Annual Report 2011/2012 - Colombo Stock Exchange

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ANNUAL REPORT 2011 / 12 NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2012 CORPORATE INFORMATION 1.1 General Mercantile Shipping Company PLC (“Company”) is a Public Limited Liability Company, incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The registered office and the principal place of business of the Company are situated at No.441, K Cyril C Perera Mawatha, Colombo 13. The Consolidated Financial Statements of Mercantile Shipping Company PLC for the year ended 31 March 2012 comprises of the Company and its subsidiaries, Mercantile Global Shipping Limited, Mercantile Emerald Shipping (Private) Limited. 1.2 Principal Activities and Nature of Operations During the year, the principal activities of the Group were as follows: Mercantile Shipping Company PLC The principal activity of the Company was hiring and operating of vessels for sea cargo operation. The Company has disposed its last sea going vessel M.V. Safmarine Soyo on 23 January 2010. As a result, no hiring and operation of vessel activity has been carried out by the Company during the year. However, the Company manages its fully owned subsidiary of Mercantile Emerald Shipping (Private) Limited which operates two vessels for international sea cargo. Mercantile Emerald Shipping (Private) Limited Hiring of vessels for international sea cargo operation. Mercantile Global Shipping Limited Not in operation MSC Trading Limited Not in operation. 1.3 Date of Authorization for Issue The Financial Statements of Mercantile Shipping Company PLC and its Subsidiaries for the year ended 31 March 2012 were authorized for issue in accordance with a resolution of the Board of Directors on 18 July 2012. 2. GENERAL POLICIES 2.1 Basis of Preparation The Financial Statements of the Group have been prepared on a historical cost basis. The Financial Statements are presented in Sri Lankan Rupees except when otherwise indicated. The preparation and presentation of these Financial Statements are in compliance with the Companies Act No. 7 of 2007. The Financial Statements of Mercantile Global Shipping Limited has been prepared other than on a going concern basis and the assets and liabilities are recorded at their realisable amounts. 2.1.1 Statement of Compliance The Financial Statements of the Company and the Group have been prepared in accordance with Sri Lanka Accounting Standards (SLAS). 2.1.2 Comparative Information The Accounting Policies have been consistently applied by the Companies in the Group and are consistent with those used in the previous year. 2.1.3 Basis of Consolidation The Consolidated Financial Statements comprise the financial statements of Mercantile Shipping Company PLC and its subsidiaries of Mercantile Global Shipping Limited and Mercantile Emerald Shipping (Private) Limited for the financial year ended 31 March 2012. The financial statements of the subsidiaries are prepared for same reporting year as the Parent Company, using consistent accounting policies. Mercantile Global Shipping Limited and Mercantile Emerald Shipping (Private) Limited are fully owned subsidiaries of the Company. MSC Trading Limited is a non operational subsidiary since 01.04.2009. All intra group transactions, balances, income and expenses, profit and losses resulting from intra-group transactions that are recognized in assets, are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the company obtains control, and continue to be consolidated until the date that such control ceases. 2.2 Segmental Information A business segment is a distinguishable component of an enterprise that engages in providing individual services or group of services that is subject to risk and returns and is different from those of other business segments. The segments are determined based on the Group's geographical spread of operations. The qualifying segments under geographical segment reporting are as follows: -Regional (Business carried out with in Sri Lankan waters) -International (Business carried out side Sri Lankan waters) 19
MERCANTILE SHIPPING COMPANY PLC NOTES TO THE FINANCIAL STATEMENTS Contd... Year ended 31 March 2012 20 The Group disposed its regional sea cargo vessels “Mercs Ruhunu” and “Mercs Yala” on 27 February 2009 and 13 March 2009 respectively. As a result there are no distinguishable components to be identified as a segment as all operations are treated as one segment (International Sea Cargo Operation). 2.3 SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES Judgments: In the process of applying the Group's accounting policies, management has made the following judgments, apart from those involving estimations, which has the most significant effect on the amounts recognized in the Financial Statements. Deferred Tax Assets Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Owner Occupied Properties and Investment Property In determining if a property qualifies as an Investment Property, the Group makes a judgment whether the property generates independent cash flows rather than cash flows that are attributable not only to the property but also other assets. Judgment is also applied in determining if ancillary services are significant, so that a property does not qualify as investment property. Functional Currency The choice of the functional currency of the Companies in the Group has been made based on factors such as the primary economic environment in which the Company operates, the currency that mainly influences sales prices for services, costs of providing goods and services and labor costs. Estimates: Estimation of Useful Life of Property, Plant and Equipments The charge in respect of periodic depreciation is derived after determining an estimate of an asset's expected useful life and the expected residual value at the end of its life. The useful lives of Group assets are determined by management at the time the asset is acquired and reviewed annually for appropriateness. The lives are based on historical experience with similar assets as well as anticipation of future events. Defined Benefit Plans The cost of defined benefit plans – gratuity is determined using the gratuity formula method. The gratuity formula method involves making assumptions about discount rates and future salary increases as disclosed in note 13.1 of these financial statements. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. 2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.4.1 Foreign Currency Translation The Financial Statements are presented in Sri Lanka Rupees, which is the functional and presentation currency of the Group. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Foreign Operations: The balance sheet and income statement of Mercantile Emerald Shipping (Pvt) Limited , which is deemed to be a foreign operation are translated to Sri Lanka Rupees at the rate of exchange prevailing as at the balance sheet date and at the average annual rate of exchange for the period respectively. The exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that the foreign operation is recognized in the income statement. 2.4.2 Taxation a) Current Taxes Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. The provision for income tax is based on the elements of income and expenditure as reported in the Financial Statements and computed in accordance with the provisions of the relevant tax legislations.
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Annual Report 2011/2012 - Colombo Stock Exchange

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