Free hold land is not depreciated.

Buildings 5% per annum Office Equipments 10% per annum Computers and Other equipments 25% per annum Furniture and Fittings 10% per annum Software Program 12% per annum Motor Vehicles 16.67%per annum Generators 12.5% per annum

Interior Construction 20% per annum

Full year depreciation is provided in the year of purchase and no depreciation is provided in the year of disposal.



54

2.2.4 Debtors

Debtors are stated at their estimated realizable amounts. Provision has been made in

the accounts for bad and doubtful debts.

2.2.5 Cash and Cash Equivalents

Cash and cash equivalent comprise of cash balances, short-term funds, balances with

Central Bank of Sri Lanka and Government of Sri Lanka Treasury Bills readily

convertible to known amounts of cash and subject to insignificant risk of changes in

value.

2.3 Liabilities and provisions

2.3.1 Commitments and contingencies

All discernible risks are accounted for in determining the amount of other liabilities.

2.3.2 Retirement benefits obligations

Provision for retirement gratuity has been calculated at half month’s salary of the last

month of the financial year of all categories for each completed years of service is

made in the Accounts in accordance with the SLAS No. 16 – Retirement Benefit Cost.

However, in accordance with the payment of Gratuity Act No. 12 of 1983, this

liability only arises upon completion of five (5) years of continued service.

The provision is not externally funded.

2.3.3 Provision for Bad and Doubtful Debts

In the previous years, for the purpose of Accounting, the Company had written off all

outstanding on contracts of which rentals (either capital or interest or both capital and

interest) were in arrears for more than six months in preparing financial statements.

Commencing from this year provision for bad and doubtful debts is made in

accordance with Direction issued by the Central Bank of Sri Lanka to Finance

Companies and Sri Lanka Accounting Standard No. 33 Revenue Recognition and

Disclosure in the Financial Statements of Finance Companies.

In addition, wherever it is considered prudent, provisions are made on specifically

identified loans and advances.



55

2.4 Income statement

2.4.1 Revenue Recognition

(a) Income from Lease and Hire Purchase Agreements

The interest components of the lease/ hire purchases rental receivable during the year on assets leased and on hire purchases advance to customers are recognized as Income for the year.

The unearned lease/ hire purchases income included in the lease/ hire purchases rentals receivable is taken into revenue over the term of the lease/ hire purchases commencing from the month in which the lease/ hire purchases is executed in proportion to the capital outstanding, so as to provide a constant periodic return on the net investment outstanding at the end of each period.

(b) Basis of Recognizing Interest Income

Interest is recognized on accrual basis and ceases to be taken into revenue for all types of advances when such contracts are classified as non-performing (where the recovery of interest or principle is in arrears for over six months). Thereafter interest on advances is accounted for on a cash basis.

(c) Dividend Income

Dividend income from share trading is recognized in the period in which they are declared.

(d) Rent Income

Rent income is recognized on an accrual basis.

(e) Commission income

Commission income is recognized on a cash basis.

(f) Recovery of Bad Debts written off

Recovery of Bad Debts written off is recognized on a cash basis.

(g) Profit on sales of Investments and Vehicles Stocks

Profit earned on the sales of investments is accounted in the income Statement based on net realizable value.

(h) Interest Income from money market investments



56

Interest Income from Money Market investments is recognized on a cash basis

2.5 Expenditure Recognition

2.5.1 Interest and Other Expenses

In terms of the Sri Lanka Accounting Standard 33 – Revenue Recognition and

Disclosure in the Financial Statements of Finance Companies, interest and other

expenses payable are recognized on an accrual basis.

2.6 Cash Flow Statement

The cash flow statement has been prepared by using the “Direct Method” in

compliance with SLAS-9, Cash Flow Statement. Cash and Cash Equivalents comprise

mainly of cash balance and call deposits. Cash and cash equivalents are presented net

of bank overdrafts for the purpose of the cash flow statement.

2.7 Segment Reporting

A segment is a distinguishable component of the Company that is engaged in

providing services (Business Segment).

In accordance with the Sri Lanka Accounting No. 28 on Segment Reporting,

Segmental information is presented in respect of the Company. The segment comprise

of financing and investing.

Inter segment transactions are based on fair market prices.

Segment results, assets and liabilities include items directly attributable to a segment

as well as those that can be allocated on a reasonable basis. Unallocated items

comprise mainly of Had Office expenses.

Segment capital expenditure is the total cost incurred during the period to acquire

segment assets that are expected to be used for more than one accounting period.



57

Senkadagala Finance Company LimitedNotes to the financial statements


1 IncomeGross income 1.1 1,398,227,677 1,163,356,829

Value Added Tax (5,925,636) (7,190,400)

1,392,302,041 1,156,166,429

1.1 Gross incomeInterest income 2 1,259,892,987 1,058,869,613


Other income 7 11,642,140 3,488,177

1,398,227,677 1,163,356,829

2 Interest income Lease 371,208,567 407,836,248

Hire purchase 652,706,515 464,857,137

Loans 12,398,556 12,012,283

Non - Hire purchase 47,367,531 28,659,032

Fixed deposit loans 1,589,451 1,039,299

Money market investments 29,178,645 33,094,037

Treasury bills 15,465,800 9,160,170

Default charges 129,969,922 102,170,449

Discounting cheques 8,000 40,958

1,259,892,987 1,058,869,613

Notional tax credit for withholding tax on government securities on secondary market transactions.

2008 2007Rs Rs

The resulting Notional tax credit amounts to 1,546,580 916,017

Net interest income amounts to 13,919,220 8,244,153

Gross interest 15,465,800 9,160,170

3 Interest expensesFixed deposits 99,790,998 82,366,229

Certificate of deposits 849,588 2,597,127

Savings accounts 439,704 -

Securitization loans 443,273,581 329,179,632

Debentures 91,068,677 55,992,613

Corporate loan 33,314,075 29,335,030

668,736,623 499,470,631

The Inland Revenue (Amendment) Act. No. 10 of 2006 provides that a Company which derives interest income

from the secondary market transactions in Government securities would be entitled to a notional tax credit (being

one ninth of 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 earned by the Company from the Secondary Market transactions in Government

securities (Treasury bills) for the year has been grossed up in the financial statements.


58


4 Other operating incomeFinance charges 14,638,594 10,279,656

Commission income 37,318,217 20,408,208

Bad debts recoveries 20,573,509 12,468,458

Dividend income 270,207 73,374

Profit on sale of seized stocks 36,867,937 27,649,195

Sundry income 4,933,059 8,362,216

Legal fees 12,091,027 21,757,932

126,692,550 100,999,039

5 Other operating expensesCommission paid 15,077,232 14,651,925

Value Added Tax 5,925,636 7,190,400

Debenture issue arrangement fee - 133,316

C.R.I.B charges 2,670,695 3,579,930

23,673,563 25,555,571

6 Operating expensesOverhead expenses includes the followings :Directors' remuneration 69,000 69,000

Salaries and wages 69,716,094 53,436,412

Employers' contribution to Employees' Provident Fund 8,365,931 6,318,422

Employers' contribution to Employees' Trust Fund 2,091,483 1,579,606

Auditors' remuneration 275,000 250,000

Amortization of securitization loan structuring fee 12,379,473 6,080,845

7 Other incomeRent income 1,920,000 1,920,000

Profit on disposal of motor vehicles 9,722,140 1,568,177

11,642,140 3,488,177

8 TaxationTaxation based on profits for the year 8.1 8,744,644 1,576,004

Deferred tax charged / (reversed) 7,752,792 (32,691,989)

16,497,436 (31,115,985)

Senkadagala Finance Company LimitedNotes to the financial statements (Continued)


59

Notes to the financial statements (Continued)


8 Taxation (Continued)

8.1 Reconciliation of effective tax rateNet profit before tax 302,251,361 257,749,672

Add - Disallowable expenses 348,091,557 459,918,788

Less - Allowable expenses (610,095,293) (708,816,186)

40,247,625 8,852,274

Add / (Less) - Adjustments (2,190,207) (1,993,374)

38,057,418 6,858,900

Income Tax at 35% 8,658,063 1,560,400

Social Responsibility Levy @ 1% of Income Tax 86,581 15,604

Income Tax on profit for the year 8,744,644 1,576,004

Effective tax rate 2.89% 0.61%

9 Earnings per share

Profit after taxation 285,753,925 288,865,657

Profit attributable to ordinary share holders 285,753,925 288,865,657

Number of ordinary shares as denominator 21,347,200 21,347,200

Earnings per ordinary share 13.39 13.53

10 Dividend per shareFinal dividend paid 2006/07 13,128,528 16,544,080

1st Interim dividend paid 18,145,120 16,117,136

2nd Interim dividend paid 20,279,840 14,089,152

3rd Interim dividend paid 18,145,120 35,649,824

69,698,608 82,400,192

Dividend per ordinary share 3.27 3.86


Earnings per share have been calculated by dividing the net profit for the year attributable to the ordinary

shareholders by the weighted average number of ordinary shares outstanding during the year.


60

As at 31st March 2008 2007Note Rs Rs

11 Cash and short term fundsCash and bank balances 11.1 136,840,878 113,043,252

Money at call and short notice 280,585,642 194,169,535

417,426,520 307,212,787

11.1 Cash and bank balancesCommercial Bank Savings 43,857 38,911

Commercial Bank Kandy # 1 (8,766,664) 1,118,538

Commercial Bank Kandy # 2 20,296,965 28,235,348


Commercial Bank Kandy # 4 417,053 448,400

Commercial Bank Colombo # 5 665,940 22,280,271

Commercial Bank # 6 1,109,871 (3,921,896)

Commercial Bank corporate branch 976,674 982,924

Hong Kong and Shanghai Bank 19,815,825 1,149,771

Hatton National Bank Kandy 26,263,407 16,795,439

Hatton National Bank Colombo 2,539,087 121,311

Sampath Bank 6,364,014 (500)

Standard Chartered Bank 18,177 20,577

Nation Trust Bank 11,660 12,580

Bank of Ceylon 56,369 56,369


Pan Asia Bank 2,275,530 5,524,062

Union Bank 11,693,216 5,538,080

ICICI Bank 24,846,701 2,117,085

Cash value stamps 77,144 79,264

Encashment floats 1,260,996 929,755

Cash in hand 22,776,064 25,979,307

136,840,878 113,043,252

12 Advance and receivablesDeposits 1,042,284 1,042,284

Pre - paid rent 23,835,826 20,217,304

Advance company tax recoverable 6,125,619 6,125,619

Economic service charge 32,995,601 19,013,094

Cash cover on securitization loan 38,748,453 41,239,312

102,747,783 87,637,613

12.1

Notes to the financial statements (Continued)Senkadagala Finance Company Limited

ACT and ESC can be recovered only to the extent of the Company making taxable income in the future.

Advance company tax recoverable / Economic service charge (ACT / ESC)

12.1


61

As at 31st MarchCost Market Cost Market

Value ValueRs Rs Rs Rs

13 Dealing securities quoted companies

Bank Finance InvestmentCentral Finance Co. Ltd. 243,207 866,600 243,207 533,000

(4,333 Ordinary Shares) ( @ Rs. 200) ( @ Rs. 123)

(4,333 Ordinary Shares as at March 31, 2007)

National Development Bank 500 63,456 500 -

(384 Ordinary Shares) ( @ Rs. 165.25) ( @ Rs. 199)

(384 Ordinary Shares as at March 31, 2007)

Commercial Bank of Ceylon PLC 72,450 29,120 - -

(208 Ordinary Shares) ( @ Rs. 140)

Debenture commercial bank 13.5% 5,000,000 5,000,000 5,000,000 5,000,000

(50,000 Debentures of Rs. 100/- each) ( @ Rs. 100) ( @ Rs. 100)

Beverage Food TobaccoCeylon Tobacco PLC 142,017 192,200 142,017 195,300



Hotels TravelsAitken Spence PLC 3,355 14,025 3,355 12,540

(33 Ordinary Shares) ( @ Rs. 425 ) ( @ Rs. 380)

Investment TrustNational Equity Fund 600,925 600,925 600,925 600,925

(98,635 Ordinary Shares ) ( @ Rs. 6.09) ( @ Rs. 6.09)


ManufacturingRoyal Ceramics PLC 273 20,000 273 3,500

(100 Ordinary Shares) ( @ Rs. 200) ( @ Rs. 35)


Lanka Tiles Ltd. 7,175 12,250 140,000 196,000

(250 Ordinary Shares ) ( @ Rs. 49) ( @ Rs. 49)


DiversifiedJohn Keells Holdings PLC 13,800 241,536 13,800 312,635

(2,017 Ordinary Shares ) ( @ Rs. 119.75) ( @ Rs. 155)


Orient Fund (Portfolio Investments) 10,000,000 13,582,712 6,000,000 7,964,803

(1,000,000 Ordinary Shares ) ( @ Rs. 13.58) ( @ Rs. 13.27)


TradingLanka Indian Oil Corporation PLC 148,500 115,500 148,500 165,000



16,232,202 20,738,324 12,292,577 14,983,703


2008 2007


62


14 Loans & AdvancesNet investment in lease advancesLease rental receivable not less than one year from balance sheet date 889,616,606 829,804,267

Unearned income (204,462,121) (174,959,071)

685,154,485 654,845,196

Lease rental receivable later than one year from balance sheet date 1,474,607,409 1,327,783,662

Unearned income (485,972,428) (384,550,606)

988,634,981 943,233,056

Net investment in hire purchaseHire purchase rental receivable not less than one year from balance sheet date 1,392,602,862 1,009,920,023

Unearned income (381,189,094) (287,373,823)

1,011,413,768 722,546,200

Hire purchase rental receivable later than one year from balance sheet date 2,305,888,711 1,848,785,890

Unearned income (788,730,626) (624,172,070)

1,517,158,085 1,224,613,820

Net investment in non hire purchaseNon hire purchase rental receivable not less than one year from balance sheet date 92,454,153 68,329,009

Unearned income (16,850,873) (13,766,840)

75,603,280 54,562,169

Non hire purchase rental receivable later than one year from balance sheet date 85,728,169 72,962,511

Unearned income (30,540,163) (22,978,056)

55,188,006 49,984,455

Net investment in loans Loan rental receivable not less than one year from balance sheet date 26,748,843 25,091,107

Unearned income (7,607,811) (7,242,738)

19,141,032 17,848,369

Loan rental receivable later than one year from balance sheet date 46,629,760 49,827,221

Unearned income (17,796,669) (20,497,027)

28,833,091 29,330,194

Loans against fixed deposits 6,953,500 8,528,316

4,388,080,228 3,705,491,775

Provision for bad and doubtful debts on loans & advances 14.1.1 (82,821,800) (51,104,406)

Total loans & advances 4,305,258,428 3,654,387,369

14.1 Movement in provision for bad and doubtful debtsProvision as at 1st April 73,255,701 4,414,693

Provision for the year 79,810,810 68,841,008

Provision as at 31st March 153,066,511 73,255,701

Provision for bad and doubtful debts on loans & advances 14.1.1 82,821,800 51,104,406

Provision for bad and doubtful debts on arrears 14.1.2 26,943,272 22,151,295

Provision for loss on sale of repossessed vehicle 14.1.3 43,301,439 -

153,066,511 73,255,701


100% provision has been made for the loss recognised on sale of repossessed assets as per the requirement of Central Bank

Direction No. 3 of 2006 whereas in previous years it has been recognised as an expense.


63


15 Trade and other receivablesRentals in arrears 193,448,261 140,624,070

Provision for bad and doubtful debts on arrears 14.1.2 (26,943,272) (22,151,295)

166,504,989 118,472,775

Recoverable loss on sale of repossessed vehicle 43,301,439 -

Provision for loss on sale of repossessed vehicle 14.1.3 (43,301,439) -

- -

Sundry debtors 15.1 6,627,731 9,412,539

Discounting of cheques 490,000 500,000

Stamps fees receivable (73,986) (27,594)

Insurance 10,084,621 1,792,673

Other receivables 15.2 79,597,073 21,937,424

Advances allowed to car sales 21,857,388 25,193,153

Advance payments 21,938,987 29,685,786

307,026,803 206,966,756

15.1 Sundry debtorsStaff debtors 4,500,758 3,420,623

Sundry debtors 2,126,973 5,991,916

6,627,731 9,412,539

15.2 Other receivablesSearch fees and seizing charges receivables 1,767,624 1,130,730

Western union MMBL 238,873 -

Goods and Service Tax recoverable 11,020,826 11,020,826

Value Added Tax recoverable 66,569,750 9,785,868

79,597,073 21,937,424

16 Seized stockBalance as at 31 st March 244,152,852 206,184,541

Provision for impairment loss on seized stocks 16.1 (11,530,848) -

Balance as at 31 st March 232,622,004 206,184,541

16.1 Movement in provision for impairmentProvision as at 1st April - -

Provision made during the year 11,530,848 -

Provision as at 31st March 11,530,848 -

17 Investment securities (Unquoted)Senkadagala Hotels Limited 13,957,555 13,957,555

Credit Information Bureau 8,200 8,200

Consortium 200,000 200,000

14,165,755 14,165,755

18 Deferred expensesPre - paid loan arrangement fees 18,268,018 20,237,568

Paid during the year 10,812,848 4,111,295

Charged during the year (12,379,473) (6,080,845)

Balance at the end of the year 16,701,393 18,268,018

Loan structuring fee paid for arranging loans, has been treated as a deferred expense and has been charged to income

statement over the period of repayment of the loans and an amount of Rs.12,379,473 has been charged to the current

year's profit as amortization.



64


19 Property, plant and equipment

Cost As at Additions Disposals As at01.04.2007 31.03.2008

Rs Rs Rs Rs

Freehold assetsLand and buildings 30,113,702 72,714,144 - 102,827,846

Furniture and fittings 43,138,837 20,658,201 - 63,797,038

Office equipment 25,574,235 14,412,365 - 39,986,600

Air conditioner 10,716,379 2,090,152 - 12,806,531

Computer & accessories 61,545,798 9,759,570 - 71,305,368

Facsimile machine 642,383 59,700 - 702,083

Generator 14,321,098 8,214,500 - 22,535,598

Motor vehicles 69,539,138 56,365,867 (16,149,320) 109,755,685

Photostat machine 3,023,675 631,000 - 3,654,675

Software program 87,610,037 11,776,591 - 99,386,628

Fixtures and Fittings 35,081,696 16,856,041 - 51,937,737

Printers 9,364,740 3,350,150 - 12,714,890

390,671,718 216,888,281 (16,149,320) 591,410,679

Depreciation As at Charge for the Charge on As at01.04.2007 Period Disposals 31.03.2008

Rs Rs Rs Rs

Land and buildings 6,149,001 847,319 - 6,996,320



Air conditioner 6,412,835 2,382,870 - 8,795,705



Generator 3,746,075 2,596,450 - 6,342,525

Motor vehicles 20,653,660 13,384,358 (7,869,461) 26,168,557


Software program 65,431,913 5,507,464 - 70,939,377


Printers 4,767,220 2,339,977 - 7,107,197

183,819,094 55,834,323 (7,869,461) 231,783,956

Written down value 206,852,624 359,626,723



65

As at 31st March 2008 2007Rs Rs

20 Certificate of depositsCertificate of deposit control account 13,400,000 25,100,000

Interest in suspense (931,323) (412,848)

12,468,677 24,687,152

21 DepositsFixed deposits 864,903,614 699,648,495

Accrued interest thereon 40,624,587 40,013,492

905,528,201 739,661,987

22 Accrued expensesAudit fees 316,250 287,500

Staff bonus 13,249,950 13,423,400

Interest on debenture 47,009,231 31,058,494

Securitization loan repayment 41,985,171 13,129,619

Stamp duty & E.S.C payable 9,573,926 2,659,922

112,134,528 60,558,935

23 Accounts PayableDebit tax payable 36,350 800

Pay as you earn 201,271 (124,596)

Employees' provident fund 1,235,093 -

Employees' trust fund 185,264 -

Saving charges 13,060 -

Dividend payable 1,124,671 602,633

Registrar of motor vehicles charges 245,425 1,367,085

Refundable deposit 1,610,000 1,142,000

Search fee (58,984) 158,677

Mortgage (16,000) 670,451

Direct deposits 2,807,523 3,425,186

7,383,673 7,242,236

24 Trade payablesAmount payable to car sales 932,203 2,132,203

NHP - payable (27,469) -

XL - loan excess payment 33,227 7,531

Payable to suppliers 126,266,313 67,980,872

Sundry creditors (8,035,040) 6,312,090

Goods and Service Tax refund for buses 8,912 8,912

119,178,146 76,441,608

25 Commissioner General of Inland RevenueWithholding tax on treasury bills Interest and Commission (1,546,580) (2,845,523)

Income Taxes 8,744,644 1,576,004

Withholding tax on dividends (37,826) 8,240,019

W.H.T payable (3,851,812) 904,858

3,308,426 7,875,358



66



26 Rentals received in advanceInitial payment of lease 21,032,485 28,582,373

Rental prepaid 34,655,791 40,087,590

55,688,276 68,669,963

27 Retirement benefit obligationBalance as at 1st April 13,780,292 8,153,394

Provision for the period 4,167,871 6,126,898

Paid during the period (1,822,500) (500,000)

Balance as at 31st March 16,125,663 13,780,292

28 DebenturesType Purpose of Interest 2008 2007 Interest Due/Settle

Debenture Rate Rs Rs Payable Dates

Listed Debentures To meet the working Note 28.1 250,000,000 250,000,000 Annually 4 years from the2005/2009 Capital requirement date of allotment

of the Company

Unsecured Redeemable To meet the working Note 28.2 259,000,000 259,000,000 Annually 5 years from the

Unlisted Debentures Capital requirement Note 28.2 241,000,000 - date of allotment

2006/2011 - of the Company

2007/2012

750,000,000 509,000,000

28.1 Unsecured Redeemable Listed Debentures

Payment Period Fixed Rate Floating Rate

Annually Type A 14% Type B 14.22%

28.2 Unsecured Redeemable Unlisted Debentures

2008 2007Rs Rs

29 Deferred taxationBalance as at 1st April 35,100,695 67,792,684

Amount originating / (releasing) during the period 7,752,792 (32,691,989)


The company issued 2,500,000 unsecured redeemable four year debentures of Rs. 100/- each to the value of Rs. 250 million

during the year ended 31.3.2006. The Debentures have fixed and floating interest rates as follows.

The company issued 2,590,000 & 2,410,000 unsecured redeemable five year debentures of Rs. 100/- each to the value of Rs. 259

& Rs. 241 million during the year ended 31.3.2007 & 31.03.2008 respectively. These debentures have a fixed rate of 16% p.a

The basis of calculating the floating rate of interest, for the period ended 31.03.2008 remains unchanged as per the debenture

prospectus.


67


30 Assets Securitization LoanCommercial Bank Corporate Division 122,478,478 245,450,109

Hatton National Bank PLC 85,697,220 183,505,469

Commercial Bank of Ceylon PLC 462,300,676 294,408,048

Sampath Bank PLC 343,216,269 573,258,794

Capital Alliance 223,080,272 250,042,376

National Development Bank PLC 654,100,000 326,000,000

Nations Trust Bank PLC 84,374,500 140,624,500

Pan Asia Bank PLC 175,659,266 29,011,975

Waldock Mackenzie 56,250,000 81,250,000

Union Bank PLC 91,666,667 75,000,000

Hongkong and Shanghai Banking Coporation Limited PLC 255,555,556 205,555,556

Investec 54,166,667 75,000,000

ICICI Bank PLC 239,941,605 87,370,006

Berkly 72,724,473 -

2,921,211,649 2,566,476,833

Security Pledged

31 Stated capital

2008 2007Rs Rs

Ordinary sharesAs at 1 st April

21,347,200 ordinary shares 213,472,000 213,472,000

As at 31 st March

21,347,200 ordinary shares 213,472,000 213,472,000

Stated capital as at 31 st March 213,472,000 213,472,000

Issued and fully paid

21,347,200 Ordinary shares 213,472,000 213,472,000

32 Statutory reserve fundBalance as at 1st April 61,025,575 43,593,997

Transfers during the period 18,510,458 17,431,578



Reserve Fund is a statutory reserve created in compliance with the direction No. 1 of Central Bank Regulations of

2003. The amount transferred is not less than 5% of the net profit after taxation.

In accordance with Section 58 of Companies Act No 7 of 2007 , which became effective from 3rd May 2007, share

capital has been reclassified as stated capital. The comparative information has also been reclassified accordingly.

Lease and Hire Purchase Portfolio amounting to Rs. 4,914,525,034.34 has been pledged as security for the above

loans.


68


33 General ReserveBalance as at 1st April 405,696,300 275,696,300



34 Related Party TransactionsTransactions with key managerial personsThe key management personnel are the members of its Board of Directors of Senkadagala Finance Company Limited

Remuneration of board members and key managerial personnel.The members of the board received a remuneration totaling to Rs.69,000 (2007 = Rs.69,000).

34.1

34.2

34.2.1

Name of related party (Granted)/Settled (Granted)/Settledduring the year during the year

2008 2007Rs Rs

E.W Balasuriya & Company (Private) Limited - 12,195,119

Senkadagala Hotels Company Limited - 7,743,471

Name of related party Relationship Ordinary sharesNo.

Senkadagala Hotels Company Limited Board of Directors 467,109

The company operates its registered office in the premises of Senkadagala Hotels Company Limited, and has paid

Rs.900,000/= to Senkadagala Hotels Company Limited, as rent for the year ended 31st March 2008. (In 2006/07

Rs.1,080,000/=)


The company carries out transactions in the ordinary course of business on an arms length basis with the enterprises

which, the Boards of Directors of those companies have a substantial shareholding and a significant influence over the

company.


Mr. E. W. Balasuriya, Mr. L. Balasuriya, Mr. R. Balasuriya, Mr. Dr. M. Balasuriya, Dr. A. Balasuriya and Mrs. L.

Fernando who are the directors of the company, are also the directors of Senkadagala Hotels Company Limited, and

E. W. Balasuriya & Company (Private) Limited. Further Mrs. Gayathri Madan Mohan who is a director of the

company, is also a director of E. W. Balasuriya & Company (Private) Limited.

Accommodation Granted and settled during the year to entities controlled by key managerial persons who have a

controlling interest is stated below.


69


35 Contingent liabilities and commitments

Contingent liabilities

Capital commitments

2008 2007Rs Rs

Approved and Contracted for 16,015,900 14,360,000

Approved but not Contracted for 52,204,000 60,000,000

68,219,900 74,360,000

36 Events occurring after the balance sheet date

37 Restatement of Certain Prior year Figures

Senkadagala Finance Company Limited has restated certain prior year figures with the adoption of revised Sri

Lanka Accounting Standards (SLAS).


No circumstances have arisen since the Balance Sheet date which would require adjustments to or disclosure in the


The company has not exposed itself to guarantees to banks or any third parties and commitments of a material

nature as at 31st March 2008.

Capital expenditure approved by the Board of Directors for which provision has not been made in the Financial

Statements amounted to approximately.


70

39 Business Segments

Financial Reporting by segment as per the provision of Sri Lanka Accounting Standard No. 28 - Segment Reporting.

As at 31st March 2008 2007 2008 2007 2008 2007

Rs Rs Rs Rs Rs Rs

Financing Financing Investing Investing Consolidated Consolidated

Revenue

Interest 1,085,270,620 914,403,999 44,652,445 42,295,165 1,129,923,065 956,699,164

Bad Debts Recovered 20,573,509 12,468,458 - - 20,573,509 12,468,458

Other Income 230,885,697 182,265,440 16,845,406 11,923,767 247,731,103 194,189,207

Total Gross Income 1,336,729,826 1,109,137,897 61,497,851 54,218,932 1,398,227,677 1,163,356,829

Net result 642,862,982 581,293,645 30,260,333 9,076,938 673,123,315 590,370,583

Unallocated Expenses - - - - (387,369,390) (301,504,926)

Net Profit for the year 285,753,925 288,865,657

Total Assets 5,101,197,289 4,286,487,549 764,556,929 507,507,877 5,865,754,218 4,793,995,426

Total Liabilities 4,965,198,533 4,109,495,059 - - 4,965,198,533 4,109,495,059

38 Maturity Analysis

Up to 3 3 to 12 1 to 3 More than Total as atMonths Months years 3 years 31.03.2008

Interest Earning Assets Rs Rs Rs Rs Rs

Money at call and short notice 280,585,642 - - - 280,585,642

Government Treasury bills - 93,946,607 - - 93,946,607

Dealing securities 16,232,202 - - - 16,232,202

Stock out on hire 148,540,805 1,608,914,207 1,403,267,197 1,137,582,719 4,298,304,928

Debtors 167,084,447 2,228,375 4,635,667 - 173,948,489

Seized stock 38,528,841 19,546,625 93,532,680 81,013,858 232,622,004

Investment securities - - - 14,165,755 14,165,755

Total Interest Earning Assets 650,971,937 1,724,635,814 1,501,435,544 1,232,762,332 5,109,805,627

Non Interest Earning Assets 326,402,848 19,652,830 24,313,467 385,579,446 755,948,591

Total Assets 977,374,785 1,744,288,644 1,525,749,011 1,618,341,778 5,865,754,218

Percentage (%) 31.03.2008 16.66 29.74 26.01 27.59 100.00


Interest bearing liabilities Rs Rs Rs Rs Rs

Deposits 215,675,782 569,671,310 104,519,070 15,662,038 905,528,200

Certificate of deposits - 2,493,735 9,974,942 - 12,468,677

Saving accounts 19,317,807 - - - 19,317,807

Assets Securitization Funds 393,525,086 1,035,351,407 1,280,883,318 211,451,839 2,921,211,650

Debentures - - 250,000,000 500,000,000 750,000,000

Total Interest Bearing Liabilities 628,518,675 1,607,516,452 1,645,377,330 727,113,877 4,608,526,334

Non Interest Bearing Liabilities 277,387,404 7,872,746 6,866,473 64,545,576 356,672,199

Total Liabilities 905,906,079 1,615,389,198 1,652,243,803 791,659,453 4,965,198,533

Shareholders' Funds - - - 900,555,685 900,555,685

Total Shareholders' Funds

and Liabilities 905,906,079 1,615,389,198 1,652,243,803 1,692,215,138 5,865,754,218

Percentage (%) 31.03.2008 15.44 27.54 28.17 28.85 100

Senkadagala Finance Company LimitedAs at 31st March 2008

An analysis of the total assets employed and the total liabilities of the Company as at 31st March 2008, based on the remaining

period from the balance sheet date to the respective contractual maturity dates is given below.


71



72

ncome statementestated


989,197,163,1811,625,546,11emocnI

Interest income 2 1,560,124,313 1,259,892,987

Interest expenses 3 (931,903,957) (668,736,623)



Other operating expenses 5 (85,433,017) (32,384,573)


)825,530,69()264,457,011(tsoc lennosreP

Depreciation of property, plant and equipment (65,326,045) (50,326,859)

Amortization on intangible )464,705,5()680,490,5(stessa

)178,761,4()121,58(ytiutarg gniriter rof noisivorP

)682,317,251()138,904,012(sesnepxe rehtO

6 (391,669,545) (308,751,008)

118,189,533113,508,322emocni rehto erofeb tiforP

Other income 7 12,714,288 15,937,974

Profit before provisio 587,919,153995,915,632sn

)912,040,84()382,574,99(snoisivorp dna sessol naoL

137,044,316 303,879,566


163,152,203684,028,711noitaxat erofeb tiforPTaxation 8 (52,219,510) (15,039,988)

373,112,782679,006,56raey eht rof tiforp teN

Earnings per share 9 3.07 13.45

Dividend per share 10 1.51 3.27


The accounting policies from page 77 to 4 and the notes from page 5 to 9 form an integral part ofthese financial statements.



73


74

Senkadagala Finance Company LimitedStatement of Cash flow


Cash flow from operating activitiesInterest and commission receipts 1,375,998,231 1,112,275,018



Other income 209,513,438 174,306,670



Operating profit before changes in operating assets 270,077,184 369,173,969

(Increase) / Decrease in operating assetsIncrease in Short term funds (49,403,440) (13,919,221)

Increase in Funds advanced to customers (141,093,725) (687,380,315)

Increase in Other receivables 15,289,958 (15,110,170)

Increase in Deferred expenses (12,918,526) (10,322,156)

Increase in Trade debtors (124,831,990) (100,119,031)

Increase in Other assets 49,913,489 (37,968,311)

(263,044,234) (864,819,204)

Increase / (Decrease) in operating liabilitiesIncrease in Deposits from customers 460,835,904 172,965,545

Gratuity Paid - (1,822,500)

Increase / (Decrease) in Advances received (28,590,536) (12,981,687)

Increase in Other liabilities (86,349,623) 90,512,417

345,895,745 248,673,775

Net cash from operating activities 352,928,695 (246,971,460)

Taxes paid (Value added tax & SRL) (19,311,501) (16,896,278)

Net Cash Outflow from operating activities 333,617,194 (263,867,738)

Cash flow from investing activitiesDividends received 575,725 270,207

Interest received from Treasury Activities 52,623,794 44,644,445

Investment securities acquired during the year - (3,939,625)


Purchase of intangible assets (2,780,000) (11,776,591)


Net Cash Outflow from investing activities (54,261,103) (157,911,255)

Cash flow from financing activitiesSecuritization loans obtained 1,251,489,074 1,830,200,717

Unlisted Debentures issued 240,000,000 241,000,000

Listed Debentures Redeemed (150,000,000) -


Dividends paid (32,129,858) (62,355,968)

Net cash flow from financing activities (462,258,649) 531,992,725

Cont…..


75

Senkadagala Finance Company LimitedStatement of Cash flow Continued


Cont…..

Net Increase/ (Decrease) in cash and cash equivalents (182,902,558) 110,213,733

Cash and cash equivalents at the beginning of the period (Note 11) 417,426,520 307,212,787

Cash and cash equivalents at the end of the period (Note 11) 234,523,962 417,426,520

Reconciliation of cash and cash equivalents269,325,432sdnuf mret trohs dna hsaC 417,426,520

234,523,962 417,426,520

Reconciliation of operating profit684,028,711noitaxat erofeb tiforP 302,251,361

)527,575(sdnediviD (270,207)

Provision for bad debts 86,935,188 36,509,371

590,045,21tnemriapmi rof noisivorP 11,530,848

038,322,91secivres laicnanif no xaT deddA eulaV 1,628,205

031,024,07noitaicerpeD 55,834,323

121,58ytiutarg rof noisivorP 4,167,871

)497,326,25(emocni tnemtsevnI (44,644,445)

)479,103,5(selcihev rotom fo lasopsid no tiforP (9,722,140)

728,355,12seef larutcurts fo noitazitromA 11,888,782

Cash flows from operating activities before changes in operating assets 270,077,184 369,173,969


The accounting policies from page 77 to 4 and the notes from page 5 to 9 form an integral part of thesefinancial statements.


76

Senkadagala Finance Company LimitedStatement of changes in uityFor the year ended 31 st March

Stated Statutory General Retained Totalcapital reserve reserve profit

Rs Rs Rs Rs Rs

Balance as at 01.04.2007 (Restated) Note A 213,472,000 61,025,575 405,696,300 5,308,464 685,502,339

Profit after tax for the year (Restated) Note B - - - 287,211,373 287,211,373

-evreser ot refsnarT 18,510,458 197,322,092 (215,832,550) -

Dividend paid - - - (69,698,608) (69,698,608)

Balance as at 31st March 2008 (Restated) 213,472,000 79,536,033 603,018,392 6,988,680 903,015,105

Balance as at 01.04.2008 (Restated) Note C 213,472,000 79,536,033 603,018,392 6,988,680 903,015,105

Profit after tax for the year - 679,006,56679,006,56

-evreser ot refsnarT 4,000,000 35,000,000 (39,000,000) -

Dividend paid (32,020,800) (32,020,800)

Balance as at 31.3.2009 213,472,000 83,536,033 638,018,392 1,568,856 936,595,281

Note A

Rs.694,603,4)detroper sA( 7002/40/10 ta sa ecnalaB

Adjustment for rectification of error 1,001,968 464,803,5)detatser sA( 7002/40/10 ta sa ecnalaB

Note B

Rs.Profit for the period (As reported) 285,753,925

Adjustment for rectification of error 1,457,448Profit for the period (As restated) 287,211,373

Note C

Rs.062,925,4)detroper sA( 8002/40/10 ta sa ecnalaB

024,954,2)lasreveR( rorre fo noitacifitcer rof tnemtsujdA 086,889,6)detatser sA( 8002/40/10 ta sa ecnalaB


The accounting policies from page 77 to 4 and the notes from page 5 to 9 form an integral part of these financial

The Company rectified the under provision of deferred taxation, during the current year, whereas the Company had claimed an

excess amount of brought forward tax losses, while not considering the bad debt provision on lease advances in arriving at the

carrying value, for the purpose of computing deferred tax liability.

The rectification was accounted for retrospectively, in accordance with Sri Lanka Accounting Standards 10 - Accounting

Policies, Changes in Accounting Estimates and Errors.

Consequent to the reversal of deferred taxation, the cumulative reversal of deferred tax liability that would have been adjusted

up to 01.04.2008 is Rs.2,459,420 and the figures reported previously has been restated as follows:

The deferred tax liability of Rs.34,098,724 that would have been provided up to 1.04.2007 has been adjusted to the retained

earnings and the restated balance from reported previously is as follows:

The restatement of the retained earning balance are summarized below,

During the year ended 31st March 2008 the Company had charged Rs.7,752,792 as deferred tax liability arising for that year

whereas the reversal of deferred tax liability would have been Rs 6,295,344 as if the error would have not taken place.

Accordingly the net profit has been understated by Rs 1,457,448 and the net profit for the year ended 31.03.2008 has been

restated as follows


77

1. Corporate Information

1.1 Domicile and legal form

Senkadagala Finance Company Limited is Limited Liability Company incorporated

under the Companies Act on December 29, 1968 and registered under the Finance

Company Act No.78 of and domiciled in Sri Lanka. Its registered office is situated at

No. 12, Kotugodella Veediya, Kandy.

1.2 Principal Activities and Nature of Operations

The principal lines of business of the Company include providing of financial

accommodations in the form of lease finance, hire purchase, trade loans and pledge

loans.

1.3 Number of Employees

The number of employees of the Company at the end of the year was 212 (2008 –

185).

1.4 Approval of Financial Statements by Directors

The Financial Statements of Senkadagala Finance Company Ltd for the year ended

31st March 2009 where authorized for issue in accordance with a resolution of the

Board of Directors on May 20,2009.

1.5 Parent Enterprise and Ultimate Parent Enterprise The Company is a subsidiary of E.W.Balasuriya and Company Private Limited, which

is incorporated and domiciled in Sri Lanka.

2. Summary of Significant Accounting Policies



Statement of Compliance The Balance Sheet, and the related Statements of Income, Changes in Equity and

Cash Flow together with the Accounting Policies and Notes (Financial Statements) of

Senkadagala Finance Company Ltd as at 31 March 2009 and for the year then ended,

comply with the Sri Lanka Accounting Standards laid down by the Institute of

Chartered Accountants of Sri Lanka.



78

Basis of Measurement The Financial Statements of the Company are prepared under the historical cost

convention basis. No adjustments have been made for inflationary factors affecting

the financial statements.

Financial Statements of the Company are presented in Sri Lankan Rupees, which is

the Company’s functional currency.

2.1.2 Going Concern

The Directors have made an assessment of the Company’s ability to continue as a

going concern and they do not intend either to liquidate or to cease operations.

2.1.3 Comparative Figures

Comparative information is reclassified wherever necessary to conform with the current years’ classification in order to provide a better presentation.


All the material post Balance Sheets events have been considered and appropriate adjustments/ disclosures have been made in the Accounts, wherever necessary.

2.1.5 Taxation

Tax expense comprises current tax and deferred tax.

(a) Current Taxes

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Provision for taxation is based on the elements of income and expenditure as reported in the financial statements and computed in terms of the provisions of the Inland Revenue Act No, 10 of 2006 and amendments thereto, at the rate of 35% (2008 – 35%).


Deferred Tax is provided on temporary differences as at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized on all temporary differences.



2.1.1 Basis of Preparation (Continued)


79

Deferred tax assets are recognized for all deductible 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 income tax assets is reviewed at each balance sheet 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 income tax assets to be utilized.

Deferred Tax assets and liabilities are measured at the tax rate that are expected to apply in the year when the assets are recognized, or the liabilities are settled, based on tax rate and tax laws that have been enacted or substantially enacted at the balance sheet 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 liabilities are set off 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.

2.2 Assets and Bases of their Valuation

2.2.1 Leases

Assets leased to the customers under agreements that transfer substantially all the

risks and rewards associated with ownership other than legal title, are classified as

finance leases.

Lease rentals receivable under finance leases net of unearned lease interest income i.e.

not accrued to revenue, (interest in suspense), provisions for doubtful recovery of

rentals and initial rentals received are classified as stock out on hire in the Balance

Sheet.

Provision for bad and doubtful recoveries is made as described under 2.3.3

2.2.2 Investments


These are marketable securities acquired and held with the intention of resale over a

short period of time. Such securities are recorded at the lower of cost and market

value on an aggregate portfolio basis.


2.1.5 Taxation (Continued)


80


Unrealized losses on revaluation of dealing securities at the lower of cost and market

value are taken to the Income Statement as per the provision of Sri Lanka accounting

Standard No. 22 on Accounting for Investments.

(c) Investments in Associates

Investments in associates are stated at cost in the company’s financial statement in

accordance with the Allowed Alternative Treatment as prescribed by Sri Lanka

accounting Standard No.27, Accounting for Investments in Associates.

(d) Investment Securities

Investment securities are stated at cost in the Company’s financial statements in

accordance with Sri Lanka Accounting Standard No. 22, Accounting for Investments.


The Property, plant & equipment are recorded at cost /valuation less accumulated

depreciation and impairment losses.

Property, Plant and Equipment are recorded at cost of purchase or construction or

valuation together with any incidental expenses thereon. These assets are stated at

cost less accumulated depreciation, which is provided for on the basis specified

below.

Depreciation is provided at the following rates on straight line basis over the periods

appropriate to the estimated useful lives of the different types of assets:

Free hold land is not depreciated.

Buildings 5% per annum

Office Equipments 10% per annum

Computers and Other equipments 25% per annum

Furniture and Fittings 10% per annum

Motor Vehicles 16.67%per annum

Generators 12.5% per annum

Interior Construction 20% per annum


2.2.2 Investments (Continued)


81

2.2.4 Intangible Assets

2.2.4.1 Basis of Recognition An Intangible asset is recognized if it is probable that future economic benefits that

are attributable to the assets will flow to the entity and the cost of the assets can be

measured reliably in accordance with the Sri Lanka Accounting Standard No 37

Intangible Assets. Accordingly, these assets are stated in the balance sheet at cost less

accumulated amortization and accumulated impairment loss.

2.2.4.2 Amortization The amortization expense on intangible asset is recognized in the Income statement in

the expense category consistent with the function of the intangible assets.

2.2.4.3 Computer Software Computer software is stated at cost less accumulated amortization and any

accumulated impairment loss. Amortization is done at 12% per annum on cost.

2.2.5 Debtors

Debtors are stated at their estimated realizable amounts. Provision has been made in

the accounts for bad and doubtful debts.

2.2.6 Cash and Cash Equivalents

Cash and cash equivalent comprise of cash balances, short-term funds, balances with

Central Bank of Sri Lanka and Government of Sri Lanka Treasury Bills readily

convertible to known amounts of cash and subject to insignificant risk of changes in

value.





The Retirement benefits obligations have adopted the actuarial valuation method in

accordance with SLAS 16 (Revised 2006) Employee Benefits.

The resulting increase/decrease in the obligation is dealt as follows on initial adoption

of the standards.



82

Where the transitional liability is more or less than the liability that would have been

recognized at the same date under the Company’s previous accounting policy, the

increase/decrease as part of its retirement benefit obligation immediately as increase

or decrease in that provision.

Up to 31st March 2008, provision had been made for retirement gratuities based on

number of years of service multiplied by the half of last month’s salary of those

employees.

2.3.2.1 The principal actuarial assumptions used in the determining the cost are ;

(i) Retirement age - normal retirement age, or age on valuation date, if greater

(ii) Payment of benefit – Gratuity is assumed to be paid immediately provided the participant has 5 years of service credit at the time of departure. It is also assumed that all participants who are eligible for a commuted pension will choose it in lieu of statutory gratuity payments.

(iii) Salary scale - Per annum 10%

2.3.2.2 The liability is not externally funded.

2.3.3 Provision for Bad and Doubtful Debts

Provision for bad and doubtful debts is made in accordance with Direction issued by

the Central Bank of Sri Lanka to Finance Companies and Sri Lanka Accounting

Standard No. 33 Revenue Recognition and Disclosure in the Financial Statements of

Finance Companies.

In addition, wherever it is considered prudent, provisions are made on specifically



2.4.1Revenue Recognition

(a) Income from Lease and Hire Purchase Agreements

The interest components of the lease/ hire purchases rental receivable during the year

on assets leased and on hire purchases advance to customers are recognized as Income

for the year.


2.3.2 Retirement benefit obligations (Continued)


83

The unearned lease/ hire purchases income included in the lease/ hire purchases

rentals receivable is taken into revenue over the term of the lease/ hire purchases

commencing from the month in which the lease/ hire purchases is executed in

proportion to the capital outstanding, so as to provide a constant periodic return on the

net investment outstanding at the end of each period.

(b) Basis of Recognizing Interest Income

Interest is recognized on accrual basis and ceases to be taken into revenue for all types

of advances when such contracts are classified as non-performing (where the recovery

of interest or principle is in arrears for over six months). Thereafter interest on

advances is accounted for on a cash basis.

(c) Dividend Income

Dividend income from share trading is recognized in the period in which they are

declared.

(d) Rent Income

Rent income is recognized on an accrual basis.

(e) Commission income

Commission income is recognized on a cash basis.

(f) Recovery of Bad Debts written off

Recovery of Bad Debts written off is recognized on a cash basis.

(g) Profit on sales of seized vehicles stocks

Profit earned on the sales of seized vehicles stocks accounted in the income Statement

based on net realizable value.

(h) Interest Income from money market investments

Interest Income from Money Market investments is recognized on a cash basis


2.4.1 Revenue Recognition (Continued)


84

2.5 Expenditure Recognition

2.5.1 Interest and Other Expenses

In terms of the Sri Lanka Accounting Standard 33 – Revenue Recognition and

Disclosure in the Financial Statements of Finance Companies, interest and other

expenses payable are recognized on an accrual basis.


The cash flow statement has been prepared by using the “Direct Method” in

compliance with SLAS-9, Cash Flow Statement. Cash and Cash Equivalents comprise

mainly of cash balance and call deposits. Cash and cash equivalents are presented net

of bank overdrafts for the purpose of the cash flow statement.

2.7 Segment Reporting

A segment is a distinguishable component of the Company that is engaged in

providing services (Business Segment).

In accordance with the Sri Lanka Accounting Standards No. 28 on Segment

Reporting, Segmental information is presented in respect of the Company. The

segment comprise of financing and investing.

Inter segment transactions are based on fair market prices.

Segment results, assets and liabilities include items directly attributable to a segment

as well as those that can be allocated on a reasonable basis. Unallocated items

comprise mainly of Head Office expenses.

Segment capital expenditure is the total cost incurred during the period to acquire

segment assets that are expected to be used for more than one accounting period.



85

Senkadagala Finance Company LimitedNotes to the financial statements


1 Income 1.1 1,645,526,118 1,361,791,989

1,645,526,118 1,361,791,989

1.1 IncomeInterest income 2 1,560,124,313 1,259,892,987


Other income 7 12,714,288 15,937,974

1,645,526,118 1,361,791,989

2 Interest income Lease 396,445,864 371,208,567

Hire purchase 880,312,438 652,706,515

Loans 15,970,974 12,398,556

Non - Hire purchase 51,962,428 47,367,531



Treasury bills 2.1 22,671,729 15,465,800

Default charges 160,078,502 129,969,922

Discounting cheques - 8,000

1,560,124,313 1,259,892,987

2.1 Notional tax credit for withholding tax on government securities on secondary market transactions.

The resulting Notional tax credit amounts to 2,267,173 1,546,580

Net interest income amounts to 20,404,556 13,919,220

Gross interest 22,671,729 15,465,800


Certificate of deposits 3,251,643 849,588

Savings accounts 3,604,639 439,704


Debentures 123,845,605 91,068,677

Corporate loan 69,830,457 33,314,075

931,903,957 668,736,623

The Inland Revenue (Amendment) Act. No. 10 of 2006 provides that a Company which derives interest

income from the secondary market transactions in Government securities would be entitled to a notional

tax credit (being one ninth of 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 earned by the Company from the Secondary Market transactions in

Government securities (Treasury bills) for the year has been grossed up in the financial statements.


86


RestatedFor the year ended 31st March 2009 2008

Note Rs Rs





Sundry income 15,391,959 10,959,044

Legal fees 10,738,165 12,091,027

72,687,517 85,961,028

5 Other operating expensesCommission paid 15,384,121 15,077,232

Value Added Tax 4,644,599 5,925,636

Debenture issue arrangement fee 701,343 490,691

C.R.I.B charges 2,666,515 2,670,695

Loss on sale of seized stocks 62,036,439 8,220,319

85,433,017 32,384,573

6 Operating expensesOverhead expenses includes the followings :Directors' remuneration 2,850,000 69,000

Salaries and wages 89,585,482 69,716,094

Employers' contribution to Employees' Provident Fund 10,791,996 8,365,931

Employers' contribution to Employees' Trust Fund 2,697,999 2,091,483

Directors' fees 180,000 135,000

Auditors' remuneration 386,062 275,000


7 Other incomeRent income 1,760,000 1,920,000

Inspection fees 765,528 1,307,254

Investment Income 3,274,886 2,988,580


Staff bonus over provision 1,611,900 -

12,714,288 15,937,974

8 TaxationTaxation based on profits for the year 8.1 27,373,177 8,744,644

Deferred tax charged / (reversed) 24,846,333 6,295,344

52,219,510 15,039,988

The Deferred tax charged for the year ended 31.3.2008 has been restated as described in the notes changes

in equity Statement and as a consequent the deferred tax charge for the year ended has been restated from

Rs.7,752,792 to Rs.6,295,344


87



8.1 Reconciliation of effective tax rate

Net profit before tax 117,820,486 302,251,361



Add / (Less) - Adjustments (74,971,066) (2,190,207)

Loss from lease Business 1,695,327 -

Business loss claimed during the year (41,490,226) (13,320,096)

Taxable income 77,053,277 24,737,322

Income Tax at 35% 26,968,647 8,658,063

Social Responsibility Levy @ 1.5% of Income Tax 404,530 86,581


Effective tax rate 23% 3%

9 Earnings per share

Profit after taxation 65,600,976 287,211,373

Profit attributable to ordinary share holders 65,600,976 287,211,373

Number of ordinary shares as denominator 21,347,200 21,347,200

Earnings per ordinary share 3.07 13.45

10 Dividend per shareFinal dividend paid 2007/08 19,491,780 13,128,528

1st Interim dividend paid 12,640,272 18,145,120

2nd Interim dividend paid - 20,279,840

3rd Interim dividend paid - 18,145,120

32,132,052 69,698,608

Dividend per ordinary share 1.51 3.27

Earnings per share have been calculated by dividing the net profit for the year attributable to the

ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.


88




Money at call and short notice 113,335,233 280,585,642

234,523,962 417,426,520

11.1 Cash and bank balancesCommercial Bank Savings 43,857 43,857

Commercial Bank Kandy # 1 16,935,672 (8,766,664)


Commercial Bank Kandy # 3 730,328 3,993,792

Commercial Bank Kandy # 4 278,479 417,053

Commercial Bank Colombo # 5 (1,923,512) 665,940

Commercial Bank # 6 1,054,319 1,109,871


Hong Kong and Shanghai Bank 32,670,314 19,815,825

Hatton National Bank Kandy 2,631,188 26,263,407

Hatton National Bank Colombo 3,327,992 2,539,087

Sampath Bank - 6,364,014


Nation Trust Bank 11,660 11,660



Pan Asia Bank 20,129,934 2,275,530

Union Bank 8,020,905 11,693,216

ICICI Bank 15,500,000 24,846,701


Encashment floats 3,410,434 3,080,111

Cash in hand 11,217,319 22,776,064

Savings atm withdrawals (1,379,734) (1,819,115)

121,188,729 136,840,878

12 Advance and receivablesDeposits 1,042,284 1,042,284

Pre - paid rent 20,310,923 23,835,826


Economic service charge 43,537,781 32,995,601

Cash cover on securitization loan 16,441,218 38,748,453

87,457,825 102,747,783


89

As at 31st MarchCost Market Cost Market

Value ValueRs Rs Rs Rs

13 Dealing securities quoted companies

Bank Finance InvestmentCentral Finance Co. Ltd. 243,207 680,281 243,207 866,600



National Development Bank 500 34,176 500 63,456

(384 Ordinary Shares) ( @ Rs. 89) ( @ Rs. 165.25)

(384 Ordinary Shares as at March 31,2009)

Commercial Bank of Ceylon PLC 72,450 16,484 72,450 29,120


Debenture commercial bank 13.5% 5,000,000 5,000,000 5,000,000 5,000,000

(50,000 Debentures of Rs. 100/- each) ( @ Rs. 100) ( @ Rs. 100)

Beverage Food TobaccoCeylon Tobacco PLC 142,017 297,600 142,017 192,200



Hotels TravelsAitken Spence PLC 3,355 10,395 3,355 14,025 (33 Ordinary Shares) ( @ Rs. 315 ) ( @ Rs. 425 )


Investment TrustNational Equity Fund 600,925 1,405,974 600,925 600,925

(131,399.4 Ordinary Shares ) ( @ Rs. 10.7) ( @ Rs. 6.09)

(131,399.4 Ordinary Shares as at March 31, 2009)

ManufacturingRoyal Ceramics PLC 273 273 273 20,000



Lanka Tiles Ltd. 7,175 12,250 7,175 12,250

(250 Ordinary Shares ) ( @ Rs. 49) ( @ Rs. 49)

DiversifiedJohn Keells Holdings PLC 13,800 121,547 13,800 241,536

(1,937 Ordinary Shares ) ( @ Rs. 62.75) ( @ Rs. 119.75)

(1,937Ordinary Shares as at March 31, 2009)

Orient Fund (Portfolio Investments) 10,000,000 13,582,712 10,000,000 13,582,712

(1,000,000 Ordinary Shares ) ( @ Rs. 13.58) ( @ Rs. 13.58)

TradingLanka Indian Oil Corporation PLC 148,500 88,000 148,500 115,500



16,232,202 21,249,691 16,232,202 20,738,324


20082009


90


14 Loans & AdvancesNet investment in lease advancesLease rental receivable more than one year from balance sheet date 1,249,369,440 889,616,492

Unearned income (365,424,067) (204,462,121)

883,945,373 685,154,371

Lease rental receivable less than one year from balance sheet date 729,002,644 1,474,607,409

Unearned income (213,223,649) (485,972,428)

515,778,995 988,634,981

Net investment in hire purchaseHire purchase rental receivable more than one year from balance sheet date 2,578,660,040 1,392,602,862

Unearned income (809,743,810) (381,189,094)

1,768,916,230 1,011,413,768

Hire purchase rental receivable less than one year from balance sheet date 1,504,639,003 2,305,888,711

Unearned income (472,482,646) (788,730,626)

1,032,156,357 1,517,158,085

Net investment in non hire purchaseNon hire purchase rental receivable more than one year from balance sheet date 126,026,413 92,454,153

Unearned income (40,112,358) (16,850,873)

85,914,055 75,603,280

Non hire purchase rental receivable less than one year from balance sheet date 73,535,965 85,728,169

Unearned income (23,405,419) (30,540,163)

50,130,546 55,188,006

Net investment in loans Loan rental receivable not more than one year from balance sheet date 57,127,939 26,748,843

Unearned income (20,774,219) (7,607,811)

36,353,720 19,141,032

Loan rental receivable less than one year from balance sheet date 33,333,950 46,629,760

Unearned income (12,121,684) (17,796,669)

21,212,266 28,833,091


36,771,813 35,786,591

Provision for bad and doubtful debts on loans & advances 14.1.1 (50,550,238) (82,821,800)

Total loans & advances 4,359,416,851 4,305,258,314

14.1 Movement in provision for bad and doubtful debts

Provision as at 1st April 109,765,072 73,255,701

Provision for the year 86,935,188 36,509,371

Bad Debts write off (121,615,613) -

Provision as at 31st March 75,084,647 109,765,072

Provision for bad and doubtful debts on loans & advances 14.1.1 50,550,238 82,821,800 Provision for bad and doubtful debts on arrears 14.1.2 24,534,409 26,943,272

75,084,647 109,765,072



91


15 Trade and other receivablesRentals in arrears 271,050,685 193,448,261 Provision for bad and doubtful debts on arrears 14.1.2 (24,534,409) (26,943,272)

246,516,276 166,504,989

Sundry debtors 15.1 9,752,100 6,627,731 Discounting of cheques 490,000 490,000 Stamps fees receivable - (73,986) Insurance 53,974,698 10,084,621 Other receivables 15.2 97,030,913 79,656,057 Advances allowed to car sales 10,006,524 21,857,388 Advance payments 14,147,266 21,938,987

431,917,777 307,085,787

15.1 Sundry debtorsStaff debtors 6,046,856 4,500,758 Sundry debtors 3,705,244 2,126,973

9,752,100 6,627,731

15.2 Other receivablesSearch fees and seizing charges receivables 1,687,324 1,826,608 Western union MMBL 294,232 238,873 Goods and Service Tax recoverable 11,020,826 11,020,826 Value Added Tax recoverable 84,028,531 66,569,750

97,030,913 79,656,057

16 Seized stockBalance as at 31 st March 182,708,515 244,152,852 Provision for impairment loss on seized stocks 16.1 (12,540,095) (11,530,848) Balance as at 31 st March 170,168,420 232,622,004

16.1 Movement in provision for impairmentProvision as at 1st April 11,530,848 - Provision made during the year 12,540,095 11,530,848 Loss incurred during the period (11,530,848) - Provision as at 31st March 12,540,095 11,530,848

17 Investment securities (Unquoted)Senkadagala Hotels Limited 13,957,555 13,957,555 Credit Information Bureau 8,200 8,200 Consortium 200,000 200,000

14,165,755 14,165,755

18 Deferred expensesPre - paid loan arrangement fees 16,701,393 18,268,018 Paid during the year 12,918,527 10,322,157 Charged during the year (21,553,827) (11,888,782) Balance at the end of the year 8,066,093 16,701,393


Loan structuring fee paid for arranging loans, has been treated as a deferred expense and has been charged to

income statement over the period of repayment of the loans and an amount of Rs.21,553,827 has been

charged to the current year's profit as amortization.


92




Rs Rs Rs Rs

Freehold assetsLand and buildings 102,827,846 8,717,300 - 111,545,146



Air conditioner 12,806,531 6,106,122 - 18,912,653



Generator 22,535,598 8,494,402 - 31,030,000

Motor vehicles 109,755,685 42,890,145 (9,875,303) 142,770,527

Photostat machine 3,908,675 1,445,001 - 5,353,676


Printers 12,714,890 2,037,335 - 14,752,225

492,024,051 114,212,622 (9,875,303) 596,361,370

Depreciation As at Charge for the Charge on As at01.04.2008 Period Disposals 31.03.2009

Rs Rs Rs Rs

Land and buildings 6,996,320 940,165 - 7,936,485



Air conditioner 8,795,705 2,709,669 - 11,505,374



Generator 6,342,525 3,315,450 - 9,657,975

Motor vehicles 26,168,556 20,765,609 (5,645,163) 41,289,002



Printers 7,107,197 2,914,385 - 10,021,582

160,844,464 65,326,045 (5,645,163) 220,525,346

Written down value 331,179,587 375,836,024

2009 2008Rs Rs

20 Intangible AssetsSoftware programmeBalance at the beginning of the year 99,386,628 87,610,037

Additions during the year 2,780,000 11,776,591


AmortizationBalance at the beginning of the year 70,939,377 65,431,913

Charge for the year 5,094,086 5,507,464


Net book value 26,133,165 28,447,251



93


21 Certificate of depositsCertificate of deposit control account 14,400,000 13,400,000Interest in suspense (486,793) (931,323)

13,913,207 12,468,677

22 DepositsFixed deposits 1,278,096,084 864,903,614Accrued interest thereon 64,963,587 40,624,587

1,343,059,671 905,528,201

23 Accrued expensesAudit fees 386,062 316,250 Staff bonus - 13,249,950Interest on debenture 56,163,833 47,009,231Securitization loan repayment 65,378,875 41,985,171Directors fees (37,500) -

121,891,270 102,560,602

24 Accounts PayableDebit tax payable 69,435 36,350 Pay as you earn - 201,271 Employees' provident fund - 1,235,093 Employees' trust fund - 185,264 Saving charges - 13,060 Dividend payable 1,015,613 1,124,671 Registrar of motor vehicles charges 475,069 245,425 Refundable deposit 2,168,000 1,610,000 Mortgage 182,299 (16,000) Direct deposits 3,607,796 2,807,523 Stamp duty & E.S.C payable 11,652,966 9,573,926 W.H.T on loan & debentures 1,212,003 772,178 W.H.T on commission 68,445 -

20,451,626 17,788,761

25 Trade payablesAmount payable to car sales 1,166,667 932,203 NHP - payable (1,784,650) (27,469) XL - loan excess payment 29,061 33,227 Stock payable 21,228,442 126,266,313Sundry creditors 2,281,036 (8,035,040)

Goods and Service Tax refund for buses 8,912 8,912

22,929,468 119,178,146

26 Commissioner General of Inland RevenueWithholding tax on treasury bills Interest and Commission (3,814,869) (1,546,580)

Income Taxes 27,373,177 8,744,644

Income tax payment (87,671) -

W.H.T on dividends (25,753) (37,826)

W.H.T payable (5,826,666) (4,623,990)

17,618,218 2,536,248



94



27 Rentals received in advanceInitial payment of lease 12,286,660 21,032,485 Rental prepaid 14,811,080 34,655,791

27,097,740 55,688,276

28 Retirement benefit obligationBalance as at 1st April 16,125,663 13,780,292 Provision for the period 85,120 4,167,871 Paid during the period - (1,822,500) Balance as at 31st March 16,210,783 16,125,663

29 DebenturesType Purpose of Interest 2009 2008 Due/Settle

Debenture Rate (p.a) Rs Rs Dates

Listed Debentures To meet the working Note 29.1 100,000,000 250,000,000 4 years from the2005/2009 Capital requirement date of allotment

of the Company

2006/2011 259,000,000 259,000,000 5 years from the2007/2012 241,000,000 241,000,000 date of allotment2008/2013 240,000,000

840,000,000 750,000,000

29.1 Unsecured Redeemable Listed Debentures

Payment Period

Annually Type AQuarterly Type B

The basis of calculating the floating rate of interest, for the period ended 31.03.2009 remains unchanged as per the

debenture prospectus. The company has redeemed 60% of the listed debentures issued in 2005, during the year under

review amounting Rs.150 M.

To meet the working

Capital requirement

of the Company

16% (Fixed)

The provision for retiring gratuity for the year is based on the actuarial valuation carried out by MS Piyal S. Goonetilleke, as

at 31st March 2009.

Rate

14%W.A.TB (Net)+2.75%

Unsecured unlisted Redeemable Debentures

The company issued 2,500,000 unsecured redeemable four year debentures of Rs. 100/- each to the value of Rs. 250 million

during the year ended 31.3.2006. The Debentures have fixed and floating interest rates as follows.


95


30 Deferred taxationBalance as at 1st April 40,394,068 35,100,695

Effect on correction of differed taxation - (1,001,971)

Balance as at 1st April (Restated) 40,394,068 34,098,724

Amount originating / (releasing) during the period 24,846,333 6,295,344

Balance as at 31st March 30.1 65,240,401 40,394,068

30.1Deferred tax liabilityTax effect on capital allowances P.P.E 18,239,340 16,326,205

Tax effect on capital allowances Lease Assets 64,473,407 55,438,631

82,712,747 71,764,836

Deferred tax AssetsTax effect on gratuity provision (5,673,774) (5,643,982)

Tax effect on tax losses (11,798,572) (25,726,786)

(17,472,346) (31,370,768)

Net deferred tax liabilities 65,240,401 40,394,068

31 Assets Securitization LoanCommercial Bank Corporate Division 47,710,200 122,478,478



Sampath Bank PLC 152,706,511 343,216,269




Pan Asia Bank PLC 135,504,711 175,659,266


Union Bank PLC 54,166,667 91,666,667

Hongkong and Shanghai Banking Corporation Limited PLC 95,555,556 255,555,556

Investec 91,666,667 54,166,667

ICICI Bank PLC 166,950,680 239,941,605

Berkly 60,000,000 72,724,473

First Capital Market 200,000,000

2,401,082,747 2,921,211,649

Security Pledged


Lease and Hire Purchase aggregate Portfolio amounting to Rs. 4,914,525,034.34 has been pledged as

security for the above loans.

Deferred tax liabilities

The deferred tax liability has been restated as described in note to the changes in equity statement resulting

in a decrease in deferred tax liability of Rs.1,001,971 as at 01.04.2007 and Rs.1,457,448 as at 31.03.2008

from reported previously.


96


32 Stated capitalStated capital as at 31 march 213,472,000 213,472,000

Number of ordinary shares 21,347,200 21,347,200

33 Statutory reserve fundBalance as at 1st April 79,536,033 61,025,575



34 General ReserveBalance as at 1st April 603,018,392 405,696,300



Reserve Fund is a statutory reserve created in compliance with the direction No. 1 of Central Bank

Regulations of 2003. The amount transferred is not less than 5% of the net profit after taxation.



97

35 Related Party TransactionsTransactions with key managerial personnel

Remuneration of board members and key managerial personnel.The members of the board received a remuneration totaling to Rs 2,850,000 (2008 = Rs.69,000).

No post employment benefits were paid to key management personnel during the financial year. (2008 Nil)

35.1

35.2

35.3 Share holding in the related company

Name of the related party

Senkadagala Hotels Company Limited

35.4

36 Contingent liabilities and commitments

Contingent liabilities

Capital commitments

2009 2008Rs Rs

Approved and Contracted for 2,700,000 16,015,900

Approved but not Contracted for 1,700,000 52,204,000

4,400,000 68,219,900

37 Events occurring after the balance sheet dateNo circumstances have arisen since the Balance Sheet date which would require adjustments to or disclosure

in the Financial Statements.

The company has not exposed itself to guarantees to banks or any third parties and commitments of a material

nature as at 31st March 2009.

Capital expenditure approved by the Board of Directors for which provision has not been made in the

Financial Statements amounted to approximately.

Ordinary sharesNo.

467,109

Mr. E. W. Balasuriya, Mr. L. Balasuriya, Mr. R. Balasuriya, Dr. M. Balasuriya, Dr. A. Balasuriya and Mrs. L.

Fernando who are the directors of the company, are also the directors of Senkadagala Hotels Company

Limited, and E. W. Balasuriya & Company (Private) Limited. Further Dr.Mrs. Gayathri Madan Mohan who is

a director of the company, is also a director of E. W. Balasuriya & Company (Private) Limited.

The company carries out transactions in the ordinary course of business on an arms length basis with the

enterprises which, the Boards of Directors of those companies have a substantial shareholding and a significant

influence over the company.

The company operates its registered office in the premises of Senkadagala Hotels Company Limited, and has

paid Rs.787,800/= to Senkadagala Hotels Company Limited, as rent for the year ended 31st March 2009. (In

2007/08 Rs.787,800/=)

Number of Senkadagala Finance Company Ltd shares held by key managerial personnel amounted to Rs.

81,833,280 ( 2008-Rs. 81,833,280)

The key management personnel are the members of its Board of Directors of Senkadagala Finance Company

Limited

Senkadagala Finance Company LimitedNotes to the financial statements as at 31st March 2009 (Continued)

The Company did not have any material transactions with its key management personnel or their close family

members during the year.


98




Money at call and short notice 234,523,962 - - - 234,523,962


Dealing securities - 16,232,202 - - 16,232,202

Stock out on hire 354,667,566 1,251,717,016 1,978,750,841 774,281,428 4,359,416,850

Debtors 179,214,393 290,497,808 49,663,400 - 519,375,601

Seized stock 126,413,579 43,754,841 - - 170,168,420


Total Interest Earning Assets 894,819,500 1,745,551,914 2,028,414,241 788,447,183 5,457,232,837

Non Interest Earning Assets 129,254,820 - - 280,780,464 410,035,284

Total Assets 1,024,074,320 1,745,551,914 2,028,414,241 1,069,227,647 5,867,268,121

Percentage (%) 31.03.2009 17.45 29.75 34.57 18.22 100.00



Deposits 349,195,515 872,988,787 120,875,370 - 1,343,059,672

Certificate of deposits - 12,456,604 1,456,604 - 13,913,207

Saving accounts 41,177,706 - - - 41,177,706

Assets Securitization Funds 563,829 815,533,401 1,584,985,517 - 2,401,082,747

Debentures - 100,000,000 239,000,000 501,000,000 840,000,000


Non Interest Bearing Liabilities 181,473,514 23,170,096 3,071,665 83,724,233 291,439,508



Total Shareholders' Funds and Liabilities 572,410,564 1,824,148,888 1,949,389,156 1,521,319,514 5,867,268,121

Percentage (%) 31.03.2009 9.73 31.02 33.15 25.93 100

Senkadagala Finance Company LimitedAs at 31st March 2009

An analysis of the total assets employed and the total liabilities of the Company as at 31st March 2009, based on the remaining period

from the balance sheet date to the respective contractual maturity dates is given below.

39 Business Segments

Financial Reporting by segment as per the provision of Sri Lanka Accounting Standard No. 28 - Segment Reporting.

As at 31st March 2009 2008 2009 2008 2009 2008Rs Rs Rs Rs Rs Rs

RevenueInterest 1,347,422,017 1,085,270,620 52,623,794 44,652,445 1,400,045,811 1,129,923,065Bad Debts Recovered 1,512,956 20,573,509 - - 1,512,956 20,573,509 Other Income 215,285,379 184,128,190 28,681,972 27,167,225 243,967,351 211,295,415 Total Gross Income 1,564,220,352 1,289,972,319 81,305,766 71,819,670 1,645,526,118 1,361,791,989

Net result 565,882,546 617,930,927 14,034,560 61,135,199 579,917,106 679,066,126

Unallocated Expenses - - - - (514,316,130) (391,854,753)

Net Profit for the year 65,600,976 287,211,373

Total Assets 5,204,348,860 5,129,703,410 662,919,261 736,109,792 5,867,268,121 5,865,813,202

Total Liabilities 4,930,672,840 4,962,798,097 - - 4,930,672,840 4,962,798,097

Investing ConsolidatedFinancing


99



100

ncome StatementRestated

For the year ended 31st March 2010 2009Note Rs. Rs.

Income 3 1,546,262,350 1,645,526,118

313,421,065,1589,955,154,14emocni tseretnI

)759,309,139()840,696,548(5sesnepxe tseretnI


508,104,58563,207,496emocni gnitarepo rehtO


Operating expenses 7

)385,908,701()680,429,511(8stsoc lennosreP

Depreciation of property, plant )440,623,56()526,945,27(tnempiuqe dna

Amortization of intangible )680,490,5()122,839,5(stessa

)000,030,3()000,902,3(stnemulome 'srotceriD

)992,059,932()968,400,742(9sesnepxe gnitarepo rehtO

(444,625,801) (421,210,012)

Operating profit before taxation an 051,214,292105,049,552sessol elbissop d

)227,115,161()697,592,98(01snoisivorp dna sessol naoL

Operating profit before VAT on financial services and income tax 166,644,705 130,900,427


795,676,111897,515,231xat emocni erofeb tiforP

)632,435,38(11esnepxe xat emocnI (52,219,510)

780,754,95265,189,84raey eht rof tiforP

97.292.221 erahs rep sgninrae cisaB

05.107.131erahs rep dnediviD

Figures in brackets indicate deductions.

The Notes to the Financial Statements from pages 105 to 130 form an integral part of these Financial Statements.



101


102

Senkadagala Finance Company LimitedStatement of Changes in uity For the year ended 31 st March 1

Stated Statutory General Restated Totalcapital reserve reserve Retained

fund earningsRs. Rs. Rs. Rs. Rs.

Balance as at 1st April 2008 as previously reported 213,472,000 79,536,033 603,018,392 6,988,680 903,015,105

Under provision of Value Added Tax on financial services ( Note A ) - - - (25,337,284) (25,337,284)

Under provision of Normal Value Added Tax ( Note A ) - - - (20,781,757) (20,781,757)

Balance as at 1st April 2008 as restated 213,472,000 79,536,033 603,018,392 (39,130,361) 856,896,064

Profit for the year (Restated) (Note B) - - - 59,457,087 59,457,087

Transfers to reserves - 4,000,000 35,000,000 (39,000,000) -

Dividend paid - - - (32,020,800) (32,020,800)

000,274,3129002 hcraM ts13 ta sa ecnalaB 83,536,033 638,018,392 (50,694,074) 884,332,351

000,274,3129002 lirpA ts1 ta sa ecnalaB 83,536,033 638,018,392 (50,694,074) 884,332,351

Profit for the year - - - 48,981,562 48,981,562

Transfers to reserves 3,000,000 - (3,000,000) -

Dividend paid - - - (36,290,240) (36,290,240)

000,274,3120102 hcraM ts13 ta sa ecnalaB 86,536,033 638,018,392 (41,002,752) 897,023,673

The restatement of retained earnings are summarised below.

Note A

Note B

Rs.679,006,56ylsuoiverp detroper sa 9002 hcraM ts13 dedne raey eht rof tiforP

)988,341,6(xaT deddA eulaV lamroN rof noisivorp rednu rof tnemtsujdA Profit for the year ended 31st March 2009 restated 59,457,087


The Company agreed with the Department of Inland Revenue when settling the pending assessments on VAT on Financial Services and Normal VAT

according to the Sec: 25c (1) of Value Added Tax (Amendment) Act No 8 of 2006, and the respective under provisions for same have been accounted

for retrospectively, in accordance with Sri Lanka Accounting Standards 10 - Accounting Policies, Changes in Accounting Estimates and Errors.

The under provision of Rs.25,337,284 and Rs.20,781,757 for Value Added Tax on financial services and for Normal Value Added Tax respectively

relating to periods prior to 1st April 2008 have been adjusted to opening retained earnings as at 1st April 2008.

The under provision of Rs.6,143,889 for Normal Value Added Tax relating to year ended 31st March 2009 has been adjusted to the profit for that year

and the restated profit for the year ended 31st March 2009 is as follows.



103

Senkadagala Finance Company LimitedCash Flow Statement

For the year ended 31st March 2010 2009Rs. Rs.

Cash flows from operating activitiesInterest and commission receipts 1,451,559,985 1,560,124,313



Other operating income 82,488,138 78,011,150



Operating profit before changes in operating assets and liabilities (Note A) 301,686,786 297,650,883

(Increase) / decrease in operating assetsInvestments in Government securities (19,842,105) (49,403,440)

Funds advanced to customers 55,646,577 (141,093,725)

Advances and receivables (7,640,980) 58,827,739

Deferred expenses (5,264,139) (12,918,526)

Trade and other receivables 74,182,854 (72,569,060)

97,082,207 (217,157,012)

Increase / (decrease) in operating liabilitiesDeposits from customers 696,327,072 460,835,904

Gratuity Paid (2,606,693) 317,625

Rentals received in advance (6,397,941) (28,590,536)

Other liabilities 56,480,496 (129,887,404)

743,802,934 302,675,589

Net cash generated from operating activities before income tax 1,142,571,927 383,169,460

Taxes paid (32,556,218) 3,071,528

Net cash generated from operating activities 1,110,015,709 386,240,988

Cash flows from investing activitiesDividend receipts 1,032,788 575,725

Purchase of dealing securities (1,462,265) -


Purchase of intangible assets (19,362,958) (2,780,000)


Net cash used in investing activities (97,885,164) (106,884,897)

Cash flows from financing activitiesSecuritization loans obtained 1,005,723,000 1,251,489,074



Redemption of listed debenture (100,000,000) (150,000,000)

Dividends paid (35,966,275) (32,129,858)

Net cash used in financing activities (758,667,420) (462,258,649)

Cont…..


104

Senkadagala Finance Company LimitedCash Flow Statement Continued


Net increase / (decrease) in cash and cash equivalents 253,463,124 (182,902,558)

Cash and cash equivalents at the beginning of the year 234,523,962 417,426,520

Cash and cash equivalents at the end of the year 487,987,086 234,523,962

Reconciliation of cash and cash equivalents474,744,632482,792,694sdnuf mret trohs dna hsaC

)215,329,1()891,013,8(tfardrevo knaB

487,987,086 234,523,962

(Note A)Reconciliation of operating profit


)527,575()887,230,1(sdnediviD


General provision for bad debts 7,600,000 -

Loans written-off 2,266,787 -

Write-off of receivables on insurance premium and search fees 9,051,212 -

239,837,72tnemriapmi rof noisivorP 12,540,095

Reversal of specific provision on repossessed stocks (4,387,465) -

031,024,07648,784,87noitaicerpeD

547,204845,720,4ytiutarg gniriter rof noisivorP

)479,103,5()065,027,1(selcihev rotom fo lasopsid no tiforP

728,355,12956,739,5seef larutcurts fo noitazitromA

301,686,786 297,650,883


The Notes to the Financial Statements from pages 105 to 130 form an integral part of these Financial

Statements.


105

Senkadagala Finance Company LimitedNotes to the Financial Statements

1. Corporate information


1.2 Principal activities and nature of operations

1.3 Number of employeesThe number of employees of the Company at the end of the year was 213 (2009 – 212).

1.4 Responsibility for Financial Statements

*

*

*

*

* Notes to the Financial Statements comprising Accounting Policies used and other Notes.

1.5 Parent Enterprise and Ultimate Parent EnterpriseThe Company is a subsidiary of E.W.Balasuriya and Company (Private) Limited, which is

incorporated and domiciled in Sri Lanka.

An Income Statement providing the information on the financial performance of the Company

for the year under review.

A Balance Sheet providing information on the financial position of the Company at the end of

the year under review.

A Statement of Changes in Equity providing the information on the changes in shareholders’

equity during the year under review.

A Cash Flow Statement providing information on the cash and cash equivalents generating

ability of the Company and the utilisation of those cash flows.

Senkadagala Finance Company Limited is a limited liability company domiciled in Sri Lanka

incorporated under the Companies Ordinance, No 51 of 1938 on December 29, 1968 and

registered under the Finance Companies Act No.78 of 1988. Its registered office is situated at

No. 267, Galle Road, Colombo 3. The company re – registered under the Companies Act, No.

7 of 2007.

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.

The Board of Directors is responsible for the preparation and presentation of the financial

statements of the Company in accordance with the provisions of the Companies Act, No. 7 of

2007 and Sri Lanka Accounting Standards.

The financial statements of Senkadagala Finance Company Ltd for the year ended 31st March

2010 were authorised for issue by a resolution of the Board of Directors on 26th

July, 2010.

These financial statements include the following components:

The principal lines of business of the Company can be broadly classified under two categories

– fund-based and fee-based. The fund-based services include finance leasing, hire purchase

finance, trade loans and pledge loans. The fee-based services are insurance brokering, vehicle

valuation, etc.


106





Statement of Compliance

2.1.1(a)

2.1.1(b)

2.1.1(c) Significant Accounting Judgments, Estimates and Assumptions

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to

accounting estimates are recognised in the period in which the estimates are revised, if the

revision affects only that period or in the period of the revision and future periods as well, if

the revision affects both current and future periods.

Revisions to accounting estimates are dealt with in accordance with Sri Lanka Accounting

Standard No. 10 Accounting Policies, Changes in Accounting estimated and errors. (Revised

2005)

The Balance Sheet, and the related Statements of Income, Changes in Equity and Cash Flow

together with the Accounting Policies and Notes (Financial Statements) of Senkadagala

Finance Company Ltd as at 31st March 2010 and for the year then ended, comply with the Sri

Lanka Accounting Standards laid down 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 and Finance Leasing Act No, 56 of 2000 and the amendments to these acts.

Basis of Measurement

The financial statements of the Company are prepared under the historical cost convention

basis. No adjustments have been made for inflationary factors affecting the financial

statements.

The Company did not adopt any inappropriate accounting treatments which do not comply

with the requirements of Sri Lanka Accounting Standards and other laws and regulations

governing the preparation and presentation of financial statements.

Presentation and Functional Currency

The financial statements of the Company are presented in Sri Lankan Rupees, which is the

Company’s functional currency.

The preparation of financial statement in conformity with SLAS requires the management to

make judgments, estimates and assumptions that influence the application of accounting

policies and the reported amounts of assets, liabilities, income and expenses. Judgments and

estimates are based on historical experience and other factors, including expectations that are

believed to be reasonable under the circumstances and assumptions based on such knowledge

and expectations of future events. Hence actual experience and results may differ from these

judgments and estimates.


107


2. Summary of Significant Accounting Policies(Contd)

2.1 General Policies (Contd)

2.1.2 Going Concern

2.1.3 Change to the Accounting Policies

2.1.4

2.1.5

When preparing the financial statements, the directors have made an assessment of the ability of the

constituents of the Company to continue as a going concern in the foreseeable future and they do not

foresee a need for liquidation or cessation of trading, taking into account all available information

about the future.

• Sri Lanka Accounting Standard No 44 ‘Financial Instrument : Presentation’• Sri Lanka Accounting Standard No 45 ‘Financial Instruments: Recognition and Measurement’

In order to comply with the requirement of these Accounting Standards, the Company has duly

planned the standards implementation program, especially considering the complex nature of the

effect of these Accounting Standards.

Post-Balance Sheet Events

All material post Balance Sheets events have been considered and appropriate adjustments/

disclosures have been made in the Accounts, wherever necessary.

There were no changes to the Accounting Policies adopted by the Company during the year under

review. However, the following two new Accounting Standards have been issued by the Institute of

Chartered Accountant of Sri Lanka and are effective for the accounting period on the dates specified

below.

Comparative Information

Comparative information including quantitative, narrative and descriptive information is disclosed in

respect of the previous period for all amounts reported in the financial statements in order to enhance

the understanding of the current period’s financial statements and to enhance inter-period

comparability.

These two standards become effective from January 1, 2011. SLAS 44 and SLAS 45 together

provide comprehensive guidance on identification, classification, measurement and presentation of

financial instruments (including derivatives), financial assets, financial liabilities and equity

instruments.

The Accounting Policies adopted by the Company are consistent with those of the previous financial

year as permitted by Sri Lanka Accounting Standard No. 3 (Revised 2005) on ‘Presentation of

Financial Statements’. However, when the presentation or classification of items in the Financial

Statement is amended, comparative amounts are also re-classified to confirm with the current year

presentation.


108




2.1.6 Taxation


(a) Current Taxes


2.2

2.2.1 Cash and Short –Term Funds (Cash and Cash Equivalents)

Cash and short-term funds include cash in hand, balances with banks, placements with banks

and money at call at short notice. They are brought in to the financial statement at the face

value.

Current tax is the expected tax payable on the taxable income for the year, using tax rates

enacted or substantively enacted at the reporting date, and any adjustment to tax payable in

respect of previous years.

The carrying amount of deferred income tax assets is reviewed at each balance sheet 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 income tax assets to be utilised.

Provision for taxation is based on the elements of income and expenditure as reported in the

financial statements and computed in terms of the provisions of the Inland Revenue Act, No.

10 of 2006 and amendments thereto, at the rate of 35% (2009 – 35%).

Deferred tax is provided on temporary differences as at the balance sheet date between the tax

bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised on all temporary differences.

Assets and Bases of their Valuation

Deferred tax assets are recognised for all deductible 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 utilised.

Deferred tax assets and liabilities are measured at the tax rate that are expected to apply in the

year when the assets are recognised, or the liabilities are settled, based on tax rates and tax

laws that have been enacted or substantially enacted at the balance sheet date.

Current tax and deferred tax relating to items recognised directly in equity are also recognised

in equity and not in the income statement.

Deferred tax assets and liabilities are set off 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.


109


2. Summary of Significant Accounting Policies (Contd)

2.2

2.2.2 Government Treasury Bills

2.2.3 Investments



(c)

(d)

2.2.4

2.2.4(a)

2.2.4(b)

Investment Securities

Unrealised losses on revaluation of dealing securities at the lower of cost and market value are

taken to the Income Statement in accordance with Sri Lanka Accounting Standard No. 22,

Accounting for Investments.

Investments in associates are not accounted under equity method in the Company’s financial

statements in accordance with the exemptions prescribed by Sri Lanka Accounting Standard

No. 27, Investments in Associates.

Investment securities are stated at cost in the Company’s financial statements in accordance

with Sri Lanka Accounting Standard No. 22, Accounting for Investments.

Assets and Bases of their Valuation (Contd)

Investments in Government Treasury Bills are acquired or incurred principally for the purpose

of adherence to Central Bank regulation and sold or held as part of a portfolio that is managed

for short term profit, Treasury Bill Repurchase Agreements are started at cost and any interest

accrued up to the balance sheet date is recognised in the income statement.

These are marketable securities acquired and held with the intention of resale over a short

period of time. Such securities are recorded at the lower of cost and market value on an

aggregate portfolio basis.

Investments in Associates

Loans and Advances to Customers (Lease, Hire Purchase, Loans and advances andtrade and other receivable)

Rental receivable on lease assets

Hire purchase assets

Assets leased to customers which transfer substantially all the risks and rewards incidental to

ownership other than the legal title are accounted for as finance leases in accordance with Sri

Lanka Accounting Standard, No. 19 (Revised 2005) on Lease and reflected in the balance

sheet after eliminating unearned interest income, initial rental received and provision for

doubtful debts.

Assets hired to customers under hire purchase agreements, which transfer all the risks and

rewards incidental to ownership as well as legal title at the end of such contractual period are

classified as hire purchase receivables. Such assets are accounted for in a similar manner as

those of finance lease.


110



2.2

2.2.4(c) Loans and advances and trade and other receivables

2.2.5 Provision for loan losses


(a) Basis of Recognition and Measurement of Property, Plant & Equipment

(b) Depreciation

Property, plant and equipment are recorded at cost of purchase or construction or valuation

together with any incidental expenses thereon. These assets are stated at cost less accumulated

depreciation, which is provided for on the basis specified below.

The provision for depreciation is calculated by using the straight line method on the cost or

valuation of property, plant & equipment other than freehold land, in order to write-off such

amounts over the estimated useful economic lives of these assets in equal installments. The

depreciation charges are determined separately for each item of property, plant & equipment

and begin to depreciate when it is available for use.

Loans and advances and trade and other receivable are stated in the balance sheet net of

provision for bad and doubtful debts and interest in suspense.


Provision for possible loan losses is made on the basis of a continuous review of all advances

to customers in accordance with the Finance Company Direction, No. 3 of 2006 (Provision for

bad and doubtful debt) issued by the Central Bank of Sri Lanka and in accordance with Sri

Lanka Accounting Standard No. 33, Revenue Recognition and Disclosure in the Financial

Statements of Finance Companies. Accordingly, specific provisions have been made as

follow:

Property, plant and equipment are stated at cost or revalued amounts less accumulated

depreciation and accumulated impairment losses, if any. Subsequent expenditure incurred for

the purpose of acquiring, extending or improving assets of a permanent nature by means of

which to carry on the business or to increase the earning capacity of the business is treated as

capital expenditure. The carrying values of property, plant and equipment are reviewed for

impairment when events or changes in circumstances indicate that the carrying value may not

be recoverable.

All advances in arrear for a period of 6 to 12 months 50%All advances in arrears for over 12 months 100%

In addition, wherever it is considered prudent, further provisions are made on specifically


The Company applies the requirements of Sri Lanka Accounting Standard No. 18, (Property,

Plant & Equipment)


111



2.2

The estimated useful lives of the different types of assets are as follows:

Buildings 5% per annum (20 years)


2.2.7.1 Basis of Recognition

2.2.7.2

2.2.7.3 Computer Software



2.3.2

2.3.3 Borrowings

Generators 12.5% per annum (8 years)Interior construction 20% per annum (5 years)

An intangible asset is recognised if it is probable that future economic benefits that are attributable to

the asset will flow to the entity and the cost of the asset can be measured reliably in accordance with

Sri Lanka Accounting Standard No. 37, Intangible Assets. Accordingly, these assets are stated in the

balance sheet at cost less accumulated amortization and accumulated impairment loss.

Deposits from Customers


The amortization expense on intangible assets is recognised in the income statement in the expense

category consistent with the function of the intangible assets.

Computer software is stated at cost less accumulated amortization and any accumulated impairment

loss. Amortization is done at 12% per annum of cost.


Office equipment 10% per annum (10 years)Computers and other equipment 25% per annum (4 years)Furniture and fittings 10% per annum (10 years)

Amortization

Motor vehicles 16.67% per annum (6 years)

Deposits from customers include non-interest bearing deposits, savings deposits, term deposits, and

certificate of deposit. They are stated in the balance sheet at the amount payable. Interest paid and

payable on these deposits is charged to the income statement.

Borrowings include revolving facilities and assets securitization facilities. Balances payable are stated

in the balance sheet under Securitization Loan. Interest paid and payable on these borrowings is

charged to the income statement.


112



2.3 Liabilities and provisions (Contd)

2.3.4 Debentures


2.3.5.1 The principal actuarial assumptions used in determining the cost are;


(ii)

(iii)

(iv) Rate of interest - 11%

2.3.5.2 The liability is not externally funded.

The actuarial gain or losses are recognised in the income statement in the period in which they

arise.

Up to 31st March 2008, provision had been made for retirement gratuities based on the number of

years of service multiplied by half of the last month’s salary of those employees.

Payment of benefit – Gratuity is assumed to be paid immediately provided the participant has 5

years of service credit at the time of departure. It is also assumed that all participants who are

eligible for a commuted pension will choose it in lieu of statutory gratuity payments.

Salary scale - annual increase of 10%

These represent the funds borrowed by the Company for short term funding requirements. These

are recorded in the balance sheet at the cash value to be realised at settlement. Interest paid and

payable on these borrowings is charged to the income statement.

Retirement benefit obligations have been provided for using the actuarial valuation method in


The service of a qualified actuary is obtained to determine the value of the define benefit

obligation for the company. The valuation is done on an ongoing basis and uses a Projected Unit

Credit Method, which projects the current data using actuarial assumptions as specified in the

note 2.3.5.1 below and calculates a projected benefit at the participant’s assumed retirement date.

The actuarial value of this projected benefit is then valued and discounted to the valuation date to

derive the current liability.


113





(a) Lease

(b) Hire Purchase

(c) Loans & Advances

(d) Interest Income on Investment in Government Securities

(e)

(f) Dividend Income

(g) Recovery of Bad debts

(h) Commission Income

Recognition of commission income on insurance business arranged by the Company is on a

cash basis.

Interest receivable is taken to the income statement on an accrual basis, based on a pattern

reflecting a constant periodic rate of return. Interest on Government securities is grossed up

with the notional tax credit available under the Inland Revenue Act No. 10 of 2006.

Interest Income on deposits with banks

Interest receivable is taken to the income statement on an accrual basis.

Dividend income is recognised in the income statement on the date that the Company’s right to

receive payment is established.

In accordance with Sri Lanka Accounting Standard No. 19 (Revised 2005) on Leases,

recognition of finance income on leasing is accounted based on a pattern reflecting a constant

periodic rate of return on capital outstanding. The excess of aggregate rentals receivable over

the cost of leased assets constitutes the total unearned interest income at the commencement of

the contract. We recognised the interest income from unearned income on the lease on an

accrual basis over the term of the lease in proportion to the remaining balance of the lease.

However, the recognition of income ceases when the recovery of principal or interest is in

arrear for six months or more. Thereafter, interest income is accounted on a cash basis.

Recognition of interest income from hire purchase facilities is similar to that of leases, which

recognises interest income based on a pattern reflecting a constant rate of return on the capital

outstanding.

Recognition of interest income from loans and advances is similar to that of leases, which


outstanding.

The recovery of bad debts is recognised as and when the debts are recovered.


114



2.4 Income statement (Contd)

(i) Profit/loss from the sale of property, plant and equipment

(j) Profit on sales of seized vehicles stocks

2.5


2.7

Inter-segment transactions are based on fair market prices.

Segment results, assets and liabilities include those items directly attributable to a segment as

well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly

of head office expenses.

Segment capital expenditure is the total cost incurred during the period to acquire segment

assets that are expected to be used for more than one accounting period.

Profits and losses arising from the sale of property, plant and equipment are recognised in the

period in which the sale occurs.

Profits earned and losses incurred on the sales of repossessed vehicle stocks are accounted in

the income statement based on net realisable value.

Expenditure Recognition

In terms of Sri Lanka Accounting Standard 33 – Revenue Recognition and Disclosure in the

Financial Statements of Finance Companies, interest and other expenses payable are

recognised on an accrual basis. All the expenditure incurred in the running of our business and

maintaining the property, plant & equipment in a state of efficiency has been charged to

income in arriving at the profit for the year.

The cash flow statement has been prepared by using the “Direct Method” in compliance with

SLAS-9, Cash Flow Statement. Cash and cash equivalents comprise mainly of cash balances

and call deposits. Cash and cash equivalents are presented net of bank overdrafts for the

purpose of the cash flow statement.

Segment Reporting

In accordance with Sri Lanka Accounting Standard No. 28 on Segment Reporting, segmental

information is presented in respect of the Company. The segments comprise of financing and

investing.

A segment is a distinguishable component of the Company that is engaged in providing

services (Business Segment).


115



3 IncomeInterest income 4 1,451,559,985 1,560,124,313


1,546,262,350 1,645,526,118

4 Interest income Finance leases 281,201,213 396,445,864

Hire purchases 875,595,729 880,312,438

Loans and advances 18,986,608 15,970,974

Non - Hire purchases 33,553,422 51,962,428



Treasury bills 4.1 22,046,784 22,671,729

Default charges 170,947,792 160,078,502

1,451,559,985 1,560,124,313

4.1


Certificate of deposits 581,528 3,251,643

Savings deposits 4,978,224 3,604,639


Debentures 151,254,067 123,845,605

Corporate loans 28,330,385 69,830,457

845,696,048 931,903,957




Dividend income 1,032,788 575,725

Interest on insurance 19,441,045 14,724,569

Sundry income 2,033,311 667,390

Legal fees 10,905,458 10,738,165 Rent income 1,760,000 1,760,000 Inspection fees 689,473 765,528


Discounting cheques 50,000 -

Investment income - 3,274,886

Staff bonus over provision - 1,611,900

94,702,365 85,401,805

7 Operating expensesOperating expenses includes the followings :

Internal Auditors' remuneration 4,614,790 3,832,923

External Auditors' remuneration - Audit related 450,000 386,062

- Non audit related 437,400 569,712


Legal expenses 5,783,218 3,339,375

Section 137 of the Inland Revenue Act. No. 10 of 2006 provides that a company which derives interest income

from the secondary market transactions in Government Securities would be entitled to a notional tax credit

(being one ninth of 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 earned by the Company from the secondary market transactions in Government

securities (Treasury bills) for the year has been grossed up in the financial statements, and the resulting

notional tax credit amounts to Rs.2,204,678 (2009 - Rs.2,267,173) for the Company.


116



8 Personnel costsSalaries and wages 95,127,177 89,585,482

Contribution to Employees' Provident Fund 11,307,300 10,791,996

Contribution to Employees' Trust Fund 2,823,844 2,697,999

Retirement benefit obligations 8.1 4,027,548 402,745

Other personnel costs 2,638,217 4,331,361115,924,086 107,809,583

8.1 Retirement benefit obligationsAmount recognised in the income statement Current service cost 1,815,415 1,616,001

Interest cost 2,212,131 1,770,900

Recognition of transitional liability/(asset) - (2,984,156)4,027,548 402,745

9 Other operating expensesAdministrative expenses 40,043,338 21,271,048

Establishment expenses 117,139,904 109,359,756

Selling expenses 89,821,627 109,319,495

247,004,869 239,950,299

10 Loan losses and provisionsDirect write off 2,266,787 -

Specific Provision for bad and doubtful debts on loans and advances 41,201,817 86,935,188

General provision for debtors recoverable on repossessed stocks 7,600,000 -

specific provision for debtors recoverable on repossessed stocks 27,738,932 12,540,095


Loss on sale of repossessed stocks 14,875,725 62,036,439

89,295,796 161,511,722

11 Income tax expenseCurrent tax expense 11.1 77,806,441 27,373,177

Deferred tax charge / (reversal) for the year 5,727,795 24,846,333

83,534,236 52,219,510

11.1 Reconciliation of effective tax rateNet profit before tax 132,515,798 117,820,486



Add / (Less) - Adjustments 35,292,134 (74,971,066)

Loss from lease business - 1,695,327

Business loss claimed during the year (33,710,605) (41,490,226)

Taxable income 219,018,835 77,053,277

Income Tax at 35% 76,656,592 26,968,647

Social Responsibility Levy @ 1.5% of income Tax 1,149,849 404,530


Effective tax rate 59% 23%


117



12 Basic earnings per share

Profit attributable to ordinary shareholders of the Company (Rs.) 48,981,562 59,457,087

Weighted average number of ordinary shares 21,347,200 21,347,200

Basic earnings per share (Rs.) 2.29 2.79

13 Dividend per share

1st interim - (2008/09 - Rs.0.60) - 12,808,320

2nd interim Rs.0.90 19,212,480 -

Final Rs.0.80 - (2008/09 - Rs.0.90) 17,077,760 19,212,480

36,290,240 32,020,800

Dividend per share (inclusive of proposed dividends) 1.70 1.50

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.

Dividends per share is calculated by dividing the proposed and/or paid dividend to ordinary shareholders

of the Company, by the number of ordinary shares in issue.


118


As at 31st March 2010 2009Note Rs. Rs.


Commercial Bank - Money market 103,033,820 113,335,233

Commercial Bank - Repo 50,000,000 -

496,297,284 236,447,474

14.1 Cash and bank balancesCommercial Bank Savings A/c 43,857 43,857

Commercial Bank - Kandy # 1 - 16,935,672

Commercial Bank - Kandy # 2 6,951,624 7,325,396

Commercial Bank - Kandy # 3 730,328 730,328


Commercial Bank # 6 3,946,180 1,054,319


HSBC 954,554 32,670,314

Hatton National Bank - Kandy 1,587,374 2,631,188

Hatton National Bank - Colombo 30,551 3,327,992

Sampath Bank 10,453,027 -


Nation Trust Bank - 11,660



Pan Asia Bank 42,821 20,129,934

Union Bank 94,202 8,020,905

ICICI Bank 8,402,459 15,500,000



Cash in hand 14,351,398 11,217,319

Savings ATM withdrawals (9,786,829) (1,379,734)

Short term deposits 300,739,726 -

343,263,464 123,112,241

15 Dealing securitiesQuoted shares 15.1 12,694,467 11,232,202

Debentures - Commercial Bank - 13% (50, 000 Debentures Rs.100/- each) 5,000,000 5,000,000

17,694,467 16,232,202


119

As at 31st MarchNo. of Cost Market No.of Cost Market

Shares Value Shares ValueRs. Rs. Rs. Rs.

15 Dealing securities (Continued)15.1 Quoted shares

Bank, Finance and InsuranceCentral Finance Company PLC 4,333 243,207 1,689,870 4,333 243,207 680,281.00

National Development Bank 384 500 80,640 384 500 34,176

Commercial Bank of Ceylon PLC 208 72,450 41,964 208 72,450 16,484

Beverage, Food and TobaccoCeylon Tobacco PLC 3,100 142,017 775,000 3,100 142,017 297,600

Hotels and TravelsAitken Spence PLC 33 3,355 45,334 33 3,355 10,395

Investment TrustNational Equity Fund 131,400 600,925 2,986,759 131,400 600,925 1,405,974

Namal Acuity Value Fund 25,000 1,250,000 1,325,000 - - -

ManufacturingRoyal Ceramics Lanka PLC 10 273 1,130 10 273 273

Lanka Tiles Ltd. 250 7,175 21,938 250 7,175 12,250

Diversified HoldingsJohn Keells Holdings PLC 1,937 13,800 356,408 1,937 13,800 121,547

Orient Fund (Portfolio Investments) 1,000,000 10,212,265 28,254,166 1,000,000 10,000,000 13,582,712

TradingLanka Indian Oil Corporation PLC 5,500 148,500 100,375 5,500 148,500 88,000

Total cost and market value 12,694,467 35,678,584 11,232,202 16,249,692


2010 2009


120


16 Investment securities (Unquoted)Senkadagala Hotels Limited 16.1 13,957,555 13,957,555

Credit Information Bureau of Sri Lanka 8,200 8,200

Finance Houses Consortium (Pvt) Ltd. 200,000 200,000

14,165,755 14,165,755

16.1

17 Loans and advancesNet investment in lease advancesLease rental receivable after one year from balance sheet date 769,522,608 1,249,369,440

Unearned income (216,741,455) (365,424,067)

552,781,153 883,945,373

Lease rental receivable within one year from balance sheet date 470,916,966 729,002,644

Unearned income (111,816,717) (213,223,649)

359,100,249 515,778,995

Net investment in hire purchaseHire purchase rental receivable after one year from balance sheet date 2,842,393,528 2,578,660,040

Unearned income (867,343,312) (809,743,810)

1,975,050,215 1,768,916,230

Hire purchase rental receivable within one year from balance sheet date 1,638,884,446 1,504,639,003

Unearned income (416,044,443) (472,482,646)

1,222,840,004 1,032,156,357

Net investment in non hire purchaseNon hire purchase rental receivable after one year from balance sheet date 76,803,639 126,026,413

Unearned income (23,705,223) (40,112,358)

53,098,416 85,914,054

Non hire purchase rental receivable within one year from balance sheet date 73,213,860 73,535,965

Unearned income (17,679,243) (23,405,419)

55,534,617 50,130,547

Net investment in loans Loan rental receivable after one year from balance sheet date 74,865,647 57,127,939

Unearned income (29,663,835) (20,774,219)

45,201,812 36,353,719

Loan rental receivable within one year from balance sheet date 31,149,923 33,333,950

Unearned income (10,220,428) (12,121,684)

20,929,495 21,212,267


Debtors recoverable on repossessed stocks 165,789,373 182,708,515

Specific Provision for bad and doubtful debts on loans and advances 17.1 (31,111,099) (50,550,238)

General provision for debtors recoverable on repossessed stocks (7,600,000) -

Specific provision for debtors recoverable on repossessed stocks 17.2 (27,738,933) (12,540,095)

Total loans and advances 4,399,518,621 4,529,585,270


The Company holds 32.27% approximately of the issued share capital of the Senkadagala Hotels Limited. However

the Company has not accounted this under equity method as per Sri Lanka Accounting Standards 27 - Investments in

associates. However consolidated financial statements could be obtained from the ultimate parent of the Senkadagala

Hotels Limited , E.W.Balasuriya and Company (Private) Limited, incorporated and domiciled in Sri Lanka under the

Companies Act No.07 of 2007.Its registered office and the principal place of business is located at No 267,Galle

road,Colombo 03.


121


17 Loans and advances (Continued)17.1 Movement in specific provision for bad and doubtful debts on loans and advances

Balance at the beginning of the year 75,084,647 109,765,072 Provision for the year 41,201,817 86,935,188 Bad debts written-off (85,175,365) (121,615,613)


Provision for bad and doubtful debts on loans and advances 31,111,099 50,550,238

Provision for bad and doubtful debts on trade & other receivables - 24,534,409

31,111,099 75,084,647

17.2 Movement in specific provision for debtors recoverable on repossessed stocksBalance at the beginning of the year 12,540,095 54,832,287

Provision made during the year 27,738,932 12,540,095


Loss incurred during the year (8,152,629) (54,832,287)



Provision for bad and doubtful debts 17.1 - (24,534,409)

212,756,704 246,516,276

Staff debtors 7,275,423 6,046,856


Insurance 64,042,377 53,974,698


Search fees and seizing charges receivables 1,924,251 1,687,324

Western union MMBL 1,022,093 294,232


Value Added Tax recoverable 18.1 (6,489,168) 31,765,601


Sundry debtors 3,634,603 3,705,244

305,471,993 379,654,847

18.1 Value Added Tax recoverable

The restatement of Value Added Tax recoverable is summarised below.

Balance as reported previously 84,028,531

Under provision of VAT on financial services prior to 1st April 2008 (25,337,284)

Under provision of Normal Value Added Tax prior to 1st April 2008 (20,781,757)

Under provision of Normal VAT (6,143,889)

Balance as at the end of the year (restated) 31,765,601

The Company agreed with the Department of Inland Revenue when settling the pending assessments on VAT on

Financial Services and Normal VAT according to the Sec: 25c (1) of Value Added Tax (Amendment) Act No 8 of

2006, and the respective under provisions for same have been accounted for retrospectively, in accordance with Sri

Lanka Accounting Standards 10 - Accounting Policies, Changes in Accounting Estimates and Errors as described in

Statement of Changes in Equity .



122

As at 31st March 2010 2009Rs. Rs.

19 Advances and receivablesDeposits 2,122,284 1,042,284

Pre - paid rent 17,318,520 20,310,923


Advance paid for fixed assets 6,788,447 -

Cash cover on securitization loans 19,206,154 16,441,218

51,561,024 43,920,044

20 Deferred expenses Balance at the beginning of the year 8,066,093 16,701,393

Paid during the year 5,264,139 12,918,527

Charged during the year (5,937,659) (21,553,827)




income statement over the period of repayment of loans.


123

As at 31st March 2010



Rs. Rs. Rs. Rs.

Land and buildings 111,545,146 - - 111,545,146



Air conditioner 18,912,653 5,906,203 - 24,818,856

Computer and accessories 76,494,421 20,389,863 715,171 96,169,113


Generator 31,030,000 1,390,500 - 32,420,500

Motor vehicles 142,770,527 27,888,160 7,521,927 163,136,760


Fixtures and fittings 64,091,894 13,707,980 - 77,799,874

Printers 14,752,225 561,608 8,600 15,305,233

596,361,370 84,319,229 8,245,698 672,434,901

Accumulated depreciation As at Charge for the Charge on As at01.04.2009 Period Disposals 31.03.2010

Rs. Rs. Rs. Rs.

Buildings 7,936,485 940,165 - 8,876,650



Air conditioner 11,505,374 3,675,226 - 15,180,600



Generator 9,657,975 3,929,679 - 13,587,654

Motor vehicles 41,289,002 25,328,812 3,017,986 63,599,828



Printers 10,021,582 2,329,785 8,600 12,342,767

220,525,346 72,549,625 3,739,757 289,335,214

Net book value 375,836,024 383,099,687

22 Intangible assets 2010 2009Software programme Rs. Rs.

CostBalance at the beginning of the year 102,166,628 99,386,628

Additions during the year 19,362,958 2,780,000



Charge for the period 5,938,221 5,094,086


Net book value 39,557,902 26,133,165



124


23 Deposits from customersSaving deposits 66,944,059 41,177,709Certificate of deposits 23.1 68,966 13,913,207Fixed deposits 23.2 2,027,464,634 1,343,059,671

2,094,477,659 1,398,150,587

23.1 Certificate of depositsFace value 100,000 14,400,000Interest in suspense (31,034) (486,793)

68,966 13,913,207

23.2 Fixed depositsFixed deposits 1,951,821,251 1,278,096,084Accrued interest 75,643,383 64,963,587

2,027,464,634 1,343,059,671

24 Bank overdraftCommercial Bank - Kandy # 1 6,837,325 -Commercial Bank - Colombo # 5 1,430,932 1,923,512Nation Trust Bank 41,941 -

8,310,198 1,923,512

25 Assets securitization loansCommercial Bank Corporate Division 12,974,900 47,710,200



Sampath Bank PLC 125,734,001 152,706,511




Pan Asia Bank PLC - 135,504,711


Union Bank PLC - 54,166,667

HSBC 30,000,000 95,555,556

Investec - 91,666,667

ICICI Bank PLC 89,729,999 166,950,680

Berkly 431,034,000 60,000,000

First Capital Treasuries Ltd. - 200,000,000

1,428,381,600 2,401,082,747

Securities pledged

26 Accrued expensesAudit fees 450,000 386,062Staff bonus payable 8,364,193 -Interest on debentures 67,998,514 56,163,833Securitization loan repayment 1,039,899 65,378,875Directors' fees (37,500) (37,500)VAT on financial services 3,132,764 -Nation Building Tax 132,771 -

81,080,641 121,891,270


Lease and Hire Purchase aggregate portfolio amounting to Rs.4,249,761,665 have been pledged as security for

the above loans.


125



27 Accounts payableDebit tax 83,610 69,435 Dividend payable 1,339,578 1,015,613 Registrar of motor vehicles charges 2,512,842 475,069 Refundable deposit 372,000 2,168,000 Mortgage 197,425 182,299 Direct deposits 3,535,638 3,607,796 Stamp duty and E.S.C payable 7,682,667 11,652,966

15,723,760 19,171,178

28 Trade payablesAmount payable to car sales 932,203 1,166,667 NHP - payable (1,784,650) (1,784,650) XL - loan excess payment 51,170 29,061 W.H.T. on dividends (52,516) (3,118,913)W.H.T. on loan and debentures 2,225,641 1,212,003 Stock payable 102,659,178 21,228,442 Sundry creditors 18,045,128 2,281,036 Goods and Service Tax refund for buses 8,912 8,912

122,085,066 21,022,558

29 Current tax liabilitiesCurrent tax for the year 77,806,441 27,373,177Income tax payment - (87,671)Economic service charges (34,869,526) (43,537,781)Withholding tax on treasury bill interest (4,020,534) (721,709)W.H.T. on commission 631,698 68,445 W.H.T. on fixed deposits interest (7,978,849) (5,826,666)

31,569,230 (22,732,205)

30 Rentals received in advanceInitial payment of lease 1,632,450 12,286,660 Prepaid rentals 19,067,349 14,811,080

20,699,799 27,097,740

31 Retirement benefit obligationPresent value of defined benefit obligations 22,118,542 16,469,015

Unrecognised acturial loss 31.2 (4,486,905) (258,232)Net retirement benefit obligations 17,631,637 16,210,783

31.1 Movement of the retirement benefit obligationBalance at the beginning of the year 16,210,783 16,125,663

Retirement benefit expense for the year 4,027,547 402,745 Benefits paid during the year (2,606,693) (317,625) Balance at the end of the year 17,631,637 16,210,783

31.2 Unrecognised acturial lossPresent value of defined benefit obligations at the beginning of the year 16,210,784 13,141,507

Current service cost 1,815,415 1,616,001

Interest cost 2,212,131 1,770,900

Benefits paid during the year (2,606,693) (317,625)

Expected total present value of defined benefit obligations at the end of the year 17,631,637 16,210,783

Actual present value of defined benefit obligations at the end of the year 22,118,542 16,469,015

Acturial loss at the end of the year (4,486,905) (258,232)


126


32 Debentures

Type Purpose of Interest Due/settle 2010 2009debenture rate (p.a) dates Rs. Rs.

Listed debentures2005/2009 Working capital Note 31.1 4 years from the - 100,000,000

requirement date of allotment

Unsecured, unlisted, redeemable debentures2006/2011 Working capital 5 years from the 259,000,000 259,000,000 2007/2012 requirement date of allotment 241,000,000 241,000,000

2008/2013 240,000,000 240,000,000

2009/2014 290,000,000 - 2010/2015 60,000,000 -

1,090,000,000 840,000,000

32.1 Unsecured redeemable listed debentures

The interest payable for the listed debentures are as follows.

Payment Period Rate

Annually Type A 14%Quarterly Type B W.A.TB (Net)+2.75%

33 Deferred tax liabilityBalance at the beginning of the year 65,240,401 40,394,068

Deferred tax charge / (reversal) for the year 5,727,795 24,846,333


33.1Deferred tax liabilityTax effect on capital allowances on P.P.E 18,384,900 18,239,340

Tax effect on capital allowances on leased assets 58,754,368 64,473,407

77,139,268 82,712,747

Deferred tax assetsTax effect on retirement benefit obligations (6,171,073) (5,673,774)

Tax effect on claimable tax losses - (11,798,572)

(6,171,073) (17,472,346)

Net deferred tax liabilities 70,968,196 65,240,401


Deferred tax liabilities

16% (Fixed)

The Company issued 2,500,000 unsecured redeemable four year debentures of Rs. 100/- each to the value of Rs.

250 million during the year ended 31st March 2006. The Company has redeemed 60% of these listed debentures

during the year 2008/09 amounting Rs.150 M. and the balance of 40% has been redeemed during the year 2009/10

amounting Rs.100 M.


127

As at 31st March 2010 2009Rs. Rs.

34 Stated capitalOrdinary shares21,347,200 ordinary shares 213,472,000 213,472,000

35 Statutory reserve fundBalance at the beginning of the year 83,536,033 79,536,033

Transfers during the year 3,000,000 4,000,000


36 General reserveBalance at the beginning of the year 638,018,392 603,018,392

Transfers during the year - 35,000,000


General reserve represents amount set aside by the Directors for future expansions and to meet any contingencies.


The company's statutory reserve fund was created according to the Direction No. 1 of Central Bank Regulations of

2003.Accordingly the company has transferred Rs.3,000,000 (2009 - Rs.4,000,000/-) during the year ended 31st

March 2010 as required by the said Direction.


128

For the year ended 31st March 2010

37 Related party transactions

37.1 Transactions with related entities

37.1.1 E.W.Balasuriya & Company (Pvt) Ltd

a)

2010 2009 Rs. Rs.

Colombo Branch 1,482,000 1,036,800

Aluthgama Branch 775,000 600,000

Negombo Branch 775,000 600,000

Wattala Yard 175,000 -

3,207,000 2,236,800

b)

37.1.2 Senkadagala Hotels Limited

The Company holds 32.27% approximately of the issued share capital of the Senkadagala Hotels Limited

37.2 Transactions with key management personnel (KMP) of the Company

37.2.1 Compensation of key management personnel2010 2009

Rs. Rs.

Short term employee benefits 3,209,000 3,030,000

38 Commitments and contingencies38.1 Capital expenditure commitments

2010 2009 Rs. Rs.

Approved but not contracted for - 2,700,000

Approved and contracted for 50,000,000 1,700,00050,000,000 4,400,000

38.2 Contingent liabilities

39 Event after the balance sheet date

The Company paid dividend of Rs.21,430,082 during the year ended 31st March 2010 (2009 - Rs.18,859,470) to

E.W.Balasuriya & Company (Pvt) Ltd.

There were no material events occurring after the Balance Sheet date that require adjustment to or disclose in the Financial

Statements.

According to Sri Lanka Accounting Standard 30 (Revised 2005) Related Party Disclosures, Key management personnel, are

those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly

members of the Board of Directors of the Company (including executive and non executive Directors), and of the Ultimate

Parent Company have been classified as key management personnel of the Company.

Capital expenditure approved by the Board of Directors for which provision has not been made in the financial statements

amounted to approximately the following|:


Mr. E. W. Balasuriya, Mr. L. Balasuriya, Mr. R. Balasuriya, Dr. M. Balasuriya, Dr. A. Balasuriya and Mrs. L. Fernando

Directors of the Company are also the Directors of Senkadagala Hotels Limited.

There were no contingent liabilities as at the balance sheet date, which require adjustments to or disclosures in the Financial

Statements.

The Company operates its registered office in the premises of Senkadagala Hotels Limited, and has paid Rs.787,800 to

Senkadagala Hotels Limited, as rent for the year ended 31st March 2010. (2009 - Rs.787,800.)

The Company being a subsidiary company of E.W.Balasuriya & Company (Pvt) Ltd., Mr. E. W. Balasuriya, Mr. L.

Balasuriya, Mr. R. Balasuriya, Dr. M. Balasuriya, Dr. A. Balasuriya, Mrs. L. Fernando and Dr.Mrs. Gayathri Madan Mohan

Directors of the Company are also the Directors of E. W. Balasuriya & Company (Pvt) Ltd., with which the Company had the

following transactions.

The Company operate its following branch offices in the premises of E.W.Balasuriya & Company (Pvt) Ltd., and has paid

rent expenses for the respective branches as follows.


129





Bank and Cash Balances 42,523,738 - - - 42,523,738

Deposits With Banks & other institution 453,773,546 - - - 453,773,546

Government Treasury bills 3,031,641 160,160,512 - - 163,192,153



Stock out on hire 559,499,748 1,433,919,404 1,525,708,316 1,100,423,280 4,619,550,748

Debtors 58,839,063 58,043,202 12,656,146 14,855,052 144,393,463

Total Interest Earning Assets 1,117,667,736 1,669,817,585 1,538,364,462 1,129,444,087 5,455,293,870

Non Interest Earning AssetsProperty, plant and equipment 422,657,589 422,657,589

Total Assets 1,117,667,736 1,669,817,585 1,538,364,462 1,552,101,676 5,877,951,459

Percentage (%) 31.03.2010 19.01 28.41 26.17 26.41 100.00



Deposits 964,829,869 381,043,052 448,087,111 157,861,219 1,951,821,251

Certificate of deposits - 68,966 - - 68,966

Saving accounts - 66,944,059 - - 66,944,059

Bank overdraft 8,310,198 8,310,198

Assets Securitization Funds 1,042,000 881,995,501 545,344,099 - 1,428,381,600

Debentures - 40,000,000 470,000,000 580,000,000 1,090,000,000


Non Interest Bearing Liabilities 129,536,090 195,296,285 - 110,569,337 435,401,712

Total Liabilities 1,103,718,157 1,565,347,863 1,463,431,210 848,430,556 4,980,927,786

Percentage (%) 31.03.2010 22.16 31.43 29.38 17.03 100


Total Shareholders' Funds and Liabilitie 1,103,718,157 1,565,347,863 1,463,431,210 1,745,454,230 5,877,951,459


An analysis of the total assets employed and the total liabilities of the Company as at 31st March 2010, based on the remaining


Notes to the Financial Statements

SEN

KA

DA

GA

LA F

INA

NC

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OM

PAN

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TRO

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130

For t

he ye

ar en

ded 3

1st M

arch

41Se

gmen

t rep

ortin

g

s at 3

1st M

arch

2010

2009

2010

2009

2010

2009

2010

2009

2010

2009

2010

2009

2010

2009

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rev

enue

Inte

rest

281,

201,

213

396,

445,

864

875,

595,

729

880,

312,

438

56,5

67,3

8070

,663

,715

67,2

97,8

7155

,898

,680

-

-

-

-

1,

280,

662,

193

1,40

3,32

0,69

7

-snoissi

mmo

C

-

-

-

-

-

-

-

50,3

53,1

50

43,3

00,7

83-

-

50

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43,3

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-

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-

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-

-

-

-

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1,03

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5,72

5

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-

-

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575,

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720,

560

5,30

1,97

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19

1,26

6,93

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2,45

4,21

9

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6,56

8,91

3

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1,20

1,21

339

6,44

5,86

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70,6

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Seg

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1,18

2,49

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489,

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4,60

53,

096,

596,

301

174,

238,

225

162,

016,

045

701,

136,

488

411,

575,

213

-

-

564,

539,

644

585,

714,

163

5,87

7,95

1,45

95,

773,

390,

922

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7,34

5,00

91,

215,

912,

687

2,81

4,42

0,23

82,

644,

271,

348

196,

718,

901

218,

773,

726

216,

130,

671

183,

565,

232

-

-

776,

312,

967

626,

535,

578

4,98

0,92

7,78

64,

889,

058,

571

Una

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Inve

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131

ncome Statement

For the period ended 31st ecem er 2010 2009Note Rs. Rs.

Income 3 1,230,189,990 1,148,950,978

878,839,580,1553,521,111,14emocni tseretnI

)269,018,256()044,405,515(5sesnepxe tseretnI


001,210,36536,460,9116emocni gnitarepo rehtO


Operating expenses 7

)901,750,68()430,923,001(8stsoc lennosreP

)230,530,45()581,669,45(tnempiuqe dna tnalp ,ytreporp fo noitaicerpeD

)079,704,2()534,141,5(stessa elbignatni fo noitazitromA

)057,114,2()052,908,2(stnemulome 'srotceriD

)449,830,961()094,955,802(9sesnepxe gnitarepo rehtO

(371,805,393) (313,950,805)

112,981,281751,088,243sessol elbissop dna noitaxat erofeb tiforp gnitarepO

)076,066,35()946,090,02(01snoisivorp dna sessol naoL

Operating profit before VAT on financial services and income tax 322,789,508 128,528,541

Value Added Tax on financial )303,921,91()349,530,36(secivres


)357,207,89(11esnepxe xat emocnI (51,553,491)

747,548,75218,050,161doirep eht rof tiforP

80.120.321 erahs rep sgninrae cisaB


Above figures are provisional and subject to audit



UN-AUDITED INTERIM FINANCIAL STATEMENTS AS AT 31ST

DECEMBER 2010


132


133

Senkadagala Finance Company LimitedStatement of Changes in uity

Stated Statutory General Restated Totalcapital reserve reserve Retained

fund earningsFor the period ended 31st ecem er 1 Rs. Rs. Rs. Rs. Rs.

000,274,3129002 lirpA ts1 ta sa ecnalaB 83,536,033 638,018,392 (50,694,074) 884,332,351

Profit for the period - - - 57,845,747 57,845,747

Dividend paid - - - (36,290,240) (36,290,240)

293,810,836330,635,38000,274,3129002 rebmeceD ts13 ta sa ecnalaB (29,138,567) 905,887,858

000,274,312)detroper sA( 0102 lirpA ts1 ta sa ecnalaB 86,536,033 638,018,392 (41,002,752) 897,023,673

VAT on financial services 2009/10 (Note A) - - - (4,589,093) (4,589,093)

000,274,312)detatser sA( 0102 lirpA ts1 ta sa ecnalaB 86,536,033 638,018,392 (45,591,845) 892,434,580

Profit for the period - - - 161,050,812 161,050,812

Bonus Share Issue 320,208,000 - (320,208,000) - -

Dividend paid - - - (24,549,280) (24,549,280)

000,086,3350102 rebmeceD ts13 ta sa ecnalaB 86,536,033 317,810,392 90,909,687 1,028,936,112

Note A


The Notes to the Financial Statements from pages 136to 160 form an integral part of these Financial Statements.

The Company agreed with the Department of Inland Revenue when settling the pending assessments on VAT on Financial Services according to the

Sec: 25c (1) of Value Added Tax (Amendment) Act No 8 of 2006, and the respective under provisions for same have been accounted for

retrospectively, in accordance with Sri Lanka Accounting Standards 10 - Accounting Policies, Changes in Accounting Estimates and Errors.


The under provision of Rs. 4,589,093 for VAT on financial services relating to year ended 31st March 2010 has been adjusted to the profit for that year.


134

Senkadagala Finance Company LimitedCash Flow Statement

For the period ended 31st December 2010 2009Rs. Rs.

Cash flows from operating activitiesInterest and commission receipts 1,111,125,355 1,085,938,878



Other operating income 76,520,318 56,424,946



Operating profit before changes in operating assets and liabilities (Note A) 322,327,354 211,416,988

(Increase) / decrease in operating assetsInvestments in Government securities (11,869,194) (15,591,944)

Funds advanced to customers (472,592,411) 206,645,368

Advances and receivables (13,007,884) (138,604,410)

Deferred expenses - (10,770,109)

Trade and other receivables (20,068,230) (9,308,178)

(517,537,720) 32,370,727

Increase / (decrease) in operating liabilitiesDeposits from customers 189,564,497 568,008,220

Gratuity Paid (337,500) (2,629,239)

Rentals received in advance 17,786,980 3,133,914

Other liabilities 59,460,983 65,152,302

266,474,960 633,665,197

Net cash generated from operating activities before income tax 71,264,594 877,452,912

Taxes paid (33,569,820) -

Net cash generated from operating activities 37,694,774 877,452,912

Cash flows from investing activitiesDividend receipts 806,574 341,123

Purchase of dealing securities - (1,462,265)


Purchase of intangible assets (763,481) (19,362,958)


Net cash used in investing activities (10,454,851) (91,100,610)

Cash flows from financing activitiesSecuritization loans obtained 510,910,000 807,000,000


Repayment of securitization loans (816,733,758) (1,551,742,910)

Redemption of listed debenture - (100,000,000)

New FD investment during the period (150,591,781) (266,320,523)

Dividends paid (24,298,762) (35,966,275)

Net cash used in financing activities (300,714,301) (967,029,708)

Cont…..


135

Senkadagala Finance Company LimitedCash Flow Statement Continued

For the period ended 31st ecem er 2010 2009

Net increase / (decrease) in cash and cash equivalents (273,474,378) (180,677,406)

Cash and cash equivalents at the beginning of the period 487,987,086 234,523,962

Cash and cash equivalents at the end of the period 214,512,708 53,846,556

Reconciliation of cash and cash equivalentsCash and short term fu 655,648,35433,776,032sdn

-)626,461,61(tfardrevo knaB

214,512,708 53,846,556

(Note A)Reconciliation of operating profitProfit before income ta 565,357,952x 109,399,238

,608(sdnediviD 574) (341,123)



200,344,65026,701,06noitaicerpeD

Provision for retiring gr 615,344,3615,392,3ytiuta

Profit on disposal of motor ,816,51(selcihev 510) (1,288,989)

Amortization of structur ,225,2seef la 595 4,896,830

322,327,354 211,416,988



The Notes to the Financial Statements from pages 136 to 160 form an integral part of these Financial

Statements.


136


1. Corporate information


1.2 Principal activities and nature of operations

1.3 Number of employeesThe number of employees of the Company at the end of the period was 215 (2010 – 219).

1.4 Responsibility for Financial Statements

*

*

*

*

* Notes to the Financial Statements comprising Accounting Policies used and other Notes.

1.5

Senkadagala Finance Company Limited is a limited liability company domiciled in Sri Lanka

incorporated under the Companies Ordinance, No 51 of 1938 on December 29, 1968 and

registered under the Finance Companies Act No.78 of 1988. Its registered office is situated at

No. 267, Galle Road, Colombo 3. The company re – registered under the Companies Act, No.

7 of 2007.

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.

The principal lines of business of the Company can be broadly classified under two categories

– fund-based and fee-based. The fund-based services include finance leasing, hire purchase

finance, trade loans and pledge loans. The fee-based services are insurance brokering, vehicle

valuation, etc.

The Board of Directors is responsible for the preparation and presentation of the financial

statements of the Company in accordance with the provisions of the Companies Act, No. 7 of

2007 and Sri Lanka Accounting Standards.

The financial statements of Senkadagala Finance Company Ltd for the period ended 31st

December 2010 were authorised for issue by a resolution of the Board of Directors on 10th

January, 2011.

These financial statements include the following components:

An Income Statement providing the information on the financial performance of the Company

for the period under review.

A Balance Sheet providing information on the financial position of the Company at the end of

the period under review.

A Statement of Changes in Equity providing the information on the changes in shareholders’

equity during the period under review.

A Cash Flow Statement providing information on the cash and cash equivalents generating

ability of the Company and the utilisation of those cash flows.

Parent Enterprise and Ultimate Parent EnterpriseThe Company is a subsidiary of E.W.Balasuriya and Company (Private) Limited, which is

incorporated and domiciled in Sri Lanka.


137





Statement of Compliance

2.1.1(a)

2.1.1(b)

2.1.1(c) Significant Accounting Judgments, Estimates and Assumptions

The Balance Sheet, and the related Statements of Income, Changes in Equity and Cash Flow

together with the Accounting Policies and Notes (Financial Statements) of Senkadagala

Finance Company Ltd as at 31st December 2010 and for the period then ended, comply with

the Sri Lanka Accounting Standards laid down 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 and Finance Leasing Act No, 56 of 2000 and the amendments to these

The Company did not adopt any inappropriate accounting treatments which do not comply

with the requirements of Sri Lanka Accounting Standards and other laws and regulations

governing the preparation and presentation of financial statements.

Basis of Measurement

The financial statements of the Company are prepared under the historical cost convention

basis. No adjustments have been made for inflationary factors affecting the financial

statements.

Revisions to accounting estimates are dealt with in accordance with Sri Lanka Accounting

Standard No. 10 Accounting Policies, Changes in Accounting estimated and errors. (Revised

2005)

Presentation and Functional Currency

The financial statements of the Company are presented in Sri Lankan Rupees, which is the

Company’s functional currency.

The preparation of financial statement in conformity with SLAS requires the management to

make judgments, estimates and assumptions that influence the application of accounting

policies and the reported amounts of assets, liabilities, income and expenses. Judgments and

estimates are based on historical experience and other factors, including expectations that are

believed to be reasonable under the circumstances and assumptions based on such knowledge

and expectations of future events. Hence actual experience and results may differ from these

judgments and estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to

accounting estimates are recognised in the period in which the estimates are revised, if the

revision affects only that period or in the period of the revision and future periods as well, if

the revision affects both current and future periods.


138




2.1.2 Going Concern

2.1.3 Change to the Accounting Policies

2.1.4


All material post Balance Sheets events have been considered and appropriate adjustments/

disclosures have been made in the Accounts, wherever necessary.

These two standards become effective from January 1, 2011. SLAS 44 and SLAS 45 together

provide comprehensive guidance on identification, classification, measurement and presentation of

financial instruments (including derivatives), financial assets, financial liabilities and equity

In order to comply with the requirement of these Accounting Standards, the Company has duly

planned the standards implementation program, especially considering the complex nature of the

effect of these Accounting Standards.

Comparative Information

Comparative information including quantitative, narrative and descriptive information is disclosed in

respect of the previous period for all amounts reported in the financial statements in order to enhance

the understanding of the current period’s financial statements and to enhance inter-period

comparability.

When preparing the financial statements, the directors have made an assessment of the ability of the

constituents of the Company to continue as a going concern in the foreseeable future and they do not

foresee a need for liquidation or cessation of trading, taking into account all available information

about the future.

There were no changes to the Accounting Policies adopted by the Company during the period under

review. However, the following two new Accounting Standards have been issued by the Institute of

Chartered Accountant of Sri Lanka and are effective for the accounting period on the dates specified

below.

• Sri Lanka Accounting Standard No 44 ‘Financial Instrument : Presentation’• Sri Lanka Accounting Standard No 45 ‘Financial Instruments: Recognition and Measurement’

The Accounting Policies adopted by the Company are consistent with those of the previous financial

period as permitted by Sri Lanka Accounting Standard No. 3 (Revised 2005) on ‘Presentation of

Financial Statements’. However, when the presentation or classification of items in the Financial

Statement is amended, comparative amounts are also re-classified to confirm with the current period

presentation.


139




2.1.6 Taxation


(a) Current Taxes


2.2

2.2.1 Cash and Short –Term Funds (Cash and Cash Equivalents)

Current tax is the expected tax payable on the taxable income for the period, using tax rates

enacted or substantively enacted at the reporting date, and any adjustment to tax payable in

respect of previous periods.

Provision for taxation is based on the elements of income and expenditure as reported in the

financial statements and computed in terms of the provisions of the Inland Revenue Act, No.

10 of 2006 and amendments thereto, at the rate of 35% (2009 – 35%).

Deferred tax is provided on temporary differences as at the balance sheet date between the tax

bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised on all temporary differences.

Deferred tax assets are recognised for all deductible 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 utilised.

Assets and Bases of their Valuation

Cash and short-term funds include cash in hand, balances with banks, placements with banks

and money at call at short notice. They are brought in to the financial statement at the face

value.

The carrying amount of deferred income tax assets is reviewed at each balance sheet 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 income tax assets to be utilised.

Deferred tax assets and liabilities are measured at the tax rate that are expected to apply in the

period when the assets are recognised, or the liabilities are settled, based on tax rates and tax

laws that have been enacted or substantially enacted at the balance sheet date.

Current tax and deferred tax relating to items recognised directly in equity are also recognised

in equity and not in the income statement.

Deferred tax assets and liabilities are set off 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.


140



2.2

2.2.2 Government Treasury Bills

2.2.3 Investments



(c)

(d)

2.2.4

2.2.4 (a)

2.2.4 (b)


Investments in Government Treasury Bills are acquired or incurred principally for the purpose

of adherence to Central Bank regulation and sold or held as part of a portfolio that is managed

for short term profit, Treasury Bill Repurchase Agreements are started at cost and any interest

accrued up to the balance sheet date is recognised in the Income Statement.

These are marketable securities acquired and held with the intention of resale over a short

period of time. Such securities are recorded at the lower of cost and market value on an

aggregate portfolio basis.

Unrealised losses on revaluation of dealing securities at the lower of cost and market value are

taken to the Income Statement in accordance with Sri Lanka Accounting Standard No. 22,

Accounting for Investments.

Investments in Associates

Investments in associates are not accounted under equity method in the Company’s financial

statements in accordance with the exemptions prescribed by Sri Lanka Accounting Standard

No. 27, Investments in Associates.

Investment Securities

Investment securities are stated at cost in the Company’s financial statements in accordance

with Sri Lanka Accounting Standard No. 22, Accounting for Investments.

Assets hired to customers under hire purchase agreements, which transfer all the risks and

rewards incidental to ownership as well as legal title at the end of such contractual period are

classified as hire purchase receivables. Such assets are accounted for in a similar manner as

those of finance lease.

Loans and Advances to Customers (Lease, Hire Purchase, Loans and advances andtrade and other receivables)

Rental receivables on lease assets

Assets leased to customers which transfer substantially all the risks and rewards incidental to

ownership other than the legal title are accounted for as finance leases in accordance with Sri

Lanka Accounting Standard, No. 19 (Revised 2005) on Lease and reflected in the Balance

Sheet after eliminating unearned interest income, initial rental received and provision for

doubtful debts.

Hire purchase assets


141



2.2

2.2.4(c) Loans and advances and trade and other receivables

2.2.5 Provision for loan losses


(a) Basis of Recognition and Measurement of Property, Plant & Equipment

(b) Depreciation


Loans and advances and trade and other receivable are stated in the balance sheet net of

provision for bad and doubtful debts and interest in suspense.

Provision for possible loan losses is made on the basis of a continuous review of all advances

to customers in accordance with the Finance Company Direction, No. 3 of 2006 (Provision for

bad and doubtful debt) issued by the Central Bank of Sri Lanka and in accordance with Sri

Lanka Accounting Standard No. 33, Revenue Recognition and Disclosure in the Financial

Statements of Finance Companies. Accordingly, specific provisions have been made as

All advances in arrear for a period of 6 to 12 months 50%All advances in arrears for over 12 months 100%

In addition, wherever it is considered prudent, further provisions are made on specifically


The Company applies the requirements of Sri Lanka Accounting Standard No. 18, (Property,

Plant & Equipment)

Property, plant and equipment are stated at cost or revalued amounts less accumulated

depreciation and accumulated impairment losses, if any. Subsequent expenditure incurred for

the purpose of acquiring, extending or improving assets of a permanent nature by means of

which to carry on the business or to increase the earning capacity of the business is treated as

capital expenditure. The carrying values of property, plant and equipment are reviewed for

impairment when events or changes in circumstances indicate that the carrying value may not

be recoverable.

Property, plant and equipment are recorded at cost of purchase or construction or valuation

together with any incidental expenses thereon. These assets are stated at cost less accumulated

depreciation, which is provided for on the basis specified below.

The provision for depreciation is calculated by using the straight line method on the cost or

valuation of property, plant & equipment other than freehold land, in order to write-off such

amounts over the estimated useful economic lives of these assets in equal installments. The

depreciation charges are determined separately for each item of property, plant & equipment

and begin to depreciate when it is available for use.


142



2.2

The estimated useful lives of the different types of assets are as follows:

Buildings 5% per annum (20 years)


2.2.7.1 Basis of Recognition

2.2.7.2

2.2.7.3 Computer Software

2.2.8 Impairment of Non Financial Assets

The amortization expense on intangible assets is recognised in the income statement in the expense

category consistent with the function of the intangible assets.

Motor vehicles 16.67% per annum (6 years)Generators 12.5% per annum (8 years)Interior construction 20% per annum (5 years)

An intangible asset is recognised if it is probable that future economic benefits that are attributable to

the asset will flow to the entity and the cost of the asset can be measured reliably in accordance with Sri

Lanka Accounting Standard No. 37, Intangible Assets. Accordingly, these assets are stated in the

balance sheet at cost less accumulated amortization and accumulated impairment loss.


Office equipment 10% per annum (10 years)Computers and other equipment 25% per annum (4 years)Furniture and fittings 10% per annum (10 years)

Amortization

The Company assesses at each reporting date or more frequently if events or changes in circumstances

indicate that the carrying value may be impaired, whether there is an indication that a non-financial

asset may be impaired. If any such indication exists, or when an annual impairment testing for an asset

is required the Company makes an estimate of the asset's recoverable amount. When the carrying value

of an asset (or cash generating unit) exceeds its recoverable value, the asset (or cash generating unit) is

considered impaired and is written down to its recoverable value.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any

indication that previously recognised impairment losses may no longer exists or may have decreased. If

such condition exists, the recoverable value is estimated. Previously recognised impairment loss is

reversed only if there has been a change in the estimates used to determine the asset's recoverable value

since the last impairment loss was recognised. If that is the case, the carrying value of the asset is

increased to its recoverable value.

Computer software is stated at cost less accumulated amortization and any accumulated impairment

loss. Amortization is done at 12% per annum of cost.


143






2.3.2

2.3.3 Borrowings

2.3.4 Debentures


Deposits from Customers

Deposits from customers include non-interest bearing deposits, savings deposits, term deposits,

and certificate of deposit. They are stated in the balance sheet at the amount payable. Interest

paid and payable on these deposits is charged to the income statement.

Borrowings include revolving facilities and assets securitization facilities. Balances payable are

stated in the balance sheet under Securitization Loan. Interest paid and payable on these

borrowings is charged to the income statement.

The service of a qualified actuary is obtained to determine the value of the define benefit

obligation for the company. The valuation is done on an ongoing basis and uses a Projected Unit

Credit Method, which projects the current data using actuarial assumptions as specified in the

note 2.3.5.1 below and calculates a projected benefit at the participant’s assumed retirement

date. The actuarial value of this projected benefit is then valued and discounted to the valuation

date to derive the current liability.

The actuarial gain or losses are recognised in the income statement in the period in which they

arise.

Up to 31st March 2008, provision had been made for retirement gratuities based on the number

of years of service multiplied by half of the last month’s salary of those employees.

These represent the funds borrowed by the Company for short term funding requirements. These

are recorded in the balance sheet at the cash value to be realised at settlement. Interest paid and

payable on these borrowings is charged to the income statement.

Retirement benefit obligations have been provided for using the actuarial valuation method in


Estimated provisions has been adjusted for the interim accounts and for the annual financial

statements


144



2.3 Liabilities and provisions (Contd)

2.3.5.1 The principal actuarial assumptions used in determining the cost are;


(ii)

(iii)

(iv) Rate of interest - 11%

2.3.5.2



(a) Lease

(b) Hire Purchase

(c) Loans & Advances

(d) Interest Income on Investment in Government Securities

Recognition of interest income from hire purchase facilities is similar to that of leases, which


outstanding.

Recognition of interest income from loans and advances is similar to that of leases, which


outstanding.

Interest receivable is taken to the income statement on an accrual basis, based on a pattern

reflecting a constant periodic rate of return. Interest on Government securities is grossed up

with the notional tax credit available under the Inland Revenue Act No. 10 of 2006.

Salary scale - annual increase of 10%

The liability is not externally funded.

Payment of benefit – Gratuity is assumed to be paid immediately provided the participant has

5 years of service credit at the time of departure. It is also assumed that all participants who

In accordance with Sri Lanka Accounting Standard No. 19 (Revised 2005) on Leases,

recognition of finance income on leasing is accounted based on a pattern reflecting a constant

periodic rate of return on capital outstanding. The excess of aggregate rentals receivable over

the cost of leased assets constitutes the total unearned interest income at the commencement of

the contract. We recognised the interest income from unearned income on the lease on an

accrual basis over the term of the lease in proportion to the remaining balance of the lease.

However, the recognition of income ceases when the recovery of principal or interest is in

arrears for six months or more. Thereafter, interest income is accounted on a cash basis.


145



2.4 Income statement (Contd)

(e)

(f) Dividend Income

(g) Recovery of Bad debts

(h) Commission Income

(i) Profit/loss from the sale of property, plant and equipment

(j) Profit on sales of seized vehicles stocks

2.5

Interest Income on deposits with banks

Interest receivable is taken to the income statement on an accrual basis.

Dividend income is recognised in the income statement on the date that the Company’s right

to receive payment is established.

The recovery of bad debts is recognised as and when the debts are recovered.

Profits and losses arising from the sale of property, plant and equipment are recognised in the

period in which the sale occurs.

Profits earned and losses incurred on the sales of repossessed vehicle stocks are accounted in

the income statement based on net realisable value.

Expenditure Recognition

In terms of Sri Lanka Accounting Standard 33 – Revenue Recognition and Disclosure in the

Financial Statements of Finance Companies, interest and other expenses payable are

recognised on an accrual basis. All the expenditure incurred in the running of our business and

maintaining the property, plant & equipment in a state of efficiency has been charged to

income in arriving at the profit for the year.

Recognition of commission income on insurance business arranged by the Company is on a

cash basis.


146




2.7

Inter-segment transactions are based on fair market prices.

In accordance with Sri Lanka Accounting Standard No. 28 on Segment Reporting, segmental

information is presented in respect of the Company. The segments comprise of financing and

investing.

Segment results, assets and liabilities include those items directly attributable to a segment as

well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly

of head office expenses.

Segment capital expenditure is the total cost incurred during the period to acquire segment

assets that are expected to be used for more than one accounting period.

The cash flow statement has been prepared by using the “Direct Method” in compliance with

SLAS-9, Cash Flow Statement. Cash and cash equivalents comprise mainly of cash balances

and call deposits. Cash and cash equivalents are presented net of bank overdrafts for the

purpose of the cash flow statement.

Segment Reporting

A segment is a distinguishable component of the Company that is engaged in providing

services (Business Segment).


147


For the period ended 31st December 2010 2009Note Rs. Rs.

3 IncomeInterest income 4 1,111,125,355 1,085,938,878


1,230,189,990 1,148,950,978

4 Interest income Finance leases 165,146,790 220,652,996

Hire purchases 749,989,619 641,800,765

Loans and advances 15,972,687 14,057,192

Non - Hire purchases 15,764,606 26,535,598



Treasury bills 13,187,993 17,324,383

Default charges 110,573,940 129,475,358

1,111,125,355 1,085,938,878

4.1


Certificate of deposits 94,455 452,994

Savings deposits 3,861,258 3,871,861


Debentures 125,371,002 105,372,689

Corporate loans 10,373,384 22,205,103

515,504,440 652,810,962





Interest on insurance 18,462,456 13,573,283

Sundry income 3,035,922 1,242,351

Legal fees 13,158,312 6,975,103Rent income 1,440,000 1,440,000Inspection fees 1,078,865 439,180


Discounting cheques - 50,000

119,064,635 63,012,100

7 Operating expensesOperating expenses includes the followings :

Internal Auditors' remuneration 3,612,600 3,702,190

External Auditors' remuneration - Audit related - 225,000

- Non audit related 437,400 437,400


Legal expenses 3,939,654 4,817,972

Section 137 of the Inland Revenue Act. No. 10 of 2006 provides that a company which derives interest

income from the secondary market transactions in Government Securities would be entitled to a notional tax

credit (being one ninth of 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 earned by the Company from the secondary market transactions in Government

securities (Treasury bills) for the period has been grossed up in the financial statements, and the resulting

notional tax credit amounts to Rs. 1,318,799 (2009 - Rs.1,732,438) for the Company.



148


For the period ended 31st December 2010 2009Rs. Rs.

8 Personnel costsSalaries and wages 81,046,828 70,194,258

Contribution to Employees' Provident Fund 9,800,391 8,353,671

Contribution to Employees' Trust Fund 2,450,098 2,085,437

Retirement benefit obligations 3,293,516 3,443,516

Other personnel costs 3,738,201 1,980,227100,329,034 86,057,109

9 Other operating expensesAdministrative expenses 22,371,195 22,607,769

Establishment expenses 91,967,596 88,790,650

Selling expenses 94,220,699 57,640,525

208,559,490 169,038,944

10 Loan losses and provisionsSpecific Provision for bad and doubtful debts on loans and advances 19,413,593 38,864,514


Loss on sale of repossessed stocks 7,015,507 14,796,156

20,090,649 53,660,670

11 Income tax expenseCurrent tax expense 101,860,625 43,042,679

Deferred tax charge / (reversal) for the period (3,157,872) 8,510,812

98,702,753 51,553,491

12 Basic earnings per share

Profit attributable to ordinary shareholders of the Company (Rs.) 161,050,812 57,845,747

Weighted average number of ordinary shares 53,368,000 53,368,000

Basic earnings per share (Rs.) 3.02 1.08

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.


149


As at 31.12.2010 31.03.2010Note Rs. Rs.


Commercial Bank - Money market 58,337,526 103,033,820

Repo investment with banks 85,367,689 50,000,000

230,677,334 496,297,284

13.1 Cash and bank balancesCommercial Bank Savings A/c 43,857 43,857

Commercial Bank - Kandy # 1 1,500,477 -

Commercial Bank - Kandy # 2 70,986,363 6,951,624

Commercial Bank - Kandy # 3 - 730,328


Commercial Bank # 6 15,694 3,946,180

Commercial Bank corporate branch - 974,674

HSBC 18,095 954,554

Hatton National Bank - Kandy 3,795,484 1,587,374

Hatton National Bank - Colombo 25,720 30,551

Sampath Bank 4,052,645 10,453,027


Nation Trust Bank 37,425 -



Pan Asia Bank 41,639 42,821

Union Bank 15,789 94,202

ICICI Bank 5,820,879 8,402,459



Cash in hand 10,776,683 14,351,398

Savings ATM withdrawals (14,074,885) (9,786,829)

Short term deposits - 300,739,726

86,972,119 343,263,464

14 Fixed DepositsDFCC Vardhana Bank 150,591,781 -

150,591,781 -

15 Dealing securitiesQuoted shares 15.1 12,694,467 12,694,467

Debentures - Commercial Bank - 13% (50, 000 Debentures Rs.100/- each) 5,000,000 5,000,000

17,694,467 17,694,467


150

As atNo. of Cost Market No. of Cost Market

Shares Value Shares ValueRs. Rs. Rs. Rs.

15 Dealing securities (Continued)15.1 Quoted shares

Bank, Finance and InsuranceCentral Finance Company PLC 4,333 243,207 3,546,561 4,333 243,207 1,689,870

National Development Bank 384 500 134,208 384 500 80,640

Commercial Bank of Ceylon PLC 208 72,450 54,059 208 72,450 41,964

Beverage, Food and TobaccoCeylon Tobacco PLC 3,100 142,017 1,100,500 3,100 142,017 775,000

Hotels and TravelsAitken Spence PLC 33 3,355 5,607 33 3,355 45,334

Investment TrustNational Equity Fund 131,400 600,925 2,986,759 131,400 600,925 2,986,759

Namal Acuity Value Fund 25,000 1,250,000 2,250,000 25,000 1,250,000 1,325,000

ManufacturingRoyal Ceramics Lanka PLC 10 273 3,049 10 273 1,130

Lanka Tiles Ltd. 250 7,175 34,725 250 7,175 21,938

Diversified HoldingsJohn Keells Holdings PLC 1,937 13,800 578,001 1,937 13,800 356,408

Orient Fund (Portfolio Investments) 1,000,000 10,212,265 49,667,963 1,000,000 10,212,265 28,254,166

TradingLanka Indian Oil Corporation PLC 5,500 148,500 103,950 5,500 148,500 100,375

Total cost and market value 12,694,467 60,465,381 12,694,467 35,678,583

31.12.2010 31.03.201016 Investment securities (Unquoted) Rs. Rs.

Senkadagala Hotels Limited 16.1 13,957,555 13,957,555

Credit Information Bureau of Sri Lanka 8,200 8,200

Finance Houses Consortium (Pvt) Ltd. 200,000 200,000

14,165,755 14,165,755

16.1 The Company holds 32.27% approximately of the issued share capital of the Senkadagala Hotels Limited. However the

Company has not accounted this under equity method as per Sri Lanka Accounting Standards 27 - Investments in associates.

However consolidated financial statements could be obtained from the ultimate parent of the Senkadagala Hotels Limited ,

E.W.Balasuriya and Company (Private) Limited, incorporated and domiciled in Sri Lanka under the Companies Act No.07 of

2007.Its registered office and the principal place of business is located at No 267,Galle road, Colombo 03.


31.12.2010 31.03.2010


151

As at 31.12.2010 31.03.2010Note Rs. Rs.

17 Loans and advances 17.3

Net investment in lease advances

Lease rental receivable within one year from balance sheet date 541,499,795 454,328,459

Unearned income (120,026,123) (106,499,171)

421,473,672 347,829,288

Lease rental receivable between one and five years from balance sheet date 663,896,164 769,522,608

Unearned income (184,002,174) (216,741,455)

479,893,990 552,781,153

Lease rental receivable in respect of Non performing lease advances 16,803,211 16,588,507

Unearned income in respect of Non performing lease advances (5,239,850) (5,317,545)

11,563,361 11,270,961

Net investment in hire purchase

Hire purchase rental receivable within one year from balance sheet date 2,079,283,969 1,621,345,772

Unearned income (490,824,739) (410,679,351)

1,588,459,230 1,210,666,421

Hire purchase rental receivable between one and five years from balance sheet dat 2,997,644,400 2,842,393,528

Unearned income (866,040,340) (867,343,312)

2,131,604,060 1,975,050,215

Hire purchase rental receivable in respect of Non performing HP advances 23,233,698 17,538,674

Unearned income in respect of Non performing HP advances (6,672,246) (5,365,092)

16,561,452 12,173,583

Net investment in non hire purchase

Non hire purchase rental receivable within one year from balance sheet date 36,370,640 51,385,314

Unearned income (7,792,626) (11,519,886)

28,578,014 39,865,428

Non hire purchase rental receivable between one & five years from balance sheet 40,219,061 76,803,639

Unearned income (11,545,117) (23,705,223)

28,673,944 53,098,416

Non hire purchase rental receivable in respect of Non performing NH advances 22,035,945 21,828,546

Unearned income in respect of Non performing NH advances (6,322,469) (6,159,357)

15,713,476 15,669,189

Net investment in loans

Loan rental receivable within one year from balance sheet date 35,537,819 31,149,923

Unearned income (11,544,179) (10,220,428)

23,993,639 20,929,495

Loan rental receivable between one and five years from balance sheet date 73,762,036 74,865,647

Unearned income (29,784,875) (29,663,835)

43,977,162 45,201,812

Loan rental receivable in respect of Non performing loan advances - -

Unearned income in respect of Non performing loan advances - -

- -


Debtors recoverable on repossessed stocks 118,113,882 165,789,373

Specific Provision for bad and doubtful debts on loans and advances 17.1 (37,999,265) (31,111,099)

General provision for debtors recoverable on repossessed stocks (7,600,000) (7,600,000)

Specific provision for debtors recoverable on repossessed stocks 17.2 (21,400,482) (27,738,933)

Total loans and advances 4,859,035,889 4,399,518,621



152

As at 31.12.2010 31.03.2010Note Rs. Rs.

17 Loans and advances (Continued)17.1 Movement in specific provision for bad and doubtful debts on loans and advances

Balance at the beginning of the period 31,111,099 75,084,647Provision for the period 19,413,593 41,201,817Bad debts written-off - (85,175,365)Balance at the end of the period 50,524,692 31,111,099

Provision for bad and doubtful debts on loans and advances 37,999,265 31,111,099Provision for bad and doubtful debts on rental in assets 12,525,426 -

50,524,691 31,111,099

17.2 Movement in specific provision for debtors recoverable on repossessed stocksBalance at the beginning of the period 27,738,933 12,540,095

Provision made during the period - 27,738,932

Reversal of specific provision on repossessed stocks (6,338,451) (4,387,465)

Loss incurred during the period - (8,152,629)

Balance at the end of the period 21,400,482 27,738,933

17.3


Provision for bad and doubtful debts on rental in arrears 17.1 (12,525,426) -

199,998,158 212,756,704

Staff debtors 4,542,946 7,275,423


Insurance 72,453,046 64,042,377


Search fees and seizing charges receivables 1,873,233 1,924,251

Western union MMBL 1,462,322 1,022,093


Value Added Tax recoverable 1,783,257 (6,489,168)


Sundry debtors 1,911,771 3,634,603

325,540,223 305,471,993


The company does not have any receivable balances falling in the category of receivable after five years from balance

sheet date.


153

As at 31.12.2010 31.03.2010Rs. Rs.

19 Advances and receivablesDeposits 2,122,284 2,122,284

Pre - paid rent 20,683,650 17,318,520


Advance paid for fixed assets 30,931,359 6,788,447

Cash cover on securitization loans 4,705,996 19,206,154

64,568,908 51,561,024

20 Deferred expenses Balance at the beginning of the period 7,392,573 8,066,093

Paid during the period - 5,264,139

Charged during the period (2,522,594) (5,937,659)




Rs. Rs. Rs. Rs.

Land and buildings 111,545,146 - - 111,545,146

Furniture and fittings 76,629,875 102,058 - 76,731,933

Office equipment 68,237,385 878,981 - 69,116,366

Air conditioner 24,818,856 43,000 - 24,861,856


Facsimile machine 893,483 - - 893,483

Generator 32,420,500 - - 32,420,500

Motor vehicles 163,136,760 34,690,713 33,143,790 164,683,683


Fixtures and fittings 77,799,874 - - 77,799,874

Printers 15,305,233 313,710 - 15,618,943

672,434,901 40,245,941 33,271,975 679,408,867

Accumulated depreciation As at Charge for the Charge on As at01.04.2010 Period Disposals 31.12.2010

Rs. Rs. Rs. Rs.

Buildings 8,876,650 592,623 - 9,469,273



Air conditioner 15,180,600 2,643,796 - 17,824,397



Generator 13,587,654 2,913,418 - 16,501,072

Motor vehicles 63,599,828 20,692,889 19,014,304 65,278,413



Printers 12,342,767 1,133,559 - 13,476,325

289,335,214 54,966,185 19,142,489 325,158,910

Net book value 383,099,687 354,249,957



income statement over the period of repayment of loans.


154

As at 31st December 2010

21.1

31.12.2010 31.03.2010Rs. Rs.

Buildings 3,000,000 -

Air Conditioner 9,259,666 7,249,940

Computer and accessories 40,026,661 32,035,620

Generator 1,344,048 -

Photostat machine 2,836,625 1,367,625

Printers 3,483,060 2,612,245

21.2

31.12.2010 31.03.2010Rs. Rs.

Furniture and Fittings 1,643,057 1,609,557

Office Equipment 2,690,503 2,680,468

Air Conditioner 1,456,713 1,456,713

Computer and accessories 20,321,821 20,321,821

Facsimile machine 100,000 100,000

Photostat machine 302,050 302,050

Printers 473,320 473,320

22 Intangible assets 31.12.2010 31.03.2010Software programme Rs. Rs.

CostBalance at the beginning of the year 121,529,586 102,166,628

Additions during the period 763,481 19,362,958



Charge for the period 5,141,435 5,938,221


Net book value 35,179,948 39,557,902

Notes to the Financial Statements Senkadagala Finance Company Limited

The cost of fully-depreciated Property, Plant & Equipment of the company which are still in use as at the

Following Property, Plant & Equipment of the company were retired from active use as at the Balance Sheet

Fully Depreciated Property, Plant & Equipment

Property, Plant & Equipment retired from active use


155

As at 31.12.2010 31.03.2010Note Rs. Rs.

23 Deposits from customersSaving deposits 80,854,245 66,944,059 Certificate of deposits 23.1 2,811,720 68,966 Fixed deposits 23.2 2,200,376,191 2,027,464,634

2,284,042,156 2,094,477,659

23.1 Certificate of depositsFace value 3,100,000 100,000 Interest in suspense (288,280) (31,034)

2,811,720 68,966

23.2 Fixed depositsFixed deposits 2,079,469,175 1,951,821,251Accrued interest 120,907,016 75,643,383

2,200,376,191 2,027,464,634

24 Bank overdraftCommercial Bank - Kandy # 1 - 6,837,325 Commercial Bank - Colombo # 5 16,164,626 1,430,932 Nation Trust Bank - 41,941

16,164,626 8,310,198

25 Assets securitization loansCommercial Bank Corporate Division - 12,974,900



Sampath Bank PLC 70,600,001 125,734,001

Capital Alliance - 7,426,715



Waldock Mackenzie - 6,250,000

HSBC - 30,000,000

ICICI Bank PLC 41,199,999 89,729,999

Berkly 650,200,000 431,034,000

1,122,557,842 1,428,381,600

Securities pledged

26 Accrued expensesAudit fees 450,000 450,000 Staff bonus payable - 8,364,193 Interest on debentures 91,129,516 67,998,514 Securitization loan repayment 310,729 1,039,899 Directors' fees (37,500) (37,500) VAT on financial services 6,437,445 3,132,764 Nation Building Tax 47,100 132,771

98,337,290 81,080,641


Lease and Hire Purchase aggregate portfolio amounting to Rs. 2,561,232,950.15 have been pledged as

security for the above loans.


156


As at 31.12.2010 31.03.2010Rs. Rs.

27 Accounts payableDebit tax (6,033) 83,610

Saving charges (114,190) -

Dividend payable 1,590,096 1,339,578

Registrar of motor vehicles charges 2,916,842 2,512,842

Refundable deposit 376,000 372,000 Mortgage 287,107 197,425 Direct deposits 3,787,206 3,535,638 Stamp duty and E.S.C payable 8,661,918 7,682,667

17,498,946 15,723,760

28 Trade payablesAmount payable to car sales 3,462,223 932,203 NHP - payable (1,821,325) (1,784,650) XL - loan excess payment 44,418 51,170 W.H.T. on dividends (77,615) (52,516) W.H.T. on loan and debentures 832,394 2,225,641 Stock payable 105,237,961 102,659,178 Sundry creditors 59,666,856 18,045,128 Goods and Service Tax refund for buses 8,912 8,912

167,353,824 122,085,066

29 Current tax liabilitiesIncome tax payable 179,667,066 77,806,441

Income tax payment (16,585,967) -

Economic service charges (46,845,114) (34,869,526)

Withholding tax on treasury bill interest (9,422,319) (4,020,534)

W.H.T. on commission 663,549 631,698

W.H.T. on fixed deposits interest (7,617,180) (7,978,849) 99,860,035 31,569,230

30 Rentals received in advanceInitial payment of lease 12,646,199 1,632,450 Prepaid rentals 25,840,580 19,067,349

38,486,779 20,699,799

31 Retirement benefit obligationBalance at the beginning of the period 17,631,637 16,210,783

Retirement benefit expense for the period 3,293,516 4,027,547 Benefits paid during the period (337,500) (2,606,693) Balance at the end of the period 20,587,653 17,631,637


157


32 Debentures

Type Purpose of Interest Due/settle 31.12.2010 31.03.2010debenture rate (p.a) dates Rs. Rs.

Unsecured, unlisted, redeemable debentures2006/2011 Working capital 16% (Fixed) 5 years from the 259,000,000 259,000,0002007/2012 requirement 16% (Fixed) date of allotment 241,000,000 241,000,000

2008/2013 16% (Fixed) 240,000,000 240,000,000

2009/2014 16% (Fixed) 270,000,000 290,000,0002009/2014 14.5% (Fixed) 80,000,000 60,000,0002010/2015 14.5% (Fixed) 120,000,000 -2010/2015 14.0% (Fixed) 60,000,000 -

1,270,000,000 1,090,000,000

33 Deferred tax liabilityBalance at the beginning of the period 70,968,196 65,240,401

Deferred tax charge / (reversal) for the period (3,157,872) 5,727,795


34 Stated capitalOrdinary shares53,368,000 ordinary shares 533,680,000 213,472,000

Allotted and Fully paidBalance as at 01.04.2010 - 21,347,200 Ordinary shares 213,472,000 213,472,000

Bonus Share Issue in November 2010

3 for every 2 held 32,020,800 Ordinary Shares 320,208,000 -

Balance as at 31.12.2010 - 53,368,000 Ordinary shares 533,680,000 213,472,000

35 Statutory reserve fundBalance at the beginning of the period 86,536,033 83,536,033

Transfers during the period - 3,000,000


36 General reserveBalance at the beginning of the period 638,018,392 638,018,392

Transfers during the period (320,208,000) -



The company's statutory reserve fund was created according to the Direction No. 1 of Central Bank Regulations of

2003.

General reserve represents amount set aside by the Directors for future expansions and to meet any contingencies.


158

For the period ended 31st December 2010

37 Related party transactions

37.1 Transactions with related entities

37.1.1 E.W.Balasuriya & Company (Pvt) Ltd

a)

2010 2009 Rs. Rs.

Colombo Branch 1,205,361 921,466

Aluthgama Branch 602,676 491,106

Negombo Branch 588,614 457,156

Wattala Yard 196,199 43,3022,592,850 1,913,030

b)

37.1.2 Senkadagala Hotels Limited

The Company holds 32.27% approximately of the issued share capital of the Senkadagala Hotels Limited

37.2 Transactions with key management personnel (KMP) of the Company

37.2.1 Compensation of key management personnel2010 2009

Rs. Rs.

Short term employee benefits 2,773,500 2,411,750

Long term employment benefits - -

37.2.2

38 Commitments and contingencies38.1 Capital expenditure commitments

2010 2009 Rs. Rs.

Approved but not contracted for - 2,700,000

Approved and contracted for 50,000,000 1,700,00050,000,000 4,400,000

38.2 Contingent liabilities

39 Event after the balance sheet date

The Company paid dividend of Rs.13,840,503 during the period ended 31st December 2010 (2009 - Rs.21,430,082)

to E.W.Balasuriya & Company (Pvt) Ltd.

The key management personal are entitled to gratuity provisions as per the provisions laid down by the Act

Post Employment benefits to key management personnel

There were no material events occurring after the Balance Sheet date that require adjustment to or disclose in the


According to Sri Lanka Accounting Standard 30 (Revised 2005) Related Party Disclosures, Key management

personnel, are those having authority and responsibility for planning, directing and controlling the activities of the

entity. Accordingly members of the Board of Directors of the Company (including executive and non executive

Directors), and of the Ultimate Parent Company have been classified as key management personnel of the Company.

Capital expenditure approved by the Board of Directors for which provision has not been made in the financial

statements amounted to approximately the following|:


Mr. E. W. Balasuriya, Mr. L. Balasuriya, Mr. R. Balasuriya, Dr. M. Balasuriya, Dr. A. Balasuriya and Mrs. L.

Fernando Directors of the Company are also the Directors of Senkadagala Hotels Limited.

There were no contingent liabilities as at the balance sheet date, which require adjustments to or disclosures in the


The Company operates its Kandy branch office in the premises of Senkadagala Hotels Limited, and has paid

Rs.393,250 to Senkadagala Hotels Limited, as rent for the year ended 31st December 2010. (2009/10 - Rs.590,850)

The Company being a subsidiary company of E.W.Balasuriya & Company (Pvt) Ltd., Mr. E. W. Balasuriya, Mr. L.

Balasuriya, Mr. R. Balasuriya, Dr. M. Balasuriya, Dr. A. Balasuriya, Mrs. L. Fernando and Dr.Mrs. Gayathri Madan

Mohan Directors of the Company are also the Directors of E. W. Balasuriya & Company (Pvt) Ltd., with which the

Company had the following transactions.

The Company operate its following branch offices in the premises of E.W.Balasuriya & Company (Pvt) Ltd., and has

paid rent expenses for the respective branches as follows.


159





Bank and Cash Balances 86,972,119 - - - 86,972,119

Deposits With Banks & other institution 294,296,996 - - - 294,296,996




Stock out on hire 744,941,479 1,634,486,359 1,316,482,029 1,367,667,126 5,063,576,993

Debtors 83,647,238 77,563,531 10,221,452 19,005,786 190,438,006

Total Interest Earning Assets 1,209,857,832 1,904,805,703 1,326,703,480 1,400,838,667 5,842,205,683

Non Interest Earning AssetsProperty, plant and equipment - - - 389,429,905 389,429,905

Total Assets 1,209,857,832 1,904,805,703 1,326,703,480 1,790,268,572 6,231,635,588

Percentage (%) 31.12.2010 19.41 30.57 21.29 28.73 100.00



Deposits 226,626,454 1,487,155,386 320,441,579 45,245,756 2,079,469,175

Certificate of deposits - 2,811,720 - - 2,811,720

Saving accounts - 80,854,245 - - 80,854,245

Bank overdraft 16,164,626 - - - 16,164,626

Assets Securitization Funds 217,792,913 467,247,080 437,517,848 - 1,122,557,842

Debentures 40,000,000 159,000,000 831,000,000 240,000,000 1,270,000,000


Non Interest Bearing Liabilities 133,120,946 212,086,656 - 285,634,266 630,841,868


Percentage (%) 31.12.2010 12.18 46.31 30.54 10.97 100.00

Shareholders' Funds - - - 1,028,936,112 1,028,936,112

Total Shareholders' Funds and Liabilities 633,704,939 2,409,155,087 1,588,959,427 1,599,816,135 6,231,635,588


An analysis of the total assets employed and the total liabilities of the Company as at 31st December 2010, based on the remaining


Notes to the Financial Statements

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