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Annual Report

2017

Annual Report 2017 | 3

DUNGSAM POLYMERS LIMITED

THE YEAR IN REVIEW

Dungsam Polymers Limited (DPL) has successfully completed its 5th year of operation in March 2017. While the company is yet to get out of the red, it has been constantly evolving in terms of governance and production efficiency. The financial loss has also reduced substantially compared to the previous years and is expecting break-even in 2018.

The year 2017 had been a little bumpy for DPL with the introduction of GST in India starting July 2017. The cement industry was the most affected as 28% IGST is levied on the export of cement to India. Since DCCL and PCAL are our main customers, the reduction in the sales of these two companies has affected DPL substantially. DPL also lost Indian customers not only because of application of 18% IGST on the export of poly woven bags but also due to absence of online transaction system at the Land Custom’s point located at Rangapani (Assam). In the absence of online facility, the IGST refund is delayed and sometimes documents are misplaced because of which the Indian firms refrain from doing business with us.

One of the positive changes initiated in the company was taking-over of the Finishing Unit (stitching, printing and packing) which was earlier outsourced to an Indian firm. When the Bhutanese people lacked capacity in the beginning, the unit was outsourced to an Indian firm. Now, DPL has taken over the Finishing Unit with effect from July 2017 and more than 97% of the workers are Bhutanese nationals. While its operation can be handled by 100% Bhutanese, there are not many people taking interest to take up the intended job.

In order to curve unnecessary expenditure, the management introduced a number of cost cutting measures. Introduction of substitution method in the shift duties has reduced the overtime working thereby bringing substantial reduction in the overtime cost. The Management also removed overtime works wherever it was found not necessary.

On 22nd December 2017, DPL along with 14 other companies had pledged Business Integrity and signed Integrity Pact Pledge with the Chairman of Anti-corruption Commission. This is basically to propagate business integrity in the company and also show solidarity to the initiatives taken by ACC. This would not only improve company’s image but also would help propagate corruption free practices in the company.

Going forward, DPL has decided to revive the auto-stitching in BCS machines. This would ease sewing works when the company is encountering shortage of sewing machinist. We continue to pay attention to our employees’ engagement and motivation. Despite busy schedule, multiple activities are being organized to bring unity and bonding among the employees.

I am confident that we will be able to change the status of the bottom line in 2018.

Tashi Delek!

Tshering Tenzin Chief Executive Officer



TABLE OF CONTENT

Company Profile 7

Organizational Chart 8

Financial Performance Highlight 10

Board Directors 10

Management Team 12

Directors’ Report 13

Corporate Governance Report 18

Independent Auditors’ Report 21



COMPANY PROFILE

The Dungsam Polymers Limited (DPL) is a manufacturing company of Poly woven bags, which was established on August 12, 2010 under the Companies Act of the Kingdom of Bhutan, 2000, as one of the companies of Druk Holding & Investment (DHI). Initially, the company was established with the total equity from Druk Holding & Investments Limited (DHI) and later it was divested by floating the Initial Public Offering (IPO). The company was listed in Royal Security Exchange of Bhutan (RSEBL) on August 2, 2013. Subsequently, DPL has become DHI controlled company with 51% share owned by DHI and 49% owned by the public.

The company is located in Tshenkari, Nganglam under Pemagatshel Dzongkhag. The plant has an installed capacity of 350 kg/hour melting output which is equivalent to one hundred thousand bags in a day. The end product of the company is to be consumed 80% by Dungsam Cement Corporation Limited (DCCL) and 20% other domestic market and in the nearby states of India.

VISION

To be supplier of choice providing complete packing solution to the cement and other industries.

MISSION

DPL manufacture good quality, economical and environment friendly polymer bags for packing of cement and other products catering to Bhutan

VALUES

Professionalism, integrity, teamwork and customer care

8 | Annual Report 2017


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2017

146.10

152.69

158.48

178.84

145.98

151.26

105.35

133.70

82.71

107.70

27.41

41.23

-6,26

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-24.86

-19.24

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2016

2015

2014

2013

2012

FIN

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RMA

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FINANCIAL PERFORMANCE HIGHLIGHTSBOARd dIRECTORS

Mr. Sonam Jigme- Chairman

Mr. Sonam Jigme obtained his Bachelors of Arts (General) from Sherubtse College, Kanglung and Master in Business Administration from University of Thai Chamber of Commerce, Bangkok, Thailand.

(1991-1995) He served as Militia Officer in Royal Bhutan Army and (2000-2002) He served as the Under Secretary, Project Development and Services Division, Department of Industry. Subsequently, he served as Regional Director, Regional Trade & Industry Office, Samdrupjongkhar and served as the Dzongda of Gasa & Wangduephodrang Dzongkhag. Currently, he is serving as the Chief Executive Officer of Dungsam Cement Corporation Limited, Nganglam, Pemagatshel.

Mr. Karma Wangdi-director

Mr. Karma Wangdi obtained Bachelors of Arts from Dheradun University, Uttarkhan, India.

His area of expertise is in Teaching and Bureaucrat. He served as teacher for 17 years in various capacities and subsequently served as Dzongrab for 5 years. Currently, he is serving as the Sr. Dungpa, Nganglam Dungkhag under Pemagatshel Dzongkhag

Mr. Kinga Lotey- director

Mr. Kinga Lotey obtained Bachelors Degree in Science from Sherubtse College, Kanglung and Post Graduate Certificate in Development Management from Royal Institute of Management, Semtokha. He also obtained Masters in Human Resource Management from Monash University, Australia.

Before joining DHI, he served as Human Resource Officer in Royal Civil Service Commission (RCSE), Thimphu for seven years. Currently, he is serving as Head, Human Resources & Administration in DHI, Thimphu.



Mr. Pema Wangchuk- director

Mr. Pema Wangchuk obtained Bachelors in Commerce (Hons) from Sherubtse College, Kanglung and Masters in Business Administration from University of Thai Chamber of Commerce, Bangkok, Thailand.

He is a very enthusiastic social worker, mentor and qualified trainer on business and entrepreneurship. . He has about 15 years of working experience in corporations and NGOs and continues to remain engaged with activities of NGOs, colleges, institutes and corporations in various capacities.

Before joining CDCL he served as Special Executive in Entrepreneurship and Education at Loden Foundation, Thimphu. Currently, he is serving as Director, Department of Corporate Service (DCS) in Construction Development Corporation Limited.

Mr. Sangye dorji- director

Mr. Sangye Dorji obtained Bachelors in Commerce (Hons) from Sherubtse, Kanglung and Masters in Business Administration from Asian Institute of Management (AIMS), Philippines.

(2004 onwards) he was serving in Bhutan National Bank Limited, Thimphu in various capacities and currently, he is serving as Branch Credit In-charge in Bhutan National Bank Limited, Thimphu.

Mr. Tshering Tenzin- CEO

Mr. Tshering Tenzin obtained Bachelors of Technology in Electrical Engineering from REC Hamirpur, University of Himachal Pradesh and Master in Business Administration from Asian Institute of Management (AIM), Manila, Philippines.

He served in Bhutan Power Corporation for 10 years; during his entire tenure he took charge of Rural Electrification Projects, constructed with assistance from various multinational funding. Prior to joining the company, he served as General Manager for Corporate Planning and Business Development in CDCL. He also had held senior positions in DHI-INFRA which was later merged with CDCL. He has extensive experience in Project Management, Contract and Procurement. Currently, he is serving as Chief Executive Officer of Dungsam Polymers Limited.



MANAGEMENT TEAM

Mr. Kencho Tshering

(BCA)Dy. Manager, procurement

Mr. Sherab Chophel (BBM, MDM)

Head, Corporate Service Division

Mr. d.B Gurung(Diploma in Mechanical Engineering)

Head, Technical Service Division

Ms. Sangay Bidha(BBA, PGDFM)Dy. Manager,

Finance

Mr. Sonam dorji (BCA)

Dy. Manager, IT/Sales

Mr. Sumpa Norbu(BBA)

Dy. Manager, HRA

Mr. Tshering Tenzin(B. Tec, Electrical Engineering, MBA)

Chief Executive Officer



dIRECTORS’ REPORTTO THE SHAREHOLdERS OF dUNGSAM POLYMER’S LIMITEd

Dear Shareholders,

As the Chairman of the Board of Directors of Dungsam Polymers Limited (DPL), I, on behalf of the Board of Directors and the management would like to present the directors’ report for the year ending 2017.

1. Operational Highlights

1.1. Achievement of Product & ServicesThe Dungsam Polymers Limited made a tremendous progress in terms of production of poly woven bags ever since it’s been operational in the year 2012. Company produces wide range of PP bags specifically for cement, agriculture product, minerals and food product etc. Polymer business is entirely a market driven commodities and it is highly volatile in nature.

In the year 2017, precisely the market has been hindered badly due to the demonetization and the implementation of GST in India, wherein most of our customers are affected and demand for the bags plummeted drastically. Therefore, the overall performance of the company remains far below the expectation level. The detail report is illustrated in the table given below:

Table 1: Production of PP bags

Sl. No Particular 2017 2016 Variance %

1 Production of PP bags- (Million) 14.70 15.93 -8.37

2 Production of Fabric- (Metric tons) 1,085.89 1100.96 -1.39

Table 2: Sales of PP bags

Sl. No Particular 2017 2016 Variance %

1 Sales of PP bags- (Million) 14.77 16.20 -9.68

2 Sales of Fabric- (Metric tons) 0.92 8.21 -7907.59

1.2. Marketing & distributionThe Dungsam Polymers Limited caters to almost all the domestic customers like DCCL, PCAL, Karma Feed Pvt. Ltd, RSA Pvt. Ltd, BMG Feed Pvt. Ltd, Chhundu Enterprise, Darlha Flourmill and FCBL etc. Above all Dungsam Polymers Limited caters 80% of the product to DCCL.

With regards to the export market, Dungsam Polymers Limited made vigorous attempt to market the product in the nearby state of Assam, India, but then due to



their competitive advantage and other associated Factors like GST application, DPL is finding difficult to grab the market. Nevertheless, DPL caters to those informal vendors within the nearby states of Assam.

1.3. Achievement of Manpower & HRDungsam Polymers Limited strives to build the competency of the employee, recognizing human capital as one of the crucial component for the success of the company. In the year 2017, DPL has availed critical and functional trainings initiated by the Druk Holding & Investment (DHI) regardless of the financial constraint. Currently, DPL has 99.6% of Bhutanese national and only 0.4% of foreign national employed in the company.

2. Financial Position and Key Financial Performance Highlights

Dungsam Polymers Limited earned revenue of Nu. 146.10 million in the year 2017 and incurred an expenditure of Nu. 152.69 Million. Consequently, the comprehensive loss for the year 2017 is Nu. -6.26 Million. The detailed progress of the financial performance of the company is shown in the figure (1).

Financial Performance Highlight

Figure 1: Financial position of the company

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2017

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152.

69

158.

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145.

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151.

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105.

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57

20162015201420132012



3. Audit Issues

The Statutory Audit was conducted by M/s. S. Guha & Associates, Kolkata from 31st January 2018 till 14th February 2018. There is no qualified opinion pointed out by the Auditor for the year 2017 but then Auditors have expressed their going concern problems on the performance of the company. One of the pertinent factors which impede the performance of the company is due to huge finance cost. Therefore, Auditors have explicitly mentioned that company’s going concern would be doubtful if the debt structure is not restructured so as to minimize the finance cost if not removed fully.

4. Board Recommendations of dividend

Board will not be in a position to recommend the dividend for shareholders since company could not make profit for the year and also it will not viable unless retained earnings get normalized.

5. Corporate Governance

In compliance to the Companies Act 2016 and the DHI CG Code, the Board Committee has been formed and it is composed of highly renowned professionals drawn from diverse fields, who bring with them a wide range of skill and experience to the Board. The Board of Directors is entrusted with the crucial responsibility and to that effect, it has been vested with the requisite powers, authorities and duties.

5.1. Board directors The Dungsam Polymers Limited has six Board Director including the Chief Executive Officer of the company. DPL has two Board Director representing the private shareholder(s).

5.2. Board MeetingThe DPL has held seven board meetings in the year 2017. Out of seven meetings Mr. Karma Wangdi, Sr. Dungpa attended four Board Meetings and Mr. Sangye Dorji attended five Board Meetings. The rest of the Board Directors were present in all the meetings. Thus, the Board has fulfilled quorum as per the Companies Act in all the board meetings.

5.3. Board CommitteesIn compliance to the Companies Act 2016 and DHI CG Code, Dungsam Polymers Limited has the following Board Committees:• BoardAuditCommittee• BoardHRCCommittee• BoardNGCCommittee

5.4. Board RemunerationRemuneration for the Non-Executive Director is paid only Board sitting fees during Board meetings and Board sub-committee meetings. Executive Director (Chief



Executive officer) is paid salary and other benefits as per the entitlement apart from the sitting fees. The details of the Board remuneration are given in the table below:

Table 3: Details of Board Remuneration

Particulars Amount (Nu)

2017

Chief Executive Officer

Salaries including LTC 833,828.00

Contribution to Provident Fund 57,932.00

Sitting fees 28,000.00

Traveling Expenses 142,178.00

Non-Executive Directors

Board sitting fees 440,880.00

Board level committee sitting fees 141,160.00

6. Challenges and the Way forward

Dungsam Polymers Limited encounters with numerous challenges, amongst which the foremost are:

6.1 Shortage of working CapitalOne of the pertinent challenges that the company is facing is working capital management. There is serious cash flow issue. The current liabilities far exceed the current assets and the company is undergoing difficult time in meeting the payment obligations. The raw materials were purchased on credit in the form of Letter of Credit (LC).

Therefore, the viable alternative Board has envisioned that there is a need to relook in to the debt restructuring and equity financing possibilities.

6.2 Low Capacity UtilizationIn the year 2017, Dungsam Polymers Limited aimed at production of 65% of the total installed plant capacity with the assumption that DCCL would consume 80% of the total product and 20% would be catered to other domestic and export market. However, due to unforeseeable circumstances market didn’t pick up as expected and the capacity utilization remained approximately 44.55% for the year 2017 which is far below the target. As a result of low volume of production the fixed cost per bag becomes high.

Therefore, while DPL can expect to increase the sales of DCCL, the company should continue to explore other markets within and outside the country.



ACKNOWLEdGMENTS

I, on behalf of the Board Directors of Dungsam Polymers Limited (DPL) would like to pay my heartfelt gratitude and appreciation to Druk Holding & Investments, National Pension and Provident Fund, Royal Security Exchange of Bhutan Limited, Bank of Bhutan Limited, Ministry of Economic Affairs, Royal Monetary Authority, Ministry of Finance, Bhutan Power Corporation and other organizations in Bhutan; and to the suppliers, contractors, customers and public for rendering unwavering support to the company.

The Board also would like to place on record of appreciation for the management team, and all the employees of DPL for their tireless effort in bringing up the performance of the company. The board shall continue to support the company in moving forward and urge the management to continue to improve the performance of the company.

Tashi DelekFor and on behalf of the Board

Sonam Jigme(Chairman)



CORPORATE GOVERNANCE REPORTThis is in compliance to the Companies Act of Bhutan 2016 and the DHI CG code, the Dungsam Polymers Limited (DPL) hereby presents the following report:

a) Board directors

Sl. No

Name of the directors Category Profile

Term of the Board director

No. of directorship in other dHI Companies

1. Mr. Sonam Jigme Non- Executive CEO, DCCL, Nganglam First term 1 (DCCL)

2. Mr. Karma Wangdi Independent Sr. Dungpa, Nganglam First term None

3. Mr. Kinga Lotey Non-Executive Head, HRA, DHI First term None 4. Mr. Pema Wangchuk Non-Executive Director, DCS, CDCL Second term None

5. Mr. Sangye Dorji Non-Executive Credit In-Charge, BNBL Second term None

6. Mr. Tshering Tenzin Executive CEO, DPL First term None

b) Board meetings

Sl. No

Name of the Board director

Attendance of the Board Meeting held on27th

Board Meeting

28th Board

Meeting

29th Board

Meeting

30th Board

Meeting

31st Board

Meeting

32nd Board

Meeting

33rd Board

Meeting1 Mr. Dorji Norbu Yes Yes Yes Yes Yes - -

2 Mr. Sonam Jigme - - - - - Yes Yes

3 Mr. Tshewang Tobgyel No Yes - - - - -

4 Mr. Karma Wangdi - - Yes No No No Yes

5 Mr. Pema Wangchuk Yes Yes Yes Yes Yes Yes Yes

6 Mr. Kinga Lotey Yes Yes Yes Yes Yes Yes Yes

7 Mr. Sangye Dorji Yes Yes No Yes Yes Yes No

8 Mr. Norbu Tshering Yes Yes Yes - - - -

9 Mr. Tshering Tenzin - - - - Yes Yes Yes

c) Board committees The Dungsam Polymers Limited (DPL) has the following Board Committees;• BoardAuditCommittee• BoardHRCCommittee• BoardNGCCommittee



1. Board Audit Committee

Sl. No

Name of the Board director

Attendance of the Board Audit Committee Meeting held on

12th BAC Meeting (13.02.2017)




1 Mr. Sangye Dorji- Chairman Yes Yes Yes No

2 Mr. Pema Wangchuk Yes Yes Yes Yes

3 Mr. Kinga Lotey Yes Yes Yes Yes

2. Board HRC Committee

Sl. No Name of the Board director Attendance of Board HRC Committee

3rd Board HRC Meeting (24.12.2017)

1 Mr. Kinga Lotey- Chairman Yes

2 Mr. Karma Wangdi Yes

3 Mr. Pema Wangchuk Yes

4 Mr. Sangye Dorji No

5 Mr. Tshering Tenzin Yes

3. Board NGC Committee

Sl. No Name of the Board director

Attendance of the NGC Meeting

01st NGC (21.05.2017) 02nd NGC (28.05.2017)

1 Mr. Dorji Norbu Yes Yes

2 Mr. Karma Wangdi Yes Yes

3 Dr. Damber. S. Kharka Yes Yes

4 Mr. Pema Wangchuk Yes Yes

5 Mr. Kinga Lotey Yes Yes

6 Mr. Sangye Dorji Yes Yes

7 Mr. Sherab Chophel Yes Yes

d) Board remuneration

The Non-executive Board Directors are entitled for sitting fee during the board meeting and sub-committee meeting. However, they are entitled for DSA & mileage equivalent to CEO if they are required to travel. The Executive Director (CEO) is entitled for the remuneration as per the contract agreement and the sitting fee during the board meeting. The details of remuneration for 2017 are given below:



Particulars Amount (Nu)

2017Chief Executive OfficerSalaries including LTC 833,828.00Contribution to Provident Fund 57,932.00Sitting fees 28,000.00Traveling Expenses 142,178.00

Non-Executive directorsBoard sitting fees 440,880.00Board level committee sitting fees 141,160.00

e) Annual General Meeting

The seventh Annual General Meeting was convened on March 23, 2018 at Hotel Migmar, Thimphu. During the meeting the resignation of Mr. Dorji Norbu, Former CEO, DCCL and Mr. Norbu Tshering, Former CEO, DPL from the DPL board has been endorsed by the shareholder. Mr. Kinga Lotey was recorded as retired from the directorship. Shareholder also endorsed the appointment of Mr. Sonam Jigme, CEO, DCCL & Mr. Tshering Tenzin, CEO, DPL as the new Director of DPL Board.

f) Policies and Practices of CEO and Board Evaluation

As per the CG Code of DHI, the policies and the practices of CEO and Board evaluation is well executed and implemented. The performance of CEO is assessed by the Board annually. The assessment constitutes 20% in leadership area and the 80% based on the achievement of annual compact target of the year.



INdEPENdENT AUdITORS’ REPORTTo The MembersDUNGSAM POLYMERS LIMITEDNGANGLAM, BHUTAN

Report on the Audit of the Financial Statements

OpinionWe have audited the financial statements of Dungsam Polymers Limited (Company), which comprise the statement of financial position as at December 31,2017, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the DPL as at December 31, 2017, and of its financial performance and its cash flows for the year then ended in accordance with Bhutanese Accounting Standards/Bhutanese Financial Reporting Standards (BAS/BFRSs).

Basis for OpinionWe conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in the Kingdom of Bhutan, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit MattersKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with BAS/BFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related



to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial StatementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Report on Other Legal and Regulatory RequirementsAs required by Section 266 of the Companies Act of Bhutan, 2016 (The Minimum Audit Examination and Reporting Requirements) issued by the Royal Audit Authority and on the basis of such checks as we considered appropriate and according to information and explanations given to us, we enclose in the Annexure-A, a statement on the matters specified therein to the extent applicable.

As required by Section 265 of the Act, we report that:a) We have obtained all the information and explanations which to best of our knowledge

and belief were necessary for the purpose of our audit.b) In our opinion, proper books of have been kept by the Company so far as it appears

from our examination of those books.c) the Statement of Financial Position, Statement of Comprehensive Income, Statement

of Changes in Equity and Statement of Cash Flow with by this report are in agreement with the books of account;

d) In our opinion, the Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flow, comply with the BAS/BFRS and provisions of the Companies Act of Bhutan, 2016.

For S. Guha & AssociatesPlace: Nganglam Chartered Accountants Date: 04.04.2018 F.R.N: 322493E

(MD IRFAN ALAM)PARTNER



ANNEXURE – A

dUNGSAM POLYMERS LIMITEd MINIMUM AUdIT EXAMINATION ANd REPORTING REQUIREMENTS

FOR THE YEAR 2017

As required under the “ General Terms of References for the Auditors and Minimum Audit Examination and Reporting Requirements”, issued by the Royal Audit Authority (Section 255 of the Companies Act of Bhutan, 2016), and on the basis of such checks as we considered appropriate and according to the information and explanations given to us, we report that:

1. The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets at all locations. As explained to us, all the fixed assets have been physically verified. Physical verification of fixed assets conducted by the Management did not reveal any material discrepancies but the addition of fixed assets during year 2017 has not been included in the fixed assets verification report.

2. None of the fixed assets were revalued during the year.

3. Physical verification was conducted at reasonable interval in respect of finished goods, spares parts and raw materials but Physical Verification of Spare Parts and Consumables was not conducted by the Management

4. The procedures of physical verification of stock followed by the management are reasonable and adequate in relation to size of the company and nature of its business.

5. Material discrepancies were noticed on physical verification of stocks of consumables and spare parts as compared to the book records.

6. The valuation of year-end stock, in our opinion, is in accordance with the BAS 2 (Inventories). The Company values inventories at “Cost” only. Since the cost is lower than Net Realizable Value.

7. The rate of interest and other terms and conditions of loans availed, if any, by the company secured or unsecured from companies, firms or other parties and/or to the companies under the same management, are prima facie not prejudicial to the interest of the company.

8. The Company has not granted any loans, secured or unsecured, to other companies, firms, or other parties and/or to the companies under the same management during the year under our review, except advances granted to suppliers of raw materials in the normal course of business and to the officers/employees of the Company.



9. Generally, officers/employees to whom loans/advances have been given by the company are repaying the principal amounts as stipulated. However there are certain cases where loan given to the employees by the company are not duly recovered within the end of the financial year. In our opinion and according to the information and explanations given to us, loans/advances granted to the officers/staff are generally in keeping with the provisions of the Company’s service rules, no excessive/frequent advances are granted and also advances are not lent before recovering the earlier loan amount.

10. The company has established adequate system of internal controls to ensure completeness, accuracy and reliability of accounting records, carrying out the business in an orderly and efficient manner, to safeguard the assets of the company as well as to ensure adherence to the rule/regulations and system and procedures. However, the Inventory Management process requires further improvement and there is no system of Cash Management and Security.

11. During our examination, we noted that, the Company has generally a system of competitive biddings, commensurate with the size of the company and the nature of its business, for the purchase of goods and services including stores, raw materials, plant and machinery, equipment and other assets, and for the sale of goods and services. But in some case on the basis of two or one quotation, bidding has been done without any logic note. We have mentioned regarding the same in our Management Report briefly.

12. As explained to us the company has not entered into purchase and service transaction with the directors or other parties related to the director. However, it should be noted that the company makes sales to DCCL where the Chairman of DPL is the MD/CEO of DCCL.

13. As explained to us there is no unserviceable or damaged stores, raw materials or finished goods.

14. There is no reasonable system of ascertaining and identifying point of occurrence of breakage/damages of raw materials, packaging materials and finished products i.e. while in transit, during processing, during loading/unloading, in storage and during handling etc. so that the responsibility could be fixed and compensation sought from those responsible.

15. The company is maintaining reasonable record for production of finished goods, by products and adequate physical safeguard exists to prevent unauthorized or irregular movement of goods from the company. The company is maintaining reasonable records for sales and disposal of realizable by products and scrap wherever applicable.

16. The company is generally regular in depositing rates and taxes, duties, royalties, provident funds and other statutory dues. However, we found that the company has not paid old TDS dues from July 2017 amounting to Nu. 70,347.01 till 31st December, 2017.



17. We have found that the company has not paid undisputed TDS dues July 2017 to December, 2017 amounting to Nu. 70,347.01.

18. On the basis of available information, no personal expenses have been charged in Company’s Accounts.

19. The Company has a reasonable system of recording receipts and issues of stores and materials.

20. The Company has carried out quantitative reconciliation at the end of accounting year in respect of all major items of inventories including finished goods and raw materials.

21. During the year , there was no written off / written back of stock amounts due to material loss/ discrepancies in physical / book balances of inventories including finished goods, raw materials, stores and spares.

22. The company has a reasonable system of allocating man-hours utilized to the respective jobs, commensurate with the size and nature of its business.

23. There is a reasonable system of authorization at proper levels. However, the internal controls need improvement to be commensurate with the size of the company and nature of its business in relation to Cash Management and Safety and there is scope for improvement in Inventory Management.

24. In our opinion and according to the information and explanations given to us, there is a reasonable system of price fixation taking into account the cost of production and market conditions.

25. In our opinion and according to the information and explanations given to us, the Company has formulated a standard credit sales policy which has been implemented. There is a system of credit rating (‘H’ Analysis) of the customers.

26. The Company has not appointed any commission agents for selling its products during the period under Audit.

27. In our opinion, there is a reasonable system for continuous follow-up with debtors and other parties for recovery of outstanding amount. Also age-wise analysis of outstanding amounts is carried out for management information and follow-up actions.

28. The management of liquid resources particularly cash/ bank balances and short term deposits etc. are adequate and there is no such excessive amounts lying idle in non-interest bearing accounts.

29. In our opinion and according to the information and explanations given to us, the activities carried out by the management are lawful and in accordance to the Articles of Incorporation of the Company.



30. In our opinion the activities/investment decision are made subject to prior approval of the Board.

31. The Company has established a budgetary control system through the implementation of Fund Management (FM) Module in SAP.

32. The input-output relationship was established through standard costing system but the system needs improvement.

33. The remuneration paid to the Directors has been disclosed in the Accounts. We have been informed that no such payment was made to any relative of any director of the company during the year.

34. On the basis of our examination of minutes of the meetings of the Board of Directors, made available to us, the directive of the Board appears to have been complied with.

35. In our opinion and according to the information and explanation given to us the officials of the company have not transmitted any price sensitive information which are not made publicly available , un-authorized to their relatives/ friends/associates or close persons which would directly or indirectly benefit themselves.

Computerized Accounting Environment:

1. The Company is operating in SAP Environment. The internal control system needs little improvement especially in the area of Inventory Management.

2. As evident from information and explanations provided, there is adequate safeguard measures and back up facilities.

3. Post implementation of SAP, disaster recovery measures and back up facilities are available.

4. Operational controls are inadequate to ensure correctness and validity of input data and the corresponding output information in relation to Inventory. Measures have been taken to improve in this elation during the last year.

5. As observed and from information provided, it seems that there are adequate preventive measures for unauthorized access over the computer installation and files.

General

1. Going Concern ProblemsAlthough there is loss as per the Company’s financial statements for the year ended 31st December, 2017 audited by us, it is found that the losses are reducing since the commercial inception of the Company in 2012. However, it is very clear from the Financial Statements now that the company is unable to bear the Finance Costs and is thus making losses. The trend shows that the company might make profits



operationally in future based on the capacity utilization of its plant but the same may be washed off by the Finance Costs thus leading to losses which the company might not be able to recover. Thus, it is believed that the question of the company’s going concern will be in doubt if the Debt Structure of the company is not restructured so as to at least minimize the Finance Costs if not removed fully. It does not seem possible that the company will be able to alternatively increase the prices of its Products in the market to recover the Finance costs amidst competition as explained to us.

2. Ratio AnalysisFinancial and Operational Ratio Analysis in respect of the company has been presented in Annexure A.

3. Compliance with the Companies Act of Bhutan, 2016The Company has complied with the requirements of the Companies Act of Bhutan, 2016. Our observation in detail have been furnished in Annexure- ‘B’

4. Adherence to Laws, Rules and RegulationsThe audit of the company is governed by the Companies Act of Bhutan, 2016 and the scope of audit is limited to examination and review of the Financial Statements as produced to us by the management.

In the course of the audit we have considered the compliance of provisions of the said Companies Act, its Articles of Incorporation and applicable Bhutanese Accounting Standards and we are unable to state that the company has been complying with other applicable laws (other than the Companies Act of Bhutan, 2016), rules and regulation, systems, procedures and practices.


(MD IRFAN ALAM)PARTNER



STATEMENT OF FINANCIAL POSITION AS ON 31ST dECEMBER 2017

Particulars Schedule No

12/31/2017 12/31/2016

Amount (Nu.) Amount (Nu.)

ASSETS

Non-Current assets

Investment 1 52,292.31 49,179.06

Property, plant and equipment 2

Tangible Assets 107,784,179.72 112,791,777.57

Intangible Assets 1,835,365.38 3,856,490.56

Total Non - Current Assets A 109,671,837.41 116,697,447.19

Current assets

Cash and cash equivalents 3 17,222.25 840,981.07

Restricted cash balances 4 - 674,546.00

Trade and other receivables 5 14,371,357.25 24,398,853.98

Other current assets 6 6,457,805.30 7,552,930.11

Inventories 7 19,962,298.01 13,504,219.34

Total Current Assets B 40,808,682.81 46,971,530.50

Total Assets (A+B) 150,480,520.22 163,668,977.69

EQUITY ANd LIABILITIES

Equity

Share Capital 8 82,723,500.00 82,723,500.00

Securities Premium Account 9 26,347,425.00 26,347,425.00

Retained earnings 10 (129,798,771.20) (123,541,406.85)

Total Equity C (20,727,846.20) (14,470,481.85)

LIABILITIES

Current liabilities

Trade and other payables 11 19,599,980.66 22,737,071.55

Current borrowings 12 38,011,688.04 37,313,556.47

Other current liabilities 13 1,130,302.83 129,058.66

Provision 15 553,485.34 553,485.34

Total Current liabilities d 59,295,456.87 60,733,172.02

Non Current liabilities

Non Current borrowings 14 109,795,306.55 115,441,908.51



Retirement benefit obligations - Non Current 16 2,117,603.00 1,964,379.00

Total Non Current liabilities E 111,912,909.55 117,406,287.51

Total liabilities (d+E) 171,208,366.42 178,139,459.53

Total Liabilities and Equity (C+d+E) 150,480,520.22 163,668,977.69

In terms of our report of even date For S. Guha & AssociatesPlace: Nganglam Chartered Accountants Date: 04.04.2018 F.R.N: 322493E

(TSHERING TENZIN) (SONAM JIGME) (MD IRFAN ALAM)CHIEF EXECUTIVE OFFICER CHAIRMAN PARTNER



STATEMENT OF COMPREHENSIVE INCOME AS ON 31ST dECEMBER 2017

Particulars Schedule No12/31/2017 12/31/2016


Income

Revenue from Manufacturing Sector 17 143,522,747.01 155,536,753.98

Other income 18 2,549,398.89 2,919,711.84

Finance Income 23 23,794.20 21,932.23

Total Revenue 146,095,940.10 158,478,398.05

Expenses

Consumption of Raw Material, Consumables and Changes in Inventory of Finished Goods 19 93,075,193.24 115,737,402.59

Operation and Maintenance Expenses 20 2,242,998.58 3,523,163.54

Personnel cost 21 24,840,163.10 23,281,230.66

Other expenses 22 9,810,710.71 12,481,713.17

Depreciation and amortization 2 7,906,273.83 7,936,115.89

Finance Cost 24 14,813,669.17 15,885,366.92

Total Expenditure 152,689,008.63 178,844,992.77

Profit (Loss) Before Income Tax (6,593,068.53) (20,366,594.72)

Income Tax Expenses (provision)

Profit (loss) After Income Tax (6,593,068.53) (20,366,594.72)

Other Comprehensive (income)/Loss

Actuarial( Gain)/Loss on post employment benefit obligations C(11) 335,704.00 (200,506.00)

Net Other Comprehensive (Income)/Loss 335,704.00 (200,506.00)

Total Comprehensive Income/(Loss) (6,257,364.53) (20,567,100.72)

Basic and diluted Earnings per Share C(19) (0.76) (2.49)

In terms of our report of even date For S. Guha & Associates Place: Nganglam Chartered Accountants Date: 04.04.2018 F.R.N: 322493E




STATEMENT CASH FLOWS AS ON 31ST dECEMBER 2017

Particulars 12/31/2017 12/31/2016


A: CASH FLOW FROM OPERATING ACTIVITIES:

Net Profit after Tax as per Profit and Loss Account (6,257,364.53) (20,567,100.72)

Adjusted for:

Add : Adjustments for BFRS( Inter Corporate Loan) -

Less: profit on sale of intangible asset - (455,131.82)

Less: Finance Income (3,113.25) (3,113.25)

Add: Depreciation 7,906,273.83 7,936,115.89

Add: Finance Cost 13,429,170.81 13,543,901.81

Add: Loss/Retirement/Scraping of Asset - -

Operating Profit before Working Capital Changes 15,074,966.86 454,671.91

Adjusted for:

Inventory (6,458,078.67) 33,772,175.79

Sundry Debtors 10,027,496.73 (17,302,080.48)

Restricted Cash Balances 674,546.00 4,512,454.00

Other Current Assets 1,095,124.81 (1,978,717.25)

Current Liabilities 1,001,244.17 (710,131.02)

Provision -

Retirement Benefit 153,224.00 842,951.00

Other Current Liabilities (3,137,090.89) (10,911,875.45)

Capital Work In Progress -

Current Borrowings 698,131.57 5,612,841.78

Cash generated from Operations 4,054,597.72 13,837,618.37

Less; Tax Paid -

Net Cash from Operating Activities (A) 19,129,564.58 14,292,290.29

B: CASH FLOW FROM INVESTING ACTIVITIES:

Purchase of Fixed Assets (877,550.80) (98,317.90)

Sale of Intangible Fixed Assets - 545,381.23

Increased in LTD - Gratuity Fund - BDBL (3,113.25) (3,113.25)

Interest income on deposits against Gratuity Fund 3,113.25 3,113.25

Net Cash used in Investing Activities (B) (877,550.80) 447,063.33

C: CASH FLOW FROM FINANCING ACTIVITIES:

Decreased in Non-current Borrowings (5,646,601.96) (3,084,264.66)

Finance Cost (13,429,170.81) (13,543,901.81)



Net Cash from Financing Activities (C) (19,075,772.77) (16,628,166.47)

Net Increase/ (decrease) in Cash & Cash Equivalents (A+B+C) (823,758.99) (1,888,812.85)

Cash & Cash Equivalents at the beginning of the year 840,981.07 2,729,793.92

Cash & Cash equivalents as on 31/12/2017 17,222.08 840,981.07

In terms of our report of even date For S. Guha & Associates Place: Nganglam Chartered Accountants Date: 04.04.2018 F.R.N: 322493E




Stat

emen

t of C

hang

es in

Equ

ity

For t

he y

ear e

nded

31

dec

embe

r 201

7 St

atem

ent o

f Cha

nges

in

Equi

ty

Part

icul

ars

Att

ribu

tabl

e to

ow

ners

of t

he p

aren

tO

rdin

ary

Shar

esSe

curi

ties

Pr

emiu

mRe

tain

ed e

arni

ngs

Oth

er E

quit

yTo

tal

No.

of S

hare

s (is

sued

an

d fu

lly p

aid

up)

Par v

alue

Tota

l Val

ue o

f Sh

ares

Bala

nce

as a

t 1 Ja

nuar

y 20

178,

272,

350

10

82,7

23,5

00.0

0 26

,347

,425

.00

(124

,171

,432

.43)

630,

025.

76

(14,

470,

481.

67)

Profi

t for

the

year

-

-

- (6

,593

,068

.53)

(6,5

93,0

68.5

3)O

ther

com

preh

ensi

ve in

com

e fo

r th

e ye

ar -

- -

335,

704.

00

33

5,70

4.00

Ba

lanc

e as

at 3

1 d

ecem

ber 2

017

8,27

2,35

0 10

82

,723

,500

.00

26,3

47,4

25.0

0 (1

30,4

28,7

96.9

6)63

0,02

5.76

(2

0,72

7,84

6.20

)

Num

ber o

f sha

res

auth

oriz

ed fo

r eac

h cl

ass

of s

hare

s:

Aut

hori

zed

shar

e ca

pita

lA

s at

31s

t dec

embe

r

2017

2016

1,0

00,0

00 E

quity

Sha

res

of N

u. 1

00 e

ach

100,

000,

000.

00

100,

000,

000.

00

Stat

emen

t of C

hang

es in

Equ

ity

For t

he y

ear e

nded

31s

t dec

embe

r201

6

Part

icul

ars

Att

ribu

tabl

e to

ow

ners

of t

he p

aren

tO

rdin

ary

Shar

es

No.

of S

hare

s (is

sued

and

fu

lly p

aid

up)

Par

valu

eTo

tal V

alue

of

Shar

esSe

curi

ties

Pr

emiu

mRe

tain

ed e

arni

ngs

Oth

er

Equi

tyTo

tal

Bala

nce

as a

t 1 Ja

nuar

y 20

16 (A

s pe

r Las

t Aud

ited)

8,27

2,35

0.00

10

.00

82,7

23,5

00.0

0 26

,347

,425

.00

(101

,921

,350

.12)

7,14

9,57

4.88

Eff

ect o

f fai

r val

uatio

n of

inte

r-co

rpor

ate

loan

(198

,398

.04)

630,

025.

76

431,

627.

72

Effec

t of f

air v

alua

tion

of R

eten

tion

mon

ey –

Lia

bilit

y2,

940.

49

2,94

0.49

Eff

ect o

f Un

Win

ding

of T

rade

rece

ivab

les

(62,

258.

51)

(62,

258.

51)

Effec

t of P

rovi

sion

for L

eave

Enc

ashm

ent

(637

,263

.71)

(637

,263

.71)

Effec

t of P

rovi

sion

for L

TC(7

88,0

02.0

0)(7

88,0

02.0

0)Ba

lanc

e as

at 1

Janu

ary

2016

(Aft

er R

esta

tem

ent)

8,27

2,35

0.00

10

.00

82,7

23,5

00.0

0 26

,347

,425

.00

(103

,604

,331

.89)

630,

025.

76

6,09

6,61

8.87



Schedules forming part of the Financial Position Schedule 1 : Investment

(Figures in Ngultrum)

Particulars 31st december 31st december 1st January

2017 2016 2016

Long-Term Deposits - Gratuity Fund-BDBL 52,292.31 49,179.06 46,065.81

Total 52,292.31 49,179.06 46,065.81

Schedule 3 : Cash and Cash Equivalents



2017 2016 2016

Cash in hand 156,513.02 119,199.42 505,981.49

Cash at Bank - 139,290.77 721,781.65 2,223,812.43

Total 17,222.25 840,981.07 2,729,793.92

Schedule 4 : Restricted Cash Balances



2017 2016 2016

Margin Money PP – Granule - 674,546.00 5,187,000.00

Total - 674,546.00 5,187,000.00

Schedule 5 : Trade and Other Receivables



2017 2016 2016

Domestic Customers - Trade 10,218,578.46 20,997,061.28 6,337,458.90

Export Customers - Trade 266,913.50 1,537,597.58 315,634.08

Other Customers (3.64) 187,782.65 38,120.52

Receivable - Others 3,485,868.93 1,276,412.47 5,560.00

Securities Deposits-Others(A) 400,000.00 400,000.00 400,000.00

Total 14,371,357.25 24,398,853.98 7,096,773.50



Schedule 6 : Other Current Assets



2017 2016 2016

Advance – others - - -

Advance – Suppliers 1,837,443.01 951,292.80 1,476,921.10

Public Work Advances – Employees 149,219.17 216,717.18 16,694.10

Advances to Employee – Salary 23,000.00 37,000.00 32,550.00

Advances to Employee –Tour 87,163.40 (128.60) 8,410.40

Advances to Employees – Medical - - -

Pre-paid expenses 266,524.66 262,816.72 346,639.61

Pre-paid Tax Deducted at Source 3,993,392.06 6,005,665.01 3,614,035.65

Pre-paid GPA Insurance 101,063.00 79,567.00 78,962.00

Total 6,457,805.30 7,552,930.11 5,574,212.86

Schedule 7 : Inventories



2017 2016 2016

RAW MATERIALS 6,557,483.75 5,685,965.87 18,008,008.98

CONSUMABLES 1,575,298.29 887,693.47 1,388,208.51

SEMI FINISHED PRODUCTS 6,798,590.96 3,413,738.75 22,444,915.44

Finished Products 1,636,834.24 1,446,186.64 3,612,685.45

Scrap Materials -

ASSET MATERIALS 15,334.00 2,014.00 15,254.25

SPARE PARTS 3,378,756.77 2,068,620.61 1,807,322.50

Total 19,962,298.01 13,504,219.34 47,276,395.13



Sche

dule

2 :

Pro

pert

y Pl

ant &

Equ

ipm

ents

(PPE

)

Part

icul

ars

GRO

SS B

LOCK

( A

t Cos

t)d

EPRE

CIAT

ION

NET

BLO

CK

As

on

31/1

2/20

16

Add

itio

n/

Adj

ust-

men

t

Sale

s/

Adj

ust-

men

t

As

on

31/1

2/20

17A

s on

31

/12/

2016

For t

he

Peri

od

Sale

s/

Adj

ust-

men

t

As

on

31.1

2.20

17

Clos

ing

Bala

nce

as o

n 31

/12/

2017

Clos

ing

Bala

nce

as o

n 31

/12/

2016

Clos

ing

Bala

nce

as o

n 31

/12/

2015

Tang

ible

Ass

ets

Civi

l Str

uctu

re73

,691

,303

.90

338,

266.

30

- 74

,029

,570

.20

11,1

94,1

71.8

4 2,

493,

347.

78

- 13

,687

,519

.62

60,3

42,0

50.5

8

62

,497

,132

.06

64,9

62,2

90.9

9

Fire

Fig

htin

g &

Sa

fety

Equ

ip-

men

ts62

,073

.90

-

-

6

2,07

3.90

16

,549

.78

6

,126

.75

-

22,

676.

53

39,3

97.3

7

4

5,52

4.12

5

1,65

0.87

Furn

iture

&

Fixt

ures

470,

610.

00

14,4

00.0

0 -

4

85,0

10.0

0 32

0,73

5.54

5

1,45

3.65

-

37

2,18

9.19

11

2,82

0.81

149

,874

.46

2

26,6

69.6

7

Offi

ce E

quip

-m

ent

1,56

7,48

4.27

26

2,66

8.56

-

1,8

30,1

52.8

3 1,

185,

206.

39

2

71,3

18.4

6 -

1,45

6,52

4.85

37

3,62

7.98

382

,277

.88

5

81,7

24.4

9

Vehi

cles

2,33

5,23

4.00

22

6,42

6.80

-

2,5

61,6

60.8

0 1,

082,

084.

38

1

62,5

03.3

3 -

1,24

4,58

7.71

1,

317,

073.

09

1,2

53,1

49.6

2

1

,402

,183

.48

Tool

s &

Pla

nts

240,

281.

22

-

-

240

,281

.22

171,

267.

09

69,

013.

13

-

240,

280.

22

1.00

6

9,01

4.13

164

,106

.01

Gen

eral

Ass

ets

87,9

40.0

0

-

-

87,

940.

00

39,9

95.8

6

1

6,43

8.00

-

5

6,43

3.86

31

,506

.14

47,

944.

14

65,

216.

16

Mac

hine

ry68

,938

,043

.23

- -

68,9

38,0

43.2

3

20

,670

,914

.63

2,75

6,45

2.82

-

23,4

27,3

67.4

5 45

,510

,675

.78

48,2

67,1

28.6

0 51

,000

,426

.92

Low

Val

ue

Ass

ets

795,

157.

44

35,7

89.1

4 -

8

30,9

46.5

8

715,

424.

88

58,

494.

73

-

773,

919.

61

57,0

26.9

7

7

9,73

2.56

227

,098

.52

Tota

l (A

)14

8,18

8,12

7.96

87

7,55

0.80

-

149,

065,

678.

76

35,3

96,3

50.3

9 5,

885,

148.

65

- 41

,281

,499

.04

107,

784,

179.

72

112,

791,

777.

57

118,

681,

367.

11

Inta

ngib

le A

sset

s

Soft

war

e9,

618,

716.

65

- -

9,61

8,71

6.65

5,

762,

226.

09

2,02

1,12

5.18

7,

783,

351.

27

1,83

5,36

5.38

3,

856,

490.

56

5,89

4,94

8.42

Tota

l (B)

9,61

8,71

6.65

-

- 9,

618,

716.

65

5,76

2,22

6.09

2,0

21,1

25.1

8 -

7,78

3,35

1.27

1,

835,

365.

38

3,85

6,49

0.56

5,

894,

948.

42

Tota

l (A

+B)

157,

806,

844.

61

877,

550.

80

- 15

8,68

4,39

5.41

41

,158

,576

.48

7,90

6,27

3.83

-

49,0

64,8

50.3

1 10

9,61

9,54

5.10

11

6,64

8,26

8.13

12

4,57

6,31

5.53



Schedule 8 : Share Capital


Authorized Capital


2017 2016 2016

10,000,000 shares @ Nu. 10 100,000,000.00 100,000,000.00 100,000,000.00

Total 100,000,000.00 100,000,000.00 100,000,000.00

Issued & Paid up Capital

8,272,350 Equity Shares of Nu. 10 each fully paid up


2017 2016 2016

Equity Shares Held by DHI 42,189,000.00 42,189,000.00 42,189,000.00

Equity Shares Held by Others 40,534,500.00 40,534,500.00 40,534,500.00

Total 82,723,500.00 82,723,500.00 82,723,500.00

Schedule 9 : Securities Premium Account



2017 2016 2016

Securities Premium Account 26,347,425.00 26,347,425.00 26,347,425.00

Total 26,347,425.00 26,347,425.00 26,347,425.00

Schedule 10 : Retained Earnings



2017 2016 2016

Retained Earnings (123,541,406.67) (102,974,306.13) (103,604,331.89)

Other Equity - - 630,025.76

Transferred from Income Statement (6,257,364.53) (20,567,100.72)

Total (129,798,771.20) (123,541,406.85) (102,974,306.13)

Schedule 11 : Trade and Other Payables



2017 2016 2016

Sundry Creditors - Local 3,590,462.74 5,476,423.79 1,622,547.48



Inter Group vendors 910,142.14 1,320,610.31 857,959.62

Sundry Creditors - Foreign 11,315,718.55 13,298,098.41 28,889,299.74

Related party Vendors 8,640.00 16,000.00 4,000.00

Employee Vendors 436,322.64 60,583.22 52,796.03

GR/IR Clearing Account - - -

BST Clearing account - - -

Freight Clearing Account - - -

Salary Payable to Employees 1,528,987.06 861,685.84 755,778.16

Loans-Employees 21,282.51 5,503.34 2,747.55

Contributory Provident Fund 361.00 - -

Group Insurance Scheme - - -

Salary Saving Scheme 6,225.01 - -

TDS - Salary 14,459.00 - -

Health Contribution 11,495.00 - -

Other Deductions 20,712.02 - 9,866.00

Outstanding Liabilities - Employees 11,627.20 11,627.20 11,627.20

Employee Welfare Deductions - - -

Retention Money Payable - Suppliers/Con 0.64 18,770.36 17,059.51

Provision for Leave Encashment 808,269.09 791,893.47 637,263.71

Provision for LTC 915,998.06 875,875.61 788,002.00

Total 19,599,980.66 22,737,071.55 33,648,947.00

Schedule 12 : Current Borrowings



2017 2016 2016

Loan – NPPF 4,611,688.32 4,027,903.60 3,732,342.41

Working Capital Loan – BOBL 13,400,000.00 13,400,000.00 13,400,000.00

Inter-group borrowing from DHI 19,999,999.72 19,885,652.87 14,568,372.28

Total 38,011,688.04 37,313,556.47 31,700,714.69

Schedule 13 : Other Current Liabilities



2017 2016 2016

Advances from Customers 34.35 12,528.61 775,089.78

Provident Fund Payable 134,343.00 - 50,505.00



TDS Payable 70,925.48 116,530.05 13,594.90

Interest Accrued on Intergroup borrowing 925,000.00 - -

Total 1,130,302.83 129,058.66 839,189.68

Schedule 14 : Non -Current Borrowings



2017 2016 2016

Term Loan

Loan from National Pension & Provident Fund

(Secured against hypothecation of Building

Infrastructure, Plant & Machineries etc.) 109,795,306.55 115,441,908.51 118,526,173.17

Inter-group Borrowings from DHI -

Total 109,795,306.55 115,441,908.51 118,526,173.17

Schedule 15 : Provision –Current



2017 2016 2016

Provision for Performance based Variable Pay 553,485.34 553,485.34 553,485.34

Provision for Corporate Income Tax - - -

temporary accounts

Total 553,485.34 553,485.34 553,485.34

Schedule 16 : Retirement Benefit Obligations - Non –Current



2017 2016 2016

Provision for Gratuity – Non Current 2,117,603.00 1,964,379.00 1,121,428.00

Total 2,117,603.00 1,964,379.00 1,121,428.00



Schedules forming part of the Income Statement

Schedule 17 : Revenue from Manufacturing Sector


Particulars 31st december 31st december

2017 2016

Revenue from sale of Polymer Bags 143,430,827.01 154,618,396.68

Revenue from sale of Fabric 91,920.00 918,357.30

Total 143,522,747.01 155,536,753.98

Schedule 18 : Other Income



2017 2016

Rental Income 256,742.54 268,504.99

Liquidated Damages 52,362.15 81,596.60

Income From Sale Of Scraps 1,245,071.61 1,708,565.45

Discount Received - -

Other Miscellaneous Income 885,518.59 350,912.98

Gain due to Foreign Currency fluctuation 193,904.00 -

Freight Revenue (84,200.00) 55,000.00

Profit on sale of property, Plant & Equipment - 455,131.82

Total 2,549,398.89 2,919,711.84

Schedule 19 : Consumption of Raw Material and Changes in Inventory of Finished Goods



2017 2016

Consumption

Raw Materials 89,233,597.49 89,680,961.25

Semi Finished Products 214,055,919.99 218,479,559.66

Spare Parts 2,105,301.48 1,542,884.53

Consumables 5,557,248.79 6,333,520.66

Cost of Goods Manufacturing

Semi Finished Goods (198,563,407.14) (204,689,257.08)

Finished Goods (122,127,073.24) (124,122,525.68)



Scraps (1,567,449.53) (1,794,946.35)

Cost of Goods Sold

Cost of goods sold - Semi Finished Good 1,371,560.54 2,738,964.19

Cost of goods sold - Finished Good 122,285,384.38 129,110,639.51

Price Difference - Material - (1,542,398.10)

Price Difference - Material -19,275,889.52 -

Total 93,075,193.24 115,737,402.59

Schedule 20 : Operational & Maintenance Expenses



2017 2016

R & M of Plant & Machineries - Material 369,223.67 1,673,443.84

R & M of Plant & Machineries -Services 439,787.39 136,802.00

R & M of Workshop Equipment - Services 1,460.00 -

R & M Of Fire Fighting And Safety - Mat - -

R & M of Building & Civil Structure - Ma 107,218.06 7,103.01

R & M of Building & Civil Structure - Se 24,000.00 -

R & M of Office Equipment - Materials 8,700.00 8,535.12

R & M of Office Equipment - Services 43,000.00 15,630.00

R & M of Vehicle -Materials 656,854.94 547,892.91

R & M of Vehicles - Services 120,142.22 78,321.86

R & M of General Asset – Materials 32,066.00 -

Running and Maintenance of SAP - Service 440,546.30 1,055,434.80

Total 2,242,998.58 3,523,163.54

Schedule 21 : Personnel cost



2017 2016

Payroll and related expenses

Basic Pay 11,490,982.33 10,489,403.36

Allowances 1,154,070.02 1,115,333.79

Shift Allowance 570,770.00 609,855.00

Wages 6,318,050.63 6,801,425.53

Leave Travel Concession 952,825.79 952,453.79

PBVA Allowance - -



Overtime Allowance 1,074,718.67 638,759.49

Uniforms & Liveries 51,750.00 -

GPA Insurance 86,033.00 84,330.00

Sport Activities 42,060.00 12,500.00

In House/In Country Training & Certificate - -

Short Term Courses 48,000.00 269,666.00

Workshop & Seminars - -

Production Incentive - 6,000.00

Defined benefit plan expense - 10,305.00

Leave Encashment 602,725.25 494,948.70

Provident Fund-Matching Contribution 1,263,916.00 1,153,805.00

Gratuity 795,944.50 642,445.00

Rep Allowance 73,636.00 -

Transfer Grant 73,636.00 -

Carriage Charges 54,176.91 -

Medical expenses 186,868.00 -

Total 24,840,163.10 23,281,230.66

Schedule 22 : Other Expenses



2017 2016

Marketing And Sales Promotion Expenses - 1,100.00

Board Meeting Expenses 256,026.00 292,200.00

Board Sitting fees 440,880.00 283,280.00

Board Training Expenses - -

Sub-Committee meeting expenses 37,452.00 10,277.00

Sub-Committee sitting fees 141,160.00 45,800.00

Fees And Subscription 360,200.00 31,100.00

Printing and Stationery 153,371.56 341,299.62

Postage & Courier Charges 1,880.00 4,360.00

Advertisement 93,599.50 43,767.00

Office Expenses 113,939.00 33,670.00

Lease Rent 722,328.60 835,074.80

Prior Period expenses - -

Traveling Expenses - Local 735,934.00 540,057.00

Traveling Expenses - Foreign 159,573.00 139,544.50



Internet and telephone charges - -

Internet and telephone charges paid to 570,075.00 691,257.15

License and Registration 28,385.00 9,625.00

Fines & Penalty 211,349.64 40,185.00

Net Inventory Written-Down - 2,956,484.35

General Insurance 447,427.04 452,370.99

Electricity Charges - paid to DHI Group 3,571,083.53 3,561,527.23

Hospitality And Entertainment Expenses 385,230.74 113,805.02

Books and Periodicals 17,000.00 -

Corporate Social Responsibility (CSR) E - -

Donations 11,313.00 5,000.00

Miscellaneous Expenses 37,948.38 16,430.66

Discount Allowed - -

Loss/Retirement/Scraping of Inventories 254,645.74 13,638.36

Loss/Retirement/Scraping of Asset - 183,077.43

Consulting Fees 432,350.00 733,329.08

Audit Fees 63,250.00 63,250.00

Audit Expenses 158,613.00 198,124.00

Hiring Expenses - -

Marine Insurance - -

Commission and brokerage expenses 42,218.00 -

Loading & unloading charges 89,728.31 -

carriage outward 13,000.00 -

Loss due to Foreign Currency fluctuation 145,172.90 523,087.53

Interest Expenses 115,576.77 318,991.45

Total 9,810,710.71 12,481,713.17

Schedule 23 : Finance Income



2017 2016

Interest income on deposits against Gratuity Fund 3,113.25 3,113.25

Interest Income 20,680.95 18,818.98

Total 23,794.20 21,932.23



Schedule 24 : Finance Cost



2017 2016

Interest On Borrowings -NPPF 11,706,739.88 12,078,068.79

Bank Charges - others 25,861.20 -

Bank Charges & Other fees paid to BoBL 214,720.41 242,202.88

Interest On Overdraft Loan - BOBL 1,384,498.36 2,341,465.11

Interest on borrowings-Intra group 1,481,849.32 1,223,630.14

Total 14,813,669.17 15,885,366.92



dungsam Polymers Limited

Schedule 25: Significant Accounting Policies & Notes to Financial Statements december 2017

(In Ngultrum, except as otherwise noted)

A. Legal Status and Principal Activities

Dungsam Polymers Limited (DPL) is incorporated under the Companies Act of Kingdom of Bhutan, 2000 and has its principal administrative offices in Nganglam, Pemagatshel. The corporation is engaged in production of Polypropylene (PP) Bags and for bulk sale of the same to Dungsam Cement Corporation Limited (DCCL) for packing cement, and for export of surplus PP bags and fabric to the neighboring states of India. The plant commenced commercial production from 26th March 2012.

Dungsam Polymers Limited (DPL) has also been listed with the Royal Security Exchange of Bhutan Limited (RSEBL) on 2nd August 2013. The DPL is the first company divested by Druk Holding and Investments (DHI) since its formation in 2007.

Certain prior period amounts have been reclassified to conform to current period presentation and previous figures have been restated as per BAS.

B. Significant Accounting Policies

1. Basis of Presentation and Statement of ComplianceThe ‘Accounting and Auditing Standards Board of Bhutan’ (AASBB), has decided to adopt BFRS in phases with minor changes. The Company in compliance with the Companies Act of Bhutan, 2016 has adopted all the applicable Standards. The financial statements have been prepared in accordance with all applicable BFRS and other applicable laws such as the Companies Act of Bhutan, 2016.

These financial statements are the first financial statements of the Company in compliance with complete Bhutanese Financial Reporting Standards (BFRSs). The transition was carried out in accordance with BFRS 1, “First time adoption of Bhutanese Financial Reporting Standards”. Refer note 1 for an explanation of how the transition from previous GAAP to BFRS has affected the company’s financial position, financial performance and cash flows.

The financial statements present the Company’s financial position as on 31st December,2017 and 31st December,2016, as well as its earnings(loss), comprehensive income(loss),Cash Flows and Changes in Equity for the year ended 31st December,2017 and 31st Decemeber,2016. The preparation of financial statements is in conformity with BFRS that requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are:



• Property, plant and equipment: critical judgments are expected for period of use, condition of the asset, technological advances, regulation, and residual values.

• Actuarial valuation of employee benefits: expected uptake of the gratuities and the discount rate used in the valuation.

• The functional currency of preparation is the Bhutanese Ngultrum.

2. Basis of Measurement:The financial statements have been prepared under the accrual, historical cost basis and going concern conventions except for the defined benefit liability (actuarial valuation of gratuity in the financial position for which the measurement basis is detailed in their respective accounting policies.

3. Critical Accounting Judgments, Estimates and AssumptionsThe management made certain estimates and assumptions regarding the future estimates and judgments which are evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates.

4. Property, Plant and EquipmentProperty, plant and equipment are carried at cost less accumulated depreciation and any accumulated impairment losses. The cost of an item of property, plant and equipment comprises its purchase price, any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Financing costs relating to acquisition of fixed assets are also included to the extent they relate to the period till such assets are ready to be put to use. As per the provision of BAS 16, the management has chosen Cost Model as an accounting policy and applied the policy to entire class of property, plant and equipment.

A first-time adopter that subsequently measures property, plant and equipment at cost, may measure such property, plant and equipment at cost (determined in accordance with BAS 16) or fair value in its opening BFRS balance sheet. Accordingly, the Company has elected to measure all of its property, plant and equipment as per BAS 16.

5. Impairment of AssetsThe carrying amounts of assets are reviewed at each Statement of Financial Position date if there is any indication of impairment based on internal/external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its estimated recoverable amount. The recoverable amount is the greater of the asset’s net selling price and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset.

The exercise on all the fixed assets has been carried out in the Year 2017 as to determine whether assets are impaired as per BAS 36 - Impairment of Assets.



6. depreciationAs of the reporting date, the depreciation on Property, Plant and Equipment (PPE) is provided on straight-line method based on the useful lives (taking Residual value to be Nil). The management has assessed the useful lives which represent the expected utility of the assets to the company based on the vendor’s recommendation. Actual results, however, may vary due to technical or commercial obsolescence, particularly with respect to manufacturing equipment. However, the management will review the useful lives, depreciation methods and residual values of depreciable assets at each reporting date as required by BAS 16.

Asset Class Useful Life (in Years)

Civil Structure 30

Machinery, Fire Fighting & Safety Equipment 15 – 20

Furniture & Fixtures 3-7

Office Equipment, General Asset & Intangible Assets 5

Vehicles 10

Tools & Tackles 2

Low Value Asset 5

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within ‘Other Income’ or ‘Other expenses’ as the case may be, in the income statement.

7. Intangible AssetsAcquired SAP ERP software licenses are capitalized on the basis of the costs incurred to acquire and bring it to use the specific software. These costs are amortized over their estimated useful lives of 5 years.

Costs associated with maintaining computer software programs are recognized as an expense as incurred.

On transition to BFRS, the Company has elected to measure its intangible assets cost or amortized cost in accordance with BFRS as the deemed cost of the intangible assets.

8. InvestmentThe company has stated its Investment in Fixed Deposit with Bhutan Development Bank Limited, recognizing the Interest Income from the same. The Investment was made at a simple interest of 8.75% p.a. on 20.08.2012 against its Gratuity Fund. The amount of Investment was Nu.35, 580.00

9. Financial Assets

9.1 Initial measurementAt initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial



assets carried at fair value through profit or loss are expensed in profit or loss.

9.2 Classification and subsequent measurementFor the purpose of subsequent measurement, financial assets of the Company are classified in the following categories:

• Financialassetsmeasuredatamortizedcost;• Financial assets measured at fair value through other comprehensive income

(FVTOCI); and • Financialassetsmeasuredatfairvaluethroughprofitandloss(FVTPL)

The classification of financial assets depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. Management determines the classification of its financial assets at initial recognition.

Financial assets measured at amortized cost:A financial asset is measured at amortized cost if both the following conditions are met:

a. The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows; and

b. Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.

After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the profit or loss. The losses arising from impairment are recognized in the profit or loss. This category generally applies to trade and other receivables, bank deposits, security deposits, investment in Government Securities, bonds, cash and cash equivalents and employee loans, etc.

Financial instruments measured at fair value through other comprehensive income

A financial instrument shall be measured at fair value through other comprehensive income if both of the following conditions are met:

a. the objective of the business model is achieved by both collecting contractual cash flows and selling financial assets; and

b. the asset’s contractual cash flow represent SPPI.

Financial instruments included within FVTOCI category are measured initially as well as at each reporting period at fair value. Fair value movements are recognized in other comprehensive income (OCI). Currently, the Company does not have any asset classified under this category.

Financial instruments measured at fair value through profit and loss

Fair value through profit and loss is the residual category. Any financial instrument which does not meet the criteria for categorization as at amortized cost or fair value through other comprehensive income is classified at FVTPL. Financial instruments included within FVTPL



category are measured initially as well as at each reporting period at fair value. Fair value movements are recorded in statement of profit and loss.

9.3 Trade and other receivablesTrade and other receivables are initially recognized at the fair value of the amounts to be received. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Receivables are reviewed regularly for impairment.

9.4 Impairment of financial assetsThe Company assesses on a forward looking basis the expected credit losses associated with its assets carried at amortized cost and FVOCI debt instruments. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Note 28 details how the Company determines whether there has been a significant increase in credit risk.

For trade receivables only, the Company applies the simplified approach permitted by BFRS 9 Financial Instruments, which requires expected lifetime losses to be recognized from initial recognition of the receivables.

9.5 de recognition of financial assetsA financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily de recognized only when:

• Therightstoreceivecashflowsfromtheassethavebeentransferred,or• TheCompanyretainsthecontractualrightstoreceivethecashflowsofthefinancial

asset, but assumes a contractual obligation to pay the cash flows to one or more recipients.

When the Company has transferred an asset, it evaluates whether it has substantially transferred all risks and rewards of ownership of the financial asset. In such cases, the financial asset is derecognized. When the Company has not transferred substantially all the risks and rewards of ownership of a financial asset, the financial asset is not de recognized.When the Company has neither transferred a financial asset nor retains substantially all risks and rewards of ownership of the financial asset, the financial asset is de recognized if the entity has not retained control of the financial asset. When the entity retains control of the financial asset, the asset is continued to be recognized to the extent of continuing involvement in the asset.

10. Inventories and Parts and SuppliesRaw materials, work in process and finished goods are measured at the lower of cost or net realizable value. Cost is calculated on Weighted Average Method Basis and comprises expenditure incurred in the normal course of business in bringing such inventories to their present location and condition. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase. The cost of work in process and finished goods includes the cost of raw materials, direct labor and a systematic allocation of fixed and variable production overhead incurred in converting materials into finished goods. The



allocation of fixed production overheads to the cost of conversion is based on the normal capacity of the manufacturing facilities.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated selling expenses. Parts and supplies are valued at the lower of cost or net realizable value, the latter being determined based on replacement cost. Obsolete, slow moving and defective items of inventories, parts and supplies are identified at the time of physical verification and where necessary, adjustment is made for the same.

11. Cash and Cash EquivalentsIn the Statement of Cash Flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts.

12. Financial liability

12.1 Initial recognition and measurementFinancial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, borrowings, payables. All financial liabilities are recognized initially at fair value and, in the case of borrowings and payables, net of directly attributable transaction costs. The Company’s financial liabilities include trade and other payables and borrowings.

12.2 Subsequent measurementThe measurement of financial liabilities depends on their classification, as described below: Financial Liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term.

Gains or losses on liabilities held for trading are recognized in the profit or loss.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in BFRS 9 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk is recognized in OCI. These gains/ loss are not subsequently transferred to P&L. However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognized in the statement of profit or loss. The Company has not designated any financial liability as at fair value through profit and loss.

BorrowingsAny difference between the proceeds (net of transaction costs) and the redemption amount is recognized in profit or loss over the period of the borrowings using the effective interest



method. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a prepayment for liquidity services and amortized over the period of the facility to which it relates.

Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Where there is a breach of a material provision of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand on the reporting date, the entity classify the liability as current, if the lender does not agreed not to demand payment as a consequence of the breach before reporting date.. Trade and other payables

These amounts represent liabilities for goods and services provided to the Company prior to the end of financial year which are unpaid. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognized initially at their fair value and subsequently measured at amortized cost using the effective interest method.

12.3 de recognitionA financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.

Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss as other gains/(losses) 13. Provisions and Contingent Liabilities

Provisions are recognized when the company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated.

A contingent liability is only disclosed in the notes to the account if an outflow of resources embodying economics benefits is possible.



14. Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement except to the extent that it relates to items recognized in Other Comprehensive Income. In this case, the tax is also recognized in other comprehensive income.

The current income tax charge is calculated on the basis of the tax laws enacted at the balance sheet date in Bhutan.

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted at the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Note:a) Tax Liability as on 31/12/2017 is Nil.b) Deferred Tax Liability as on 31/12/2017 is Nil.c) There is no Tax Expenses till 31/12/2017 since incorporation.d) Income Tax Assessment for the year 2015 and 2016 has done by the Tax Authorities.

15. Income recognition

Revenue from Operations: Revenue generated from the Sale of PP Bags, Fabric Roll &Scrap Materials within and outside Bhutan is recognized when the entity has transferred to the buyers the significant risks and rewards of ownership of the goods; the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold: the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the Company and the cost incurred or to be incurred in respect of the transactions can be measured reliably.

Interest Income: Interest income from Fixed Deposit is recognized using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of a financial asset. When calculating the effective interest rate, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.



16. Land Lease

Management considers its lease of land to be operating lease. The payments made under operating lease are recognized in the income statement on a straight-line basis over the term of the lease.

17. Retirement benefits

BAS 19 Employee Benefits and BAS 26 Accounting and Reporting by Retirement Benefit Plans is applicable for Financial Statements covering periods beginning on or after 1January 2016. However, the early application was permitted by the standard.

Under defined Contribution Scheme i. Eligible employees receive the benefits from the provident fund, which is defined

benefit plan. Both the employee and corporation make monthly contribution to NPPF which is equal to a specified percentage of the covered employees’ salary. The Provident Fund administered by National Pension and Provident Fund, and such contributions are charged to Income Statement when paid to the NPPF.

Under defined Benefit Schemei. The Company operates a gratuity scheme for employees, whereby employees receive

one month’s final salary for each year of completed service. The employee must complete five (5) years of service before the gratuity is payable and the scheme is limited to a maximum of Nu. 1,000,000. The cost of defined benefit scheme and the present value of the related obligations are determined using actuarial valuations. The determination of benefits expense and related obligations requires assumptions such as the expected return on assets available to fund future obligations, the discount rate to measure obligations, expected mortality, the salary escalation rate and the expected experience of employee turnover. Actual results will differ from results which are estimated based on assumptions. All assets held to provide for the future liability are in the form of bank deposits, as required by the Income Tax Act. The assets are therefore subject to the financial risks associated with such deposits. Refer to Note 13 for more information regarding the assumptions and disclosures related to the defined benefit cost for the year ending 31st December 2017.

ii. Leave encashment is provided in Note 13.

18. Foreign Currency Transactions.

Transactions denominated in foreign currencies are translated into the functional currency of that entity using the exchange rates prevailing at the date of each transaction as per BAS - 21. Foreign exchange gains or losses arising on the settlement of monetary items or on the translation of monetary items at rates different from those at which they were translated on initial recognition during the period are recognized as gain/loss on Foreign Exchange in the period in which they arise.



19. Earnings per Share

As per BAS 33 Earnings per Share, Basic earnings per share are calculated by dividing the earnings by the weighted average number of common shares outstanding during the period. Diluted Earnings per Share is same as Earnings per Share for the Co. since there is no dilutive effect of Outstanding Stock Options.

20. Events after Balance date

Material events occurring after the Statement of Financial Position date are taken into cognizance.

21. Comparative information

Where necessary certain comparative information has been reclassified in order to provide a more appropriate basis for comparison.XVIII. Comparative informationWhere necessary certain comparative information has been reclassified in order toprovide a more appropriate basis for comparison.

C. Notes to Accounts

Note 1: First-time adoption of IFRS (continued)

A. Reconciliation between previous GAAP and IFRS:

A.1 Reconciliation of total equity:

Notes dec 31, 2017 dec 31, 2016 1/1/2016

Total equity (shareholder’s funds) as per previous GAAP

(18,980,820.64) (12,874,850.00)

7,149,574.88

Adjustments

Effect of fair valuation of retention money (liability)

1 - 1,229.64 2,940.49

Effect of ECL on debtors 2 (22,758.57) (43,439.53) (62,258.51)

Effect of fair valuation of inter-corporate loan

3 (0.0) 114,347.13 431,627.72

Effect of Provision for Leave Encashment 4 (808,269.09) (791,893.47) (637,263.71)

Effect of Provision for LTC 5 (915,998.06) (875,875.61) (788,002.00)

Total adjustments (1,747,025.73) (1,595,631.85) (1,052,956.01)

Total equity as per IFRS (20,727,846.37) (14,470,481.85) 6,096,618.87



A.2 Reconciliation of total comprehensive income for the year ended december 31, 2016 and december 31, 2015 Notes dec 31, 2017 dec 31, 2016 1/1/2016

Total comprehensive income as per previous GAAP

(6,105,970.64) (20,024,424.88) (5,254,142.96)

Adjustments

Effect of fair valuation of retention money (liability)

1 (1,229.64) (1,710.85) 2,940.49

Effect of ECL on debtors 2 20,680.95 18,818.99 (62,258.51)

Effect of fair valuation of inter-corporate loan

3 (114,347.13) (317,280.59) (198,398.04)

Effect of Provision for Leave Encashment* 4 (16,375.62) (154,629.76) (637,263.71)

Effect of Provision for LTC** 5 (40,122.45) (87,873.61) (788,002.00)

Total adjustments (151,393.88) (542,675.83) (1,682,981.77)

Profit after tax as per IFRS (6,257,364.52) (20,567,100.71) (6,937,124.73)

Other comprehensive income (Net of tax) - - -

Total comprehensive income as per BFRS

(6,257,364.52) (20,567,100.71) (6,937,124.73)

A.3 Impact of IFRS adoption on cash flow statement for the year ended december 31, 2016 and december 31, 2015

There are no material adjustments to the statement of cash flows as reported under Previous GAAP

Note 1: Fair valuation of retention money (liability)

Under the previous GAAP, retention money withheld is recognized at their transaction value. Under IFRS, all financial liabilities are required to be recognized at fair value. Accordingly, the Company has fair valued the financial assets under IFRS at the date of initial recognition. Difference between the fair value and transaction value of the financial assets was adjusted with retained earnings.

Note 2: Provision for impairment Loss on trade receivables

As per IFRS 9, the Company is required to apply expected credit loss model for recognizing the allowance for doubtful debts. As a result, the allowance for doubtful debts was recognised under IFRS.

Note 3: Inter-corporate loan recognised at fair value

Under the previous GAAP, loans are recorded at their transaction value. Under IFRS, all financial liabilities are required to be recognised at fair value. Accordingly, the Company has fair valued the loan under IFRS at the date of initial recognition. Difference between



the fair value and transaction value of the financial assets was adjusted with shareholders’ equity.

Note 4: Provision for Leave Encashment

* Provision for Leave Encashment has been implemented from 2015 according to the rule of BAS 19, and accordingly the statement of Retained Earnings has been restated accordingly(Effect of Para 42 of BAS 8).

Note 5: Provision for LTC

* Provision for LTC has been implemented from 2015 according to the rule of BAS 19, and accordingly the statement of Retained Earnings has been restated accordingly(Effect of Para 42 of BAS 8).

Note 6: Retained earnings

1. Retained earnings as on 1st January 2015 has been adjusted consequent to the above IFRS transition adjustments.

2. Dungsam Polymers Limited (DPL) was incorporated under the Companies Act of the Kingdom of Bhutan, 2000 on 12th August 2010. The Project based at Chengkari, Nganglam under Pemagatshel Dzongkhag is set up for manufacturing and marketing of Polypropylene related products. DPL has also been listed with the Royal Security Exchange of Bhutan Limited (RSEBL) on 2nd August 2013

3. There is no contingent liability outstanding against the company as at 31st December 2017.

4. The company is 51% owned by Druk Holding and Investments & Investments Limited (DHI) and 49% owned by public shareholder(s).

5. The authorized share capital of the company is Nu. 100,000,000 (Nu. 10,000,000 Equity Shares @ Nu. 10 each). The capital structure is summarized as below;

Issued & Paid up Capital

8,272,350 Equity Shares @ Nu.10 = Nu. 82,723,500.00Particulars No. of shares Amount (Nu) Percentage

Equity share held by DHI 4,218,900.00 42,189,000.00 51%

Equity share held by Others 4,053,450.00 40,534,500.00 49%

Total 8,272,350.00 82,723,500.00 100%

Reconciliation of the number of shares outstanding:

6. Approximately 44.55% of installed plant capacity has been utilized in the financial year 2017.

7. All statutory record and books of account are maintained at its registered office at Nganglam, Pemagatshel, Bhutan.

8. National Pension & Provident Fund (hereafter called as NPPF) has given a loan to the



corporation. The NPPF loan has been rescheduled and the amount of the said term loan shall be Nu. 125.89 million from the date of reschedule i.e. 4th May, 2015 with the same terms and conditions as before. The borrowing is for the period of 15 years 9 months (63 Equated Quarterly Installments) effective from 1st July, 2015, bearing interest at an annual fixed rate of 10%. The corporation has collateralized borrowing having net book value of Nu. 114.41 million is classified into current and non-current liabilities amounting to Nu. 4.62 million and 109.79 million respectively.

9. The company has an outstanding Working capital loan amounting to Nu. 13.40 million from Bank of Bhutan Limited.

10. The admissibility of pension benefits to an employee shall be governed by the pension rules and regulations of the NPPF. On separation from his service, an employee shall be entitled to receive the full accumulation, including interest accrued, of provident fund which is created through a monthly deduction from his/her salary and an equal contribution (11% of the basic pay) by the employer. Since the PF is managed by the NPPF, payment shall be governed by the rules and regulations of the NPPF, payment shall be governed by the rules & regulations of the NPPF.

The amount expensed with respect to the provident fund matching contributions for the years ended December 31st 2017 and 2016 were Nu. 1.26 million and 1.15 million respectively.

11. Valuation in respect of Gratuity as per BAS 19 Employee Benefits for accounting and disclosure of employee benefits has been carried out by independent actuary, Ashok Kumar Garg, Gurgaon, Haryana.

A summary of the key results for the year ended 31 December 2017 are presented below:

2.1 (a): Table Showing Changes in Present Value of Obligations:

PeriodFrom: 1/1/2017 To: 12/31/2017

From: 1/1/2016 To: 12/31/2016

Present value of the obligation at the beginning of the period 23,77,368 15,04,712

Interest cost 1,84,246 1,09,092

Current service cost 5,28,859 5,61,141

Benefits paid (if any) (1,92,170) 0

Actuarial (gain)/loss (3,35,132) 2,02,423

Present value of the obligation at the end of the period 25,63,171 23,77,368

2.2: Key results (The amount to be recognized in the Balance Sheet):

PeriodAs on:

12/31/2017As on:

12/31/2016

Present value of the obligation at the end of the period 25,63,171 23,77,368

Fair value of plan assets at end of period 4,45,568 4,12,989

Net liability/(asset) recognized in Balance Sheet and related analysis 21,17,603 19,64,379

Funded Status (21,17,603) (19,64,379)



2.3 (a): Expense recognized in the statement of Profit and Loss:

PeriodFrom: 1/1/2017 To:

12/31/2017From: 1/1/2016 To:

12/31/2016

Interest cost 1,84,246 1,09,092

Current service cost 5,28,859 5,61,141

Expected return on plan asset (32,007) (27,788)

Expenses to be recognized in P&L 6,81,098 6,42,445

2.3 (b): Other comprehensive (income) / expenses (Re-measurement)

PeriodFrom: 1/1/2017 To:

12/31/2017From: 1/1/2016 To:

12/31/2016

Actuarial (gain)/loss – obligation (3,35,132) 2,02,423

Actuarial (gain)/loss - plan assets (572) (1,917)

Total Actuarial (gain)/loss (3,35,704) 2,00,506

2.4: Table showing changes in the Fair Value of Planned Assets:

PeriodFrom: 1/1/2017 To: 12/31/2017

From: 1/1/2016 To: 12/31/2016

Fair value of plan assets at the beginning of the period 4,12,989 3,83,284

Expected return on plan assets 32,007 27,788

Contributions 0 0

Benefits paid 0 0

Actuarial gain/(loss) on plan assets 572 1,917

Fair Value of Plan Asset at the end of the Period 4,45,568 4,12,989

2.5: Table showing Fair Value of Planned Assets:

PeriodFrom: 1/1/2017 To: 12/31/2017

From: 1/1/2016 To: 12/31/2016

Fair value of plan assets at the beginning of the period 4,12,989 3,83,284

Actual return on plan assets 32,579 29,705

Contributions 0 0

Benefits paid 0 0

Fair value of plan assets at the end of the period 4,45,568 4,12,989



2.6: Actuarial (Gain)/Loss on Planned Assets:

Period From: 1/1/2017 To: 12/31/2017 From: 1/1/2016 To: 12/31/2016Actual return on plan assets 32,579 29,705Expected return on plan assets 32,007 27,788Actuarial gain/ (Loss) 572 1,917

3.1: Summary of membership data at the date of valuation and statistics based thereon:

Period As on: 12/31/2017 As on: 12/31/2016Number of employees 91 88Total monthly salary 9,92,542 9,19,762Average Past Service(Years) 4.6 4.2Average Future Service (yr) 26.8 27.3Average Age(Years) 32.2 31.7Weighted average duration (based on discounted cash flows) in years

24 25

Average monthly salary 10,907

3.2: The assumptions employed for the calculations are tabulated:

Discount rate 7.75 % per annum 7.25 % per annum

Salary Growth Rate 5.00 % per annum 5.00 % per annum

Mortality IALM 2006-08 Ultimate IALM 2006-08 Ultimate

Expected rate of return 7.75% per annum 7.25% per annum

Withdrawal rate (Per Annum) 1.00% p.a. 1.00% p.a.

3.3: Benefits valued:

Normal Retirement Age 59 Years 59 YearsSalary Last drawn qualifying salary Last drawn qualifying salaryVesting Period 5 Years of service 5 Years of serviceBenefits on Normal Retirement 15/15 * Salary * Past Service (yr) 15/15 * Salary * Past Service (yr) Benefit on early exit due to death and disability

As above except that no vest-ing conditions apply

As above except that no vest-ing conditions apply

Limit 1000000.00 1000000.00

3.4: Current Liability

Period As on: 12/31/2017 As on: 12/31/2016Current Liability (Short Term)* 42,922 19,560Non-Current Liability (Long Term) 25,20,249 23,57,808Total Liability 25,63,171 23,77,368



12. The physical verification of fixed assets of the company was carried out comprehensively by the verification team for the financial year ended 31st December 2017.

13. During the year the Company has assessed the carrying amount of the assets vis-a-vis their recoverable values and no impairment is envisaged at the Statement of Financial Position date.

14. The land occupied by the company was leased from DCCL. The agreement has been modified now covering 8.29 acres with an agreement to pay Nu. 2.00 per square feet per annum amounting to Nu. 722.328.58 (8.29 acres is 361,164.29 square feet).

15. Certain balance of Loans & Advances, Trade Receivables and Current Liabilities are subject to confirmation, reconciliation and adjustments in this respect shall be carried out as and when amount thereof, if any, are ascertained.

16. The Company is mainly engaged in a single business segment of producing PP Bags and related products, accordingly there is no separate reportable segment as per Bhutanese Financial Reporting Standard 8 “Operating Segments”.

17. Sales Tax on Polypropylene Bags and Fabric Roll.The management has pursued the sales tax clarification on Polypropylene bag and fabrics vide Letter No. DPL/Govt-1.4/2072/854 dated 15th November 2012. In subsequent to this, the management received Letter No. RRCO/SI/BST (Exemption)/2012/922 dated 19th November 2012 from Regional Revenue & Custom Office (RRCO), Samdrup Jongkhar clarifying that till date there is no levy of sales tax on Polypropylene bag and fabrics.

18. Related Party disclosuresRelated parties and transactions with them as identified by the Management are given below;a. Key management personnel who have authority and responsibility for planning,

directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of the company;i. Mr. Sonam Jigme, CEO, DCCL- Chairmanii. Mr. Karma Wangdi, Sr. Dungpa, Nganglam – Directoriii. Mr. Tshering Tenzin, CEO, DPL - Director iv. Mr. Pema Wangchuk, Director, DCS, CDCL– Directorv. Mr. Sangye Dorji, BNBL – Directorvi. Mr. Kinga Lotey, Head, HRA, DHI- Nominee Director vii. Mr. Norbu Tshering, CEO, DPL – Director (Resigned)viii. Mr. Dorji Norbu, CEO,DCCL – Director (Resigned)

b. No transactions were done with relatives of Key Managerial Personnel during the year.

c. Intercompany transactions: Fellow subsidiaries with whom transactions have been made during the year:1) Bank of Bhutan Limited2) Dungsam Cement Corporation Limited3) Bhutan Telecom Limited4) State Trading Corporation of Bhutan Limited5) Druk Holding & Investments



6) Penden Cement Authority Limited7) Bhutan Power Corporation Limited

GL COdE description Entity Segment Flow Interco Time Amount 1101020103 Balances with BoBL I_DP01 MANFAC F_CLO I_BOBL 2017.DEC -148,260.77

1104010004 Intergroup Margin money deposits I_DP01 MANFAC F_CLO I_BOBL 2017.DEC 0.00

1109010102 Inter-company trade receiv-able I_DP01 MANFAC F_CLO I_DC01 2017.DEC 6,480,975.31

1109010102 Inter-company trade receiv-able I_DP01 MANFAC F_CLO I_PCAL 2017.DEC 1,294,072.84

2103010302 Inter Company Trade payable I_DP01 MANFAC F_CLO I_BTL 2017.DEC -118,113.002103010302 Inter Company Trade payable I_DP01 MANFAC F_CLO I_DC01 2017.DEC 0.002103010302 Inter Company Trade payable I_DP01 MANFAC F_CLO I_BPC1 2017.DEC -367,959.552103010302 Inter Company Trade payable I_DP01 MANFAC F_CLO I_STCBL 2017.DEC -7,100.002103010302 Inter Company Trade payable I_DP01 MANFAC F_CLO I_DI01 2017.DEC -127,456.40

2103020002 Intergroup Non Trade Pay-ables I_DP01 MANFAC F_CLO I_DC01 2017.DEC -289,513.19

2104060301 Borrowings from BOB-Current I_DP01 MANFAC F_CLO I_BOBL 2017.DEC -13,400,000.002104060302 Inter-company borrowings I_DP01 MANFAC F_CLO I_DI01 2017.DEC -20,924,999.722501010001 Equity Shares held by DHI I_DP01 MANFAC F_CLO I_DI01 2017.DEC -42,189,000.00

4107010512 Sale of packing material to DHI Group companies I_DP01 MANFAC F_CLO I_DC01 2017.DEC -113,061,556.00

4107010512 Sale of packing material to DHI Group companies I_DP01 MANFAC F_CLO I_PCAL 2017.DEC -20,334,715.00

4107010524 Inter Group Miscellaneous Income I_DP01 MANFAC F_CLO I_THEL 2017.DEC -

3107010007 Running & Maintenance Of Other I_DP01 MANFAC F_CLO I_BPC1 2017.DEC 313,089.90

3107010007 Running & Maintenance Of Other I_DP01 MANFAC F_CLO I_DI01 2017.DEC 127,456.40

3107010012 Running & Maintenance Of Vehicle-Intergroup I_DP01 MANFAC F_CLO I_STCBL 2017.DEC 371,815.90

3109010041 Inter Group Lease Rent I_DP01 MANFAC F_CLO I_DC01 2017.DEC 722,328.60

3109010615 Communication, internet and telephone charges paid to BTL I_DP01 MANFAC F_CLO I_BTL 2017.DEC 570,075.00

3109010627 Electricity Charges - Intercom-pany I_DP01 MANFAC F_CLO I_BPC1 2017.DEC 3,571,083.53

3110010002 Interest on borrowings-Inter-group I_DP01 MANFAC F_CLO I_DI01 2017.DEC 1,481,849.32

3110010602 Interest on loans from BoBL I_DP01 MANFAC F_CLO I_BOBL 2017.DEC 1,384,498.36

3110010604Bank Charges and fees for other financial services paid to BoBL

I_DP01 MANFAC F_CLO I_BOBL 2017.DEC 240,581.61



22. Managerial Remuneration

ParticularsAmount in Ngultrum (NU.)

2017 2016

Chief Executive Officer*

Salaries including LTC 833,828.00 780,278.80

Contribution to Provident Fund 57,932.00 44,076.00

Sitting Fees 28,000.00 58,800.00

Traveling Expenses 142,178.00 100,905.00

Non- Executives directors

Board Sitting Fees 440,880.00 236,240.00

Board Level Committee Sitting Fees 141,160.00 34,040.00

* Provision for contribution to gratuity fund which was made based on actuarial valuation on an overall Company basis was not included above.

23. Auditors Remuneration:

ParticularsAmount (Nu.)

2017 2016

Audit Fees 63,250 63,250

Audit Expenses 158,613.00 198,124.00

* The audit expenses are taken on actual of the previous year’s whereas the fees represent the current year’s provision.



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