Financial Accounting III

CONTENT

1) EXECUTIVE SUMMERY.

2) PROVISIONS INCLUDING COMPANY ACT NO 7 OF 2007.

3) SLFRS 03 - BUSINESS COMBINATION.

4) SLFRS 08 - DISCONTINUING OPERATION AND ASSETS HELD FOR SALE.

5) LKAS 24 - RELATED PARTY DISCLOSERS.

6) LKAS 27 - CONSOLIDATED FINANCIAL STATEMENTS.

7) LKAS-28-ACCOUNTING FOR INVESTMENTS IN ASSOCIATION.

8) LKAS-31- FINANCIAL REPORTING OF INTEREST IN JOINT VENTURES.

9) INTRODUCTION OF THE COMPANY.

10) OWNERSHIP OF THE COMPANY.

11) FINANCIAL STATEMENTS.

 IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

o INVESTMENTS

o CONSOLIDATED RESERVE

o GOOD WILL

 IN THE CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

o TAXES

o INTRA GROUP ACTIVITIES

o DIVIDENDS

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EXECUTIVE SUMMERY

This report has discussed and appeared the regulatory background when preparation
and presentation of consolidated financial statements. The institute of chartered accountants
of srilanka has shown the regulatory background of consolidated financial statements. The
financial statements should be prepared In accordance with the Lanka Accounting Standards
(LKASs) and Srilanka Financial Reporting Standards (SLFRSs) and the report should be
focused on provision includes in the company act. When preparing consolidated financial
statements following standards should be followed mainly.

1) Provision including company act no 7 of 2007

2) SLFRS-03-Business Combination.
3) SLFRS-08-Discontinuing Operation And Assets Held For Sale.
4) LKAS-24-Related Party Disclosers.
5) LKAS-27-Consolidated Financial Statements
6) LKAS-28-Accounting for Investments in Association.
7) LKAS-31-Financial Reporting Of Interest in Joint Ventures.

This report has described about the Diolog Company and shown some of changes in
consolidated financial statements of that company than another individual firm. Then the
users of financial statements can identify properly that what are the changes has been
represented in consolidated financial statements in Diolog Company.

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PROVISIONS INCLUDING COMPANY ACT NO 7 OF 2007

According to company act no 07 of 2007 following facts will be considered when

preparing consolidated financial statements.
I. Completed in relation to that group and that balance sheet data.
II. Certified by the person responsible for the preparation of financial
statement that is in compliance with the requirement of the act.
III. Dated and signed on behalf of the director by two director of the company
if the company has one director by that director.
1. Group financial statements and the balance sheet date need not to state if the company
is at the balance sheet date the completely owned subsidiary of another company.
2. True and fair view of group financial statements should be given by
I. State of matter of the company and subsidiary as at the balance sheet date.
II. Profit and loss or income and expenditure of the company and its
subsidiary for the accounting period ending on that balance sheet date.
3. Any regulation made under the act no 07 of 2007 and any requirements which apply
to the group financial statements under the law.
4. How to account when subsidiary becomes a subsidiary of a company during
accounting period.
5. If the balance sheet date of subsidiary does not proceeds more than three monthly
incorporate financial statements of the subsidiary for the accounting period or
incorporate interim financial statement in respect of a period that is the same as the
accounting period and any other case incorporate interim financial statements of
subsidiary completed in respect of a period that is same as the accounting period of
company.
6. If the board of directors of the company thinks that inappropriate to corporate
financial statements. Impracticable and no real value to the shareholders, results will
be misleading and harmful and business of the company and subsidiary of the
company so different.
7. Group financial statements prepared by the company should not omit the financial
statements of the subsidiary without the prior approval in writing of the registrar
which may be given on such terms and conditions.

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SLFRS 03 - BUSINESS COMBINATION

Identifying a business combination

Business combinations are transactions in which one entity gains control, or at least
controlling interest, in another entity. It is possible to manage a business combination by way
of a merger, a voluntary acquisition; in some cases acquiring a controlling amount of stock
may be the preferred means of managing this type of combination.
An entity shall determine whether a transaction or other event is a business
combination by applying the definition in this SLFRS, which requires that the assets acquired
and liabilities assumed constitute a business. If the assets acquired are not a business, the
reporting entity shall account for the transaction or other event as an asset acquisition.

Firm 1

Firm 2 Business Control Combination

Firm 3

Acquisition method
First of all should be identify the acquirer and should determine the acquisition date.
Then recognize and measure the identifiable assets acquired, the liabilities assumed and any
non- controlling interest in the acquire and recognize and measure the goodwill or a gain
from a bargain purchase.
Disclosures
The acquirer shall disclose information that enables users of its financial statements to
evaluate the nature and financial effect of a business combination that occurs either during
the current reporting period after the end of the reporting period but before the financial
statements is authorized for issue.
The acquirer shall disclose information that enables users of its financial statements to
evaluate the financial effects of adjustments recognized in the current reporting period that
relate to business combinations that occurred in the period or previous reporting periods.

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SLFRS 08 - DISCONTINUING OPERATION AND ASSETS HELD FOR

SALE

An operating sector is a component of an entity that is a profit center it has discrete

financial information available, and whose results are reviewed regularly by the entity's chief
operating decision maker for purposes of performance assessment and resource allocation.
An operating segment generally has a segment manager who is accountable to the chief
operating decision maker for the results of the segment.
An operating segment is a component of an entity. That engages in business activities from
which it may earn revenues and incur expenses whose operating results are regularly
reviewed by the entity’s Chief Operating Decision Maker to make decisions about resources
to be allocated to the segment and assess its performance and for which discrete financial
information is available.
SLFRS 8 does not define segments as either business or geographical segments and does not
require measurement of segment amounts based on an entity’s IFRS accounting policies, an
entity must disclose an explanation of how it determined its reportable operating segments,
and the basis on which the disclosed amounts have been measured. These disclosures include
reconciliations of the totals of key segment amounts to the corresponding entity amounts
reported in the SLFRS 8 financial statements.

Disclosures
Users want to know the risks- Enable users evaluate the nature and financial effect of
its business activities an entity engages in and the environment in which it operates
01. Operating segment disclosures are based on components which management
monitors for making decisions
02. Identified based on internal reports reviewed by the CODM in:
o Allocating resources
o Assessing segment performance
03. Application in practice require significant judgment

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LKAS 24 - RELATED PARTY DISCLOSERS.

Disclosure is required for upwards and downwards controls relationships and details of the
transactions. Parties are related if one party can control or exercise significant influence over
the other.
 Parents
 Subsidiaries
 Joint ventures
Related parties
 Fellow subsidiaries
 Other entities controlled by owners or key
management

Examples -
o Sales and purchases of goods and services
o Balances arising as a result at the Balance Sheet date
o Loans, commitments and contingencies
o Bank loans and collateral
o Share capital transactions

Exemptions -
o Stand-alone financial statements of a parent if consolidated
statements are available.
o Financial statements of a totally owned subsidiary if parent
incorporated in the same country and providing financial statements
o Intra-group transactions that have been eliminated on consolidation
o State controlled entities

Disclosure of transactions, and outstanding balances with related parties that have the
possibility of affecting the financial position and financial performance. Companies needs to
institute processes to provide these disclosures

01. The amount of the transactions.

02. The amount of outstanding balances.
03. The nature & details of the consideration to be provided in settlement.
04. Provision for doubtful debts related to the amount of outstanding balances.
05. The expenses recognized during the period in respect of bad or doubtful debts due to
from related parties.

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LKAS 27 - CONSOLIDATED FINANCIAL STATEMENTS

This standard shall be applied in the preparation and presentation of consolidated
financial statements for a group of entities under the control of parent. Subsidiaries are
entities controlled by the group. If the financial statements of a subsidiary used to
prepare the consolidated financial statements on date or for a period that is different
from that of the parent’s financial statements, then the entity discloses the end of the
reporting period of the subsidiary and the reason for use a different date or period.
This standard shall also be applied in accounting for investment in subsidiaries,
jointly controlled required by local regulation, to present separate financial statements.

DEFINITIONS
A Parent is an entity that has one or more subsidiaries.

A group is a parent and all its subsidiaries.

A subsidiary is an entity including an unincorporated entity such as a partnership that is

controlled by another entity.

Control is the power to govern the financial and operating policies of an entity so as to
obtain benefits from its activities.

Non-controlling interest is the equity in subsidiary not attributable, directly or indirectly to a

parent.

Separate financial statements are those presented by a parent, an investor in an associate or

a venture in a jointly controlled entity, in which the investments are accounted for on the
basis of the direct equity interest rather than on the basis of the reported results and net assets
of the investees.

Scope

1. Consolidated Financial Statements for a group of entities under the control of a parent
2. Separate Financial Statements (by election or legal requirement) are investments in
subsidiaries, investments in associates and investments in jointly controlled entities

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Presentation of consolidated financial statements

A parent need not present consolidated financial statements if and only if the parent is itself a
completely owned subsidiary or is a incompletely owned subsidiary of another entity and its
other owners, including those not otherwise entitled to vote, have been informed about, and
do not object to, the parent not presenting consolidated financial statements. The Parent’s
debt or equity instruments are not traded in public market
The parent did not file, nor is it in the process of filling, its financial statements with a
securities commission or other regulatory organization for the purpose of issuing any class of
instruments in a public market and the ultimate or any intermediate parent of the parent
produce consolidated financial statements available for public use that comply with Sri lanka
accounting standards.

In preparing consolidated financial statements, in an entity combines the financial

statements of the parent and its subsidiary line by line by adding together like them of assets,
liabilities, equity, income and expenses. In order that the consolidated financial statements
present financial information about the group as that of single economic entity.

The carrying amount of the parent’s investment in each subsidiary and the parent’s
portion of equity of each subsidiary are eliminated. Non controlling interest in the profit or
loss of consolidated subsidiaries for the reporting period is identified. Non controlling
interests in the net assets of consolidated subsidiaries are identified. Separately from the
parent’s ownership interest in them.

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LKAS 28- ACCOUNTING FOR INVESTMENTS IN ASSOCIATION

According to this standard can be applied in accounting for the investments in associates
though this does not address the investments in associates held by venture capital
organization and mutual funds, unit trends and similar entities including insurance funds.
According to the LKAS 28 investment in associates following disclosures should be existing
in the annual report.

o Fair value of investment in associates and summarized financial information including

assets, liabilities, revenue and profit or loss
o The reasons for the assumption of having or not having significant influence
o End of reporting period
o The nature and extent of any significant restrictions to transfer funds to investor in the
form of cash dividend, repayment and loans advances
o Unrecognized share of losses and the fact that not accounted based on equity method
o The investors’ share of exchanges. Share of contingent liabilities and assets based on
the LKAS 37 provisions, contingent liabilities and assets

DEFINITIONS

Associate entity over which the investor has significant influence, but not asubsidiary or a
jointly controlled entity
Equity Method
I. Investment is initially recognized at cost
II. Thereafter adjusted for the post‐acquisition share of net assets of the investee
Significant Influence Power to participate in the financial and operating policy decisions of
the investee but not control or joint control

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LKAS 31 - FINANCIAL REPORTING OF INTEREST IN JOINT

VENTURES
Joint ventures define according to the LKAS 31 a joint venture as “A joint venture is a
contractual arrangement whereby two or more parties undertake an economic activity that is
subject to joint control.”
Joint control means that the parties to the joint venture agree to share control over the
economic activities of the joint venture. This means that unanimous consent of the parties
involved is required to make strategic decisions.

DEFINITIONS
This standard says that
o Control is the power to govern the financial and operating policies of an
economic activity.
o An investor in joint ventures is a party to a joint venture and does not have
joint control over that joint venture.
o A joint venture is a contractual arrangement whereby two or more parties
undertake an economic activity that is subject to joint control.
o Proportionate consolidation is method of accounting whereby a venture’s
share of each of the assets, liability, income and expenses of a jointly
controlled entity is combined line by line with similar items in the venture’s
financial statement or reported as separate line items in the venture’s financial
statement.

Jointly controlled operations

Joint ventures Jointly controlled assets

Jointly controlled entities

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INTRODUCTION OF THE COMPANY

Dialog Axiata PLC is a subsidiary of Axiata Group Berhad (Axiata), operates

Srilanka’s largest and fastest growing mobile telecommunications network. The Company is
also one of the largest listed companies on the Colombo Stock Exchange in terms of market
capitalization and is Sri Lanka’s largest Foreign Direct Investor (FDI) with investments
cumulating to over USD 1.41Bn.
Dialog has been at the forefront of innovation in the mobile industry in Sri Lanka
since the late 90’s, propelling the nation’s mobile telephony infrastructure to a level of
advancement on par with the developed world. The Company delivers advanced mobile
telephony and high speed mobile broadband services to a subscriber base in excess of 7.7Mn
Sri Lankans, via a 2.5G and 3G/3.5G networks. The Company holds the distinction of being
the first service provider in South Asia to launch 3G and HSPA+ services, and most recently
Mobile 4G services based on FD-LTE technology. Dialog also provides a comprehensive
suite of International Roaming Services across a global footprint comprising of more than
200 countries, and operates a wide portfolio of international telecommunication services,
including but not limited to retail and wholesale international voice and data services. Dialog
is an ISO 9001 certified company and is indelibly positioned as Sri Lanka’s premier and most
preferred connectivity provider. Sri Lankan consumers named Dialog, the
Telecommunications Service Provider of the Year for the
Sri Lankan consumers also chose Dialog as the Internet Services Provider of the Year
in its inaugural year of award. Dialog features consistently among Sri Lanka’s top 3 most
valuable brands as rated by Brand Finance. Over the past years, the Company and has
received numerous local and international awards including the National Quality Award, the
Sri Lanka Business Excellence Award, and 3 successive GSM World Awards. The Company
has also earned the distinction of retaining the No. 1 position on Sri Lanka’s Corporate
Accountability Ratings over the past 4 years, and has been consistently placed among the top
5 Most Respected Corporate Entities in Sri Lanka.
Dialog Axiata PLC is a public limited liability company incorporated and domiciled
in Sri Lanka and is listed on the Colombo Stock Exchange since 28 July 2005. The registered
office of the Company is located at 475, Union Place, Colombo 2.

OWNERSHIP OF THE COMPANY

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The Company is committed to having regular, proactive and effective communication

with the investors and shareholders. The Company respects the rights of the shareholders and
seeks to empower them by communicating effectively and providing ready access to balanced
information about the Company.
The Total Shareholder Returns (TSR) of the share was 9.6% in 2012 as a result of the
6.4% increase in the share price and the dividend per share of Rs. 0.25 paid during the year
2012. The Market TSR (based on ASPI) was negative 4.4% in2012, while TSR based on MPI
increased by 0.1%. Composition of Shareholders the total number of Shareholders of DIAL
decreased to 22,194 as at 31 December 2012 compared to the 22,744 during the previous
year. The public float of DIAL remained at 14.73% as at 31 December 2012. In terms of
composition of the public float, foreign investors held 52% of the float, 39% was held by
local institutional investors and 9% by local retail investors. Local institutional investor
interest in DIAL share continued to increase during 2012, as evident from figure 4, the local
institutional investor composition increased to 39% in 2012 compared to 37% in the previous
year.

SHAREHOLDERS PROFILE

Distribution of Shareholders at 31st December 2012

No. of Shareholders % No. of Shares Held %

1 - 1,000 6,802 30.65 1,856,023 0.02

1,001 - 10,000 13,835 62.34 26,915,630 0.33
10,001 - 100,000 1,274 5.74 31,856,277 0.39
100,001 - 1,000,000 210 0.95 53,520,961 0.66
Over 1,000,000 73 0.33 8,029,629,514 98.60
Total 22,194 100.00 8,143,778,405 100.00

The issued Ordinary Shares of Dialog Axiata PLC are listed on the Colombo Stock
Exchange.
* Stock exchange ticker symbol for Dialog Axiata shares : DIAL
* Newswire codes

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Financial Statements
The set financial statements group for the year ended 31st December 2012
Which include the
o Consolidated statements of financial position
o Consolidated statements of comprehensive income
o Consolidated statements of changes in equity
o Consolidated statements of cash flows
o Necessary notes to the financial statements of the Company

In the financial statements have been prepared and presented according to the Lanka
Accounting Standards (LKASs) and Srilanka Financial Reporting Standards (SLFRSs) issued
by The Institute of Chartered Accountants of Srilanka. In this report has covered some of
following valuable sectors of consolidate financial statements.

IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 INVESTMENTS
Investments in associates have been accounted for in the consolidated financial
statements using the equity method of accounting. Under the equity method of accounting,
the investment is initially recognized at cost, and the carrying amount is increased or
decreased to recognize the Group’s share of the post-acquisition results and changes of the
associate’s reserves in the consolidated statement of comprehensive income after the date of
acquisition and net off with any accumulated impairment loss.
The Group’s investment in associates includes goodwill identified on acquisition.
When the Group’s share of losses in an associate equals or exceeds its interest in the
associate, including any other unsecured receivables, the group has not recognized further
losses, unless it has incurred legal or constructive obligations or made payments on behalf of
the associate. If the associate subsequently reports profits, the Group resumes recognizing its
share of those profits only after its share of the profits equals the share of losses not
recognized.

The adjustment to the investment in associate of Rs. 8,008,000 recognizes the impact
for accounting for fair value on the disposal of 74% interest in the subsidiary, Dialog
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Business Services (Private) Limited (DBS) as a deemed disposal. The corresponding

adjustment is made as gain on disposal of subsidiary and is classified under other income.

 CONSOLIDATED RESERVE

Rs. ‘000
Group (31 Dec 2012) Company (31 Dec 2012)
Dividend reserve - ESOS Trust 331,425 331,425
Retained earnings (consolidated P&L reserve) 10,737,128 19,948,823

Revaluation reserve 128,469 93,798

 GOOD WILL

As an intangible asset goodwill represents the excess of the cost of an acquisition over the
fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the
date of acquisition. Goodwill on acquisitions of subsidiaries has included under intangible
assets. Goodwill acquired in a business combination is tested annually for impairment or
more frequently if events or changes in circumstances indicate that it might be impaired and
carried at less than costs less accumulated impairment losses. Impairment losses on goodwill
are not reversed.
Rs. ‘000
Group (31 Dec 2012) Company (31 Dec 2012)
Intangible assets (Good will) 10,385,652 1,485,313

Goodwill has been allocated to cash-generating units (‘CGU’) for the purpose of impairment
testing. Each CGU or a group of CGUs represents the lowest level within the Group at which
goodwill is monitored for internal management purposes and which are expected to benefit
from the synergies of the combination.

IN THE CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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 TAXES

Income taxes - Judgment has involved in determining the Company and the Group provision
for income taxes. There are certain transactions and computations for which the ultimate tax
determination is uncertain during the ordinary course of business. The Company and the
Group recognize liabilities for tax matters based on estimates of whether additional taxes will
be due. If the final outcome of these tax matters result in a difference in the amounts initially
recognized, such differences will impact the income tax and or deferred tax provisions in the
period in which such determination is made.

Deferred tax - Deferred tax assets has been recognized to the extent that it is probable that
future taxable profit will be available against which temporary differences can be utilized.
This involves judgment regarding future financial performance of a particular entity in which
the deferred tax asset has been recognized.
Rs. ‘000
Group (31 Dec 2012) Company (31 Dec 2012)

Profit before income tax 4,065,526 4,216,755

Income tax 1,964,661 1,973,509

 INTRA GROUP ACTIVITIES (BALANCES & TRANSACTIONS)

Rs. ‘000
Group (31 Dec 2012) Company (31 Dec 2012)
Amounts due from related companies 5,091 9,559,729

 DIVIDENDS

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Dividend reserve
Rs. ‘000
Group (31 Dec 2012) Company (31 Dec 2012)
At 1 January 291,781 291,781
Dividend received by ESOS Trust 39,644 39,644
At 31 December 331,425 331,425
This company calculated basic earnings per share by dividing the net profit attributable to
shareholders by the weighted average number of ordinary shares in issue during the year,
excluding ordinary shares held by the ESOS Trust
The Directors have recommended a withholding tax free final dividend of Rs. 0.33
(2011 - Rs.0.25) per share amounting to Rs. 2,687,446,874

REPORTING PERIOD
The reporting period of this group of company is one year, which is from 1 st April to
31st March of the next year or coming year. In other word the date of authorization is 31 St
March in every year. All the subsidiary company also prepared and presented of its financial
statements for the same reporting period as the parent company and in compliance with the
gropes accounting policies unless specifically stated.

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