Accounting Standards followed by Square Textiles LimitedUniversity of DhakaEMBA ProgramDepartment of Accounting and Information System

A Term paper

on

Accounting Standard followed by Square Textiles Limited

Course: Principles of Accounting (4101)

Prepared for

MD. Al-AminAssociate ProfessorFaculty of Business Studies

Prepared by

Dip Saha113_____MD. Tanvir Fuad Bin Ahsan11323006Suzona Asad11323015Priyanka BaruaJubaer

Date of Submission: April 30, 2013

TitlePage no

Abstract1

Introduction

Company Profile

Interpretation of Chairmen Speech

Interpretation of Managing Directors Speech

Interpretation of Auditors Report

Significant Accounting policies and Accounting Standards

Application of Bangladesh Accounting Standards (BAS)

Conclusion

Reference

Annexure

AbstractSquare Textiles Limited has entered the textile sector with its manufacturing facilities of cotton yarn in 1997. Combining modern technology with skilled manpower under unique inspiring, atmosphere, this new venture soon rose to the top of the local textile industry. Today it has one of the most sophisticated vertically integrated set-ups. The report is designed to communicate informations between the theoretical knowledge & real life. It is designed to have a practical experience while passing through the theoretical understanding as well as, to know the standardization of accounting and financial reporting of Square Textiles Limited As a matter of fact, in Bangladesh, now-a-days many companies of RMG sectors are conducting their operations (28 public limited company listed in DSE), but they differ from one another in many ways regarding their services & product. Square Textiles Limited is a registered company in Bangladesh. This report covers mainly our understandability of financial statements through accounting perspective based on Square Textiles Limited annual report 2011. For the better understanding we have focused on the accounting standards those are followed by this company, to reveal the companys actual position. The main objective of this report is to make through overview of the accounting standard set by the regulatory authorities home and abroad as we title the report Accounting Standards followed by Square Textiles Limited

IntroductionOrigin of the studyIn todays world, education is the tool to understand the real world and apply knowledge for the betterment of the society as well as business. From education the theoretical knowledge is obtained from courses of study, which is only the half way of the subject matter. Practical knowledge has no alternative. The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between these two areas. Therefore, for the M.B.A. program we are assigned to prepare a report to gather practical knowledge and experience. This paper entitled Accounting Standards followed by Square Textiles Limited is originated from the M.B.A. program. This report preview mainly focuses on the understandability of financial statement through the accounting standards.Objectives of the studyPrimary Objectives are to submit the report for the course curriculum of M.B.A. program, to find out the present position of Square Textiles Limited in Bangladesh by observing the financial activities.Secondary Objectives are to gather comprehensive knowledge on financial statement of the company, to identify the factors contributing to the attractive & operative performance. Methodology of the Report To accomplish the report we mainly depend on the secondary data, as we have no access for primary data. The sources of secondary data are- Annual report (2009-2010) of Square Textiles Limited The website of Square Textiles Limited (DSE website as well)Limitations of the StudyIt is actually very tough to some extent to learn and cover all the components of the analysis within this specific time span. Although this study tried to cover all the relevant concerns, it has some major shortcomings. Due to limited access of the data, this study may not be perfect to the cent percent. Due to shortage of time and inadequate, in-depth analysis could not be done in the report.Company Profile:SQUARE today symbolizes a name a state of mind. But its journey to the growth and prosperity has been no bed of roses. n a career spanning across four and half decades it has pioneered the development of the local business in fields as diverse as Pharmaceuticals, Toiletries, Garments, Textile, Information Technology, Health Products, Food Products, Hospital, etc. With an average Annual turnover of over US$ 200 million and a workforce of about 3500 the SQUARE Group is a true icon of the Bangladesh business sector.The conception of business are germinated from their vision which sees it as a means to the well being of the investors, stakeholders, employees and members of the society at large by creating new wealth in the form of goods and services that go to satisfy the wants of all of them without disturbing or damaging the socio-ecological-economic balance of the Mother Earth and the process of human civilization leading to peaceful co- existence of all the living beings.Their mission is to elaborate the vision for maximization of production of quality products and services strictly on ethical and moral standards at minimum costs to the society ensuring optimum benefits to the consumers, the shareholders and other stakeholders.

Interpretation of Chairman SpeechIn this section we have tried to interpret the speech which is given by the Chairman of the organization. There is some significant information those are being interpreted from the Chairmans speech which are very much relevant in order to take investment decision. The interpretation can be listed like the following: Focus of the business history (from where it begins and what about now) To make business decision on the basis of history and present condition. Dictating the economic scenario nationally and globally Explanation of the Trend of growth in Revenue Turnover, Gross profit, Net profit in a positive direction. Company is continuously expanding in its product line. Companys participation in the tax giving activities Though different adverse natural, political and socio-economic disorder company keep track on the ladder of success. Exposing the gratitude towards the regulatory bodies The company is playing its role as the leading corporate in the industry. To take lesson from former founding chairmen Samson H ChowdhuryCompany has an opportunity to continuously grow at more than proportionate share of market.

Interpretation of Managing Director SpeechIn this section, managing director of the company give a promise to their respective stakeholder to continue the operation according to the path and procedure which is operated effectively and efficiently that shown by former founding chairmen Samson H Chowdhury which ideals and morals leads company in the front. The operational dynamics and returns of investment position also discussed, in this section where managing director gives promise of ensuring all possible co-operation. Interpretation of Auditors SpeechThe auditors have written We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.The auditors have given an unqualified report. The unqualified opinion has no reservations concerning the financial statements. This is also known as a clean opinion meaning that the financial statements appear to be presented fairly.The auditors have also given opinion that the Financial Statements prepared in accordance with Bangladesh Financial Reporting Standards, give a true and fair view of the state of the company's affairs and of the results of its operations and its cash flows for the period then ended and comply with the companies Act 1994, the Securities and Exchanges Rules 1987 and other applicable laws and regulations.

Significant Accounting Polices & Accounting standardsThese include Bangladesh Financial Reporting Standards BFRS which are issued by the International Accounting Standards Board (IASB) as IASs and IFRSs and adopted by ICAB as BASs and BFRSs.Legal form of the companySquare Textiles Limited (Here in after said as the Company) is a public limited company and its subsidiaries, Square Yarns Limited and Square Texcom Limited incorporated with Registrar, joint stock companies and firms, Dhaka, Bangladesh under Companies Act 1913 and Companies Act 1994 respectively. The principal activities of the Company and its subsidiary (the group) are described in note 1(b) and (c). The address of the registeredoffice at Square Centre, 48 Mohakhali C/A, Dhaka 1212. Factory at Sharadaganj Kashimpur, Gazipur. The group owns Five (5) units of spinning mills, and a twisting mill. Its activities and operations are related with manufacturing and marketing of Yarns.Basis of preparation and presentation of financial statementsThe financial statements have been prepared in conformity with the provisions of the Companies Act 1994, The Securities and Exchanges Rules 1987 and other relevant rules and regulations.Principal Accounting PoliciesThe financial statements have been prepared in accordance with the going concern principle and historical cost convention. Specific accounting policies were selected and applied by the company's management for significant transactions and events that have a material effect within the framework of BAS-1 ''Presentation of Financial Statements'' in preparation and presentation financial statements. The previous years' figures were presented according to the same accounting principles. Compared to the previous year, there were no significant changes in the accounting and valuation principles affecting the financial position and performance of the company. However, changes made to the presentation are explained in the note for each respective item. The management of the Company adopted BAS-1 (Revised-2008) in the year of reporting.Accounting and valuation methods are disclosed for reasons of clarity. The company classified the expenses using the function of expenses method as per BAS-1.Reporting PeriodThe financial period of the company covers yearly basis. This could entail the going concern principle of accounting reporting where the company makes it lifetime into pieces of operation time period in which the users may have financial focus and the procedure of these focuses. Basis of Consolidation: The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company. Control is achieved where the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other member of the group. All intra group transaction, balances, income and expenses are eliminated in full on consolidation. Non-controlling interest in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. These consolidated financials have been prepared in consolidation with the audited accounts of the company and the audited accounts of Square Yarns Limited for the Year ended December 31, 2011 and restated Financials of Square Texcom Limited as of December 31, 2011 being there is a difference between Financial Year of Square Texcom Limited and Square Textiles Limited.

Application of Bangladesh Accounting Standards (BAS)The following BASs are applicable for the financial statements for the year under review:

StandardContent

BAS - 1 Presentation of Financial Statements

BAS - 2 Inventories

BAS - 7 Cash Flow Statements

BAS - 8 Accounting Policies, Changes in Accounting Estimates and Errors

BAS - 10 Events after the Balance Sheet Date

BAS - 12 Income Taxes

BAS - 14 Segment Reporting

BAS - 16 Properties, Plant and Equipment

BAS - 17 Leases

BAS - 18 Revenue

BAS - 19 Employee Benefits

BAS - 21 The effects of Changes in Foreign Exchange Rates

BAS - 23 Borrowing Costs

BAS - 24 Related Party Disclosures

BAS - 25 Accounting for Investments

BAS - 26 Accounting and Reporting by Retirement Benefit Plans

BAS - 27 Consolidated Financial Statements and Accounting for Investment

BAS - 28 Accounting for Investment in Associates

BAS - 33 Earnings Per Share

BAS - 37 Provisions, Contingent Liabilities and Contingent Assets

BAS - 38 Intangible Assets

Fixed Cost/Property, Plant and Equipment: Property, plant & equipment are recognized if it is probable that future economic benefits associated with the assets will flow to the company and the cost of the assets can be reliably measured. All fixed assets are stated at cost less accumulated depreciation as per BAS-16 Property, Plant and Equipment. The cost of acquisition of an asset comprises its purchase price and any directly attributable cost of bringing the asset to its working condition for its intended use inclusive of inward freight, duties and non-refundable taxes. Depreciation:Depreciation is charged for the year at the specific rates on straight line method on all fixed assets and no depreciation is charged on land and work in progress. There is also an obligation not to charge depreciation during the month when the PPE is disposed.Inventories/Stocks:Inventories are valued in accordance with Bangladesh Accounting Standard (BAS-2): Inventories i.e. at cost or estimated net realizable value whichever is lower. The cost of inventories includes expenditure for acquiring the inventories and bringing them to their existing location and condition. Net realizable value is estimated upon selling price in the ordinary course of business less estimated cost of completion of considering the selling. When the inventories are used, the carrying amounts of those inventories are recognized in the year in which the related revenue is recognized.Revenue Recognition:In terms of the provisions of the BAS-18 Revenue; revenue represents the invoice value of goods supplied and service provided to customers during the period. Revenue from sale of goods is recognized in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. Sales are recognized when delivery certificate is raised against confirmed orders. Sales in these accounts are stated as per Net Realization Value. Revenue of the Vessels is recognized at invoice date. Employees' Separation Plan: The group has established an approved contributory provident fund scheme. A board of trustees wholly administers the fund. No part of the fund is included in the asset of the group. The group has separate unfunded gratuity scheme under which an employee is entitled to the benefit depending on length of service. The group has two group insurance schemes for its permanent employees, premium for which is being charged to Statement of Comprehensive Income.Foreign Currency Transactions:Foreign currency transactions are converted into equivalent Taka using the ruling exchange rates on the dates of respective transactions as per Bangladesh Accounting Standard (BAS-21) The Effects of Changes in Foreign Exchange Rates. Foreign currency balances held in US Dollar are converted into Taka at bank market on the closing date of every month. This is relevant informationCash Flow Statement:Statement of cash flows is prepared principally in accordance with BAS-7: Statement of Cash Flows and the cash flows from operating activities have been presented under direct method as per part III of securities & Exchange Rules 1987.Earnings per Share (EPS):Earnings per share have been calculated in accordance with BAS 33 Earnings per Share which has been shown on the face of the statement of comprehensive income. This has been calculated by dividing the basic earnings by the weighted average number of ordinary shares outstanding during the year. The bonus shares issued during the year 2011 were treated as if they had been in issue in previous year also (declared for 2010 result). Hence, in computing the basic earnings per share of 2011, the total number of shares including the said bonus shares has been considered as the weighted average no. of shares outstanding during the year 2011 as per BAS 33 Earnings per Share.Provisions, Contingent Liabilities and Contingent Assets:Provisions were made considering risk and un-certainties at best estimate of the probable expenditure that Provisions were made considering risk and un-certainties at best estimate of the probable expenditure that would require meeting the current obligation on the Balance Sheet date.Contingent liabilities and assets are current or possible obligations or on liabilities or assets, arising from past events and existence of which depends upon the occurrence or non-occurrence of one or more uncertain future events which are not within the control of the company. In accordance with BAS-37, they are disclosed.Share premiumSquare Textiles Limited shows Share premium in accounts after deduction of income tax as per Finance Act-2011.Contingent Liabilities and Assets: Current or possible obligations or assets arising from past events and whose existence is due to the occurrence or non-occurrence of one or more uncertain events which are not within the control of the group.Related Party Transaction: The group has some related party transaction in arm length transaction with its sister concern.Segment Reporting: There are three business centers in two geographical segment but same business nature of the group. So there no reportable business segment because the subsidiary's financial statements are enclosed with these financials.Research, Development and Experimental Costs:In compliance with the requirements of BAS-38 "Intangible Assets" research, development and experimental costs are usually absorbed as revenue charges as and when incurred, as being not that much material in the company's and /local context.Benefit to the employeesThe retirement benefits accrued for the employees of the company as on reporting date have been accounted for in accordance with the enumerating the retirement benefit schemes operated by the company are provident fund and gratuity fund as per the Provisions of Bangladesh Accounting Standard (BAS-19), Employee Benefit. Provision for taxationIncome tax expense represents the sum of the tax currently payable and deferred tax.Provision for current income tax has been made as per prescribed rate in the Finance Act, 2011 on the accounting profit made by the company after considering some of the add backs to income and disallowances of expenditure as per income tax laws in compliance with BAS-12 Income Taxes.Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability shall be settled or the asset realized, based on tax rates (and tax laws) that have been enacted by the date of Statement of Financial Position.Use of estimates and judgmentsIn the preparation of the financial statements management required to make judgments, estimates and assumptions as per BAS 8 : Accounting policies, Changes in Accounting estimates and errors that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

Conclusion

Square Textiles Limited is an organization with equal emphasis on Leadership, Technology, Quality and Passion with significant domestic market share in which the market is highly competitive. This leading branded blending world-class lubricants in Bangladesh producing quality essential successfully.Institutional legitimization is a major factor that drives the decision to adopt IASs because of the pressure exerted by key international donor/lending institutions on the Bangladeshi Government and professional accounting bodies. Such pressure results from not only the need to provide credibility to foreign investors but also the need for strong accountability arrangements with lending/donor agencies.The paper evaluates that the Square Textiles Limited of Bangladesh follow the standards of accounting and financial reporting, regarding the preparation of their financial statements. According the financial statements of Square Textiles Limited, we can say that they comply with existing rules and regulation as well as relevant International Accounting Standards (IASs) and Bangladesh Accounting Standard (BASs) relevant with companys requirement.

Reference

Annual Report of Square Textiles Ltd.-2011

Websites:

Textile.squaregroup/sqtextiles.html www.wikipedia.org/wiki/International_Financial_Reporting_Standards http://www.dsebd.org

Annexure

Annual Report of Square Textiles Limited-2011Page | 14