LANKA ORIX LEASING COMPANY PL CC - Colombo Stock Exchange

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16This Introductory Document is dated 20 th September 2011This Prospectus has been prepared by Lanka ORIX Leasing Company PLC (hereinafter sometimes referredto as ‘LOLC’ or ‘the Company’). The Directors of the Company, collectively and individually, havingmade all reasonable enquiries, confirm that to the best of their knowledge and belief, the informationcontained herein is true and correct in all material respect and that there are no other material facts, theomission of which, would make any statement herein misleading. While LOLC has taken reasonable care toensure full and fair disclosure, it does not assume any responsibility for any investment decisions made bythe investors based on information contained herein. In making an investment decision, prospectiveinvestors must rely on their own examination and assessments of the Company including the risks involved.No person is authorized to give any information or make any representation in connection with theDebentures other than the information and representations contained in this Prospectus and if given ormade, any such information or representation must not be relied upon as having been authorized by theCompany.The delivery of this Introductory Document shall not under any circumstanceconstitute a representation or create any implication or suggestion that there has beenno material change in the affairs of LOLC since the date of the IntroductoryDocument.‘The Colombo Stock Exchange (CSE) has taken reasonable care to ensure full andfair disclosure of information in this Introductory Document. However, the CSEassumes no responsibility for the accuracy of any of the statements made, opinionsexpressed or reports included in this introductory document.’INTRODUCTORY DOCUMENT3

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/1601 DETAILS OF THE ENTITYCompany NameHead Office & Registered OfficeLanka ORIX Leasing Company PLCNo. 100/1, Sri Jayawardenapura MawathaRajagiriyaTelephone: 94-11-5880880Fax: 94-11- 2865606 (Gen)94-11-2865612 (Mkt)94-11-2865642 (Fin)Date of incorporation and placeWebsite: www.lankaorix.comA Public Limited Liability Companyincorporated in Sri Lanka on 14 th March 1980under the Companies Ordinance No.51 of1938 and subsequently re-registered under theCompanies Act No. 7 of 2007.Company Registration Number PQ 70Secretary to the CompanyAuditors/Reporting AccountantsManagersRegistrarsMs. Chrishanthi S. Emmanuel, FCISErnst & YoungChartered Accountants,No, 201, De Saram Place,P.O.Box 101,Colombo 10.Tel: 94-11-2463500Fax: 94-11-2697369First Capital LimitedNo.75, Arnold Ratnayake MawathaColombo 10Tel: 94-11-263984094-11-2639898Fax: 94-11-2639819K H L Corporate Services LtdNo. 75, Arnold Ratnayake MawathaColombo 10Tel: 94-11-2639807Fax: 94-11-2639819TrusteeBank of CeylonInvestment Banking Division23 rd Floor, Head OfficeNo. 4, Bank of Ceylon MawathaColombo 1Tel: 94-11-2448348,94-11-2542167Fax:94-11-23468424INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/161.1 SALIENT FEATURES AT A GLANCEInstrument typeNumber of DebenturesSenior, unsecured, redeemable, rated four year (2011/2015) and fiveyear (2011/2016) Debentures carrying fixed rates and interest payablesemi annually, until the expiry of four and five years respectively fromthe date of allotment.7,500,000 (Seven million Five Hundred Thousand) Debentures.Face value of a Debenture Rs 100/-Tenure of Debentures 4 years (2011/2015) and 5 years (2011/2016)Rating Credit Rated ‘A-’ by Fitch Rating Lanka Ltd – (Re.. pg # 40)ListingCoupon Interest rateThe Company will be seeking a listing on the Main Boardof the Colombo Stock Exchange by way of an IntroductionInterest is payable semi-annually ,(Nominal Interest Rate)4 Years Coupon Interest rate of 11.70% p.a.5 Years Coupon Interest rate of 11.90% p.a.Date of allotment 4 Years 5 th August 20115 Years 5 th August 2011No. Of debentures allotted 4 Years 6,100,000 (Six million one Hundred thousand) debentures5 Years 1,400,000 (One millions four hundred thousand) debenturesMethod of allotmentInterest payment datesRedemption of principlemoney/ Maturity DateMode of payment atmaturityFull allotment to qualified investors by way of a private placement5 YearsInterestInterest Period PaymentEnding Date31-Dec-11 1-Jan-1230-Jun-12 1-Jul-1231-Dec-12 1-Jan-1330-Jun-13 1-Jul-1331-Dec-13 1-Jan-1430-Jun-14 1-Jul-1431-Dec-14 1-Jan-1530-Jun-15 1-Jul-1531-Dec-15 1-Jan-1630-Jun-16 1-Jul-164YearsInterest Period InterestEnding PaymentDate31-Dec-11 1-Jan-1230-Jun-12 1-Jul-1231-Dec-12 1-Jan-1330-Jun-13 1-Jul-1331-Dec-13 1-Jan-1430-Jun-14 1-Jul-1431-Dec-14 1-Jan-1530-Jun-15 1-Jul-15‘In order to accommodate the Debenture interest cycles in the Debttrading System (DEX) the payment of interest should not includedebenture holders holding debentures in the DEX as at the last day ofthe payment cycle (Semi annually), but one day prior to the paymentdate (entitlement date), If the entitlement date is a holiday, interestshould be calculated including the entitlement date.” The interestcalculation shall be based upon the “Actual/Actual” number of days ineach interest payment period.On completion of 4 years and 5 years respectively from the dateAllotment.(i.e. payable on 1 st July 2015 & payable on 1 st July 2016)Payment of principle money relating to the debentures to the debentureholders will be made by crossed account payee only cheques or bank tobank transfers.5INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/162.0 THE BOARD OF DIRECTORSName &DesignationMrs. R L NanayakkaraChairperson(74 years)No 570/3A,Welikadawatte Road,RajagiriyaDescriptionMrs. Rohini Nanayakkara was appointed to the Board of Directors ofthe Company as a Non-Executive Director in August 2004 andassumed duties as Chairperson of LOLC and its subsidiaries. Sheholds a Second Class BA Honours Degree from the University ofPeradeniya, Sri Lanka. She also holds a Diploma in French from theChamber of Commerce, Brussels. She is a Fellow of the Institute ofManagement and the Institute of Bankers, Sri Lanka. She was also apast President of the Sri Lanka Banks Association, Association ofProfessional Bankers, a member of the Commission of the Universityof Colombo, Sri Lanka and of the Task Force set-up by theGovernment for Tsunami Reconstruction.She was the first woman executive to join a Commercial Bank,namely Bank of Ceylon, with the rare distinction of becoming the firstwoman General Manager/CEO of a Bank in Sri Lanka and the AsianRegion.She was also Chairman/Director of several financial institutionssuch as the National Development Bank, DFCC Bank, MerchantBank of Sri Lanka and the First Capital Group of Companies. Shehas served as Director/General Manager/CEO of one of the largestprivate banks namely, Seylan Bank PLC.Mr. I C NanayakkaraDeputy Chairman(37 years)No 302/1,Nawala Road,RajagiriyaShe is presently the President of United Nations Association of SriLanka and also the Chairperson of the Browns Group ofCompanies, NDB Venture Investments (Pvt) Ltd., Ayojana Fund (Pvt)Ltd. and Taprobane Investment Group of Companies. She is also aDirector of Overseas Realty (Ceylon) PLC,and Mireka Homes (Pvt)Ltd.Mr. Ishara Nanayakkara is instrumental in all investment strategiesadopted by the LOLC Group, and leads the Group towardsdiversification and risk mitigation. His business philosophy based onsustainable development has enabled LOLC to enter into many newbusiness ventures with high potential for growth in all three spheres:economic, social and environmental.Mr. Nanayakkara holds a Diploma in Business Accounting fromAustralia, and is a Director of Ishara Traders Group. He ventured intothe arena of Financial Services with the strategic investment in theLOLC Group. He serves as the Deputy Chairman on the Board ofLOLC and its subsidiaries, including the Commercial LeasingGroup.Mr. Nanayakkara is a Shareholder/Director of Taprobane Holdings(Pvt) Ltd., a fund management firm involved in stock broking,treasury management and venture capital activities in finance, real6INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16estate, energy and leisure sectors.Mr. Nanayakkara is also a Director of Browns Group of Companies,a conglomerate with leading market position in trade, leisure andmanufacturing.With the experience in the SME sector and going further into theMicro sector, he is also a Director of LOLC Micro Credit Ltd., (ajoint venture with FMO) and PRASAC, the largest microfinanceCompany in Cambodia.In line with his focus on sustainable forestry and plantations and inparticular, Hydro power projects, Mr. Nanayakkara is also a Directorof Maturata and Pussellawa Plantations and Gal Oya Plantations,the first Public-Private Partnership with the Government of SriLanka.With the strategic investment in Seylan Bank PLC by both LOLC andBrowns Groups, Mr. Nanayakkara was appointed to the Board ofDirectors of the Bank.Mr. W. D. K.JayawardenaManaging Director/CEO(51 years)No.34,Ramya Mawatha,SubuthipuraBattaramullaWith LOLC’s most recent venture into the leisure sector, theacquisition of the Confifi Hotel Holdings PLC in the precious ‘goldenmile’ of southern Sri Lanka. Mr. Nanayakkara was appointed asChairman of the Confifi Group on 7 June 2010, which comprisesEden Resorts & Spa, a n d Riverina HotelMr. Kapila Jayawardena was appointed as the Group ManagingDirector/CEO of LOLC in June 2007. He holds a MBA in FinancialManagement, is an Associate of the Institute of Cost and ExecutiveAccountants and was awarded Fellowship of the Institute of Bankers(IBSL) in 2006.He has varied experience in the fields of Banking Operations, Audit,Relationship Management, Corporate Finance, Corporate Banking,Investment Banking and Treasury Management.Mr. Jayawardena was appointed as the Chairman of the Sri LankaBanks Association (SLBA) in 2003/04 and served as President of theAmerican Chamber of Commerce in Sri Lanka in 2006/07.He has served as a Director of Lanka Clear, National Institute ofBusiness Management (NIBM) Commercial Insurance Brokers Ltd.and the Institute of Bankers (IBSL).Mr. Jayawardena was appointed to the Financial Sector ReformsCommittee (FSRC) by the Prime Minister and is a member of theFinance Sector and Capital markets cluster of the National Councilof Economic Development (NCED). He was a key member of theinaugural sovereign rating team and sovereign debt for Sri Lankaappointed by the Governor of the Central Bank. He was presentedwith the prestigious Combined Support Group Award by the US Navyfor services rendered after the tsunami in 2005. The Government ofSri Lanka appointed him to the Board of the Sri Lanka Fulbright7INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16Commission in 2010.Mr. Jayawardena has over 27 years experience in all areas ofbanking out of which 9 years were in the capacity of CEO/CountryHead, Citibank, Sri Lanka and Maldives. He was the first Sri Lankanto be appointed as a Senior Credit Officer (SCO) by Citibank in SriLanka. During his leadership Citi Bank Sri Lanka was the firstforeign bank to obtain an AAA rating.He is also on the Boards of Lanka ORIX Finance Company PLC.,LOLC Micro Credit Ltd.,, LOLC Motors Ltd., LOLC Eco SolutionsLtd., LOLC Insurance Company Ltd., LOLC Securities Ltd.,Commercial Leasing Company Ltd and United Dendro EnergySolutions (Pvt) Ltd., which are subsidiaries of the LOLC GroupMrs. K. U. AmarasingheDirector(41 years)No. 12, IndependenceAvenue,Colombo 7Mr. R. M. NanayakkaraDirector(70 years)(Alternate I C NanayakkaraNo. 438,Havelock Road,Colombo 5Mr. R A FernandoDirector(51 years)No. 12,Mahasen MawathaColombo 5With LOLC’s most recent venture into the leisure sector, theacquisition of the Confifi Hotel Holdings PLC in the ‘golden mile’ ofSouthern Sri Lanka, Mr. Jayawardena was appointed as Chairmanof LOLC Leisure Ltd.Mrs. Kalsha Amarasinghe holds an Honours Degree in Economics.She serves on the Boards of all the LOLC Group Companiesincluding the Commercial Leasing Group. She also serves as aDirector on the Boards of Ishara Traders (Pvt) Ltd With theacquisition of Confifi Hotel Holdings PLC, Mrs. Amarasinghe wasappointed a Director of the Confifi Group.Mr. Rajah Nanayakkara is the founder and Executive Chairman ofIshara Traders (Pvt) Ltd., a business which pioneered the import andsale of new and reconditioned motor vehicles. Thirty years later, thisorganisation remains an industry leader. He was also the founderChairman of the Motor Vehicle Importers Association of Sri Lankaand continues to play a significant role.Mr. Nanayakkara Chairman of Ishara Property Development, acompany which has been involved in construction for the past 18years.Mr. Ravi Fernando has a MBA from the University of Colombo and is aFellow of the Chartered Institute of Marketing (UK). He holds a Diplomain International Management and completed the Advanced ManagementProgram at the INSEAD Business School in France. He is an Alumni ofUniversity of Cambridge Programme for Sustainable Leadership havingcompleted the Climate Leadership Programme in 2007 and the Post.Grad.Certificate in Sustainable Business at Cambridge university in 2008 withDistinction.He is the United Nations Global Compact Focal point for Sri Lanka and ison the Boards of LOLC, World Vision, Environmental Foundation,Ceylon Asset management Ltd. He is a Trustee of the Mother Sri LankaFoundation. His career with Multi-nationals- Unilever, Sterling Health,Smithkline Beecham International and Reckitt Benckiser covered Africa,Middle East and Asia in CEO/Marketing Management position. He wasthe former CEO SLINTEC (Sri Lanka Institute of Nanotechnology )In Academia, He is a Faculty member of the INSEAD AdvancedManagement Programme from 2005-2010 and an Executive in Residence8INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16Mr. R N AsirwathamDirector(68 years)27/1, Unity Place,Colombo 3Mr. DeshamanyaM. D. D. PierisDirector(73 years)No. 9,Kilankaduwa Place,Colombo 6at INSEAD Social Innovation center from 2010. He is also a visitingfaculty member at the Deusto Business School & University of PompeuFabra Spain and University of Colombo MBA. In September 2007 he wona “Global Strategy Leadership Award” at the World Strategy Summit forhis work on Ethical branding for Sri Lanka Apparel and Tea sectors.Mr. Rajan Asirwatham is a Fellow of The Institute of CharteredAccountants of Sri Lanka.He has gained experience as Chairman of the Financial ServicesStability Committee at the Central Bank of Sri Lanka. He is amember of the Presidential Commission on Taxation appointed byHis Excellency the President.He joined the Board of Directors of the Company on 26th August2009. He also serves as a Director of Lanka ORIX Finance CompanyPLC., a subsidiary of the LOLC Group.Deshamanya Dharmasiri Pieris is a Graduate of the University ofCeylon, (Peradeniya) Fellow of the Chartered Management Institute,UK and has been conferred the Degree of Doctor of Letters (HonorisCausa) by the University of Colombo.Deshamanya Pieris is an illustrious retired civil servant, who in thecourse of his distinguished career in the public service has heldseveral important posts, including that of Secretary to the PrimeMinister; Secretary, Ministry of Public Administration, ProvincialCouncils and Home Affairs; Secretary, Ministry of Agriculture, Foodand Co-operatives; Secretary, Ministry of Education and HigherEducation and Chairman and Director General of Broadcasting.He has also acted on several occasions in addition to his duties, inthe posts of Secretary to the Ministry of Defence and ExternalAffairs and Secretary to the Ministry of Trade and Shipping. He hasalso at various times been the Chairman of the National Institute ofEducation; Chairman, Board of Management of the Sri LankaInstitute of Development Administration and Chairman of theAgrarian Research and Training Institute.He has served as a member of the National Salaries Commissionand as a member of the Presidential Commission on Finance andBanking.Within the LOLC Group, he also serves as Director on the Boards ofLanka ORIX Finance Company PLC and some of the s u b s i d i a r i e sof LOLC Group. He also serves on the Executive Committee, theIntegrated Risk Management Committee and the Audit Committee,whilst Chairing the Corporate Governance Committee of theCompany.Currently, he also serves as Deputy Chairman, Mercantile MerchantBank Ltd., MMBL Logistics (Pvt) Ltd., MMBL Money Transfer (Pvt)Ltd., Mountain Hawk Express (Pvt) Ltd. and Pathfinder Holdings (Pvt)Ltd.Deshamanya Pieris also serves on the Boards of a few PostgraduateInstitutes of Universities and is the Chairman Pro Tem of theS.W.R.D. Bandaranaike National Memorial Foundation responsible9INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16Mr. H IchidaDirector(51 years)2-12-27-502,Shimotoda, Toda City,Saitama, JapanMr. Okimoto K.Director(52 Years)Shinanochi 566-1-1112JapanMr. Yamazaki T.(Alternate Director toMr. H. Ichida and Mr.K. Okimoto)Miss. C. S. EmmanuelCompany SecretaryNo. 17/1,Deal Place A,Colombo 3for the management of the B.M.I.C.H/B.C.I.S. Complex.Mr. Hideo Ichida joined ORIX in 1982. He became the GeneralManager of the Aircraft Group in the Investment BankingHeadquarters in October 2004. After being appointed the DeputyHead of the Alternative Investment and Development Headquartersin July 2007, Mr. Ichida was promoted to Deputy Head of the GlobalBusiness and Alternative Investment Headquarters in January 2009.In January 2010, he was made an Executive Officer and wasappointed the Head of Global Business and alternative InvestmentHead quarters in January 2011.He was also appointed the General Manager of the China BusinessDivision in April 2011.Mr. Kazunori Okimoto holds a Master’s Degree in BusinessAdministration from the National Taiwan University – College ofManagement, Taiwan. He joined ORIX Corporation in 1981.He was appointed as Senior Manager of Aerospace Dept. in 1993. Healso served as Chairman and President in ORIX Auto Leasing Taiwanand ORIX Taiwan Corporation, Senior Vice President in ORIX USACorporation, President and CEO in ORIX Global Finance LLC. He wasappointed as Managing Director of ORIX Asia Limited in 2003 and waspromoted as Chairman and CEO in 2007. In February 2011, he wasappointed Executive Vice President and Deputy Head of the GlobalBusiness & Alternative Investment Headquarters of ORIX Corporation.He joined the Board of Directors of LOLC on 23rd February 2011.Takuma Yamazaki holds a Degree in Economics from the University ofKwansei Gakuin.Mr. Yamazaki stated his career as a Marketing officer, South Osakablanch ORIX Corporation in 1995,and then he was appointed as anAssociate in Merchandise department ORIX Baseball Corporation in1996 to 2002.He was promoted as an Assistant Manager, InternationalBusiness department ORIX Corporation in 2002 ,and continued up to2005. He served as a Vice President of Project development andInvestment group ORIX Corporation during the period of 2005-2006. InJune 2006 he was appointed as the Director of Project development andInvestment ORIX Investment and Management Pte Ltd. Mr. Yamazakiappointed as the Managing Director of ORIX Investment andManagement Pte Ltd in April 2009.Miss. Chrishanthi Emmanuel is a Fellow of the Institute ofChartered Secretaries and Administrators (UK) and a Fellow of theInstitute of Chartered Corporate Secretaries (Sri Lanka). She isCompany Secretary of most subsidiaries within the LOLC Group.She is also Secretary of the Leasing Association of Sri Lanka.10INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/162.1 Other Business Occupations/Directorships of LOLC Directors (as at 31 th August 2011)Mrs. Rohini Lettitia NanayakkaraPOSITIONChairpersonChairpersonChairpersonChairpersonChairpersonDirectorChairpersonChairpersonChairpersonChairpersonChairpersonChairpersonChairpersonChairpersonChairpersonChairpersonChairpersonChairpersonChairpersonChairpersonChairpersonDirectorDirectorChairpersonChairpersonDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorChairpersonCOMPANYLanka ORIX Leasing Co. PLCLanka ORIX Finance Company PLCLanka ORIX Project Development LtdCommercial Leasing Co. LtdLOLC Micro Credit LtdAgriSil Holdings LtdBrown & Co. PLCBrowns Group Industries LimitedBrowns Group Motels LimitedBrowns Tours LimitedB.G.Air Services Pvt LimitedC.F.T Engineering LimitedEngineering Services LimitedHatton Transport and Agency Co. LtdI.G Browns Rubber Industries LtdMasons Mixture LimitedMutugala Estates LtdPathregalla Estates LtdSifang Lanka (Pvt) LtdSifang Lanka Trading LtdStandard Finance limitedBrowns Battery (Pvt) LtdBrowns Investments (Pvt) LtdNDB Venture Investments (Private) Ltd.Ayojana Fund (Private) Ltd.Transasis Hotels PLCMireka Homes (Pvt) LtdOverseas Realty (Ceylon) Ltd.Taprobane Fund Management Ltd.Taprobane HoldingsTaprobane Investment (Pvt) LtdTaprobane Mutual Fund LtdTaprobane Plantation LtdWalker & Greig (Pvt) LtdEastern Merchants PLCHydro Power Free Lanka (Pvt) LtdMr. R A FernandoDirectorPOSITIONCOMPANYLanka ORIX Leasing Co. PLC11INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16Mr. R M NanayakkaraPOSITIONChairmanChairmanDirectorCOMPANYIshara Traders (Pvt) LimitedIshara Property Develop (Pvt) LtdLanka ORIX Leasing Co. PLCMr. Ishara Chinthaka NanayakkaraPOSITIONCOMPANYDirectorAgrisil Holdings LtdDirectorBrown & Company PLCDirector Browns Investments (Pvt) Ltd *Deputy Chairman Commercial Leasing Co LtdDirector Free Lanka Capital Holdings (Pvt) Ltd *DirectorGal Oya Holdings (Pvt) LtdDirectorGal Oya Plantations (Pvt) LtdDirector Ishara Traders (Pvt) Ltd. *Deputy Chairman Lanka ORIX Finance Co.Ltd.Deputy Chairman Lanka ORIX Leasing Co. PLCDirectorLOLC Micro Credit LtdDirectorMaturata Plantations Ltd.DirectorPRASAC Micro Finance InstitutionDirectorPussellawa Plantations Ltd.DirectorSeylan Bank PLCDirector Taprobane Fund Management Ltd. *DirectorTaprobane Holdings Ltd.DirectorSierra Constructions LtdDirectorDiriya Investments (Pvt) LtdDirectorAgstar Fertilizers (Pvt) LtdChairmanConfifi Hotel Holdings PLCChairmanRiverina Hotel PLCChairmanEden Hotel PLCChairmanTropical Villas (Pvt) LtdINTRODUCTORY DOCUMENT12

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16Mr. Kalsha Upeka AmarasinghePOSITIONCOMPANYDirectorLanka ORIX Leasing Co.PLCDirectorLOLC Investments Ltd (formerly Lanka ORIXInformation Technology Ltd)DirectorLanka ORIX Project Development Ltd.DirectorLanka ORIX Finance Co.PLCDirectorLOLC Securities LtdDirectorLOLC Motors LtdDirectorLOLC Micro Credit LtdDirectorLOLC Insurance Co. LtdDirectorLOLC Leisure LtdDirectorUnited Dendro Energy(Pvt) LtdDirectorCommercial Leasing Co. LtdDirectorIshara Traders (Pvt) Ltd.DirectorConfifi Hotel Holdings PLCDirectorRiverina Hotel PLCDirectorEden Hotel PLCDirectorTropical Villas (Pvt) LtdDirectorLOLC Factors LimitedMr. W D K JayawardenaPOSITIONDirectorDirectorMD/Group CEOChairmanDirectorChairmanChairmanChairmanChairmanDirectorDirectorDirectorCOMPANYCommercial Leasing Co. LtdLanka ORIX Finance Co. PLCLanka ORIX Leasing Co., PLCLOLC Insurance Co. LtdLOLC Micro Credit LtdLOLC Motors LtdLOLC Securities LtdLOLC Leisure LtdUnited Dendro Energy Solutions (Pvt) LtdEden Hotel PLCLOLC Factors LimitedHDFC Bank13INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16Mr. N AsirwathamPOSITIONDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorCOMPANYLanka ORIX Finance Co. PLCLanka ORIX Leasing Co. PLCBrown & Company PLCAitken Spence & Co. PLCRoyal Ceramics PLCVallibel One PLCCIC Holdings PLCYarl Hotels (Pvt) LtdRajawella Holdings LtdAitken Spence Hotels PLCBrowns Beach Hotel PLCCeylon Tea Services PLCRenuka Hotels (Pvt) LtdMercantile Merchant BankDialtex Industries LtdDankotuwa Porcelain PLCConfifi Hotel Holdings PLCRiverina Hotels PLCEden Hotel Lanka PLCMr. M D D PierisPOSITIONDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorCOMPANYLanka Orix Leasing Co.PLCLanka Orix Finance PLCMercantile Merchant Bank LtdFinancial Systems International (Pvt) LtdMercantile Financial Brokers LtdMercsair LtdMMBL Logistics (Pvt) LtdMMBL Money Transfer (Pvt) LtdMountain Hawk Express (Pvt) LtdMountain Hark (Pvt) LtdPathfinder (Pvt) LtdPathfinder Holdings (Pvt) LtdSanasa Campus Co Ltd14INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16Mr. H IchidaPOSITIONDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirector-AlternateDirectorVice President CommissionerDirectorDirector-AlternateDirectorDirectorDirectorDirector & ChairmanDeputy ChairmanDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorAuthorized DirectorDirectorDirectorCOMPANYIreland Asset Management LimitedORIX Aviation Systems LimitedAIRASIA X SDN.BHD.Tune Hotels. Com LimitedORIX Australia Corporation LimitedORIX China CorporationORIX Rentec (Tianjin) CorporationShanghai Jinheyuan Equipment Rental Co., Ltd.ORIX Leasing Egypt SAEInfrastructure Leasing & Financial Services LimitedORIX Auto Infrastructure Services LimitedPT. ORIX Indonesia FinanceBTA ORIX Leasing JSCORIX Leasing Malaysia BerhadORIX Leasing Pakistan LimitedORIX Properties Pakistan Private Ltd.OMLF Servicer Corporation Inc.ORIX Glorious Stars (SPV-AMC), Inc.ORIX Polska S.A.ORIX Leasing Singapore LimitedORIX Rentec (Singapore) Pte. Ltd.ORIX HOTELS INTERNATIONAL PRIVATELIMITEDORIX Capital Korea CorporationLanka Orix Leasing Company PLCORIX Auto Leasing Taiwan CorporationORIX Enterprise CorporationORIX Taiwan Asset Management CompanyORIX Taiwan CorporationAcap Advisory Public Company LimitedCapital OK Company., Ltd.ORIX Auto Leasing (Thailand) Co., Ltd.Professional Collection Co., Ltd.Thai ORIX Leasing Co., Ltd.ORIX (China) Investment Corporation*15INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16Mr. T YamazakiPOSITIONDirector/Managing DirectorDirector/Managing DirectorDirectorDirector/Managing DirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorAlternate DirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorAlternate DirectorCOMPANYORIX Investment & Management Pte LtdORIX Hotels International Pte LtdORIX Leasing Singapore LimitedORIX Rentec (Singapore) Pte LtdETHOZ Group LtdETHOZ Capital LtdETHOZ Automotive Solutions LtdETHOZ Commercial LtdAlenta Pte LtdMarion Shipping Pte LtdORIX-UOL Investments Pte LtdNassim Park Developments Pte LtdPan Asia Infrastructure Asset Management Company Pte LtdIL&FS Singapore Asset Management Company Pte LtdMarion CorporationAlioth Shipping CorporationGuangzhou ORIX Capital One LtdPT MOG IndonesiaVeles Intermediary Services LtdLanka ORIX Leasing Company PLC16INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16Mr. K OkimotoPOSITIONDirector/TreasurerCOMPANYLanka ORIX Leasing PLCAmbition Navigation Corp.Barytes Marine Corp.Bloom Line Corp.Diazo International Carriers Inc.Dolphin Navigation Inc.Elegant Shipping Corp.Fealty Shipping Inc.Gaitana Overseas Carriers Inc.Intel shipping S.AJustice Carriers Corp.Mance Carriers Corp.ORIX Petro Finance Inc.ORIX Ship Finance Inc.Papel Carriers Inc.Purple Carriers Inc.Sunny Trans Inc.Tabasco CarriersWinsa Carriers Inc.Agate Carriers Enterprises Inc.Annboli Marine Inc.Archer Marine Inc.Botany Shipping LtdBren Berry Shipping Corp.Dodo Line Inc.Doric Maritime Corp.Dual Com Shipping Inc.Famous Steamship S.AFaster Trans Inc.Giant Shipping Corp.Goeben Carriers Enterprises Inc.Great Concert Navigation CorporationIris Navigation Corp.Jiji Express Line Inc.Kapoc Line S.AKatie Maritime S.AKlaxon Maritime Inc.17INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/163.0 CAPITAL STRUCTURE3.1 Stated Share Capital 31 st August 2011 Rs. 475,200,000.00Stated Capital as at 31 st March2007 2008 2009 2010 2011No of Shares 47,520,000 47,520,000 47,520,000 47,520,000 475,200,000Value 475,200,000 475,200,000 475,200,000 47,520,000 475,200,000The shares of the Company were subdivided to Ten (10) shares in lieu of every One (01) share held, inNovember 2010 equaling to 475,200,000 shares.3.2 The company’s capital structure does not include non-voting, preference or any other class ofshares. Also the company does not have any outstanding convertible debt securities.3.3 There is no statutory restriction on the free transferability of securities.3.4 PARTICULARS OF DEBT AND LOAN CAPITAL AS AT 31ST AUGUST 2011 -COMPANYLanka ORIX LEASING COMPANY PLCRs.1) Debentures 1,250,000,0002) Interest bearing loans and borrowings- Long Term 9,067,224,3873) Bank Overdraft 1,949,693,5094) Finance Lease Liabilities 139,104,7965) Short-term borrowings 11,827,151,5141) The Company has given in aggregate Rs. 1.5 billion worth of guarantees to banks and other financialinstitutions.2) The Company has no mortgages and charges on its assets.3) In a liquidation senior debt will rank above subordinated debt of the company. In the absence of anysubordinated debt, these debentures will rank pari pasu with all other unsecured debt of the company.INTRODUCTORY DOCUMENT18

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/164 PROFILE OF THE ENTITY4.1 OVERVIEWLOLC was the pioneering leasing company in the Country and was established as a result of an initiative bythe Government of Sri Lanka. LOLC had as one of its first shareholders, the premier leasing company inJapan – ORIX Corporation. Today, nearly three decades later, ORIX Corporation continues as one ofLOLC's main shareholders. Two of its senior officers are on the LOLC Board of Directors, and ORIX stillprovides technical support and know-how to LOLC.After having pioneered Leasing, the Company together with International Finance Corporation (IFC),introduced another innovative product, “Factoring”, to the Sri Lankan market.Currently LOLC Group has a network of 32 branches across the country. And in addition to this it hasLOLC Service Centers at 12 LIOC filling stations & in 40 “Isuru Diriya” Centers within Post Offices acrossthe country to cater to its customers.With the dawn of peace in the country LOLC is focusing on regional expansion opportunities which willenable it to become a dynamic group.Recently, LOLC announced that it was in the process of transitioning into a Holding Company structure,where it is poised for quantum leap growth through branding. The management believes LOLC possessesmore territorial opportunities that enable them to easily penetrate through their new Corporate Brandingstrategy that is being adopted by the subsidiaries. The Company has evolved from leasing to a Total FinanceSolutions Provider and then again to a diversified Group of Companies.In the recent years the LOLC Group made a series of strategic acquisitions/investments in both the financialand other high growth sectors with its total assets valued at Rs. 107.95 billion against some of the leading,old league conglomerates.Its business portfolio now covers services such as total financial solutions, leisure, construction, technology,agriculture, plantations and renewable energy. It also owns a strong brand presence in the formal financialsector with hopes of more brand extensions in the near future.As a result of its high density growth, the Company has fast paced its efforts to position LOLC as theholding company of the Group.The Company has the essential expertise with leadership provided by the present Group Managing Director,Kapila Jayawardena who has played a pivotal role in the banking sector in Sri Lanka and in the region.LOLC is further benefited by the banking expertise of Chairperson, Mrs. Rohini Nanayakkara who has beenworking in the banking sector in the past five decades holding many key positions in the industry. TheCompany also possesses a highly qualified dynamic senior and operational management that has extensiveexperience and exposure in commercial, development, retail banking and financial institutions.Fitch Ratings Lanka Limited has affirmed investment grade credit rating of ‘A-’. LOLC sought and wasgranted approval from the apex regulator to formally operate as the holding company of the group instead ofcontinuing to function as a finance leasing company. The group will continue to offer finance leasingproducts through its subsidiaries, Lanka ORIX Finance Company, which was listed on 07 th July 2011,Commercial Leasing Company Ltd and LOLC Micro Credit Limited.As a company, quoted on the Colombo Stock Exchange (CSE), LOLC is regulated by the Securities andExchange Commission (SEC).INTRODUCTORY DOCUMENT19

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16VISIONTo be the most preferred financial solutions provider.MISSIONAssist those driven by the spirit of enterprise to reach greater heights, through our innovative, personalizedand wide-ranging financial solutions.4.1.1 Principal Activities of the Group• Financial solutions, including Finance Leasing and Hire Purchase, Consumer Finance, OperatingLeasing, Fleet Management• Loans• Factoring• Leisure• Construction• Information Technology• Agriculture and plantations• Renewable energyLOLC group provides a wide range of Financial Solutions to a diversified client base. Initially theCompany’s main focus was development of the Small and Medium scale Entrepreneurs (SME). Howeverwith the wealth of experience in catering to the SME sector, the Company ventured into the next level, themicro entrepreneurs with the objective of supporting them to realize their true potential.4.2 Top 10 Shareholding as at 31 st August 2011Shareholder No of Shares % of IssuedCapital1 ORIX Corporation 142,560,00 30%2 R M Nanayakkara 141,433,220 29.76%3 I C Nanayakkara 59,895,500 12.60%4 K U Amarasinghe 52,432,000 11.03%5 Sri Lanka Insurance Corp. Ltd - Life Fund 11,797,060 2.48%6 Employees Provident Fund 9,735,300 2.04%7 Mrs. I Nanayakkara 5,215,020 1.09%8 Employees Trust Fund Board 3,325,400 0.70%9 G G Ponnambalam 2,089,920 0.44%10 C P De Silva 2,000,000 0.42%INTRODUCTORY DOCUMENT20

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/164.3 Degree of Dependence on customers and Suppliers.LOLC is not significantly dependent on any key suppliers and/ or customers. LOLC is not over exposed toany particular customer or a supplier. The highest single debtor exposure against the portfolio is around 6%.The nature of the business is such, it is the normal course of business for the company to have a wide baseof customers and suppliers.4.4 Details of the Group StructureKey Subsidiary Companies• LOLC Factors LimitedAfter having pioneered Leasing, the Company together with International Finance Corporation (IFC),introduced another innovative product, Factoring, to the Sri Lankan market through Lanka ORIX FactorsLtd. This product is now being offered by LOLC Factors Ltd. The LOLC Group has been and continues tobe the market leader in Factoring.• Lanka ORIX Finance Company PLCLanka ORIX Finance Company PLC (LOFIN), a registered finance Company and licensed by the MonetaryBoard of Sri Lanka LOLC mobilizes Deposits and Savings products. LOFIN is also the first and onlyfinance Company permitted to accept Foreign Currency Deposits (NRFC and RFC accounts) by the CentralBank of Sri Lanka. The Company has also received regulatory approval to enter into foreign exchangeSWAPs. This is the first such approval to a non banking financial institution in Sri Lanka. LOFIN Obtainedlisting in the Bankers Almanac the first non banking institution to be registered. LOFIN also obtainedSWIFT membership – SWIFT Address LOFCLKLC.• Lanka ORIX Information Technology Services LimitedLanka ORIX Information Technology Services Company (LOITS) supports and services all Business Unitsand Subsidiaries of the Group with all ICT requirements whilst focusing on providing Application Systemsand Business Intelligence Solutions for banking and financial services sector.• Commercial Leasing Company LimitedLOLC with its strategic positioning to be the largest non banking financial institution in the country, theCompany made an investment and acquired a controlling stake of Commercial Leasing Company Ltd(CLC). Today the Company has full control of CLC. CLC offers a range of products namely Leasing, Hirepurchase, Loans and Debt Factoring, and is the second largest factoring company in the country next toLOLC Factors Ltd. This investment results in synergy to both LOLC and CLC in terms of operationalefficiency and reach. With this investment LOLC Group has become the largest non banking financialinstitution in the country.• LOLC Micro Credit LimitedIn line with its strategic focus on Agro and Micro Finance sector the Company incorporated a separate legalentity in partnership with a AAA rated (by Standard & Poors) international partner, The NetherlandsDevelopment Finance Company (FMO). This is the first micro credit Company in the country to have aninternational presence in its equity structure and to be regulated by the Central Bank of Sri Lanka (CBSL).This Company is committed to Agro and Micro level Loans and advances to Farmers, Skill developmentand Market access and is focused on catering to all under privileged areas of the country. LOLC Group isalso the largest financier for Agricultural equipment in Sri Lanka.• Orient Academy LimitedWith a view to venturing into IT education LOITS invested in an IT Education firm, Orient Academy whichmainly operates in the rural sector. This is in line with the Government’s initiative to declare a yeardedicated to IT & English education. This initiative is strongly linked to LOLC’s operations in the NorthINTRODUCTORY DOCUMENT21

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16and East, providing curricula to equip recruits from these regions with the language and IT skills they needto build their careers with us.• LOLC Insurance Company LimitedThe primary focus of this company is to provide a full range of insurance products.• LOLC Motors LimitedLOLC invested in a vehicle servicing facility in Sri Lanka with modern facilities like water recycling, rainwater harvesting etc. This is the largest facility in the country with a capacity of 100 vehicles at any giventime. This facility caters to all LOLC Group operating lease and fleet management vehicles.• LOLC Leisure LimitedWith the view to expanding its business operations to the Leisure sector, LOLC formed LOLC Leisure with70% ownership from LOLC and the balance 30% ownership from Browns Investments. The companymade investments in Club Palm Garden Hotel, Riverina Hotel, Eden Resort and Spa Hotel and TropicalVillas and Ayurveda Spa Hotel.• LOLC Eco Solutions LimitedThis Company was incorporated to expand business in the areas of sustainable development mainlyfocusing on renewable energy production. As its first investment the company invested in United DendroEnergy (Pvt) Limited where bio mass power using Glidicidia will be produced.• Sundaya Lanka (Pvt) LimitedSundaya Lanka (Pvt) Ltd is a solar manufacturing and trading Company and is one of the largest solar panelassembling Companies in Sri Lanka. With this investment LOLC was able to cater to the rural areas whichpreviously did not have access to grid electricity. This was further facilitated with the Renewable Energyfor Rural Economic Development (RERED) fund and LOLC remains one of the largest financiers for SolarPanels.• Agrisil Holdings LimitedAgrisil Holdings has been incorporated in Sri Lanka as the regional head quarters for promoting PrecipatedSilica, Activated Carbon and other allied products extraction out of paddy husk ash. The Company has apatent right for 17 leading paddy producing countries in the region to carry out this activity. The projectinvolves extraction of silica by using rice husk, and a by product of electricity. The electricity project willbe eligible for carbon credit trading.• Lanka ORIX Project Development Company LimitedLOLC established a dedicated projects development Company Lanka ORIX Project Development Co.(LOPD) to pursue two key objectives: (a) source and partner with reputed, experienced foreignorganizations and (b) participate in infrastructure and related projects in Sri Lanka and regional countries.INTRODUCTORY DOCUMENT22

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16SUBSIDIARY COMPANIES OF LOLCName of the Company Group Holding Principal Areas of BusinessLanka ORIX FinanceCompany PLCLOLCLimitedInvestments100%100% InvestmentsFinance Business & PawnBroking, Islamic Financing,Advances for Margin TradingLanka ORIX ProjectDevelopment LtdLanka ORIX InformationTechnology Services Ltd100%100%Property & InfrastructureDevelopmentSoftware Design,Development & DistributionLOLC Motors Limited 100% Vehicle MaintenanceCommercial LeasingCompany Limited100%Leasing ,Hire Purchase andFactoringLOLC Securities Ltd 100% Stock BrokingLOLC Eco SolutionsLimitedLOLC Insurance CompanyLimited100%100%Investment inEnvironmentally friendlyprojectsGeneral Insurance and LifeInsuranceLOLC Services Ltd 100%Investment in land andpropertyLOLC PropertyInvestments Ltd100%Investment in land andpropertyLOLC Land Holdings Ltd 100%LOLC Estates Ltd 100%LOLC Realty Ltd 100%LOLC Asset Holdings Ltd 100%Investment in land andpropertyInvestment in land andpropertyInvestment in land andpropertyInvestment in land andpropertyLOLC Factors Ltd 100% FactoringINTRODUCTORY DOCUMENT23

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16LOLC Micro FinanceFund Ltd100% Micro financingLOLC Micro Credit Ltd 80%Leasing & Finance, MicroCredit OperationsLOLC Leisure Limited 70% Leisure industrySundaya Lanka (Pvt) Ltd 51%Orient Academy LimitedUnited Dendro Energy(Private) Limited100% held by LOLCInvestments Ltd75% held by LOLC EcoSolutions LtdManufacturing, assembly &sales of solar power systemsConsultancy, training andeducational services,providing services of skilledpersonnel and technicalsupport.Production of energyAgrisil Holdings Limited50% held by LankaORIX ProjectDevelopment LimitedManagement ServicesINTRODUCTORY DOCUMENT24

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16SUBSIDIARY AND ASSOCIATE COMPANIES OF LOLCLOFC(100%)LOLC IL(100%)LOPDL(100%)OAL(100%)AHL(50%)LOITLS(100%)LOML(100%)CLCL(100%)LOLC SL(100%)LOLC LOLCESL(100%) UDEL(75%)LOLC ICL(100%)LOLC SL(100%)LOLC PIL(100%)LOLC LHL(100%)LOLC EL(100%)LOLC RL(100%)LOLC AHL(100%)LOLC FL(100%)LOLC MFFL(100%)LOLC MCL(100%)LOLC LL(100%)SLL(50%)DIL(50%)BCP(51%)BI(50%)SBPLC(10%)Pussella PlantationMaturatePlantationSierraHoldings(10%)SierraConstructions(10%)LOFC Lanka ORIX Finance Company PLC LOLCEL LOLC Estates LtdLOLC IL LOLC Investments Limited LOLCRL LOLC Realty LtdLOPDL Lanka ORIX Project Development Ltd LOLCAHL LOLC Asset Holdings LtdLOITSL Lanka ORIX Information Technology Services Ltd LOLCFL LOLC Factors LtdLOML LOLC Motors Limited LOLCMFFL LOLC Micro Finance Fund LtdCLCL Commercial Leasing Company Limited LCLCMCL LOLC Micro Credit LtdLOLCSL LOLC Securities Ltd LOLCLL LOLC Leisure LimitedLOLCESL LOLC Eco Solutions Limited SLL Sundaya Lanka (Pvt) LtdLOLCICL LOLC Insurance Company Limited OAL Orient Academy LimitedLOLCSL LOLC Services Ltd UDEL United Dendro Energy (Private) LimitedLOLCPIL LOLC Property Investments Ltd AHL Agrisil Holdings LimitedLOLCLHL LOLC Land Holdings Ltd BI Browns Investments LtdBCP Brown & Company PLC DIL Diriya Investments LtdSBPLC Seylan Bank PLCINTRODUCTORY DOCUMENT25

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/164.5 EMPLOYEESThe permanent employee’s details as at 31 st August 2011 are as follows;Total no of Employees 2620Total no of Senior Managers 49There are no labour unions at LOLC. Accordingly LOLC does not have any labour union agreements.4.6 FUTURE PLANSAs war receded and enterprises gradually begin to reap the peace dividend LOLC Group focus is onresurgence and rebuilding. The strategy to give effect to this is through addressing the needs of SME’sand Micro Finance seekers throughout the country.The future will also see a continued emphasis on the strengthening of LOLC’s infrastructure, access tofunding, constant pursuit of sustainability of business through exemplary governance and implementationof best practice across all discipline, among others.Acquisitions too have been synergistic with the Group’s core products. Associate companies focus oncultivation and reforestation, tying in with the Group’s concept of sustainable development and a sharperfocus on micro financeThe only potential risk identified with the investments in leisure sector is the slowdown in the globaltourism. However, given the post war scenarios; we don’t see this as a significant risk.The negotiations with the renowned hotel chain are still ongoing and expects to conclude within the comingmonth of October.The Group is also in the process of examining the acquisition of suitable land and conducting studies tolaunch similar ventures in the east coast of the country.4.6.1 GLOBAL FUNDING PARTNERSLOLC has been able to establish and maintain an excellent track record with an illustrious portfolio offunding partners, over many years. These funding agencies have two main goals for channeling resources –commercial progress and developmental progress of recipients.In addition to providing funding for lending to the customer, these agencies have driven LOLC to reach thehighest standards of ethics, transparency and accountability; they ensure that LOLC follows internationallyaccepted guidelines such as Anti-Money Laundering (AML) policies, Know Your Client (KYC) policies,and environmental protection procedures and also ensures that the Company manages risks involved in itsbusiness effectively.LOLC nurtures mutually beneficial partnerships with the following institutions.INTRODUCTORY DOCUMENT26

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/164.6.2 CONTROL ENVIRONMENTThe overall strategy and control environment is the responsibility of the Board of Directors. The Head ofRisk Management and Audit Chief Risk Officer are responsible for ensuring the control parameters as laiddown by the Board are met. The Board approves a strategic three year rolling plan prepared by themanagement. The Board has the responsibility to approve key policies e.g. the product program guidelines.However, policies relating to the day to day operations are approved by the Chief Executive Officer.LOLC has over 850 finance professionals working for the Company and as mentioned the LOLC Grouphave attracted many from the Sri Lankan banking industry. The Company with its superior policies andprocedures and the professional environment and opportunities for growth and diversification, has becomeone of the best employers in the industry.The Company has also developed various procedure manuals covering various areas of the operations of theCompany. The key procedural manuals for the Company are as follows:• Marketing• Finance• Recoveries• Legal• Human Resource• Corporate Governance• Sustainability PolicyINTRODUCTORY DOCUMENT27

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/165. MANAGEMENT5.1 CEO & SENIOR MANAGEMENTMr. W D Kapila Jayawardene –Chief Executive Officer(51 years)Group Managing DirectorNo. 34, Ramya MawathaSubuthipuraBattaramullaJoined as the CEO/Group Managing Director of LOLC in June 2007.He served as Country Head and CEO (Sri Lanka and Maldives) of Citibank N A from 1999 to 2007. He hasvaried experience in the fields of Banking Operations, Audit, Relationship Management, CorporateFinance, Corporate Banking and Treasury Management. with Citibank, of which 8 years were as CEO.Mr. Jayawardena was appointed as the Chairman of the Sri Lanka Bankers' Association (SLBA) in 2003/04.He has also served as the President of the American Chamber of Commerce in Sri Lanka and was appointedto the Financial Sector Reforms Committee (FSRC) by the Prime Minister and is a member of the FinanceSector and Capital Markets Cluster of the National Council of Economic Development (NCED).MBA in Financial Management, American University of Asia, Fellow of the Institute of Bankers (IBSL),Associate of the Institute of Cost and Executive Accountants, London.Chief Executive is/was NOT involved in the following events:• A petition under bankruptcy laws filed against such a person or any partnership in which he was apartner or any corporation of which he was as an executive officer.• A conviction of fraud, misappropriation or breach of trust or any other similar offence which the CSEconsiders a disqualification.• The subject of an order, judgment or ruling of any court or competent jurisdiction temporaryenjoining him from acting as an investment advisor, dealer in securities, director or employee of a financialinstitution or engaging in any type of business practice or activity.INTRODUCTORY DOCUMENT28

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16Name Designation Work ExperienceBrindley deZylvaConrad DiasFCMA (UK),FCMA (SriLanka), MBCS(UK), MBA(University ofLeicester)ManagingDirector/ChiefExecutive OfficerLOFCManagingDirector/ChiefExecutive OfficerLOITSChief InformationOfficerLOLC GroupJoined in 2003. Counts over 27 years of experience in theNon-Banking Financial Services Sector. Currently servesthe industry as a Vice Chairman of the Finance HousesAssociation of Sri Lanka, Council Member of the SriLanka Institute of Credit Management and a Director ofThe Financial Ombudsman Sri Lanka (Guarantee) LtdJoined in 2006. Counts over 20 years of experience inInformation Technology, Software Engineering, ProjectManagement, Strategic & Investment Planning, FinanceManagement, Corporate Restructuring and Unit Trust &Fund Management. Possesses domain expertise insectors such as Trading, Banking & Finance, AssetManagement and Manufacturing.Anura L.DharmapremaDhariniFernandoChartered Insurer,Associate of theCharteredInsuranceInstitute ofLondon (ACII)KithsiriGunawardeneAttorney-at-Law,PostgraduateDiploma inMarketingManagement(PIM, Sri.J)GunendraJayasenaSolomonJesudasonCorporateExecutive Officer- RecoveriesChief OperatingOfficerLOLC InsuranceChief OperatingOfficerLOLCChief LegalOfficerLOLC GroupGeneral Manager- LOLC VenturesChief Officer -MarketingOperationsJoined in 1998. Counts over 22 years of experience inRecoveries in the Financial Services Industry. Waspreviously Senior Collections Manager of a leadingfinance company.Joined in December 2010. Counts 18 years of experiencein both General and Life Insurance. Has work experiencewith a number of leading multinational insurancecompanies in varying roles at senior management level.Wide exposure and experience in managing Reinsurance,Property, General Accident and Casualty lines ofbusiness, Life Assurance and has been closely involvedin the implementation of insurance systems inmultinational companies.Joined in 2004. Counts over 20 years of experience as aLawyer. Held a number of important positions in theState, including the office of State Counsel attached to theAttorney General’s Department, the office of Director-Legal of the Securities and Exchange Commission and theInsurance Board of Sri Lanka and was involved in settingup the Consumer Affairs Authority as its first DirectorGeneral.Joined in 2007. Counts over 18 years of experience inManufacturing, Human Resource Management,Renewable Energy and Plantation Management.Joined in 1988. Counts over 23 years of experience inthe Leasing Industry in Finance, Marketing andOperations.Currently responsible for the Customer ServicingOperations, which includes Application Processing forFinance Leases, Hire Purchases, Loans, LC Facilities,Insurance, Savings, FD Operations, RMV Operations,Working Capital and Microfinance.INTRODUCTORY DOCUMENT29

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16JayanthaKelegamaBA (Hons)University ofDelhi, Institute ofBankers of SriLanka -Intermediate.SunjeevaniKotakadeniyaFCMA (UK),MBA (Col)GrahamLawrenceJacqueline LordAshan NissankaDipM CIM (UK),MBAChief CreditOfficerChief FinancialOfficerLOLC GroupChief ExecutiveOfficer - WorkingCapitalChief OfficerMetropolitanBranch Network -LOLCChief HumanResources OfficerLOLC GroupChief Officer -Branch NetworkLOLCJoined in 2005. Counts over 16 years of experience inLeasing, Asset Financing, Credit Risk Management andBankingJoined in 2005 and counts over 23 years of experience inFinancial Management and General Managementincluding Financial Accounting, Strategic Planning,Insurance, Fund Management & Administration, ITManagement, Treasury Management, New Business Setup, Process Re-engineering, Change Management, ERPImplementation and Project ManagementJoined in 1992. Counts over 23 years of experience inthe Financial Services Sector. Began his career as aBanker and has evolved to general management havingcovered Marketing, Credit and Recovery of diversefinancial products, including Leasing and Factoring.Joined in 2006. Counts 20 years of experience in diversebusiness sectors entailing the development and executionof human resource strategies and business plans, HRbudgeting, setting up of HR systems for new businessventures whilst engaging in the implementation ofstrategic initiatives including restructuring automation ofHR processes, service campaigns, etc. External to theHuman Resource field, she has gained expertise in thefield of Infrastructure Management, Procurement, RiskManagement, Insurance and Health and Safety.Joined in 1998. Counts over 19 years of experience inMarketing, Credit, Branch Management, ChannelDevelopment/Management and General Management inthe Banking and Finance Sectors.Rohan PereraMBA, EdithUniversity ofPerth, AustraliaKrishanINTRODUCTORY DOCUMENTGroup TreasurerChief ExecutiveOfficer CLCJoined in 2007. Over 25 years of experienceconcentrated on Banking and Corporate Treasuries withexpertise in Treasury Management including StrategicRisk Management and Cash Management. Competent inoperational management with capacity in handlingfinancing of high value projects. Starting his career as abanker and particularly in its treasuries; from thereonmoved to Corporate Treasuries. Pioneered the concept ofcorporate treasuries in Sri Lanka. Involved in setting upof the Corporate Treasurers’ Association as its FounderPresident.Joined in 1995. Counts over 20 years of experience inBanking, Credit, Leasing, Factoring and Branch30

ThilakaratneRavi TisseraCharteredInstitute ofMarketing, UKChief ExecutiveOfficerIslamic BusinessUnitDirector/ChiefExecutive OfficerLOMCLanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16Management. Conceptualised and introduced IslamicFinance to LOLC in 2007.Joined in 1993. Counts 20 years, experience in Bankingand Leasing Sector. A development finance specialist.Instrumental in conceptualising and introducingmicrofinance to LOLC.SharminiWickremasekeraChief RiskOfficerLOLC GroupJoined in 1983. Counts 28 years of experience inFinance, Accounting, Credit, Internal Auditing,Information Systems Auditing and Governance,Enterprise-wide Risk Management, Business ContinuityManagement and Business Process Re-engineering.Certified in Risk & Information Systems Control(CRISC), Certified Information Systems Auditor(CISA), member and a Past President of ISACA SriLanka Chapter.INTRODUCTORY DOCUMENT31

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/166. FINANCIAL INFORMATION32INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/1633INTRODUCTORY DOCUMENT

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/166.1 FIVE YEAR SUMMARY OF FINANCIAL STATEMENTS OF THE GROUP(For The Year Ended 31 st March)OPERATING RESULTS (Rs. Millions)2011 2010Restated2009 2008 2007RestatedRevenue 32,077 14,902 13,622 6,248 4,158PBIT 14,253 7,646 7,548 4,367 2,786Interest Costs 6,421 6,178 6,441 3,404 1,788Net Profit Before Tax 8,282 2,841 1,247 1,183 998Net Profit After Tax 7,023 2,385 1,055 1,343 1,050Attributable to:Equity Holders of the Co. 3,840 1,842 1,054 1,341 1,041Minority Interest 3,183 544 1 3 9ASSETS (Rs. Millions)Cash & cash equivalent 4,659 2,083 1,833 1,073 464Investment in Securities, Term deposit &Investment properties 17,549 14,936 5,165 5,592 3,558Rentals receivable on lease assets, hire purchase &operating leases 28,937 17,832 17,193 11,602 10,257Advances and other loan 28,714 15,085 12,550 8,563 5,751Inventory, Timber & Other Stocks 5,394 4,890 52 182 150Instalment Sales 766 2,168 2,955 - -Immature/Matured Plantations 1,616 1,308 -Investment in Associate Companies 2,759 3,035 676 493 0Intangible assets 571 379 355 - -Other Current Assets 6,377 5,175 2,669 3,339 2,688Property, Plant & Equipment 14,472 8,481 2,840 2,151 1,615Total Assets 111,813 75,371 46,287 32,994 24,483LIABILITIES (Rs. Millions)Deposits from customers 16,348 10,095 5,229 3,340 1,746Short-term Borrowings 9,898 8,342 9,744 8,955 5,659Trade & other payables 7,361 5,628 2,612 1,501 2,873Retirement benefit Obligation 889 760 74 52 35Long term borrowings 40,916 29,893 22,019 12,970 10,308Other Liabilities 1,678 914 517 999 37Total Liabilities 77,090 55,631 40,196 27,816 20,659Stated Capital 475 475 475 475 475Reserves 1,748 766 554 506 329Retained earnings 10,773 6,663 4,982 4,143 2,980Equity attributed to Equity Holders 12,996 7,904 6,011 5,124 3,784Minority Interest 21,727 11,836 80 54 40Total Equity 34,723 19,740 6,091 5,178 3,824Total Liabilities & Equity 111,813 75,371 46,287 32,994 24,483INTRODUCTORY DOCUMENT34

FIVE YEAR SUMMARY OF FINANCIAL STATEMENTS OF THE COMPANY(For The Year Ended 31 st March)OPERATING RESULTS (Rs. Millions)2011 2010 2009RestatedLanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/162008RestatedRevenue 6,344 6,774 9,691 5,222 3,326PBIT 4,282 3,582 4,788 3,813 2,353Interest Costs 2,384 3,091 4,205 2,972 1,443Net Profit Before Tax 1,898 491 582 841 910Net Profit After Tax 1,523 327 506 1,059 987ASSETS (Rs. Millions)Cash & cash equivalent 392 420 553 606 204Investments in Securities, Term deposit &Investment properties 4,087 6,156 2,660 4,784 3,580Rentals receivable on lease assets, hirepurchase & operating leases 1,713 3,383 6,498 9,984 8,823Advances and other loan 8,555 6,897 8,670 6,742 4,685Inventory, Timber & Other Stocks 2 9 3 39 47Instalment Sales 766 2,168 2,955 - -Investment in Group Companies 10,292 4,033 3,286 1,289 981Intangible assets 61 65 41 - -Other Current Assets 2,002 3,793 4,176 3,443 1,003Property, Plant & Equipment 3,283 2,813 2,493 2,108 1,565Total Assets 31,153 29,738 31,335 28,996 20,889LIABILITIES (Rs. Millions)Deposits from customers - - - - -Short-term Borrowings 5,767 5,221 6,669 8,342 4,911Trade & other payables 1,173 1,099 1284 2,870 1,931Retirement benefit Obligation 80 66 52 43 25Long term borrowings 16,612 17,866 18,181 12,970 10,308Other Liabilities 72 57 48 9 19Total Liabilities 23,704 24,309 26,233 24,234 17,194Stated Capital 475 475 475 475 475Reserves 1,096 552 529 494 321Retained earnings 5,877 4,401 4,097 3,793 2,899Equity attributed to Equity Holders 7,449 5,429 5,102 4,762 3,694Minority InterestTotal Equity 7,449 5,429 5,102 4,762 3,694Total Liabilities & Equity 31,153 29,738 31,335 28,996 20,88920076.2 INTERIM FINANCIAL STATEMENTFor The Quarter Ending 31 TH JUNE 2011Refer annexure 1INTRODUCTORY DOCUMENT35

7. CORPORATE GOVERNANCE PRACTICES.a) DIRECTORSLanka ORIX Leasing Company PLC always carries out its activities within an ethical andaccountable framework in order to enhance company performance.The Board of Directors has recognized the importance of corporate governance and is thereforecommitted to maintaining the highest ethical standards and environmental concerns, whilemaintaining a proper balance of all stakeholders’ interests, in order to ensure itself as a modelcorporate citizen.The strategic planning process is the responsibility of the Board of Directors, and they endeavor toexercise effective control over the Company by formulating and monitoring effectiveimplementation of such controls.The Corporate Governance Committee is a Board subcommittee set up as part of the Company’sself-regulating mechanisms. The Committee comprises the following members:Deshamanya M D D Peiris (Chairman)Mr. R A FernandoMr. R N AsirwathanMrs. R L Nanayakkara (attends Committee meetings by invitation)Group procedures, practices and policies are adopted by each new company within the Group,thereby enduring the maintenance of tried and tested checks and balances. The Board seeks toestablish a corporate culture which stresses the importance of team work, ethical behavior, riskappraisal and mitigation and compliance with regulatory and statutory requirements.While the Company’s key ratios are noted and discussed each month, the Board also looks at theGroup’s position, to ensure that there is growth and development overall.Company’s open door policy encourages employees to raise any matter of concern with any memberof the management.b) REMUNERATION COMMITTEEThe Remuneration Committee comprises of three independent directors as follows:All Independent Non Executive Directors of the Company are-Mr R A FernandoMr M D D PeirisMr R N AsirwathamAll Non – Executive Directors of the Company are –Mrs R L NanayakkaraMr R M NanayakkaraMr H IchidaMr K OkimotoThe Remuneration Committee, in setting the remuneration policy, has considered the following:

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/161 the need for Lanka ORIX Leasing Company PLC and its wholly owned subsidiaries to becompetitive in the local market;2 the need to attract, motivate and retain talent;3 the need to encourage and reward high levels of performance and achievement of corporategoals and objectives;It is believed that the aligning of remuneration with corporate performance ensures that shareholderand other stakeholder interests are also being met. Therefore, a portion of the executive directors’potential remuneration packages will be performance-related.The Board has approved the remuneration policy based on the recommendation of the Committee.The policy covers remuneration to Executive and Non-Executive Directors, including the Non-Executive Chairperson and the Executive Managing Director/CEO. Under the terms of this policy,total remuneration will be related to performance and contribution.Aggregated remuneration paid to the executive and non executive Directors as at 31 st March 20112010/11 2009/10Rs.Rs.Director Fees 40,282,878 20,498,436Director’s emoluments 41,093,178 31,089,610c) AUDIT COMMITTEEThe Audit committee, which is chaired by an independent director, was set up to review mattersrelating to the financial affairs of the Company.The committee carries out its responsibilities in the following areas to assist the Board of Directors.• To ensure that a sound financial reporting system is in place and is well managed inorder to provide information required by the management, regulatory authorities and theshareholders on an accurate and timely basis.• To review and monitor internal and external audit programs, including the annual auditplan, the internal control systems and accounting policies.• To ensure that the Company assets are safeguarded, proper records are maintained andreliable information is recorded and provided in respect of both assets and liabilities.• To review the quarterly and annual financial statements and recommend to the Board ofDirectors as to the status these statements.• To review the appropriateness of procedures in place for identification, evaluation &management of business risk.The composition of the Audit Committee is as follows:Independent Director – Mr. R N Asirwatham (Chairman)Independent Director – Deshamanya M D D PeirisIndependent Director – Mr. R A FernandoAt the invitation of the Committee, the Chairman of the Company, Managing Director and theCFO are present at meetings, together with the Chief Risk Officer, who presents Enterprise RiskManagement reports. The External Auditors are present when the Financial Statements arediscussed.Introductory Document37

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/168. LISTING DEBT –TRUSTEE /DIRECTORSTRUSTEESBank of Ceylon has agreed in writing to act as the Trustee to the debenture holders and has issued aconsent letter to this effect. The Company has entered into an agreement with the Trustee(hereinafter called the ‘Trust Deed’). Debenture holders in their application for subscription haveirrevocably authorized the Trustee, subject to overriding clauses in the Trust Deed, to act as theiragent in entering into such deeds, writings, and instruments with the Company and to act as agentsand Trustees for the debenture holders in order to facilitate the protection of the debenture holdersinvestment and return. There is no conflict of interest between the Trustee/its directors and theCompany.DIRECTORSThe Directors of LOLC hold no interest in acquiring, disposing, or leasing of any asset of theCompany during the past two years preceding the issue and have not proposed to acquire, dispose orlease any asset of the Company, during the two years succeeding the issue including theconsideration of thereon.Introductory Document38

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/169 Fitch Rating ReportIntroductory Document39

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/16Introductory Document40

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/1610. LITIGATION DISPUTES AND CONTINGENT LIABILITIES AS AT 30 TH SEPTEMBER 2011Lanka ORIX Leasing Company PLCCommitments and Contingencies 31.08.2011Rs MnContingent LiabilitiesLoans borrowed jointly from a foreign funding agency transferredto subsidiary to grant loans to microfinance clients 599CommitmentsForward Exchange Contracts 486Letters of Credit opened 412Facility Limits not utilized 600• There are no penalties imposed by Regulatory and State authorities as per Rule 3.3.6(b) of the CSElisting Rules• There are no assessments raised against the Company.Introductory Document41

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/1611. OTHER REQUIRMENTSThe Introductory Document and the Articles of Association of the entity will be hosted in thecompany’s Website: www.lankaorix.com and/or Colombo Stock Exchange’s web sitehttp://www.cse.lk for a period of not less than fourteen (14) daysIntroductory Document42

Lanka ORIX Leasing Company PLCDebenture Issue 2011/15 &2011/1612. DECLARATION BY THE DIRECTORSThis Introductory Document has been seen and approved by the directors of the Entity andthey collectively and individually accept full responsibility for the accuracy of theinformation given and confirm that after making all reasonable enquiries and to the best oftheir knowledge and belief, there are no other facts the omission of which would make anystatement herein misleading or inaccurate.Signature of all the Directors of the companyName & DesignationMrs. R L NanayakkaraChairpersonMr. I C NanayakkaraDeputy ChairmanMr. W. D. K. JayawardenaManaging Director/CEOMrs. K. U. AmarasingheDirectorMr. R. M. NanayakkaraDirectorMr. R A FernandoDirectorMr. R N AsirwathamDirectorMr. Deshamanya M. D. D. PierisDirectorMr. H IchidaDirectorMr. Okimoto K.DirectorMr. Yamazaki T. (Alternate Director to Mr. H. Ichida andMr. K. Okimoto)Miss. C. S. EmmanuelCompany SecretarySignatureSgd.Sgd.Sgd.Sgd.Sgd.Sgd.Sgd.Sgd.Sgd.Sgd.Sgd.Sgd.Introductory Document43

Member Firms of Colombo Stock ExchangeAnnexure 11

TRUST DEEDFORTHE ISSUE OF SEVEN MILLION FIVE HUNDRED THOUSAND SENIOR RATED UNSECURED REDEEMABLEDEBENTURES (WITH AN OPTION TO BE INCREASED TO TEN MILLION) OF THE PAR VALUE OF RUPEESONE HUNDRED (RS 100/-) EACH BY LANKA ORIX LEASING COMPANY PLCThis Trust Deed is made on the 28 th day of June Two Thousand and TenBetweenLANKA ORIX LEASING COMPANY PLC a company duly incorporated in Sri Lanka under the CompaniesOrdinance No. 51 of 1938 which has been re-registered under the Companies Act No. 7 of 2007 bearingregistration number PQ 70 and having its registered office at No. 100/1, Sri Jayawardenapura Mawatha,Rajagiriya in the Democratic Socialist Republic of Sri Lanka (hereinafter called "the Company" andwhich term or expression herein used shall where the context so requires or admits mean and include thesaid LANKA ORIX LEASING COMPANY PLC, its successors and assigns) of the ONE PART;AndBANK OF CEYLON a banking corporation duly established in Sri Lanka in terms of the Bank of CeylonOrdinance No 53 of 1938 and having its head office at No 4 Bank of Ceylon Mawatha, Echelon Square,Colombo 1 in the Democratic Socialist Republic of Sri Lanka (hereinafter referred to as the “Trustee”and which term or expression hereinafter used shall where the context so requires or admits mean andinclude the said Bank of Ceylon its successors and assigns) of the OTHER PART;Whereas• The Company being duly empowered in that behalf by its Articles of Association has resolvedby resolution dated 21 st March of 2011 of its Board of Directors to raise a sum not exceedingRupees Five Hundred Million (Rs 500,000,000/-) [ with an option to increase the amount to asum not exceeding Rupees One Billion (Rs 1,000,000,000/-) ] by the issue of Senior unsecuredredeemable debentures for that amount having tenures and bearing interest at the rateshereinafter mentioned;• The said Debentures shall be constituted in the manner and upon the terms and conditionshereinafter contained;• The Company has obtained an instrument rating of A- (lka) from Fitch Ratings Lanka Limitedfor the aforesaid Debentures;• The Trustee has agreed to accept the office of Trustee and act under the provisions of this Deedas Trustee for the benefit of and in the interests of the Debenture Holders on the termshereinafter contained.NOW THIS DEED WITNESSETH AND IT IS HEREBY AGREED AND DECLARED ASFOLLOWS:1. DEFINITIONS(a)In these presents unless the subject or context otherwise requires the followingexpressions shall have the respective meanings given below:1. “BI ANNUAL PERIOD” means each 6 month period commencing from thedate of allotment of the Debentures until redemption of the Debentures in full.2. “CENTRAL DEPOSITORY or CDS” means the Central DepositorySystems (Private) Limited.3. “CSE” means the Colombo Stock Exchange.4. “COMPANY’s CERTIFICATE” means a bi-annual certificate issued by theCOMPANY and signed by Two Directors or a Director and the GeneralManager of the COMPANY.5. “DATE OF ALLOTMENT” means the date on which the Debentures willbe allotted to the Debenture Holders under the Prospectus, which date will bestated in the Debenture Certificate.6. “DATE OF MATURITY/ DATE OF REDEMPTION” means the date onwhich the period of four (4) years from the date of allotment in the case ofType A Debentures and a period of five (5) years from the date of allotment inthe case of Type B Debentures which date will be stated in the respectiveDebenture Certificates.1

7. “DEBENTURES” shall mean the Type A Debentures and the Type BDebentures8. “DEBENTURE HOLDERS” means the Holders of the Debentures for thetime being whose names are entered as Holders of the Debentures in theRegister or in the case of Debentures lodged with the CDS the persons inwhose account the Debentures are lodged as at the relevant date.9 “DEBENTURE CERTIFICATE” means a Certificate issued to a Debentureholder in respect of any Debenture or Debentures.10. “EVENT OF DEFAULT” means any event set out in Clause 12.11. “EXTRAORDINARY RESOLUTION” means a resolution passed by theholders of not less than ¾ in value of the Debenture Holders voting on suchresolution.12 “INTEREST PAYMENT DATE” means the last date of each Bi AnnualPeriod from the date of the allotment of the Debentures until redemption andincludes the date on which the Debentures are redeemed in full.13 “INTEREST PERIOD” means for each annum, the periods ending andinclusive of 30th June and 31st December of each year and includes the periodfrom the later of any such dates to the Date of Maturity14. “LISTED” means tradable on the Colombo Stock Exchange15. “MARKET DAY” means a day on which trading takes place at the ColomboStock Exchange,16 “PROSPECTUS” means a prospectus in terms of the Companies Act No 7 of2007 delivered to the Registrar of Companies in terms thereof.17. “RATE OF INTEREST” means in respect of Type A Debentures the rate ofEleven decimal 1seven zero per centum (11.70%) per annum and in respect ofType B Debentures the rate of eleven decimal nine zero per centum (11.90%)per annum18 “RESOLUTION” means a Resolution passed by the Debenture Holders interms of Clause 21 unless otherwise provided for.19 REGISTERED ADDRESS” when used in relation to a Debenture holdermeans the respective address of the Debenture holder registered in theRegister and in the case of the Debentures lodged with CDS the registeredaddress shall be deemed to be the address provided by the Debenture holder tothe CDS.20 “REGISTER” means the register of the Debenture Holders hereinaftercovenanted to be kept by the Company.21 “REGISTRARS” means the Registrars to the Debenture issue or such otherperson or persons to be appointed as the Registrars for the purpose of thesepresents by the Company.22. “SEC” means the Securities and Exchange Commission of Sri Lankaestablished under the Securities and exchange Commission of Sri Lanka Actno 36 of 1987.23 “SRI LANKAN RUPEES” and the sign “LKR” mean the lawful currency ofthe Republic of Sri Lanka.24 “THESE PRESENTS’’ means this Trust Deed including the Scheduleshereto as from time to time modified in accordance with the provisions hereincontained and/or according to law and shall include any Supplementary TrustDeed executed in accordance with the provisions hereof.25. “TRUST DEED” means these presents including the Schedules hereto asfrom time to time modified in accordance with the provisions herein containedand/or according to law and shall include any Supplementary Trust Deedexecuted in accordance with the provisions hereof.2

26 “TRUSTEE” means BOC, a banking corporation duly recognized by theSEC to perform the role thus meeting all regulatory requirements pertaining tothe same.27 TYPE A DEBENTURES mean Unsecured Redeemable Debentures 2011 –2015 of the par value of Rupees One Hundred (LKR 100/-) each bearinginterest at a fixed rate of eleven decimal seven zero per centum (11.70%) perannum payable bi annually on each Interest Payment Date from the date ofallotment of the Debentures.28 TYPE B DEBENTURES mean Unsecured Redeemable Debentures 2011 –2016 of the par value of Rupees One Hundred (LKR 100/-) each bearinginterest at a fixed rate of eleven decimal nine zero per centum (11.90%) perannum payable bi annually on each Interest Payment Date from the date ofallotment of the Debentures.29 “WORKING DAY” means any day (other than a Saturday or Sunday or anystatutory holiday) on which Banks and Foreign Exchange Markets are openfor business in Sri Lanka.(b) Words denoting or importing the singular number shall include the plural number and vice versaand words denoting or importing the masculine gender only shall include the feminine genderand shall include corporate and unincorporated bodies of persons.(c)In these presents references to:(i)(ii)(iii)any provision of any statute shall be deemed also to refer to any statutorymodification or re-enactment thereof or any statutory instrument, order orregulation made there under or under such modifications or re-enactment.Principal and/or interest in respect of the Debentures or to any monies payableby the Company under These Presents or under the Debentures shall bedeemed also to include references to any additional amounts which may bepayable under these presents.Costs, charges or expenses shall include (but not be limited to) the ValueAdded Tax, Turnover Tax or similar tax charged or chargeable in respectthereof.(d) References in this Trust Deed to Schedules, clauses, sub-clauses, paragraphs and sub-paragraphsshall be construed as references to the Schedules to this Trust Deed and the clauses, sub clauses,paragraphs and sub-paragraphs of this Trust Deed respectively.(e) The headings are inserted herein only for conveniences and shall not affect the construction ofthese presents.2. APPOINTMENT OF THE TRUSTEEThe Trustee is hereby appointed as Trustee for the purposes of the Debentures and for thebenefit of and in the interests of the Debenture Holders as provided herein and the Trusteeaccordingly accepts the appointment upon the terms and conditions contained herein and agreesto act under the provisions of this Deed as the Trustee.3. AMOUNT OF THE DEBENTURE ISSUEDebentures will be issued by the Company to raise a sum upto Sri Lankan Rupees SevenHundred and Fifty Million (LKR 750,000,000 -) with an option to increase the said sum upto SriLankan Rupees One Billion (LKR 1,000,000,000 -)4. COVENANTS TO REPAY THE PRINCIPAL SUM AND INTEREST4.1 Debenture Holders who have not deposited the Debentures with the CDS(a)The Company hereby covenants with the Trustee for the benefit of theDebenture Holders that it will,(i)as and when the Debentures ought to be redeemed in accordancewith the provisions of These Presents and upon surrendering theDebenture Certificate to the Registrars of the Company, pay to theDebenture Holders registered on the date immediately prior to theDate of Redemption by crossed cheque marked “Account payeeonly” sent by ordinary mail to the Registered Addresses of theDebenture Holders the principal sum of the Debentures which oughtto be redeemed and interest (if any) remaining unpaid up to the Dateof Redemption of the Debentures.3

(ii)(iii)(iv)pay on each Interest Payment Date to the Debenture Holdersregistered as on the date immediately prior to such Interest PaymentDate by crossed cheque marked “Account Payee only” sent byordinary mail to the Registered Address given to the Company,interest on the principal sum of the Debentures for the time beingoutstanding at the Rate of Interest in accordance with the provisionsof These Presents.the interest calculation shall be based upon the “Actual/Actual”number of days in each interest payment period.the payment of the principal sum and interest shall be made in SriLankan Rupees after deducting any withholding tax and/or suchother taxes and charges thereon, if applicable.(b)(c)(d)(e)(e)The Debentures shall be redeemed in accordance with the provisionscontained in these presents on the Date of Maturity or on such earlier date inthe Event of Default together with interest (if any) remaining unpaid therefore.On the Date of Maturity, the holder of every such Debenture to be redeemedshall be bound to surrender such Debenture Certificate, either by person orthrough registered post to the Registrars of the Company.If any Debenture Holder fails or refuses to claim by surrender of theDebenture Certificate and receive payment of the redemption monies payableto such Debenture Holder, or any part thereof within 90 days from the Date ofMaturity of the Debentures, the amount due to him shall be transferred by theCompany to a suspense account at the end of 90 days after the Date ofMaturity of the Debentures and shall be paid by the Company to the holder ofthe Debentures when the Debenture Certificate is surrendered and no interestwill be payable by the Company on such Debentures for the period betweenthe Date of Maturity and the date of the said payment unless the non paymentis due to a default on the part of the Company.If any cheques for redemption and interest payment sent by post to theDebenture Holders are returned to the Company undelivered, the amountsrepresented by each of such returned cheques shall also be transferred by theCompany to the aforementioned suspense account and retained therein for aperiod of Six (06) years from the Date of Maturity of the Debentures. Suchmonies will be repaid to the Debenture Holders if the same is claimed inwriting by such Debenture Holder within the said Six (06) years period. Noperson shall be entitled to claim any such redemption and interest paymentafter the completion of six years from the Date of Maturity and all unclaimedmonies shall cease to be owed and payable by the Company to any DebentureHolder after the said period of Six (06) years.All Debenture Certificates pertaining to the Debentures redeemed asaforementioned shall be cancelled and shall not be reissued.4.2 Debenture Holders who have deposited the Debentures with the CDS (ifapplicable)(a)The provisions of the Clause 4.1 shall mutatis mutandis apply to theDebenture Holders who have deposited the debenture certificates with theCDS, subject to the variations set out in (b) to (d) of this Clause 4.2.(b)The Company shall always act on the information furnished by the CDS and itshall be the responsibility of each such Debenture holder to keep all theinformation in respect of such Debenture Holder updated. Each DebentureHolder shall absolve the Company from any responsibility or liability inrespect of any error or absence of necessary changes in the informationrecorded with the CDS.(c ) the Company shall be entitled to make payment on redemption of all suchDebentures on the Date of Maturity to such Debenture Holders without anyrequest for claim from such Debenture Holders and the Company shallaccordingly send the crossed cheques marked “Account Payee only” for suchpayments to the addresses (as furnished by the CDS) of such DebentureHolders and such payment shall be deemed to be a payment duly made by theCompany to the respective Debenture Holders in redemption of theDebentures of such Holders.4

(d)(e)In order to accommodate the Debenture interest cycles in the Debt TradingSystem (DEX) the Debenture Holders to whom interest shall be paid shall bethose holding Debentures in the DEX at the end of the date immediatelypreceding an Interest Payment Date of the payment cycle (entitlement date). Ifthe entitlement date is a holiday interest shall be calculated including theentitlement date.If any of the cheques referred to in (c) above is returned undelivered theCompany shall transfer the amount represented by each of such returnedcheques to the suspense account referred to in the Clause 4.1 (d) above.4.3 If the Date of Redemption falls on a non working day on which the Banks are closedfor business in Sri Lanka, then the Debentures will beredeemed without any additional interest on the next working day whenthe Banks are open for business in Sri Lanka.4.4 The claims of the Debenture Holders shall in the event of winding up of theCompany, rank after all the claims of secured creditors of the Company and anypreferential claims under any Statutes governing the Company but in priority tosubordinated creditors of the Company, if any and over the claims and rights of theShareholder/s of the Company.5. DEBENTURE CERTIFICATES5.1 The Company shall within five (05) market days from the date of closing of the issue send byregistered mail the Debenture Certificates to those Debenture Holders who have requested same.5.2 Upon listing on the CSE the Debentures shall be held and transferred according to the rules ofthe CSE and the CDS.6. STAMP DUTY AND OTHER CHARGES (IF ANY)The Company shall pay all charges, stamp duties and other similar duties or taxes (if any)payable on or in connection with (i) the issue of the Debentures and (ii) the execution of ThesePresents.7. ELIGIBILITY TO APPLY FOR DEBENTURESThe Debentures may be issued to:(a)(b)Citizens of Sri Lanka who are resident in Sri Lanka and above 18 years of age.Corporate bodies and societies registered/ incorporated/established in Sri Lanka andauthorized to invest in the Debentures.(c ) Approved Provident Funds, Trust Funds and Contributory Pension Schemesregistered/established in Sri Lanka and authorized to invest in the Debentures.( In the case of Approved Provident Funds, Trust Funds and Contributory Pensionschemes the Application should be in the name of the Board of Management/Trustee ofsuch Approved Provident Funds, Trust Funds and Contributory Pension Schemes inorder to facilitate the opening of the CDS Accounts).8. ISSUE OF CERTIFICATES(a)The Company shall issue to every Debenture Holder, one (01) certificate in respect ofthe number of Debentures held by such Debenture Holder. Joint Debenture Holdersshall be entitled to only One certificate for any Debentures held jointly by them whichCertificate shall be delivered to that one of the joint Holders whose name appears firstin the Register of Debentures and the Company shall not be bound to register morethan Three (03) persons (including the Principal holder) as the joint holders of any ofthe Debentures (except in the case of executors, administrators or heirs of a deceasedmember). The Debenture Holder may apply in writing to the Company for the issue ofmore than one certificate for the Debentures if such Debenture holder so wishes. Uponthe certificate which it is applied to be replaced by two or more certificates beingsurrendered to the Company and on payment of such fee as the Company maydetermine from time to time for such issue the Company shall issue to the applicantDebenture holder two or more certificates for such Debentures as the applicant mayapply for. The Debenture Certificates in respect of Type A Debentures and Type BDebentures shall be substantially in the forms set out in the First and Third Schedules5

hereto and have endorsed thereon the conditions mentioned in the Second and FourthSchedules hereto and the Certificate shall be held subject to and with the benefit of allsuch conditions or such other condition (having substantially the same effect) as maybe endorsed on any Debenture Certificate. Every Debenture Certificate shall be underthe seal of the Company affixed with the authority of its Directors and in the mannerprovided for by the Statute governing the Company, for the time being.(b)If the Debenture certificate is worn, defaced, lost or destroyed a duplicate certificatemay be issued at the request of a Debenture Holder on the payment of such fee notexceeding LKR 500/- and on such terms as to evidence and indemnity as the Companyshall think fit. In the event of loss of a Debenture Certificate the Company shall requirean advertisement to be placed in one of the main newspapers in daily circulation, andthe cost of such advertisement shall be borne by the Debenture Holder. Any stampduty/taxes/charges payable on such Certificate shall be borne by the Debenture Holder.9 TRANSFER OF DEBENTURES(a)(b)These Debentures shall be freely transferable and the registration of such transfer shallnot be subject to any restriction, save and except to the extent required for compliancewith statutory requirements.The Debentures shall be transferable and transmittable through the CDS as long as theDebentures are listed in the CSE. Subject to the provisions contained herein theCompany may register without assuming any liability any transfer of debentures,which are in accordance with the statutory requirements and rules and regulations inforce for the time being as laid down by the CSE, SEC and the CDS.(c ) In the case of death of a Debenture Holder* The survivor where the deceased was a joint holder; and* The executors or administrators of the deceased or where the administration ofthe estate of the deceased is in law not compulsory the heirs of the deceasedwhere such Debenture Holder was the sole or only surviving holder; shall bethe only persons recognized by the Company as having any title to his/herDebentures.(d)Any person becoming entitled to any Debenture in consequence of bankruptcy orwinding up of any Debenture Holder, upon producing proper evidence that he/shesustains the character in respect of which he/she proposes to act or his/her title as theBoard of Directors of the Company thinks sufficient may in the discretion of the Boardbe substituted and accordingly registered as a Debenture Holder in respect of suchDebentures subject to the applicable laws rules and regulations of the Company, CDS,CSE and SEC.(e)No change of ownership in contravention to these conditions will be recognized by theCompany.10 COVENANT TO OBSERVE PROVISIONS OF THE TRUST DEED AND SCHEDULES.The Company hereby covenants with the Trustee to comply with the provisions containedherein and to perform and observe the same. It is expressly agreed between the Company andthe Trustee that the Trustee shall not be liable for any loss or damage however caused by nonobservanceor non-compliance with the covenants contained in Clause 11 by the Company.11 COVENANTS BY THE COMPANYThe Company hereby covenants with the Trustee for the benefit of the Debenture Holders that,so long as any of the Debentures remain outstanding(a)(b)The Company shall at all times carry on and conduct its affairs in a proper andappropriate mannerThe Company shall at all times keep such books of accounts as it is obliged to keepunder the applicable laws and (to the extent not prohibited by law or otherwise byvirtue of any duty of confidentiality) at any time after an Event of Default shall haveoccurred or the Trustee shall have reasonable cause to substantiate that an Event ofDefault will occur, allow a reputed Audit Firm appointed by the Trustee in consultationwith the Company free access to the same at all times during working hours and todiscuss the same with the directors and officers of the Company, PROVIDED howeverthat the Trustee and the Audit Firm shall, to the extent legally permitted, maintain6

confidentiality in respect of all the matters relating to the Company and its businessand shall not use any information they acquire pursuant to these provisions for anyother purpose. The Company shall also maintain records of all of its publishedinformation and make them available for inspection by the Trustee and the DebentureHolders.(c ) The Company shall give a Certificate in writing to the Trustee within 30 days from thedate of expiry of every Interest Payment Date, commencing from the date of allotmentof the Debentures, signed by Two Directors or a Director and the General Manager –Treasury or Director and the General Manager-Finance of the Company, certifying thatthe interest on the Debentures has been paid to the Debenture Holders in terms of theClause 4.1 and Clause 4.2 above. In the event the Company defaults in submitting suchCertificate the Trustee shall treat it as an Event of Default as set out in Clause 12.1hereof.(d)The Company shall at all times keep a correct Register of Debenture Holders showing:i. The names and addresses (which shall be the Registered Addresses of theDebenture Holders) of all Debenture Holders.iiiiiThe number, type and the value of the Debentures held by eachDebenture Holder.The date on which each Debenture Holder became registered as the holder ofany Debentures and the date on which such holder ceased to be so registered.Provided however, that in the case of Debentures that are lodged with theCDS, the Company may treat the records maintained by the CDS as anaccurate record of the details required herein above.(e)The Company shall permit the,i. Trustee at all reasonable times without payment of any fee to inspect theRegister of Debenture Holders and to take copies thereof.ii Debenture Holders at all reasonable times without payment of any fee toinspect the Register of Debenture Holders pertaining to such Debenture holderand to take copies thereof(f) i The Company shall forthwith upon the Company becoming aware of thehappening of any and every such event as is mentioned in Clause 12.1 hereofgive notice thereof in writing to the Trustee PROVIDED that the Companyshall in any event issue a certificate to the Trustee within 30 days from the endof every bi-annual period commencing from the date of allotment of theDebentures signed by Two Directors or a Director and the General Managerof the Company certifying that no event mentioned in paragraphs (c) and (d)of Clause 12.1 hereof has occurred during the previous Six (06) month periodwhich would have resulted in the Debentures becoming payable in terms ofthe said Clause 12.1.iiThe Company shall submit a certificate to the Trustee within 30 days from theend of every bi-annual period commencing from the date of allotment of theDebentures signed by Two Directors or a Director and the General Managerof the Company certifying that all of the covenants set out in clause 11 hereofhave been complied with..(g)The Company shall issue to the Trustee such certificates as the Trustee may require tocarry out its obligations in terms of These Presents PROVIDED such certificates canbe issued by the Company without committing any breach of its duty of confidentialityto any person or entity.(h)(i)(j)The Company shall reproduce the Trust Deed in full in the Prospectus relating to theissue of these Debentures, and shall make available to any Debenture holderimmediately on request a certified copy of the Trust Deed.The Company shall send to the Debenture Holders and the CSE an interim financialstatement prepared on a quarterly basis, no later than forty five days from the end ofthe first, second and third quarters and two months from the end of the fourth quarter ofits financial year.The Company shall send the Trustee all published financial information, which isnormally provided to ordinary shareholders at the same time that it is sent to theshareholders.7

(k)(l)The Company shall not without the prior written approval of the Trustee whichapproval shall not be unreasonably with held declare or pay any dividend to itsshareholders during any financial year unless it has paid all the dues to the DebentureHolders upon the date on which the dividend is proposed to be declared or paid or hasmade satisfactory provisions therefor.The Company shall reimburse all reasonable expenses incurred by the DebentureHolders/Trustee after an Event of Default has occurred in connection with:(i)(ii)Preservation of The Company’s assets (whether then or thereafter existing)Collection of amounts due under this Deed.All such sums shall be reimbursed by The Company within 30 days from the date ofnotice of demand from the Debenture Holders or the Trustee.(m)(n)The Company shall submit to the Trustee a certificate in writing that the principalamount has been paid to the Debenture Holders in accordance with the terms orconditions of the Debentures and provisions of the Trust Deed, immediately upon suchpayments becoming due.The Company shall immediately notify the Trustee in the event that the Companybecomes aware of the occurrence of any of the following events that has caused orcould cause:(i) Any amount secured or payable under the Debenture to become immediatelypayable(ii) Any event in the opinion of The Company that may lead to the acceleration ofeither the payment of interest or redemption.(iii) Any other right or remedy under the terms and conditions of the Debentures or theprovisions or covenants of the Trust Deed to become immediately enforceable.(o)The Company shall submit to the Trustee within one month after the end of everycalendar quarter, a certificate that The Company has complied with each and all ofthe covenants. The certificate should include:(i) Whether or not any limitation of liabilities or borrowing as prescribed by theCompanies Act and the Articles of Association of the Company has beenexceeded.(ii) whether any material trading or capital loss has been sustained by the Company(iii) Whether or not any circumstances materially affecting the Company hasoccurred which adversely affect the Debentures.(iv) Whether any contingent liabilities have been incurred by the Company, and if so,the amount incurred. Whether or not any contingent liability has matured or islike to mature within the next twelve months, which will materially affect theability of the Company to repay the Debentures.(v) Whether the Company has assumed a liability of a related corporate body duringthe quarter, the extent of the liability assumed during the quarter and the extentof the liability at the end of the quarter.(vi) Whether or not there has been any change in any accounting method or methodof valuation of assets or liabilities of the Company(vii) Whether or not any circumstances have arisen which render adherence to theexisting method of valuation of assets or liabilities of the Companyinappropriate;(viii) Any substantial change in the nature of the Company’s business since the issueof the Debentures;(ix) Whether or not any action has been taken by the Board of Directors of theCompany in terms sections 219 and 220 the Companies Act No. 7 of 2007during the quarter.(x) Whether or not the Company has observed and performed all the covenants andobligations binding upon it pursuant to the Trust Deed.The certificate shall be made in accordance with a resolution of the directors andspecify the data on which the certificate was made; and, where the Companyfails to deliver the certificate to the Trustee, the Trustee shall inform theDebenture Holders of that fact.(p)(q)In the event that the Company creates a charge, the Company shall submit to theTrustee the written details of the charge within 21 days after it is created. If theamount to be advanced on the security of the charge is indeterminate, theCompany shall submit to the Trustee the written details of the amount of eachclaim, within 5 market days from the date the claim is made.The Company shall at all times maintain records of all its published information andmake them available for inspection by the Trustee and Debenture Holders8

(r)the Trustee shall be entitled to reimbursement of all reasonable costs, charges andexpenses which the Trustee may incur in relation to the exercise of its dutieshereunder from and out of the funds lying to the credit of the Trustee.12 EVENTS OF DEFAULT12.1 The Debentures shall become immediately payable at the option of the Trustee on theoccurrence of any of the following events:a) If the Company defaults the payment of principal sum or any interest due on the wholeor any part of the Debentures in accordance with the provisions contained in ThesePresents.b) If the Debentures cease to be listed in the Colombo Stock Exchange at any timebetween the time of listing and the Date of Maturity, due to any default on the part ofthe Company.c) If the Company stops or threatens to stop payment of its debts or ceases to carry on itsbusiness, which may lead to the winding up of the Company.d) If any liquidation, bankruptcy, insolvency, receivership or similar action or proceedingis commenced against the Company or an order shall be made or an effective resolutionshall be passed for the winding up of the Company.e) If the Company does not submit a Certificate to the Trustee as set out in Clause 11 (c)above certifying that the interest has been paid to the Debenture Holders in terms of theTrust Deed.f) If the Company does not submit a Certificate to the Trustee as set out in Clause 11 (f)(i) above certifying that no event mentioned in paragraphs (c) and (d) of this clausehereof has occurred during the previous Bi Annual Period, which would have resultedin the Debentures becoming payable in terms of this Clause.g) If the Company does not submit a Certificate to the Trustee as set out in Clause 11 (f)(ii) above certifying that all of the covenants set out in clause 11 of the Trust Deedhave been fully complied with.h) If the Company commits a breach of any of the other covenants or provisions hereincontained and on its part to be observed and performed provided however that theTrustee shall give the Company up to 30 days notice before declaring such breach to bean Event of Default.i) Where any other indebtedness of the Company becomes due and payable prior to itsstated maturity or where security created for any other indebtedness becomesenforceable.j) Where there is revocation, withholding or modification of a license, authorization orapproval that impairs or prejudices the Company’s ability to comply with the terms andconditions of the Debentures or the provisions of the Trust Deed or any other documentrelating to the issue, offer or invitation in respect of the Debentures.k) Where any mortgage, charge, pledge, lien or any other encumbrance, present or futureis created or assumed by the Company contrary to the terms or conditions of theDebentures and the provisions of the Trust Deed.12.2Upon the occurrence of an Event of Default the Trustee may at its discretion and if so requestedin writing by the Debenture Holders of at least one fifth (1/5) of the face value of theDebentures outstanding, or if so directed by an Extraordinary Resolution of the DebentureHolders give notice to the Company that the principal and interest on the Debentures becomesimmediately due and payable13 ENFORCEMENT OF OBLIGATIONSAt any time after the Debentures shall have become repayable on maturity or otherwise underany provision of these Presents, the Trustee may at its discretion, or upon the request in writingof the Debenture Holders of at least one fifth (1/5) of the face value of the Debenturesoutstanding, and in the event that there is no Trustee, the Debenture Holders pursuant to anExtraordinary Resolution and without any further notice, may institute such proceedings as theythink fit to enforce repayment and other obligations of the Company under these Presents.9

Provided that nothing in these Presents shall preclude a Debenture holder from initiating legalaction on his own right.14 APPLICATION OF MONIES RECEIVED BY THE TRUSTEEIn the event of the Trustee recovering or receiving any monies from the Company consequent toany action taken by the Trustee against the Company the Trustee shall apply such monies,(a)(b)In the first place in paying or providing for the payment or satisfaction of the costscharges expenses and liabilities incurred in or about the execution of the trustconstituted by these presents (including remuneration of the Trustee)Secondly, in or towards payment to the Debenture Holders of all arrears of interestremaining unpaid on the Debentures held by them respectively.(c ) Thirdly in or towards payment to the Debenture Holders of all principal monies due inrespect of the Debentures held by them respectively and(d)Finally, the Trustee shall pay the surplus (if any) of such monies to the Company or itsassigns, PROVIDED that at the discretion of the Trustee payments may be made onaccount of principal monies before any part of the interest or the whole of the intereston the Debentures have been paid but such alteration in the order of payment of theprincipal monies and interest shall not prejudice the right of the Debenture Holder toreceive the full amount to which they would have been entitled if the ordinary order ofpayment had been observed. Any payment to the Debenture Holders under this clauseshall be made pari passu in proportion to the Debentures held by them respectively.15 MANNER OF PAYMENT & ENFORCEMENT OF DEBENTURESAny payment to be made in respect of the Debentures by the Company or the Trustee may bemade in the manner provided in this Trust Deed and any payments so made shall be gooddischarge pro tanto to the Company or the Trustee, as the case may be. Any payment of interestin respect of a Debenture shall extinguish any claim which may arise directly or indirectly inrespect of such interest from a Debenture Holder.Upon any payment under the provisions of Clause 14 the Debenture in respect of which suchpayment is made in full shall be produced to the Trustee through whom such payment is madeand the Company shall call such Debentures to be cancelled (whether lodged in CDS or held incertificate form) and shall certify or procure the certification of such cancellation.16 REMUNERATION OF THE TRUSTEEThe Company shall pay the Trustee during the continuation of these presents a sum of SriLankan Rupees Two Hundred and Forty Thousand (LKR 240,000/-) per annum plus theapplicable Government Taxes on account of remuneration for the Trustee for its services underThese Presents. The said fee shall be paid at the expiry of every one (01) year periodcommencing from the date of allotment of the Debentures. Further, the Trustee shall be entitledto reimbursement of all reasonable costs, charges and expenses which the Trustee may incur inrelation to the exercise of its duties hereunder from and out of the funds lying to the credit of theTrust hereby created.17 GENERAL POWERS OF THE TRUSTEEWithout prejudice to the powers and reliefs conferred on Trustees by These Presents or by thelaws relating to the Trusts or any other applicable law the Trustee shall have the followingpowers:-(a)(b)The Trustee may in relation to These Presents act on the opinion or advice of or acertificate or any information obtained from any lawyer, banker, valuer, surveyor,broker, auctioneer, accountant or other expert (whether obtained by the Trustee or theCompany) and shall not be responsible for any loss occasioned by acting on any suchopinion, advice, certificate or information and that the Trustee shall not be liable foracting on any opinion, advice, certificate or information purporting to be so conveyedalthough the same shall contain some error as long as the Trustee has acted in goodfaith.The Trustee shall as regards all the trusts, powers authorities and discretion vested in itby these presents or by operation of law, have absolute and uncontrolled discretion asto the exercise or non-exercise thereof and the Trustee shall not be responsible for anyloss, costs, damages, expenses or inconvenience that may result from the exercise ornon exercise thereof but whether the Trustee is under the provisions of these presents10

ound to act at the request or direction of the Debenture Holders the Trustee shallnevertheless not be bound unless first indemnified to its satisfaction against all actions,proceedings, claims and demands to which it may render itself liable and all costs,charges, damages, expenses and liabilities which it may incur by so doing. Howevernothing in this Clause shall preclude a Debenture Holder from filing action on his ownif he so wishes;(c ) To summon any meeting of the Debenture Holders in accordance with the provisionsof Clause 21 hereof.(d)In case of default by the Company, the Trustee may but shall not be bound unlessdirected either by an instrument in writing signed by the Debenture Holders of at leastSeventy Five per centum (75%) of the face value of the Debentures for the time beingoutstanding or in accordance with a Extraordinary Resolution passed by the DebentureHolders in accordance with Clause 21 of These Presents, to waive such terms andconditions as they shall deem expedient any of the covenants and provisions containedin These Presents on the part of the Company to be performed and observed.(e)The Trustee as between itself and the Debenture Holders shall have full power todetermine all questions and doubts arising in relation to any of the provisions of ThesePresents and every such determination, whether made upon a question actually raisedor implied in the acts or proceedings of the Trustee. If a Debenture Holder is notsatisfied with the said determination provided by the Trustee then the DebentureHolder may challenge such determination in a court of law.PROVIDED* Such Debenture Holder has the written consent of the Debenture Holders of atleast Ten per centum (10%) of the face value of Debentures for the time beingoutstanding.* Such application to Court of law is instituted within Thirty (30) days ofnotification of such determination to the Debenture Holders.(f)(g)(h)(i)(j)The Trustee may, in the conduct of the trusts of these presents, instead of actingthrough its staff, employ and pay a professional person, to transact or conduct, orconcur in transacting or conducting, any business and to do or concur in doing all actsrequired to be done by the Trustee.The Trustee shall not be liable to the Company or any Debenture Holder by reason ofhaving recognized or treated as a Debenture holder any person subsequently found notto be so entitled to be recognized or treated.Whenever in these presents the Trustee is required in connection with any exercise ofits powers, trusts, authorities or discretions to have regard to the interests of theDebenture Holders, it shall have regard to the interests of the Debenture Holders as aclass and in particular, but without prejudice to the generality of the foregoing, shallnot be obliged to have regard to the consequences of such exercise for any individualDebenture Holders resulting from his or its being for any purpose domiciled orresident in, or otherwise connected with, or subject to the jurisdiction of, any particularterritory, andThe Trustee may, accept a certificate signed by Two Directors or a Director and theGeneral Manager of the Company certifying that all Debentures have been redeemed orrelating to any other matter primarily in the knowledge of the Company as sufficientevidence thereof and such Certificate shall be a complete protection to the Trustee whoacts thereon.The Trustee shall give notice in writing to the Debenture Holders as and when theTrustee is notified by the Company of any occurrence mentioned in Clause 12.1 or anycondition of the Trust Deed which cannot be fulfilled.PROVIDED nevertheless that none of the provisions of these presents shall in any case inwhich the Trustee has failed to show the degree of care and diligence required by it, havingregard to the provisions of these presents, conferring on the Trustee the powers, authorities ordiscretions, relieve or indemnify the Trustee against any liabilities which by virtue of any rule11

of law would otherwise attach to it in respect of any negligence , default , breach of duty orbreach of trust of which it may be guilty in relation to its duties under these presents.PROVIDED FURTHER that the Trustee shall exercise reasonable diligence to ascertainwhether the Company has committed any breach of the terms and conditions of theDebentures or provisions of the Trust Deed or whether an Event of Default has occurred or iscontinuing to occur, on perusal of the documents submitted in terms of the covenants set outin the Trust Deed. However the Trustee’s role shall be passive prior to the Trustee beingnotified of any occurrence of an Event of Default and the Trustee shall not have any otherduty apart from those expressly stated herein.For the avoidance of doubt, the Trustee shall not be considered, nor have any responsibility orliability, as a lender or borrower. The obligation to repay any debts owing to DebentureHolders shall remain with the Company and the Trustee shall not be liable nor responsible forany act, omission or default of the Company nor any other party. The Trustee shall also not beliable for any loss due to any cause beyond its control, nor to take any action in relation to anyevent of default which it is not aware of, nor for consequential or indirect loss, nor for marketloss, risk or movement affecting any investments. The Company shall fully indemnify theTrustee for any liability, claim, expense, damage or loss that the Trustee may incur inconnection with this Trust Deed, save where such liability or loss is due solely to thenegligence or willful misconduct of the Trustee. The Trustee shall be entitled to rely and acton any document or instrument which it has received from the Company and to treat it asauthentic and authorized unless the Trustee has actual notice otherwise. In performing itsduties, the Trustee shall maintain the confidentiality of confidential information received byit, but the Trustee may disclose any such information to a branch, head office, subsidiary oragent of the Trustee on a need to know basis in connection with this Trust Deed, to anygovernment body or court and/or to any party in accordance with the requirement of a law,regulatory directive or regulation.(k) The Trustee shall ensure that all documents required to be submitted by the Company interms of the covenants set out in the Trust Deed are forwarded in a timely manner.(l) The Trustee shall give notice in writing to the Debenture Holders as soon as practicable ifthe Company fails to remedy any breach of terms and conditions of the Debentures or theprovisions/covenants of the Trust Deed.18 APPOINTMENT AND REMOVAL OF THE TRUSTEE(a)(b)(c)(d)(e)(f)(g)_Subject to the provisions of this Trust Deed, the power of appointing new trustees shall bevested in the Company, provided further that the Company shall obtain the approval ofDebenture Holders holding not less than ten per centum (10%) of the nominal value of theDebentures for the time being outstanding prior to the appointment of the new trustee.Notice of such appointment shall be given to the Debenture Holders within thirty (30) daysof such appointment by an advertisement published in national newspapers in all threelanguages (Sinhala, Tamil and English) of the Company’s choice circulating in Sri Lanka.In the event the Company does not or cannot exercise its power to appoint a new trusteeand there being no new trustee appointed as of thirty (30) days before theremoval/retirement of the Trustee taking effect in accordance with the terms hereof, theDebenture Holders of not less than 20% of the nominal value of the Debentures in issuemay convene a meeting to appoint a new trustee by an ordinary resolution.Any removal of a Trustee and the subsequent appointment of a replacement Trustee by theCompany shall be with the consent of an Extra Ordinary resolution of Debenture Holders.In the event of the Debenture Holders not being satisfied with the Trustee, they have theright to remove the Trustee by way of an Extra Ordinary Resolution passed at a GeneralMeeting convened under Clause 21 hereof.The Company shall be notified of any removal of the Trustee and subsequent appointmentof a replacement Trustee by the Debenture Holders.The Company shall take reasonable steps to replace the Trustee as soon as practicable afterbecoming aware that:a. The Trustee has ceased to existb. The Trustee is in the situation of conflict of interestsc. The Trustee has ceased to perform its function as a Trusteed. The Trustee is in the situation of unsuitability and does not eliminate suchsituation within 90 days after them ascertaining or of them beinginformed that the Trustee has such a situation.In the event the Trustee discovers that it is not eligible to be appointed or act as Trustee, theTrustee shall give notice in writing to the Company regarding the same.12

19 COMPLIANCE OF MAJORITY OF TRUSTEESIf there be more than one Trustee under These Presents the Trustees shall with majorityconsent exercise all or any of the Trustee’s powers and discretions vested in theTrustees generally under any Clause of These Presents.20 RETIREMENT OF TRUSTEE20.1 In the event of the Trustee, in its sole and absolute discretion, desiring to retire, the Trustee shallgive not less than 90 days notice to the Company in writing to that effect, and the Companyshall thereupon appoint a new Trustee in accordance with Clause 18 of these presents. TheTrustee shall continue in its capacity as Trustee until such time a new Trustee is appointed.20.2 In the event of such a retirement, the Trustee at its cost shall publish a notice to this effect inNewspapers in all three languages (Sinhala, Tamil and English) of its choice circulating in SriLanka and such notice shall be deemed to be sufficient notice to the Debenture Holdersnotwithstanding anything to the contrary herein contained.21 MEETINGS OF DEBENTURE HOLDERS(a)(b)The Trustee shall call a meeting/cause a meeting to be called of Debenture Holderswith notice to the Company and all Debenture Holders on a requisition being receivedin writing signed by the Debenture holder (s) of at least 1/5 th of the nominal value ofthe Debentures for the time being outstanding or an agreed percentage of DebentureHolders or if requested by the Company, to consider any matter affecting the interestof the Debenture Holders .Not less than 21 days notice shall be given of a meeting for the purpose of passing aResolution.(c ) The quorum for the meeting (other than adjourned meeting) for the purpose of passingan Extraordinary Resolution shall be the Debenture Holders representing 10% of theface value of the Debentures for the time being outstanding, provided however, that thequorum for passing an Extraordinary Resolution should be the Holders of a clearmajority in face value of the outstanding Debentures present in person or by proxy orby attorney.(d)(e)(f)(g)(h)If such a quorum cannot be obtained, such meeting shall be adjourned for not less thanfourteen (14) days in which event notice of adjourned meeting shall be sent to everyDebenture holder and shall state in such notice that if a quorum as above defined shallnot be present at the adjourned meeting the Debenture Holders then present shall forma quorum.On a poll, each Debenture Holder will be entitled to one vote for each Debenture heldby such person.A proxy need not be a holder of the Debentures.The Trustee shall be the chairman of any meeting of the Debenture Holders and shallappoint a person or body to act as a Secretary of such meeting and a copy of aresolution certified by the Trustee and such Secretary shall deem to be conclusiveevidence that such Resolution has been duly adopted.In the event the Company fails to remedy any breach of terms and conditions of theDebentures or the provisions/covenants of the Trust Deed, the Trustee shall:• Call a meeting of the Debenture Holders with notice to the Company.• Inform the Debenture Holders of the failure at the meeting; and• Submit proposals for the protection of the Debenture Holders interests or callfor proposals from the Debenture Holders at the meeting as the Trusteeconsiders necessary or appropriate and obtain suitable directions.22 MODIFICATION OF THE TRUST DEED22.1 The Trustee and the Company may by mutual agreement agree to modify these presents,provided such modifications are of a routine nature. Provided however that any modification tothese presents which are detrimental to the debenture Holders shall only be made with theconsent of the Debenture Holders of at least 3/4ths of the face value of the Debentures for thetime being outstanding.13

22.2 Upon a modification being duly made, the Company may request the Debenture Holders toproduce their Debenture Certificates to the Company in order that a memorandum of suchmodification may be endorsed thereon.23 NOTICESAny notice or demand to the Company, Debenture Holder(s) or the Trustee required to be given,made or served for any purpose hereof shall be given, made or served by sending the same byprepaid registered post in the case of the Company or Trustee and by prepaid ordinary mail inthe case of Debenture Holder(s), telegrams, cablegrams, telex or by facsimile transmission or bydelivering it by hand to the Company. Debenture Holders or the Trustee as the case may be, inthe case of the Company or the Trustee at the address shown in this Deed and in the case ofDebenture Holder(s) to the address which appear in the Debenture certificate or at such otheraddress as shall have been notified (in accordance with this clause) for the purpose of thisClause, and any notice sent by post as provided in this Clause shall be deemed to have beengiven, made or served 72 hours after dispatch and any notice sent by telegrams, cablegrams,telex or by facsimile transmission as provided in the clause shall be deemed to have been given,made or served at the time of dispatch and in proving the giving, making or service of the sameit shall be sufficient to prove, in the case of a letter, that such letter was properly stamped,addressed and placed in the post and, in the case of a telegrams, cablegrams, telex or byfacsimile transmission that such telegrams, cablegrams, telex or by facsimile transmission wasduly dispatched and received in the readable and understandable condition.The Trustee shall at any time be entitled to give notice of any meeting or make anycommunication to the Debenture Holders by notice published in Newspapers in all threelanguages (Sinhala, Tamil and English) of its choice circulating in Sri Lanka and such noticewill notwithstanding anything to the contrary herein contained be deemed to be sufficient noticeto the Debenture Holders including the provisions of the above clause.24 MISCELLANEOUS(a) Nothing in the provisions of these presents shall require disclosure to the Trustee bythe Company of any information as to the affairs of any of its customers except,i) when required to do so by a Court of Law, orii) in order to comply with any of the provisions of any Law.PROVIDED however that the Company shall be obliged to furnish to the Audit Firmreferred to in the clause 11(b) information in respect of the Company’s books ofaccounts.(b)In the event of any inconsistency between these provisions and any rules, regulationsor directions of the SEC, or the CSE such rules, regulations or directions shall prevail.(c)IN WITNESS WHEREOF the authorized signatories of Lanka Orix Leasing Company PLC and Bankof Ceylon have set their hands hereunto and to three others of the same tenor and date as these presents atColombo on the day herein before mentioned.Signed for and on behalf ofLanka Orix Leasing Company PLCBy its duly authorized representatives…………………………………………….……………………………………………………………………………………………………………….………………………………………………………………………………………………………………………………………………………………………..Witnesses:1. Sgd2. SgdSigned for and on behalf of theBank of CeylonBy its duly authorized representativesAnd attorneys ……………………………….……………………………………………and……………………………………………………………………………………………. ………………………………………………………14

Witnesses:SgdSgdFISRT SCHEDULE15

LANKA ORIX LEASING COMPANY PLCIncorporated under the Companies Ordinance No. 51 of 1938 which has been re-registered underthe Companies Act No. 7 of 2007 bearing registration number PQ 70ISSUE OF SEVEN MILLION FIVE HUNDRED THOUSAND (7,500,000) UNSECUREDREDEEMABLE SENIOR RATED DEBENTURES 2011 – 2015CATEGORYDEBENTURE CERTIFICATEPRINCIPAL SUMCERTIFICATE NO ………….INTEREST 11.70% per annumREDEMPTION DATE1. Lanka Orix Leasing Company PLC (hereinafter called the Company) having its registered officeat 100/1, Sri Jayawardenepura Mwatha, Rajagiriya will pay on the ……… day …….. … orsuch earlier date as the principal monies hereby covered become payable under the conditionsendorsed on the reverse hereof and the terms and conditions in the Trust Deed dated … referredto in the conditions endorsed on the reverse hereof (hereinafter referred to as "the said TrustDeed") pay at par to the person (s) named in the Schedule to this Debenture or the registeredholder(s) for the time being hereof (hereinafter called "the Debenture Holder") at ….[insertaddress of office] the Principal sum set forth in the Schedule hereto representing the value of theDebentures covered by this Debenture Certificate (hereinafter called "these Debenture").2. The total value of these Debenture is subject to redemption in one instalment on …..……………. unless the same become payable on an earlier date under the conditions endorsedon the reverse hereof and the terms and conditions of the said Trust Deed.3. Interest on these Debentures will be payable at the rate of eleven decimal seven zero percentum(11.70%) per annum and will be payable on the 30 th of June and the 31 st of December (InterestPayment Dates) of each year. The final interest payment will be made with the repayment of theprincipal monies on the Date of Redemption. The interest calculation will be based upon theactual number of days in each Interest Payment Period.4. Notwithstanding the foregoing if the dates fixed as aforesaid for the payment of the principalsum or interest thereon are dates on which Banks are closed for business, then payment shall bemade on the dates immediately prior thereto when the Banks are open for the business.5. This Debenture Certificate is issued subject to the conditions contained herein and on thereverse hereof and the terms and conditions in the said Trust Deed which is deemed to be parthereof and all constituting integral parts of this Debenture.The Schedule Above Referred ToName and address of Debenture holder Number of Debentures Principal SumGiven under the common seal of …On this…….day of ……….2011…………………..Director……………………SecretarySECOND SCHEDULE16

THE CONDITIONS ENDORSED ON THIS DEBENTURE1 . These Debentures are part of a series of Seven Million Five Hundred Thousand (7,500,000)unsecured redeemable debentures 2011– 2015 of the aggregate value of Rupees Seven Hundredand fifty Million (Rs 750,000,000/-) at a par value of Rupees One Hundred (Rs 100/-) subjectto the conditions of this Debenture Certificate and the terms and conditions of the Trust Deeddated ………….. 2011. (hereinafter referred to as "the said Trust Deed")2. These Debentures of the said series are all to rank pari passu and without any preference orpriority one over another.3. The Company shall issue to every Debenture Holder one certificate in respect of the units ofDebentures held by him but a Debenture Holder shall be entitled to only one certificate for anyDebentures held jointly by them which certificate shall be delivered to that one of the jointholders whose name first appears in the Register of Debentures and the Company shall not bebound to register more than two persons as the joint holders of any of the Debentures. TheDebenture Holder may apply in writing to the Company for the issue of more than onecertificate for two or more units of Debentures if he so wishes. Upon the certificate which it isapplied to be replaced by two or more certificates being surrendered to the Company and onpayment of such fee as the Company may determine from time to time for such issue theCompany shall be obliged to issue to the applicant Debenture Holder two or more certificatesfor such as the applicant may apply for. The certificates shall be substantially in the form setout in the First Schedule hereto and have endorsed thereon the conditions mentioned as set outin this Schedule hereto and the certificate shall be held subject to and with the benefit of all suchconditions or such other conditions (having substantially the same effect) as may be endorsed onany Debenture Certificate. Every Debenture Certificate shall be under the seal of the Companyaffixed with the authority of its directors and in the manner provided by its Articles ofAssociation for the time being of the Company.4. The Company will keep a Register of Debentures and enter therein particulars of the issue andall changes of ownership of the Debenture as provided for in the said Trust Deed.5. A change of ownership of these Debentures shall be in writing under the hand of the DebentureHolder (or where appropriate by persons authorised by law to do so) and of the transferee andshall be delivered to (along with this Debenture Certificate) and retained by the Company.Subject to such of the restrictions in this certificate as may be applicable all transfers ofDebentures may be effected by instrument in writing in any usual or common form.6. (a) The Debentures quoted on the Colombo Stock Exchange shall be freely transferable andregistration of the transfer of such quoted Debentures shall not be subject to any, restriction ,save and except to the extent required for compliance with statutory requirements.(b)These Debentures shall be transferable and transmittable through the Central Depository aslong as the Debentures of the Company are quoted in the Colombo Stock Exchange, theBoard may register without assuming any liability therefore any transfer of Debentures,which is in accordance with the rules and regulations in force for the time being and fromtime to time as laid down by the Colombo Stock Exchange and/or the Central Depository ofthe Colombo Stock Exchange.(c) In the case of the death of a Debenture holder -(i) the survivor where the deceased was a joint holder; and(ii) the executors or administrators of the deceased (or where the administration of the estateof the deceased is in Law not compulsory the heirs of the deceased) where he was thesole or only surviving holder shall be the only persons recognised by the Company ashaving any title to his Debentures(d)Any person becoming entitled to these Debentures in consequence of the bankruptcy orwinding up of any Debenture Holder, upon producing proper evidence that he sustains thecharacter in respect of which he proposes to act or his title as the Board of Directors of theCompany thinks sufficient may in the discretion of the Board be substituted and accordinglyregistered as a Debenture Holder in respect of such debenture subject to the applicable rulesand regulations.7. No change of ownership in contravention of these conditions will be recognised by theCompany.8 These Debentures shall be redeemed on the Date of Maturity and all redemptions shall be inaccordance with the provisions and conditions contained herein and the terms and conditions ofthe said Trust Deed. On the due date and at the place fixed for redemption the Debenture holderof these Debentures to be redeemed shall be bound to surrender such Debentures and to deliverup this Debenture Certificate. The Company shall on redemption cancel this DebentureCertificate. The Debenture lodged with the Central Depository will be redeemed on the due17

date for redemption in favour of the persons whose names are registered in the CentralDepository on the due date.9. These Debentures redeemed on the Date of Maturity or an earlier date shall only carry interestcomputed up to the date of such redemption on principal sum as set out in this Certificate.However interest on any Debenture shall cease to accrue on the Date of Maturity even if notredeemed by that date.10.The Company shall not be entitled to reissue any Debenture of this Issue, which it may redeemhereunder.11.The Company shall recognise and treat the registered Debenture Holder(s) as the owner hereofand as alone being entitled to receive and give effectual discharges for the monies herebycovered.12.No notice of any trust shall be entered in the books of the Company against the title of theDebenture Holder and the Company shall not be affected by notice of any right, title or claim ofany person to this Debenture Certificate other than the Debenture holder. (This condition shallnot apply to any Debenture lodged with the Central Depository.)13.The monies payable to the Debenture Holder shall be paid without regard to any equitiesbetween the Company and the original or any intermediate holder hereof and the receipt of theregistered Debenture holder shall be a good discharge to the Company.14.The Principal and interest under this Debenture Certificate shall be paid by crossed cheque sentby post at the registered address, or in the case of joint Debenture Holders to the registeredaddress of one of the said joint Debenture holders who is first named on the Register ofDebenture Holders.15.The expressions defined in the said Trust Deed shall have the same meanings when used in theseconditions in this Debenture Certificate unless the context otherwise requires.16..In the event of any inconsistency between the conditions in this Debenture Certificate and anyterm or condition of the said Trust Deed the term or conditions in the said Trust Deed shallalways prevail.17. The Company may demand a fee of Rs. 200/- for the registration of any change of ownershiphereof. If this Debenture Certificate is worn, defaced, lost or destroyed it may be renewed onthe payment of such fee not exceeding Rs. 50/- and on such terms as to evidence and indemnityas the Board of Directors of the Company shall think fit. In the event of loss of a DebentureCertificate the Company shall require an advertisement to be placed in one of the mainnewspapers in daily circulation, and the cost of such advertisement shall be borne by theDebenture holder. Any stamp duty payable on such renewal shall be borne by the DebentureHolder.18. The Company shall be entitled to deduct all taxes and levies required to be deducted by law, inconnection with any payment of interest or repayment of capital.18

THIRD SCHEDULELANKA ORIX LEASING COMPANY PLCIncorporated under the Companies Ordinance No. 51 of 1938 which has been re-registered underthe Companies Act No. 7 of 2007 bearing registration number PQ 70ISSUE OF SEVEN MILLION FIVE HUNDRED THOUSAND (7,500,000) UNSECUREDREDEEMABLE SENIOR RATED DEBENTURES 2011 – 2016CATEGORYDEBENTURE CERTIFICATEPRINCIPAL SUMCERTIFICATE NO ………….INTEREST 11.90% per annumREDEMPTION DATE1. Lanka Orix Leasing Company PLC (hereinafter called the Company) having its registered officeat 100/1, Sri Jawardenepura Mawatha, Rajagiriya will pay on the ……… day …….. … orsuch earlier date as the principal monies hereby covered become payable under the conditionsendorsed on the reverse hereof and the terms and conditions in the Trust Deed dated … referredto in the conditions endorsed on the reverse hereof (hereinafter referred to as "the said TrustDeed") pay at par to the person (s) named in the Schedule to this Debenture or the registeredholder(s) for the time being hereof (hereinafter called "the Debenture Holder") at ….[insertaddress of office] the Principal sum set forth in the Schedule hereto representing the value of theDebentures covered by this Debenture Certificate (hereinafter called "these Debenture").2. The total value of these Debenture is subject to redemption in one installment on …..……………. unless the same become payable on an earlier date under the conditions endorsedon the reverse hereof and the terms and conditions of the said Trust Deed.3. Interest on these Debentures will be payable at the rate of eleven decimal nine zero percentum(11.90%) per annum and will be payable on the 30 th of June and the 31 st of December (InterestPayment Dates) of each year. The final interest payment will be made with the repayment of theprincipal monies on the Date of Redemption. The interest calculation will be based upon theactual number of days in each Interest Payment Period.4. Notwithstanding the foregoing if the dates fixed as aforesaid for the payment of the principalsum or interest thereon are dates on which Banks are closed for business, then payment shall bemade on the dates immediately prior thereto when the Banks are open for the business.5. This Debenture Certificate is issued subject to the conditions contained herein and on thereverse hereof and the terms and conditions in the said Trust Deed which is deemed to be parthereof and all constituting integral parts of this Debenture.The Schedule Above Referred ToName and address of Debenture holder Number of DebenturesPrincipal SumGiven under the common seal of …On this…….day of ……….2011…………………..Director……………………Secretary19

FOURTH SCHEDULETHE CONDITIONS ENDORSED ON THIS DEBENTURE1 . These Debentures are part of a series of Seven million Five Hundred Thousand (7,500,000)unsecured redeemable debentures 2011– 2016 of the aggregate value of Rupees Seven Hundredand Fifty Million (Rs 750,000,000/-) at a par value of Rupees One Hundred (Rs 100/-) subjectto the conditions of this Debenture Certificate and the terms and conditions of the Trust Deeddated ………….. 2011. (hereinafter referred to as “the said Trust Deed”)2. These Debentures of the said series are all to rank pari passu and without any preference orpriority one over another.3. The Company shall issue to every Debenture Holder one certificate in respect of the units ofDebentures held by him but a Debenture Holder shall be entitled to only one certificate for anyDebentures held jointly by them which certificate shall be delivered to that one of the jointholders whose name first appears in the Register of Debentures and the Company shall not bebound to register more than two persons as the joint holders of any of the Debentures. TheDebenture Holder may apply in writing to the Company for the issue of more than onecertificate for two or more units of Debentures if he so wishes. Upon the certificate which it isapplied to be replaced by two or more certificates being surrendered to the Company and onpayment of such fee as the Company may determine from time to time for such issue theCompany shall be obliged to issue to the applicant Debenture Holder two or more certificatesfor such as the applicant may apply for. The certificates shall be substantially in the form setout in the Third Schedule hereto and have endorsed thereon the conditions mentioned as set outin this Schedule hereto and the certificate shall be held subject to and with the benefit of all suchconditions or such other conditions (having substantially the same effect) as may be endorsed onany Debenture Certificate. Every Debenture Certificate shall be under the seal of the Companyaffixed with the authority of its directors and in the manner provided by its Articles ofAssociation for the time being of the Company.4. The Company will keep a Register of Debentures and enter therein particulars of the issue andall changes of ownership of the Debenture as provided for in the said Trust Deed.5. A change of ownership of these Debentures shall be in writing under the hand of the DebentureHolder (or where appropriate by persons authorised by law to do so) and of the transferee andshall be delivered to (along with this Debenture Certificate) and retained by the Company.Subject to such of the restrictions in this certificate as may be applicable all transfers ofDebentures may be effected by instrument in writing in any usual or common form.6. (a) The Debentures quoted on the Colombo Stock Exchange shall be freely transferable andregistration of the transfer of such quoted Debentures shall not be subject to any, restriction ,save and except to the extent required for compliance with statutory requirements.(b)These Debentures shall be transferable and transmittable through the Central Depository aslong as the Debentures of the Company are quoted in the Colombo Stock Exchange, theBoard may register without assuming any liability therefore any transfer of Debentures,which is in accordance with the rules and regulations in force for the time being and fromtime to time as laid down by the Colombo Stock Exchange and/or the Central Depository ofthe Colombo Stock Exchange.(c) In the case of the death of a Debenture holder –(i) the survivor where the deceased was a joint holder; and(ii)the executors or administrators of the deceased (or where the administration of the estateof the deceased is in Law not compulsory the heirs of the deceased) where he was thesole or only surviving holder shall be the only persons recognised by the Company ashaving any title to his Debentures(d) Any person becoming entitled to these Debentures in consequence of the bankruptcy orwinding up of any Debenture Holder, upon producing proper evidence that he sustains thecharacter in respect of which he proposes to act or his title as the Board of Directors of theCompany thinks sufficient may in the discretion of the Board be substituted andaccordingly registered as a Debenture Holder in respect of such debenture subject to theapplicable rules and regulations.7. No change of ownership in contravention of these conditions will be recognised by theCompany.8 These Debentures shall be redeemed on the Date of Maturity and all redemptions shall be inaccordance with the provisions and conditions contained herein and the terms and conditions ofthe said Trust Deed. On the due date and at the place fixed for redemption the Debenture holderof these Debentures to be redeemed shall be bound to surrender such Debentures and to deliverup this Debenture Certificate. The Company shall on redemption cancel this Debenture20

Certificate. The Debenture lodged with the Central Depository will be redeemed on the duedate for redemption in favour of the persons whose names are registered in the CentralDepository on the due date.9. These Debentures redeemed on the Date of Maturity or an earlier date shall only carry interestcomputed up to the date of such redemption on principal sum as set out in this Certificate.However interest on any Debenture shall cease to accrue on the Date of Maturity even if notredeemed by that date.10.The Company shall not be entitled to reissue any Debenture of this Issue, which it may redeemhereunder.11.The Company shall recognise and treat the registered Debenture Holder(s) as the owner hereofand as alone being entitled to receive and give effectual discharges for the monies herebycovered.12.No notice of any trust shall be entered in the books of the Company against the title of theDebenture Holder and the Company shall not be affected by notice of any right, title or claim ofany person to this Debenture Certificate other than the Debenture holder. (This condition shallnot apply to any Debenture lodged with the Central Depository.)13.The monies payable to the Debenture Holder shall be paid without regard to any equitiesbetween the Company and the original or any intermediate holder hereof and the receipt of theregistered Debenture holder shall be a good discharge to the Company.14.The Principal and interest under this Debenture Certificate shall be paid by crossed cheque sentby post at the registered address, or in the case of joint Debenture Holders to the registeredaddress of one of the said joint Debenture holders who is first named on the Register ofDebenture Holders.15.The expressions defined in the said Trust Deed shall have the same meanings when used in theseconditions in this Debenture Certificate unless the context otherwise requires.16..In the event of any inconsistency between the conditions in this Debenture Certificate and anyterm or condition of the said Trust Deed the term or conditions in the said Trust Deed shallalways prevail.17. The Company may demand a fee of Rs. 200/- for the registration of any change of ownershiphereof. If this Debenture Certificate is worn, defaced, lost or destroyed it may be renewed onthe payment of such fee not exceeding Rs. 50/- and on such terms as to evidence and indemnityas the Board of Directors of the Company shall think fit. In the event of loss of a DebentureCertificate the Company shall require an advertisement to be placed in one of the mainnewspapers in daily circulation, and the cost of such advertisement shall be borne by theDebenture holder. Any stamp duty payable on such renewal shall be borne by the DebentureHolder.18. The Company shall be entitled to deduct all taxes and levies required to be deducted by law, inconnection with any payment of interest or repayment of capital.21

SCHEDULE FIVEInterestPeriodEnding31-Dec-1130-Jun-1231-Dec-1230-Jun-1331-Dec-1330-Jun-1431-Dec-1430-Jun-1531-Dec-1530-Jun-16InterestPaymentDate1-Jan-121-Jul-121-Jan-131-Jul-131-Jan-141-Jul-141-Jan-151-Jul-151-Jan-161-Jul-1622

REPORT OF THE AUDITORSLOLC Annual Report 2007/0877

INCOME STATEMENTSGroupCompanyRestatedFor the year ended 31 March 2008 2007 2008 2007Note Rs. Rs. Rs. Rs.REVENUE 3 6,248,147,740 4,158,425,939 4,921,034,276 3,325,950,111INCOME 4 5,934,772,221 3,950,751,220 4,480,432,084 3,034,110,432OPERATING EXPENSES 5Direct expenses excluding interest costs 6 (218,144,472) (142,646,748) (165,047,682) (110,713,213)Provision for bad and doubtful debts (171,592,067) (110,110,919) (108,272,168) (66,157,272)Staff costs 7 (521,628,482) (351,482,091) (333,659,398) (212,747,869)Depreciation (319,886,314) (237,697,595) (296,601,808) (215,883,709)Other operating expenses 8 (649,448,291) (530,998,891) (423,013,697) (367,363,149)OPERATING PROFIT BEFORE NET INTEREST COST 4,054,072,595 2,577,814,976 3,153,837,331 2,061,245,220Net interest costs 9 (3,403,965,174) (1,787,750,976) (2,768,779,783) (1,442,881,021)RESULTS FROM OPERATING ACTIVITIES 650,107,421 790,064,000 385,057,548 618,364,199Other income/ (expenses) 10 313,375,519 207,674,719 440,602,192 291,839,679Negative Goodwill 11 131,292,503 - - -Share of profit of associate companies 88,276,885 - - -PROFIT BEFORE TAXATION 1,183,052,328 997,738,719 825,659,740 910,203,878Taxation 12 87,737,153 52,442,537 152,211,715 76,389,707PROFIT FOR THE YEAR 1,270,789,481 1,050,181,256 977,871,455 986,593,585Attributable to:Equity holders of the Company 1,268,173,363 1,041,240,058 977,871,455 986,593,585Minority interest 2,616,118 8,941,198 - -PROFIT FOR THE YEAR 1,270,789,481 1,050,181,256 977,871,455 986,593,585BASIC EARNINGS PER SHARE 13 26.69 21.91 20.58 20.76Figures in brackets indicate deductionsThe above Income Statements should be read in conjunction with the Notes, which form an integral part of these Financial Statements,disclosed on pages 82 to 112.78 LOLC Annual Report 2007/08

BALANCE SHEETSGroupCompanyRestatedAs at 31 March 2008 2007 2008 2007Note Rs. Rs. Rs. Rs.ASSETSCash and cash equivalents 14 1,072,750,722 464,118,339 538,690,514 204,360,048Short term investments 863,356,920 404,548,902 178,838,916 34,778,665Rentals receivable on lease assets/hire purchase/others 15 11,602,159,331 10,257,387,807 9,984,330,771 8,823,469,550Advances and other loans 16 8,562,905,852 5,751,122,663 6,194,837,965 4,685,043,569Inventories 20,884,442 - - -Real estate stocks 160,757,548 149,985,117 39,290,372 46,765,717Advances for margin trading 79,880,328 95,194,684 - -Other current assets 17 3,558,466,426 2,344,659,955 1,529,878,268 755,080,099Investment Securities 18 365,660,795 140,306,014 759,142,979 531,524,373Investment in term deposits 4,362,623,372 3,013,378,966 4,239,553,926 3,013,378,966Deferred tax asset 19 490,399,448 248,284,112 488,541,570 248,284,112Investments in joint venture 20 - - 100,000,000 -Investments in equity accounted investees 21 492,585,403 - 278,190,903 -Investments in subsidiary companies 22 20 20 1,216,000,065 981,159,765Property, plant and equipment 23 2,151,209,445 1,614,963,370 2,105,744,201 1,564,849,494Total assets 33,783,640,052 24,483,949,949 27,653,040,450 20,888,694,358LIABILITIES AND EQUITYLiabilitiesBank Overdraft 1,090,023,468 257,894,250 659,445,757 43,700,703Deposits from customers 24 3,339,664,870 1,746,164,740 - -Short-term borrowings 25 7,865,273,046 5,401,358,338 7,161,533,046 4,867,512,742Finance lease liabilities 26 961,803,300 1,030,606,142 961,151,033 1,030,606,142Provision for taxation 21,301,187 36,537,601 1,373,597 19,066,673Long term borrowings-current 27 3,867,594,352 2,708,744,871 3,867,594,352 2,708,744,871Trade and other payables 28 2,362,903,617 1,842,355,476 1,188,999,831 900,546,104Long term borrowings-non current 27 9,102,258,984 7,599,610,164 9,102,258,984 7,599,610,164Deferred taxation 19 15,881,811 928,325 - -Retirement benefit obligations 29 51,772,347 34,831,047 40,042,619 24,620,025Total liabilities 28,678,476,982 20,659,030,954 22,982,399,219 17,194,407,424EquityStated capital 30 475,200,000 475,200,000 475,200,000 475,200,000Reserves 31 506,205,797 329,110,928 494,396,232 320,542,388Retained earnings 32 4,070,107,741 2,980,546,405 3,701,044,999 2,898,544,546Equity attributable to equity holders of the Company 5,051,513,538 3,784,857,333 4,670,641,231 3,694,286,934Minority interest 33 53,649,532 40,061,662 - -Total equity 5,105,163,070 3,824,918,995 4,670,641,231 3,694,286,934Total liabilities & equity 33,783,640,052 24,483,949,949 27,653,040,450 20,888,694,358The above Balance Sheets should be read in conjunction with the notes, which form an integral part of these Financial Statements, disclosed onpages 82 to 112.These financial statements are prepared in compliance with the requirements of the Companies Act No. 07 of 2007.Mrs. S. S. KotakadeniyaChief Financial Officer-LOLC GroupSigned on behalf of the Board30 May 2008Rajagiriya (Greater Colombo)Mrs. R. L. NanayakkaraChairpersonMr. I. C. NanayakkaraDeputy ChairmanLOLC Annual Report 2007/0879

STATEMENTS OF CHANGES IN EQUITYGROUPAttributable to Equity Holders of the CompanyStated Capital Subsidiary Revaluation Future Statutory Retained Minority TotalShare Reserve Taxation Reserve Earnings InterestPremiumReserveFor the year ended 31 March 2008 Rs. Rs. Rs. Rs. Rs Rs. Rs. Rs.Balance as at 31.03.2006as previously reported 475,200,000 536,504 - 205,000,000 257,689,233 1,961,594,070 31,120,464 2,931,140,271Prior year adjustment tosubsidiary retained earnings (Note 42) (13,842,532) (13,842,532)Balance as at 31.03.2006 (restated) 475,200,000 536,504 - 205,000,000 257,689,233 1,947,751,538 31,120,464 2,917,297,739Profit for the year as previously reported - - - - - 1,045,671,684 - -Prior year adjustment to subsidiary profits (Note 42) - - - - - (4,431,626) -Profit for the year (Restated) - - - - - 1,041,240,058 8,941,198 1,050,181,256Dividends - - - - - (142,560,000) - (142,560,000)Transferred to retained earnings - - - - (204,399,402) 204,399,402 - -Transfers during the year - - - - 70,284,593 (70,284,593) - -Balance as at 31.03.2007 475,200,000 536,504 - 205,000,000 123,574,424 2,980,546,405 40,061,662 3,824,918,995Profit for the year - - - - - 1,268,173,363 2,616,118 1,270,789,481Dividends - - - - - (106,920,000) - (106,920,000)Addition to minority throughacquisition of subsidiary - - - - - - 10,971,752 10,971,752Transfers during the year - - - - 71,692,027 (71,692,027) - -Revaluation during the year - - 105,402,842 - - - - 105,402,842Balance as at 31.03.2008 475,200,000 536,504 105,402,842 205,000,000 195,266,451 4,070,107,741 53,649,532 5,105,163,070COMPANYAttributable to Equity Holders of the CompanyStated Capital Revaluation Future Statutory Retained Minority TotalReserve Taxation Reserve Earnings InterestReserveFor the year ended 31 March 2008 Rs. Rs. Rs. Rs Rs. Rs. RsBalance as at 31.03.2006 475,200,000 - 205,000,000 250,880,239 1,919,173,110 - 2,850,253,349Profit for the year - - - - 986,593,585 - 986,593,585Dividends - - - - (142,560,000) - (142,560,000)Transfers during the year - - - 69,061,551 (69,061,551) - -Transferred to retained earnings - - - (204,399,402) 204,399,402 - -Balance as at 31.03.2007 475,200,000 - 205,000,000 115,542,388 2,898,544,546 - 3,694,286,934Profit for the year - - - - 977,871,455 - 977,871,455Dividends - - - - (106,920,000) - (106,920,000)Transfers during the year - - - 68,451,002 ( 68,451,002) - -Revaluation during the year - 105,402,842 - - - - 105,402,842Balance as at 31.03.2008 475,200,000 105,402,842 205,000,000 183,993,390 3,701,044,999 - 4,670,641,231The Statements of Changes in Equity should be read in conjunction with the Notes, which form an integral part of these Financial Statements,disclosed on pages 82 to 112.80 LOLC Annual Report 2007/08

CASH FLOW STATEMENTSGroupCompanyFor the year ended 31 March 2008 2007 2008 2007Rs. Rs. Rs. Rs.CASH FLOW FROM OPERATING ACTIVITIESNet profit before taxation 1,183,052,328 997,738,719 825,659,740 910,203,878Adjustment for:(Profit)/Loss on sale of property, plant and equipment (6,158,934) (56,202,698) (3,176,819) (56,202,698)Depreciation 319,886,314 237,697,595 296,601,808 215,883,709Provision for gratuity 18,448,564 11,927,293 16,140,094 7,576,830Allowances for doubtful debts 119,014,628 21,631,143 70,941,207 (15,304,831)Provision for fall/(Increase) in value of investments (138,353,860) 614,388 (136,427,230) 718,347Investment income (1,789,404) (2,126,480) (12,812,920) (2,126,480)Interest cost 3,633,596,534 1,887,346,920 2,998,411,143 1,542,476,965Interest income (229,631,360) (99,595,944) (229,631,360) (99,595,944)(Profit)/Loss on sale of investments (47,744,537) (14,974,287) (47,744,537) (14,974,287)Negative goodwill (131,235,677) - - -Share of profit of equity accounted investees (88,276,885) - - -3,447,755,383 1,986,317,930 2,952,301,386 1,578,451,611Operating profit before working capital change 4,630,807,710 2,984,056,648 3,777,961,125 2,488,655,488Change in accounts receivables & others (580,419,322) (129,316,714) (774,798,169) (386,457,552)Change in inventories (3,447,493) - - -Change in accounts payable (108,579,785) 239,945,616 104,679,872 295,195,317Change in real estate stocks (10,772,430) (79,260,321) 7,475,345 6,792,463Change in net investment in leases (1,463,786,152) (2,845,595,129) (1,217,757,622) (2,501,799,042)Change in factoring account receivable (615,752,485) (208,956,180) - -Change in net investment in advances and other loans (2,811,783,189) (2,175,749,808) (1,523,839,200) (1,391,333,448)(963,733,146) (2,214,875,888) 373,721,351 (1,488,946,774)Interest paid (3,022,107,835) (1,887,346,920) (2,814,637,288) (1,542,476,965)Income tax paid (156,744,952) - (105,738,819) -Gratuity paid (1,507,264) (3,092,756) (717,500) (1,224,750)Net cash used in operating activities (3,914,461,837) (4,105,315,564) (2,547,372,256) (3,032,648,489)CASH FLOW FROM INVESTING ACTIVITIESInvestment in subsidiary companies - - (234,840,300) (605,000,000)Acquisition of subsidiary net of cash acquired (Note 22) 10,404,153 - - -Investment in associate company (216,359,359) - (216,359,359) -Investment in joint venture - (100,000,000) -Acquisition of property, plant and equipment (805,358,312) (934,498,512) (792,886,438) (906,819,000)Acquisition of short term Investments (458,808,018) 44,216,396 (144,060,251) 111,338,990Investment in overseas - (61,831,544) - (61,831,544)Net additions to investments (101,087,928) (51,355) (105,278,385) (8,373,055)Increase in investment in term deposits (1,349,244,407) (1,855,821,365) (1,226,174,961) (1,856,221,365)Proceed from the sale of property, plant and equipment 67,542,412 81,151,468 63,969,586 79,769,582Interest received 229,631,360 99,595,944 229,631,360 99,595,944Dividend received 1,789,404 2,039,790 12,812,920 2,039,790Rent received - 86,690 - 86,690Net cash flow from investing activities (2,851,124,055) (2,625,112,488) (2,513,185,828) (3,145,413,968)CASH FLOW FROM FINANCING ACTIVITIESNet proceed from short term borrowings 2,463,914,708 1,449,374,251 2,294,020,304 1,516,528,655Net increase/(decrease) in Lease Liability (69,904,082) 742,956,093 (69,455,109) 742,956,093Net proceeds from customer deposits 1,593,500,130 551,903,683 - -Proceeds from long term loans 6,935,999,833 6,576,554,334 6,935,999,833 6,576,554,334Repayments of long term loans (4,274,501,532) (2,382,515,234) (4,274,501,532) (2,382,515,234)Dividends paid (106,920,000) (142,560,000) (106,920,000) (142,560,000)Net cash from financing activities 6,542,089,057 6,795,713,127 4,779,143,496 6,310,963,848Net increase/(decrease) in cash & cash equivalents (223,496,834) 65,285,076 (281,414,588) 132,901,392Cash & cash equivalents at the beginning of the year 206,224,089 140,939,013 160,659,345 27,757,953Cash & cash equivalents at the end of the year (17,272,746) 206,224,089 (120,755,243) 160,659,345Analysis of Cash & Cash Equivalents at the end of the yearCash at bank and in hand 1,072,750,722 464,118,339 538,690,514 204,360,048Bank overdraft (1,090,023,468) (257,894,250) (659,445,757) (43,700,703)(17,272,746) 206,224,089 (120,755,243) 160,659,345LOLC Annual Report 2007/0881

NOTES TO THE FINANCIAL STATEMENTS1. CORPORATE INFORMATION1.1 GeneralLanka ORIX Leasing Company PLC. is a public quotedcompany incorporated on 14 March 1980 and domiciled inSri Lanka. The Consolidated Financial Statements of theCompany for the year ended 31 March 2008 comprise ofthe Company and its subsidiaries (together referred to asthe "Group").The Financial Statements were authorised for issue by theDirectors on 30th May 2008.1.2 Principal Activities and Nature of OperationsDuring the year, the principal activities of the Groupcomprised of leasing, hire purchase, loans,operatingleases, factoring, insurance broking, accepting deposits,pawn broking and assembling & distribution of solar lightsystems.1.3 Directors' Responsibility StatementThe Board of Directors takes the responsibility for thepreparation and presentation of these FinancialStatements.2. ACCOUNTING POLICIES2.1 Statement of ComplianceThe Financial Statements of the Company and thoseconsolidated with such are prepared in accordance withthe Sri Lanka Accounting Standards laid down by theInstitute of Chartered Accountants of Sri Lanka, andtherefore present fairly the financial position, financialperformance and cash flow of the Company.The preparation of Financial Statements in conformitywith SLASs require management to make judgments,estimates and assumptions that affect the application ofpolicies and reported amounts of assets and liabilities,income and expenses.The estimates and associatedassumptions are based on historical experience andvarious other factors that are believed to be reasonableunder the circumstances, the results of which form thebasis of making the judgments about carrying values ofassets and liabilities that are not readily apparent fromother sources. Actual results may differ from theseestimates.2.2 Basis of PreparationThe Financial Statements are presented in Sri LankanRupees where appropriate the significant AccountingPolicies disclosed in the succeeding notes. The FinancialStatements are prepared on the historical cost basis andno adjustment has been made for inflationary factorsaffecting the Financial Statements except for revaluationof land and buildings of offiice premises at 100/1, SriJayewardenepura Mawatha, Rajagiriya and adjoining landat 100/2, Sri Jayewardenepura Mawatha, Rajagiriya .Assets and liabilities are grouped by nature and listed inan order that reflect their relative liquidity.Previous period figures and notes have been restated andreclassified wherever necessary to conform to the currentpresentation. (Note 42)The specific policies used are explained below and relateto both the Consolidated Financial Statements and that ofthe Company, except as stated otherwise.The Accounting Policies have been consistently applied bythe Company and are consistent with those used in theprevious year except changes made in Notes 15 and 19.2.3 Basis of Consolidationi) SubsidiariesThe Financial Statements of the Group represent theconsolidation of the Financial Statements of LankaORIX Leasing Company PLC., and its subsidiaries asdisclosed in Note 18. Subsidiaries are entitiescontrolled by the Company. Control exists when theCompany has the power, directly or indirectly, togovern the financial and operation policies of anentity so as to obtain benefits from its activities. Inassessing control, potential voting rights thatpresently are exercisable or convertible are taken intoaccount.Subsidiaries are consolidated from the date theparent company obtains control until such time ascontrol ceases. Acquisition of subsidiaries areaccounted for using the purchase method ofaccounting.The Group Financial Statements are prepared inaccordance with Sri Lanka Accounting Standards No.26 on Consolidation Financial Statements.The interest of the outside shareholders of the Groupis disclosed separately under the heading “MinorityInterest”.ii)Associates and jointly controlled entitiesAssociates are those entities in which the Group has82 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTSiii)significant influence, but not control, over thefinancial and operating policies. Joint ventures arethose entities over whose activities the Group hasjoint control, established by contractual agreementand requiring unanimous consent for strategicfinancial and operating decisions.Associates are those entities in which the Group hassignificant influence, but not control, over thefinancial and operating policies. Significant influenceis presumed to exist when the Group holds between20 and 50 percent of the voting power of anotherentity. Joint ventures are those entities over whoseactivities the Group has joint control, established bycontractual agreement and requiring unanimousconsent for strategic financial and operatingdecisions.Associates are accounted for using the equity method(equity accounted investees) and are initiallyrecognised at cost. The Group's investment includesgoodwill identified on acquisition, net of anyaccumulated impairment losses. The consolidatedfinancial statements include the Group's share of theincome and expenses and equity movements of equityaccounted investees, after adjustments to align theaccounting policies with those of the Group, from thedate that significant influence commences until thedate that significant influence ceases. When theGroup's share of losses exceeds its interest in anequity accounted investee, the carrying amount ofthat interest (including any long-term investments) isreduced to nil and the recognition of further losses isdiscontinued except to the extent that the Group hasan obligation or has made payments on behalf of theinvestee.Jointly controlled entities are accounted for usingproportionate consolidation method, from the datethat significant influence or joint control commencesuntil the date that significant influence or joint controlceases.Business CombinationsAll business combinations have been accounted forby applying the purchase method in accordance withthe Sri Lanka Accounting Standards No. 25 (Revised2004) - Business Combinations. Applying this methodinvolves the entity that obtains control of the otherentity to recognise the fair value of assets acquiredand liabilities and contingent liabilities assumed,including those not previously recognised.iv) Transactions eliminated on consolidationIntra-group balances and any unrealised gains andlosses or income and expenses arising from intragrouptransactions, are eliminated in preparing theConsolidated Financial Statements.v) GoodwillGoodwill represents the excess of the cost of anyacquisition of a subsidiary or an associate over theGroup's interest in the net fair value of theidentifiable assets, liabilities and contingentliabilities acquired.Goodwill is initially recognized at cost. The companywill test the goodwill for impairment annually andasses for any indication of impairment to ensure thatit's carrying amount does not exceed the recoverableamount. If an impairment loss is identified, it isrecognized immediately to the income statement.Carrying amount of the goodwill arising on acquisitionof subsidiaries and joint ventures is presented as anintangible and the goodwill on an acquisition of andequity accounted investment is included in thecarrying value of the investment.In the Group's interest in the net fair value of theidentifiable assets, liabilities and contingentliabilities exceeds the cost of the acquisition of theentity, the Group will reassess the measurement ofthe acquiree's identifiable assets and liabilities andthe measurement of the acquiree's identifiable assetsand liabilities and the measurement of the cost andrecognize the difference immediately to theconsolidated income statement.2.4 Assets and Bases of their Valuationi) Cash and Cash EquivalentsCash and Cash Equivalents comprise of cash in handand cash at banks. Bank overdrafts that are repayableon demand and form an integral part of the Groupcash management are included as a component ofCash and Cash Equivalents for the purpose of thestaterment of cash flows.ii)Rentals Receivable on Leased Assets, MortgageLoans, Hire PurchasesRentals receivable on leased assets are accounted foras finance leases and reflected in the Balance Sheetat balance cost recoverable after eliminatingunearned income and deducting pre-paid rentals,rental collections and provision for doubtful debts.LOLC Annual Report 2007/0883

NOTES TO THE FINANCIAL STATEMENTSiii)Advances and Other Loans to CustomersAdvances and other loans to customers comprised ofrevolving loans and loans with fixed instalments.Revolving loans to customers are reflected in theBalance Sheet at amounts disbursed less repaymentsand provision for doubtful debts. Loans to customerswith fixed installments are stated in the BalanceSheet net of possible loan losses and net of interest,which is not accrued to revenue.Provision for Doubtful DebtsThe Company computes its provisioning for bad anddoubtful debts according to the Central Bank directionNo. 2 of 2006.The specific provisions for doubtful debts are arrivedat using the following bases;Lease, hire purchase and loan receivables ofLanka ORIX Leasing Company PLC• Twenty percent (20%) of all lease, hire purchaseand loan receivables (net of unearned income)which are in arrears for a period of 6 to 12 months.• Fifty percent (50%) of all lease, hire purchasesand loan receivables (net of unearned income)which are in arrears for a period of 12 to 18months.• One hundred percent (100%) of all lease, hirepurchases and loan receivables (net of unearnedincome) which are in arrears for a period of 18months and more.with additional specific provisions on a case by casebasis.Micro Finance debts of Lanka ORIX LeasingCompany PLC and lease, hire purchase and loanreceivables of Lanka ORIX Finance CompanyLimited.Computation is based on the Direction No. 1 of 1991of Section 2 of the Finance Companies Act no 78 of1988.• Fifty percent (50%) on all receivables (net ofunearned income) which are in arrears for a periodof 6 to 12 months.• One hundred percent (100%) on all receivables (netof unearned income) which are in arrears for aperiod of 12 months and more with additionalspecific provisions.• Additional specific provisions are made uponmanagement review on the performance of thelease,hire purchase and loan portfolios. Facilitiesthat are overdue for 18 months or more and fullyprovided have been written off against theprovisions made.The values of the following items held ascollateral for a particular advance have beendeducted in arriving at the above provisions.• with regard to vehicles that have beenrepossessed by the Company, eighty percent (80%)of the valuation obtained during the preceding sixmonths from a professional valuer.• with regard to land and buildings, the full value, incase of a primary mortgage, such value shall notexceed the value decided by a qualifiedprofessional valuer at the time of providing theaccommodationiv) Factoring Debtors - (Subsidiary)Factoring receivables of Lanka ORIX Factors Ltd., asubsidiary Company, have been stated net of specificprovisions based on Management review. Anyamount uncollectable is written off against profits.v) InventoriesInventories are stated at the lower of cost and netrealizable value. Inventories has been valued basedon the weighted average cost method and includesexpenditure incurred in acquiring the inventories andbringing them to their existing condition and location.vi) Real Estate StocksReal Estate Stocks of the Company represent thepurchase value of properties acquired for resale withbuy-back agreements, less repayments. Real EstateStocks of Lanka ORIX Finance Company represent thepurchase value of properties acquired and anysubsequent expenditure incurred on such fordevelopment.vii) Short Term InvestmentsShort term investment comprises of call deposits,interest earning demand deposits with banks andsecurities purchased under repurchase agreements(repos). Call deposits and deposits with banks arestated at the amounts to be realized and repos arestated at purchase value plus interest accrued on atime proportionate basis.viii) Investments in Term DepositsTerm deposits are stated at principal amount plusinterest accrued on a time proportionate basis.84 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTSix)Investments in Subsidiary CompaniesIn the Parent Company's Financial Statements, theinvestments in the Subsidiary Companies arereflected at cost of acquisition, net of any provisionfor diminution in value other than temporary.Provision made for fall in value of such investmentsis charged against profits.x) Investment SecuritiesInvestments in quoted shares are stated at theirrespective market values on an aggregate portfoliobasis. Provision for fall in market value is also madeon an aggregate portfolio basis for each class ofinvestment.xi)Investment in treasury bills and commercial papersare shown at initial cost plus accumulated interest.Investment in non quoted shares are stated at cost ofacquisition and adjusted for any fall in value, whichare other than temporary.Receivable from Clients on Share PurchasesAmounts receivable from clients for shares purchasedon behalf of them are stated at net of specificprovisioning.xii) Other ReceivablesOther receivable balances are stated at estimatedamounts receivable after providing for doubtfulreceivables.xiii) Property, Plant and Equipment (Other thanOperating Lease Assets and Leasehold Vehiclesand Machinery)(i)Recognition and measurementItems of property, plant and equipment are measuredat cost/revaluation less accumulated depreciation/impairment losses.Cost includes expenditure that is directly attributableto the acquisition of the asset. The cost of selfconstructedassets includes the cost of materials anddirect labour, any other costs directly attributable tobringing the asset to a working condition for itsintended use, and the costs of dismantling andremoving the items and restoring the site on whichthey are located.When parts of an item of property, plant andequipment have different useful lives, they areaccounted for as separate items of property, plant andequipment.Gains and losses on disposal of an item of property,plant and equipment are determined by comparingthe proceeds from disposal with the carrying amountof property, plant and equipment and are recognisednet within “other income” in profit or loss. When revaluedassets are sold, the amounts included in therevaluation surplus reserve are transferred to retainedearnings.(ii) Subsequent costsThe cost of replacing part of an item of property, plantand equipment is recognised in the carrying amountof the item if it is probable that the future economicbenefits embodied within the part will flow to theGroup and its cost can be measured reliably. Thecarrying amount of the replaced part is derecognised.The costs of the day-to-day servicing of property,plant and equipment are recognised in profit or lossas incurred.(iii) DepreciationProperty plant and equipment are stated in theBalance Sheet, at cost/revaluation less accumulateddepreciation together with any incidental expensesthereon. The cost includes expenditure that is directlyattributable to the acquisition of the asset and anyother costs incurred in bringing the asset to theworking condition.Depreciation is provided from the date the asset isavailable for use up to the date it derecognises. Thecompany and its subsidiaries provide depreciation forthe following assets on the straight line method overthe estimated useful life stated below. Land is notdepreciated.BuildingMotor VehiclesFurniture & FittingsOffice Equipment40 years4 years5 years5 yearsLanka ORIX Factors Ltd., a subsidiary company,depreciates computers categorized under officeequipment over 3 years.Lanka ORIX Securities (Pvt) Ltd., a subsidiarycompany, depreciates computers categorized underoffice equipment over 3 year and furniture and fittingsover 4 years.Gal Oya Holdings (Pvt) Ltd.,a Joint Venture company,depreciates computers over 4 years and officeequipment over 8 years.LOLC Annual Report 2007/0885

NOTES TO THE FINANCIAL STATEMENTSSundaya Lanka (Pvt) Ltd., a subsidiary company,depreciates motor vehicles over 5 years. Equipments& tools, furniture & fittings and computers aredepreciated over 4 years.xiv) Operating Lease AssetsOperating Lease Assets are motor vehicles andequipments shown under property, plant andequipment in the Balance Sheet at cost lessaccumulated depreciation.Motor vehicles are depreciated net of cost and theestimated residual value over the effective useful life.Effective useful life for leasedhold motor vehiclesis estimated as five years for the purposeof depreciation. Cost of equipments are fullydepreciated over the lease period. Residual value isthe estimated net amount the Company wouldcurrently obtain from disposal of the assets at the endof useful life.xv) Leasehold VehiclesLeasehold vehicles are assets obtained on financeleases facilities by the company for the business ofhiring and shown under the property, plant andequipment in the Balance Sheet at cost lessaccumulated depreciation.These assets are depreciated net of cost and theestimated residual value over five years.xvi) Leasehold machineryLeasehold machinery are machinery and equipmentsshown under property, plant and equipment in theBalance Sheet at cost less accumulated depreciation.Depreciation on leasehold machinery is computedover the lease period.xvii) Capital Work-in-ProgressCapital work -in- progress is stated at cost. These areexpenses of a capital nature directly incurred in theconstruction of building.2.5 Foreign Currency TransactionsTransactions denominated in foreign currencies areconverted into Rupees at the monthly average exchangerate applicable for the transactions. Assets and liabilitiesdenominated in foreign currencies are converted intoRupees at the rate of exchange prevailing at the date ofthe Balance Sheet. Profit or loss arising on conversion iscredited or debited to the Income Statement.2.6 Liabilities and ProvisionsLiabilities are recognized in the Balance Sheet when thereis a present obligation as a result of a past event, thesettlement of which is expected to result in an outflow ofresources embodying economic benefits. Obligationspayable at the demand of the creditor or within one yearof the Balance Sheet date are treated as current liabilitiesin the Balance Sheet. Liabilities payable after one yearfrom the Balance Sheet date are treated as non-currentliabilities in the Balance Sheet.i) Finance LeasesProperty, Plant and Equipment on finance leases,which effectively transfer to the Group substantiallyall of the risk and benefits incidental to ownership ofthe leased items, are capitalized and disclosed asfinance leases at their cash price and depreciatedover the period the Group is expected to benefit fromthe use of the leased assets.ii)iii)The corresponding principal amount payable to thelessor is shown as a liability. Lease payments areapportioned between the finance charges andreduction of the lease liability so as to achieve aconstant rate of interest on the outstanding balanceof the liability. The interest payable over the period ofthe lease is transferred to an interest in suspenseaccount. The interest element of the rentalobligations pertaining to each financial year ischarged to the Income Statement over the period oflease.Income TaxThe tax rates and tax laws used to compute theamount are those that are enacted or substantivelyenacted as at the Balance Sheet date. Accordingly,provision for taxation is made on the basis of theprofit for the year as adjusted for the taxationpurposes in accordance with provision of the InlandRevenue Act No.10 of 2006 and amendments thereto.The rates used are specified in Note No.11 tofinancial statements.Deferred TaxationDeferred taxation is provided on the liability methodfor temporary differences between the carryingamount of assets and liabilities for financial reportingpurposes and the amounts used for taxationpurposes. The amount of deferred tax provided isbased on the expected manner of realization orsettlement of the carrying amount of assets andliabilities.A deferred tax asset is recognized for carried forwardunused tax losses to the extent that it is probable thatfuture taxable profit will be available against whichthe asset can be utilized.86 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTSThe carrying amount of deferred tax asset is reviewedat each Balance Sheet date and reduce to the extentthat is no longer probable that the related tax benefitwill be realized. Unrecognized deferred tax asset inrelation to deductible differences, unused tax creditsand unused tax losses carried forward are reassessedat each Balance Sheet date and recognized to theextent that has become probable that future taxableprofits will allow the deferred tax asset to berecovered.Deferred tax liabilities and assets are measured atthe applicable tax rate prevailing in the year. Deferredtax asset and the liabilities in the same entity are setoff in line with provision of prevailing tax lawsiv) Retirement BenefitsDefined Benefit Plan- GratuityProvision has been made in the Financial Statementsfor retiring gratuities payable under the Payment ofGratuity Act No. 12 of 1983 to all employees includingthose who have less than 5 years of continued servicewith the Company. However, this provision is notfunded externally nor actuarily valued.The gratuity liability would be actuarily valued fromthe year 2008/09 onwards, as required by the revisedSri Lanka Accounting Standards No 16.Defined Contribution Plan - EPF & ETFAll employees of the Company are members of theEmployees' Provident Fund (EPF) and Employees' TrustFund (ETF), to which the Company contributes 12%and 3% of employee salaries respectively andcharged against the profits.2.7 Income Statementi) Gross income represents the gross incomereceivable for the year on all performing contracts,rentals on operating leases, income on factoring ofclient debtors, commission earned on insurancepremiums, brokerage on share transactions and feesfor IT services provided. It includes all income relatedto operations such as interest on overdue rentals,profit/loss on leases and loans terminated andcollections on contracts written-off.ii) Revenue Recognitiona) Earned Income on LeasesThe Group follows the financing method ofaccounting for lease income.The unearned income is recognized as income overthe term of the lease commencing with the monththat the lease is executed in proportion to thedeclining receivable balance, so as to produce aconstant periodic rate of return on the Lessor's netinvestment outstanding on the lease.Non-performing leases are those leases where therentals are overdue for 6 months and over. Leaseincome accrued is suspended from the date a lease isclassified as non-performing and credited to the“Earned Income in Suspense”. Thereafter suchincome is recognized on cash basis.Profit or loss on leases terminated, collections oncontracts written off, interest on overdue rentals,interest on revolving loans, interest earned onproperty sale and buy back agreements, interestincome on pawn broking are accounted for on cashbasis.b) Factoring (Subsidiary)Revenue is derived from two sources, Funding andproviding Sales Ledger related services.Funding - Discount income relating to factoringtransactions is recognized at the end of a givenaccounting month. In computing this discount, a fixedrate agreed upon at the commencement of thefactoring agreement is applied on the daily balance inthe Client's Current Account.Sales Ledger related services - A service charge islevied as stipulated in the Factoring Agreement.Income is accounted for on an accrual basis anddeemed earned on disbursement of advances forinvoices factored, except where the account isclassified as non-performing.c) Securitisation of Lease Receivables (Subsidiary)LOLC Funding One Limited was established tosecuritise lease receivables of LOLC and to provide acost-effective method of long term finance to LOLC.Currently LOLC Funding One Limited is dormant.d) Insurance BrokingLanka ORIX Insurance Brokers Ltd., and LOIB FinancialServices Ltd., derive their income from commission oninsurance premiums. Income is accounted for onpremium collection basis.The excess of aggregated contract receivable over thecost of the leased assets constitutes the totalunearned income at the commencement of a contract.LOLC Annual Report 2007/0887

NOTES TO THE FINANCIAL STATEMENTSe) Brokerage on Share TransactionLanka ORIX Securities (Pvt) Ltd., earns brokerageincome on the value of share transactions carried outon behalf of its clients. This income is accounted foron an accrual basis.f) IT Service FeeLanka ORIX Information Technology Ltd., earns fee forIT services provided for Group Companies and isaccounted for on an accrual basis.g) Turnover from sale of solar systemsSundaya Lanka (Pvt) Ltd., earns revenue from sale ofsolar systems and its accounted on an accrual basis.h) Royalty IncomeRoyalty Income is charged from the Group Companiesfor the usage of “LOLC” logo and ORIX brand, usageof infrastructure support and is accounted for onaccrual basis.i) Treasury Management Fees & ManagementFeesTreasury Management Fee and Management Feecollected from Subsidiaries is accounted for onaccrual basis.j) Other IncomeRent income, non operational interest income andforeign exchange gains are accounted for on accrualbasis.Dividend income is recognized when the right toreceive payment is established.Profit on sales of property, plant and equipment areaccounted for on accrual basisiii) The Group Profits are stated after:a) Providing for all bad and doubtful debts anddepreciation of property, plant and equipment.2.8 Movement of ReservesMovement of Reserves is disclosed in the Statements ofChanges in Equity.2.9. Cash Flow StatementsThe Cash Flow Statements are prepared using the indirectmethod as stipulated in SLAS 9 - Cash Flow Statements,Cash and Cash Equivalents for Cash Flow Statementscomprise mainly of cash in hand, balances at banks andbank overdraft.2.10. Related Party TransactionsTransactions with related parties are conducted on normalbusiness terms. The relevant disclosures are given inNote 43 to the Financial Statements.2.11. Segmental ReportingSegment is a distinguishable component of the Group thatis engaged either in providing products or services(business segment), or in providing products or serviceswithin a particular economic environment (geographicalsegment), which is subject to risks and rewards that aredifferent from those of other segments.In accordance with Sri Lanka Accounting Standards No 28on Segment Reporting, segmental information ispresented in respect of the Group. The segmentcomprises of Leasing, hire purchase and other advancesFactoring, Insurance Broking, IT services are described inNote 36.Segment results, assets and liabilities include itemsdirectly attributable to a segment as well as those that canbe allocated on a reasonable basis.Segment capital expenditure is the total cost incurredduring the period to acquire segment assets that areexpected to be used for more than one period.b) Charging all expenses incurred in the day-to-dayoperations of the business and in maintaining theproperty, plant and equipment in a state of efficiency.iv)Borrowing CostsBorrowing costs are recognized as expenditure in theperiod in which they are incurred. However,borrowing costs that are directly attributable to theacquisition, construction or production of qualifyingassets that take a substantial period of time to getready for its intended use or sale, are capitalized aspart of the assets. During the year no borrowing costhas been capitalized.88 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTSGroupCompany2008 2007 2008 2007Rs. Rs. Rs. Rs.3 RevenueNet Rentals and income from subsidiaries 10,549,173,222 7,656,086,369 8,817,394,598 6,693,128,165Income 5,934,772,221 3,950,751,220 4,480,432,084 3,034,110,432Other income 313,375,519 207,674,719 440,602,192 291,839,679Revenue 6,248,147,740 4,158,425,939 4,921,034,276 3,325,950,1114 IncomeLeasing interest income 1,586,383,566 1,232,118,297 1,381,745,650 1,055,344,574Hire purchases interest income 948,165,721 581,926,923 809,056,422 511,735,122Advances & other loans interest income 1,731,224,560 950,287,974 1,260,276,794 804,739,920Interest income from micro financing 144,466,940 78,545,102 113,681,463 56,114,099Operating lease and hire rental income 531,295,664 365,792,101 531,295,664 365,792,101Overdue interest income 226,819,876 124,145,456 182,231,425 110,180,754Other operational incomes 248,814,658 153,315,169 202,144,666 130,203,862Debt factoring 252,649,562 200,797,501 - -Insurance broking 110,961,106 99,632,661 - -Securities Trading/others 162,450,757 173,488,671 - -IT Consultancy Fee 73,500,000 49,500,000 - -6,016,732,410 4,009,549,855 4,480,432,084 3,034,110,432Inter-company income (81,960,189) (58,798,635) - -5,934,772,221 3,950,751,220 4,480,432,084 3,034,110,4325 ExpensesExpenses are stated after including the following:Auditors remuneration and expenses:Audit related 1,730,000 1,338,000 1,000,000 800,000Non-Audit related 236,758 362,648 216,758 362,648Legal expenses 8,982,510 11,035,461 6,573,780 8,079,728Donations 164,800 299,699 118,000 249,4996 Direct Expenses excluding interest costsVAT on leases/general expenses /VAT on financial services 162,423,892 102,619,956 123,128,206 79,984,553Others 55,720,580 40,026,792 41,919,476 30,728,660218,144,472 142,646,748 165,047,682 110,713,2137 Staff CostsSalaries and other benefits 464,664,568 310,344,068 292,738,127 188,195,638Defined contribution to EPF 30,812,280 23,368,584 19,824,942 13,580,317Defined contribution to ETF 7,703,070 5,842,146 4,956,235 3,395,079Provision for retiring gratuity 18,448,564 11,927,293 16,140,094 7,576,835521,628,482 351,482,091 333,659,398 212,747,869LOLC Annual Report 2007/0889

NOTES TO THE FINANCIAL STATEMENTSGroupCompany2008 2007 2008 2007Rs. Rs. Rs. Rs.8 Other operating expensesAdministration cost 393,761,363 337,606,960 197,938,899 181,348,310Operating & marketing cost 235,890,976 184,916,694 221,300,426 183,686,218Specific provisions (92,902,939) (78,906,209) (37,330,961) (81,462,102)Specific bad debts written off 112,698,891 87,381,446 41,105,333 83,790,723649,448,291 530,998,891 423,013,697 367,363,1499 Net Interest CostsOverdraft and other short term borowings 1,206,071,606 668,762,502 1,028,398,997 525,146,719Long term borrowings: 1,833,148,638 950,226,675 1,812,573,093 938,741,410Finance lease interest 157,606,052 67,627,789 157,439,053 67,627,789Interest on customer deposits 436,770,238 189,768,907 - -3,633,596,534 1,876,385,873 2,998,411,143 1,531,515,918Less: Interest income on USD and EURO deposits (229,631,360) (88,634,897) (229,631,360) (88,634,897)3,403,965,174 1,787,750,976 2,768,779,783 1,442,881,02110 Other Income / (Expenses)10.1 Other IncomeRent income - 86,690 - 86,690Profit on sale of property, plant and equipment 6,158,934 56,202,698 3,176,819 56,202,698Sales proceeds received in excess on refinances 2,745,826 5,652,424 2,745,826 5,652,424Profit on sale of vehicles 963,249 17,723,629 963,249 17,723,629Dividends received 1,789,404 2,039,790 12,812,920 2,039,790Interest received from USD current accounts,treasury bills,call deposits 78,547,232 53,477,071 6,521,875 19,263,314Debenture interest income - - 89,138,411 63,791,123Royalty Income - - 67,932,478 52,199,458Foreign exchange gain 434,538 35,886,114 - 32,378,502Treasury management fee - - 46,004,437 16,204,901Reversal of provision for fall in value of investments and others 19,588,857 31,756,453 17,578,002 31,652,494Appreciation in market value - People's Merchant Bank shares 136,929,540 - 136,929,540 -Profit on sale of quoted and non quoted shares 47,744,537 14,974,287 47,744,537 14,974,287Profit on sale of investment of property - - - -Sundry income 17,145,237 14,343,994 6,705,731 4,138,800Supplier payments unclaimed (193,203) 7,902,410 (193,203) 7,902,410Due diligence fee 25,652,174 - 25,652,174 -337,506,325 240,045,560 463,712,796 324,210,52010.2 Other expensesLoss on sale of property, plant and equipment - - - -Loss on sale of quoted and non quoted shares 58,745 - - -Provision for fall in value for investment 18,164,536 32,370,841 18,080,311 32,370,841Foreign exchange loss 5,907,525 - 5,030,29324,130,806 32,370,841 23,110,604 32,370,841313,375,519 207,674,719 440,602,192 291,839,679The foreign exchange gain was mainly derived from profits earned on foreign currency denominated leases and foreign currencydeposits converted in to the reporting currency.90 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTSGroupCompany2008 2007 2008 2007Rs. Rs. Rs. Rs.11 Negative GoodwillTouchwood Investment Ltd. 126,117,616 - - -Sundaya Lanka (Pvt) Ltd. 5,174,887 - - -131,292,503 - - -12 TaxationThe following companies are liable for taxation on its taxable incomeCompany 2007/08 2006/07Lanka ORIX Leasing Company PLC. 35% 35%Lanka ORIX Factors Ltd. 35% 35%LOIB Financial Services Ltd. 35% 35%Lanka ORIX Finance Company Ltd. 35% 35%Lanka ORIX Insurance Brokers Ltd. 35% 35%Lanka ORIX Securities (Pvt) Ltd. 35% 35%Lanka ORIX Project Development Ltd. 35% 35%Sundaya Lanka (Pvt) Ltd. 35% 35%Galoya Holdings (Pvt) Ltd. 35% 35%The provisions made for the year are as followsGroupCompany2008 2008 2007 2007 2008 2008 2007 2007% Rs. % Rs. % Rs. % Rs.Profit for the period 1,270,789,481 1,050,181,256 977,871,455 986,593,585Total income tax 87,737,153 52,442,537 152,211,715 76,389,707Profit excluding income tax expense 1,183,052,328 997,738,719 825,659,740 910,203,878Income tax using the corporate income tax rate 35.00 414,068,315 35.00 349,208,552 35.00 288,980,909 35.00 318,571,357Disallowable expenses 149.56 1,769,314,633 140.53 1,402,124,213 182.25 1,504,755,430 143.00 1,301,577,412Allowable expenses -173.39 (2,051,263,077) -155.90 (1,555,491,190) -206.84 (1,707,784,065) -159.11 (1,448,254,364)Under provision of income tax expense 0.46 5,446,950 0.00 - 0.25 2,093,469 0.00 -11.63 137,566,819 19.63 195,841,575 10.66 88,045,743 18.89 171,894,405Recognition of previously unrecognized tax losses (295,706,562) (342,177,291) (295,706,562) (342,177,291)Change in temporary difference 70,402,590 93,893,179 55,449,104 93,893,179(87,737,153) (52,442,537) (152,211,715) (76,389,707)13 Earnings per ShareThe calculation of Basic Earnings Per Share at 31 March 2008 is based on the profits attributable to ordinary shareholders of 1687 (2007-1570) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2008 of 47,520,000 (2007:47,520,000),calculated as follows:GroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Pofit for the year (Rs.) 1,268,173,363 1,041,240,058 977,871,455 986,593,585Weighted average number of ordinary shares 47,520,000 47,520,000 47,520,000 47,520,000Earnings per share (Rs.) 26.69 21.91 20.58 20.76LOLC Annual Report 2007/0891

NOTES TO THE FINANCIAL STATEMENTS14 Cash and cash equivalentsGroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.Cash in hand 2,438,531 5,729,868 881,635 415,000Balances at banks 1,070,312,191 458,388,471 537,808,879 203,945,0481,072,750,722 464,118,339 538,690,514 204,360,04815 Rentals receivable on leased assets, hire purchase and othersGroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.15.1 Rentals receivable on leased assetsReceivable after five yearsRentals receivable - 20,026,000 - 20,026,000Unearned income - (8,113,089) - (8,113,089)- 11,912,911 - 11,912,911Receivable from one to five yearsRentals receivable 6,265,563,761 6,385,807,548 5,478,902,085 5,511,241,886Unearned income (1,416,557,269) (1,374,267,449) (1,251,672,758) (1,205,806,430)Provision for doubtful debts - (9,657,238) - (3,008,733)Deposits received from lessees (165,216,186) (146,254,637) (152,546,101) (143,063,321)4,683,790,306 4,855,628,224 4,074,683,226 4,159,363,402Receivables within one yearRentals receivable 3,759,838,736 3,564,505,224 3,215,973,267 3,015,108,495Unearned income (1,314,765,873) (1,253,758,651) (1,139,085,697) (1,077,863,287)Provision for doubtful debts (1,089,880) (26,389,388) (1,089,880) (6,424,891)2,443,982,983 2,284,357,185 2,075,797,690 1,930,820,317Overdue rental receivableRentals receivable 159,605,717 137,816,556 109,262,268 66,851,855Earned income in suspense (15,450,985) (20,672,946) (7,162,486) (5,856,091)Provision for doubtful debts (94,249,732) (41,718,558) (54,300,127) (10,363,055)49,905,000 75,425,052 47,799,655 50,632,709TotalRentals receivable 10,185,008,214 10,108,155,328 8,804,137,620 8,613,228,236Unearned income (2,731,323,142) (2,636,139,189) (2,390,758,455) (2,291,782,806)Earned income in suspense (15,450,985) (20,672,946) (7,162,486) (5,856,091)Provision for doubtful debts (95,339,612) (77,765,184) (55,390,007) (19,796,679)Deposits received from lessees (165,216,186) (146,254,637) (152,546,101) (143,063,321)Balance as at 31 March 7,177,678,289 7,227,323,372 6,198,280,571 6,152,729,339Rentals receivable on leased assets to the value of Rs. 10,709,542,366/- (31 March 2007 - Rs. 7,577,033,180/-) have been assignedagainst bank loans.92 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTSGroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.15.2 Rentals receivable on hire-purchaseReceivable from one to five yearsRentals receivable 3,940,389,407 2,296,959,643 3,358,629,276 2,296,959,643Unearned income (967,475,056) (509,193,661) (827,529,548) (509,193,661)Provision for doubtful debts - (2,332,147) - (2,332,147)2,972,914,351 1,785,433,835 2,531,099,728 1,785,433,835Receivables within one yearRentals receivable 2,383,509,492 1,871,208,464 2,048,832,494 1,379,859,703Unearned income (978,273,849) (660,359,122) (835,532,426) (524,482,356)Provision for doubtful debts (6,680,873) (1,109,263) (6,680,873) (1,109,263)1,398,554,770 1,209,740,079 1,206,619,195 854,268,084Overdue rental receivableRentals receivable 79,376,985 32,545,206 68,756,902 27,634,097Earned income in suspense (8,347,557) (2,944,508) (7,455,814) (2,589,038)Provision for doubtful debts (24,814,515) (2,766,415) (19,766,819) (2,063,005)46,214,913 26,834,283 41,534,269 22,982,054TotalRentals receivable 6,403,275,884 4,200,713,313 5,476,218,672 3,704,453,443Unearned income (1,945,748,905) (1,169,552,783) (1,663,061,974) (1,033,676,017)Earned income in suspense (8,347,557) (2,944,508) (7,455,814) (2,589,038)Provision for doubtful debts (31,495,388) (6,207,825) (26,447,692) (5,504,415)Balance as at 31 March 4,417,684,034 3,022,008,197 3,779,253,192 2,662,683,97315.3 Rentals receivable on operaing leases and hireTotalRentals receivable 2,123,959,323 1,673,077,178 2,123,959,323 1,673,077,178Rental received in advance (9,339,973) - (9,339,973) -Unearned income (2,106,204,221) (1,664,507,810) (2,106,204,221) (1,664,507,810)Earned income in suspense (745,195) - (745,195) -Provision for doubtful debts (872,926) (513,130) (872,926) (513,130)Balance as at 31 March 6,797,008 8,056,238 6,797,008 8,056,238LOLC Annual Report 2007/0893

NOTES TO THE FINANCIAL STATEMENTSGroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.15.4 Total receivable on leased assets, hire purchase & othersRentals receivable 18,702,903,448 15,981,945,819 16,394,975,642 13,990,758,857Unearned income (6,783,276,268) (5,470,199,782) (6,160,024,650) (4,989,966,633)Earned income in suspense (24,543,737) (23,617,454) (15,363,495) (8,445,129)Provision for doubtful debts (Note 15.5) (127,707,926) (84,486,139) (82,710,625) (25,814,224)Deposits received from lessees (165,216,186) (146,254,637) (152,546,101) (143,063,321)Balance as at 31 March (Notes 15.1, 15.2 & 15.3) 11,602,159,331 10,257,387,807 9,984,330,771 8,823,469,55015.5 Provision for doubtful debtsBalance as at 01 April 84,486,139 70,782,593 25,814,224 42,529,214Provisions made during the yaer- Charged against profits 119,014,628 81,848,970 78,790,852 51,430,434- Written off during the year (75,792,841) (68,145,424) (21,894,451) (68,145,424)Balance as at 31 March 127,707,926 84,486,139 82,710,625 25,814,22416 Advances and other loansRentals receivable on loans to customers 8,715,324,134 5,850,913,294 6,271,404,208 4,783,703,145Capital outstanding of revolving loans 1,584,410,829 1,120,616,752 1,584,410,829 1,120,616,752Receivables under Textilebt Recovery Fund scheme 7,202,445 7,202,445 7,202,445 7,202,445Overdue loan instalments 271,735,744 96,033,427 251,425,436 89,144,546Earned income in suspense (48,624,999) (5,992,701) (31,936,976) (5,992,701)Unearned loan income (1,920,884,425) (1,291,638,291) (1,854,162,977) (1,290,170,422)Provision for doubtful debts (46,257,876) (26,012,263) (33,505,000) (19,460,196)8,562,905,852 5,751,122,663 6,194,837,965 4,685,043,569Less:Provision for doubtful debtsBalance as at 01 April 26,012,263 18,084,666 19,460,196 18,050,035Provisions made during the year- Charged against profits 37,355,711 21,244,272 29,481,314 14,726,836- Written off during the year (17,110,098) (13,316,675) (15,436,510) (13,316,675)Balance as at 31 March 46,257,876 26,012,263 33,505,000 19,460,19694 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTSGroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.17 Other Current assetsFactoring accounts receivable 1,971,223,296 1,355,433,071 - -Insurance commission receivable 63,838,659 61,532,133 - -Securities clients/ brokers receivable 392,569,640 349,571,230 - -Amount due from subsidiaries - - 975,245,377 361,884,296Finance charges suspended 56,804,225 23,301,904 56,804,225 23,301,904Other accounts receivable 1,030,540,582 490,798,134 497,828,666 367,480,442VAT refunds due from IRD 43,336,272 64,023,483 2,413,457ACT recoverable - - - -ESC recoverable 153,752 - - -3,558,466,426 2,344,659,955 1,529,878,268 755,080,099Above receivable are shown after deducting provisions for doubtful debts.Finance charges suspended include expenses incidental to obtaining long-term loans such as guarantee fees, structuring fees, placementfees and front end fees. These charges are written off over the period of corresponding loans as the Directors are of the opinion that theseare part of the financing cost of the long term borrowings.18 Investment SecuritiesGroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.Debenture - - 400,000,000 400,000,000Quoted ordinary shares (Note 18.1) 357,120,657 61,884,332 356,942,832 61,342,682Non quoted ordinary shares (Note 18.2) - - - -Acquired properties 8,540,138 16,590,138 2,200,147 8,350,147PRASAC Micro Finance Institution - 61,831,544 61,831,544Total 365,660,795 140,306,014 759,142,979 531,524,373LOLC Annual Report 2007/0895

NOTES TO THE FINANCIAL STATEMENTS18.1 Quoted Ordinary Shares-CompanyNo. of 31.03.2008 31.03.2008 No. of 31.03.2007 31.03.2007Shares Cost Mkt. Value Shares Cost Mkt. ValueRs. Rs. Rs. Rs.Brown & Company Ltd. 36,700 34,363,357 33,947,500 - - -Central Finance Co.Ltd. 3,900 937,471 780,000 4,000 961,509 940,000Ceylinco Seylan and Development - - - 1,052,312 11,678,471 8,155,416Chemical Industries (Col.) Ltd. 137440 5,767,985 4,638,600 72 2,781 4,320Chemical Industries (Col.) Ltd. 27,500 715,792 653,122 10,300 1,177,264 927,000Dialog Telecom Ltd. 831,600 21,432,993 13,929,300 738,200 19,953,219 18,824,100Dry Docks Ceylon Ltd. - - - 5 148 220Hatton National Bank Ltd. - - - 47,300 7,175,378 4,730,000Hatton National Bank Ltd.(non voting) - - - 30,600 3,386,381 1,461,150HDFC Bank (par value Rs.100) 47,200 7,749,236 7,749,236 47,200 7,749,236 7,749,236Hotel Developers (Lanka) Ltd. - - - 3,000 316,448 159,000Housing Development Finance Co. 34,400 1,909,885 4,196,800 26,000 567,977 4,212,000John Keells Holdings Ltd - - - 28 5,318 4,340Lanka IOC Ltd. - - - 50,000 1,644,906 1,512,500Lanka Milk Food - - - 47,600 2,503,132 1,904,000NDB Bank Ltd. - - - 4,400 922,812 924,000Peoples' Merchant Bank 4,987,953 152,081,734 289,011,274 - - -Property Development Ltd. 67,900 2,823,104 2,037,000 60,500 2,574,954 1,815,000Sampath Bank - - - 5,100 621,305 545,700Sri Lanka Telecom - - - 150,000 4,884,106 5,587,500Touchwood Investments Ltd. - - - 33,700 2,483,292 1,887,200Veyangoda Textiles Mills Ltd. 10,300 262,060 - 10,300 262,060 -Total cost of quoted ordinary shares 228,043,617 356,942,832 68,870,697 61,342,682Less:Provision for fall in market valueBalance as at 01 April 7,528,015 - 6,809,668 -Provision/(Reversal) made during the year (136,427,230) - 718,347 -Balance as at 31 March (128,899,215) - 7,528,015 -356,942,832 356,942,832 61,342,682 61,342,682Quoted Ordinary Shares -SubsidiariesAhot Properties Ltd. 300 9,150 12,000 300 9,150 13,650Dialog Telecom Ltd. 9,000 274,491 165,825 9,000 252,000 229,500NDB Bank Ltd. - - - 1,500 162,891 298,500Total cost of quoted ordinary shares 283,641 177,825 424,041 541,650Less:Provision for fall in Market ValueBalance as at 01 April - - -Provision/(Reversal) made during the year - - -Balance as at 31 March - - -Add:Adjustment for changes in market valueBalance as at 01 April 117,609 98,650Provision/(Reversal) made during the year -Net appreciation of value during the year (223,425) 18,959Balance as at 31 March (105,816) 117,609177,825 177,825 541,650 541,650Quoted Ordinary Shares - Group 357,120,657 357,120,657 61,884,33296 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTS18.2 Non-quoted Ordinary Shares-Group and CompanyNo. of 31.03.2008 No. of 31.03.2007Shares Cost Shares CostRs.Rs.Indo Lanka Steel Ltd. 200,000 6,000,000 200,000 6,000,000Lanka Glass Manufacturing Ltd. 3,000,000 3,000,000 3,000,000 3,000,000Magpek Exports Ltd. 25,000 1,000,000 25,000 1,000,000Total cost of non-quoted ordinary shares 10,000,000 10,000,000Less:Provision for fall in valueBalance as at 01 April 10,000,000 10,000,000Provision/(Reversal) made during the year - -Balance as at 31 March 10,000,000 10,000,00019 Deferred tax assets and liabilitiesIn 2006/07 Rs. 342mn of previously unrecognised tax losses were recognised as management considered it is probable that future taxableprofits will be available against which they can be utilised. An additional amount of Rs.298mn of previously unrecognised tax losses wererecognised in 2007/08. The Company is of the opinion that ‘its more likely than not’ tax losses carried forward at the year end will berecovered in full during the next three to five years. An independent confirmation has been obtained from the tax consultants of the Company.Recognised deferred tax assets and liabilitiesDeferred tax assets and liabilities are attributable to the following:GroupAssets Liabilities Net2008 2007 2008 2007 2008 2007Rs. Rs. Rs. Rs. Rs. Rs.Property, plant and equipment 1,090,282 (13,174,842) (542,310) (12,084,560) (542,310)Operating lease assets (35,927,725) (24,263,704) (35,927,725) (24,263,704)Lease rentals receivable (114,430,367) (77,704,174) (114,430,367) (77,704,174)Retirement benefit obligations 14,958,247 8,617,009 14,958,247 8,617,009Tax loss carry forward 637,883,853 342,177,291 637,883,853 342,177,291Net tax (assets)/liabilities 653,932,382 350,794,300 (163,532,934) (102,510,188) 490,399,448 248,284,112Deferred tax liability of subsidiaries presented separatelyProperty, plant and equipment - - (413,066) (1,705,658) (413,066) (1,705,658)Lease rentals receivable - - (16,123,968) - (16,123,968) -Retirement benefit obligations 655,223 777,333 - - 655,223 777,333655,223 777,333 (16,537,034) (1,705,658) (15,881,811) (928,325)CompanyAssets2008 2007 2008 2007 2008 2007Property, plant and equipment (12,999,108) (542,310) (12,999,108) (542,310)Operating lease assets (35,927,725) (24,263,704) (35,927,725) (24,263,704)Leased assets (114,430,367) (77,704,174) (114,430,367) (77,704,174)Retirement benefit obligations 14,014,917 8,617,009 14,014,917 8,617,009Tax loss carry forward 637,883,853 342,177,291 637,883,853 342,177,291Net deferred tax (assets)/liabilities 651,898,770 350,794,300 (163,357,200) (102,510,188) 488,541,570 248,284,112Movement in temporary differences during the yearGroupBalance as at Recognised in Balance as at Recognised in Balance as at01 April 2007 Income 31 Mar 07 Income 31 Mar 08StatementStatementProperty, plant and equipment - (542,310) (542,310) (11,542,250) (12,084,561)Operating lease assets - (24,263,704) (24,263,704) (11,664,021) (35,927,725)Leased assets - (77,704,174) (77,704,174) (36,726,193) (114,430,367)Retirement benefit obligations - 8,617,009 8,617,009 6,341,238 14,958,247Tax loss carry forward - 342,177,291 342,177,291 295,706,562 637,883,853248,284,112 248,284,112 242,115,336 490,399,448LOLC Annual Report 2007/0897

NOTES TO THE FINANCIAL STATEMENTSCompanyBalance as at Recognised in Balance as at Recognised in Balance as at01 April 07 Income 31 Mar 07 Income 31 Mar 08StatementStatementRs. Rs. Rs. Rs. Rs.Property, plant and equipment - (542,310) (542,310) (12,456,798) (12,999,108)Operating lease assets - (24,263,704) (24,263,704) (11,664,021) (35,927,725)Leased assets - (77,704,174) (77,704,174) (36,726,193) (114,430,367)Retirement benefit obligations - 8,617,009 8,617,009 5,397,908 14,014,917Tax loss carry forward - 342,177,291 342,177,291 295,706,562 637,883,853- 248,284,112 248,284,112 240,257,458 488,541,57020 Investment in joint ventureGroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.Galoya Holdings (Pvt) Ltd. (GHL)Cost of Investment as at 31st March 08 100,000,000Percentage of Ownership 50%Principal activityPlantation ManagementThe investment in the GHL has been recognised in the financialstatements on the basis of proportionate consolidation.As at 31st March 08Current Assets 102,669,333Long Term Assets 116,463Current Liabilities 7,810,594Long Term Liabilities -Income 984,774Expenses (5,953,246)21 Investments in equity accounted investeesCarrying Amount Holding CostRs. % Rs.Touchwood Investment Ltd 400,306,821 29.2 216,359,359PRASAC Micro Finance Company in Cambodia 92,278,583 19 61,831,544492,585,403 278,190,903TouchwoodPRASAC MicroCost of Investment Investments Ltd. Finance InstitutionPricncipal Activity Forestry Management Micro-FinanceServicesAcquisition Date 12th October 2007 27th February 2007Percentage holding as at 31/03/2008 29.2% 19.0%No of Shares 2,601,000 51,736Market Value (Rs.) 90.25Goodwill/Excess recognised in the P&L 126,117,616 -Profit share recognized 57,829,846 30,447,039Nagative Goodwill NoteLast published financial statements 31st March 08 31st Dec 2007Assets 2,614,206,423 4,073,791,797Liabilities 1,215,554,924 3,716,220,480Revenue 593,844,694 805,135,622Profit / ( Loss ) 284,009,411 205,586,386Goodwill arising on acquisition, representing the excess of the fair value of the net assets acquired over the cost of acquisiton have beenrecognised in the Income Statement The investment in PRASAC Micro Finance Institution in the previous financial year, has been accountedfor as an associate in the current financial year, upon LOLC being appointed to the Board as one of the two influential shareholders.The reporting date of the financial statements of PRASAC MFI is 31st December & the profit share recognised is only for 9 months ended31st December 2007.98 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTS22 Investments in subsidiariesPrincipal Activity No. of Holding Cost No. of Holding CostOrdinary Shares % 31.03.2008 Ordinary Shares % 31.03.2007Rs. Rs. Rs.GroupLanka Orient Investment Ltd. 2 100 20 2 100 20CompanyLanka ORIX Factors Ltd Debt factoring 27,312,040 100 310,999,345 6,828,010 100 106,159,045LOLC Funding One Ltd Securitisation of lease receivables 7 100 700 7 100 700(Par value Rs.100/-)Lanka ORIX Insurance Brokers Ltd Insurance broking 1,000,000 100 10,000,000 200,000 100 2,000,000Lanka Orient Investment (Pvt) Ltd 2 100 20 2 100 20LOIB Financial Services (Pvt) Ltd. Investment advice and 100 100 - 100 100 -Lanka ORIX Finance Company (Pvt) Ltd Finance business andpawn broking 80,000,000 100 800,000,000 80,000,000 100 800,000,000Lanka ORIX Information Technology Ltd. Software design,developmentand distribution 2,000,000 100 20,000,000 2,000,000 100 20,000,000Lanka ORIX Securities (Pvt) Ltd. Stock broking 270,000 30 23,000,000 270,000 30 23,000,000Lanka ORIX Project Development Ltd. Property and infrastructuredevelopment 5,200,000 100 52,000,000 3,000,000 100 30,000,000Sundaya Lanka (Pvt) Ltd.Assembling and distribution ofsolar systems 624,490 51 - - - -1,216,000,065 981,159,765Acquisition of subsidiaryOn 25th May 2007 the Group acquired 51% of the shares in Sundaya Lanka (Pvt) Limited for Rs. 6,244,900/- in cash.The company is in the business of assembling and distribution of solar systems. During the period the subsidiary contributed a profit ofRs.224,361/-.The acquisition had the following effect on the Group's assets and liabilities on acquisition dateRecognizedPre acquisition Fair value values oncarrying amount adjustment acquisitionRs. Rs. Rs.Property, Plant and Equipment 3,376,356 - 3,376,356Inventories 17,436,949 - 17,436,949Pre-payments 76,611 - 76,611Trade and other receivables 5,677,077 - 5,677,077Bank guarantee 665,000 - 665,000Cash and cash equivalents 15,984,053 - 15,984,053Lease Liabilities (1,101,240) - (1,101,240)Tax payable (2,083,841) - (2,083,841)Trade creditors (12,765,426) - (12,765,426)Amount due to related parties (812,648) - (812,648)Accrued expenses (631,975) - (631,975)Other payables (3,429,178) - (3,429,178)Net identifiable assets and liabilities 22,391,738 - 22,391,738Percentage acquired 51%Net assets applicable to Group 11,419,787Negative goodwill on acquisition (5,174,887)Consideration paid, satisfied in cash 6,244,900Cash acquired 16,649,053Net cash inflow/(outflow) 10,404,153Pre-acquisition carrying amounts were determined based on applicable SLASs immediately before the acquisitionLOLC Annual Report 2007/0899

NOTES TO THE FINANCIAL STATEMENTS23 Property, Plant & EquipmentGroupCost/ValuationLand & Motor Leasehold Furniture & Office Computers & Leasehold For Operating Capital Work- TotalBuilding Vehicles Motor Vehicles fittings Equipment Software Machinery Lease Assets in-ProgressRs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.Balance as at 01 April ‘07 322,282,930 88,840,432 834,264,712 115,347,443 123,373,383 150,783,690 123,343,978 506,623,220 54,352,178 2,319,211,965Additions 33,379,331 72,413,527 169,711,030 58,728,257 38,449,276 34,248,276 - 341,625,737 61,824,570 810,380,004Disposals - (9,249,040) - (36,070,357) (195,703) - - (147,374,247) - (192,889,348)Adjustments / Transfers 132,081,006 27,367,194 4,255,167 18,779,582 7,694,041 1,775,221 - (29,128,081) (55,032,133) 107,791,997Balance as at 31 March ’08 487,743,267 179,372,113 1,008,230,909 156,784,924 169,320,997 186,807,187 123,343,978 671,746,629 61,144,615 3,044,494,619Accumulated DepreciationBalance as at 01 April ‘07 8,621,953 47,593,453 116,076,546 83,880,331 86,580,797 91,040,054 84,798,984 185,656,483 - 704,248,605Charge for the year 2,158,618 27,463,303 128,120,059 12,794,524 19,871,356 20,171,094 23,126,997 86,180,363 - 319,886,314Depreciation on disposals - (8,721,986) - (33,802,743) (1,069,977) - - (87,913,163) - (131,507,869)Adjustments / Transfers - 11,737,787 - 80,383 (176,850) 442,252 - (11,425,445) - 658,127Balance as at 31 March ‘08 10,780,571 78,072,557 244,196,605 62,952,496 105,205,326 111,653,400 107,925,981 172,498,238 - 893,285,174Written Down Valueas at 31 March ‘08 476,962,696 101,299,555 764,034,304 93,832,428 64,115,671 75,153,787 15,417,997 499,248,391 61,144,615 2,151,209,445as at 31 March ‘07 313,660,978 41,246,979 718,188,166 31,467,110 36,792,586 59,743,638 38,544,995 320,966,737 54,352,178 1,614,963,370CompanyCost/ValuationBalance as at 01 April ‘07 322,282,930 75,972,608 834,264,712 86,994,293 81,602,765 71,800,288 123,343,978 506,623,220 54,352,179 2,157,236,973Additions 33,379,331 70,823,527 169,711,030 57,479,605 33,271,064 26,244,519 - 341,625,737 61,824,570 794,359,383Disposals - (4,491,667) - (36,070,357) (187,403) - - (147,374,247) (188,123,674)Adjustments / Transfers 132,081,006 25,898,914 3,229,167 18,371,382 7,534,001 975,641 - (29,128,081) (55,032,133) 103,929,897Balance as at 31 March ‘08 487,743,267 168,203,382 1,007,204,909 126,774,923 122,220,427 99,020,448 123,343,978 671,746,629 61,144,616 2,867,402,579Accumulated DepreciationBalance as at 01 April ‘07 8,621,953 38,449,110 116,076,546 68,519,864 61,897,983 28,366,556 84,798,984 185,656,483 - 592,387,479Charge for the year 2,158,618 25,467,598 128,120,060 7,375,695 11,750,806 12,421,671 23,126,997 86,180,363 - 296,601,808Depreciation on disposals - (4,546,544) - (33,802,743) (1,068,457) - (87,913,163) - (127,330,907)Adjustments / Transfers - 11,425,445 - - - - (11,425,445) - -Balance as at 31 March ‘08 10,780,571 70,795,609 244,196,606 42,092,816 72,580,332 40,788,227 107,925,981 172,498,238 - 761,658,378Written Down Valueas at 31 March ‘08 476,962,696 97,407,773 763,008,304 84,682,107 49,640,095 58,232,221 15,417,997 499,248,391 61,144,616 2,105,744,201as at 31 March ‘07 313,660,977 37,523,498 718,188,166 18,474,429 19,704,782 43,433,732 38,544,994 320,966,737 54,352,179 1,564,849,494100 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTS2007/08Rs.• Land 365,780,000Buildings 121,963,267487,743,267• Lands of LOLC were revalued during the current year by Mr. G. J. Sumanasena and Mr. S. N. Wijepala independent professsionalvaluers. The total market value of Lands as per the revaluation on the basis of existing use is Rs. 365,780,000/=. If the Lands werestated on the historical cost basis, the cost of the land would be Rs. 260,377,158/=Land will be revalued every 3-5 years• LOLC has not pledged any of its property plant & equipment against any liability.• During the financial year 2005/2006 the company started constructing a new office building adjoining to the head office at SriJayawardanapura Mawatha. During the year Rs. 55 Mn worth of work has been considered as completed and capitalised as at 31March 2008. Capital expenditure contracted for which no provision is made in the financial statements as at 31 March 2008 isRs. 48 Mn.• Property plant and equipment of the group includes assets acquired with the business combinations during the financial year. The netbook value of such assets is made up as follows.Cost Accumulated Net Book ValueDepreciationSundaya Lanka (Pvt) Limited Subsidiary 4,284,302 1,569,275 2,715,027Galoya Holdings (Private) Limited Joint Venture 121,405 4,942 116,46324 Deposits from customersGroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.Deposits maturing within one year 2,826,801,429 929,376,516 - -Deposits maturing after one year 512,863,441 816,788,224 - -3,339,664,870 1,746,164,740 - -25 Short Term BorrowingsCommercial papers 973,547,200 1,348,293,254 973,547,200 1,348,293,254Short term loans and others 6,891,725,846 4,053,065,084 6,187,985,846 3,519,219,4887,865,273,046 5,401,358,338 7,161,533,046 4,867,512,74226 Finance lease liabilitiesGross lease rentals payable as at 01 April 1,327,381,025 353,924,143 1,325,943,757 353,924,143Leases obtained during the year 301,274,916 1,157,831,927 301,273,916 1,157,831,927Lease rentals paid during the year (427,820,879) (185,812,313) (427,204,907) (185,812,313)Gross lease rentals payable as at 31 March 1,200,834,062 1,325,943,757 1,200,012,766 1,325,943,757Less: Interest in suspense (239,030,762) (295,337,615) (238,861,733) (295,337,615)Net lease liability 961,803,300 1,030,606,142 961,151,033 1,030,606,142Repayable within one yearGross lease rentals payable 465,208,750 333,208,517 464,592,778 333,208,517Less: Interest in suspense (127,097,449) (131,310,631) (126,942,252) (131,310,631)Net lease liability 338,111,301 201,897,886 337,650,526 201,897,886Repayable after one yearGross lease rentals payable 735,625,312 992,735,240 735,419,988 992,735,240Less: Interest in suspense (111,933,313) (164,026,984) (111,919,481) (164,026,984)Net lease liability 623,691,999 828,708,256 623,500,507 828,708,256LOLC Annual Report 2007/08101

NOTES TO THE FINANCIAL STATEMENTS27 Long Term BorrowingsGroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.Balance as at 01 April 10,308,355,035 6,114,315,935 10,308,355,035 6,114,315,935Received during the year 6,935,999,833 6,576,554,334 6,935,999,833 6,576,554,334Repaid during the year (4,274,501,532) (2,382,515,234) (4,274,501,532) (2,382,515,234)Balance as at 31 March 12,969,853,336 10,308,355,035 12,969,853,336 10,308,355,035Less:Long term borrowings - current 3,867,594,352 2,708,744,871 3,867,594,352 2,708,744,871Long term borrowings -non current 9,102,258,984 7,599,610,164 9,102,258,984 7,599,610,164Analysis of non-current portion of long term borrowings 12,969,853,336 10,308,355,035 12,969,853,336 10,308,355,035Repayable within 3 years 6,865,527,023 4,871,917,916 6,865,527,023 4,871,917,916Repayable after 3 years 2,236,731,961 2,727,692,248 2,236,731,961 2,727,692,2489,102,258,984 7,599,610,164 9,102,258,984 7,599,610,164The above loans were obtained for the purpose of financing the lease/loan portfolio and secured on the relevant lease/loan contracts. Therepayment of the long term balance extends from the period of year 2008 to 2021.28 Trade And Other PayablesGroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.Accounts payable 973,843,976 628,323,384 782,027,189 529,258,473Creditors for leased equipment 440,582,529 362,215,131 405,098,488 341,308,219Amount due to susbsidiaries - 7,285 - 28,155,864Factoring accounts payable 862,088,111 676,084,711 - -Clients Payable 64,301,807 76,169,918 - -Insurance Premium Payable 20,213,040 97,731,499 - -Unclaimed dividends 1,874,154 1,823,548 1,874,154 1,823,5482,362,903,617 1,842,355,476 1,188,999,831 900,546,104102 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTSGroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.29 Retirement Benefit ObligationBalances as at beginning of the year 34,831,047 25,996,510 24,620,025 18,267,945Provision during the year 18,448,564 11,927,293 16,140,094 7,576,830Payment made during the year (1,507,264) (3,092,756) (717,500) (1,224,750)Balance as at end of the year 51,772,347 34,831,047 40,042,619 24,620,025The total number of employees of the Company as at 31 March, 2008 was 521 and the number of qualiftying employees in respect of theabove was 373. (as at 31March 2007 - 414 and 106 respectively)30 Stated CapitalIssued and fully paidAt the beginning of the year 47,520,000 of Rs.10/- each - - 475,200,000 475,200,000Issued and fully paid - - - -At the end of the year 47,520,000 shares 475,200,000 475,200,000 475,200,000 475,200,00031 ReservesShare Premium of subsidiary 536,504 536,504 - -Future Taxation Reserve 205,000,000 205,000,000 205,000,000 205,000,000Statutory Reserve 195,266,451 123,574,424 183,993,390 115,542,388Revaluation reserve 105,402,842 - 105,402,842 -Total Reserves as at 31 st March 506,205,797 329,110,928 494,396,232 320,542,388Subsidiary Share PremiumThe premium of Rs.536,504 has arisen on the date on which shares were issued to the parent over the par value by subsidiaries.The use ofthis reserve is restricted to write off preliminary expenses, to charge discounts when debentures are issued at less than par value or toredeem any debentures or preference sharesFuture Taxation ReserveThe reserve has been created over the years since year 1987 to year 2000 for any future tax liabilitiesReserve FundThe Company's reserve fund was created according to the Direction No.5 of 2006 issued by the Central Bank under section 34 of the FinanceLeasing Act of No. 56 of 2000.LOLC Annual Report 2007/08103

NOTES TO THE FINANCIAL STATEMENTS32 Retained EarningsGroupCompany31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.Balance brought forward 2,980,546,405 1,961,594,070 2,898,544,546 1,919,173,110Prior year adjustment to subsidiary retained earnings - (13,842,532) -Transferred back to retained earnings - 204,399,402 - 204,399,402Transfers to statutory reserves (71,692,027) (70,284,593) (68,451,002) (69,061,551)Net profit for the year 1,268,173,363 1,041,240,058 977,871,455 986,593,585Dividends (106,920,000) (142,560,000) (106,920,000) (142,560,000)Balance carried forward 4,070,107,741 2,980,546,405 3,701,044,999 2,898,544,54632.1 DividendsFinal 15% for 2005/2006 paid on 30 June 2006 - - - 71,280,000Interim of Rs.2.25 per share (on a stated capital of Rs.475,200,000) paid on30 June 2007 for 2007/2008 - - 106,920,000 71,280,000- - 106,920,000 142,560,000Dividend per share - 2.25 1.50In terms of the Inland Revenue (Amendment) Act No.10 of 2006 a Withholding Tax of 10% has been imposed on dividends.33 Minority InterestThe Minority Interest relates to the Net Assets of Lanka ORIX Securities (Pvt) Ltd. and Sundaya Lanka (Pvt) Ltd. which is not represented bythe Parent Company's investment.34 Business combinations that were effected during the periodName of Entity Touchwood Galoya Holdings Sundaya Lanka PRASACInvestments Ltd. (Private) Ltd. (Private) Ltd. Microfinance[TIL] [GHL] InstitutionPrincipal Activity Forestry Plantation Assembly of Micro- FinanceManagement Management Solar Systems ServicesAcquisition Date 12 Oct 2007 11 Oct 2007 25 May 2007 27 Feb 2007Percentage holding as at 31st March 08 29.2% 50.0% 51.0% 19.0%No of Shares 2,601,000 * 624,490 51,376Cost (Rs.) 216,359,359 100,000,000 6,244,900 61,831,544Excess recognised in the Income Statement (Rs.) 126,117,616 - 5,174,887 -Profit Share recognised (Rs.) 57,829,849 (4,968,472) 233,016 30,447,039Assets as per last published statements (Rs.) 2,614,206,423 102,785,796 38,989,175 4,073,791,797Liabilities as per last published statements (Rs.) 1,215,554,924 7,810,594 16,140,543 3,716,220,480* Galoya Holdings Ltd. 1,000,000 shares issued on 28th April 08Business combinations that were effected after the periodCommercial Leasing Company LtdPrincipal ActivityFinancial ServicesAcquisition Date 9th May 2008Percentage holding as at 26th May 2008 66.54%No of Shares as at 26th May 2008 11,741,907Cost (Rs.) 1,101,486,231Assets as per last published statements (Rs.) 7,975,669,491Liabilities as per last published statements (Rs.) 6,680,510,717104 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTS35 Maturity analysis-CompanyAssets/Liabilities 0-12 12-36 36-60 More than TotalMonths Months Months 60 monthsRs. Rs. Rs. Rs. Rs.Assets(a)(b)(c)(d)Interest earning assetsInvestments in Govt securities - - - - -Fixed deposits and savings deposits withbanks/finance companies 787,348,998 2,362,046,993 545,705,008 544,452,929 4,239,553,927Loans & Advances net of provisionsLeasing -Finance and operating leases 2,445,589,975 3,646,348,791 113,138,813 - 6,205,077,579Hire Purchase 1,283,337,161 2,426,693,912 69,222,119 - 3,779,253,192Advances and other loans 3,520,192,825 2,564,170,230 110,474,910 - 6,194,837,965Loans to real estate/housing 39,290,372 - - - 39,290,372Non-interest earning assetsCash and bank balances 538,690,514 - - - 538,690,514Investments inSubsidiary Companies - - - 1,216,000,065 1,216,000,065Associate Companies - - - 278,190,903 278,190,903Joint ventures 100,000,000 100,000,000Dealing securities 359,142,979 - - - 359,142,979Debentures/Commercial papers 400,000,000 - - - 400,000,000Stocks (vehicles/real estates/machineries etc) 92,699,405 - - - 92,699,405Short term investments 178,838,916 - - - 178,838,916(e) Fixed Assets - - - 2,105,744,201 2,105,744,201(f) Other current assetsOther current assets 462,208,485 - - - 462,208,485Amount due from subsidiaries 974,970,377 - - - 974,970,377Deferred tax asset - 488,541,570 - - 488,541,570Total assets 11,082,310,007 11,487,801,496 838,540,850 4,244,388,098 27,653,040,450Liabilites(a) Interest bearing liabilitiesBank overdrafts 659,445,757 - - - 659,445,757Bank loans-short term loans 6,187,985,846 - - - 6,187,985,846Commercial papers 973,547,200 - - - 973,547,200Redeemable preference shares - - - - -Debentures - - - - -Long term borrowings 3,867,594,352 6,865,527,023 1,898,389,135 338,342,825 12,969,853,336Finance lease liabilities 333,282,147 627,868,886 961,151,033(b) Non-interest bearing liabilitiesAmount due to subsidiaries/associates - - - - -Other liabilitiesLeased equipment creditors 406,097,848 - - - 406,097,848Taxation 1,373,597 - - - 1,373,597Trade and other payables 782,901,983 - - - 782,901,983Retirement benefit obligation - - - 40,042,619 40,042,619(c) Shareholders funds(excluding redeembale preference shares) - - - 4,670,641,231 4,670,641,231Total liabilities 13,212,228,730 7,493,395,909 1,898,389,135 5,049,026,675 27,653,040,450LOLC Annual Report 2007/08105

NOTES TO THE FINANCIAL STATEMENTS36 Segmental Information2007/2008Leasing, Factoring Insurance IT Services Stock Broking TotalHire Purchase & Broking & OtherOther ProductsRs. Rs. Rs. Rs. Rs. Rs.Operating profit before interest 3,667,255,859 407,323,677 15,851,081 (40,765,389) 4,407,367 4,054,072,595Net Interest cost (3,196,091,132) (203,277,186) (110,089) (1,913) (4,484,854) (3,403,965,174)Other income/(expenses) 294,609,398 2,863,335 10,751,566 - 5,151,220 313,375,519Goodwill on consolidation - - - - - 131,292,503Share of profit of associate companies - - - - - 88,276,885Profit before taxation 765,774,125 206,909,826 26,492,558 (40,767,302) 5,073,733 1,183,052,3282006/2007Operating profit before interest 2,297,786,375 267,954,615 18,973,928 (27,237,237) 20,337,295 2,577,814,976Net Interest cost (1,648,849,570) (135,139,772) (26,822) (2,251) (3,732,561) (1,787,750,976)Other income/(expenses) 187,927,298 12,396,382 3,654,506 - 3,696,533 207,674,719Profit before taxation 836,864,103 145,211,225 22,601,612 (27,239,488) 20,301,267 997,738,7192007/2008Capital expenditure 799,532,391 1,128,034 1,256,746 3,119,446 5,343,387 810,380,004Depreciation of property, plant & equipment 302,802,841 1,535,235 4,325,865 2,042,842 9,179,531 319,886,314Provision/(reversal) for doubtful debts andbad debts written off 163,494,922 8,697,932 16,036,054 - 3,159,111 191,388,019Provision/(reversal) for fall in value ofinvestments (502,310) - 1,926,630 - - 1,424,320Provision for gratuity 16,999,159 - 454,460 698,795 296,150 18,448,5642006/2007Capital expenditure 917,759,818 1,132,171 5,523,489 1,272,719 11,810,315 937,498,512Depreciation of property, plant & equipment 221,207,676 2,257,968 4,680,020 1,559,518 7,992,413 237,697,595Provision/(reversal) for doubtful debts and -bad debts written off 107,324,836 144,147 - - 6,658,313 114,127,296Provision/(reversal) for fall in value ofinvestments 718,347 - (103,959) - - 614,388Provision for gratuity 7,990,385 1,592,350 854,923 410,159 1,079,476 11,927,293As at 31 Mar 2008Total assets 29,985,334,889 2,837,286,999 139,964,835 63,142,078 757,911,252 33,783,640,052Total liabilities 26,740,518,638 1,423,650,364 60,490,675 3,741,767 450,075,538 28,678,476,982As at 31 Mar 2007Total assets 22,162,799,210 1,636,166,588 201,049,575 24,058,416 459,876,160 24,483,949,949Total liabilities 19,279,989,198 908,760,046 123,271,518 6,102,139 340,908,053 20,659,030,954106 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTSGroupCompany2008 2007 2008 2007Rs. Rs. Rs. Rs.37 Loans to Employees (Rs.20,0000/- and above)Balance as at 01 April 83,670,011 74,226,729 63,546,664 55,529,487Loans granted during the year 44,391,050 52,749,377 35,603,400 40,490,542Recoveries during the year (35,808,318) (43,306,095) (29,297,609) (32,473,365)Balance as at 31 March 92,252,743 83,670,011 69,852,455 63,546,664The above year end balances are included under "Other accounts receivable" given in Note No. 16 Other Current Assets38 Capital CommitmentsThe Company as at 31 March 2008 has a capital commitment of approximately Rs. 48 Mn for the refurbishment of Rajagiriya LOLC buildingand for the construction of service centres.39 Contingent LiabilitiesContingent Liabilities exist as at 31 March 2008 on guarantees given by the Company to Hatton National Bank,in relation to the bankingfacilities obtained by the Company's subsidiary Lanka ORIX Insurance Brokers Ltd. (LOIB). The balances outstanding on these facilities as at31 March 2008 amounted to Rs. 2,050,000/-Contingent Liabilities exist as at 31 March 2008 on guarantees given by the Company to banks on Letter of Credit opened by the Companyfor import of equipment and vehicles for execution of leases and refurbishment. The value of LC's at the year end was Rs.73,683,284.The Company does not anticipate any material liability to arise out of any contingent event.40 Consolidation of Accounts with those of the Subsidiary CompanyThe results of the Company's subsidiary, Lanka Orient Investments (Pvt) Ltd., incorporated on 27 February, 1986 have not been consolidatedwith that of the Company in accordance with Section 153 (6) (a) of the Companies Act No. 07 of 2007.41 Events after the Balance Sheet DateThere have been no material events occuring after the Balance Sheet date that require adjustment to or disclosure in the Financialstatements, other than the following:1 The Company has purchased 11,741,907 shares (67%) of Commercial Leasing Company Ltd. for a consideration of Rs. 1,101,486,231on 9th May 20082 The Company has advanced Rs. 15 Mn to Galoya Holdings (Pvt) Ltd.LOLC Annual Report 2007/08107

NOTES TO THE FINANCIAL STATEMENTS42 Comparative information in the financial statements have been restated as follows:Income statement for year ended 31st March 2007 Net Profit Net Profitbefore tax after taxRs.Rs.As per last year financial statements 1,001,544,296 1,054,612,882Restated in 2007/08 financial statements 997,738,719 1,050,181,256(3,805,577) (4,431,626)Balance Sheet as at 31st March 2007 Assets Liabilities EquityAs per last year financial statements 24,405,605,970 20,562,412,817 3,843,193,153Restated in 2007/08 financial statements 24,483,949,949 20,659,030,954 3,824,918,996(78,343,979) (96,618,137) 18,274,158Net profit before tax has been restated due to adjustments carried out subsequent to consolidation, in the following subsidiary financialsLOIB provision made for commissions receivable to the value of Rs. 4,458,860/-LOFAC exchange loss of Rs. 1,061,786/-LOFIN Interest Income adjustment of Rs.1,715,069/-Other adjustments Rs. 626,049/-The subsidiary balance sheets have been changed in view of the above, as well as,a re-classification of Factoring Accounts Receivable &Payables in LOFAC financials & a write-off against retained profits of Rs. 13,842,532/-The above were adjusted as follows:Retained earnings as at 31st March 2006 13,842,532Retained earnings as at 31st March 2007 4,431,62618,274,158108 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTS43 Related Party Transactions43.1 The Directors of the Company are also Directors of the following Companies in the Group through which they have control.LOFAC LOIB LFSL LOFIN LOSEC LOIT LOPD LFOL SundayaMrs R L Nanayakkara √ √ √ √ √ √ √ √ √Mr I C Nanayakkara √ √ √ √ √ √ √ √ √Mr M D D Pieris √ √ √ √ - √ - - -Mrs K U Amarasinghe √ √ √ √ √ √ √ √ -Mr M T L Fernando √ √ - - - √ - √ -Mr T H M Wickramasinghe - - - - √ - - - -Mr W D K Jayawardena √ √ √ √ - √ - - √Mr R M Nanayakkara - - - - √ - - - -Mr J M Swaminathan - - - √ - - - - -As at 31 Mar 2008 As at 31 Mar 2007Rs.Rs.Amounts due from Subsidiary Companies to ParentLOIB 41,638,773 59,305,587LOFIN 225,637,470 220,340,903LOPD 6,448,654 3,332,312LOFAC 689,969,077 22,672,424LOSEC 4,854,190 56,233,070LOIT 1,866,056 -Sundaya 4,831,157 -975,245,377 361,884,296Amount due to Subsidiary Companies from ParentLOIT - 28,155,864Inter-Company Transactions1 The Company has received following income from subsidiaries:LOFAC LOSEC LOIB LOIT LOPDRs. Rs. Rs. Rs. Rs.2007/2008Royalty 47,069,505 10,000,000 10,862,973 - -Management fees 1,200,000 - - - -Treasury management fee 44,804,437 - - - -Operating lease rental income 799,608 6,234,133 - - 665,604Debenture interest income 89,138,411 - - - -183,011,961 16,234,133 10,862,973 - 665,604LOLC Annual Report 2007/08109

NOTES TO THE FINANCIAL STATEMENTSLOFAC LOSEC LOIB LOIT LOPDRs. Rs. Rs. Rs. Rs.2006/2007Royalty 32,278,203 10,000,000 9,921,255 - -Management fees 1,200,000 - - - -Treasury management fee 15,004,901 - - - 665,604Operating lease rental income 799,608 4,594,206 - - -Debenture interest income 63,791,123 - - - -113,073,835 14,594,206 9,921,255 - 665,6042 The Company has paid IT service fee of Rs.36,000,000/- to LOIT (2006/07 - Rs.36,000,000/-)3 The subsidiary companies have the following transactions with other subsidiaries and the parent.3.1 LOIB has earned Rs.1,560,452/- (2006/07- Rs.3,904,819/-) as insurance commission from premium paid bythe following:2007/2008 2006/2007Rs.Rs.LOLC 1,362,664 3,494,717LOFAC 21,774 160,058LOSEC - 119,382LOFIN 176,014 130,6621,560,452 3,904,8193.2 LOIT has received IT service fee as follows:LOFAC 9,000,000 9,000,000LOIB 4,500,000 4,500,000LOLC 36,000,000 36,000,000LOFIN 24,000,000 -73,500,000 49,500,0003.3 Rs. 1,727,789/- is due to LOIB from LFSL for sharing of services (2006/07 - Rs.2,010,385/-).3.4 LOFIN has purchased the loan portfolio of LOFAC for the consideration of Rs.669,290,148/- (2006/07 - Rs.605,340,040/-).3.5 Rs.16,000,000/- is due to LOIT from LOFIN (2006/07 - Nil).3.6 Rs.6,121,588/- is due to LOFAC from LOFIN (2006/07 - Nil).3.7 Rs.6,115,431/- is due to LOFIN from LOIB (2006/07 - Nil).3.8 Rs.239,755/- is due to LOSEC from LOIB (2006/07 - Nil).110 LOLC Annual Report 2007/08

NOTES TO THE FINANCIAL STATEMENTS43.2 Transactions with Key Management PersonnelKey Management personnel include all the members of the Board of Directors of the Group having authority and responsibility forplanning, directing and controling the activities of the Company as well as the subsidiaries, directly or indirectly.• Group has paid fees amounting to Rs.12,468,103/- for the year 2007/08. (2006/07- Rs.1,453,044/-)• Emoluments paid to key management personnel during the year 2007/08 amounted to Rs. 32,203,919/-.(2006/07 - Rs. 21,126,788/-).• In addition to the above company has provided the following benefits and facilities:2007/08 2006/07Short-term Long-term Total Short-term Long-term Totalbenefits benefits benefits benefitsRs. Rs. Rs. Rs. Rs. Rs.Total benefits and facilities 11,586,928 7,055,833 18,642,760 10,536,085 3,600,000 14,136,085• Group has not incurred any amount as Termination benefits or Post Employment benefits on account of the key managerialpersonnel during the year.• Group has not provided leases, loans, advances or other credit facilities in the names of key managerial persons as at 31.03.2008.43.3 Other Related PartiesThe Company carries out transactions in the ordinary course of its business on arm's length basis with related parties.Name of Directors, their relationship, accommodations granted and balance outstanding as at March 31, 2008 are listed below:Name of Related Party Name of Director RelationshipIshara Traders Mr R M Nanayakkara ProprietorMr I C NanayakkaraDirectorMrs K U Amarasinghe DirectorBrown & Co .Ltd. Mrs R L Nanayakkara ChairpersonMr M T L FernandoDirectorMr I C NanayakkaraDirectorMr R M Nanayakkara DirectorTaprobane Fund Management (Pvt) Ltd. Mrs R L Nanayakkara DirectorMr M T L FernandoDirectorMr I C NanayakkaraDirectorThe Colombo Land Exchange Ltd. Mr I C Nanayakkara DirectorLOLC Annual Report 2007/08111

NOTES TO THE FINANCIAL STATEMENTS1. The Group and Company paid Rs.36,772,500/- and Rs 25,817,500/- (2006/07 - Rs. 351,077,004/- and Rs. 337,707,004/-)respectively for the supply of lease vehicles to Ishara Traders (Pvt) Ltd.2. The Company has obtained Rs. 700 Mn loan from Ishara Traders during the year and Rs. 14,738,356/- (2006/07 - Rs.21,379,815/-)paid as interest. The loan was fully settled on 24.12.2007.3. The Company received Rs.1,700,000/- (2006/2007-Rs. 39,100,000/-) from Ishara Traders as sales proceeds of vehicles.4. The Company purchased 4,359,786 shares of Hatton National Bank Ltd. from Taprobane Fund Management (Pvt) Ltd.for Rs. 407,183,303/-.5. The Company paid Rs. 411,130,700/- for the supply of lease vehicles to Brown & Company Ltd. (2006/2007-Rs.191,318,323/-)6. LOFAC has advanced Rs. 213,007,500/- to Standard Finance Ltd. and earned Rs. 11,978,417/- as interest income and earnedRs. 254,155/- as discount charge income during the year from Mason’s Mixtures Ltd.7. Amount due from related party transactions are as follows:Balance outstandingAs atAs at31 Mar 2008 31 Mar 2007Name of the Company Nature of transactions Rs. Rs.The Colombo Land Exchange Ltd. Loan granted - 90,000,000Brown & Company Finance Lease 1,362,736 -Galoya Holdings (Pvt) Ltd. Loan granted 10,164,210 -Galoya Holdings (Pvt) Ltd. Finance Lease 2,443,170 -Touchwood Investments Ltd. Loan granted 25,074,574 -Touchwood Investments Ltd. Finance Lease 5,506,372 -8. Interest Income earned from loan granted to related party transactions as follows:2007/08 2006/07Name of the Company Rs. Rs.The Colombo Land Exchange Ltd. - 32,048,609Brown & Company 13,930,168 12,828,769Galoya Holdings (Pvt) Ltd. 2,188,951 -Galoya Holdings (Pvt) Ltd. 1,607,910 -Touchwood Investments Ltd. 2,606,339 -44 Foreign Exchange RiskThe Company obtains long-term facilities from foreign multilateral and bilateral agencies for on lending purposes.The Company adopts aconservative strategy on obtaining rupee facilities from local Commercial Banks with the deposit of these foreign currency moneyreceived.Thereby, Company minimises the foreign exchange risk.112 LOLC Annual Report 2007/08

77LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Independent Auditor’s ReportHMAJ/RM/BV/JJINDEPENDENT AUDITOR’S REPORTTO THE SHAREHOLDERS OF LANKAORIX LEASING COMPANY PLCReport on the Financial StatementsWe have audited the accompanying financial statements of LankaOrix Leasing Company PLC (“Company”) and the consolidatedfinancial statements of the Company and its subsidiaries, whichcomprise the balance sheets as at 31 March 2010, and the incomestatements, statements of changes in equity and cash flowstatements for the year then ended, and a summary of significantaccounting policies and other explanatory notes.Management’s Responsibility for theFinancial StatementsManagement is responsible for the preparation and fairpresentation of these financial statements in accordance withSri Lanka Accounting Standards. This responsibility includes:designing, implementing and maintaining internal controlrelevant to the preparation and fair presentation of financialstatements that are free from material misstatement, whetherdue to fraud or error; selecting and applying appropriateaccounting policies; and making accounting estimates that arereasonable in the circumstances.Scope of Audit and Basis of OpinionOur responsibility is to express an opinion on these financialstatements based on our audit. We conducted our audit inaccordance with Sri Lanka Auditing Standards. Those standardsrequire that we plan and perform the audit to obtain reasonableassurance whether the financial statements are free frommaterial misstatement.An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An auditalso includes assessing the accounting policies used and significantestimates made by management, as well as evaluating the overallfinancial statement presentation.We have obtained all the information and explanations which to thebest of our knowledge and belief were necessary for the purposes ofour audit. We therefore believe that our audit provides a reasonablebasis for our opinion.OpinionIn our opinion, so far as appears from our examination, the Companymaintained proper accounting records for the year ended 31 March2010 and the financial statements give a true and fair view of theCompany’s state of affairs as at 31 March 2010 and its profit andcash flows for the year then ended in accordance with Sri LankaAccounting Standards.In our opinion, the consolidated financial statements give a true andfair view of the state of affairs as at 31 March 2010 and the profit andcash flows for the year then ended, in accordance with Sri LankaAccounting Standards, of the Company and its subsidiaries dealtwith thereby, so far as concerns the shareholders of the Company.Report on Other Legal and RegulatoryRequirementsIn our opinion, these financial statements also comply withthe requirements of Sections 151(2) and 153(2) to 153(7) of theCompanies Act No. 07 of 2007.22 July 2010Colombo.

78LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Balance SheetsGroupCompanyAs at 31 March 2010 2009 2010 2009RestatedNote (Rs.) (Rs.) (Rs.) (Rs.)ASSETSCash and cash equivalents 15 2,082,993,737 1,832,565,294 420,286,466 552,918,792Short-term investments 87,120,332 920,295,148 21,989,988 13,364,223Investment securities 16 11,610,836,345 217,711,686 4,717,840,030 294,966,285Investment in term deposits 2,786,322,142 3,864,491,419 1,173,872,285 2,281,454,487Rentals receivable on lease assets, hire purchase and others 17 17,831,697,978 17,193,230,491 3,382,564,471 6,497,919,684Advances and other loans 18 14,766,056,041 12,549,810,644 6,578,877,195 8,670,387,939Instalment sales 19 2,168,424,768 2,954,951,809 2,168,424,768 2,954,951,809Inventories 20 1,251,519,602 19,572,061 9,414,705 –Trade and other current assets 21 4,341,962,363 2,119,888,975 3,617,045,417 3,637,000,861Pre-paid lease rentals 22 313,709,841 – – –Investment properties 23 506,139,491 162,582,249 296,669,851 70,592,609Real estate stocks 22,930,299 32,131,926 – 3,135,535Timber and rubber stocks 24 2,884,583,330 – – –Investments in joint venture companies 25 – – – 10,000,000Investments in associate companies 26 3,035,396,841 676,420,661 555,133,266 278,190,903Investments in subsidiary companies 27 20 20 3,478,297,621 2,997,494,547Deferred tax asset 28 774,500,366 548,735,133 430,784,145 539,311,406Goodwill 29 151,415,234 151,415,234 – –Intangible assets 30 228,018,510 203,391,096 64,901,354 40,872,110Property, plant and equipment 31 10,245,725,626 2,839,872,265 2,821,867,186 2,492,618,937Total assets 75,089,352,866 46,287,066,111 29,737,968,748 31,335,180,127

79LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Balance SheetsGroupCompanyAs at 31 March 2010 2009 2010 2009RestatedNote (Rs.) (Rs.) (Rs.) (Rs.)LIABILITIES AND EQUITYLiabilitiesBank overdrafts 15 2,987,337,668 2,750,579,613 1,351,271,657 1,909,632,293Deposits from customers 32 10,094,683,226 5,228,920,975 – –Interest bearing loans & borrowings 33 35,248,089,434 29,013,104,961 21,736,055,085 22,940,127,372Provision for taxation 197,569,233 165,528,410 57,191,924 47,988,600Trade and other payables 34 5,628,201,818 2,611,688,796 1,099,157,250 1,283,898,817Deferred taxation 35 442,464,504 351,416,503 – –Deferred income 36 273,765,847 – – –Retirement benefit obligations 37 759,559,844 74,349,053 65,638,616 51,819,459Total liabilities 55,631,671,574 40,195,588,311 24,309,314,532 26,233,466,541EquityStated capital 38 475,200,000 475,200,000 475,200,000 475,200,000Reserves 39 765,858,265 554,412,465 552,292,132 529,406,288Retained earnings 40 6,662,696,388 4,981,857,006 4,401,162,084 4,097,107,298Equity attributable to equity holders of the Company 7,903,754,653 6,011,469,471 5,428,654,216 5,101,713,586Minority interest 11,553,926,639 80,008,329 – –Total equity 19,457,681,292 6,091,477,800 5,428,654,216 5,101,713,586Total liabilities and equity 75,089,352,866 46,287,066,111 29,737,968,748 31,335,180,127These Financial Statements are in compliance with the requirements of the Companies Act No. 07 of 2007.Mrs. S.S. KotakadeniyaChief Financial Officer - LOLC GroupThe Board of Directors is responsible for the preparation and presentation of these Financial Statements. Signed for and on behalf of the Board by:Mrs. R.L. NanayakkaraChairpersonMr. W.D.K. JayawardenaGroup Managing Director/CEOThe Accounting Policies and Notes on pages 84 through 147 form an integral part of these Financial Statements.20 July 2010Rajagiriya (Greater Colombo)

80LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Income StatementsGroupCompanyFor the year ended 31 March 2010 2009 2010 2009RestatedNote (Rs.) (Rs.) (Rs.) (Rs.)GROSS REVENUE 3 14,901,831,763 13,621,721,232 6,774,470,995 9,690,829,699Revenue 3,571,367,173 3,495,606,802 1,199,918,890 3,495,606,802Less: Cost of sales (2,869,272,589) (2,993,076,288) (1,029,853,463) (2,993,076,288)Gross profit 702,094,584 502,530,514 170,065,427 502,530,514Income 4 9,941,904,483 9,843,453,815 4,552,414,083 6,123,778,012Other income/(expenses) 5 1,388,560,107 282,660,615 1,022,138,022 71,444,885Net interest costs 6 (6,178,136,537) (6,441,181,453) (3,090,912,257) (4,205,473,730)PROFIT BEFORE OPERATING EXPENSES 5,854,422,637 4,187,463,491 2,653,705,275 2,492,279,681OPERATING EXPENSESDirect expenses excluding interest costs 7 (542,206,499) (497,742,300) (226,022,022) (314,921,244)Provision for bad and doubtful debts (635,976,370) (369,767,923) (447,278,102) (200,446,301)Staff costs 8 (921,351,169) (727,552,967) (244,795,068) (359,292,956)Depreciation and amortisation (675,884,584) (498,266,606) (589,006,764) (409,933,410)Other operating expenses 9 (1,624,684,237) (987,292,400) (655,475,814) (625,565,490)Change in fair value of investment properties 13,381,750 – – –RESULTS FROM OPERATING ACTIVITIES 10 1,467,701,528 1,106,841,295 491,127,505 582,120,280Negative Goodwill 11 1,423,836,934 – – –Loss on disposal of subsidiaries and associates (167,087,952) – – –Share of profit of associate companies 116,336,631 140,457,638 – –PROFIT BEFORE TAXATION 2,840,787,141 1,247,298,933 491,127,505 582,120,280Taxation 12 (455,381,906) (192,122,404) (164,186,875) (76,532,012)PROFIT AFTER TAXATION 2,385,405,235 1,055,176,529 326,940,630 505,588,268Attributable to:Equity holders of the Company 1,841,808,956 1,054,153,622 326,940,630 505,588,268Minority interest 543,596,279 1,022,907 – –PROFIT FOR THE YEAR 2,385,405,235 1,055,176,529 326,940,630 505,588,268Earnings per share 13 38.76 22.18Dividend per share 14 – 2.83Figures in brackets indicate deductions.The Accounting Policies and Notes on pages 84 through 147 form an integral part of these Financial Statements

81LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Statements of Changes in EquityGROUPAttributable to Equity Holders of the CompanyStated Subsidiary Revaluation Future Statutory Retained Minority TotalCapital Share Reserve Taxation Reserve Earnings InterestPremiumReserveFor the year ended 31 March 2010 Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.Balance as at 31.03.2008 475,200,000 536,504 105,402,842 205,000,000 195,266,451 4,142,813,661 53,649,532 5,177,868,990Profit for the year – – – – – 1,054,153,622 1,022,907 1,055,176,529Dividends – – – – – (134,718,375) – (134,718,375)Addition to minority throughacquisition of subsidiary – – – – – – 25,335,890 25,335,890Transferred back to retainedearnings – – – – – (32,185,234) – (32,185,234)Transfers during the year – – – – 48,206,669 (48,206,669) – –Balance as at 31.03. 2009 475,200,000 536,504 105,402,842 205,000,000 243,473,120 4,981,857,005 80,008,329 6,091,477,800Profit for the year – – – – – 1,841,808,956 543,596,279 2,385,405,235Dividends – – – – – – – –Addition to minority throughacquisitionof subsidiaries and associates – – – – – – 10,700,874,323 10,700,874,323Revaluations – – 50,476,226 – – – 227,170,779 277,647,005Transfers during the year – (536,504) – – 161,506,077 (160,969,573) 2,276,929 2,276,929Balance as at 31.03.2010 475,200,000 – 155,879,068 205,000,000 404,979,197 6,662,696,388 11,553,926,639 19,457,681,292COMPANY (Restated)Stated Revaluation Future Statutory Retained TotalCapital Reserve Taxation Reserve EarningsReserveFor the year ended 31 March 2010 Rs. Rs. Rs. Rs. Rs. Rs.Balance as at 31.03.2008 475,200,000 105,402,842 205,000,000 183,993,390 3,792,540,720 4,762,136,952Transferred to retainedearnings through merger – – – – (1,293,259) (1,293,259)Profit for the year – – – – 505,588,268 505,588,268Transferred from retained earningsto factoring receivables – – – – (30,000,000) (30,000,000)Dividends – – – – (134,718,375) (134,718,375)Transfers during the year – – – 35,010,056 (35,010,056) –Balance as at 31.03.2009 475,200,000 105,402,842 205,000,000 219,003,446 4,097,107,298 5,101,713,586Profit for the year – – – – 326,940,630 326,940,630Dividends – – – – – –Transfers during the year – – – 22,885,844 (22,885,844) –Balance as at 31.03.2010 475,200,000 105,402,842 205,000,000 241,889,290 4,401,162,084 5,428,654,216

82LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Cash Flow StatementsGroupCompanyFor the year ended 31 March 2010 2009 2010 2009Restated(Rs.) (Rs.) (Rs.) (Rs.)CASH FLOW FROM OPERATING ACTIVITIESNet profit before taxation 2,840,787,141 1,247,298,933 491,127,505 582,120,280Adjustment for:(Profit)/loss on sale of property, plant and equipment (54,432,364) (16,173,288) (10,271,603) (9,468,008)Depreciation and amortisation 675,884,584 498,266,606 589,006,764 409,933,410Provision for defined benefit plans 25,125,609 8,146,452 9,752,577 9,235,879Allowances for doubtful debts 635,976,370 274,320,990 447,278,102 121,115,756Provision for fall/(increase) in value of investments (97,849,681) 180,997,507 (71,115,335) 178,573,279Capital gain on sale of treasury bond (31,239,182) (25,196,300) (31,239,182) (25,196,300)Investment income (49,986,556) (3,175,105) (24,469,270) (28,159,560)Finance cost 6,250,681,039 6,612,437,228 3,154,048,049 4,376,729,505Interest income (72,544,502) (171,255,775) (63,135,792) (171,255,775)Change in fair value of investment properties (13,381,750) – – –(Profit)/loss on sale of quoted and non-quoted shares (132,114,495) – – –(Profit)/loss on sale of subsidiaries, associates and quoted shares 167,087,952 – (141,528,621) –Negative Goodwill (1,423,836,934) – – –Share of profit of equity accounted investees (116,336,631) (140,457,638) – –Operating profit before working capital changes 8,603,820,600 8,465,209,610 4,349,453,194 5,443,628,466Working capital changes(Increase)/decrease in trade and other receivables 1,533,337,923 (4,550,833,939) 89,359,683 1,260,257,289(Increase)/decrease in inventories 76,749,509 1,312,381 (9,414,705) –Increase/(decrease) in trade and other payables 581,174,305 1,411,882,380 107,622,035 (841,556,383)(Increase)/decrease in real estate stocks 9,201,627 36,635,982 3,135,535 34,685,866(Increase)/decrease in investment in leases, hire purchase and others (638,467,487) 6,151,356,956 2,842,282,945 2,177,476,125(Increase)/decrease in factoring account receivable (1,104,599,746) (798,386,414) (469,142,563) (39,357,903)(Increase)/decrease in investment in advances and other loans (1,415,254,957) (8,603,212,043) 3,172,974,515 (5,675,538,397)Cash generated from operations 7,645,961,774 2,113,964,913 10,086,270,639 2,359,595,063Finance cost paid (6,250,681,039) (6,128,877,313) (3,487,464,625) (4,526,732,775)Income tax and Economic Service Charge paid (199,109,675) (51,739,684) (70,083,301) (6,186,532)Defined benefit plan costs paid (5,607,181) (3,278,593) (657,680) (1,111,361)Net cash from/(used in) operating activities 1,190,563,879 (4,069,930,677) 6,528,065,033 (2,174,435,605)

83LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Cash Flow StatementsGroupCompanyFor the year ended 31 March 2010 2009 2010 2009Restated(Rs.) (Rs.) (Rs.) (Rs.)CASH FLOW FROM INVESTING ACTIVITIESInvestment in subsidiary companies – – (497,939,562) (2,086,248,927)Net cash and cash equivalents on acquisition of subsidiary (1,339,581,567) (1,313,539,634) – –Investment in equity accounted investees (1,566,763,995) (183,835,258) (508,146,451) –Investment in joint venture – – – 90,000,000Acquisition of property, plant and equipment (1,243,488,066) (1,106,008,424) (1,208,408,322) (1,003,347,160)Acquisition of intangible assets (43,621,506) – (42,157,136) –Acquisition of investment properties (226,077,242) – (226,077,242) –Net proceeds from short-term investments 609,557,837 (56,938,226) (8,625,760) 165,474,689Proceeds from sale of subsidiaries, associates and shares 354,859,354 – 545,750,364 –Net additions to investments (7,955,218,728) 259,010,614 (4,466,400,399) 649,089,965Net investment in term deposits 1,056,179,289 498,131,954 1,107,582,204 1,958,099,439Proceeds from the sale of property, plant and equipment 400,356,144 120,057,274 318,552,801 107,174,385Interest received 72,544,502 171,255,775 63,135,792 171,255,775Dividend received 56,214,949 2,545,905 24,469,270 28,159,560Rent received 4,969,047 629,200 – –Net cash flow from investing activities (9,820,069,982) (1,608,690,820) (4,898,264,441) 79,657,726CASH FLOW FROM FINANCING ACTIVITIESNet cash proceeds from short-term interest bearing loans and borrowings 6,457,176,647 (334,616,265) 2,866,740,073 (430,273,076)Principal repayment under finance lease liabilities (379,074,524) (349,048,481) (320,044,362) (348,396,214)Net proceeds from customer deposits 4,865,762,251 1,964,256,104 – –Proceeds from long-term interest bearing loans and borrowings 4,444,524,019 8,314,957,324 1,048,958,131 6,515,209,629Repayments of long-term interest bearing loans and borrowings (6,917,441,902) (4,682,950,382) (4,799,726,124) (4,682,950,382)Proceeds from issuance of debentures 172,230,000 – – –Dividend paid – (134,718,375) – (134,718,375)Net cash generated from financing activities 8,643,176,491 4,777,879,925 (1,204,072,282) 918,871,582Net increase/(decrease) in cash and cash equivalents during the year 13,670,388 (900,741,573) 425,728,310 (1,175,906,297)Cash and cash equivalents at the beginning of the year (918,014,319) (17,272,746) (1,356,713,501) (180,807,204)Cash and cash equivalents at the end of the year (904,343,931) (918,014,319) (930,985,191) (1,356,713,501)Analysis of cash and cash equivalents at the end of the yearCash at bank and in hand (Note 15.1) 2,082,993,737 1,832,565,294 420,286,466 552,918,792Bank overdraft (Note 15.2) (2,987,337,668) (2,750,579,613) (1,351,271,657) (1,909,632,293)(904,343,931) (918,014,319) (930,985,191) (1,356,713,501)

84LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements1. Corporate Information1.1 GeneralLanka ORIX Leasing Company PLC (‘the Company’) is a public quoted company incorporated on14 March 1980 and domiciled in Sri Lanka. The Consolidated Financial Statements of the Company forthe year ended 31 March 2010 comprise of the Company and its subsidiaries (together referred to asthe ‘Group’) and the Group’s interest in associates and jointly controlled entities.The Financial Statements were authorised for issue by the Directors on 20 July 2010.1.2 Principal Activities and Nature of OperationsDuring the year, the principal activities of the Company comprised of leasing, hire purchase, loans,operating leases, instalment sales and factoring. Descriptions of the nature of operations and principalactivities of the subsidiaries, jointly-controlled entities and associates are given on Notes 25, 26 and 27respectively in these Financial Statements.1.3 Directors’ Responsibility StatementThe Board of Directors takes the responsibility for the preparation and presentation of these FinancialStatements.2. Accounting Policies2.1 Statement of ComplianceThe Financial Statements of the Company and those consolidated with such are prepared inaccordance with the Sri Lanka Accounting Standards laid down by The Institute of CharteredAccountants of Sri Lanka and in compliance with the Companies Act No. 07 of 2007.Effect of accounting standards issued but not yet effective:The following standards have been issued by The Institute of Chartered Accountants of Sri Lanka andare effective for the accounting periods on the dates specified below:a. Sri Lanka Accounting Standard 44 - Financial Instruments; Presentation(SLAS 44) and Sri Lanka Accounting Standard 45 - Financial Instruments;Recognition and Measurement (SLAS 45)SLAS 44 and 45 become effective for financial years beginning on or after 1 January 2011. Accordingly,the Financial Statements for the year ending 31 March 2012 will adopt SLAS 44 and 45, for the first time.

85LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsThese two standards together provide comprehensive guidance on identification, classification,measurement and presentation of financial instruments (including Derivatives) into financial assets,financial liabilities and equity instruments. In order to comply with the requirements of thesestandards, the Group is in the process of assessing the effect of adoption of the aforesaid standards.Due to the complex nature of the effect of these standards the impact of adoption has not beenestimated as at the date of publication of these Financial Statements.b. Sri Lanka Accounting Standard 39 - Share Based Payments (SLAS 39)SLAS 39 - Share Based Payments, effective for periods beginning on or after 1 January 2010 will befirst adopted in the year ending 31 March 2011. This standard require an expense to be recognisedwhere the Company buys goods or services in exchange for shares or rights over shares (equity-settledtransactions), or in exchange for other assets equivalent in value to a given number of shares or rightsover shares (cash-settled transactions). For equity-settled share-based payment transactions, theCompany is required to apply SLAS 39 to grants of shares, share options or other equity instrumentsthat were granted after 1 January 2010.The Group is in the process of evaluating to impact of this standard, and the impact of the same is notestimated as at the date of the publication of these Financial Statements.2.2 Basis of PreparationThe Financial Statements are presented in Sri Lanka Rupees which is also the Group’s functionalcurrency where appropriate the significant Accounting Policies have been disclosed in the succeedingNotes. The Financial Statements are prepared on the historical cost basis except Land and Building,Investment Properties, Marketable Securities which are stated at valuation as explained in Notes 31,23 and 16 respectively in the Financial Statements. No adjustment has been made for inflationaryfactors affecting the Financial Statements except for revaluation of land. Assets and liabilities aregrouped by nature and listed in an order that reflect their relative liquidity.The Accounting Policies have been consistently applied by the Group and are consistent with thoseused in the previous year. The specific policies used are explained below and relate to both theConsolidated Financial Statements and that of the Company, except stated otherwise.Previous period figures and Notes have been restated and reclassified wherever necessary to conformto the current presentation, as explained in Note 41.Significant Accounting Judgments, Estimates and AssumptionsIn the process of applying the Group’s Accounting Policies, management is required to makejudgments, apart from those involving estimations, which may have a significant effect on the amountsrecognised in the Financial Statements. Further, the management is required to consider, keyassumptions concerning the future and other key sources of estimation of uncertainty at the BalanceSheet date, that may have a significant risk of causing material adjustments to the carrying amountsof assets and liabilities. The respective carrying amounts of assets and liabilities are given in the

86LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statementsrelated Notes to the Financial Statements. The key items which involve these judgments, estimatesand assumptions are discussed below:• Impairment Losses on Loans and Advances:In addition to the provisions made for possible loan losses based on the parameters and directivesfor specific provisions on Loans and Advances by the Central Bank of Sri Lanka, the Company andits subsidiaries reviews its Loans and Advances portfolio at each reporting date to assess whethera further allowance for impairment should be provided in the Income Statement. The judgments bythe management is required in the estimation of these amounts and such estimations are based onassumptions about a number of factors though actual results may differ, resulting in future changes tothe provisions.During the financial year 2009/10, Lanka ORIX Leasing Company has changed the estimation criteriaof the allowance for bad and doubtful debts. The impact of the same is amounting to Rs. 18,398,603/-.• Defined Benefit PlansThe cost of defined benefit plans - gratuity is determined using actuarial valuations. The actuarialvaluation involves making assumptions about discount rates, expected rates of return on assets, futuresalary increases, mortality rates and future pension increases. Due to the long-term nature of theseplans, such estimates are subject to significant uncertainty.• Deferred Tax AssetsDeferred tax assets are recognised for all unused tax losses to the extent that it is probable thattaxable profit will be available against which the losses can be utilised. Significant managementjudgment is required to determine the amount of deferred tax assets that can be recognised, basedupon the likely timing and level of future taxable profits together with future tax planning strategies.• Reviews of Impairment Losses on Other AssetsThe Group determines whether assets have been impaired by performing an impairment review. Thisrequires the estimation of the ‘value in use’ of the cash generating units. Estimating value in userequires management to make an estimate of the expected future cash flows from the cash generatingunit and also to select a suitable discount rate in order to calculate the present value of the relevantcash flows. This valuation requires the Group to make estimates about expected future cash flows anddiscount rates, and hence, they are subject to uncertainty.• Useful Lives of Property, Plant and EquipmentThe Group reviews the assets’ residual values, useful lives and methods of depreciation at each reportingdate. Judgment by the management is exercised in the estimation of these values, rates, methods.2.3 Basis of ConsolidationFinancial Statements of all companies in the Group are prepared to a common financial year, whichends on 31 March except Maturata Plantations Ltd., Pussellawa Plantations Ltd., Seylan Bank PLC andPrasac Micro Finance Company, Cambodia of which year end is 31 December. However, managementFinancial Statements for the three months period ended 31 March been considered for the purpose ofConsolidated Financial Statements of the Group except for Prasac Micro Finance Company, Cambodia.

87LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements2.3.1 SubsidiariesThe Financial Statements of the Group represent the consolidation of the Financial Statements ofLanka ORIX Leasing Company PLC and its subsidiaries as disclosed in Note 27. Subsidiaries areentities controlled by the Company. Control exists when the Company has the power, directly orindirectly, to govern the financial and operational policies of an entity so as to obtain benefits from itsactivities. In assessing control, potential voting rights that presently are exercisable or convertible aretaken into account.Subsidiaries are consolidated from the date the Parent Company obtains control until such timecontrol ceases. Acquisition of subsidiaries is accounted for using the purchase method of accounting.The Group Financial Statements are prepared in accordance with the Sri Lanka Accounting StandardsNo. 26 on Consolidated Financial Statements.Minority Interests in the net assets not owned, directly or indirectly, by the Company are presented inthe Consolidated Balance Sheet within Equity, separately from the Equity Attributable to Equity Holdersof the Parent (Company). Minority Interests in the profit or loss of the Group are presented separatelyin the Consolidated Income Statement.2.3.2 Associates - Equity Accounting InvesteesAssociates are those entities in which the Group has significant influence, but not control, over the financialand operating activities.Associates are accounted for using the equity method (equity accounted investees) and are initiallyrecognised at cost. The Group’s investment in associate includes goodwill identified on acquisition,net of any accumulated impairment losses. The Consolidated Financial Statements include theGroup’s share of the income and expenses and equity movements of equity accounted investees, afteradjustments to align the accounting policies with those of the Group, from the date that significantinfluence commences until the date that significant influence ceases. When the Group’s share oflosses exceeds its interest in an equity accounted investee, the carrying amount of that interest(including any long-term investments) is reduced to nil and the recognition of further losses isdiscontinued except to the extent that the Group has an obligation or has made payments on behalfof the investee. Associate Companies of the Group which have been accounted for under the equitymethod of accounting are disclosed under Note 26 to these Financial Statements.2.3.3 Jointly-Controlled EntitiesJoint ventures are those entities over whose activities the Group has joint control, established bycontractual agreement and requiring unanimous consent for strategic financial and operatingdecisions.Jointly-controlled entities are accounted for using proportionate consolidation method, from the datethat significant influence or joint control commences until the date that significant influence or jointcontrol ceases.

88LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsJointly-controlled entities of the Group which have been accounted for under the proportionateconsolidation method of accounting are disclosed in Note 25 in these Financial Statements.2.3.4 Business Combinations and GoodwillAll business combinations have been accounted for by applying the purchase method in accordancewith the Sri Lanka Accounting Standards No. 25 (Revised 2004) - Business Combinations. Applying thismethod involves the entity that obtains control of the other entity to recognise the fair value of assetsacquired and liabilities and contingent liabilities assumed, including those not previously recognised.Goodwill represents the excess of the cost of any acquisition of a subsidiary or an associate over theGroup’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilitiesacquired.Goodwill is initially recognised at cost. The Company will test the goodwill for impairment annuallyand assess for any indication of impairment to ensure that its carrying amount does not exceed therecoverable amount. If an impairment loss is identified, it is recognised immediately to the IncomeStatement. For the purpose of impairment testing, goodwill acquired in a business combination is, fromthe acquisition date, allocated to groups of cash-generating units that are expected to benefit from thesynergies of the combination. The impairment loss is allocated first to reduce the carrying amount of anygoodwill allocated to the unit and then to the other assets pro-rata to the carrying amount of each assetin the unit. Where goodwill forms part of a cash-generating unit and part of the operation within that unitis disposed of, the goodwill associated with the operation disposed of is included in the carrying amountof the operation when determining the gain or loss on disposal of the operation.Carrying amount of the goodwill arising on acquisition of subsidiaries and joint ventures is presentedas an intangible and the goodwill on an acquisition of and equity accounted investment is included inthe carrying value of the investment.In the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilitiesexceeds the cost of the acquisition of the entity, the Group will reassess the measurement of theacquiree’s identifiable assets and liabilities and the measurement of the cost and recognise thedifference immediately to the Consolidated Income Statement.2.3.5 Transactions Eliminated on ConsolidationAll intra-group balances, income and expenses and unrealised gains and losses resulting from intragrouptransactions are eliminated in full in preparing the Consolidated Financial Statements.2.4 Assets and Bases of their Valuation2.4.1 Cash and Cash EquivalentsCash and cash equivalents comprise of cash in hand and cash at banks. Bank overdrafts that arerepayable on demand and form an integral part of the Group cash management are included as acomponent of cash and cash equivalents for the purpose of the statement of cash flows.

89LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements2.4.2 Rentals Receivable on Leased Assets and Hire PurchasesRentals receivable on leased and hire purchase assets are accounted for as finance leases, hirepurchases and reflected in the Balance Sheet at balance cost recoverable after eliminating unearnedincome and deducting pre-paid rentals, rental collections and provision for bad and doubtful debts.2.4.3 Advances and Other Loans to CustomersAdvances and other loans to customers comprised of revolving loans, loans with fixed instalments,factoring and pawning advances.Revolving loans to customers are reflected in the Balance Sheet at amounts disbursed lessrepayments and provision for doubtful debts. Loans to customers with fixed instalments are stated inthe Balance Sheet net of possible loan losses and net of interest, which is not accrued to revenue.2.4.4 Provision for Doubtful DebtsThe specific provisions for doubtful debts are arrived at using the following bases:Lanka ORIX Leasing Company PLC and LOLC Micro Credit Ltd. computes provisioning for bad anddoubtful debts according to the Central Bank Direction No. 2 of 2006 of the Finance Leasing ActNo. 56 of 2000.• Twenty per cent (20%) of all lease, hire purchase and loan receivables (net of unearned income)which are in arrears for a period of 6 to 12 months.• Fifty per cent (50%) of all lease, hire purchases and loan receivables (net of unearned income)which are in arrears for a period of 12 to 18 months.• One hundred per cent (100%) of all lease, hire purchases and loan receivables (net of unearnedincome) which are in arrears for a period of 18 months and more.• One hundred per cent (100%) of all accommodations where instalments are not paid on a monthlybasis, wherever the Company has realised that instalments will not be paid on the due dates.Additional specific provisions are made upon management review on the performance of the lease, hirepurchase and loan portfolios on a case-by-case basis. Facilities that are overdue for 18 months or moreand fully provided have been written-off against the provisions made.Lanka ORIX Leasing Company PLC and LOLC Micro Credit Ltd. computes provisioning for bad anddoubtful debts on high risk micro products according to the Direction No. 3 of 2006 of the FinanceCompanies Act No. 78 of 1988.The Value of the following item held as collateral for a particular advance have been deducted inarriving the above provisions:

90LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsWith regard to vehicles that have been repossessed by the Company and not sold, eighty percent(80%) of the valuation obtained during the preceding 6 months from a professional valuer is beingdeducted in arriving at the provision for bad and doubtful debts. With regard to land and buildings, thefull value, in case of a primary mortgage, such value shall not exceed the value decided by a qualifiedprofessional valuer at the time of providing the accommodation.Lanka ORIX Finance Company Ltd. and Commercial Leasing Company Ltd. provide for bad anddoubtful debts based on the Direction No. 3 of 2006 of the Finance Companies Act No. 78 of 1988.• Fifty per cent (50%) on all receivables (net of unearned income) which are in arrears for a period of6 to 12 months.• One hundred per cent (100%) on all receivables (net of unearned income) which are in arrears for aperiod of 12 months and more with additional specific provisions.Additional specific provisions are made upon management review on the performance of the lease,hire purchases and loan portfolios. Facilities that is overdue for 12 months or more and fully providedhave been written-off against the provisions made.The Value of the following item held as collateral for a particular advance have been deducted inarriving the above provisions:With regard to vehicles that have been repossessed by Lanka ORIX Finance Company Ltd., eightypercent (80%) of the valuation obtained during the preceding 6 months from a professional valuer. Withregard to land and buildings, the full value, in case of a primary mortgage, such value shall not exceedthe value decided by a qualified professional valuer at the time of providing the accommodation.Balance receivable on Terminated Contracts for Lease, Hire Purchase Advances and Loans• One hundred percent (100%) of proceeds receivables.2.4.5 Factoring ReceivablesFactoring receivables of the Group have been stated net of specific provisions based on companyprovisioning policy. Any amount uncollectable is written-off against profits.The specific provisions for doubtful debts are arrived at using the following bases:• If one hundred per cent (100%) of the sales ledger is disputed, and no further transactions havetaken place for a period of 6 months, 50% of the Current account balance is provided for, from thelast date of dispute.• When this period reaches 12 months 100% is provided for.However, if the total of settlements received within said 3 months is less than 25% of the overdueCurrent account balance, 50% of such Current account balance is provided in 6 months and the 100%provided after 12 months as in the case of such accounts.

91LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsFurther, the total portfolio review quarterly to capture any accounts that are not falling under the abovecriteria but are considered as ‘non-performing’. Such accounts are considered for provisioning on acase-by-case basis, under specific provisioning.Commercial Leasing Company Ltd. makes a general provision of 0.75% of factoring receivables toabsorb any losses arising from unforeseen events.2.4.6 InventoriesInventories are stated at the lower of cost and net realisable value after making due allowance forobsolete and slow moving items net realisable value is the estimated selling price in the ordinarycourse of business, less the estimated costs of completion and selling expenses.The cost incurred in bringing inventories to its present location and condition is accounted using thefollowing cost formula:Input MaterialsType of InventoryGrowing Crop - NurseriesProduce StocksSpares and ConsumablesInventory items except finishedgoods and work-in-progressFinished goods andwork-in-progressMethod of ValuationAt total purchased cost using Weighted Average Cost Formula.At the cost of direct materials, direct labour and appropriateproportion of directly attributable overheads less provision for overgrownplants.Produce Stocks manufactured up to the Balance Sheet date and soldsince then, until the time of preparation of the Financial Statementsare valued at since realised price. The balance Produce Stocksare valued at estimated selling prices. The prices are net of allattributable expenses relating to the public auction.At purchase cost on weighted average basis.First-in-first out cost (FIFO)Factory cost which includes all direct expenditure and productionoverheads based on normal operating capacity.2.4.7 Timber Stocks and RubberThe accounting policies adopted for Timber and Rubber on plantations which is a consumablebiological asset, is stated at fair value less estimated point-of-sale-of-costs. The policy for revaluationis adopted based on the International Accounting Standard 41 - Agriculture, as there is noSri Lanka Accounting Standard on Timber and Rubber. Point-of sales-costs include all the costs thatwould be necessary to sell the assets, including costs necessary to get the assets to market.

92LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsThe plantation companies have engaged an Independent Chartered Valuation Surveyor Mr. K.T.D. Tisserain determining the fair value of Timber Stocks and Rubber. The valuer has valued the Timber Stocks andRubber per tree valuation basis by using available log and tree prices in city centres less point-of-salecosts.The plantation companys’ measured the Timber Stocks and Rubber as fair value less estimatedpoint-of-sale-costsas at each Balance Sheet date.2.4.8 Real Estate StocksReal estate stocks of the Group represent the purchase value of properties acquired for resale withbuy-back agreements, less repayments. Carrying value of the real estate stocks as at the BalanceSheet date represents the purchase value of properties and any subsequent expenditure incurred ondevelopment of such properties.2.4.9 Short-Term InvestmentsShort-term investment comprises of call deposits and interest earning demand deposits with banks.Call deposits and deposits with banks are stated at the amounts to be realised.2.4.10 Investments in Term DepositsTerm deposits are stated at principal amount plus interest accrued on a time proportionate basis.2.4.11 Investment Securities• Investment in Quoted SharesInvestments in quoted shares are stated at their respective market values on an aggregate portfoliobasis. The difference between cost and the market value is charged to the Income Statement.The quoted investments of the Browns Group are stated at the market value as at the Balance Sheet date.The excess on revaluation is credited to revaluation of investments in the statement of changes in equity.• Investment in Government SecuritiesInvestments in Government Treasury Bonds held to maturity are reflected at the value of the Bondspurchased and the discount/premium accrued thereon and carried at these values till their maturityin the Balance Sheet. Discount received/premium paid is taken to the Income Statement based on apattern reflecting a constant periodic rate of return.• Investment in Non-Quoted SharesInvestment in non-quoted shares are stated at cost of acquisition and adjusted for any fall in value,which are other than temporary.2.4.12 Trade ReceivablesTrade and other receivables are stated at the amounts they are estimated to realise, net of provisionsfor bad and doubtful receivables. A provision for doubtful debts is made when the debt exceeds 365days, and collection of the full amount is no longer probable. Bad debts are written-off when identified.

93LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements2.4.13 Other ReceivablesOther receivable balances are stated at estimated amounts receivable after providing for doubtfulreceivables.2.4.14 Intangible AssetsBasis of RecognitionAn Intangible Asset is recognised if it is probable that future economic benefits that are attributable tothe assets will flow to the entity and the cost of the assets can be measured reliably.Basis of MeasurementIntangible assets acquired separately are measured as initial recognition at cost. Following initialrecognition intangible assets are carried at cost less any accumulated amortisation and anyaccumulated impairment losses. The useful life of intangible assets is assessed to be either finiteor indefinite. Intangible assets with finite areas are amortised over the useful economic life andassessed for impairment whenever there is an indication that the intangible asset may be impaired.The amortisation period and the method for an intangible asset with a finite useful life is reviewed atleast at each financial year end. Intangible assets with indefinite useful lives are tested for impairmentannually either individually or at the cash generating unit level.Subsequent ExpenditureSubsequent expenditure on intangible assets is capitalised only when it increase the future economicbenefits embodied these assets. All other expenditure is expensed when incurred.DerecognitionIntangible assets are derecognised on disposal or when no future economic benefits are expected fromits use. The gain or loss arising from derecognition of intangible assets are measured as differencebetween the net disposal proceeds and the carrying amount of the asset and are recognised in theIncome Statement when the intangible assets are recognised.2.4.15 Investment PropertyBasis of RecognitionProperties held to earn rental income, and properties held for capital appreciation have been classifiedas investment property. Investment properties are initially recognised at cost.Basis of MeasurementCost Model - Lanka ORIX Leasing Company PLC and Lanka ORIX Finance Company Ltd.Investment properties are measured initially at cost, including transaction costs. The carrying amountincludes the cost of replacing part of an existing investment property at the time that cost is incurred ifthe recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property.

94LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsAfter initial recognition the Company measure all of its investment property in according withrequirements in SLAS 18 (Revised 2005) - Property, Plant and Equipment other than those meet thecriteria to be classified as held for sale.Fair value Model - Browns Group of CompaniesInvestment properties are initially recognised at cost. Subsequent to initial recognition the investmentproperties are stated at fair values, which reflect market conditions at the Balance Sheet date. Gainsor losses arising from changes in fair value are included in the Income Statement in the year in whichthey arise.Where Group companies occupy a significant portion of the investment property of a subsidiary, suchinvestment properties are treated as property, plant and equipment in the Consolidated FinancialStatements, and accounted for as per SLAS 18 (Revised) - Property, Plant and Equipment.DerecognitionInvestment properties are derecognised when either they have been disposed of or when theinvestment property is permanently withdrawn from use and no future economic benefit is expectedfrom its disposal. Any gains or losses on the retirement or disposal of an investment property arerecognised in the Income Statement in the year of retirement or disposal.Subsequent Transfers to/from Investment PropertyTransfers are made to investment property when, and only when, there is a change in use, evidencedby the end of owner occupation, commencement of an operating lease to another party or completionof construction or development. Transfers are made from investment property when, and only when,there is a change in use, evidenced by commencement of owner occupation or commencement ofdevelopment with a view to sale.For a transfer from investment property t o owner occupied property or inventories, the deemed costof property for subsequent accounting is its fair value at the date of change in use. If the propertyoccupied by the Company as an owner occupied property becomes an investment property, theCompany, accounts for such property in accordance with the policy stated under property, plant andequipment up to the date of change in use. For a transfer from inventories to investment property,any difference between the fair value of the property at that date and its previous carrying amount isrecognised in the Income Statement. When the Company completes the construction or developmentof a self-constructed investment property, any difference between the fair value of the property at thatdate and its previous carrying amount is recognised in the Income Statement.2.4.16 Property, Plant and Equipmenta. Basis of RecognitionProperty, plant and equipment are recognised if it is probable that future economic benefits associatedwith the asset will flow to the Group and cost of the asset can be reliably measured.

95LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statementsb. Basis of MeasurementItems of property, plant and equipment are measured at cost/revaluation less accumulateddepreciation/impairment losses.Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost ofself-constructed assets includes the cost of materials and direct labour, any other costs directlyattributable to bringing the asset to a working condition for its intended use, and the costs ofdismantling and removing the items and restoring the site on which they are located.When parts of an item of property, plant and equipment have different useful lives, they are accountedfor as separate items of property, plant and equipment.Gains and losses on disposal of an item of property, plant and equipment are determined by comparingthe proceeds from disposal with the carrying amount of property, plant and equipment and arerecognised net within ‘other income’ in profit or loss. When revalued assets are sold, the amountsincluded in the revaluation surplus reserve are transferred to retained earnings.Cost ModelThe Group applies the cost model to all property, plant and equipment except freehold land andrecords at cost of purchase together with any incidental expenses thereon less any accumulatedimpairment losses.Revaluation ModelA revaluation of property, plant and equipment of Browns Group of Companies are done after a reviewonce a year when there is a substantial distinction between the fair value (market value) and the bookvalue of the asset and is undertaken by professionally qualified valuers, Lanka ORIX Leasing CompanyPLC revalue its land and Commercial Leasing Company Ltd. revalue its land and building every at leastonce in three years.When an asset is revalued, any increase in the carrying amount is transferred to a revaluation reserve,unless it reverses a previous revaluation decrease relating to the same asset, which was recognised inthe Income Statement.c. Subsequent CostsThe cost of replacing part of an item of property, plant and equipment is recognised in the carryingamount of the item if it is probable that the future economic benefits embodied within the part willflow to the Group and its cost can be measured reliably. The carrying amount of the replaced part isderecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised inprofit or loss as incurred.

96LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statementsd. DepreciationDepreciation is provided from the date the asset is available for use up to the date it derecognises.The Company and its subsidiaries provide depreciation for the following assets on the straight linemethod over the estimated useful life stated below. Land is not depreciated.BuildingMotor VehiclesFurniture and FittingsOffice EquipmentComputer equipment40 Years4 Years5 Years5 Years5 YearsGal Oya Holdings (Pvt) Ltd., a joint venture company, depreciates computers over 4 years and officeequipment over 8 years.Sundaya Lanka (Pvt) Ltd., a subsidiary Company, depreciates motor vehicles over 5 years. Equipmentsand tools, furniture and fittings and computers are depreciated over 4 years.Browns Group of Companies depreciates Buildings over 40 years, plant and machinery over 10 years,motor vehicles over 04 years, loose tools and computers over 04 years, furniture fitting and officeequipment over 10 years.e. Operating Lease AssetsOperating lease assets are motor vehicles and equipments shown under property, plant andequipment in the Balance Sheet at cost less accumulated depreciation.Motor vehicles are depreciated net of cost and the estimated residual value over the effective usefullife. Residual value is the estimated net amount the Company would currently obtain from disposal ofthe assets at the end of useful life.f. Finance LeasesLeases in terms of which the Group assumes substantially all the risks and rewards of ownership areclassified as finance leases. Assets acquired by way of a finance lease are stated at an amount equalto the lower of their fair value and the present value of minimum lease payments at the inception lessaccumulated depreciation.Leasehold Rights to Bare Land of JEDB/SLSPC Estate Assets andImmovable (JEDB/SLSPC) Estates Assets on Finance LeaseLeasehold Rights to bare land of JEDB/SLSPC estate assets and immovable (JEDB/SLSPC) estatesassets on finance lease obtained on a long-term basis, are stated at the recorded carrying values as atthe effective date of Sri Lanka Accounting Standard No. 19 - Leases, in line with Ruling of the UrgentIssues Task Force of The Institute of Chartered Accountants of Sri Lanka. Such carrying amounts areamortised over the remaining lease term or useful life of such asset whichever is shorter.

97LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statementsg. Leasehold PropertyPrepaid lease rentals paid to acquire land use rights are amortised over the lease term in accordancewith the pattern of benefits provided. Leasehold properties are tested for impairment annually and arewritten down where applicable. The impairment loss, if any, is recognised in the Income Statement.h. Leasehold VehiclesLeasehold vehicles are assets obtained on finance leases facilities by the Company for the businessof hiring and shown under the property, plant and equipment in the Balance Sheet at cost lessaccumulated depreciation.These assets are depreciated net of cost and the estimated realisable value over the effective useful life.i. Leasehold MachineryLeasehold machineries are machinery and equipment shown under property, plant and equipmentin the Balance Sheet at cost less accumulated depreciation. Depreciation on leasehold machinery iscomputed over the lease period.j. Capital Work-in-ProgressCapital work-in-progress is stated at cost. These are expenses of a capital nature directly incurred in theconstruction of building.k. Mature Plantations (Re-planting and New Planting)Tea 33 1/3 years 3%Rubber 20 years 5%Coconut 50 years 2%Depreciation of an asset begins when it is available for use and ceases at the earlier of the datethat the asset is classified as held for sale and the date that the asset is derecognised. Depreciationmethods, useful lives values are assessed at the reporting date. Mature plantations are depreciatedover their useful lives or unexpired lease period, whichever is less. No depreciation is provided forimmature plantations and freehold land.l. AmortisationThe leasehold rights of assets taken over from JEDP/SLSPC are amortised in equal amounts over thelower of lease period and economic useful life.Depreciation rates used for the purpose are as follows:No. of YearsRate%Bare Land 53 1.89Mature Plantations 30 3.33Buildings 25 4.00Machinery 15 6.67Water and Sanitation 20 5.00Other Vested Assets 30 3.33

98LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statementsm. Restoration CostsExpenditure incurred on repairs or maintenance of property, plant and equipment in order to restore ormaintain the future economic benefits expected from originally assessed standard of performance isrecognised as an expense when incurred.n. DerecognitionAn item of property, plant and equipment is derecognised upon disposal or when no future economicbenefits are expected from its use or disposal. Any gain or loss arising on derecognition of an assetis calculated as the difference between the net disposal proceeds and the carrying amount. Gains orlosses on derecognition are recognised in Income Statement.o. Permanent Land Development CostsPermanent land development costs are those costs incurred making major infrastructure developmentand building new access roads on leasehold lands.These costs have been capitalised and amortised over the remaining lease period.p. Immature and Mature PlantationsThe total cost of land preparation, rehabilitation, new planting, re-planting, crop diversification, interplantingand fertilizing, etc., incurred between the time of planting and harvesting (When the plantedarea attains maturity) are classified as immature plantations.These immature plantations are shown at direct costs plus attributable overheads, including interestattributable to long-term loans used for financing immature plantations. Attributable overheads incurredon the plantation are apportioned based on the labour days spent on respective re-planting and newplanting and capitalised on the immature areas. The remaining non-attributable overhead is expensed inthe accounting period in which it is incurred.The expenditure incurred on perennial crop (Tea/Rubber/Coconut) fields, which come into bearing duringthe year, has been transferred to mature plantations and depreciated over their useful life period.q. Infilling CostsThe land development costs incurred in the form of infilling have been capitalised to the relevantmature field where infilling results in an increase in the economic life of the relevant field beyond itspreviously assessed standard of performance, in accordance with Sri Lanka Accounting Standard - 32and depreciated over the useful life at rates applicable to mature plantation. Infilling cost that are notcapitalised and charged to the Income Statement in the year in which they are incurred.

99LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statementsr. Impairment of AssetsThe Group assesses at each reporting date whether there is an indication that an asset may beimpaired. If any such indication exists, or when annual impairment testing for an asset is required,the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amountis the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in useand is determined for an individual asset, unless the asset does not generate cash inflows that arelargely independent of those from other assets or groups of assets. Where the carrying amount ofan asset exceeds its recoverable amount, the asset is considered impaired and is written down toits recoverable amount. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects current market assessments of thetime value of money and the risks specific to the asset. Impairment losses are recognised in theIncome Statement except for impairment losses in respect of property, plant and equipment which arerecognised against the revaluation reserve to the extent that it reverses a previous revaluation surplus.An assessment is made at each reporting date as to whether there is any indication that previouslyrecognised impairment losses may no longer exist or may have decreased. Previously recognisedimpairment losses other than in respect of goodwill, are reversed only if there has been an increase inthe recoverable amount of the asset. Such increase is recognised to the extent of the carrying amounthad no impairment losses been recognised previously.2.5 Foreign Currency TransactionsTransactions denominated in foreign currencies are converted into Rupees at the monthly averageexchange rate applicable for the transactions. Assets and liabilities denominated in foreign currenciesare converted into Rupees at the rate of exchange prevailing at the date of the Balance Sheet. Profit orloss arising on conversion is credited or debited to the Income Statement.2.6 Liabilities and ProvisionsLiabilities are recognised in the Balance Sheet when there is a present obligation as a result of a pastevent, the settlement of which is expected to result in an outflow of resources embodying economicbenefits. Obligations payable at the demand of the creditor or within one year of the Balance Sheetdate are treated as current liabilities in the Balance Sheet. Liabilities payable after one year from theBalance Sheet date are treated as non-current liabilities in the Balance Sheet.Provisions are made for all obligations existing as at the Balance Sheet date when it is probable thatsuch an obligation will result in an outflow of resources and a reliable estimate can be made of thequantum of the outflow. All contingent liabilities are disclosed as a note to the Financial Statementsunless the outflow of resources is remote. Contingent assets are disclosed, where inflow of economicbenefit is probable.2.6.1 Grants and SubsidiesGrants related to property, plant and equipment are initially deferred and allocated to IncomeStatement on a systematic basis over the useful life of the related property, plant and equipment.Grants related to assets, including non-monetary grants at fair value, are deferred in the BalanceSheet and credited to the Income Statement over the useful life of the related asset.

100LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsGrants related to income are recognised in the Income Statement in the period in which they arereceivable as stated below:No. of YearsRate%Building 40 2.5Plant and Machinery 13 1/3 7.5Equipment 08 12.5Roads 50 2.0Vehicles 05 20.0Grants related to assets, including non-monetary grants at fair value, are deferred in the BalanceSheet and credited to the Income Statement over the useful life of the related asset. Grants related toincome are recognised in the Income Statement in the period in which they are receivable2.6.2 Finance LeasesProperty and Equipment on finance leases, which effectively transfer to the Group substantially all ofthe risk and benefits incidental to ownership of the leased items, are disclosed as finance leases attheir cash price and depreciated over the period the Group is expected to benefit from the use of theleased assets.The corresponding principal amount payable to the lessor is shown as a liability. Lease payments areapportioned between the finance charges and reduction of the lease liability so as to achieve a constantrate of interest on the outstanding balance of the liability. The interest payable over the period of thelease is transferred to an interest in suspense account. The interest element of the rental obligationspertaining to each financial year is charged to the Income Statement over the period of lease.2.6.3 Income TaxIncome tax assets and liabilities for the current and prior periods are measured at the amount expectedto be recovered from or paid to the Commissioner General of Inland Revenue. The tax rates and taxlaws used to compute the amount are those that are enacted or substantively enacted as at the BalanceSheet date. Accordingly, provision for taxation is made on the basis of the profit for the year and adjustedfor the taxation purposes in accordance with provision of the Inland Revenue Act No. 10 of 2006 andamendments thereto. The rates used are specified in Note 12 to Financial Statements.Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted atthe Balance Sheet date and any adjustments to tax payable in respect of previous years.2.6.4 Deferred TaxationDeferred taxation is provided on the liability method for temporary differences between the carryingamount of assets and liabilities for financial reporting purposes and the amounts used for taxationpurposes. The amount of deferred tax provided is based on the expected manner of realisation orsettlement of the carrying amount of assets and liabilities.

101LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsA deferred tax asset is recognised for carried forward unused tax losses to the extent that it is probablethat future taxable profit will be available against which the asset can be utilised.The carrying amount of deferred tax asset is reviewed at each Balance Sheet date and reduce to theextent that is no longer probable that the related tax benefit will be realised. Unrecognised deferred taxasset in relation to deductible differences, unused tax credits and unused tax losses carried forwardare reassessed at each Balance Sheet date and recognised to the extent that has become probablethat future taxable profits will allow the deferred tax asset to be recovered.Deferred tax liabilities and assets are measured at the applicable tax rate prevailing in the year. Deferredtax asset and the liabilities in the same entity are set off in line with provision of prevailing tax laws.2.6.5 Securities Sold under Repurchase AgreementsThese are borrowings collateralised by sale of Treasury Bills and Treasury Bonds held by the Companyto the counterparty from whom the Company borrowed, subject to an agreement to repurchase them ata predetermined price. Such securities remain on the Balance Sheet of the Company and the liability isrecorded in respect of the consideration received. The difference between the sale and the purchase pricerepresents interest expense, which is recognised in the Income Statement evenly over the period of therepurchased agreement.2.6.6 Retirement Benefits - Defined Benefit Plan - GratuityThe Company measures the present value of the promised retirement benefits for gratuity, which isa defined benefit plan with the advice of an independent professional actuary once in three (3) yearsusing the Projected Unit Credit method (PUC) as required by Sri Lanka Accounting Standards No. 16 -Employee Benefits (Revised 2006).For the purpose of determining the charge for any period before the next regular actuarial valuation, anapproximate estimate provided by the qualified actuary is used.The item is stated under Defined Benefit Liability in the Balance Sheet.Recognition of Actuarial Gains and LossesActuarial gains or losses are recognised in the Income Statement in the period in which they arise.Recognition of Past Service CostPast service costs are recognised as an expense on a straight line basis over the average perioduntil the benefits become vested. If the benefits have already been vested, immediately following theintroduction of, or changes to the plan, past service costs are recognised immediately.Funding ArrangementsThe gratuity liability is not externally funded.

102LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsThe assumptions based on which the results of the actuarial valuation was determined, are includedin Note 32 to the Financial Statements. However, according to the Payment of Gratuity Act No. 12 of1983, the liability for the gratuity payment to an employee arises only on the completion of 5 years ofcontinued service with the Company.2.6.7 Defined Contribution Plan - EPF and ETFAll employees of the Company are members of the Employees’ Provident Fund (EPF) and Employees’Trust Fund (ETF), to which the Company contributes 12% and 3% of employee salaries respectively andcharged against the profits.2.6.8 Swap InstrumentsGroup in its ordinary course of business enter into transactions such as currency swaps and foreignexchange contracts and uses derivative instruments to manage exposure to currency risks. In orderto account for such transactions, the Group applies hedging accounting principles based on bestaccounting practices.Currency swaps are recognised as off Balance Sheet Assets or Liabilities. The Group’s commitment forthe contracted period is converted to Sri Lankan Rupees based on the exchange rate agreed.2.7 Income Statement2.7.1 Gross RevenueIncome represents the gross income receivable for the year on all performing contracts, rentalson operating leases, income on factoring debtors, commission earned on insurance premiums,brokerage on share transactions and fees for IT services provided. It also includes all income relatedto operations such as interest on overdue rentals, profit/loss on leases and loans terminated andcollections on contracts written-off. Revenue consist of results from treading activities. Other Incomesuch as interest on treasury bonds, profit on sale of property, plant and equipment, dividend income,gain on share revaluation etc also included in the gross revenue.2.7.2 Revenue RecognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to theGroup, and the revenue and associated costs incurred or to be incurred can be reliably measured.Revenue is measured at the fair value of the consideration received or receivable, net of tradediscounts and value added taxes, net of sales within the Group.2.7.3 Earned Income on Leases, Hire Purchases, Loans and AdvancesThe Group follows the financing method of accounting for its income. The excess of aggregatedcontract receivable over the cost of the assets constitutes the total unearned income at thecommencement of a contract.

103LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsThe unearned income is recognised over the term of the facility commencing on the month on which thefacility is executed in proportion to the declining receivable balance, so as to produce a constant periodicrate of return on the net investment outstanding.Non-performing loans are those facilities where the rentals are overdue for 6 months and over. Incomeaccrued is suspended from the date a facility is classified as non-performing and credited to the‘Earned Income in Suspense’ in compliance with Direction No. 05 of 2005 of the Finance Leasing ActNo. 56 of 2000 and Direction No. 15 of 1991 of the Finance Companies Act No. 78 of 1988. Thereafter,such income is recognised on cash basis.Profit or loss on contracts terminated, collections on contracts written-off, interest on overdue rentals,interest on revolving loans, interest earned on property sale and buy back agreements, interest income onpawn broking are accounted for on cash basis.2.7.4 FactoringRevenue is derived from two sources, Funding and providing Sales Ledger Related Services.Funding - Discount income relating to factoring transactions is recognised at the end of a givenaccounting month. In computing this discount, a fixed rate agreed upon at the commencement of thefactoring agreement is applied on the daily balance in the Client’s Current Account.Sales Ledger Related Services - A service charge is levied as stipulated in the Factoring Agreement.Income is accounted for on an accrual basis and deemed earned on disbursement of advances forinvoices factored, except where the account is classified as non-performing.Income is suspended on the basis of, If 100% of the sales ledger is disputed and there are notransactions for a period of 3 months from the last date of dispute.2.7.5 Insurance BrokeringIncome from commission on insurance premiums is accounted for on premium collection basis.2.7.6 IT Service FeeIT services fee is accounted for on an accrual basis.2.7.7 Turnover from Sale of Solar SystemsSundaya Lanka (Pvt) Ltd., earns revenue from sale of solar systems and it’s accounted on an accrual basis.

104LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements2.7.8 Sale of GoodsRevenue from sale of goods is recognised when the significant risks and rewards of ownership of thegoods have passed to buyer; with the Company retaining neither continuing managerial involvement tothe degree usually associated with ownership, nor effective control over the goods sold.2.7.9 Revenue from Rendering of Other ServicesRevenue from rendering of services is recognised in the accounting period in which the services arerendered or performed.2.7.10 Treasury Bond IncomeDiscount/premium on Treasury Bills/Bonds are amortised over the period to reflect a constant periodicrate of return. The coupon interest on treasury bonds is recognised on an accrual basis.2.7.11 Other IncomeRent income, non-operational interest income and foreign exchange gains are accounted for onaccrual basis.Dividend income is recognised when the right to receive payment is established.Profit on sales of property, plant and equipment and other non-current assets, including investmentsheld by the Group have been accounted for in the Income Statement, after deducting from the netsales proceeds on disposal of the carring amount of such assets.2.7.12 ExpensesAll expenditure incurred in the running of the business has been charged to income in arriving at theprofit for the year.Preliminary and pre-operational expenditure is recognised in the Income Statement.Repairs and renewals are charged to the Income Statement in the year in which the expenditure isincurred.2.7.13 The Group Profits are Stated After:a. Providing for all bad and doubtful debts and depreciation of property, plant and equipment.b. Charging all expenses incurred in the day-to-day operations of the business and in maintaining theproperty, plant and equipment in a state of efficiency.

105LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements2.7.14 Borrowing CostsBorrowing costs are recognised as expenditure in the period in which they are incurred. However,borrowing costs that are directly attributable to the acquisition, construction or production of qualifyingassets that take a substantial period of time to get ready for its intended use or sale, are capitalised aspart of the assets. During the year no borrowing cost has been capitalised.2.8 Movement of ReservesMovement of reserves is disclosed in the Statements of Changes in Equity.2.9 Cash Flow StatementsThe Cash Flow Statements are prepared using the indirect method as stipulated in SLAS 9 - Cash FlowStatements, Cash and Cash Equivalents for Cash Flow Statements comprise mainly of cash in hand,balances at banks and bank overdraft.2.10 Related Party TransactionsTransactions with related parties are conducted on normal business terms. The relevant disclosuresare given in Note 46 to the Financial Statements.2.11 Segmental ReportingSegment is a distinguishable component of the Group that is engaged either in providing productsor services (business segment), or in providing products or services within a particular economicenvironment (geographical segment), which is subject to risks and rewards that are different fromthose of other segments.In accordance with the Sri Lanka Accounting Standard 28 on segment reporting, segmental informationis presented in respect of the Group. The segment comprises of financial services, insurance broking, ITservices, Trading, Leisure, Plantation, Power and Energy and others are described in Note 42.Segment results, assets and liabilities include items directly attributable to a segment as well as thosethat can be allocated on a reasonable basis.Segment capital expenditure is the total cost incurred during the period to acquire segment assetsthat are expected to be used for more than one period.2.12 Events after the Balance Sheet DateAll material post Balance Sheet events have been considered and where appropriate adjustments ordisclosures have been made in the respective Notes to the Financial Statements2.13 Capital Commitments and ContingenciesCapital commitments and contingent liabilities of the Group are disclosed in the respective Notes tothe Financial Statements.

106LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsGroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)3. Gross RevenueRevenue 3,571,367,173 3,495,606,802 1,199,918,890 3,495,606,802Income 9,941,904,483 9,843,453,815 4,552,414,083 6,123,778,012Other income 1,388,560,107 282,660,615 1,022,138,022 71,444,885Total 14,901,831,763 13,621,721,232 6,774,470,995 9,690,829,699Revenue 3,571,367,173 3,495,606,802 1,199,918,890 3,495,606,802Less: cost of sales (2,869,272,589) (2,993,076,288) (1,029,853,463) (2,993,076,288)Gross profit 702,094,584 502,530,514 170,065,427 502,530,5144. IncomeLeasing interest income 1,900,224,642 2,271,869,419 674,445,440 1,389,300,901Hire purchases interest income 2,441,201,653 2,345,112,502 468,003,296 941,003,160Advances and other loans interest income 2,741,044,079 2,715,191,638 1,426,850,929 2,119,074,193Deferred instalment income 394,051,007 175,777,795 393,983,916 175,777,795Operating lease and hire rental income 787,258,857 653,255,496 745,017,188 611,411,113Overdue interest income 559,505,588 488,791,526 293,725,481 252,073,633Debt factoring income 666,149,697 604,072,617 361,372,580 389,144,239Insurance broking income 128,366,316 147,116,705 5,064,566 3,086,090Securities trading and others 9,319,949 161,275,475 – –IT consultancy fees 96,000,000 92,024,245 – –Other operational income 314,782,695 276,627,872 183,950,687 242,906,88810,037,904,483 9,931,115,290 4,552,414,083 6,123,778,012Inter-company income (96,000,000) (87,661,475) – –Total 9,941,904,483 9,843,453,815 4,552,414,083 6,123,778,012

107LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsGroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)5. Other Income/(Expenses)5.1 Other IncomeRent income 4,969,047 629,200 – –Profit on sale of property, plant and equipment 54,432,364 16,115,261 10,271,603 9,468,008Sales proceeds received in excess on re-finance 2,534,609 2,534,608 2,534,609 2,534,609Profit on sale of vehicles 1,192,218 58,027 – –Dividends received 45,017,509 1,962,757 24,469,270 28,159,560Interest received from treasury bills,bonds and call deposits 822,791,377 228,163,308 274,165,872 7,723,376Debenture interest income – 583,148 97,343,931 583,148Royalty income – – 16,073,626 31,631,927Foreign exchange gain/(loss) (4,975,337) 54,215,752 935,243 54,376,893Capital gain on sale of treasury bonds 31,239,182 25,196,300 31,239,182 25,196,300Reversal of provision for fall in valueof investments and others 24,273 721,656 – –Appreciation in market value of quoted investments 97,849,681 – 71,115,335 –Profit on sale of quoted and non-quoted shares 132,114,495 – 141,528,621 –Sundry income 171,436,479 132,756,448 322,991,138 90,344,343Franchise fees 29,469,592 – 29,469,592 –Amortisation of capital grants 464,618 – – –Other expenses (Note 5.2) – (180,275,850) – (178,573,279)Total 1,388,560,107 282,660,615 1,022,138,022 71,444,8855.2 Other ExpensesFall in market value of quoted andnon-quoted shares – 143,260,527 – 143,260,527Loss on sale of quoted and non-quoted shares – 8,210,702 – 6,630,021Provision for fall in value for investment – 28,804,621 – 28,682,731Total – 180,275,850 – 178,573,2796. Net Interest CostsOverdraft and other short-term borrowings 2,697,108,769 2,491,243,296 946,545,416 1,926,769,466Long–term borrowings 1,795,098,463 2,811,988,605 1,779,481,116 1,988,537,258Finance lease interest 83,932,598 142,192,717 76,250,839 142,030,706Debenture interest 14,622,369 – – –Charges on SWAPS 422,403,295 322,506,732 351,770,678 319,392,075Interest on customer deposits 1,237,515,545 844,505,878 – –6,250,681,039 6,612,437,228 3,154,048,049 4,376,729,505Less: Interest income on US$ and EURO deposits (72,544,502) (171,255,775) (63,135,792) (171,255,775)Total 6,178,136,537 6,441,181,453 3,090,912,257 4,205,473,730

108LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements7. Direct Expenses Excluding net Interest CostsGroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Value Added Tax (VAT) on leases/general expensesand VAT on financial services 313,321,617 240,622,790 99,571,726 110,610,371Business Turnover Tax (BTT), debits tax and others 228,884,882 257,119,510 126,450,296 204,310,873Total 542,206,499 497,742,300 226,022,022 314,921,244GroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)8. Staff CostsSalaries and other benefits 828,650,508 662,852,370 193,943,773 316,751,852Defined contribution to EPF 54,053,745 45,243,316 32,878,975 26,644,180Defined contribution to ETF 13,521,307 11,310,829 8,219,743 6,661,045Provision for retiring gratuity 25,125,609 8,146,452 9,752,577 9,235,879Total 921,351,169 727,552,967 244,795,068 359,292,9569. Other Operating ExpensesAdministration cost 642,832,681 577,781,940 324,695,891 305,153,440Operating and marketing cost 755,996,676 385,642,762 330,700,338 304,779,009Specific provisions reversals (204,460,137) (95,446,932) (198,735,291) (79,330,545)Specific bad debts written-off 373,400,758 119,314,630 198,814,876 94,963,586Other provisions 56,914,259 – – –Total 1,624,684,237 987,292,400 655,475,814 625,565,49010. Results from Operating ActivitiesResults from operating activities are stated after charging all expenses including following:GroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Auditors’ remuneration and expenses:Audit related 8,633,539 3,785,498 2,012,500 1,975,000Non-audit related 650,912 393,360 277,222 373,690Legal expenses 41,069,193 25,341,687 9,604,756 12,912,490Donations 12,502,810 784,858 288,915 546,125Provision for impairment ofinvestment in subsidiary – – 32,059,248 –

109LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsGroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)11. Negative GoodwillOn acquisition of subsidiaries 225,163,247 – – –On investment in Seylan Bank PLC and other associates 1,198,673,687 – – –Total 1,423,836,934 – – –12. TaxationAll Group Company operations were taxed at the rate of 35% during the year except LOIT which was taxed at 10%.12.1 Major component of income tax expense for the years ended 31st March are as follows:GroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Current income taxCurrent income tax charge 255,416,695 172,939,233 55,659,614 48,799,380Under/(over) provision of current taxes inrespect of prior years (12,648,971) 4,812,935 – 4,812,935Deferred income taxDeferred Taxation Charge/(Reversal) (Note 12.3) 212,614,182 14,370,236 108,527,261 22,919,697Income tax expense reported in the income statement 455,381,906 192,122,404 164,186,875 76,532,01212.2 A reconciliation between tax expense and the product of accounting profit multiplied by the statutory tax rate is as follows:GroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Accounting profit before income tax 2,840,787,141 1,247,298,933 491,127,505 581,533,443Income tax expense at the statutoryincome tax rate of 35% 994,275,500 436,554,626 171,894,626 203,536,705Tax effect of other allowable credits (2,992,835,329) (2,709,080,995) (1,538,913,498) (1,690,746,010)Tax effect on losses claimed (29,527,648) (24,376,511) (29,527,646) (24,376,511)Non-deductible expenses 2,479,638,133 2,486,200,990 1,559,910,837 1,587,369,417Social Responsibility Levy 1.5% 3,831,250 2,824,294 822,556 748,411Income tax expense 455,381,906 192,122,404 164,186,875 76,532,012Effective income tax rate of the Company for the year 33% (2009 - 13%).Social Responsibility Levy 1.5% of tax.

110LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements12.3 Deferred Tax ExpenseDeferred tax assets, liabilities and income tax relate to the following:GroupCompanyINCOME STATEMENT Liability Asset NetAsset Asset2010 2010 201020092010 2009Deferred Tax Liability(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)Capital allowances for tax purpose onproperty, plant and equipment 602,384 – 602,384 (19,395,775) 3,602,939 (12,250,106)Capital allowances for tax purposes onlease receivables 91,505,485 78,671,515 170,177,000 (34,078,711) 79,416,719 (34,823,915)Operating lease assets – 46,421,121 46,421,121 16,920,806 46,421,121 16,920,806Deferred Tax Assets92,107,869 125,092,636 217,200,505 (36,553,680) 129,440,779 (30,153,215)Defined benefit Plans 1,049,868 64,442,769 65,492,637 (53,906,633) 63,655,354 (54,696,755)Capital allowances for tax purposes onproperty, plant and equipment – 330,281,199 330,281,199 – (234,611) –Brought forward tax losses – (30,886,521) (30,886,521) (25,787,451) (29,527,647) (27,146,325)Unamortised VAT – (12,979,578) (12,979,578) 28,770,168 (12,979,578) 28,770,1681,049,868 350,857,869 351,907,737 (50,923,916) 20,913,518 (53,072,912)Net expense 91,058,001 (225,765,233) (134,707,232) 14,370,236 108,527,261 22,919,697On acquisition (1,380,000) 348,701,414 347,321,414 – – –Deferred tax expenses 89,678,001 122,936,182 212,614,182 14,370,236 108,527,261 22,919,69713. Earnings per ShareThe calculation of basic earnings per share is based on the profit attributable to ordinary shareholders and the weighted averagenumber of ordinary shares outstanding during the year.The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders and the weighted averagenumber of ordinary shares outstanding after adjusting for the effect of all potentially dilutive ordinary shares. There were nopotentially dilutive ordinary shares outstanding at any time during the year/pervious year.

111LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsBasic earnings per share are calculated as follows:Group2010 2009Profit attributable to ordinary shareholders for the year (Rs.) 1,841,808,956 1,054,153,622Weighted average numbers of ordinary shares outstanding 47,520,000 47,520,000Basic/diluted earnings per share (Rs.) 38.76 22.1814. Dividend per shareDeclared and paid during the year 2010 2009The dividend per share is based on the dividend paid for the period covered bythe Financial StatementsDividend paid (Rs.) – 134,718,375Number of ordinary shares in issue 47,520,000 47,520,000Dividend per share (Rs.) – 2.83Group15. Cash and Cash Equivalents15.1 Cash in Hand and Favourable Bank BalancesGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Cash in hand 10,399,215 3,275,045 1,279,370 1,116,991Balances at banks 2,072,594,522 1,829,290,249 419,007,096 551,801,801Total 2,082,993,737 1,832,565,294 420,286,466 552,918,79215.2 Unfavourable Bank BalancesBank overdrafts (2,987,337,668) (2,750,579,613) (1,351,271,657) (1,909,632,293)Net cash and cash equivalents (904,343,931) (918,014,319) (930,985,191) (1,356,713,501)

112LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements16. Investment SecuritiesGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Investment in debentures 29,602,301 29,609,408 715,402,301 29,609,408Investment in Mudarabah deposit – – 35,000,000 75,000,000Investment in Repurchase Agreements 3,100,000 3,100,000 3,100,000 8,100,000Investment in Government bonds 7,957,538,601 – 3,739,032,747 –Quoted ordinary shares (Note 16.1 ) 3,620,262,986 180,889,296 225,304,982 178,326,395Non-quoted ordinary shares (Note 16.2) 332,457 182,500 – –Acquired properties – 3,930,482 – 3,930,482Total 11,610,836,345 217,711,686 4,717,840,030 294,966,285The market value of these Government bonds as at 31 March 2010 amounts to Rs. 3,800,509,587/- for the Company andRs. 8.134,743,504/- for the Group.16.1 Quoted Ordinary SharesGroupNo. of 2010 2010 No. of 2009 2009Shares Cost Market Value Shares Cost Market Value(Rs.) (Rs.) (Rs.) (Rs.)Asian Hotels Corporation PLC 5,000 139,425 657,500 5,000 139,425 123,750Asian Hotel Properties PLC 300 9,150 39,450 300 9,150 7,425Brown & Company PLC – – – 1,676,600 61,274,065 30,178,800Browns Beach Hotels PLC 154,771 4,212,660 11,220,898 – – –Cargo Boat Development Company PLC 300 9,800 24,000 – – –Central Finance Company PLC 166 22,472 64,740 166 22,472 26,062Ceylon Guardian Investment Trust PLC 3,360 1,685,040 1,685,040 – – –Ceylon Theatres PLC 160,000 9,668,988 8,640,000 – – –Chemical Industries (Colombo) PLC – – – 40 1,679 820Colombo Drydocks PLC 8,820 184,548 2,485,035 8,400 184,548 480,900Confifi Hotels Holding PLC 1,000 186,443 190,000 – – –DFCC Bank 99 20,028 17,870 66 20,028 4,488Dialog Telecom PLC 9,000 274,491 60,750 9,000 274,491 54,216Hatton National Bank PLC 17,887,110 146,349,102 3,367,248,458 – – –HDFC Bank 48,400 8,013,361 6,921,200 48,400 8,013,236 2,456,300Hotel Developers (Lanka) PLC 20,000 2,418,022 2,405,000 – – –John Keells Holdings PLC 42,966 405,000 7,905,744 – – –Lanka IOC PLC 10,000 270,000 182,500 10,000 270,000 160,000Lanka Ventures PLC 10,000 96,168 177,500 10,000 96,168 57,500Maskeliya Plantations PLC 250,000 7,965,006 7,437,500 – – –Nawaloka Hospitals PLC 3,500,000 13,200,934 12,250,000 – – –Nuwara Eliya Hotel Corporation PLC 1,000 456,413 405,500 – – –Overseas Reality Ceylon PLC 113,680 1,664,891 1,762,040 113,680 1,664,891 881,020Peoples' Merchant Bank PLC 7,568,279 201,319,134 177,854,556 4,982,953 152,081,734 145,751,375

113LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsNo. of 2010 2010 No. of 2009 2009Shares Cost Market Value Shares Cost Market Value(Rs.) (Rs.) (Rs.) (Rs.)Richard Pieris and Company PLC 30,000 1,609,653 1,650,000 – – –Royal Ceramics (Lanka) PLC 11,000 300,000 1,243,000 11,000 300,000 302,500Seylan Bank PLC – – – 72,400 1,104,210 398,200Sierra Cables PLC 5,400 16,200 11,880 5,400 16,200 5,940Sunshine Holdings PLC 10,000 3,395,264 3,250,000 – – –Touchwood Investments PLC 42,700 3,552,741 4,472,825 – – –Veyangoda Textiles Mills Ltd. 10,300 262,060 – 10,300 262,060 –Total 407,706,994 3,620,262,986 225,734,357 180,889,296Less: Provision for fall in market valueBalance as at 1 April 44,845,061 (129,005,031)On acquisition of subsidiaries (2,947,590,824) –Provision/(Reversal) made during the year (309,810,229) 173,850,092Balance as at 31 March (3,212,555,992) 44,845,061Carrying value at the end of the year 3,620,262,986 3,620,262,986 180,889,296 180,889,296CompanyNo. of 2010 2010 No. of 2009 2009Shares Cost Market Value Shares Cost Market Value(Rs.) (Rs.) (Rs.) (Rs.)Brown & Company PLC – – – 1,676,600 61,274,065 30,178,800Ceylon Theatres PLC 160,000 9,668,988 8,640,000 – – –Chemical Industries (Colombo) PLC – – – 40 1,679 820Confifi Hotels Holdings PLC 1,000 186,443 190,000 – – –HDFC Bank 47,200 7,749,361 6,749,600 47,200 7,749,236 2,395,400Hotel Developers (Lanka) PLC 20,000 2,418,022 2,405,000 – – –Maskeliya Plantations PLC 250,000 7,965,006 7,437,500 – – –Nawaloka Hospitals PLC 3,500,000 13,200,934 12,250,000 – – –Nuwara Eliya Hotel Corporation PLC 1,000 456,413 405,500 – – –Pepoles' Merchant Bank PLC 7,568,279 201,319,134 177,854,557 4,982,953 152,081,734 145,751,375Richard Pieris and Company PLC 30,000 1,609,653 1,650,000 – – –Sunshine Holdings PLC 10,000 3,395,264 3,250,000 – – –Touchwood Investments PLC 42,700 3,552,741 4,472,825 – – –Veyangoda Textiles Mills Ltd. 10,300 262,060 – 10,300 262,060 –251,784,019 225,304,982 221,368,774 178,326,395Less: Provision for fall in market valueBalance as at 01 April 43,042,379 (128,899,215)Provision/(reversal) made during the year (16,563,342) 171,941,594Balance as at 31 March 26,479,037 43,042,379Carrying value at the end of the year 225,304,982 225,304,982 178,326,395 178,326,395

114LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements16.2 Non-Quoted Ordinary SharesGroupNo. of 2010 No. of 2009Shares Cost Shares Cost(Rs.) (Rs. )Indo Lanka Steel Ltd. 200,000 6,000,000 200,000 6,000,000Lanka Glass Manufacturing Ltd. 3,000,000 3,000,000 3,000,000 3,000,000Magpek Exports Ltd. 25,000 1,000,000 25,000 1,000,000Equity Investments Lanka Ltd. 17,250 172,500 17,250 172,500Credit Information Bureau 100 10,000 100 10,000Hotel Hanthana Ltd. 190,000 1,000 – –Sri Lanka Distilleries Ltd. 338 22,545 – –Ceylon Studios Ltd. 500 5,000 – –Malwaththavelly Plantation 500 11,412 – –Browns Hotels Ltd. 11,000 110,000 – –Total 10,332,457 10,182,500Less: Provision for fall in market valueBalance as at 01 April (10,000,000) (10,000,000)Provision/(reversal) made during the year – –Balance as at 31 March (10,000,000) (10,000,000)Carrying value at the end of the year 332,457 182,500CompanyNo. of 2010 No. of 2009Shares Cost Shares Cost(Rs.) (Rs. )Indo Lanka Steel Ltd. 200,000 6,000,000 200,000 6,000,000Lanka Glass Manufacturing Ltd. 3,000,000 3,000,000 3,000,000 3,000,000Magpek Exports Ltd. 25,000 1,000,000 25,000 1,000,000Total cost of non-quoted ordinary shares 10,000,000 10,000,000Less: Provision for fall in market valueBalance as at 01 April (10,000,000) (10,000,000)Provision/(reversal) made during the year – –Balance as at 31 March (10,000,000) (10,000,000)Carrying value at the end of the year – –

115LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements17. Rentals Receivable on Lease Assets,Hire Purchase and OthersGroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)17.1 Rentals Receivableon Leased AssetsReceivable from one to five yearsRentals receivable 5,687,626,038 7,033,321,755 1,473,793,528 3,040,309,142Unearned income (1,291,391,030) (1,782,112,960) (167,169,878) (818,983,990)Provision for doubtful debts (32,126,156) (45,455,158) (6,188,212) (17,508,882)Deposits received from lessees (609,141,454) (836,136,584) (76,184,550) (101,416,490)Receivables within one year3,754,967,398 4,369,617,053 1,224,250,888 2,102,399,780Rentals receivable 5,337,135,991 5,257,788,219 1,401,259,681 2,375,360,418Unearned income (1,470,311,752) (1,271,096,051) (400,820,375) (558,648,799)Provision for doubtful debts (27,333,529) (108,142,914) (6,560,954) (9,427,859)Overdue rental receivable3,839,490,710 3,878,549,254 993,878,352 1,807,283,760Rentals receivable 487,635,679 233,828,953 189,555,085 157,158,888Earned income in suspense (76,672,764) (28,371,897) (14,280,935) (17,584,716)Provision for doubtful debts (279,809,192) (103,833,220) (140,649,648) (58,240,063)Total131,153,723 101,623,836 34,624,502 81,334,109Rentals receivable 11,512,397,708 12,524,938,927 3,064,608,294 5,572,828,448Unearned income (2,761,702,782) (3,053,209,011) (567,990,253) (1,377,632,789)Earned income in suspense (76,672,764) (28,371,897) (14,280,935) (17,584,716)Provision for doubtful debts (339,268,877) (257,431,292) (153,398,814) (85,176,804)Deposits received from lessees (609,141,454) (836,136,584) (76,184,550) (101,416,490)Balance as at 31 March 7,725,611,831 8,349,790,143 2,252,753,742 3,991,017,649

116LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsGroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)17.2 Rentals Receivableon Hire PurchaseReceivable from one to five yearsRentals receivable 8,581,920,667 7,376,974,912 465,445,432 1,674,846,119Unearned income (2,292,075,296) (2,226,598,560) (64,146,326) (531,292,607)Provision for doubtful debts (71,474,449) (69,537,727) (3,322,615) (15,064,663)6,218,370,922 5,080,838,625 397,976,491 1,128,488,849Receivables within one yearRentals receivable 5,143,461,183 5,272,661,685 872,546,073 1,641,222,104Unearned income (1,600,928,908) (1,546,708,708) (200,514,386) (335,681,264)Provision for doubtful debts (30,669,372) (50,348,180) (6,837,190) (8,111,742)3,511,862,903 3,675,604,797 665,194,497 1,297,429,098Overdue rental receivableRentals receivable 520,889,164 125,155,720 122,897,873 101,099,828Earned income in suspense (29,759,954) (27,081,822) (13,010,402) (22,946,011)Provision for doubtful debts (148,921,418) (44,357,041) (76,892,260) (30,449,798)342,207,792 53,716,857 32,995,211 47,704,019TotalRentals receivable 14,246,271,014 12,774,792,317 1,460,889,378 3,417,168,051Unearned income (3,893,004,204) (3,773,307,268) (264,660,712) (866,973,871)Earned income in suspense (29,759,954) (27,081,822) (13,010,402) (22,946,011)Provision for doubtful debts (251,065,239) (164,242,948) (87,052,065) (53,626,203)Balance as at 31 March 10,072,441,617 8,810,160,279 1,096,166,199 2,473,621,96617.3 Rentals Receivableon Operating LeasesTotalRentals receivable 3,598,355,475 2,808,856,604 3,598,355,475 2,808,856,604Unearned income (3,513,463,634) (2,731,879,510) (3,513,463,634) (2,731,879,510)Earned income in suspense (51,247,311) (43,697,025) (51,247,311) (43,697,025)Provision for doubtful debts – – – –Balance as at 31 March 33,644,530 33,280,069 33,644,530 33,280,069

117LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements17.4 Total Rentals Receivable on Leased Assets, Hire Purchase,Operating Leases and OthersGroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Rentals receivable 29,357,024,197 28,108,587,848 8,123,853,147 11,798,853,103Unearned income (10,168,170,620) (9,558,395,789) (4,346,114,599) (4,976,486,170)Earned income in suspense (157,680,028) (99,150,744) (78,538,648) (84,227,751)Provision for doubtful debts (Note 17.5) (590,334,116) (421,674,240) (240,450,879) (138,803,008)Deposits received from lessees (609,141,454) (836,136,584) (76,184,550) (101,416,490)Balance as at 31 March 17,831,697,978 17,193,230,491 3,382,564,471 6,497,919,684GroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)17.5 Provision forDoubtful DebtsBalance as at 01 April 421,674,240 127,707,926 138,803,008 82,710,626Provisions made during the year- Charged against profits 344,371,085 304,280,005 273,072,269 66,406,073- Written off during the year (175,711,209) (10,313,691) (171,424,398) (10,313,691)Balance as at 31 March 590,334,116 421,674,240 240,450,879 138,803,00818. Advances and Other LoansGroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Rentals receivable on loansto customers 12,654,464,491 10,046,681,545 4,760,131,556 6,899,560,019Capital outstanding of revolving loans 1,041,381,552 2,146,110,751 1,041,381,552 2,034,132,649Advances for margin trading 8,844,514 51,070,162 – –Factoring receivable (Note 18.1) 3,001,770,480 1,897,170,734 1,564,991,242 1,138,142,223Pawning advances 480,400,218 303,609,306 – –Receivables under TextileDebt Recovery Fund scheme – 7,202,445 – 7,202,445Overdue loan instalments 860,358,894 408,200,785 594,951,501 357,285,466Earned income in suspense (232,501,379) (101,879,843) (154,162,990) (62,937,947)Unearned loan income (2,756,699,171) (2,048,555,764) (1,068,987,201) (1,604,527,480)Provision for doubtful debts (Note 18.2) (291,963,558) (159,799,477) (159,428,465) (98,469,436)Total 14,766,056,041 12,549,810,644 6,578,877,195 8,670,387,939

118LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsGroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)18.1 Factoring ReceivableFactoring receivable 3,125,216,040 2,001,992,712 1,669,375,335 1,230,232,772Transferred from retained earnings tofactoring receivable – (30,000,000) – (30,000,000)Provision for doutful debts (123,445,560) (74,821,978) (104,384,093) (62,090,549)Total 3,001,770,480 1,897,170,734 1,564,991,242 1,138,142,223Provision for Doubtful Debts - FactoringBalance as at 01 April 74,821,978 62,382,274 62,090,549 50,740,401Provisions made during the year- Charged against profits 48,623,582 12,439,704 42,293,544 11,350,148- Written-off during the year – – – –Balance as at 31 March 123,445,560 74,821,978 104,384,093 62,090,54918.2 Provision forDoubtful DebtsBalance as at 01 April 159,799,477 46,257,876 98,469,436 33,505,000Provisions made during the year- Charged against profits 159,474,974 182,558,455 88,269,922 133,981,290- Written-off during the year (27,310,893) (69,016,854) (27,310,893) (69,016,854)Total 291,963,558 159,799,477 159,428,465 98,469,43619. Instalment SalesRentals receivable on loans tocustomers 3,048,028,907 4,088,071,115 3,048,028,907 4,088,071,115Overdue loan instalments 71,505,657 18,849,222 71,505,657 18,849,222Earned income in suspense (10,007,460) (945,822) (10,007,460) (945,822)Unearned loan income (896,908,631) (1,150,471,368) (896,908,631) (1,150,471,368)Provision for doubtful debts (Note 19.1) (44,193,705) (551,338) (44,193,705) (551,338)Total 2,168,424,768 2,954,951,809 2,168,424,768 2,954,951,809

119LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements19.1 Provision for Doubtful DebtsGroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Balance as at 01 April 551,338 – 551,338 –Provisions made during the year- Charged against profits 43,642,367 551,338 43,642,367 551,338- Written-off during the year – – – –Total 44,193,705 551,338 44,193,705 551,33820. InventoriesGroupCompanyFor the year ended 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Raw materials 12,394,209 – – –Work-in-progress 32,473,462 – – –Finished goods 847,497,853 – – –Input materials 40,463,170 – – –Growing crop nurseries 9,664,456 – – –Harvested crop- Tea 150,031,402 – – –- Rubber 20,266,260 – – –- Coconut 774,789 – – –Consumables and spares 20,058,252 – – –Tractor stock, solar panels and others 196,924,834 19,572,061 9,414,705 –Goods in transit 34,856,984 – – –1,365,405,671 19,572,061 9,414,705 –Less: Provision for slow moving stocks (113,886,069) – – –Total 1,251,519,602 19,572,061 9,414,705 –

120LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)21. Trade and OtherCurrent AssetsInsurance commission receivable 63,946,190 83,246,009 – –Securities clients/ brokers receivable 3,367,850 195,038,400 – –Amount due from subsidiaries – – 2,688,094,700 2,458,757,367Finance charges unamortised 176,513,013 216,032,317 176,513,013 216,032,318Trade receivables 1,117,816,460 – – –Other accounts receivables 2,874,691,950 1,540,694,317 659,203,483 902,205,751Value Added Tax (VAT) refunds duefrom Department of Inland Revenue 3,804,526 24,502,930 – 5,425Advanced Corporate Tax (ACT) recoverable 8,317,153 – – –Economic Service Charge (ESC)recoverable 93,505,221 60,375,002 93,234,221 60,000,000Total 4,341,962,363 2,119,888,975 3,617,045,417 3,637,000,861Above receivables are shown after deducting provisions for doubtful debts.Finance charges unamortised include expenses incidental to obtaining long-term loans such as guaranteefees, structuring fees, placement fees and front end fees. These charges are written-off over the period ofcorresponding loans as the Directors are of the opinion that these are part of the financing cost of thelong-term borrowings.22. Pre-paid Lease RentalsGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Balance at the beginning of the year – – – –On acquisition of subsidiaries 314,888,067 – – –Additions – – – –Disposals – – – –Amortisation for the year (1,178,226) – – –Balance at the end of the Year 313,709,841 – – –Leasehold right to bare land of (JEDB/SLSPC) Estates.The leasehold right to bare land of JEDB/SLSPC Estates is being amortised by equal amounts over a 53 yearperiod and the unexpired period of the lease as at the Balance Sheet date is 37 years.

121LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements23. Investment PropertiesGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Balance at the beginning of the year 162,582,249 70,592,609 70,592,609 –On acquisition of subsidiaries 104,098,250 – – –Additions 226,077,242 91,989,640 226,077,242 70,592,609Disposals – – – –Change in fair value during the year 13,381,750 – – –Balance at the end of the year 506,139,491 162,582,249 296,669,851 70,592,60924. Timber and Rubber StocksThe Group has engaged an independent chartered valuation surveyor in determining the fair value of timber andrubber stock. The valuer has valued the timber and rubber stock, per tree valuation basis by using available log andtree prices in city centres less point-of -sale- costs. The Group measured the timber and rubber stock at faire valueless estimated point-of-sale-costs as at each Balance Sheet date.25. Investments in Joint Venture CompaniesPrincipal Activity Group CompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Gal Oya Holdings (Pvt) Ltd. Sugar manufacturingCost of investment – – – 10,000,000Total – – – 10,000,000Percentage of ownership 50%Upon the acquisition of Brown & Company PLC through Diriya Investments Limited, Gal Oya Holdings (Pvt) Ltd. became asubsidiary. Accordingly, the investment is included under Investment in subsidiaries as at the Balance Sheet date.The following companies have been accounted for as joint ventures of the Group:Agrisil Holding Ltd.Free Lanka Management Company Ltd.Free Lanka Plantation Company Ltd.Free Lanka Plantation Holding Ltd.Free Lanka Power 1 (Pvt) Ltd.Free Lanka Power 2 (Pvt) Ltd.Free Lanka Power 3 (Pvt) Ltd.Free Lanka Power Holding (Pvt) Ltd.Harrison Charfield (Pvt) Ltd.Hydro Power Free Lanka (Pvt) Ltd.Hydro Power Free Lanka 2 (Pvt) Ltd.Hydro Power Free Lanka 3 (Pvt) Ltd.Maturata Plantations Ltd.Melfort Green Teas (Pvt) Ltd.Pussellawa Estates Ltd.

122LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements26. Investments in Associate CompaniesGroupUnquoted investmentsCommercial Insurance Brokers (Pvt) Ltd. (CIB)Group Holding No. of Shares Group2010 2009 2010 2009 2010 2009(%) (%) (Rs.) (Rs.)Investor Commercial Leasing Company Ltd. 40.00 40.00 240,000 240,000 800,000 785,040PRASAC Micro Finance Institution Ltd. (PRASAC)Investor Lanka ORIX Leasing Company PLC 18.00 19.00 138,626 51,376 108,977,301 61,831,544IG Browns Rubber Industries (Pvt) Ltd. (IGBRIL)Investor Brown & Company PLC 10.00 – 45,000 – 450,000 –Standard Finance (Pvt) Ltd. 26.70 – 120,000 – 400,000 –Browns Group Industries (Pvt) Ltd. 1.67 – 2,500 – 25,000 –38.37 – 167,500 – 875,000 –Associated Battery Manufacturers (Cey.) Ltd. (ABM)Investor Standard Finance (Pvt) Ltd. 38.50 – 2,439,355 – 24,393,550 –Browns Dimo industrial products (Pvt) Ltd. (BDIPL)Investor Standard Finance (Pvt) Ltd. 45.00 – 675,000 – 6,750,000 –Quoted investmentsTouchwood Investments PLC (TI)Investor Lanka ORIX Leasing Company PLC – 29.20 – 2,601,000 – 216,359,359Seylan Bank PLC (Seylan)Investor Lanka ORIX Leasing Company PLC - Non-voting shares 9.88 – 25,050,000 – 446,155,965 –Commercial Leasing Company Ltd. - Non-voting shares 0.03 – 72,400 – 1,104,210 –Browns Investments (Pvt) Ltd. - Non-voting shares 2.12 – 5,378,700 – –Lanka ORIX Information Technology Ltd. - Voting shares 5.13 – 13,000,000 – 488,359,374 –Browns Investments (Pvt) Ltd. - Voting shares 5.13 – 13,000,000 – 551,130,139 –22.29 – 56,501,100 – 1,486,749,688 –Total Cost to the Group 1,628,545,539 278,975,943

123LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsEquity value of investment in associates as at 31 March 2010 - GroupCIB PRASAC IGBRIL ABM BDIPL TI Seylan TotalRs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.Equity value of investmentsas at 01 April 2009 49,113,139 152,652,858 – – – 474,654,664 – 676,420,661Acquisition during the year – 48,445,757 425,000 24,393,550 6,750,000 – 1,486,749,687 1,566,763,994Reclassifications/transfers – – – – – (3,552,741) – (3,552,741)Share of profits/(loss) of associatecompanies after tax 3,136,297 54,630,656 (608,322) 9,752,173 1,404,000 4,439,082 43,582,745 116,336,631Dividend received (1,440,000) – – (9,757,440) - – – (11,197,440)Disposals during the year – – – - - (475,541,005) (32,506,945) (508,047,952)Negative goodwill – – 7,442,402 145,063,289 24,171,750 – 1,021,996,245 1,198,673,687Equity value of investmentsas at 31 March 2010 50,809,436 255,729,271 7,259,080 169,451,572 32,325,750 – 2,519,821,732 3,035,396,841CompanyHoldingNo. of Shares2010 2009 2010 2009 2010 2009(Rs.)(Rs.)Quoted InvestmentsTouchwood Investments PLC (TI) – 29.20% – 2,601,000 – 216,359,359Seylan Bank PLC (Seylan) - Non-Voting Shares 9.88% 9.88% 25,050,000 – 446,155,965 –Unquoted InvestmentsPRASAC Micro Finance Institution Ltd. (PRASAC) 18.00% 19.00% 138,626 51,376 108,977,301 61,831,544Total 25,188,626 2,652,376 555,133,266 278,190,903Summarised Financial Information of equity accounted investees for the year ended 31 MarchCIB PRASAC IGBRIL ABM BDIPL TI Seylan Total2010 2009(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)Revenue 91,375,945 1,853,189,037 8,600,577 403,464,858 39,905,000 474,669,027 4,052,625,000 6,923,829,444 2,413,044,808Profit/(loss)after tax 7,840,742 303,503,647 (1,585,412) 25,330,318 3,120,000 15,202,344 195,526,000 548,937,638 593,596,975Total assets 199,977,336 8,102,305,576 22,766,733 929,274,530 108,859,000 – 139,890,515,000 149,253,698,175 10,238,820,126Total liabilities 72,953,746 6,850,723,319 3,848,099 489,140,578 37,024,000 – 128,585,855,000 136,039,544,742 6,281,338,659

124LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsPursuant to the acquisition of Brown & Company PLC through Diriya Investments Ltd., the Group has treatedthe investments in IGBRIL, ABM and Seylan as investments in associates in the Group Financial Statementsfor the year ended 31 March 2010. Share of profit from 01 January 2010 to 31 March 2010 of these associatecompanies has been accounted as Group share of profits in the Group Financial Statements for the yearended 31 March 2010.The assets and liabilities as at the acquisition date are stated at their provisional fair value and may beamended in accordance with SLAS 25 (Revised 2004) - Business Combination.The reporting date of the Financial Statements of CIB and PRASAC is 31 December and the share of profit relatingto year ended 31 December 2009 is reflected in the Group Financial Statements for the year ended 31 March 2010.The Company did not fully subscribe to the PRASAC’s right issue of shares effected on 01 April 2009.Accordingly, the share of investment reduced from 19% to 18% with effect from 01 April 2009.Disposal of AssociatesThe Company disposed 2,558,300 shares of Touchwood Investments Ltd. during January and February 2010.The balance amount relating to the remaining shares of 42,700 in Touchwood Investments Ltd. is reflectedas short-term investments under the investment securities in the Balance Sheet.The Company has neither contingent liabilities nor capital commitments in respect of its associates.

125LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements27. Investments in Subsidiary CompaniesPrincipal ActivityNo. of SharesGroupHoldingCompanyCompany2010 2009 2010 2009 2010 2009 2010 2009(%) (%) (%) (%) (Rs.) (Rs.)CompanyLanka Oriental Investment Ltd. No operations 2 2 100 100 100 100 20 20LOLC Funding One Ltd. Securitisation of leasereceivables 7 7 100 100 100 100 700 700Lanka ORIX Insurance Brokers Ltd. Insurance broking 1,000,000 1,000,000 100 100 100 100 10,000,000 10,000,000LOIB Financial Services (Pvt) Ltd. Investment advice 500,000 500,000 100 100 100 100 – –Lanka ORIX Finance Company(Pvt) Ltd.Lanka ORIX InformationTechnology Ltd.Finance business andpawn broking 100,000,000 80,000,000 100 100 100 100 1,000,000,000 800,000,000Software design,development anddistribution 2,000,000 2,000,000 100 100 100 100 20,000,000 20,000,000Lanka ORIX Securities (Pvt) Ltd. Stock broking – 270,000 0 30 0 30 – 23,000,000Lanka ORIX ProjectDevelopment Ltd.Property andinfrastructure 5,200,000 5,200,000 100 100 100 100 52,000,000 52,000,000Provision for impairment loss – – – – – – (32,059,248) –Sundaya Lanka (Pvt) Ltd. Assembling anddistributionof solar systems 624,490 624,490 51 51 51 51 6,244,900 6,244,900Commercial LeasingCompany Ltd.LOLC Micro Credit Ltd.Leasing, hire purchasingand factoring 17,645,840 17,315,310 100 98 100 98 1,656,636,128 1,626,123,927Agro and Microfinancing 40,000,000 40,000,000 80 100 80 100 460,125,000 460,125,000Commercial Factors Ltd. No operations 1 1 100 100 100 100 10 –LOLC Eco Solutions (Pvt) Ltd. Power generation 1 1 100 100 100 100 10 –Brown & Company PLC Trading andManufacturing 1,874,600 1,874,600 52.4 – 2.6 – 145,350,101 –Gal Oya Holding Ltd. Sugar manufacturing 1,000,000 1,000,000 100 50 50 50 10,000,000 –LOLC Motors Ltd. Motor repair 15,000,000 – 100 – 100 – 150,000,000 –Total 3,478,297,621 2,997,494,547Upon the acquisition of Brown & Company PLC through Commercial Leasing Company Ltd., Gal Oya Holdings (Pvt) Ltd. became asubsidiary of the Group. Accordingly, the investment is included under Investment in subsidiaries as at the Balance Sheet date. It wasconsidered as an investment in joint ventures in the previous year.

126LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsGroup Share HoldingGroupNo. of SharesGroup Holding2010 2009 2010 2009(%) (%)BG Air Services (Pvt) Ltd. 50,000 – 100 –Browns Battery (Pvt) Ltd. 10,000 – 100 –Browns Group Industries (Pvt) Ltd. 2,800,000 – 100 –Browns Group Motels Ltd. 500,000 – 66 –Browns Investments (Pvt) Ltd. 90,500,000 – 50 –Browns Motor (Pvt) Ltd. 5,000,000 – 100 –Browns Tours (Pvt) Ltd. 2,030,000 – 100 –CFT Engineering Ltd. 3,630 – 95 –Diriya Investments (Pvt) Ltd. 165,681,806 – 50 –East West Textile Lanka Ltd. 15,405,137 – 100 –Engineering Services (Pvt) Ltd. 147,502 – 100 –KPL Spare Parts (Pvt) Ltd. 500,000 – 100 –Klevernberg (Pvt) Ltd. 5,200,000 – 60 –Masons Mixtures Ltd. 4,304,124 – 98 –Muthugala Estates (Pvt) Ltd. 1,200 – 80 –Orient Academy Ltd. 1,500,000 – 100 –Pathregalla Estates (Pvt) Ltd. 4,200 – 91 –Sifang Lanka (Pvt) Ltd. 3,000,002 – 100 –Sifang Lanka Trading (Pvt) Ltd. 2,050,000 – 100 –Snowcem Products Lanka (Pvt) Ltd. 400,000 – 50 –Standard Finance (Pvt) Ltd. 2,700,000 – 100 –Taprobane Fund Management Ltd. 25,000,007 – 63 –The Hatton Transport & Agency Company (Pvt) Ltd. 112,000 – 100 –United Dendro Energy (Pvt) Ltd. 1,000 – 75 –Walker & Greig (Pvt) Ltd. 1 – 100 –

127LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements27.1 Acquisitions During the YearThe acquisition had the following effect on the Group’s assets and liabilities on acquisition date:Recognised valueson acquisitionas at 01.01.2010(Rs.)Property, plant and equipment 7,165,086,287Investment properties 104,098,250Prepaid lease rentals 315,753,000Other long-term investments 3,437,905,932Deferred tax asset 382,513,598Intangible assets 4,205,244Timber and rubber stock 2,884,583,330Inventories 1,308,697,050Trade and other receivables 1,644,429,526Amounts due from related companies 696,278,001Short-term investments 82,253,290Interest bearing borrowings (2,457,570,233)Retirement benefit obligations (627,565,908)Deferred tax liability (1,370,000)Deferred income (257,737,000)Accounts payable and accrued expenses (1,466,292,656)Amounts due to related companies (969,046,061)Minority interest (9,634,828,116)Net identifiable assets and liabilities 2,611,393,534Net identifiable assets and liabilities acquired 1,305,696,767Negative goodwill on acquisition (225,163,247)Consideration paid, satisfied in cash 1,080,533,520Cash acquiredCash and cash equivalent acquired (259,048,047)Net cash outflow (1,339,581,567)The assets and liabilities as at the acquisition date are stated at their provisional fair value and may beamended in accordance with SLAS 25 (Revised 2004) - Business Combination. .The Company acquired 50% ownership of Diriya Investment (Pvt) Ltd. through Commercial Leasing CompanyLtd., which is a wholly-owned subsidiary of the Company in January 2010. Diriya Investment (Pvt) Ltd. effectivelyholds 63% of Taprobane Fund Management Ltd.; 80% of Muthugala Estates (Pvt) Ltd.; 98% of Masons MixturesLtd.; 91% of Pathregalla Estates (Pvt) Ltd. and 100% of Engineering Services (Pvt) Ltd. As the Company hasthe control to govern the financial and operating policies of Diriya Investment (Pvt) Ltd., as per SLAS 25, theCompany has treated these companies as subsidiaries in the Group Financial Statements.

128LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsDiriya Investment (Pvt) Ltd., through its subsidiaries holds 49% of the shares of Brown & Company PLC, andfollowing the acquisition of Diriya Investment (Pvt) Ltd., the Company, through its subsidiaries and directly,holds 52% of shares in Brown & Company PLC. Thus, the Company has treated Brown & Company PLC as asubsidiary in the Group Financial Statements.28. Deferred Tax AssetDeferred Tax assets, liabilities and income tax relate to the following:Deferred tax liabilityGroupCompany2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Capital allowances for tax purposes onproperty, plant and equipment – – 3,602,939 –Capital allowances for tax purposeson lease receivables 86,317,251 7,645,736 86,317,251 6,900,532Operating lease assets 99,269,652 52,848,531 99,269,652 52,848,531185,586,903 60,494,267 189,189,842 59,749,063Deferred tax assetsAdditions from subsidiariesDefined benefit plans 25,494,384 (38,948,385) 22,973,515 (40,681,839)Capital allowances for tax purposes onproperty, plant and equipment 337,592,413 7,311,214 – 234,611Unamortised VAT 15,790,590 28,770,168 15,790,590 28,770,168Brought forward tax losses 581,209,882 612,096,403 581,209,882 610,737,529960,087,269 609,229,400 619,973,987 599,060,469Net deferred tax asset 774,500,366 548,735,133 430,784,145 539,311,40629. GoodwillGroupCompany2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Goodwill on acquisitions 151,415,234 151,415,234 – –151,415,234 151,415,234 – –The goodwill on acquisition has arisen upon the acquisition of Commercial Leasing Company Ltd. Therehas been no permanent impairment that requires a provision as the recoverable amount is higher than thecarrying amount as at the Balance Sheet date. Method used in estimating recoverable amount is based on

129LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statementsthe value in use calculations. Value in use was determined by discounting the future cash flows generatedfrom the continuing use of the cash generating unit. In determining the cash generating unit for the purposeof value in use calculation, Commercial Leasing Company Ltd. as a whole has been considered as the cashgenerating unit. Key assumptions used are given below:Business growth - Based on historical growth rateInflation - Based on the current inflation rateDiscount rate - Average market borrowing rate adjusted for risk premium30. Intangible AssetsGroupCompany2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Brand value 94,784,945 94,784,945 – –Customer base 49,421,649 49,421,649 – –Computer software (Note 30.1) 83,811,916 59,184,502 64,901,354 40,872,110Total 228,018,510 203,391,096 64,901,354 40,872,11030.1 Computer SoftwareBalance at beginning of the year 86,333,230 48,185,434 56,938,549 27,527,643Additions during the year 43,621,506 38,147,796 42,157,136 29,410,906On acquisition of subsidiaries 6,462,434 – – –Transfers/re-classifications (2,254,415) – – –Amortisation134,162,755 86,333,230 99,095,685 56,938,549Balance at beginning of the year 27,148,728 18,560,627 16,066,439 11,990,044On acquisition of subsidiaries 2,257,190 – – –Transfers/disposals (414,853) – – –Amortisation during the year 21,359,774 8,588,101 18,127,892 4,076,395Total amortisation at end of the year 50,350,839 27,148,728 34,194,331 16,066,439Balance at the end of the year 83,811,916 59,184,502 64,901,354 40,872,110Brand value and customer base have arisen upon the acquisition of Commercial Leasing Company Ltd. Therehas been no permanent impairment that requires a provision as the recoverable amount of these intangiblesis higher than the carrying amount as at the Balance Sheet date. Method used in estimating recoverableamount is based on the value in use. Value in use was determined by discounting the future cash flowsgenerated from the continuing use of the cash-generating unit. In determining the cash-generating unit forthe purpose of value in use calculation, Commercial Leasing Company Ltd. as a whole has been consideredas the cash-generating unit. Key assumptions used are given below:Business growth - Based on historical growth rateInflation - Based on the current inflation rateDiscount rate - Average market borrowing rate adjusted for risk premium

130LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements31. Property, Plant & EquipmentGroupCost/ValuationLand & Motor Leasehold Furniture Office ComputersBuilding Vehicles Motor Vehicles & Fittings Equipment(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)Balance as at 01 April 2009 769,034,381 488,413,649 965,476,784 231,876,069 224,913,225 234,183,723Additions 12,979,020 228,551,579 – 31,675,647 49,368,956 40,835,637Disposals – (24,091,500) (210,906,532) (8,881,420) (4,507,760) (336,796)Transfers – (433,963) – (13,447,908) (17,628,185) 6,157,311Acquisition of subsidiaries 4,370,653,359 82,897,853 65,787,680 184,165,496 58,173,420 21,805,913Transferred from CWIP 49,842,084 – – – – –Balance as at 31 March 2010 5,202,508,844 775,337,618 820,357,932 425,387,884 310,319,656 302,645,788Accumulated DepreciationBalance as at 01 April 2009 25,375,813 210,518,801 363,545,720 106,523,820 134,264,570 167,447,350Charge for the year 13,718,126 111,017,203 196,272,372 36,383,856 27,828,941 29,734,023Depreciation on disposals (1,070,270) (21,571,611) (141,192,064) (7,989,136) (7,732,790) (84,259)Depreciation on transfers – (324,365) – (10,050,550) (6,536,902) (1,741,942)Acquisition of subsidiary 124,807,021 78,194,997 43,871,641 111,927,655 25,826,383 14,663,861Balance as at 31 March 2010 162,830,690 377,835,025 462,497,669 236,795,645 173,650,202 210,019,033Written Down ValueAs at 31 March 2010 5,039,678,154 397,502,593 357,860,263 188,592,239 136,669,454 92,626,755As at 31 March 2009 743,658,568 277,894,848 601,931,064 125,352,249 90,648,655 66,736,373CompanyCost/ValuationLand & Motor Leasehold Furniture Office ComputersBuilding Vehicles Motor Vehicles & Fittings Equipment(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)Balance as at 01 April 2009 582,097,782 275,263,622 965,837,843 174,107,965 147,091,856 117,094,152Additions 12,979,020 222,678,516 – 24,841,974 41,472,465 32,395,657Disposals – – (210,906,532) – – –Transfers – – – – – –Transferred from CWIP 49,842,085 – – – – –Balance as at 31 March 2010 644,918,887 497,942,138 754,931,311 198,949,939 188,564,321 149,489,809Accumulated DepreciationBalance as at 01 April 2009 15,534,908 93,533,088 363,720,251 66,928,419 87,906,096 74,902,028Charge for the year 5,860,139 98,895,265 190,322,044 31,024,840 20,344,070 16,268,765Depreciation on disposals – – (141,192,064) – – –Depreciation on transfers – – – – – –Balance as at 31 March 2010 21,395,047 192,428,353 412,850,231 97,953,259 108,250,166 91,170,793Written Down ValueAs at 31 March 2010 623,523,840 305,513,785 342,081,080 100,996,680 80,314,155 58,319,016As at 31 March 2009 566,562,874 181,730,534 602,117,592 107,179,546 59,185,760 42,192,124During the financial year, the Company and Group acquired Property, Plant and Equipment to the aggregate value of Rs. 1,208,408,322/-(2009 - Rs. 1,003,347,160/-) and Rs. 1,243,488,066/- (2009 - Rs. 1,106,008,424/-) respectively.

131LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsLeasehold Assets for Capital Work-in- Immature/ Leasehold Plant & Other Tangible TotalMachinery Operating Leases Progress (CWIP) Mature Plantation Buildings Machinery Assets(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)– 1,124,642,542 49,842,085 – – – – 4,088,382,458– 818,405,965 59,539,872 – – 1,681,040 450,350 1,243,488,066– (362,394,378) – – – (36,570,367) (733,584) (648,422,337)– – – – – – – (25,352,745)40,259,639 331,229,312 46,775,498 1,973,132,927 182,622,874 899,801,761 181,132,304 8,438,438,036– – (49,692,084) – – – – 150,00040,259,639 1,911,883,441 106,465,371 1,973,132,927 182,622,874 864,912,434 180,849,070 13,096,683,478– 240,834,120 – – – – – 1,248,510,194– 233,272,807 – – – 5,944,428 353,054 654,524,810– (122,805,562) – – – (9,050) (43,815) (302,498,557)– – – – – (43,000) (4,383) (18,701,142)9,425,364 202,342,693 – 217,100,293 111,935,475 298,397,626 30,629,538 1,269,122,5479,425,364 553,644,058 – 217,100,293 111,935,475 304,290,004 30,934,394 2,850,957,85230,834,275 1,358,239,383 106,465,371 1,756,032,634 70,687,399 560,622,430 149,914,676 10,245,725,626– 883,808,422 49,842,085 – – – – 2,839,872,265Assets for Capital Work-in- TotalOperating Leases Progress (CWIP)(Rs.) (Rs.) (Rs.)1,124,642,542 49,842,085 3,435,977,847814,955,965 59,084,725 1,208,408,322(347,625,856) – (558,532,388)– – –– (49,842,085) –1,591,972,651 59,084,725 4,085,853,781240,834,120 – 943,358,910208,163,749 – 570,878,872(109,059,123) – (250,251,187)– – –339,938,746 – 1,263,986,5951,252,033,905 59,084,725 2,821,867,186883,808,422 49,842,085 2,492,618,937

132LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements32. Deposits from CustomersGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Deposits maturing within one year 8,414,114,075 4,645,876,692 – –Deposits maturing after one year 1,680,569,151 583,044,283 – –Total 10,094,683,226 5,228,920,975 – –33. Interest Bearing Loans and BorrowingsGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Commercial papers 2,121,499,253 1,774,798,835 1,574,141,412 1,042,441,792Short-term loans and others 14,457,894,714 8,017,289,030 8,817,858,631 6,482,818,178Debentures 172,230,000 – – –Finance lease liabilities (Note 33.1) 480,215,487 612,754,819 292,710,457 612,754,819Long-term borrowings (Note 33.2) 18,016,249,980 18,608,262,277 11,051,344,585 14,802,112,58335,248,089,434 29,013,104,961 21,736,055,085 22,940,127,37233.1 Finance Lease LiabilitiesGross lease rentals payable as at 01 April 728,445,173 1,201,033,499 726,890,404 1,200,012,766On acquisition of subsidiaries 246,535,191 – – –Disposal of subsidiaries – – – –Leases obtained during the year 54,291,071 – – –Lease rentals paid during the year (395,394,940) (474,143,095) (393,243,878) (473,122,362)Gross lease rentals payable as at 31 March 633,876,495 726,890,404 333,646,526 726,890,404Less: Interest in suspense (153,661,008) (114,135,585) (40,936,069) (114,135,585)Net lease liability 480,215,487 612,754,819 292,710,457 612,754,819Repayable within one yearGross lease rentals payable 251,369,108 393,178,840 228,420,935 393,178,840Less: Interest in suspense (37,821,578) (76,347,571) (32,193,691) (76,347,571)Net lease liability 213,547,530 316,831,269 196,227,244 316,831,269Repayable after one yearGross lease rentals payable 382,507,395 333,711,563 105,225,592 333,711,563Less: Interest in suspense (115,839,438) (37,788,013) (8,742,379) (37,788,013)Net lease liability 266,667,957 295,923,550 96,483,213 295,923,550Total 480,215,487 612,754,819 292,710,457 612,754,819

133LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements33.2 Long-Term BorrowingsGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Balance as at 01 April 18,608,262,277 12,969,853,336 14,802,112,583 12,969,853,336On acquisition of subsidiaries 1,880,905,586 – – –Received during the year 4,444,524,019 11,589,750,255 1,048,958,127 6,515,209,629Repaid during the year (6,917,441,902) (5,951,341,314) (4,799,726,125) (4,682,950,382)Balance as at 31 March 18,016,249,980 18,608,262,277 11,051,344,585 14,802,112,583Long-term borrowings - current 5,141,854,096 6,676,896,050 3,673,834,481 4,442,165,898Long-term borrowings - non-current 12,874,395,884 11,931,366,227 7,377,510,104 10,359,946,685Total 18,016,249,980 18,608,262,277 11,051,344,585 14,802,112,583Analysis of non-current portion oflong-term borrowingsRepayable within 3 years 9,407,709,087 7,843,847,939 6,390,884,545 6,272,428,396Repayable after 3 years 3,466,686,797 4,087,518,288 986,625,559 4,087,518,289Total 12,874,395,884 11,931,366,227 7,377,510,104 10,359,946,68534. Trade and Other PayablesGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Accounts payable 4,083,893,517 2,018,332,913 712,855,782 978,808,431Creditors for leased equipment 1,280,777,334 494,942,214 41,711,002 198,406,482Amount due to subsidiaries – – 159,042,067 38,532,746Clients payable 40,247,917 9,120,195 – –VAT payable 74,384,351 – 47,955,286 –Other tax payable 116,492,589 66,373,321 116,491,254 66,373,321Insurance premium payable 18,429,642 17,499,841 18,429,642 –Unclaimed dividends 13,976,468 5,420,312 2,672,217 1,777,837Total 5,628,201,818 2,611,688,796 1,099,157,250 1,283,898,817

134LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements35. Deferred Tax LiabilitiesGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Deferred tax assets, liabilities andincome tax relate to the following:Capital allowances for tax purposes onproperty, plant and equipment 9,541,881 8,939,497 – –Capital allowances for tax purposeson lease receivables 439,140,293 347,634,808 – –448,682,174 356,574,305 – –Defined benefit plans 6,207,670 5,157,802 – –6,207,670 5,157,802 – –Net deferred tax liability 442,474,504 351,416,503 – –36. Deferred IncomeGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Capital grants 269,644,938 – – –PHDT lease rentals 4,120,910 – – –The above represents the following:273,765,847 – – –I. (The funds received from the Plantation Housing and Social Welfare Trust (PHSWT), MTIP and PHDT arefor the development of workers welfare facilities and improvement in institutional facilities.II. The funds received from the Tea Board is for the construction of the CTC Tea Factory at Delta Estates.III. The funds received from the Plantation reform project is for the Development of Forestry Plantations.IV. Subsidy received from the Rubber Control Department is for Rubber Replanting.The amount spent is capitalised under that relevant classification of property, plant and equipment andcorresponding grant component is reflected under deferred income and is being amortised over the usefullife span of the related assets.

135LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements37. Retirement Benefit ObligationsGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Net Benefit ExpenseCurrent service cost 11,522,060 9,829,566 6,738,368 6,184,653Transitional asset recognised during the year (4,091,392) (9,766,298) (3,652,322) (2,188,278)Interest cost on benefit liabilities 17,694,942 7,885,831 11,390,791 5,169,828Transfer of gratuity expense – – (4,724,260) –Benefit Liability25,125,609 7,949,099 9,752,577 9,166,203Defined benefit liability 759,559,844 74,349,053 65,638,616 51,819,459Change in the defined benefit obligationis as follows:759,559,844 74,349,053 65,638,616 51,819,459Defined benefit obligation as of 01 April 74,349,053 69,678,547 51,819,459 42,737,849On acquisition of subsidiaries 665,692,362 – – –Interest cost on benefit liability 17,694,942 7,885,831 11,390,791 5,169,828Current service cost 11,522,060 9,829,566 6,738,368 6,184,653Benefits paid (5,607,181) (3,278,593) (657,680) (84,593)Transitional difference (over provision)recognised during the year (4,091,392) (9,766,298) (3,652,322) (2,188,278)Defined benefit liability as at 31 March 759,559,844 74,349,053 65,638,616 51,819,459Key assumptions used in the above valuationare as follows:Discount Rate 11%-12.35% 12.35%Salary increment rate 9%-10.75% 10.75%The retirement benefit obligation of some companies in the Group are based on the gratuity formula inAppendix E of SLAS 16 - Employee Benefits and the requirement of the Gratuity Act No. 12 of 1983.38. Stated CapitalGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Issued and Fully PaidAt the beginning of the year -47,520,000 shares 475,200,000 475,200,000 475,200,000 475,200,000At the end of the year - 47,520,000 shares 475,200,000 475,200,000 475,200,000 475,200,000

136LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements39. ReservesGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Share premium of subsidiary – 536,504 – –Future taxation reserve 205,000,000 205,000,000 205,000,000 205,000,000Statutory reserve 404,979,197 243,473,119 241,889,290 219,003,446General reserve – – – –Revaluation reserve 155,879,068 105,402,842 105,402,842 105,402,842Total 765,858,265 554,412,465 552,292,132 529,406,28840. Retained EarningsGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Balance brought forward 4,981,857,006 4,142,813,662 4,097,107,298 3,791,247,461Restatement – – – –Transferred back to retained earnings – (32,185,234) – (30,000,000)Transfers to statutory reserves (160,969,574) (48,206,669) (22,885,844) (35,010,056)Net profit for the year 1,841,808,956 1,054,153,622 326,940,630 505,588,268Dividends – (134,718,375) – (134,718,375)Balance at the end of the year 6,662,696,388 4,981,857,006 4,401,162,084 4,097,107,29841 Comparative Information41.1 Comparative Information - ReclassificationGroupCompanyAs at 31 March 2009 2009(Rs.)As reported previously:Net interest cost of overdraft and other short-term borrowings (a) 2,813,750,028 2,246,161,541Appeared on the face of the balance sheet - Advances for margin trading (b) 51,070,162 –Appeared on the face of the balance sheet - Factoring receivable (c) 1,897,170,734 1,138,142,223Land & building under property, plant and equipment cost (d ) 839,626,989 652,690,391Appeared on the face of the Balance Sheet - real estate stocks (e) 124,121,566 3,135,535Computer & software under property, plant and equipment (f) 125,920,911 82,954,501Other account receivables under trade and other current assets (g) 1,844,303,623 902,014,375Investment in Mudarabah deposit under investment securities (h) 75,000,000 75,000,000Deposits maturing within one year under deposits from customers (i) 4,720,876,692 –Appeared on the face of the Balance Sheet - Provision for taxation (j) 165,528,410 113,855,355(Rs.)

137LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsGroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Current presentation:(a) Net interest cost of overdraft and othershort-term borrowings reclassified as:RestatedOverdraft and other short-term borrowings(Note 6) 2,697,108,769 2,491,243,296 946,545,416 1,926,769,466Debenture interest (Note 6) 14,622,369 – – –Charges on SWAPS (Note 6) 422,403,295 322,506,732 351,770,678 319,392,0753,134,134,433 2,813,750,028 1,298,316,094 2,246,161,541(b) Advances for margin trading is reclassifiedunder Note 18 - Advances and other loans 8,844,514 51,070,162 – –(c) Factoring receivable is reclassified underNote 18 - Advances and other loans 3,001,770,480 1,897,170,734 1,564,991,242 1,138,142,223(d) Land & building under property, plant andequipment reclassified as:Land & building 5,202,508,844 769,034,380 595,076,802 582,097,782Investment properties 506,139,491 70,592,609 296,669,851 70,592,609(e) Real estate stocks reclassified as:5,708,648,335 839,626,989 891,746,653 652,690,391Real estate stocks 22,930,299 32,131,926 – 3,135,535Investment properties – 91,989,640 – –(f) Computer & software under property, plantand equipment reclassified as:22,930,299 124,121,566 – 3,135,535Computers (Note 31) 92,626,755 66,736,373 58,319,019 42,192,124Computer software (Note 30) 83,811,916 59,184,502 64,901,354 40,872,110(g) Other account receivables under trade andother current assets reclassified as:Other current assets (Note 21) 2,874,691,950 1,540,694,317 659,203,483 902,205,751Pawning advances (Note 18) 480,400,218 303,609,306 – –(h) Investment in Mudarabah deposit eliminatedInvestment in Mudarabah deposit (Note 16) – – 35,000,000 75,000,000(i) Deposit maturing within one year eliminatedDeposit maturing within one year (Note 32) 8,414,114,075 4,645,876,692 – –(j) Provision for taxation reclassified as:Provision for taxation 197,569,233 165,528,410 57,191,924 47,988,600Other tax payable (Note 34) 116,492,589 66,373,321 116,491,254 66,373,321

138LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsReasons for Change in the Presentation and ClassificationAbove classification changes were made in the financial statements of the Company and the Group for betterpresentation.41.2 Comparative Information - RestatementComparative information in the Financial Statements has been restated as follows:As per Impact due to Restatedprevious year merger in 2009/10financialfinancialstatementsstatements(Rs.) (Rs.) (Rs.)Income 6,120,691,922 3,086,090 6,123,778,012Operating profit before net interest 4,714,314,988 1,834,137 4,716,149,125Other income/(expenses) 71,078,814 366,071 71,444,885Profit before taxation 579,920,072 2,200,208 582,120,280Profit after taxation 503,952,740 1,635,528 505,588,268Cash and cash equivalents 552,835,056 83,736 552,918,792Short-term investments 13,351,058 13,169 13,364,227Other current assets 3,636,303,826 697,032 3,637,000,858Investments securities 289,966,285 5,000,000 294,966,285Property, plant and equipment 2,603,966,056 117,603 2,604,083,659Provision for taxation 113,855,355 506,566 114,361,921Trade and other payables 1,212,462,796 5,062,700 1,217,525,496Total assets 31,329,268,592 5,911,540 31,335,180,132Total liabilities 26,227,897,275 5,569,266 26,233,466,541Equity 5,101,371,317 342,274 5,101,713,591The restatement of last year financials, is in view of the merger of the fully-owned subsidiary LOIB FinancialServices (Pvt) Ltd.

139LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements42. Segmental InformationFinancial Insurance IT Services Trading Leisure Plantation Power & Other TotalServices Broking Energy(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)2009/10Total revenue 12,559,350,570 123,725,780 128,183,120 1,845,146,244 5,464,455 721,897,018 18,092,596 65,069,076 15,466,928,859Inter group revenue (469,097,096) – (96,000,000) – – – – – (565,097,096)Revenue - external 12,090,253,474 123,725,780 32,183,120 1,845,146,244 5,464,455 721,897,018 18,092,596 65,069,076 14,901,831,763Net interest cost (6,040,678,212) 3,585,541 – (109,480,057) – (18,519,392) (1,387,030) (11,657,387) (6,178,136,537)Cost of sales (1,029,853,463) – (56,552) (1,286,268,742) – (508,597,785) (2,894,343) (41,601,704) (2,869,272,589)Profit beforeoperating expenses 5,019,721,799 127,311,321 32,126,568 449,397,445 5,464,455 194,779,841 13,811,224 11,809,985 5,854,422,637Operating expenses (3,736,034,327) (126,113,154) (67,994,543) (349,149,846) (5,239,273) (72,842,033) (4,727,474) (24,620,459) (4,386,721,109)Results fromoperating activities 1,283,687,472 1,198,167 (35,867,975) 100,247,599 225,182 121,937,808 9,083,750 (12,810,474) 1,467,701,528Negative goodwill – – – – – – – – 1,423,836,934Profit/(Loss) disposal ofassociates andsubsidiaries (167,087,952) – – – – – – – (167,087,952)Share of profit ofassociate companies – – – – – – – – 116,336,631Profit before taxation 1,116,599,520 1,198,167 (35,867,975) 100,247,599 225,182 121,937,808 9,083,749 (12,810,474) 2,840,787,1412008/09Total revenue 13,341,452,253 159,854,401 87,000,000 – – – – 161,158,891 13,749,465,545Inter group revenue (37,696,420) (3,047,893) (87,000,000) – – – – – (127,744,313)Revenue - external 13,303,755,833 156,806,508 – – – – – 161,158,891 13,621,721,232Net interest cost (6,424,305,743) (10,776) (2,308) – – – – (16,862,626) (6,441,181,453)Cost of sales (2,993,076,288) – – – – – – – (2,993,076,288)Profit beforeoperating expenses 3,886,373,952 156,795,732 (2,308) – – – – 144,296,265 4,187,463,491Operating expenses (2,762,973,087) (107,260,623) (46,217,023) – – – – (164,171,463) (3,080,622,196)Results fromoperating activities 1,123,400,715 49,535,109 (46,219,331) – – – – (19,875,198) 1,106,841,295Negative goodwill – – – – – – – – –Profit/(Loss) disposal ofassociates andsubsidiaries – – – – – – – – –Share of profit ofassociate companies – – – – – – – – 140,457,638Profit before taxation 1,123,400,715 49,535,109 (46,219,331) – – – – (19,875,198) 1,247,298,933

140LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsFinancial Insurance IT Services Trading Leisure Plantation Power & Other TotalServices Broking Energy(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)2009/10Capital expenditure 1,236,536,626 – 3,154,920 16,946,316 – 28,950,394 27,392 1,493,924 1,243,488,066Depreciation andamortisation 644,331,777 – 3,971,500 21,838,555 229,000 19,708 1,686,227 3,807,818 675,884,584Provision for bad anddoubtful debts 612,369,785 – – – – – – – 612,369,785Provision/(reversal) forfall in value ofinvestments 970,942,054 – – 2,241,613,938 – – – – 3,212,555,992Retirement benefitobligations 19,170,334 882,134 917,180 3,869,217 46,000 33,868 – 206,876 25,125,6092008/09Capital expenditure 1,078,568,090 685,766 11,370,370 – – – – 15,384,198 1,106,008,424Depreciation andamortisation 481,760,863 3,953,899 2,287,041 – – – – 10,264,803 498,266,606Provision for bad anddoubtful debts 361,301,395 – – – – – – 32,334,226 393,635,621Provision/(reversal)for fall in value ofinvestments 27,961,075 121,890 – – – – – – 28,082,965Retirementbenefit obligations 6,298,366 458,602 521,732 – – – – 867,752 8,146,452As at 31 March 2010Total assets 58,759,720,110 128,148,017 627,188,519 9,306,716,775 71,320,930 3,420,352,237 295,435,363 2,480,470,914 75,089,352,866Total liabilities 49,793,992,645 46,228,991 11,685,068 2,724,213,541 30,227,836 2,085,638,417 44,567,201 895,117,874 55,631,671,574As at 31 March 2009Total assets 44,644,779,825 178,833,608 130,689,420 – – – – 1,332,763,257 46,287,066,111Total liabilities 39,507,608,068 76,481,288 23,933,779 – – – – 587,565,176 40,195,588,31143. Loans to Employees (Rs. 20,000/- and above)GroupCompanyAs at 31 March 2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Balance as at 01st April 99,072,708 92,252,743 77,206,776 69,852,455Loans granted during the year 46,616,254 40,069,999 33,148,760 33,533,249Recoveries during the year (58,355,875) (33,250,034) (38,060,469) (26,178,928)Balance as at 31st March 87,333,087 99,072,708 72,295,067 77,206,776

141LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements44. Commitments and ContingenciesContingent liabilitiesGroupCompany2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Guarantees issued to banks andother institutions 371,752,221 38,332,221 – –CommitmentsForward exchange contracts 7,736,040,853 5,534,832,061 4,899,855,113 5,342,429,561The Company received approval from Central Bank of Sri Lanka to enter into SWAP agreements to hedgeagainst foreign exchange exposure.On this commitment the Group will receive US$ 47,420,633, EUR 10,830,870, GBP 575,000 and AU$ 1,200,000on the conversion and the Company will receive US$ 31,350,633 and EUR 6,785,970 on the conversion.The maturity of the forward exchange contracts are as follows:GroupCompany2010 2009 2010 2009Maturing within 0-6 monthsMaturing within 6-12 monthsUS$ 44,920,633 33,188,500 28,850,633 32,638,500EURO 10,830,870 5,120,706 6,785,970 4,670,706AUD 1,200,000 700,000 – –GBP 575,000 – – –US$ 2,500,000 5,064,050 2,500,000 5,064,050Lanka ORIX Finance Company, the fully-owned subsidiary of LOLC received approval from the Central Bankof Sri Lanka to mobilise Foreign Currency deposit and the Company currently accepts deposits in US Dollars,Great Britain pound, Euro and Australian Dollars.

142LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements45. Events After the Balance Sheet DateThere have been no material events occurring after the Balance Sheet date that require adjustment to ordisclosure in the Financial Statements, other than the following:1. LOLC Leisure Ltd., formerly known as LOLC Securities, is a subsidiary of Lanka ORIX Leasing PLC with a70% holding and the balance held by Browns Investments Ltd. LOLC Leisure Ltd. acquired 52% of ConfifiHotel Holdings PLC and 26% of Riverina Hotels PLC. Confifi Hotel Holdings PLC acquired a further 23% ofRiverina Hotels PLC and Riverina Hotels PLC acquired a further 25% of Confifi Hotel Holdings PLC.2. Subsequent to the acquisition, the Group holds 81% of Confifi Hotel Holdings PLC, 74% of Riverina HotelsPLC and 46% of Eden Hotel Lanka PLC.3. The Company’s fully-owned subsidiary LOLC Motors (Pvt) Ltd. with a stated capital of Rs. 150 Mn, is astate of the art motor vehicle repair facility. The Company is expected to commence full commercialoperations by end September 2010.4. Lanka ORIX Leasing Company PLC disposed of 20,050,000 and Browns Investments (Pvt) Ltd. disposed of5,378,700 non-voting shares of Seylan Bank PLC.5. The Company secured approval from the Insurance Board of Sri Lanka to operate as a composite insurer.LOLC Insurance Company (Pvt) Ltd. is a fully-owned subsidiary of Lanka ORIX Leasing Company PLC with astated capital of Rs. 200 Mn.

143LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements46. Related Party DisclosuresDetails of significant related party disclosures are as follows:GroupTransactions with Associate and Joint Venture CompaniesGroupRelationship Nature of transaction 2010 2009(Rs.)(Rs.)Joint Venture Loan obtained 148,164,500 –Interest paid 4,595,569 –Associate Insurance commission received 5,181,301 –Cash and cash equivalents 3,658,696 –Interest bearing loans and borrowings 3,500,936,568 –Short-term investment 16,298,994 –Term deposit 323,837,302 –Repayments of finance leases obtained 62,591,783 –Finance leases granted – 3,713,274Share of group overheads 1,114,000 –Trading transactions- Sales 298,772,640 –- Purchase 1,508,319,769 –Company secretarial services 285,000 –Dividend income received 8,800,000 –Rent and management fees received 3,000,000 –

144LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsCompanyTransactions with Subsidiaries, Associates with the CompanyThe following table provides the transactions which have been entered into with related parties for therelevant financial year:CompanyRelationship Nature of transaction 2010 2009(Rs.)(Rs.)Subsidiaries Fund transfers in 2,985,042,073 1,589,831,172Fund transfers out 1,521,419,532 261,691,620Expenses shared 489,121,574 152,396,235Rendering of services received 79,697,623 87,000,000Asset hire income 123,955,558 4,741,543Interest received 435,421,133 243,865,699Debenture investment 685,800,000 –Debenture interest received 97,343,931 –Regular treasury management and advisory fee received 158,491,274 50,000,000Royalty received 16,073,626 31,631,927Project loan given 50,516,175 204,690,823Finance leases granted – 635,970Loan granted 53,196,476 297,569,682Supply of lease vehicles 9,744,115 4,677,700Treasury bond transfer 1,037,204,135 –Associates Cash and cash equivalents 3,658,696 –Interest bearing loans and borrowings 2,750,936,568 –Short-term investment 16,298,994 –Term deposits 323,837,302 –Repayments of finance leases obtained 62,591,783 –Finance leases granted – 3,713,274Loan granted 1,927,811 46,861,330Operating lease granted 8,893,679 18,011,675Interest received 4,880,791 1,080,223Joint Venture Loans granted 235,000,000 –Interest received 7,504,590 –

145LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsOutstanding balances as at the year end with regard to the related parties are disclosed as below:CompanyAs at 31 March 2010 2009(Rs.)Amount due from Related PartiesLanka ORIX Insurance Brokers Ltd. 40,180,257 49,728,653Lanka ORIX Finance Company Ltd. 301,431,448 191,764,934Lanka ORIX Information Technology Ltd. 402,237,818 –Lanka ORIX Project Development Ltd. 12,770,693 6,772,336Lanka ORIX Securities Ltd. – 4,778,786Sundaya Lanka (Pvt) Ltd. 4,125,229 5,064,056Gal Oya Holdings (Pvt) Ltd. 170,683,182 64,819,452Commercial Leasing Company Ltd. 1,736,466,083 320,706,558LOLC Eco Solutions Ltd. 20,199,990 –LOLC Micro Credit Ltd. – 1,815,122,592(Rs.)2,688,094,700 2,458,757,367Amount due to Related PartiesLOLC Micro Credit Ltd. 19,337,568 –LOLC Motors Ltd. 139,704,489 –Commercial Factors Ltd. 10 –Lanka ORIX Information Technology Ltd. – 33,532,746Transactions with Key Management Personnel159,042,067 33,532,746Key Management Personnel (KMPs) are defined as those persons having authority and responsibilityfor planning, directing and controlling the activities of the Company as well as the subsidiaries, director indirectly. The Key Management Personnel of the Company and Group are the Board of Directors ofthe Company and personnel holding designation Deputy General Manager and above in the Company.Independent Transactions with KMPs and transactions with the Close Family Members (CFMs) of the KMPs,if any, also been have taken into consideration in the following disclosure:Key Management Personnel CompensationGroupCompany2009/10 2008/09 2009/10 2008/09(Rs.) (Rs.) (Rs.) (Rs.)Short-Term Employment benefits 193,680,864 192,697,891 135,072,718 136,951,279Includes:- Directors’ fees 20,498,436 20,656,598 18,870,936 18,674,231- Directors’ emoluments 31,089,610 36,901,514 17,846,880 19,063,491

146LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial StatementsOther TransactionsGroupCompany2009/10 2008/09 2009/10 2008/09(Rs.) (Rs.) (Rs.) (Rs.)Advances granted 15,689,869 2,208,600 15,689,869 2,208,600Deposits held with the subsidiaries 133,907,755 10,861,543 – –Interest paid/charge 9,325,881 137,282 – –Interest payable 1,790,490 117,407 – –Transactions with Other Related PartiesTransactions, arrangements and agreements involving KMPs and their CFMs and Entities which are controlled,jointly controlled or significantly influenced by the KMP’s and their CFMs or shareholders who have eithercontrol, joint control or significant influence over the entity.Ishara TradersGroupCompany2009/10 2008/09 2009/10 2008/09(Rs.) (Rs.) (Rs.) (Rs.)Lease vehicle purchased 296,637,433 79,172,762 225,367,432 66,822,762Opening balance 01 April 1,226,102,079 – 1,226,102,079 –Loans obtained during the year 1,195,528,790 3,148,381,375 367,119,758 3,148,381,375Loan settled during the year (882,539,882) (1,922,279,296) (828,513,206) (1,922,279,296)Closing balance 31 March 1,539,090,987 1,226,102,079 764,708,631 1,226,102,079Interest Paid 253,712,001 162,272,581 226,206,403 162,272,581

147LANKA ORIX LEASING COMPANY PLCAnnual Report 2009/10Notes to the Financial Statements47. Assets PledgedThe following assets have been pledged as security for liabilities:GroupCompanyNature of Assets Nature of Liability Carrying Amount Pledged Carrying Amount PledgedGovernment treasurybondsForeign currencyterm depositsLease, hire purchase andloans receivablesMarketable shares andloans and buildingsLeasehold right2010 2009 2010 2009(Rs.) (Rs.) (Rs.) (Rs.)Secured against the Repoinstrument borrowings 4,990,000,000 – 3,800,000,000 –Interest bearing loansand borrowings 2,703,634,619 2,829,933,507 1,186,770,985 2,256,533,507Interest bearing loansand borrowings 19,276,146,707 25,152,592,390 14,384,188,630 19,624,802,733Term loan/bankoverdrafts/short-termloan/field and processingdevelopments and other 1,188,050,748 – – –Bank overdrafts/termloans/investments infield developments 582,574,058 – – –Leaseholdproperties/vehicles Finance leases 820,793,106 602,117,592 342,081,080 602,117,592Office premises/shares Term loan/loans 1,237,462,000 – – –48. Consolidation of Accounts with Those of the Subsidiary CompanyThe results of the Company’s subsidiary, Lanka Orient Investments (Pvt) Ltd., incorporated on 27 February 1986 have notbeen consolidated with that of the Company in accordance with Section 153 (6) (a) of the Companies Act No. 07 of 2007.

Independent Auditors’ ReportHMAJ/RM/BV/JJINDEPENDENT AUDITORS’REPORT TO THESHAREHOLDERS OFLANKA ORIX LEASINGCOMPANY PLCReport on the Financial StatementsWe have audited the accompanyingfinancial statements of Lanka OrixLeasing Company PLC (“Company”) andthe consolidated financial statements ofthe Company and its subsidiaries,which comprise the balance sheetsas at 31 March 2011, and the incomestatements, statements of changes inequity and cash flow statements forthe year then ended, and a summary ofsignificant accounting policies and otherexplanatory notes.Management’s Responsibility for theFinancial StatementsManagement is responsible for thepreparation and fair presentation ofthese financial statements in accordancewith Sri Lanka Accounting Standards.This responsibility includes: designing,implementing and maintaining internalcontrol relevant to the preparation andfair presentation of financial statementsthat are free from material misstatement,whether due to fraud or error; selectingand applying appropriate accountingpolicies; and making accounting estimatesthat are reasonable in the circumstances.Scope of Audit and Basis of OpinionOur responsibility is to express an opinionon these financial statements basedon our audit. We conducted our auditin accordance with Sri Lanka AuditingStandards. Those standards requirethat we plan and perform the audit toobtain reasonable assurance whetherthe financial statements are free frommaterial misstatement.An audit includes examining, on atest basis, evidence supporting theamounts and disclosures in the financialstatements. An audit also includesassessing the accounting policies usedand significant estimates made bymanagement, as well as evaluating theoverall financial statement presentation.We have obtained all the information andexplanations which to the best of ourknowledge and belief were necessary forthe purposes of our audit. We thereforebelieve that our audit provides a reasonablebasis for our opinion.OpinionIn our opinion, so far as appears fromour examination, the Company maintainedproper accounting records for the yearended 31 March 2011 and the financialstatements give a true and fair view of theCompany’s state of affairs as at 31 March2011 and its profit and cash flows for theyear then ended in accordance withSri Lanka Accounting Standards.In our opinion, the consolidated financialstatements give a true and fair view ofthe state of affairs as at 31 March 2011and the profit and cash flows for the yearthen ended, in accordance with Sri LankaAccounting Standards, of the Company andits subsidiaries dealt with thereby, so far asconcerns the shareholders of the Company.Report on Other Legal andRegulatory RequirementsIn our opinion, these financial statementsalso comply with the requirements ofSections 151(2) and 153(2) to 153(7) of theCompanies Act No. 07 of 2007.09 June 2011ColomboAnnual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 111

Balance SheetsGroup CompanyAs at 31 March 2011 2010 2011 2010RestatedNote (Rs.) (Rs.) (Rs.) (Rs.)ASSETSCash and cash equivalents 15 4,659,100,494 2,082,993,737 392,011,825 420,286,466Short-term investments 201,698,996 87,120,332 53,754,799 21,989,988Investment securities 16 14,451,096,680 11,610,836,345 3,564,192,696 4,717,840,030Investment in term deposits 2,456,187,694 2,786,322,142 221,601,049 1,173,872,285Rentals receivable on lease assets, hire purchaseand operating leases 17 28,936,756,777 17,831,697,978 1,712,647,297 3,382,564,471Advances and other loans 18 28,713,568,515 15,084,563,625 8,554,924,885 6,897,384,779Instalment sales 19 766,007,123 2,168,424,768 766,007,123 2,168,424,768Inventories 20 1,599,184,190 1,251,519,602 1,750,000 9,414,705Trade and other current assets 21 5,637,082,570 4,086,755,365 1,816,916,447 3,361,838,419Prepaid lease rentals 22 305,535,859 313,709,841 – –Investment properties 23 439,649,668 451,743,865 247,500,000 242,274,225Real estate stocks 16,261,676 22,930,299 – –Timber stocks 24 3,778,893,130 3,614,748,311 – –Immature/mature plantations 1,615,524,496 1,307,833,959 – –Investments in joint venture companies 25 – – 136,384,471 –Investments in associate companies 26 2,759,078,773 3,035,396,841 1,211,335,904 555,133,266Investments in subsidiary companies 27 – 20 8,944,162,094 3,478,297,621Deferred tax asset 28 434,654,001 774,500,366 185,030,360 430,784,145Goodwill 29 331,713,877 151,415,234 – –Intangible assets 30 239,531,119 228,018,510 61,011,327 64,901,354Property, plant and equipment 31 14,472,006,950 8,480,788,032 3,283,496,368 2,812,962,226Total assets 111,813,532,588 75,371,319,172 31,152,726,645 29,737,968,748PAGE 112 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Balance SheetsGroup CompanyAs at 31 March 2011 2010 2011 2010RestatedNote (Rs.) (Rs.) (Rs.) (Rs.)LIABILITIES AND EQUITYLiabilitiesBank overdrafts 15 4,029,204,315 2,987,337,668 2,094,424,623 1,351,271,657Deposits from customers 32 16,348,135,523 10,094,683,226 – –Interest-bearing loans and borrowings 33 46,784,293,787 35,248,089,434 20,284,843,757 21,736,055,085Provision for taxation 516,720,428 197,569,233 71,858,253 57,191,924Trade and other payables 34 7,361,431,347 5,628,201,818 1,172,832,456 1,099,157,250Deferred tax liability 35 872,361,434 442,464,504 – –Deferred income 36 288,877,431 273,765,847 – –Retirement benefit obligations 37 889,356,837 759,559,844 80,123,443 65,638,616Total liabilities 77,090,381,102 55,631,671,574 23,704,082,532 24,309,314,532EquityStated capital 38 475,200,000 475,200,000 475,200,000 475,200,000Reserves 39 1,747,745,668 765,858,265 1,096,102,808 552,292,132Retained earnings 40 10,773,393,641 6,662,696,388 5,877,341,305 4,401,162,084Equity attributable to equity holders of the Company 12,996,339,309 7,903,754,653 7,448,644,113 5,428,654,216Minority interest 21,726,812,177 11,835,892,945 – –Total equity 34,723,151,486 19,739,647,598 7,448,644,113 5,428,654,216Total liabilities and equity 111,813,532,588 75,371,319,172 31,152,726,645 29,737,968,748These Financial Statements are in compliance with the requirements of the Companies Act No. 07 of 2007.Mrs. S.S. KotakadeniyaChief Financial Officer - LOLC GroupThe Board of Directors is responsible for the preparation and presentation of these Financial Statements. Signed for and on behalf of the Board by,Mrs. R.L. NanayakkaraChairpersonMr. W.D.K. JayawardenaGroup Managing Director/CEOThe Accounting Policies and Notes on pages 118 through 176 form an integral part of these Financial Statements.31 May 2011Rajagiriya (Greater Colombo)Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 113

Income StatementsGroup CompanyFor the year ended 31 March 2011 2010 2011 2010Note (Rs.) (Rs.) (Rs.) (Rs.)GROSS REVENUE 3 32,077,327,461 14,901,831,763 6,344,360,964 6,774,470,995Revenue 14,288,491,997 3,571,367,173 – 1,199,918,890Less: Cost of sales (9,911,221,898) (2,869,272,589) – (1,029,853,463)Gross profit 4,377,270,099 702,094,584 – 170,065,427Income 4 11,943,300,157 9,941,904,483 3,511,733,478 4,552,414,083Other income/(expenses) 5 5,845,535,307 1,388,560,107 2,832,627,486 1,022,138,022Net interest costs 6 (6,420,587,888) (6,178,136,537) (2,384,015,349) (3,090,912,257)PROFIT BEFORE OPERATING EXPENSES 15,745,517,675 5,854,422,637 3,960,345,615 2,653,705,275OPERATING EXPENSESDirect expenses excluding interest costs 7 (1,017,831,003) (542,206,499) (266,842,585) (226,022,022)Provision for bad and doubtful debts (546,455,858) (635,976,370) (100,485,684) (447,278,102)Staff costs 8 (1,985,476,257) (921,351,169) (341,104,639) (244,795,068)Depreciation and amortisation (1,074,543,261) (675,884,584) (685,174,234) (589,006,764)Other operating expenses 9 (3,275,735,920) (1,624,684,237) (673,974,788) (655,475,814)Change in fair value of investment properties (13,549,065) 13,381,750 5,225,775 –RESULTS FROM OPERATING ACTIVITIES 10 7,831,926,311 1,467,701,528 1,897,989,460 491,127,505Negative Goodwill 11 271,910,632 1,423,836,934 – –Loss on disposal of subsidiaries and associates – (167,087,952) – –Share of profit of associate companies 178,522,137 116,336,631 – –PROFIT BEFORE TAXATION 8,282,359,080 2,840,787,141 1,897,989,460 491,127,505Taxation 12 (1,259,279,168) (455,381,906) (374,646,172) (164,186,875)PROFIT AFTER TAXATION 7,023,079,912 2,385,405,235 1,523,343,288 326,940,630Attributable to -Equity holders of the Company 3,840,227,908 1,841,808,956 1,523,343,288 326,940,630Minority interest 3,182,852,004 543,596,279 – –PROFIT FOR THE YEAR 7,023,079,912 2,385,405,235 1,523,343,288 326,940,630Earnings per share 13 8.08 3.88Dividend per share 14 – –Figures in brackets indicate deductions.The Accounting Policies and Notes on pages 118 through 176 form an integral part of these Financial StatementsPAGE 114 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Statements of Changes in EquityGroupAttributable to Equity Holders of the CompanySubsidiaryFutureStated Share Revaluation Taxation Statutory Retained MinorityCapital Premium Reserve Reserve Reserve Earnings Interest TotalFor the year ended 31 March 2011 (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)Balance as at 31.03.2009 475,200,000 536,504 105,402,842 205,000,000 243,473,120 4,981,857,005 80,008,329 6,091,477,800Profit for the year – – – – – 1,841,808,956 543,596,279 2,385,405,235Dividends – – – – – – – –Addition to minority throughacquisition of subsidiary - (Restated) – – – – – – 10,982,840,629 10,982,840,629Revaluations during the year – – 50,476,226 – – – 227,170,779 277,647,005Transfers during the year – (536,504) – – 161,506,077 (160,969,573) 2,276,929 2,276,929Balance as at 31.03. 2010 - (Restated) 475,200,000 – 155,879,068 205,000,000 404,979,197 6,662,696,388 11,835,892,945 19,739,647,598Profit for the year – – – – – 3,840,227,908 3,182,852,004 7,023,079,912Dividends forfeited – – – – – 1,162,576 – 1,162,576Addition to minority throughacquisition of subsidiaries – – – – – – 1,703,110,991 1,703,110,991Change in percentage holdings insubsidiary companies – – – – – (81,314,590) (1,284,685,925) (1,366,000,515)Dividend paid to minority shareholders – – – – – – (564,719,966) (564,719,966)Share issue of subsidiary companies – – – – – – 3,845,766,667 3,845,766,667Revaluation of investments – – 790,556,790 – – – 2,799,654,728 3,590,211,518Revaluation of property, plant andequipment – – 546,889,277 – – – 231,141,073 778,030,350Deferred tax on property, plant andequipment revaluation – – (4,937,305) – – – (22,200,340) (27,137,645)Realisation of investments revaluations – – (735,975,206) – – 735,975,206 – –Transfers during the year – – – – 385,353,847 (385,353,847) – –Balance as at 31.03.2011 475,200,000 – 752,412,624 205,000,000 790,333,044 10,773,393,641 21,726,812,177 34,723,151,486CompanyFutureStated Revaluation Taxation Statutory RetainedCapital Reserve Reserve Reserve Earnings TotalFor the year ended 31 March 2011 (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)Balance as at 31.03.2009 475,200,000 105,402,842 205,000,000 219,003,446 4,097,107,298 5,101,713,586Profit for the year – – – – 326,940,630 326,940,630Dividends – – – – – –Transfers during the year – – – 22,885,844 (22,885,844) –Balance as at 31.03.2010 475,200,000 105,402,842 205,000,000 241,889,290 4,401,162,084 5,428,654,216Profit for the year – – – – 1,523,343,288 1,523,343,288Dividends – – – – – –Transfers during the year – – – 48,326,643 (48,326,643) –Revaluations during the year – 495,484,033 – – – 495,484,033Dividends forfeited – – – – 1,162,576 1,162,576Balance as at 31.03.2011 475,200,000 600,886,875 205,000,000 290,215,933 5,877,341,305 7,448,644,113The Accounting Policies and Notes on pages 118 through 176 form an integral part of these Financial Statements.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 115

Cash Flow StatementsGroup CompanyFor the year ended 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)CASH FLOW FROM OPERATING ACTIVITIESProfit before taxation 8,282,359,080 2,840,787,141 1,897,989,460 491,127,505Adjustment for:Net (Profit)/loss on sale of property, plant and equipment 25,890,860 (54,432,364) 36,300,647 (10,271,603)Depreciation and amortisation 1,074,543,261 675,884,584 685,174,234 589,006,764Provision for defined benefit plans 215,070,845 25,125,609 13,197,616 9,752,577Allowances for doubtful debts 546,455,858 635,976,370 100,485,684 447,278,102Provision for fall/(increase) in value of investments (1,035,134,489) (97,849,681) (718,294,170) (71,115,335)Capital gain on sale of treasury bond (550,983,898) (31,239,182) (272,172,043) (31,239,182)Investment income (688,965,710) (49,986,556) (52,882,917) (24,469,270)Finance cost 6,433,250,418 6,250,681,039 2,394,677,826 3,154,048,049Interest income (12,662,530) (72,544,502) (10,662,477) (63,135,792)Change in fair value of investment properties 13,549,065 (13,381,750) (5,225,775) –(Profit)/loss on sale of subsidiaries, associates and shares (1,958,298,140) 34,973,457 (667,164,597) (141,528,621)Negative Goodwill (271,910,632) (1,423,836,934) – –Share of profit of equity accounted investees (178,522,137) (116,336,631) – –Impairment of investments – – 29,940,752 –Operating profit before working capital changes 11,894,641,852 8,603,820,600 3,431,364,240 4,349,453,194Working capital changes(Increase)/decrease in trade and other receivables 127,159,537 1,533,337,923 1,552,231,698 89,359,683(Increase)/decrease in inventories (461,748,549) 76,749,509 7,664,705 (9,414,705)Increase/(decrease) in trade and other payables 1,471,567,280 581,174,305 219,072,176 107,622,035(Increase)/decrease in real estate stocks 6,668,623 9,201,627 – 3,135,535(Increase)/decrease in investment in leases, hire purchase and others (11,500,763,582) (638,467,487) 1,584,779,618 2,842,282,945(Increase)/decrease in factoring account receivable (2,699,238,197) (1,104,599,746) (1,142,066,549) (469,142,563)(Increase)/decrease in investment in advances and other loans (9,743,424,178) (1,415,254,957) 873,978,759 3,172,974,515Cash generated from operations (10,905,137,213) 7,645,961,774 6,527,024,647 10,086,270,639Finance cost paid (6,387,667,991) (6,250,681,039) (2,498,600,000) (3,487,464,625)Income tax and Economic Service Charge paid (501,206,982) (199,109,675) (114,226,058) (70,083,301)Defined benefit plan costs paid (109,855,568) (5,607,181) (2,880,483) (657,680)Net cash from/(used in) operating activities (17,903,867,753) 1,190,563,879 3,911,318,106 6,528,065,033PAGE 116 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Cash Flow StatementsGroup CompanyFor the year ended 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)CASH FLOW FROM INVESTING ACTIVITIESInvestment in subsidiary companies – – (5,495,805,225) (497,939,562)Acquisition of minority interest (1,366,000,515) – – –Acquisition of subsidiaries net of cash (2,848,451,166) (1,339,581,567) – –Investment in equity accounted investees (2,206,647,702) (1,566,763,995) (756,202,639) (508,146,451)Investment in joint venture – – (36,384,471) –Acquisition of property, plant and equipment (2,886,588,358) (1,243,488,066) (1,647,861,464) (1,208,408,322)Acquisition of intangible assets (69,197,493) (43,621,506) (14,371,445) (42,157,136)Acquisition of investment properties – (226,077,242) – (226,077,242)Net proceeds from short-term investments (114,578,669) 609,557,837 (31,764,807) (8,625,760)Proceeds from sale of subsidiaries, associates and shares 7,116,016,375 354,859,354 1,940,420,063 545,750,364Net additions to investments (27,293,000) (7,955,218,728) 870,858,081 (4,466,400,399)Net investment in term deposits 383,882,448 1,056,179,289 952,271,234 1,107,582,204Proceeds from the sale of property, plant and equipment 1,087,766,387 400,356,144 931,070,610 318,552,801Interest received 12,662,530 72,544,502 10,662,477 63,135,792Dividend received 713,099,630 56,214,949 45,573,201 24,469,270Rent received – 4,969,047 – –Net cash flow from investing activities (205,329,531) (9,820,069,982) (3,231,534,385) (4,898,264,441)CASH FLOW FROM FINANCING ACTIVITIESNet cash proceeds from short-term interest-bearingloans and borrowings 1,052,499,211 6,457,176,647 (640,737,952) 2,866,740,078Principal repayment under finance lease liabilities (466,324,628) (379,074,524) (110,691,251) (320,044,362)Net proceeds from customer deposits 6,253,452,297 4,865,762,251 – –Proceeds from long-term interest-bearing loans and borrowings 20,374,573,885 4,444,524,019 6,443,121,963 1,048,958,127Repayments of long-term interest-bearing loans and borrowings (10,851,810,070) (6,917,441,902) (7,142,904,088) (4,799,726,125)Proceeds from issuance of debentures – 172,230,000 – –Proceeds from share issue of subsidiary companies 3,845,766,666 – – –Dividend paid to minority shareholders (564,719,966) – – –Net cash generated from financing activities 19,643,437,395 8,643,176,491 (1,451,211,328) (1,204,072,282)Net increase/(decrease) in cash and cash equivalents during the year 1,534,240,110 13,670,388 (771,427,607) 425,728,310Cash and cash equivalents at the beginning of the year (904,343,931) (918,014,319) (930,985,191) (1,356,713,501)Cash and cash equivalents at the end of the year 629,896,179 (904,343,931) (1,702,412,798) (930,985,191)Analysis of cash and cash equivalents at the end of the yearCash at bank and in hand (Note 15.1) 4,659,100,494 2,082,993,737 392,011,825 420,286,466Bank overdraft (Note 15.2) (4,029,204,315) (2,987,337,668) (2,094,424,623) (1,351,271,657)629,896,179 (904,343,931) (1,702,412,798) (930,985,191)The Accounting Policies and Notes on pages 118 through 176 form an integral part of these Financial Statements.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 117

Notes to the Financial StatementsNotePageNotePage1. Corporate Information1. Corporate Information 1182. Accounting Policies 1193. Gross Revenue 1344. Income 1345. Other Income/(Expenses) 1356. Net Interest Costs 1357. Direct Expenses ExcludingNet Interest Costs 1368. Staff Costs 1369. Other Operating Expenses 13610. Results from Operating Activities 13611. Negative Goodwill 13712. Taxation 13713. Earnings Per Share 13914. Dividend Per Share 13915. Cash and Cash Equivalents 13916. Investment Securities 14017. Rentals Receivable on LeasedAssets, Hire Purchases andOperating Leases 14418. Advances and Other Loans 14619. Instalment Sales 14720. Inventories 14821. Trade and Other Current Assets 14822. Prepaid Lease Rentals 14923. Investment Properties 14924. Timber Stocks 15025. Investments in Joint VentureCompanies 15026. Investments in AssociateCompanies 15127. Investments in SubsidiaryCompanies 15428. Deferred Tax Asset 15729. Goodwill 15830. Intangible Assets 15831. Property, Plant and Equipment 16032. Deposits from Customers 16233. Interest Bearing Loans andBorrowings 16234. Trade and Other Payables 16335. Deferred Tax Liabilities 16436. Deferred Income 16437. Retirement Benefit Obligations 16538. Stated Capital 16539. Reserves 16640. Retained Earnings 16641. Comparative Information 16742. Segmental Information 16843. Loans to Employees(Rs. 20,000/- and above) 16944. Commitments and Contingencies 17045. Events After theBalance Sheet Date 17146. Related Party Disclosures 17247. Assets Pledged 1761.1 GeneralLanka ORIX Leasing Company PLC(‘the Company’) is a public quotedcompany incorporated on 14 March1980 and domiciled in Sri Lanka. TheConsolidated Financial Statements of theCompany for the year ended 31 March2011 comprise of the Company and itssubsidiaries (together referred to asthe ‘Group’) and the Group’s interest inassociates and jointly controlled entities.The Financial Statements were authorisedfor issue by the Directors on 31 May 2011.Lanka ORIX Leasing Company PLC doesnot have an identifiable parent.1.2 Principal Activities andNature of OperationsDuring the year, the principal activities ofthe Company comprised of leasing, hirepurchase, loans, operating leases andfactoring. Descriptions of the nature ofoperations and principal activities of thesubsidiaries, jointly-controlled entities andassociates are given in Notes 25, 26 and 27respectively in these Financial Statements.1.3 Directors’ ResponsibilityStatementThe Board of Directors takes theresponsibility for the preparation of theseFinancial Statements.PAGE 118 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statements2. Accounting Policies2.1 Statement of ComplianceThe Financial Statements of theCompany and those consolidated withsuch are prepared in accordance with theSri Lanka Accounting Standards laid downby The Institute of Chartered Accountantsof Sri Lanka and in compliance with theCompanies Act No. 07 of 2007.Effect of accounting standards issued butnot yet effective:(a) The following standards have beenissued by The Institute of CharteredAccountants of Sri Lanka.- Sri Lanka Accounting Standard 44Financial Instruments; Presentation(SLAS 44)- Sri Lanka Accounting Standard 45Financial Instruments; Recognitionand Measurement (SLAS 45)- Sri Lanka Accounting Standard 39Share Based Payments (SLAS 39)The effective date of SLAS 44, 45 and39 was changed during the year to beeffective for financial periods beginningon or after 01 January 2012. Thesethree standards have been amendedand forms a part of the new set offinancial reporting standards mentionedunder Note (b) below. In order to complywith the requirements of the twoFinancial Instruments Standards, theCompany is in the process of assessingthe effect of adoption of these twostandards. Due to the complex nature ofthe effects of these two standards theimpact of adoption cannot be estimatedas at the date of publication of theseFinancial Statements.(b) Following the convergence ofSri Lanka Accounting Standards withthe International Financial ReportingStandards, the Council of The Instituteof Chartered Accountants of Sri Lankahas adopted a new set of financialreporting standards that would applyfor financial periods beginning onor after 01 January 2012. These newAccounting Standards are prefixed bothSLFRS and LKAS, which correspond tothe relevant IFRS and IAS. The effectof application of these new financialreporting standards is substantiallydifferent to the prevailing standards.2.2 Basis of PreparationThe Financial Statements are presented inSri Lankan Rupees which is the Company’sfunctional currency. Where appropriate,the Significant Accounting Policies havebeen disclosed in the succeeding Notes.The Financial Statements are preparedon the historical cost basis except Landand Building, Investment Properties andInvestments in Quoted Ordinary Shareswhich are stated at valuation as shown inNotes 31, 23 and 16.1 respectively in theFinancial Statements. No adjustment hasbeen made for inflationary factors affectingthe Financial Statements. Assets andliabilities are grouped by nature and listed inan order that reflect their relative liquidity.The Accounting Policies have beenconsistently applied by the Group andare consistent with those used in theprevious year. The specific policies usedare explained below and relate to both theConsolidated Financial Statements and thatof the Company, except stated otherwise.Previous period figures and Notes havebeen reclassified and restated wherevernecessary to conform to the currentpresentation, as explained in Note 41.Significant Accounting Judgments,Estimates and AssumptionsThe preparation of the FinancialStatements in conformity with SLASsrequires management to make judgments,estimates and assumptions that affect theapplication of accounting policies and thereported amounts of assets, liabilities,income and expenses. Actual results maydiffer from these estimates.Further, the management is required toconsider, key assumptions concerning thefuture and other key sources of estimationof uncertainty at the Balance Sheet datethat may have a significant risk of causingmaterial adjustments to the carryingamounts of assets and liabilities. Therespective carrying amounts of assets andliabilities are given in the related Notes tothe Financial Statements. The key itemswhich involve these judgments, estimatesand assumptions are discussed below:Impairment Losses on Loans andAdvances:In addition to the provisions madefor possible loan losses based on theparameters and directives for specificprovisions on Loans and Advances by theCentral Bank of Sri Lanka, the Companyand its subsidiaries reviews its Loans andAdvances portfolio at each reporting dateto assess whether a further allowancefor impairment should be provided in theIncome Statement. The judgments by themanagement is required in the estimationof these amounts and such estimations areAnnual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 119

Notes to the Financial Statementsbased on assumptions about a number offactors though actual results may differ,resulting in future changes to the provisions.Defined Benefit PlansThe cost of defined benefit plans - gratuityis determined using actuarial valuations.The actuarial valuation involves makingassumptions about discount rates,expected rates of return on assets, futuresalary increases, mortality rates and futurepension increases. Due to the long-termnature of these plans, such estimates aresubject to significant uncertainty.Deferred Tax AssetsDeferred tax assets are recognised forall unused tax losses to the extent thatit is probable that taxable profit will beavailable against which the losses canbe utilised. Significant managementjudgment is required to determine theamount of deferred tax assets that can berecognised, based upon the likely timingand level of future taxable profits togetherwith future tax planning strategies.Reviews of Impairment Losses onOther AssetsThe Group determines whether assetshave been impaired by performing animpairment review. This requires theestimation of the ‘value in use’ of thecash generating units. Estimating valuein use requires management to make anestimate of the expected future cash flowsfrom the cash generating unit and also toselect a suitable discount rate in order tocalculate the present value of the relevantcash flows. This valuation requires theGroup to make estimates about expectedfuture cash flows and discount rates, andhence, they are subject to uncertainty.Useful Lives of Property, Plant andEquipmentThe Group reviews the assets’ residualvalues, useful lives and methods ofdepreciation at each reporting date.Judgment by the management is exercisedin the estimation of these values, ratesand methods.2.3 Going ConcernThe Directors have made an assessmentof the Company’s ability to continue asa going concern and they do not intendeither to liquidate or to cease business.2.4 Basis of ConsolidationFinancial Statements of all Companiesin the Group are prepared to a commonfinancial year, which ends on 31 Marchexcept Maturata Plantations Ltd.,Commercial Insurance Brokers,Pussellawa Plantations Ltd. and PrasacMicro Finance Company, Cambodia ofwhich year end is 31 December. However,Management Financial Statements forthe three months period ended 31 Marchhave been considered for the purpose ofConsolidated Financial Statements of theGroup except for Prasac Micro FinanceCompany, Cambodia and CommercialInsurance Brokers.2.4.1 SubsidiariesThe Financial Statements of the Grouprepresent the consolidation of theFinancial Statements of Lanka ORIXLeasing Company PLC and its subsidiariesas disclosed in Note 27. Subsidiariesare entities controlled by the Company.Control exists when the Company hasthe power, directly or indirectly, to governthe financial and operational policies ofan entity so as to obtain benefits from itsactivities. In assessing control, potentialvoting rights that presently are exercisableor convertible are taken into account.Subsidiaries are consolidated from thedate the Parent Company obtains controluntil such time control ceases. Acquisitionof subsidiaries is accounted for using thepurchase method of accounting.The Group Financial Statements areprepared in accordance with theSri Lanka Accounting Standard - 26 -‘Consolidated Financial Statements‘.Minority Interests in the net assetsnot owned, directly or indirectly, bythe Company are presented in theConsolidated Balance Sheet within Equity,separately from the Equity Attributable toEquity Holders of the Parent (Company).Minority Interests in the profit or loss ofthe Group are presented separately in theConsolidated Income Statement.2.4.2 Associates - Equity AccountedInvesteesAssociates are those entities in which theGroup has significant influence, but notcontrol, over the financial and operatingactivities.Associates are accounted for using theequity method (equity accounted investees)and are initially recognised at cost. TheGroup’s investment in associate includesgoodwill identified on acquisition, net ofany accumulated impairment losses. TheConsolidated Financial Statements includethe Group’s share of the income andexpenses and equity movements of equityaccounted investees, after adjustments toPAGE 120 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statementsalign the accounting policies with those ofthe Group, from the date that significantinfluence commences until the date thatsignificant influence ceases. When theGroup’s share of losses exceeds its interestin an equity accounted investee, thecarrying amount of that interest (includingany long-term investments) is reduced tonil and the recognition of further lossesis discontinued except to the extent thatthe Group has an obligation or has madepayments on behalf of the investee.Associate Companies of the Group whichhave been accounted for under the equitymethod of accounting are disclosed underNote 26 to these Financial Statements.2.4.3 Jointly-Controlled EntitiesJoint ventures are those entities overwhose activities the Group has jointcontrol, established by contractualagreement and requiring unanimousconsent for strategic financial andoperating decisions.Jointly-controlled entities are accounted forusing proportionate consolidation method,from the date that significant influence orjoint control commences until the date thatsignificant influence or joint control ceases.Jointly-controlled entities of the Groupwhich have been accounted for underthe proportionate consolidation methodof accounting are disclosed in Note 25 inthese Financial Statements.2.4.4 Business Combinations andGoodwillAll business combinations have beenaccounted for by applying the purchasemethod in accordance with the Sri LankaAccounting Standard 25 (Revised 2004) -‘Business Combinations’. Applying thismethod involves the entity that obtainscontrol of the other entity to recognise thefair value of assets acquired and liabilitiesand contingent liabilities assumed, includingthose not previously recognised.Goodwill represents the excess of the costof any acquisition of a subsidiary or anassociate over the Group’s interest in thenet fair value of the identifiable assets,liabilities and contingent liabilities acquired.When the excess is negative (negativegoodwill) it is recognised immediately in theIncome Statements.Goodwill is initially recognised at cost.The Company will test the goodwill forimpairment annually and assess for anyindication of impairment to ensure thatits carrying amount does not exceed therecoverable amount. If an impairment lossis identified, it is recognised immediatelyto the Income Statement. For the purposeof impairment testing, goodwill acquiredin a business combination is, from theacquisition date, allocated to groups ofcash-generating units that are expectedto benefit from the synergies of thecombination. The impairment loss isallocated first to reduce the carryingamount of any goodwill allocated to theunit and then to the other assets pro-ratato the carrying amount of each asset in theunit. Where goodwill forms part of a cashgeneratingunit and part of the operationwithin that unit is disposed of, the goodwillassociated with the operation disposed ofis included in the carrying amount of theoperation when determining the gain orloss on disposal of the operation.Carrying amount of the goodwill arisingon acquisition of subsidiaries and jointventures is presented as an intangible andthe goodwill on an acquisition of an equityaccounted investment is included in thecarrying value of the investment.If the Group’s interest, in the net fair valueof the identifiable assets, liabilities andcontingent liabilities exceeds the cost ofthe acquisition of the entity, the Groupwill reassess the measurement of theacquiree’s identifiable assets and liabilitiesand the measurement of the cost andrecognise the difference immediately inthe Consolidated Income Statement.2.4.5 Transactions Eliminated onConsolidationAll intra-group balances, income andexpenses and unrealised gains and lossesresulting from intra-group transactionsare eliminated in full in preparing theConsolidated Financial Statements.2.5 Assets and Bases of theirValuation2.5.1 Cash and Cash EquivalentsCash and cash equivalents comprise ofcash in hand and cash at banks. Bankoverdrafts that are repayable on demandform an integral part of the Group cashmanagement and are included as acomponent of cash and cash equivalents forthe purpose of the statement of cash flows.2.5.2 Rentals Receivable on FinanceLeases and Hire PurchaseRentals receivable on leased and hirepurchased assets are accounted foras finance leases, hire purchases andreflected in the Balance Sheet at balancecost recoverable after eliminatingunearned income and deducting pre-paidrentals, rental collections and provision forbad and doubtful debts.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 121

Notes to the Financial Statements2.5.3 Advances and Other Loans toCustomersAdvances and other loans to customerscomprised of revolving loans, loans withfixed instalments, factoring and pawningadvances.Revolving loans to customers are reflectedin the Balance Sheet at amounts disbursedless repayments and provision for doubtfuldebts. Loans to customers with fixedinstalments are stated in the BalanceSheet net of possible loan losses and net ofinterest, which is not accrued to revenue.• One hundred per cent (100%) of allaccommodations where instalmentsare not paid on a monthly basis,whenever the Company has realisedthat instalments will not be paid on thedue dates.Additional specific provisions are madeupon management review on theperformance of the lease, hire purchaseand loan portfolios on a case-by-case basis.Facilities that are overdue for 18 months ormore and fully-provided have been writtenoffagainst the provisions made.Lanka ORIX Finance Company Ltd. andCommercial Leasing Company Ltd.provide for bad and doubtful debts basedon the Direction No. 3 of 2006 of theFinance Companies Act No. 78 of 1988.• Fifty per cent (50%) on all receivables(net of unearned income) which are inarrears for a period of 6 to 12 months.• One hundred per cent (100%) on allreceivables (net of unearned income)which are in arrears for a period of12 months and more with additionalspecific provisions.2.5.4 Provision for Doubtful DebtsThe specific provisions for doubtful debtsare arrived at using the following bases:Lanka ORIX Leasing Company PLCand LOLC Micro Credit Ltd. computeprovisioning for bad and doubtful debtsaccording to the Central Bank DirectionNo. 2 of 2006 of the Finance LeasingAct No. 56 of 2000.• Twenty per cent (20%) of all lease, hirepurchase and loan receivables (net ofunearned income) which are in arrearsfor a period of 6 to 12 months.• Fifty per cent (50%) of all leases, hirepurchases and loan receivables (net ofunearned income) which are in arrearsfor a period of 12 to 18 months.• One hundred per cent (100%) of allleases, hire purchases and loanreceivables (net of unearned income)which are in arrears for a period of18 months and more.Lanka ORIX Leasing Company PLCand LOLC Micro Credit Ltd. computeprovisioning for bad and doubtful debtson high risk micro products according tothe Direction No. 3 of 2006 of the FinanceCompanies Act No. 78 of 1988.The values of the following items heldas collateral for a particular advancehave been deducted in arriving the aboveprovisions:With regard to vehicles that have beenrepossessed by the Company and notsold, eighty per cent (80%) of the valuationobtained during the preceding 6 monthsfrom a professional valuer is beingdeducted in arriving at the provision forbad and doubtful debts. With regard toland and buildings, the full value, in caseof a primary mortgage, such value shallnot exceed the value decided by a qualifiedprofessional valuer at the time of providingthe accommodation.Additional specific provisions aremade upon management review on theperformance of leases, hire purchasesand loan portfolios. Facilities that areoverdue for 12 months or more andfully-provided have been written-offagainst the provisions made.The values of the following items held ascollateral for a particular advance havebeen deducted in arriving at the aboveprovisions:With regard to vehicles that have beenrepossessed by Lanka ORIX FinanceCompany Ltd., eighty per cent (80%) of thevaluation obtained during the preceding6 months from a professional valuer. Withregard to land and buildings, the full value,in case of a primary mortgage, such valueshall not exceed the value decided by aqualified professional valuer at the time ofproviding the accommodation.Balance receivable on TerminatedContracts for Lease, Hire PurchaseAdvances and Loans One hundred per cent(100%) of proceeds receivables.PAGE 122 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statements2.5.5 Factoring ReceivablesFactoring receivables of the Group havebeen stated net of specific provisionsbased on Company provisioning policy.Any amount uncollectable is written-offagainst profits.The specific provisions for doubtful debtsare arrived at using the following bases:• If one hundred per cent (100%) of thesales ledger is disputed, and no furthertransactions have taken place for aperiod of 6 months, 50% of the CurrentAccount balance is provided for, fromthe last date of dispute.• When this period reaches 12 months100% is provided for.However, if the total of settlementsreceived within the said 3 months is lessthan 25% of the overdue Current Accountbalance, 50% of such Current Accountbalance is provided in 6 months and the100% provided after 12 months as in thecase of such accounts.Further, the total portfolio is reviewedquarterly to capture any accounts that arenot falling under the above criteria butare considered as ‘non-performing’.Such accounts are considered forprovisioning on a case-by-case basis,under specific provisioning.Commercial Leasing Company Ltd. makesa general provision of 0.75% of factoringreceivables to absorb any losses arisingfrom unforeseen events.2.5.6 InventoriesInventories are stated at the lower of costand net realisable value after makingdue allowance for obsolete and slowmoving items. Net realisable value is theestimated selling price in the ordinarycourse of business, less the estimatedcosts of completion and selling expenses.The cost incurred in bringing inventoriesto its present location and condition isaccounted using the following cost formula:Type of InventoryMethod of ValuationInput MaterialsAt total purchased cost using Weighted AverageCost Formula.Growing Crop - Nurseries At the cost of direct materials, direct labour andappropriate proportion of directly attributable overheadsless provision for over-grown plants.Produce StocksProduce Stocks manufactured up to the Balance Sheetdate and sold since then, until the time of preparationof the Financial Statements are valued at sincerealised price. The balance Produce Stocks are valuedat estimated selling prices. The prices are net of allattributable expenses relating to the public auction.Spares and Consumables At purchase cost on weighted average basis.Inventory items except finished First-in first-out cost (FIFO)goods and work-in-progressFinished goods andFactory cost which includes all direct expenditure andwork-in-progressproduction overheads based on normal operating capacity.2.5.7 Timber StocksThe accounting policies adopted forTimber plantations which is a consumablebiological asset, is stated at fair value lessestimated point-of-sale-costs. Point-ofsale-costsinclude all the costs that wouldbe necessary to sell the assets, includingcosts necessary to get the assets to market.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 123

Notes to the Financial StatementsThe plantation companies have engagedan Independent Chartered ValuationSurveyor Mr. K.T.D. Tissera in determiningthe fair value of Timber Stocks andRubber. The Valuer has valued the TimberStocks and Rubber per tree valuationbasis by using available log and tree pricesin city centres less point-of-sale-costs.The plantation companies measured theTimber Stocks and Rubber as fair valueless estimated point-of-sale-costs as ateach Balance Sheet date.2.5.8 Real Estate StocksReal estate stocks of the Group representthe purchase value of properties andany subsequent expenditure incurred ondevelopment of such properties.2.5.9 Short-Term InvestmentsShort-term investment comprises of calldeposits and interest earning demanddeposits with banks. Call deposits anddeposits with banks are stated at theamounts to be realised.2.5.10 Investments in Term DepositsTerm deposits are stated at principalamount plus interest accrued on a timeproportionate basis.2.5.11 Investment SecuritiesInvestment in Quoted SharesInvestments in quoted shares are statedat their respective market values on anaggregate portfolio basis. The differencebetween cost and the market value ischarged to the Income Statement.The quoted investments of the BrownsGroup are stated at the market value asat the Balance Sheet date. The excess onrevaluation is credited to revaluation ofinvestments in the statement of changesin equity.Investment in Government SecuritiesInvestments in Government TreasuryBonds held to maturity are reflected atthe value of the Bonds purchased and thediscount/premium accrued thereon andcarried at these values till their maturityin the Balance Sheet. Discount received/premium paid is taken to the IncomeStatement based on a pattern reflecting aconstant periodic rate of return.Investment in Non-Quoted SharesInvestment in non-quoted shares arestated at cost of acquisition and adjustedfor any fall in value, which are other thantemporary.2.5.12 Trade ReceivablesTrade and other receivables are stated atthe amounts they are estimated to realise,net of provisions for bad and doubtfulreceivables. A provision for doubtful debtsis made when the debt exceeds 365 days,and collection of the full amount is nolonger probable. Bad debts are written-offwhen identified.2.5.13 Other ReceivablesOther receivable balances are statedat estimated amounts receivable afterproviding for doubtful receivables.2.5.14 Intangible AssetsBasis of RecognitionAn Intangible Asset is recognised if it isprobable that future economic benefitsthat are attributable to the assets will flowto the entity and the cost of the assets canbe measured reliably.Basis of MeasurementIntangible assets acquired separatelyare measured at initial recognitionat cost. Following initial recognition,intangible assets are carried at cost lessany accumulated amortisation and anyaccumulated impairment losses. Theuseful life of intangible assets is assessedto be either finite or indefinite. Intangibleassets with finite areas are amortised overthe useful economic life and assessedfor impairment whenever there is anindication that the intangible asset maybe impaired. The amortisation period andthe method for an intangible asset witha finite useful life is reviewed at least ateach financial year end. Intangible assetswith indefinite useful lives are tested forimpairment annually either individually orat the cash generating unit level.Subsequent ExpenditureSubsequent expenditure on intangibleassets is capitalised only when it increasesthe future economic benefits embodiedin these assets. All other expenditure isexpensed when incurred.PAGE 124 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsDerecognitionIntangible assets are derecognised ondisposal or when no future economicbenefits are expected from its use. Thegain or loss arising from derecognitionof intangible assets are measured asdifference between the net disposalproceeds and the carrying amount of theasset and are recognised in the IncomeStatement when the intangible assetsare recognised.AmortisationAmortisation is based on the cost of anasset less its residual value. Amortisationis recognised in profit or loss on astraight-line basis over the estimateduseful lives of intangible assets from thedate that they are available for use.The estimated useful life of eachintangible asset is as follows:Computer Software5 yearsBrand Name10 yearsCustomer Base5 years2.5.15 Investment PropertyBasis of RecognitionProperties held to earn rental income, andproperties held for capital appreciationhave been classified as investmentproperty. Investment properties are initiallyrecognised at cost.Basis of MeasurementFair Value ModelInvestment properties are initiallyrecognised at cost. Subsequent to initialrecognition, the investment propertiesare stated at fair values, which reflectmarket conditions at the Balance Sheetdate. Gains or losses arising from changesin fair value are included in the IncomeStatement in the year in which theyarise. Where Group Companies occupya significant portion of the investmentproperty of a subsidiary, such investmentproperties are treated as property, plantand equipment in the ConsolidatedFinancial Statements, and accounted foras per SLAS 18 (Revised) - ‘Property, Plantand Equipment’.DerecognitionInvestment properties are derecognisedwhen either they have been disposedof or when the investment property ispermanently withdrawn from use andno future economic benefit is expectedfrom its disposal. Any gains or losseson the retirement or disposal of aninvestment property are recognised inthe Income Statement in the year ofretirement or disposal.Subsequent Transfers to/fromInvestment PropertyTransfers are made to investmentproperty when, and only when, there isa change in use, evidenced by the endof owner occupation, commencementof an operating lease to another partyor completion of construction ordevelopment. Transfers are made frominvestment property when, and only when,there is a change in use, evidenced bycommencement of owner occupation orcommencement of development with aview to sell.For a transfer from investmentproperty to owner occupied property orinventories, the deemed cost of propertyfor subsequent accounting is its fairvalue at the date of change in use. If theproperty occupied by the Company asan owner occupied property becomesan investment property, the Company,accounts for such property in accordancewith the policy stated under property, plantand equipment up to the date of changein use. For a transfer from inventoriesto investment property, any differencebetween the fair value of the propertyat that date and its previous carryingamount is recognised in the IncomeStatement. When the Company completesthe construction or development of aself-constructed investment property,any difference between the fair value ofthe property at that date and its previouscarrying amount is recognised in theIncome Statement.Determining Fair ValueAn external, independent valuer, havingappropriate recognised professionalqualifications and recent experience in thelocation and category of property beingvalued, values the investment propertyportfolio every 3 years. In financialperiods within that period the fair valueis determined by the Directors. The fairvalues are based on market values,being the estimated amount for whicha property could be exchanged on thedate of the valuation between a willingbuyer and a willing seller in an arm’slength transaction after proper marketingwherein the parties had each actedknowledgeably.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 125

Notes to the Financial Statements2.5.16 Property, Plant and Equipmenta. Basis of RecognitionProperty, plant and equipment arerecognised if it is probable that futureeconomic benefits associated with theasset will flow to the Group and cost of theasset can be reliably measured.b. Basis of MeasurementItems of property, plant and equipmentare measured at cost/revaluation lessaccumulated depreciation/impairmentlosses.Cost includes expenditure that is directlyattributable to the acquisition of theasset. The cost of self-constructed assetsincludes the cost of materials and directlabour, any other costs directly attributableto bringing the asset to a working conditionfor its intended use, and the costs ofdismantling and removing the items andrestoring the site on which they are located.When parts of an item of property, plantand equipment have different useful lives,they are accounted for as separate itemsof property, plant and equipment.Gains and losses on disposal of an itemof property, plant and equipment aredetermined by comparing the proceedsfrom disposal with the carrying amountof property, plant and equipmentand are recognised net within ‘otherincome’ in profit or loss. When revaluedassets are sold, the amounts includedin the revaluation surplus reserve aretransferred to retained earnings.Cost ModelThe Group applies the cost model to allproperty, plant and equipment, exceptfreehold land and buildings, recordsat cost of purchase together with anyincidental expenses thereon less anyaccumulated impairment losses.Revaluation ModelA revaluation of property, plant andequipment of Browns Group of Companiesis done after a review once a year whenthere is a substantial difference betweenthe fair value (market value) and the bookvalue of the asset and is undertakenby professionally qualified valuers.Lanka ORIX Leasing Company PLC andCommercial Leasing Company Ltd.revalue their land and buildings once inthree years.When an asset is revalued, any increasein the carrying amount is transferred toa revaluation reserve, unless it reversesa previous revaluation decrease relatingto the same asset, which was recognisedin the Income Statement. When there isa revaluation loss it is recognised in theIncome Statement unless it reverses aprevious revaluation gain recognised inthe revaluation reserve for the same classof asset in which case it is charged torevaluation reserve.c. Subsequent CostsThe cost of replacing part of an itemof property, plant and equipment isrecognised in the carrying amount ofthe item if it is probable that the futureeconomic benefits embodied within thepart will flow to the Group and its cost canbe measured reliably. The carrying amountof the replaced part is derecognised.The costs of the day-to-day servicingof property, plant and equipment arerecognised in profit or loss as incurred.d. DepreciationDepreciation is provided from the datethe asset is available for use up to thedate it derecognises. The Company andits subsidiaries provide depreciation forthe following assets on the straight linemethod over the estimated useful lifestated below. Land is not depreciated.Building40-50 yearsPlant and Machinery 8 yearsMotor Vehicles4-5 yearsFurniture and Fittings 5 -10 yearsOffice Equipment 5 yearsComputer Equipment5 yearse. Operating Lease AssetsOperating lease assets are motor vehiclesand equipment shown under property,plant and equipment in the Balance Sheetat cost less accumulated depreciation.The depreciable amount of motor vehiclesis depreciated over the useful life ofthe asset. The depreciable amount isthe cost of the asset less the residualvalue. Residual value for motor vehiclesis the estimated amount to be obtainedfrom disposal of the motor vehicle atthe end of useful life which is calculatedby discounting the expected realisablevalue by the average lending rate. Theresidual value is reassessed annually andthe change in deprecation is adjustedprospectively. Equipment are depreciatedover the lease period on straight-line basis.PAGE 126 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statementsf. Finance LeasesLeases in terms of which the Groupassumes substantially all the risks andrewards of ownership are classifiedas finance leases. Assets acquired byway of a finance lease are stated at anamount equal to the lower of their fairvalue and the present value of minimumlease payments at the inception lessaccumulated depreciation.Leasehold Rights to Bare Land ofJEDB/SLSPC Estate Assets andImmovable (JEDB/SLSPC) EstateAssets on Finance LeaseLeasehold Rights to bare land of JEDB/SLSPC estate assets and immovable(JEDB/SLSPC) estate assets on financelease obtained on a long-term basis, arestated at the recorded carrying valuesas at the effective date of Sri LankaAccounting Standard 19 - ‘Leases’, inline with Ruling of the Urgent IssuesTask Force of The Institute of CharteredAccountants of Sri Lanka. Such carryingamounts are amortised over the remaininglease term or useful life of such assetwhichever is shorter.g. Leasehold PropertyPrepaid lease rentals paid to acquire landuse rights are amortised over the leaseterm in accordance with the pattern ofbenefits provided. Leasehold propertiesare tested for impairment annually andare written down where applicable. Theimpairment loss, if any, is recognised inthe Income Statement.h. Leasehold VehiclesLeasehold vehicles are assets obtained onfinance leases facilities by the Companyfor the business of hiring and shown underthe property, plant and equipment in theBalance Sheet at cost less accumulateddepreciation.The depreciable amount of leaseholdvehicles is depreciated over the usefullife of the asset. The depreciable amountis the cost of the asset less the residualvalue. Residual value for motor vehiclesis the estimated amount to be obtainedfrom disposal of the motor vehicle atthe end of useful life which is calculatedby discounting the expected realisablevalue by the average lending rate. Theresidual value is reassessed annually andthe change in depreciation is adjustedprospectively.i. Leasehold MachineryLeasehold machineries are machineryand equipment shown under property,plant and equipment in the Balance Sheetat cost less accumulated depreciation.Depreciation on leasehold machinery iscomputed over the lease period.j. Capital Work-in-ProgressCapital work-in-progress is stated at cost.These are expenses of a capital naturedirectly incurred in the construction ofbuilding.k. Mature Plantations (Re-planting andNew Planting)Tea 33 1/3 years 3%Rubber 20 years 5%Coconut 50 years 2%Depreciation of an asset begins when it isavailable for use, and ceases at the earlierof the date that the asset is classified asheld for sale or the date that the assetis derecognised. Depreciation methods,useful lives values are assessed at thereporting date. Mature plantations aredepreciated over their useful lives orunexpired lease period, whichever is less.No depreciation is provided for immatureplantations and freehold land.l. AmortisationThe leasehold rights of assets taken overfrom JEDP/SLSPC are amortised in equalamounts over the lower of lease periodand economic useful life.Depreciation rates used for the purposeare as follows:No. ofYearsRate%Bare Land 53 1.89Mature Plantations 30 3.33Buildings 25 4.00Machinery 15 6.67Water and Sanitation 20 5.00Other Vested Assets 30 3.33m. Restoration CostsExpenditure incurred on repairs ormaintenance of property, plant andequipment in order to restore or maintainthe future economic benefits expectedfrom originally assessed standard ofperformance is recognised as an expensewhen incurred.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 127

Notes to the Financial Statementsn. DerecognitionAn item of property, plant and equipmentis derecognised upon disposal or whenno future economic benefits are expectedfrom its use or disposal. Any gain or lossarising on derecognition of an asset iscalculated as the difference between thenet disposal proceeds and the carryingamount. Gains or losses on derecognitionare recognised in Income Statement.o. Permanent Land Development CostsPermanent land development costs arethose costs incurred in making majorinfrastructure development and buildingnew access roads on leasehold lands.These costs have been capitalised andamortised over the remaining leaseperiod.p. Immature and Mature PlantationsThe total cost of land preparation,rehabilitation, new planting, re-planting,crop diversification, inter-planting andfertilizing, etc., incurred between thetime of planting and harvesting (whenthe planted area attains maturity) areclassified as immature plantations.These immature plantations are shown atdirect costs plus attributable overheads,including interest attributable to longtermloans used for financing immatureplantations. Attributable overheadsincurred on the plantation are apportionedbased on the labour days spent onrespective re-planting and new plantingand capitalised on the immature areas.The remaining non-attributable overheadis expensed in the accounting period inwhich it is incurred.The expenditure incurred on perennialcrop (Tea/Rubber/Coconut) fields, whichcome into bearing during the year, hasbeen transferred to mature plantations anddepreciated over their useful life period.q. Infilling CostsThe land development costs incurred inthe form of infilling have been capitalisedto the relevant mature field where infillingresults in an increase in the economic lifeof the relevant field beyond its previouslyassessed standard of performance, inaccordance with Sri Lanka AccountingStandard - 32 and depreciated over theuseful life at rates applicable to matureplantation. Infilling costs that are notcapitalised are charged to the IncomeStatement in the year in which theyare incurred.r. Impairment of AssetsThe Group assesses at each reportingdate whether there is an indicationthat an asset may be impaired. If anysuch indication exists, or when annualimpairment testing for an asset isrequired, the Group makes an estimateof the asset’s recoverable amount. Anasset’s recoverable amount is the higherof an asset’s or cash generating unit’sfair value less costs to sell and its valuein use and is determined for an individualasset, unless the asset does not generatecash inflows that are largely independentof those from other assets or groups ofassets. Where the carrying amount of anasset exceeds its recoverable amount,the asset is considered impaired and iswritten down to its recoverable amount.In assessing value in use, the estimatedfuture cash flows are discounted to theirpresent value using a pre-tax discount ratethat reflects current market assessmentsof the time value of money and the risksspecific to the asset. Impairment lossesare recognised in the Income Statementexcept for impairment losses in respect ofproperty, plant and equipment which arerecognised against the revaluation reserveto the extent that it reverses a previousrevaluation surplus. An assessment ismade at each reporting date as to whetherthere is any indication that previouslyrecognised impairment losses may nolonger exist or may have decreased.Previously recognised impairment lossesother than in respect of goodwill, arereversed only if there has been an increasein the recoverable amount of the asset.Such increase is recognised to the extentof the carrying amount had no impairmentlosses been recognised previously.2.6 Foreign CurrencyTransactionsTransactions in foreign currencies aretranslated to the functional currencyat exchange rates at the dates of thetransactions. Monetary assets andliabilities denominated in foreigncurrencies at the reporting date areretranslated to the functional currency atthe exchange rate at that date. The foreigncurrency gain or loss on monetary itemsis the difference between the originalcarrying amount in the functional currencyand the carrying amount in foreigncurrency translated at the exchange rateat the end of the year.Non-monetary items in a foreign currencythat are measured in terms of historicalcost are translated using the exchangerate at the date of the transaction.PAGE 128 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsForeign currency differences arising onretranslation are recognised in profit or loss.2.7 Liabilities and ProvisionsLiabilities are recognised in the BalanceSheet when there is a present obligationas a result of a past event, the settlementof which is expected to result in anoutflow of resources embodying economicbenefits. Obligations payable at thedemand of the creditor or within one yearof the Balance Sheet date are treated ascurrent liabilities in the Balance Sheet.Liabilities payable after one year from theBalance Sheet date are treated as noncurrentliabilities in the Balance Sheet.Provisions are made for all obligationsexisting as at the Balance Sheet datewhen it is probable that such an obligationwill result in an outflow of resources anda reliable estimate can be made of thequantum of the outflow. All contingentliabilities are disclosed as a note to theFinancial Statements unless the outflowof resources is remote. Contingent assetsare disclosed, where inflow of economicbenefit is probable.2.7.1 Deposits from CustomersDeposits include savings deposits andterm deposits. They are brought to accountat the gross value of the outstandingbalance. Interest for the period is chargedto the profit or loss.2.7.2 Grants and SubsidiesGrants related to property, plant andequipment are initially deferred andallocated to Income Statement on asystematic basis over the useful life of therelated property, plant and equipment.Grants related to assets, including nonmonetarygrants at fair value, are deferredin the Balance Sheet and credited to theIncome Statement over the useful life ofthe related asset.Grants related to income are recognisedin the Income Statement in the period inwhich they are receivable as stated below:No. ofYearsRate%Building 40 2.5Plant and Machinery 13 1/3 7.5Equipment 08 12.5Roads 50 2.0Vehicles 05 20.0Grants related to assets, including nonmonetarygrants at fair value, are deferredin the Balance Sheet and credited to theIncome Statement over the useful life ofthe related asset. Grants related to incomeare recognised in the Income Statement inthe period in which they are receivable.2.7.3 Finance LeasesProperty and Equipment on finance leases,which effectively transfer to the Groupsubstantially all of the risk and benefitsincidental to ownership of the leaseditems, are disclosed as finance leases attheir cash price and depreciated over theperiod the Group is expected to benefitfrom the use of the leased assets.The corresponding principal amountpayable to the lessor is shown as a liability.Lease payments are apportioned betweenthe finance charges and reduction of thelease liability so as to achieve a constantrate of interest on the outstanding balanceof the liability. The interest payable overthe period of the lease is transferred toan interest in suspense account. Theinterest element of the rental obligationspertaining to each financial year ischarged to the Income Statement over theperiod of lease.2.7.4 Income TaxIncome tax assets and liabilities for thecurrent and prior periods are measured atthe amount expected to be recovered fromor paid to the Commissioner General ofInland Revenue. The tax rates and tax lawsused to compute the amount are thosethat are enacted or substantively enactedas at the Balance Sheet date. Accordingly,provision for taxation is made on the basisof the profit for the year and adjusted forthe taxation purposes in accordance withprovision of the Inland Revenue ActNo. 10 of 2006 and amendments thereto.The rates used are specified in Note 12 tothe Financial Statements.Current tax is the expected tax payableon the taxable income for the year, usingtax rates enacted at the Balance Sheetdate and any adjustments to tax payable inrespect of previous years.2.7.5 Deferred TaxationDeferred tax is recognised in respectof temporary differences between thecarrying amounts of assets and liabilitiesfor financial reporting purposes and theamounts used for taxation purposes.Deferred tax is not recognised for:• Temporary differences on the initialrecognition of assets or liabilities ina transaction that is not a businesscombination and that affects neitheraccounting nor taxable profit or loss;Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 129

Notes to the Financial Statements• Temporary differences related toinvestments in subsidiaries and jointlycontrolled entities to the extent that itis probable that they will not reverse inthe foreseeable future; and• Taxable temporary differences arisingon the initial recognition of goodwill.Deferred tax is measured at the tax ratesthat are expected to be applied to temporarydifferences when they reverse, basedon the laws that have been enacted orsubstantively enacted by the reporting date.Deferred tax assets and liabilities are offsetif there is a legally enforceable right to offsetcurrent tax liabilities and assets, and theyrelate to income taxes levied by the sametax authority on the same taxable entity.A deferred tax asset is recognised forunused tax losses, tax credits and deductibletemporary differences, to the extent that itis probable that future taxable profits will beavailable against which they can be utilised.Deferred tax assets are reviewed at eachreporting date and are reduced to the extentthat it is no longer probable that the relatedtax benefit will be realised.2.7.6 Investments in Treasury Bills andBonds of Government of Sri LankaInvestment in Treasury Bills and TreasuryBonds are carried at the total of purchaseprice, accrued interest and amortisation/(accretion) of premium/(discount).Gains/losses on disposal are measuredat the difference between the salesproceeds and the carrying amount and arerecognised in profit or loss.2.7.7 Securities Sold under RepurchaseAgreementsThese are borrowings collateralised bysale of Treasury Bills and Treasury Bondsheld by the Company to the counterpartyfrom whom the Company borrowed,subject to an agreement to repurchasethem at a predetermined price. Suchsecurities remain on the Balance Sheet ofthe Company and the liability is recordedin respect of the consideration received.The difference between the sale andthe purchase price represents interestexpense, which is recognised in theIncome Statement evenly over the periodof the repurchased agreement.2.7.8 Employee Benefits2.7.8.1 Defined Contribution PlansAll employees of the Company aremembers of the Employees’ ProvidentFund (EPF) and Employees’ Trust Fund(ETF), to which the Company contributes12% and 3% of employee salariesrespectively.2.7.8.2 Defined Benefit PlansA defined benefit plan is a postemploymentbenefit plan other than adefined contribution plan. The Group’s netobligation in respect of defined benefitplans is calculated by estimating theamount of future benefit that employeeshave earned in return for their service inthe current and prior periods; that benefitis discounted to determine its presentvalue. Any unrecognised past service costsare deducted.The calculation is performed every threeyears by a qualified actuary using theprojected unit credit method. For thepurpose of determining the charge for anyperiod before the next regular actuarialvaluation falls due, an approximate estimateprovided by the qualified actuary is used.When the benefits of a plan are improved,the portion of the increased benefit relatedto past service by employees is recognisedin profit or loss on a straight-line basisover the average period until the benefitsbecome vested. To the extent that thebenefits vest immediately, the expense isrecognised immediately in profit or loss.The Group recognises all actuarial gainsand losses arising from the defined benefitplan and all expenses related to definedbenefit plans in personnel expenses inprofit or loss.2.7.8.3 Short-Term Employee BenefitsShort-term employee benefit obligationsare measured on an undiscounted basisand are expensed as the related serviceis provided. A liability is recognised forthe amount expected to be paid undershort-term cash bonus if the Company hasa present legal or constructive obligationto pay this amount as a result of pastservice provided by the employee, and theobligation can be estimated reliably.2.7.9 Swap InstrumentsGroup in its ordinary course of businessenter into transactions such as currencyswaps and foreign exchange contracts anduses derivative instruments to manageexposure to currency risks. In order toaccount for such transactions, the Groupapplies hedging accounting principlesbased on best accounting practices.PAGE 130 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsCurrency swaps are recognised as Off-Balance Sheet Assets or Liabilities. TheGroup’s commitment for the contractedperiod is converted to Sri Lankan Rupeesbased on the exchange rate agreed.2.7.10 Earnings per ShareThe Group presents basic earnings pershare data for its ordinary shares.Basic earnings per share is calculatedby dividing the profit or loss attributableto ordinary shareholders of the ParentCompany by the weighted average numberof ordinary shares outstanding duringthe year.2.8 Income Statement2.8.1 Gross RevenueGross revenue comprises of revenue,income and other income.Income represents the gross incomereceivable for the year on all performingcontracts, rentals on operating leases,income on factoring debtors, commissionearned on insurance premiums, brokerageon share transactions and fees for ITservices provided. It also includes allincome related to operations such asinterest on overdue rentals, profit/losson leases and loans terminated andcollections on contracts written-off.Revenue consists of results from tradingactivities. Other income such as intereston Treasury Bonds, profit on sale ofproperty, plant and equipment, dividendincome, gain on share revaluation etc. arealso included in the gross revenue.2.8.2 Revenue RecognitionRevenue is recognised to the extent thatit is probable that the economic benefitswill flow to the Group, and the revenue andassociated costs incurred or to be incurredcan be reliably measured. Revenueis measured at the fair value of theconsideration received or receivable, net oftrade discounts and value added taxes, netof sales within the Group.2.8.3 Earned Income on Leases, HirePurchases, Loans and AdvancesThe excess of aggregated contractreceivable over the cost of the assetsconstitutes the total unearned income atthe commencement of a contract.The unearned income is recognisedover the term of the facility commencingon the month on which the facility isexecuted in proportion to the decliningreceivable balance, so as to produce aconstant periodic rate of return on the netinvestment outstanding.Non-performing loans are those facilitieswhere the rentals are overdue for 6months and over. Income accrued issuspended from the date a facility isclassified as non-performing and creditedto the ‘Earned Income in Suspense’ incompliance with Direction No. 05 of 2005of the Finance Leasing Act No. 56 of 2000and Direction No. 15 of 1991 of the FinanceCompanies Act No. 78 of 1988. Thereafter,such income is recognised on cash basis.Profit or loss on contracts terminated,collections on contracts written-off,interest on overdue rentals, intereston revolving loans, interest earned onproperty sale and buy back agreements,interest income on pawn broking areaccounted for on cash basis.2.8.4 FactoringRevenue is derived from two sources,Funding and providing Sales LedgerRelated Services.Funding - Discount income relating tofactoring transactions is recognised atthe end of a given accounting month.In computing this discount, a fixed rateagreed upon at the commencement of thefactoring agreement is applied on the dailybalance in the Client’s Current Account.Sales Ledger Related Services - A servicecharge is levied as stipulated in theFactoring Agreement.Income is accounted for on anaccrual basis and deemed earned ondisbursement of advances for invoicesfactored, except where the account isclassified as non-performing.Income is suspended on the basis of, if100% of the sales ledger is disputed andthere are no transactions for a period of3 months from the last date of dispute.2.8.5 IT Service FeeIT services fee is accounted for on anaccrual basis.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 131

Notes to the Financial Statements2.8.6 Turnover from Sale of Solar SystemsSundaya Lanka (Pvt) Ltd., earns revenuefrom sale of solar systems and it isaccounted on an accrual basis.2.8.7 Sale of GoodsRevenue from sale of goods is recognisedwhen the significant risks and rewards ofownership of the goods have passed tobuyer; with the Company retaining neithercontinuing managerial involvement to thedegree usually associated with ownership,nor effective control over the goods sold.2.8.8 Revenue from Accommodation Salesand Services ChargeRevenue from accommodation sales isrecognised for the rooms occupied on adaily basis, together with outlet sales andother income from hotel operations.90% of Service Charge collected fromguests is distributed among the employees,retaining 10% of such service chargecollected for recovery of breakages ofcutlery, crockery, glassware and stainlesssteel ware items. Any balance amountof the retention after recovery of actualbreakages is redistributed amongemployees at the end of each financial year.2.8.9 Revenue from Rendering ofOther ServicesRevenue from rendering of services isrecognised in the accounting periodin which the services are rendered orperformed.2.8.10 Treasury Bond IncomeDiscount/premium on Treasury Bills/Bonds are amortised over the period toreflect a constant periodic rate of return.The coupon interest on Treasury Bonds isrecognised on an accrual basis.2.8.11 Other IncomeRent income, non-operational interestincome and foreign exchange gains areaccounted for on accrual basis.Dividend income is recognised when theright to receive payment is established.Profit on sales of property, plant andequipment and other non-current assets,including investments held by the Grouphave been accounted for in the IncomeStatement, after deducting from the netsales proceeds on disposal of the carryingamount of such assets.2.8.12 ExpensesAll expenditure incurred in the running ofthe business has been charged to incomein arriving at the profit for the year.Preliminary and pre-operationalexpenditure is recognised in the IncomeStatement.Repairs and renewals are charged to theIncome Statement in the year in which theexpenditure is incurred.2.8.13 Value Added Tax (VAT) onFinancial ServicesThe base for the computation of ValueAdded Tax on Financial Services is theaccounting profit before income taxadjusted for the economic depreciationand emoluments of employees computedon prescribed rate.The VAT on Financial Services is recognisedas expense in the period it becomes due.2.8.14 The Group Profits are Stated After:a. Providing for all bad and doubtful debtsand depreciation of property, plant andequipment.b. Charging all expenses incurred in theday-to-day operations of the businessand in maintaining the property, plantand equipment in a state of efficiency.2.8.15 Borrowing CostsBorrowing costs are recognised asexpenditure in the period in which they areincurred. However, borrowing costs thatare directly attributable to the acquisition,construction or production of qualifyingassets that take a substantial period oftime to get ready for its intended use orsale, are capitalised as part of the assets.During the year no borrowing cost hasbeen capitalised.2.9 Movement of ReservesMovement of reserves is disclosed in theStatements of Changes in Equity.PAGE 132 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statements2.10 Cash Flow StatementsThe Cash Flow Statements are preparedusing the indirect method as stipulatedin SLAS 9 - ‘Cash Flow Statements, Cashand Cash Equivalents for Cash FlowStatements’ comprise mainly of cashin hand, balances at banks and bankoverdraft.2.11 Related Party TransactionsTransactions with related parties areconducted on normal business terms. Therelevant disclosures are given in Note 46to the Financial Statements.2.12 Segmental ReportingSegment is a distinguishable componentof the Group that is engaged either inproviding products or services (businesssegment), or in providing products orservices within a particular economicenvironment (geographical segment),which is subject to risks and rewardsthat are different from those of othersegments.Segment results, assets and liabilitiesinclude items directly attributable to asegment as well as those that can beallocated on a reasonable basis.Segment capital expenditure is the totalcost incurred during the period to acquiresegment assets that are expected to beused for more than one period.2.13 Events after the BalanceSheet DateAll material post Balance Sheet eventshave been considered and whereappropriate adjustments or disclosureshave been made in the respective Notes tothe Financial Statements.2.14 Capital Commitments andContingenciesCapital commitments and contingentliabilities of the Group are disclosed inthe respective Notes to the FinancialStatements.In accordance with the Sri LankaAccounting Standard 28 - ‘SegmentReporting’, segmental information ispresented in respect of the Group. Thesegment comprises of Financial services,IT services, Trading, Leisure, Plantation,Power and Energy and others aredescribed in Note 42.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 133

Notes to the Financial StatementsGroup CompanyFor the year ended 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)3. Gross RevenueRevenue 14,288,491,997 3,571,367,173 – 1,199,918,890Income 11,943,300,157 9,941,904,483 3,511,733,478 4,552,414,083Other income 5,845,535,307 1,388,560,107 2,832,627,486 1,022,138,022Total 32,077,327,461 14,901,831,763 6,344,360,964 6,774,470,995Revenue 14,288,491,997 3,571,367,173 – 1,199,918,890Less: cost of sales (9,911,221,898) (2,869,272,589) – (1,029,853,463)Gross profit 4,377,270,099 702,094,584 – 170,065,4274. IncomeLeasing interest income 2,390,289,528 1,900,224,642 306,098,603 674,445,440Hire purchases interest income 2,871,899,544 2,441,201,653 159,734,570 468,003,296Advances and other loans interest income 3,498,669,764 2,741,044,079 1,075,960,268 1,426,850,929Deferred instalment income 305,062,781 394,051,007 305,062,781 393,983,916Operating lease and hire rental income 830,643,280 787,258,857 796,510,089 745,017,188Overdue interest income 469,431,023 559,505,588 182,361,902 293,725,481Debt factoring income 927,509,275 666,149,697 466,622,290 361,372,580Insurance broking income 12,176,354 128,366,316 12,176,354 5,064,566Securities trading and others – 9,319,949 – –IT consultancy fees 307,625,000 96,000,000 – –Other operational income 637,618,608 314,782,695 207,206,621 183,950,68712,250,925,157 10,037,904,483 3,511,733,478 4,552,414,083Inter-company income (307,625,000) (96,000,000) – –Total 11,943,300,157 9,941,904,483 3,511,733,478 4,552,414,083PAGE 134 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsGroup CompanyFor the year ended 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)5. Other Income/(Expenses)Rent income 7,565,793 4,969,047 – –Net profit/(loss) on sale of property, plant and equipment (25,890,860) 54,432,364 (36,300,647) 10,271,603Sales proceeds received in excess on re-finance – 2,534,609 – 2,534,609Profit on sale of vehicles 4,525,772 1,192,218 – –Dividends received 688,965,710 45,017,509 52,882,917 24,469,270Interest received from Treasury Bills, Bonds and call deposits 1,118,583,225 822,791,377 542,932,458 274,165,872Debenture interest income – – 84,093,924 97,343,931Royalty income – – 6,939,260 16,073,626Foreign exchange gain/(loss) 6,621,810 (4,975,337) 16,613,708 935,243Capital gain on sale of treasury bonds 550,983,898 31,239,182 272,172,043 31,239,182Adjustment for market value change in quoted shares 1,035,134,489 97,873,954 718,294,170 71,115,335Profit on sale of quoted and non-quoted shares 1,958,298,140 132,114,495 667,164,597 141,528,621Sundry income 414,808,397 171,436,479 421,896,123 322,991,138Franchise fees 85,938,933 29,469,592 85,938,933 29,469,592Amortisation of capital grants – 464,618 – –Total 5,845,535,307 1,388,560,107 2,832,627,486 1,022,138,0226. Net Interest CostsOverdraft and other short-term borrowings 2,451,333,422 2,697,108,769 1,501,235,594 946,545,416Long-term borrowings 1,992,447,827 1,795,098,463 665,183,830 1,779,481,116Finance lease interest 72,970,366 83,932,598 31,818,620 76,250,839Debenture interest 16,874,771 14,622,369 – –Charges on SWAPS 368,313,171 422,403,295 196,439,782 351,770,678Interest on customer deposits 1,531,310,861 1,237,515,545 – –6,433,250,418 6,250,681,039 2,394,677,826 3,154,048,049Less: Interest income on US$ and EURO deposits (12,662,530) (72,544,502) (10,662,477) (63,135,792)Total 6,420,587,888 6,178,136,537 2,384,015,349 3,090,912,257Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 135

Notes to the Financial StatementsGroup CompanyFor the year ended 31 March 2011 2010 2011 20107. Direct Expenses Excluding Net Interest Costs(Rs.) (Rs.) (Rs.) (Rs.)Value Added Tax (VAT) on leases/general expenses andVAT on financial services 649,831,089 313,321,617 138,015,591 99,571,726Business Turnover Tax (BTT), NBT, Insurance, debits tax and others 367,999,914 228,884,882 128,826,994 126,450,296Total 1,017,831,003 542,206,499 266,842,585 226,022,0228. Staff CostsSalaries and other benefits 1,628,153,494 828,650,508 275,430,731 193,943,773Defined contribution to EPF 116,616,930 54,053,745 44,513,768 32,878,975Defined contribution to ETF 25,634,988 13,521,307 7,962,524 8,219,743Provision for retiring gratuity 215,070,845 25,125,609 13,197,616 9,752,577Total 1,985,476,257 921,351,169 341,104,639 244,795,0689. Other Operating ExpensesAdministration cost 1,287,306,110 642,832,681 373,759,295 324,695,891Operating and marketing cost 1,783,020,530 755,996,676 287,813,516 330,700,338Specific provisions reversals (470,061,799) (204,460,137) (366,274,425) (198,735,291)Specific bad debts written-off 587,712,100 373,400,758 378,676,402 198,814,876Other provisions 87,758,979 56,914,259 – –Total 3,275,735,920 1,624,684,237 673,974,788 655,475,81410. Results from Operating ActivitiesResults from operating activities are stated after charging all expenses including the following:Group CompanyFor the year ended 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Auditors’ remuneration and other expenses:Audit related 15,295,529 8,633,539 2,113,104 2,012,500Non-audit related 2,763,361 650,912 561,680 277,222Legal expenses 56,621,901 41,069,193 24,129,801 9,604,756Donations 4,604,103 12,502,810 1,478,614 288,915Provision for impairment of investment in subsidiary – – 29,940,752 32,059,248Impairment loss on building revaluation 58,766,339 – 58,766,339 –Provision for current account receivable from subsidiary – – 13,623,890 –Provision for office equipment 7,840,721 – 7,840,721 –PAGE 136 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statements11. Negative GoodwillGroup CompanyFor the year ended 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)On acquisition of subsidiaries 271,910,632 225,163,247 – –On investment in Seylan Bank PLC and other associates – 1,198,673,687 – –Total 271,910,632 1,423,836,934 – –12. Taxation12.1 Major component of income tax expense for the years ended 31 March are as follows:Group CompanyFor the year ended 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Current income taxCurrent income tax charge 742,937,490 255,416,695 71,266,300 55,659,614Under/(over) provision of current taxes in respect of prior years 60,938,464 (12,648,971) 57,626,087 –Deferred income taxDeferred taxation charge (Note 12.3) 455,403,214 212,614,182 245,753,785 108,527,261Income tax expense reported in the income statement 1,259,279,168 455,381,906 374,646,172 164,186,87512.2 A reconciliation between tax expense and the product of accounting profit multiplied by the statutory tax rate is as follows:Group CompanyFor the year ended 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Accounting profit before income tax 8,282,359,080 2,840,787,141 1,897,989,460 491,127,505Income tax expense at the statutory income tax rate of 35% 2,140,992,323 994,275,500 664,296,311 171,894,626Tax effect of other allowable credits (5,038,274,491) (2,992,835,329) (1,547,310,984) (1,538,913,498)Under provision for previous years 60,938,464 (12,648,971) 57,626,087 –Tax effect on losses claimed (305,881,363) (29,527,648) (37,807,056) (29,527,646)Tax effect on rate change (63,922,105) – (86,159,830) –Non-deductible expenses 4,455,342,992 2,492,287,104 1,322,948,446 1,559,910,837Social responsibility levy 1.5% 10,083,348 3,831,250 1,053,198 822,556Income tax expense 1,259,279,168 455,381,906 374,646,172 164,186,875Effective income tax rate 15% 16% 20% 33%Social Responsibility Levy 1.5% of taxAnnual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 137

Notes to the Financial Statements12.3 Deferred Tax ExpenseDeferred tax assets, liabilities and income tax relate to the following:Group CompanyIncome Statement Liability Asset Net Net Asset Asset2011 2011 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)Deferred tax liabilityCapital allowances for tax purpose onproperty, plant and equipment 326,591,000 81,793,566 408,384,566 34,347,246 91,757,606 3,602,939Capital allowances for tax purposes onlease receivables 241,212,390 (32,026,680) 209,185,709 170,177,000 (32,026,680) 79,416,719Operating lease assets – (79,578,127) (79,578,127) 46,421,121 (79,578,127) 46,421,121Unamortised VAT – 21,740,913 21,740,913 12,979,578 21,740,913 12,979,578Effect of change in tax rate 89,736,434 39,245,991 128,982,426 – 34,679,850 –657,539,824 31,175,663 688,715,487 263,924,945 36,573,562 142,420,357Deferred tax assetsDefined benefit plans (2,496,117) 11,265,162 8,769,046 (87,467,637) 538,951 (63,655,355)Capital allowances for tax purpose onproperty, plant and equipment – – – – – 234,611Brought forward tax losses (135,420,342) 306,365,423 170,945,081 (279,668,540) 243,321,122 29,527,647Provisions – 30,286,107 30,286,107 (31,496,000) – –Effect of change in tax rate 1,241,534 (194,146,065) (192,904,531) – (120,836,680) –(136,674,925) 153,770,627 17,095,702 (398,632,177) 123,023,393 (33,893,097)Net expense 705,811,189 (134,707,232) 159,596,955 108,527,261Effect of change in tax rate 63,922,105 – 86,156,830 –On acquisition (287,192,435) 347,321,414 – –Deferred tax charge 482,540,859 212,614,182 245,753,785 108,527,261Deferred tax charge to Income Statement 455,403,214 212,614,182 245,753,785 108,527,261Deferred tax charge to retained earnings 27,137,645 – – –Deferred tax has been provided at the rate of 28% for the current year, due to the change of income tax rate from 35% to 28% applicable fromnext financial year.PAGE 138 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statements13. Earnings Per ShareThe calculation of basic earnings per share is based on the profit attributable to ordinary shareholders and the weighted average number ofordinary shares outstanding during the year.The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders and the weighted average number ofordinary shares outstanding after adjusting for the effect of all potentially dilutive ordinary shares. There were no potentially dilutive ordinaryshares outstanding at any time during the year/pervious year.Basic earnings per share are calculated as follows:Group2011 2010Profit attributable to ordinary shareholders for the year (Rs.) 3,840,227,908 1,841,808,956Weighted average numbers of ordinary shares outstanding 475,200,000 475,200,000Basic/diluted earnings per share (Rs.) 8.08 3.88During the year the Company subdivided its existing 47,520,000 shares in the following manner:1 share into 10 sharesSubsequent to the subdivision the total number of shares of the Company is 475,200,000.14. Dividend Per ShareGroupDeclared and paid during the year 2011 2010The dividend per share is based on the dividend paid for the period covered by the Financial Statements.Dividend paid (Rs.) – –Number of ordinary shares in issue 475,200,000 475,200,000Dividend per share (Rs.) – –15. Cash and Cash Equivalents15.1 Cash in Hand and Favourable Bank BalancesGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Cash in hand 25,029,013 10,399,215 1,349,500 1,279,370Balances at banks 4,634,071,481 2,072,594,522 390,662,325 419,007,096Total 4,659,100,494 2,082,993,737 392,011,825 420,286,46615.2 Unfavourable Bank BalancesBank overdrafts (4,029,204,315) (2,987,337,668) (2,094,424,623) (1,351,271,657)Net cash and cash equivalents 629,896,179 (904,343,931) (1,702,412,798) (930,985,191)Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 139

Notes to the Financial Statements16. Investment SecuritiesGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Investment in Debentures 28,000,299 29,602,301 714,400,299 715,402,301Investment in Mudarabah deposit – – 35,000,000 35,000,000Investment in Commercial papers 940,984,552 – – –Investment in Repurchase agreements 2,406,486,792 3,100,000 – 3,100,000Investment in Preference shares 21,111,110 – – –Investment in Government bonds 34,532,933 7,957,538,601 – 3,739,032,747Quoted ordinary shares (Note 16.1 ) 10,730,084,505 3,620,262,986 2,788,580,298 225,304,982Non-quoted ordinary shares (Note 16.2) 289,896,489 332,457 26,212,099 –Total 14,451,096,680 11,610,836,345 3,564,192,696 4,717,840,03016.1 Quoted Ordinary SharesGroup2011 2010No. of Cost Market Value No. of Cost Market ValueShares (Rs.) (Rs.) Shares (Rs.) (Rs.)Asian Hotels Corporation PLC – – – 5,000 139,425 657,500Asian Hotel Properties PLC – – – 300 9,150 39,450Amaya Leisure PLC 1,000 132,467 120,100 – – –Asia Capital PLC 40 – 3,512 – – –Browns Beach Hotels PLC 326,622 4,403,226 6,957,048 154,771 4,212,660 11,220,898Cargo Boat Development Company PLC 300 9,801 43,950 300 9,800 24,000Central Finance Company PLC – – – 166 22,472 64,740Ceylon Guardian Investment Trust PLC 3,360 1,239,840 1,241,520 3,360 1,685,040 1,685,040Ceylon Theatres PLC – – – 160,000 9,668,988 8,640,000Ceylon Insurance PLC 1,000 553,706 730,000 – – –Ceylon & Foreign Trades PLC 100,600 957,144 814,860 – – –Chemanex PLC 279,100 46,690,313 37,231,940 – – –Colombo Drydocks PLC 4,110 85,997 1,048,461 8,820 184,548 2,485,035Confifi Hotels Holding PLC – – – 1,000 186,443 190,000Commercial Bank of Ceylon PLC 151,000 38,478,182 40,135,800 – – –DFCC Bank PLC 3,196 3,215 549,073 99 20,028 17,870Dialog Telekom PLC 46,990,600 546,189,177 493,401,300 9,000 274,491 60,750Distilleries Company of Sri Lanka PLC 65,938 12,039,602 11,868,840 – – –Environmental Resources Investments PLC 18,616 36,708 1,439,017 – – –Grain Elevators PLC 104,200 12,732,485 17,516,020 – – –Hayleys PLC 2,043,624 809,747,338 800,715,429 – – –Hatton National Bank PLC 13,213,030 338,499,277 5,046,653,078 17,887,110 146,349,102 3,367,248,458HDFC Bank PLC 946,174 423,025,112 1,065,297,308 48,400 8,013,361 6,921,200Hotel Developers (Lanka) PLC – – – 20,000 2,418,022 2,405,000PAGE 140 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsGroup2011 2010No. of Cost Market Value No. of Cost Market ValueShares (Rs.) (Rs.) Shares (Rs.) (Rs.)Hemas Holdings PLC 2,022,200 94,938,529 93,021,200 – – –Hapugastenna Plantations PLC 100 1,000 7,400 – – –John Keells Holdings PLC 205 26,000 58,548 42,966 405,000 7,905,744John Keells Hotels PLC 131,573 378,930 2,263,056 – – –Janashakthi Insurance PLC 627,600 10,077,502 10,355,400 – – –Lanka IOC PLC 27,800 750,600 489,280 10,000 270,000 182,500The Lanka Hospital Corporation PLC 300 14,560 13,440 – – –The Finance Company PLC 1,250,000 50,000,000 46,250,000 – – –Lanka Ventures PLC – – – 10,000 96,168 177,500Lion Brewery PLC 2,165,800 439,198,032 433,160,000 – – –Laugfs Gas PLC 1,013,500 56,022,672 44,999,400 – – –Laugfs Gas PLC (Non-Voting) 120,800 5,114,744 4,191,760 – – –Maskeliya Plantations PLC – – – 250,000 7,965,006 7,437,500Merchant Bank of Sri Lanka PLC 66,000 3,687,847 3,049,200 – – –Nawaloka Hospitals PLC – – – 3,500,000 13,200,934 12,250,000Nuwara Eliya Hotel Corporation PLC – – – 1,000 456,413 405,500Nation Lanka PLC 1,000 916,035 11,100 – – –Nations Trust Bank PLC 116,100 10,272,531 8,858,430 – – –Overseas Reality Ceylon PLC 113,680 1,664,891 1,705,200 113,680 1,664,891 1,762,040Peoples' Merchant Bank PLC 7,380,179 196,315,602 184,504,475 7,568,279 201,319,134 177,854,556Pelwatte Sugar Industries PLC 104,600 4,230,861 3,336,740 – – –Parquet Ceylon PLC 758,300 16,592,038 16,000,130 – – –Raigam Wayamba Salterns PLC 26,200 65,500 117,900 – – –Richard Pieris and Company PLC 1,943,200 28,280,299 26,427,520 30,000 1,609,653 1,650,000Royal Ceramics (Lanka) PLC – – – 11,000 300,000 1,243,000Seylan Bank PLC (Voting) 24,833,998 2,183,311,137 1,867,516,650 – – –Seylan Bank PLC (Non-Voting) 7,424,300 179,264,362 291,774,990 – – –Sierra Cables PLC 30,550,900 205,190,543 164,974,860 5,400 16,200 11,880Sunshine Holdings PLC – – – 10,000 3,395,264 3,250,000Touchwood Investments PLC – – – 42,700 3,552,741 4,472,825Vallible Finance PLC 24,860 248,600 1,230,570 – – –Veyangoda Textiles Mills PLC 10,300 262,060 – 10,300 262,060 –Total 5,721,648,465 10,730,084,505 407,706,994 3,620,262,986Adjustment for change in market valueIncrease/(decrease) in market valueas at 01 April 3,212,555,992 (44,845,061)On acquisition of subsidiaries – 2,947,590,824Adjustment on reclassificationand disposals (2,829,465,958) –Adjustment for increase/(decrease) inmarket value 4,625,346,006 309,810,229Increase/(decrease) in market valueas at 31 March 5,008,436,040 3,212,555,992Carrying value at the end of the year 10,730,084,505 10,730,084,505 3,620,262,986 3,620,262,986Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 141

Notes to the Financial StatementsCompany2011 2010No. of Cost Market Value No. of Cost Market ValueShares (Rs.) (Rs.) Shares (Rs.) (Rs.)Asia Capital PLC 40 – 3,512 – – –Browns Beach Hotels PLC 34,500 802,391 734,850 – – –Ceylon Theatres PLC – – – 160,000 9,668,988 8,640,000Ceylon & Foreign Traders PLC 100,600 957,144 814,860 – – –Ceylon Grain Elevators PLC 104,200 12,732,485 17,516,020 – – –Chemanex PLC 95,800 15,984,038 12,779,720 – – –Confifi Hotels Holdings PLC – – – 1,000 186,443 190,000Hayleys PLC 2,015,024 798,468,514 769,940,671 – – –HDFC Bank PLC 946,174 423,025,112 1,065,297,307 47,200 7,749,361 6,749,600Hemas Holdings PLC 250,000 11,846,880 11,500,000 – – –Hotel Developers (Lanka) PLC – – – 20,000 2,418,022 2,405,000Laugfs Gas PLC 1,013,500 56,022,672 44,999,400 – – –Laugfs Gas PLC (Non-Voting) 120,800 5,114,744 4,191,760 – – –Maskeliya Plantations PLC – – – 250,000 7,965,006 7,437,500Nawaloka Hospitals PLC – – – 3,500,000 13,200,934 12,250,000Nuwara Eliya Hotel Corporation PLC – – – 1,000 456,413 405,500Parquet (Ceylon) PLC 758,300 16,592,038 16,000,130 – – –Pelwatte Sugar Industries PLC 104,600 4,230,861 3,336,740 – – –Peoples' Merchant Bank PLC 7,380,179 196,315,602 184,504,475 7,568,279 201,319,134 177,854,557Richard Pieris and Company PLC – – – 30,000 1,609,653 1,650,000Seylan Bank PLC (Voting) 66 – 4,963 – – –Seylan Bank PLC (Non-Voting) 5,594,700 111,538,365 219,871,710 – – –Sierra Cables PLC 726,700 3,674,226 3,924,180 – – –Sunshine Holdings PLC – – – 10,000 3,395,264 3,250,000The Lion Brewery Ceylon PLC 2,165,800 439,198,032 433,160,000 – – –Touchwood Investments PLC – – – 42,700 3,552,741 4,472,825Veyangoda Textiles Mills PLC 10,300 262,060 – 10,300 262,060 –2,096,765,164 2,788,580,298 251,784,019 225,304,982Adjustment for change in market valueIncrease/(decrease) in market valueas at 01 April (26,479,037) (43,042,379)Adjustment for increase/(decrease) inmarket value 718,294,171 16,563,342Increase/(decrease) in market valueas at 31 March 691,815,134 (26,479,037)Carrying value at the end of the year 2,788,580,298 2,788,580,298 225,304,982 225,304,982PAGE 142 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statements16.2 Non-Quoted Ordinary SharesGroup2011 2010No. of Cost No. of CostShares (Rs.) Shares (Rs.)Badulla Transport & Agency Company (Pvt) Ltd. 10,000 100,000 – –Browns Capital (Pvt) Ltd. 5,000,000 50,000,000 – –Browns Health Care (Pvt) Ltd. 17,500,000 175,000,000 – –Browns Hotels Ltd. 11,000 110,000 11,000 110,000Ceylon Marine & Travel Services (Pvt) Ltd. 9,450 73,700 – –Ceylon Studios Ltd. 500 5,000 500 5,000Confifi Finance 39,100 391,000 – –Credit Information Bureau 100 203,899 100 10,000Equity Investments Lanka Ltd. 17,250 172,500 17,250 172,500Expo Lanka Holdings Ltd. 1,000,000 18,000,000 – –Export International Ltd. 7,500 75,000 – –Hotel Hanthana Ltd. – – 190,000 1,000Indo-Lanka Steel Ltd. 200,000 6,000,000 200,000 6,000,000Lanka Glass Manufacturing Ltd. 3,000,000 3,000,000 3,000,000 3,000,000Magpek Exports Ltd. 25,000 1,000,000 25,000 1,000,000Malwaththavelly Plantation 500 11,412 500 11,412Motor Marvels (Pvt) Ltd. 480,000 4,800,000 – –Polycoat Resins Ltd. 400,000 4,000,000 – –Rainforest Ecolodge (Pvt) Ltd. 17,000 470,000 – –Sri Lanka Distilleries Ltd. – – 338 22,545Taprobane Capital (Pvt) Ltd. 4,840,000 48,400,000 – –Vallibel One Ltd. 1,568,000 39,287,099 – –Total 351,099,610 10,332,457Less: Provision for fall in market valueBalance as at 01 April (10,000,000) (10,000,000)Provision/(reversal) made during the year (51,203,121) –Balance as at 31 March (61,203,121) (10,000,000)Carrying value at the end of the year 289,896,489 332,457Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 143

Notes to the Financial StatementsCompany2011 2010No. of Cost No. of CostShares (Rs.) Shares (Rs. )Indo-Lanka Steel Ltd. 200,000 6,000,000 200,000 6,000,000Lanka Glass Manufacturing Ltd. 3,000,000 3,000,000 3,000,000 3,000,000Magpek Exports Ltd. 25,000 1,000,000 25,000 1,000,000Vallibel One Ltd. 1,045,000 26,212,099 – –Total cost of non-quoted ordinary shares 36,212,099 10,000,000Less: Provision for fall in market valueBalance as at 01 April (10,000,000) (10,000,000)Provision/(reversal) made during the year – –Balance as at 31 March (10,000,000) (10,000,000)Carrying value at the end of the year 26,212,099 –17. Rentals Receivable on Leased Assets, Hire Purchases and Operating LeasesGroup CompanyFor the year ended 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)17.1 Rentals Receivable on Leased AssetsReceivable from one to five yearsRentals receivable 14,254,566,569 5,687,626,038 1,184,517,921 1,473,793,528Unearned income (3,057,716,858) (1,291,391,030) (247,133,822) (167,169,878)Provision for doubtful debts (51,826,440) (32,126,156) (5,257,883) (6,188,212)Deposits received from lessees (1,347,539,014) (609,141,454) (22,591,880) (76,184,550)9,797,484,257 3,754,967,398 909,534,336 1,224,250,888Receivables within one yearRentals receivable 8,085,804,215 5,337,135,991 624,087,409 1,401,259,681Unearned income (2,675,893,458) (1,470,311,752) (125,568,210) (400,820,375)Provision for doubtful debts (73,640,308) (27,333,529) (7,917,220) (6,560,954)5,336,270,449 3,839,490,710 490,601,979 993,878,352Overdue rental receivableRentals receivable 370,542,420 487,635,679 70,592,215 189,555,085Earned income in suspense (38,367,805) (76,672,764) (7,220,079) (14,280,935)Provision for doubtful debts (101,617,893) (279,809,192) (40,860,232) (140,649,648)230,556,722 131,153,723 22,511,904 34,624,502TotalRentals receivable 22,710,913,204 11,512,397,708 1,879,197,545 3,064,608,294Unearned income (5,733,610,316) (2,761,702,782) (372,702,032) (567,990,253)Earned income in suspense (38,367,805) (76,672,764) (7,220,079) (14,280,935)Provision for doubtful debts (227,084,641) (339,268,877) (54,035,335) (153,398,814)Deposits received from lessees (1,347,539,014) (609,141,454) (22,591,880) (76,184,550)Balance as at 31 March 15,364,311,428 7,725,611,831 1,422,648,219 2,252,753,742PAGE 144 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsGroup CompanyFor the year ended 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)17.2 Rentals Receivable on Hire PurchaseReceivable from one to five yearsRentals receivable 11,608,365,475 8,581,920,667 55,504,784 465,445,432Unearned income (2,624,754,988) (2,292,075,296) (4,794,696) (64,146,326)Provision for doubtful debts (227,364,643) (71,474,449) (1,136,163) (3,322,615)8,756,245,844 6,218,370,922 49,573,925 397,976,491Receivables within one yearRentals receivable 6,686,782,003 5,143,461,183 265,897,704 872,546,073Unearned income (1,965,442,823) (1,600,928,908) (38,908,315) (200,514,386)Provision for doubtful debts (163,828,792) (30,669,372) (6,662,845) (6,837,190)4,557,510,388 3,511,862,903 220,326,544 665,194,497Overdue rental receivableRentals receivable 401,370,647 520,889,164 45,081,233 122,897,873Earned income in suspense (50,283,736) (29,759,954) (4,872,911) (13,010,402)Provision for doubtful debts (99,505,517) (148,921,418) (24,950,547) (76,892,260)251,581,394 342,207,792 15,257,775 32,995,211TotalRentals receivable 18,696,518,125 14,246,271,014 366,483,721 1,460,889,378Unearned income (4,590,197,811) (3,893,004,204) (43,703,011) (264,660,712)Earned income in suspense (50,283,736) (29,759,954) (4,872,911) (13,010,402)Provision for doubtful debts (490,698,952) (251,065,239) (32,749,555) (87,052,065)Balance as at 31 March 13,565,337,626 10,072,441,617 285,158,244 1,096,166,19917.3 Rentals Receivable on Operating LeasesTotalRentals receivable 1,792,154,119 3,598,355,475 1,789,887,230 3,598,355,475Unearned income (1,732,672,533) (3,513,463,634) (1,732,672,533) (3,513,463,634)Earned income in suspense (46,820,238) (51,247,311) (46,820,238) (51,247,311)Provision for doubtful debts (5,553,625) – (5,553,625) –Balance as at 31 March 7,107,723 33,644,530 4,840,834 33,644,530Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 145

Notes to the Financial StatementsGroup CompanyFor the year ended 31 March 2011 2010 2011 201017.4 Total Rentals Receivable on Leased Assets,Hire Purchases and Operating Leases(Rs.) (Rs.) (Rs.) (Rs.)Rentals receivable 43,199,585,448 29,357,024,197 4,035,568,496 8,123,853,147Unearned income (12,056,480,660) (10,168,170,620) (2,149,077,576) (4,346,114,599)Earned income in suspense (135,471,779) (157,680,029) (58,913,228) (78,538,648)Provision for doubtful debts (Note 17.5) (723,337,218) (590,334,116) (92,338,515) (240,450,879)Deposits received from lessees (1,347,539,014) (609,141,454) (22,591,880) (76,184,550)Balance as at 31 March 28,936,756,777 17,831,697,978 1,712,647,297 3,382,564,47117.5 Provision for Doubtful DebtsBalance as at 01 April 590,334,116 421,674,240 240,450,879 138,803,008Provisions made during the year- Charged against profits 446,403,174 344,371,085 85,137,556 273,072,269- Written off during the year (313,400,072) (175,711,209) (233,249,920) (171,424,398)Balance as at 31 March 723,337,218 590,334,116 92,338,515 240,450,87918. Advances and Other LoansInstalment receivable on loans to customers 17,169,553,043 12,654,464,491 2,865,068,852 4,760,131,556Capital outstanding of revolving loans 8,058,785,745 1,296,588,550 3,018,555,387 1,296,588,550Advances for margin trading – 8,844,514 – –Factoring receivable (Note 18.1) 5,690,466,719 3,001,770,480 2,736,752,654 1,564,991,242Pawning advances 1,180,641,246 480,400,218 – –Transferred from investment property and other accounts receivable 281,430,476 63,300,586 281,430,476 63,300,586Overdue loan instalments 922,778,917 860,358,894 551,600,070 594,951,501Earned income in suspense (288,571,469) (232,501,379) (186,161,615) (154,162,990)Unearned loan income (4,076,225,062) (2,756,699,171) (623,782,755) (1,068,987,201)Provision for doubtful debts (Note 18.2) (225,291,100) (291,963,558) (88,538,184) (159,428,465)Total 28,713,568,515 15,084,563,625 8,554,924,885 6,897,384,779PAGE 146 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsGroup CompanyFor the year ended 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)18.1 Factoring ReceivableFactoring receivable 5,824,454,237 3,125,216,040 2,811,441,884 1,669,375,335Provision for doubtful debts (133,987,518) (123,445,560) (74,689,230) (104,384,093)Total 5,690,466,719 3,001,770,480 2,736,752,654 1,564,991,242Provision for Doubtful Debts - FactoringBalance as at 01 April 123,445,560 74,821,978 104,384,093 62,090,549Provisions made during the year- Charged against profits 10,541,958 48,623,582 (29,694,863) 42,293,544- Written-off during the year – – – –Balance as at 31 March 133,987,518 123,445,560 74,689,230 104,384,09318.2 Provision for Doubtful DebtsBalance as at 01 April 291,963,558 159,799,477 159,428,465 98,469,436Provisions made during the year- Charged against profits 34,924,378 159,474,974 7,069,333 88,269,922- Written-off during the year (101,596,836) (27,310,893) (77,959,614) (27,310,893)Total 225,291,100 291,963,558 88,538,184 159,428,46519. Instalment SalesRentals receivable on loans to customers 1,116,097,136 3,048,028,907 1,116,097,136 3,048,028,907Overdue loan instalments 28,976,211 71,505,657 28,976,211 71,505,657Earned income in suspense (3,383,217) (10,007,460) (3,383,217) (10,007,460)Unearned loan income (350,963,351) (896,908,631) (350,963,351) (896,908,631)Provision for doubtful debts (Note 19.1) (24,719,656) (44,193,705) (24,719,656) (44,193,705)Total 766,007,123 2,168,424,768 766,007,123 2,168,424,76819.1 Provision for Doubtful DebtsBalance as at 01 April 44,193,705 551,338 44,193,705 551,338Provisions made during the year- Charged against profits 35,590,842 43,642,367 35,590,842 43,642,367- Written-off during the year (55,064,891) – (55,064,891) –Total 24,719,656 44,193,705 24,719,656 44,193,705Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 147

Notes to the Financial Statements20. InventoriesGroup CompanyFor the year ended 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Raw materials 288,407,849 12,394,209 – –Work-in-progress 31,229,424 32,473,462 – –Finished goods 849,468,207 847,497,853 – –Input materials 37,633,004 40,463,170 – –Growing crop nurseries 11,303,473 9,664,456 – –Harvested crop- Tea 271,525,801 150,031,402 – –- Rubber 45,953,245 20,266,260 – –- Coconut 1,016,977 774,789 – –Consumables and spares 62,528,994 20,058,252 – –Tractor stock, solar panels and others 74,018,262 196,924,834 1,750,000 9,414,705Goods in transit 41,738,684 34,856,984 – –1,714,823,920 1,365,405,671 1,750,000 9,414,705Less: Provision for slow moving stocks (115,639,730) (113,886,069) – –Total 1,599,184,190 1,251,519,602 1,750,000 9,414,70521. Trade and Other Current AssetsGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Insurance commission receivable – 63,946,190 – –Securities clients/ brokers receivable – 3,367,850 – –Amount due from subsidiaries – – 1,138,017,228 2,688,094,700Finance charges unamortised 166,570,895 176,513,013 143,887,712 176,513,013Trade receivables 1,387,967,912 1,117,816,460 – –Other accounts receivables 3,357,757,965 2,619,484,952 460,453,683 403,996,485Value Added Tax (VAT) refunds duefrom Department of Inland Revenue 530,665,710 3,804,526 – –Advanced Corporate Tax (ACT) recoverable 651,516 8,317,153 – –Economic Service Charge (ESC) recoverable 193,468,572 93,505,221 74,557,824 93,234,221Total 5,637,082,570 4,086,755,365 1,816,916,447 3,361,838,419Above receivables are shown after deducting provisions for doubtful debts.Finance charges unamortised include expenses incidental to obtaining long-term loans such as guarantee fees, structuring fees, placementfees and front end fees. These charges are written-off over the period of corresponding loans as the Directors are of the opinion that theseare part of the financing cost of the long-term borrowings.PAGE 148 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statements22. Prepaid Lease RentalsGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Balance at the beginning of the year 313,709,841 – – –On acquisition of subsidiaries – 314,888,067 – –Additions – – – –Disposals – – – –Amortisation for the year (8,173,982) (1,178,226) – –Balance at the end of the Year 305,535,859 313,709,841 – –Leasehold right to bare land of (JEDB/SLSPC) Estates.The leasehold right to bare land of JEDB/SLSPC Estates is being amortised by equal amounts over a 53-year period and the unexpired periodof the lease as at the Balance Sheet date is 36 years.23. Investment PropertiesGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Balance at the beginning of the year 451,743,865 162,582,249 242,274,225 70,592,609On acquisition of subsidiaries – 104,098,250 – –Additions – 234,982,202 – 234,982,202Disposals – – – –Net transfers (to)/from advances and other loans 1,454,868 (63,300,586) – (63,300,586)Change in fair value during the year (13,549,065) 13,381,750 5,225,775 –Balance at the end of the year 439,649,668 451,743,865 247,500,000 242,274,225The fair value of Investment properties of the Company was assessed during the financial year 2010/11 by professional valuers,Mr. G.J. Sumanasena and Sunil Fernando & Associates (Pvt) Ltd. The change in fair value was recognised in the Income Statement.Information on the Investment PropertiesAs required by Section 7.6 (viii) of the Colombo Stock Exchange Listing Rules, information on the investment properties of the Company aredisclosed on page 179.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 149

Notes to the Financial Statements24. Timber StocksThe Group has engaged an independent chartered valuation surveyor to determine the fair value of timber stock. The valuer has valued thetimber stock on per tree valuation basis by using available log and tree prices in city centres less point-of-sale-costs. The Group measuresthe timber stock at fair value less estimated point-of-sale-costs at each Balance Sheet date.25. Investments in Joint Venture CompaniesPrincipal Activity Group Holding CompanyAs at 31 March 2011 2010 2011 2010 2011 2010(Rs.) (Rs.) (%) (%) (Rs.) (Rs.)Hydro Power Free Lanka PLC Hydro power – – 2 – 36,384,471 –Free Lanka Capital Holdings Investing activities – – 2 – 100,000,000 –Total – – – – 136,384,471 –The following companies have been accounted for as joint ventures of the Group:Agrisil Holding Ltd.Free Lanka Management Company Ltd.Free Lanka Plantation Company Ltd.Free Lanka Capital Holdings PLCFree Lanka Capital (Pvt) Ltd.Free Lanka Power 1 (Pvt) Ltd.Free Lanka Power 2 (Pvt) Ltd.Free Lanka Power 3 (Pvt) Ltd.Free Lanka Power Holding (Pvt) Ltd.Free Lanka Capital Properties (Pvt) Ltd.Harrison Charfield (Pvt) Ltd.Hydro Power Free Lanka PLCHydro Power Free Lanka 2 (Pvt) Ltd.Hydro Power Free Lanka 3 (Pvt) Ltd.Maturata Plantations Ltd.Melfort Green Teas (Pvt) Ltd.Pussellawa Plantations Ltd.The Tea Leaf Resort Holding (Pvt) Ltd.PAGE 150 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statements26. Investments in Associate CompaniesGroup Holding No. of Shares GroupAs at 31 March 2011 2010 2011 2010 2011 2010(%) (%) (Rs.) (Rs.)Investments in Equity - Accounted InvesteesGroupUnquoted investmentsCommercial Insurance Brokers (Pvt) Ltd. (CIB)Investor Commercial Leasing Company PLC 40.00 40.00 240,000 240,000 800,000 800,000PRASAC Micro Finance Institution Ltd. (PRASAC)Investor Lanka ORIX Leasing Company PLC 18.00 18.00 138,626 138,626 108,977,301 108,977,301IG Browns Rubber Industries (Pvt) Ltd. (IGBRIL)Investor Brown & Company PLC – 10.00 – 45,000 – 450,000Standard Finance (Pvt) Ltd. – 26.70 – 120,000 – 400,000Browns Group Industries (Pvt) Ltd. – 1.67 – 2,500 – 25,000– 38.37 – 167,500 – 875,000Associated Battery Manufacturers (Cey.) Ltd. (ABM)Investor Standard Finance (Pvt) Ltd. 38.50 38.50 – 2,439,355 – 24,393,550Browns Dimo Industrial Products (Pvt) Ltd. (BDIPL)Investor Standard Finance (Pvt) Ltd. – 45.00 – 675,000 – 6,750,000Seylan Bank PLC (Seylan)Investor Lanka ORIX Leasing Company PLC -Non-voting shares – 9.88 – 25,050,000 – 446,155,965Commercial Leasing Company PLC-Non-voting shares – 0.03 – 72,400 – 1,104,210Browns Investments (Pvt) Ltd. -Non-voting shares – 2.12 – 5,378,700 – –LOLC Investments Ltd. - Voting shares – 5.13 – 13,000,000 – 488,359,374Browns Investments (Pvt) Ltd. - Voting shares – 5.13 – 13,000,000 – 551,130,139– 22.29 – 56,501,100 – 1,486,749,688Galoya Plantations Ltd. (GPL)Investor Lanka ORIX Leasing Company PLC 22.05 – 24,788,235 – 247,882,353 –Brown & Company PLC 22.05 – 22,309,412 – 248,997,882 –44.10 – 47,097,647 – 496,880,235 –Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 151

Notes to the Financial StatementsGroup Holding No. of Shares GroupAs at 31 March 2011 2010 2011 2010 2011 2010(%) (%) (Rs.) (Rs.)Sierra Construction (Pvt) Ltd. (SCPL)Investor Lanka ORIX Leasing Company PLC 10.00 – 12,490,250 – 600,000,000 –Browns Investments Ltd. 10.00 – 12,490,253 – 600,903,925 –20.00 – 24,980,503 – 1,200,903,925 –Sierra Holdings (Pvt) Ltd. (SHPL)Investor Lanka ORIX Leasing Company PLC 10.00 – 4,496,492 – 200,000,000 –Browns Investments Ltd. 10.00 – 4,496,492 – 199,911,042 –20.00 – 8,992,984 – 399,911,042 –Agstar Fertilizer (Pvt) Ltd. (AFPL)Investor Lanka ORIX Leasing Company PLC 10.00 – 1,825,000 – 54,476,250 –Browns Investments Ltd. 10.00 – 1,825,000 – 54,476,250 –20.00 – 3,650,000 – 108,952,500 –Total cost to the Group 2,316,425,003 1,628,545,539Equity Value of Investment in Associates as at 31 March 2011 - GroupCIB PRASAC IGBRIL ABM BDIPL Seylan GPL SCPL SHPL AGFL Total(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)Equity value of investmentsas at 01 April 2010 50,809,436 255,729,271 7,259,080 169,451,572 32,325,750 2,519,821,732 – – – – 3,035,396,841Acquisition during the year – – – – – – 496,880,235 1,200,903,925 399,911,042 108,952,500 2,206,647,702Share of profits/(loss) ofassociate companiesafter tax 3,118,832 99,027,807 (1,377,610) 44,838,911 9,821,917 69,503,118 (52,581,585) 1,482,372 (5,673,091) 10,361,467 178,522,137Dividend received (960,000) – – (23,173,920) – – – – – – (24,133,920)Disposals during the year – – – – – (1,177,656,129) – – – – (1,177,656,129)Negative goodwill – – – – – – – – – – –Reclassifications/transfers – – (5,881,470) – (42,127,668) (1,411,668,721) – – – – (1,459,697,858)Equity value of investmentsas at 31 March 2011 52,968,268 354,757,078 – 191,116,503 – – 444,298,650 1,202,386,297 394,237,951 119,313,967 2,759,078,773PAGE 152 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsCompany Holding No. of Shares31.03.2011 31.03.2010 31.03.2011 31.03.2010 31.03.2011 31.03.2010(Rs.)(Rs.)Quoted InvestmentsSeylan Bank PLC (Seylan) - Non-Voting Shares – 9.88% – 25,050,000 – 446,155,965Unquoted InvestmentsPRASAC Micro Finance Institution Ltd. (PRASAC) 18% 18.00% 138,626 138,626 108,977,301 108,977,301Gal Oya Plantations Ltd. (GPL) 10% – 24,788,235 – 247,882,353 –Sierra Construction (Pvt) Ltd. (SCPL) 10% – 12,490,250 – 600,000,000 –Sierra Holdings (Pvt) Ltd. (SHPL) 10% – 4,496,492 – 200,000,000 –Agstar Fertilizer (Pvt) Ltd. (AFPL) 10% – 1,825,000 – 54,476,250 –Total 1,211,335,904 555,133,266Summarised Financial Information of Equity Accounted Investees for the year ended 31 MarchCIB PRASAC ABM GPL SCPL SHPL AFPL Total2011 2010(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)Revenue 104,515,685 2,299,680,114 1,958,102,531 21,374,921 5,709,104,760 8,849,588,081 2,918,608,986 10,092,778,011 7,810,543,894Profit/(loss) after tax 7,797,080 550,154,482 116,464,704 (119,503,603) 132,429,826 394,036,211 239,971,151 687,342,489 54,718,226Total assets 214,202,406 12,469,806,190 977,648,346 1,511,207,821 8,047,227,085 12,3308,098,359 2,029,879,478 23,220,091,848 15,745,831,410Total liabilities 81,782,132 10,841,534,695 481,241,690 1,168,171,036 4,468,101,445 7,358,212,561 1,448,460,216 17,040,830,997 13,214,614,659During the year, the Group acquired interest in GPL, SCPL, SHPL and AFPL and treated as investments in equity-accounted investee in theGroup Financial Statements for the year ended 31 March 2011.Associates Transferred to Subsidiaries during the YearFurther investments made by the Group during the year in IGBRIL and BDIPL has resulted in gaining control over those equity-accountedinvestees. Consequently, these are treated as subsidiaries of the Group from the date of establishing control over the respective company.Disposal of AssociatesThe Group disposed 1,166,068 voting shares of Seylan Bank PLC during the period ended 31 March 2011. The balance amount relating tothe remaining voting shares of 24,833,998 in Seylan Bank PLC is reflected as short-term investments under the investment securities in theBalance Sheet.The reporting date of the Financial Statements of CIB and PRASAC is 31 December and the share of profit relating to year ended 31 December2010 is reflected in the Group Financial Statements for the year ended 31 March 2011. The Company has neither contingent liabilities norcapital commitments in respect of its associates.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 153

Notes to the Financial Statements27. Investments in Subsidiary CompaniesPrincipal Activity No. of Sharesheld by the CompanyGroupHoldingCompanyHoldingInvestment (Company)2011 2010 2011 2010 2011 2010 2011 2010(%) (%) (%) (%) (Rs.) (Rs.)CompanyLanka Orient Investment Ltd. No operations – 2 – 100 – 100 – 20LOLC Funding One Ltd.Securitisation of leasereceivables – 7 – 100 – 100 – 700Lanka ORIX Insurance Brokers Ltd. Insurance broking – 1,000,000 – 100 – 100 – 10,000,000Lanka ORIX Finance Company(Pvt) Ltd.Finance business andpawn broking 200,000,000 100,000,000 100 100 100 100 2,000,000,000 1,000,000,000Lanka ORIX InformationTechnology Ltd. renamed asLOLC Investments Ltd.Software design,development anddistribution 6,000,000 2,000,000 100 100 100 100 445,000,000 20,000,000Lanka ORIX ProjectDevelopment Ltd.Property andinfrastructure 5,200,000 5,200,000 100 100 100 100 52,000,000 52,000,000Sundaya Lanka (Pvt) Ltd. Assembling anddistributionof solar systems 624,490 624,490 51 51 51 51 6,244,900 6,244,900Commercial LeasingCompany Ltd.Leasing, hire purchasingand factoring 27,729,179 17,645,840 100 100 100 100 2,664,970,028 1,656,636,128LOLC Micro Credit Ltd. Agro and Micro financing 40,000,000 40,000,000 80 80 80 80 460,125,000 460,125,000Commercial Factors Ltd. No operations 1 1 100 100 100 100 10 10LOLC Eco Solutions (Pvt) Ltd. Power generation 2,500,000 1 100 100 100 100 25,000,000 10Brown & Company PLCTrading andManufacturing 4,519,200 1,874,600 56.2 52.4 6.4 2.6 711,350,616 145,350,101Gal Oya Holding Ltd.Management Company- Sugar plantation 1,000,000 1,000,000 100 100 50 50 10,000,000 10,000,000LOLC Motors Ltd. Motor repair 15,000,000 15,000,000 100 100 100 100 150,000,000 150,000,000LOLC Insurance Company Ltd. Insurance 20,000,000 – 100 – 100 – 200,000,000 –Lanka ORIX InformationTechnology Services Ltd.Orient Academy Ltd.Software design,development anddistribution 1,500,000 – 100 – 100 – 15,000,000 –Consultancy, trainingand educationalservices, providingservices of skilledpersonnel andtechnical support 1,500,000 – 100 – 100 – –Browns Investments (Pvt) Ltd. Investment 240,000,000 – 40.3 – – –LOLC Leisure Ltd. Leisure and hospitality 112,430,500 – 100 – 70 – 1,980,471,500 –LOLC Land Holdings Ltd. Real estates 13,300,000 – 100 – 100 – 133,000,000 –LOLC Realty Ltd. Real estates 1 – 100 – 100 – 10 –LOLC Property Investments Ltd. Real estates 1 – 100 – 100 – 10 –LOLC Securities Ltd. Stock Broking 5,000,000 – 100 – 100 – 50,000,000 –LOLC Assets Holdings Ltd. Real estates 1 – 100 – 100 – 10 –LOLC Estates Ltd. Real estates 1 – 100 – 100 – 10 –LOLC Services Ltd. Real estates 10,300,000 – 100 – 100 – 103,000,000 –Total 9,006,162,094 3,510,356,869Provision for impairment loss (62,000,000) (32,059,248)Net carrying amount 8,944,162,094 3,478,297,621PAGE 154 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsGroup ShareholdingShares of subsidiaries held by other companies No. of Shares Group Holding2011 2010 2011 2010(%) (%)GroupBG Air Services (Pvt) Ltd. 50,000 50,000 100 100Browns Battery (Pvt) Ltd. 10,000 10,000 100 100Browns Group Industries (Pvt) Ltd. 2,800,000 2,800,000 100 100Browns Group Motels Ltd. 399,859 330,000 67 66Browns Investments (Pvt) Ltd. 730,000,000 45,250,000 40 50Browns Motor (Pvt) Ltd. 5,000,000 5,000,000 100 100Browns Thermal Engineering (Pvt) Ltd. 824,997 – 55 –Browns Tours (Pvt) Ltd. 2,030,000 2,030,000 100 100Central Services (Pvt) Ltd. 802 – 100 –CFT Engineering Ltd. 3,450 3,450 95 95Confifi Hotel Holdings PLC 5,914,169 – 53 –Diriya Investments (Pvt) Ltd. 108,053,352 108,053,352 50 50East West Textile Lanka Ltd. 15,405,137 15,405,137 100 100Eden Hotel PLC – – 46 –Engineering Services (Pvt) Ltd. 147,502 147,502 100 100Gal Oya Holdings 2,000,000 2,000,000 100 100Klevernberg (Pvt) Ltd. 3,120,000 3,120,000 60 60KPL Spare Parts (Pvt) Ltd. – 500,000 – 100Masons Mixtures Ltd. 4,226,390 4,226,390 98 98Muthugala Estates (Pvt) Ltd. 960 960 80 80Orient Academy Ltd. 1,500,000 1,500,000 100 100Pathregalla Estates (Pvt) Ltd. 3,831 3,831 91 91Riverina Hotel PLC 10,566,107 – 74 –Sifang Lanka (Pvt) Ltd. 3,000,002 3,000,002 100 100Sifang Lanka Trading (Pvt) Ltd. 2,050,000 2,050,000 100 100Snowcem Products Lanka (Pvt) Ltd. 400,000 400,000 100 100Southern Cleaners (Pvt) Ltd. 201,267 – 100 –Standard Finance (Pvt) Ltd. 2,700,000 2,700,000 100 100Taprobane Fund Management Ltd. 15,725,000 15,725,000 63 63The Hatton Transport & Agency Company (Pvt) Ltd. 112,000 112,000 100 100Tropical Villas (Pvt) Ltd. 6,206,580 – 60 –United Dendro Energy (Pvt) Ltd. 1,000 1,000 75 75Walker & Greig (Pvt) Ltd. 1 1 100 100Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 155

Notes to the Financial Statements27.1 Acquisitions During the YearLOLC Leisure Ltd., formerly known as LOLC Securities, is a subsidiary of Lanka ORIX Leasing Company PLC with a 70% holding and thebalance held by Browns Investments Ltd. LOLC Leisure Ltd. acquired 52% of Confifi Hotel Holdings PLC and 26% of Riverina Hotels PLC.Confifi Hotel Holdings PLC acquired a further 23% of Riverina Hotels PLC and Riverina Hotels PLC acquired a further 25% of Confifi HotelHoldings PLC in July 2010.The acquisition had the following effect on the Group’s assets and liabilities on acquisition date:Recognised valueson acquisitionas at 01.07.2010(Rs.)Property, plant and equipment 4,789,339,335Investment securities 27,293,000Investment in term deposits 53,748,000Inventories 50,060,858Trade and other receivable 1,354,813,309Cash and cash equivalents 41,948,448Interest-bearing loans and borrowings (1,071,460,000)Retirement benefit obligation (24,581,716)Deferred taxation (287,192,435)Provision for taxation (16,492,223)Trade and other payables (232,353,982)Bank overdraft (56,927,099)Total identifiable net assets 4,628,195,495Minority interest (1,703,110,991)Fair value of the assets and liabilities acquired 2,925,084,504Goodwill on acquisition 180,298,643Negative goodwill on acquisition (271,910,632)Purchase consideration 2,833,472,515Less: cash received from subsidiaries (14,978,651)Acquisition of subsidiaries, net of cash 2,848,451,166The assets and liabilities as at the acquisition date are stated at their provisional fair value and may be amended in accordance with SLAS 25(Revised 2004) - ‘Business Combinations’.PAGE 156 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsGroup Company2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)28. Deferred Tax AssetDeferred Tax Assets and LiabilitiesUnrecognised Deferred Tax AssetsDeductible temporary differences 197,015,260 169,167,922 – –Tax losses 635,094,319 622,001,445 – –832,109,579 791,169,367 – –Deferred Tax AssetsDeferred Tax assets and liabilities relate to the following:Deferred Tax LiabilityCapital allowances for tax purposes on property,plant and equipment 108,227,214 26,433,648 95,360,545 3,602,939Capital allowances for tax purposes on lease receivables 54,290,571 86,317,251 54,290,571 86,317,251Operating lease assets 19,691,525 99,269,652 19,691,525 99,269,652Unamortised VAT 5,950,323 (15,790,590) 5,950,323 (15,790,590)188,159,633 196,229,961 175,292,964 173,399,252Deferred Tax AssetsDefined benefit plans 36,204,222 47,469,384 22,434,564 22,973,515Brought forward tax losses 585,399,520 891,764,943 337,888,760 581,209,882Provisions 1,209,892 31,496,000 – –622,813,634 970,730,327 360,323,324 604,183,397Net deferred tax asset 434,654,001 774,500,366 185,030,360 430,784,145Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 157

Notes to the Financial Statements29. GoodwillGroup Company2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Balance as at 01 April 151,415,234 151,415,234 – –Acquisition of Confifi Group 180,298,643Balance as at 31 March 331,713,877 151,415,234 – –There has been no impairment of goodwill as the recoverable amount is higher than the carrying amount as at the Balance Sheet date. Methodused in estimating recoverable amount is based on the value in use calculations. Value in use was determined by discounting the future cashflows generated from the continuing use of the cash-generating unit. Key assumptions used are given below:Business growth - Based on historical growth rateInflation - Based on the current inflation rateDiscount rate - Average market borrowing rate adjusted for risk premium30. Intangible AssetsGroup Company2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Brand value (Note 30.1) 85,306,451 94,784,945 – –Customer base (Note 30.1) 39,537,319 49,421,649 – –Computer software (Note 30.2) 114,687,349 83,811,916 61,011,327 64,901,354Total 239,531,119 228,018,510 61,011,327 64,901,354PAGE 158 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statements30.1 Brand Value and Customer BaseBrand Value(Rs.)Customer Base(Rs.)GroupCost/ValuationBalance as at 01 April 2010 94,784,945 49,421,649Additions – –Disposals – –Balance as at 31 March 2011 94,784,945 49,421,649Accumulated AmortisationBalance as at 01 April 2010Amortisation during the year 9,478,495 9,884,330Amortisation on disposal – –Balance as at 31 March 2011 9,478,495 9,884,330Written down valueAs at 31 March 2011 85,306,451 39,537,319As at 31 March 2010 94,784,945 49,421,64930.2 Computer SoftwareGroup Company2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Balance at beginning of the year 134,162,755 86,333,230 99,095,685 56,938,549Additions during the year 69,197,493 43,621,506 15,090,195 42,157,136Disposal during the year (718,750) – (718,750) –On acquisition of subsidiaries – 6,462,434 – –Transfers/re-classifications (5,667,916) (2,254,415) – –196,973,582 134,162,755 113,467,130 99,095,685AmortisationBalance at beginning of the year 50,350,839 27,148,728 34,194,331 16,066,439On acquisition of subsidiaries – 2,257,190 – –Transfers/disposals – (414,853) – –Amortisation during the year 31,935,394 21,359,774 18,261,472 18,127,892Total amortisation at the end of the year 82,286,233 50,350,839 52,455,803 34,194,331Carrying amount at the end of the year 114,687,349 83,811,916 61,011,327 64,901,354Brand value and customer base were recognised upon the acquisition of Commercial Leasing Company Ltd.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 159

Notes to the Financial Statements31. Property, Plant and EquipmentLand & Motor Leasehold Furniture Office ComputersBuildings Vehicles Motor Vehicles & Fittings Equipment(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)GroupCost/ValuationBalance as at 01 April 2010 5,193,603,883 775,337,618 820,357,932 425,387,884 310,319,656 302,645,788Additions 1,700,169,419 749,393,762 123,015,384 56,631,793 89,801,132 38,145,921Disposals (382,415,568) (47,409,898) (508,075,199) (314,112) (11,966,373) (18,614,506)Revaluations 581,292,236 – – – – –Transfers (226,285,912) 8,311,250 (8,311,250) – (452,611) (16,429,990)Acquisition of subsidiaries 4,691,412,926 22,983,651 2,626,407 322,414,234 17,218,503 168,490Transferred from CWIP 77,446,958 – – – – –Balance as at 31 March 2011 11,635,223,942 1,508,616,383 429,613,274 804,119,799 404,920,307 305,915,703Accumulated DepreciationBalance as at 01 April 2010 162,830,690 377,835,025 462,497,669 236,795,645 173,650,202 210,019,033Charge for the year 80,932,145 203,236,845 44,053,659 79,927,904 49,087,880 40,578,901Depreciation on disposals (73,349,538) (23,238,540) (283,775,656) (233,210) (1,516,210) (18,614,506)Depreciation on transfers (13,376,761) 4,519,159 (4,519,160) – (452,611) (10,339,749)Acquisition of subsidiary 65,519,234 21,276,590 46,052 254,356,995 14,752,623 57,117Balance as at 31 March 2011 222,555,770 583,629,079 218,302,564 570,847,334 235,521,884 221,700,796Carrying AmountAs at 31 March 2011 11,412,668,172 924,987,304 211,310,710 233,272,465 169,398,423 84,214,907As at 31 March 2010 5,030,773,193 397,502,593 357,860,263 188,592,240 136,669,454 92,626,756Land & Motor Leasehold Furniture Office ComputersBuildings Vehicles Motor Vehicles & Fittings Equipment(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)CompanyCost/ValuationBalance as at 01 April 2010 636,013,927 497,942,138 754,931,311 198,949,939 188,564,321 149,489,809Revaluations 436,717,695 – – – – –Additions 660,564,673 649,254,514 115,197,771 12,067,160 42,828,015 51,992,408Disposals (265,980,530) (27,574,520) (501,392,038) – (19,000) (15,051,630)Adjustments (25,894,166) – – – – –Transferred from CWIP 67,132,503 – – – – –Balance as at 31 March 2011 1,508,554,102 1,119,622,132 368,737,044 211,017,099 231,373,336 186,430,587Accumulated DepreciationBalance as at 01 April 2010 21,395,047 192,428,353 412,850,231 97,953,259 108,250,166 91,170,793Adjustments (25,894,166) – (20,444,597) – – –Charge for the year 5,293,503 167,189,315 56,284,916 31,394,601 30,330,050 25,839,440Depreciation on disposals – (14,257,601) (235,081,521) – (1,541) (4,872,808)Balance as at 31 March 2011 794,384 345,360,067 213,609,029 129,347,860 138,578,675 112,137,425Carrying AmountAs at 31 March 2011 1,507,759,718 774,262,065 155,128,015 81,669,239 92,794,661 74,293,162As at 31 March 2010 614,618,880 305,513,785 342,081,080 100,996,680 80,314,155 58,319,016During the year, the Company revalued its land and buildings and consequently a revaluation gain on land amounting toRs. 495,484,034/- was recognised in the revaluation reserve and an impairment loss on building amounting to Rs. 58,766,339/-was charged to the Income Statement.PAGE 160 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsLeasehold Assets for Capital Work-in- Leasehold Plant & Other Tangible TotalMachinery Operating Leases Progress (CWIP) Buildings Machinery Assets(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)40,259,639 1,911,883,441 106,465,371 182,622,874 864,912,435 180,849,070 11,114,645,591– 117,109,144 12,564,116 9,078,667 21,400,583 108,443,717 3,025,753,638– (892,983,010) (6,311,586) – (49,166,245) (2,695,989) (1,919,952,486)– – – – – – 581,292,236(7,893,631) – (77,446,958) – (1,573,254) (101,225,036) (431,307,391)15,258,097 – 333,902 – 300,058,599 157,456,146 5,529,930,955– – – – – – 77,446,95847,624,105 1,136,009,575 35,604,845 191,701,541 1,135,632,118 342,827,906 17,977,809,5009,425,364 553,644,058 – 111,935,475 304,290,004 30,934,394 2,633,857,5594,418,060 363,485,800 – 8,493,055 79,699,625 23,229,861 977,143,735(1) (386,439,718) – – (17,390,851) (2,455,757) (807,013,987)1,169,826 – – – (15,777,079) – (38,776,375)3,315,469 – – – 257,670,605 123,596,933 740,591,61818,328,718 530,690,140 – 120,428,530 608,492,304 175,305,431 3,505,802,55029,295,387 605,319,435 35,604,845 71,273,011 527,139,814 167,522,476 14,472,006,95030,834,275 1,358,239,383 106,465,371 70,687,398 560,622,431 149,914,676 8,480,788,032Assets for Capital Work-in- TotalOperating Leases Progress (CWIP)(Rs.) (Rs.) (Rs.)1,591,972,651 59,084,725 4,076,948,821– – 436,717,695107,909,144 8,047,778 1,647,861,463(669,475,656) – (1,479,493,374)(4,666,666) (30,560,832)– (67,132,503) –1,025,739,473 – 4,651,473,773339,938,746 – 1,263,986,595(4,461,073) – (50,799,836)350,580,939 – 666,912,764(257,908,647) – (512,122,118)428,149,965 – 1,367,977,405597,589,508 – 3,283,496,3681,252,033,905 59,084,725 2,812,962,226The carrying value of land and buildings of the Company,if carried at cost less accumulated depreciation would amountto Rs. 755,878,090/- as at 31 March 2011 (31 March 2010 -Rs. 294,886,900/-).Information on the freehold land and buildings ofthe CompanyAs required by Section 7.6 (viii) of the Colombo Stock ExchangeListing Rules, information on the freehold land and buildings ofthe Company are disclosed on page 179.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 161

Notes to the Financial Statements32. Deposits from CustomersGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Deposits maturing within one year 12,590,283,288 8,414,114,075 – –Deposits maturing after one year 3,757,852,235 1,680,569,151 – –Total 16,348,135,523 10,094,683,226 – –33. Interest Bearing Loans and BorrowingsCommercial papers 3,063,700,795 2,121,499,253 2,025,012,091 1,574,141,412Short-term loans and others 14,574,822,384 14,457,894,714 7,726,250,000 8,817,858,631Debentures 165,600,000 172,230,000 – –Finance lease liabilities (Note 33.1) 369,696,813 480,215,487 182,019,206 292,710,457Long-term borrowings (Note 33.2) 28,610,473,795 18,016,249,980 10,351,562,460 11,051,344,58546,784,293,787 35,248,089,434 20,284,843,757 21,736,055,085Commercial papers issued by the Company includes guaranteed and unguaranteed CP’s to the value of Rs. 900,000,000/- and Rs. 1,125,012,091/-respectively.Group CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)33.1 Finance Lease LiabilitiesGross lease rentals payable as at 01 April 633,876,495 728,445,173 333,646,526 726,890,404On acquisition of subsidiaries – 246,535,191 – –Leases obtained during the year 529,050,726 54,291,071 115,141,675 –Lease rentals paid during the year (619,985,636) (395,394,940) (233,458,880) (393,243,878)Gross lease rentals payable as at 31 March 542,941,585 633,876,495 215,329,321 333,646,526Less: Interest in suspense (173,244,772) (153,661,008) (33,310,115) (40,936,069)Net lease liability 369,696,813 480,215,487 182,019,206 292,710,457Repayable within one yearGross lease rentals payable 158,434,292 251,369,108 126,448,109 228,420,935Less: Interest in suspense (27,251,967) (37,821,578) (16,009,250) (32,193,691)Net lease liability 131,182,325 213,547,530 110,438,859 196,227,244Repayable after one yearGross lease rentals payable 384,843,318 382,507,395 88,881,211 105,225,592Less: Interest in suspense (146,328,830) (115,839,438) (17,300,864) (8,742,379)Net lease liability 238,514,488 266,667,957 71,580,347 96,483,213Total 369,696,813 480,215,487 182,019,206 292,710,457PAGE 162 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statements33.2 Long-Term BorrowingsGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Balance as at 01 April 18,016,249,980 18,608,262,277 11,051,344,585 14,802,112,583On acquisition of subsidiaries 1,071,460,000 1,880,905,586 – –Received during the year 20,374,573,885 4,444,524,019 6,443,121,963 1,048,958,127Repaid during the year (10,851,810,070) (6,917,441,902) (7,142,904,088) (4,799,726,125)Balance as at 31 March 28,610,473,795 18,016,249,980 10,351,562,460 11,051,344,585Long-term borrowings - current 5,737,421,018 5,141,854,096 3,563,534,904 3,673,834,481Long-term borrowings - non-current 22,873,052,777 12,874,395,884 6,788,027,556 7,377,510,104Total 28,610,473,795 18,016,249,980 10,351,562,460 11,051,344,585Analysis of non-current portion of long-term borrowingsRepayable within 3 years 17,109,761,985 9,407,709,087 5,648,166,932 6,390,884,545Repayable after 3 years 5,763,290,792 3,466,686,797 1,139,860,624 986,625,559Total 22,873,052,777 12,874,395,884 6,788,027,556 7,377,510,10434. Trade and Other PayablesGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Accounts payable 4,696,041,819 4,083,893,517 789,588,904 712,855,782Creditors for leased equipment 2,152,267,791 1,280,777,334 18,599,730 41,711,002Amount due to subsidiaries – – 250,884,814 159,042,067Clients payable 228,551,605 40,247,917 – –VAT payable 41,175,053 74,384,351 947,162 47,955,286Other tax payable 213,587,928 116,492,589 110,094,472 116,491,254Insurance premium payable 18,496,680 18,429,642 – 18,429,642Unclaimed dividends 11,310,471 13,976,468 2,717,374 2,672,217Total 7,361,431,347 5,628,201,818 1,172,832,456 1,099,157,250Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 163

Notes to the Financial Statements35. Deferred Tax LiabilitiesGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Deferred tax assets and liabilities relate to the following:Deferred tax liabilityCapital allowances for tax purposes on property,plant and equipment 336,132,881 9,541,881 – –Capital allowances for tax purposes on lease receivables 680,352,682 439,140,293 – –1,016,485,563 448,682,174 – –Deferred tax assetsDefined benefit plans 8,703,787 6,217,670 – –Brought forward tax losses 135,420,342 – – –144,124,129 6,217,670 – –Net deferred tax liability 872,361,434 442,464,504 – –36. Deferred IncomeGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Capital grants 284,756,521 269,644,937 – –PHDT lease rentals 4,120,910 4,120,910 – –288,877,431 273,765,847 – –The above represents the following:I. (The funds received from the Plantation Housing and Social Welfare Trust (PHSWT), MTIP and PHDT are for the development of workerswelfare facilities and improvement in institutional facilities.II. The funds received from the Tea Board is for the construction of the CTC Tea Factory at Delta Estates.III. The funds received from the Plantation reform project is for the Development of Forestry Plantations.IV. Subsidy received from the Rubber Control Department is for Rubber Replanting.The amount spent is capitalised under that relevant classification of property, plant and equipment and corresponding grant component isreflected under deferred income and is being amortised over the useful life span of the related assets.PAGE 164 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statements37. Retirement Benefit ObligationsGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Movement in the present value of the defined benefit obligationsDefined benefit obligation as of 01 April 759,559,844 74,349,053 65,638,616 51,819,459On acquisition/merger of subsidiaries 24,581,716 665,692,363 4,167,694 –Benefits paid by the plan (109,855,568) (5,607,181) (2,880,483) (657,680)Current service cost 177,015,763 11,522,060 6,398,398 6,738,368Interest cost on benefit liability 20,565,888 17,694,942 7,737,491 11,390,791Past service cost/(Curtailment gain) – – 60,206 –Actuarial (gain)/losses 17,489,194 – (998,479) –Transitional difference (over provision) recognised during the year – (4,091,393) – (3,652,322)Defined benefit liability as at 31 March 889,356,837 759,559,844 80,123,443 65,638,616Expense recognised in the Income StatementCurrent service costs 177,015,763 11,522,060 6,398,398 6,738,368Interest on obligation 20,565,888 17,694,942 7,737,491 11,390,791Past service cost /(curtailment gain) – – 60,206 –Actuarial (gain)/losses 17,489,194 – (998,479) –Transfer of gratuity liability – – – (4,724,260)Transitional difference (over provision) recognised during the year – (4,091,393) – (3,652,322)Total 215,070,845 25,125,609 13,197,616 9,752,577Key assumptions used in the above valuation are as follows:Discount rate 9%-12.35% 11%-12.35% 9.3% 12.35%Salary increment rate 8%-10.75% 9%-10.75% 8.0% 10.75%The retirement benefit obligation of some companies in the Group are based on the gratuity formula in Appendix E of SLAS 16 - EmployeeBenefits and the requirement of the Gratuity Act No. 12 of 1983.38. Stated CapitalGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Issued and Fully PaidAt the beginning of the year - 47,520,000 shares 475,200,000 475,200,000 475,200,000 475,200,000At the end of the year - 47,520,000 shares subdivided into 10,equalling to 475,200,000 shares 475,200,000 475,200,000 475,200,000 475,200,000Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 165

Notes to the Financial Statements39. ReservesGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Share premium of subsidiary – – – –Future taxation reserve 205,000,000 205,000,000 205,000,000 205,000,000Statutory reserve - reserve fund 732,934,122 404,979,197 272,356,156 241,889,290- investment fund 57,398,922 17,859,777General reserve – – – –Revaluation reserve 752,412,624 155,879,068 600,886,875 105,402,842Total 1,747,745,668 765,858,265 1,096,102,808 552,292,132Investment Fund ReserveThe reserve is created in accordance with the Central Bank guidelines issued to create an Investment Fund Reserve. 8% of the profits liable forVAT on financial services is transferred to this reserve monthly when the payment of VAT on financial services for such month becomes due .Reserve FundThe Reserve Fund of the Company and subsidiaries involved in leasing business was created according to the Direction No. 5 of 2006 issued bythe Central Bank of Sri Lanka under Section 34 of the Finance Leasing Act No. 56 of 2000. The Reserve Fund of Lanka ORIX Finance CompanyLtd. was created in accordance with Finance Companies (Capital Funds) Direction No. 1 of 2003 issued by the Central Bank of Sri Lanka.40. Retained EarningsGroup CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Balance brought forward 6,662,696,388 4,981,857,006 4,401,162,084 4,097,107,298Dividends forfeited 1,162,576 – 1,162,576 –Change in percentage holdings in subsidiaries (81,314,590) – – –Transfers to statutory reserves - reserve fund (327,954,925) (160,969,574) (30,466,866) (22,885,844)- investment fund (57,398,922) – (17,859,777) –Net profit for the year 3,840,227,908 1,841,808,956 1,523,343,288 326,940,630Realisation of revaluations 735,975,206 – – –Balance at the end of the year 10,773,393,641 6,662,696,388 5,877,341,305 4,401,162,084PAGE 166 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial Statements41. Comparative InformationReclassificationThe presentation and classification of the following comparative information in these Financial Statements were amended as follows:Group CompanyAs at 31 March 2010 2010 Change 2010 2010 Change(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)Current As reportedCurrent As reportedpresentation previouslypresentation previouslyAdvances and other loans 15,084,563,625 14,766,056,041 318,507,584 6,897,384,779 6,578,877,195 318,507,584Other account receivables undertrade and other current assets 2,619,484,952 2,874,691,950 (255,206,998) 403,996,485 659,203,483 (255,206,998)Investment Properties 451,743,865 506,139,491 (54,395,626) 242,274,225 296,669,851 (54,395,626)Land & building under property,plant and equipment cost 5,193,603,884 5,202,508,844 (8,904,960) 636,013,927 644,918,887 (8,904,960)Property, plant and equipment 8,480,788,032 10,236,820,666(After above(1,756,032,634) – – –reclassification)Immature/mature plantations 1,307,833,959 – 1,307,833,959 – – –Timber stock 3,614,748,311 3,166,549,636 448,198,675 – – –(After restatement)36,752,766,628 36,752,766,628 – 8,179,669,416 8,179,669,416 –Immature/mature plantations which was previously classified under property, plant and equipment was reclassified as a separate line itemon the Balance Sheet during the year. Further, timber component of rubber plantations previously shown under immature/mature plantationswas reclassified as Timber Stocks to ensure appropriateness of classification.Other reclassifications were made to ensure comparability and appropriateness of classification.RestatementDuring the year a joint venture of the Group, Pussellawa Plantation Ltd., corrected an error in timber valuation for the financial year 2009,resulting in an increase in the value of timber stock by Rs. 563,932,612/-.Since the joint venture was acquired as part of acquiring the Brown & Co. PLC Group in January 2010, this revision in valuation results in anincrease of minority interest on acquisition date by an amount of Rs. 281,966,306/-.The error was corrected retrospectively and the restatement had the following effect on the Financial Statements.Amount asRestatedpreviously reported2010 2010 ChangeFinancial Statement Financial Statement Caption (Rs.) (Rs.) (Rs.)Balance Sheet Timber stocks 2,884,583,330 3,166,549,636 281,966,306Minority interest 11,553,926,639 11,835,892,945 281,966,306Statement of Changes in Equity Addition to minority throughacquisition of subsidiary 10,700,874,323 10,982,840,629 281,966,306Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 167

Notes to the Financial Statements42. Segmental InformationFinancial Insurance IT Services Trading Leisure Plantation Power & Other TotalServices Broking Energy(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)2010/11Total revenue 17,863,966,191 9,701,446 321,049,727 10,318,536,846 1,358,691,213 5,106,494,154 73,854,557 229,857,276 35,282,151,410Inter-group revenue (2,186,782,760) – (279,655,400) – – (193,717,576) – (544,668,213) (3,204,823,949)Revenue - external 15,677,183,431 9,701,446 41,394,327 10,318,536,846 1,358,691,213 4,912,776,578 73,854,557 (314,810,937) 32,077,327,461Net interest cost (5,782,053,651) – (231,645) (304,426,822) (130,358,841) (169,514,494) (3,293,388) (30,709,047) (6,420,587,888)Cost of sales (41,875,309) – (19,039,333) (7,198,147,586) (256,438,947) (2,337,254,470) – (58,466,253) (9,911,221,898)Profit beforeoperating expenses 9,853,254,471 9,701,446 22,123,349 2,815,962,438 971,893,425 2,406,007,614 70,561,169 (403,986,237) 15,745,517,675Operating expenses (4,657,474,878) (4,455,481) (134,201,315) (1,708,384,073) (752,915,943) (446,326,281) (50,355,730) (159,477,663) (7,913,591,364)Results fromoperating activities 5,195,779,593 5,245,965 (112,077,966) 1,107,578,365 218,977,482 1,959,681,333 20,205,439 (563,463,900) 7,831,926,311Negative goodwill – – – – – – – – 271,910,632Profit/(Loss) disposalof associates andsubsidiaries – – – – – – – – –Share of profit ofassociate companies – – – – – – – – 178,522,137Profit before taxation 5,195,779,593 5,245,965 (112,077,966) 1,107,578,365 218,977,482 1,959,681,333 20,205,439 (563,463,900) 8,282,359,0802009/10Total revenue 12,559,350,570 123,725,780 128,183,120 1,845,146,244 5,464,455 721,897,018 18,092,596 65,069,076 15,466,928,859Inter-group revenue (469,097,096) – (96,000,000) – – – – – (565,097,096)Revenue - external 12,090,253,474 123,725,780 32,183,120 1,845,146,244 5,464,455 721,897,018 18,092,596 65,069,076 14,901,831,763Net interest cost (6,040,678,212) 3,585,541 – (109,480,057) – (18,519,392) (1,387,030) (11,657,387) (6,178,136,537)Cost of sales (1,029,853,463) – (56,552) (1,286,268,742) – (508,597,785) (2,894,343) (41,601,704) (2,869,272,589)Profit beforeoperating expenses 5,019,721,799 127,311,321 32,126,568 449,397,445 5,464,455 194,779,841 13,811,224 11,809,985 5,854,422,637Operating expenses (3,736,034,327) (126,113,154) (67,994,543) (349,149,846) (5,239,273) (72,842,033) (4,727,474) (24,620,459) (4,386,721,109)Results fromoperating activities 1,283,687,472 1,198,167 (35,867,975) 100,247,599 225,182 121,937,808 9,083,750 (12,810,474) 1,467,701,528Negative goodwill – – – – – – – – 1,423,836,934Profit/(Loss) disposalof associates andsubsidiaries (167,087,952) – – – – – – – (167,087,952)Share of profit ofassociate companies – – – – – – – – 116,336,631Profit before taxation 1,116,599,520 1,198,167 (35,867,975) 100,247,599 225,182 121,937,808 9,083,749 (12,810,474) 2,840,787,141PAGE 168 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsFinancial Insurance IT Services Trading Leisure Plantation Power & Other TotalServices Broking Energy(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)2010/11Capital expenditure 1,767,717,265 – 10,676,648 269,417,068 34,400,859 1,133,127,908 24,119,445 2,935,121 3,242,394,314Depreciation andamortisation 753,926,528 – 5,740,040 60,079,759 108,914,695 90,787,100 13,657,810 41,437,329 1,074,543,261Provision for bad anddoubtful debts 533,393,901 – – 1,501,357 6,468,920 – – 5,091,680 546,455,858Adjustments forincrease/(decrease)in market value ofquoted shares (15,263,865) – – 1,714,800 – – – – 13,549,065Retirement benefitobligations 23,472,136 – 981,729 25,992,923 8,237,071 154,366,723 468,443 1,551,820 215,070,8452009/10Capital expenditure 1,192,915,120 – 3,154,920 16,946,316 – 28,950,394 27,392 1,493,924 1,243,488,066Depreciation andamortisation 644,331,777 – 3,971,500 21,838,555 229,000 19,708 1,686,227 3,807,818 675,884,584Provision for bad anddoubtful debts 635,976,370 – – – – – – – 635,976,370Provision/(reversal)for fall in value ofinvestments 970,942,054 – – 2,241,613,938 – – – – 3,212,555,992Retirementbenefit obligations 19,170,334 882,134 917,180 3,869,217 46,000 33,868 – 206,876 25,125,609As at 31 March 2011Total assets 78,489,561,275 209,393,289 55,968,720 13,397,616,846 4,853,881,167 12,605,687,760 472,059,008 1,729,364,523 111,813,532,588Total liabilities 69,022,320,065 1,518,084 28,335,343 2,975,533,954 1,642,877,487 2,124,630,709 85,664,045 1,209,501,415 77,090,381,102As at 31 March 2010Total assets 58,759,720,110 128,148,017 627,188,519 9,306,716,775 71,320,930 3,702,318,543 295,435,363 2,480,470,915 75,371,319,172Total liabilities 49,793,992,645 46,228,991 11,685,068 2,724,213,541 30,227,836 2,085,638,417 44,567,201 895,117,875 55,631,671,57443. Loans to Employees (Rs. 20,000/- and above)Group CompanyAs at 31 March 2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Balance as at 01st April 87,333,087 99,072,708 72,295,067 77,206,776Loans granted during the year 184,572,544 46,616,254 94,870,176 33,148,760Recoveries during the year (80,475,764) (58,355,875) (42,366,406) (38,060,469)Balance as at 31st March 191,429,867 87,333,087 124,798,837 72,295,067Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 169

Notes to the Financial Statements44. Commitments and ContingenciesGroup Company2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Contingent liabilitiesBank guarantees 1,538,987,284 371,752,221 1,500,000,000 –Loan borrowed jointly from foreign funding agency transferred tosubsidiary to grant loans to Microfinance clients 598,547,038 – 598,547,038 –CommitmentsCapital commitments 133,456,600 – 73,456,600 –Forward exchange contracts 12,147,143,462 7,736,040,853 5,615,638,725 4,899,855,113Letters of credit opened 94,724,861 7,952,023 46,205,504 7,952,023Facility limits not utilised 1,531,604,468 1,074,745,695 1,194,934,635 852,339,772On the commitment for forward exchange contracts the Group will receive US$ 67,377,174, EUR 26,087,199, AU$ 1,460,000 andGBP 1,300,000 on the conversion and the Company will receive US$ 27,705,460 and EUR 15,732,324 on the conversion.The maturity of the forward exchange contracts are as follows:GroupCompany2011 2010 2011 2010Maturing within 0-6 monthsUS$ 35,504,924 44,920,633 15,008,210 28,850,633EURO 10,366,510 10,830,870 6,451,610 6,785,970AUD 960,000 1,200,000 – –GBP 1,300,000 575,000 – –Maturing within 6-12 monthsUS$ 19,822,250 2,500,000 7,697,250 2,500,000EURO 12,720,689 – 9,280,714 –AUD 500,000 – – –GBP – – – –Maturing within 12-18 monthsUS$ 7,050,000 – 5,000,000 –EURO – – – –AUD – – – –Maturing within 18-24 monthsUS$ 5,000,000 – – –EURO 3,000,000 – – –PAGE 170 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsLitigation against the CompanyIn the normal course of business the Company is involved in various types of litigation with borrowers or others who have asserted orthreatened claims/counter claims against the Company. 23 cases have been filed against the Company. The Company is in the view that thesecases would not have any material impact on the Financial Statements.Assessments raised against the CompanyAt the year end there were pending assessments made by the Inland Revenue for the year 2008/09 amounting to Rs. 503 Mn, on which theCompany has appealed against. The Company is confident of the appeal made and believes that no additional payment will result on thisassessment. Based on this view, no provisions have been made in these Financial Statements.45. Events After the Balance Sheet DateThere have been no material events occurring after the Balance Sheet date that require adjustment to or disclosure in the Financial Statements,other than the following:1. LOLC requested approval from the Central Bank of Sri Lanka to not renew its leasing license following the decision by the Company to convertitself to a Holding Company. The Central Bank of Sri Lanka approved the request made by LOLC and the leasing license of the Company hasnot been renewed.2. Subsequent to announcing itself as a Holding Company, LOLC sold its factoring business to its fully-owned subsidiary LOLC Factors Ltd.3. The Company will issue unlisted debentures of Rs. 500,000,000 in June 2011. The Company will be issuing listed debentures up to the value ofRs. 1,000,000,000 subsequently.4. Following the Direction from the Central Bank of Sri Lanka that all Registered Finance Companies should be listed on the Colombo StockExchange (CSE), LOLC’s fully owned subsidiary Lanka ORIX Finance Company Ltd. will apply for listing on the CSE by way of an introduction.LOLC will divest of 10% the holdings in the subsidiary to meet the listing requirements of the CSE.5. Confifi Hotel Holdings PLC (Club Palm Garden Hotel), Riverina Hotels PLC (Riverina Hotel) and Tropical Villas (Pvt) Ltd. which wereacquired by the LOLC Group during the year, were closed for business from 1st May 2011 onwards in order to complete an acceleratedrefurbishment programme.6. The salaries of employees of the plantation sector of the Group were revised in accordance with requirements stipulated by the Governmentof Sri Lanka.Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 171

Notes to the Financial Statements46. Related Party DisclosuresDetails of significant related party disclosures are as follows:GroupTransactions with Associate and Joint Venture CompaniesGroupRelationship Nature of transaction 2011 2010(Rs.)(Rs.)Joint Venture Loan obtained 110,976,404 148,164,500Interest paid 20,664,903 4,595,569Repayment of finance lease and loans obtained 43,207,178 –Rent and management fees received 167,876,000 –Vehicle hire income 240,000 –Trading transactions- Sales 183,500 –- Purchases 61,721,000 –Purchase of commodities 79,625 –Purchase of land 80,000,00 –Term deposit/savings 137,500,000 –Deposit interest income 1,977,740 –Dividend income 40,569,000 –Expenses incurred on behalf of/by Company 22,352,500 –Other operating expenses 26,545,500 –Associate Insurance commission received 6,109,928 5,181,301Cash and cash equivalents – 3,658,696Interest-bearing loans and borrowings – 3,500,936,568Short-term investment – 16,298,994Term deposit 498,815,217 323,837,302Repayments of finance leases obtained 15,564,299 62,591,783Share of Group overheads – 1,114,000Trading transactions- Sales 2,161,016,433 1,705,055,000- Purchases 132,841,202 96,273,305Company secretarial services – 285,000Dividend income received – 8,800,000Rent and management fees received – 3,000,000Interest paid/received 125,630,589 –Fund transfers 78,233,663 –Loans granted 761,800,000 –Expenses shared 1,115,741 –PAGE 172 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsCompanyTransactions with Subsidiaries, Associates and Joint VenturesThe following table provides the transactions which have been entered into with related parties for the relevant financial year:CompanyRelationship Nature of transaction 2011 2010(Rs.)(Rs.)Subsidiaries Fund transfers in 31,306,783,120 2,985,042,073Fund transfers out 34,213,911,311 1,521,419,532Expenses shared 1,317,147,190 489,121,574Rendering of services received 94,434,997 79,697,623Asset hire income 35,624,049 123,955,558Interest received 119,933,399 435,421,133Debenture investment – 685,800,000Debenture interest received 83,579,449 97,343,931Regular Treasury management and advisory fee received 300,378,935 158,491,274Royalty received 6,415,960 16,073,626Project loan given – 50,516,175Investment in subsidiary companies 3,987,220,040 –Treasury bond transfer 2,575,252,804 1,037,204,135Fixed assets purchased 252,468,877 –Loan granted 822,668,356 53,196,476Loan transfer to subsidiary 820,968,356 –Supply of lease vehicles – 9,744,115Repayments of finance leases and loans obtained 148,151 –Associates Fund transfers in 78,233,663 –Cash and cash equivalents – 3,658,696Interest-bearing loans and borrowings – 2,750,936,568Short-term investment – 16,298,994Term deposits – 323,837,302Repayments of finance leases and loans obtained 15,564,299 62,591,783Loan granted 761,800,000 1,927,811Operating lease granted – 8,893,679Interest received 99,752,718 4,880,791Expenses shared 1,115,471 –Joint Ventures Loans granted 9,219,808 235,000,000Repayments of finance leases and loans obtained 37,681,632 –Interest received 22,755,017 7,504,590Purchase of commodities 159,250 –Purchase of land 160,000,000 –Balance outstanding on facilities granted to related parties as at 31 MarchSubsidiaries Finance leases and loans obtained 1,551,849 –Associates Finance leases and loans obtained 796,235,701 50,000,000Joint Ventures Finance leases and loans obtained 135,388,809 160,561,420Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 173

Notes to the Financial StatementsOutstanding balances as at the year end with regard to the related parties are disclosed as below:CompanyAs at 31 March 2011 2010(Rs.)(Rs.)Amount due from Related PartiesLanka ORIX Insurance Brokers Ltd. – 40,180,257Lanka ORIX Finance Company Ltd. 644,562,624 301,431,448Lanka ORIX Information Technology Ltd. renamed as LOLC Investments Ltd. – 402,237,818Lanka ORIX Information Technology Services Ltd. 26,519,579 –Lanka ORIX Project Development Ltd. – 12,770,693Sundaya Lanka (Pvt) Ltd. 4,157,388 4,125,229Gal Oya Holdings (Pvt) Ltd. – 170,683,182Commercial Leasing Company Ltd. 278,993,550 1,736,466,083LOLC Eco Solutions Ltd. – 20,199,990LOLC Micro Credit Ltd. 145,657,483 –LOLC Insurance Company Ltd 4,509,229 –Brown & Company PLC 7,303,638 –United Dendro Ltd. 16,304,234 –LOLC Services Ltd. 9,514,000 –Eden Hotels Ltd. 295,503 –LOLC Factors Ltd. 200,000 –1,138,017,228 2,688,094,700Amount due to Related PartiesLOLC Micro Credit Ltd. – 19,337,568LOLC Motors Ltd. 30,268,302 139,704,489Commercial Factors Ltd. – 10Lanka ORIX Information Technology Ltd. renamed as LOLC Investments Ltd. 41,160,377 –Lanka ORIX Insurance Brokers Ltd. 106,934 –LOLC Eco Solutions Ltd. 4,875,000 –LOLC Leisure Ltd. 160,506,311 –LOLC Securities Ltd. 13,963,840 –Commercial Factors Ltd. 10 –LOLC Land Holdings Ltd. 4,000 –LOLC Realty Ltd. 10 –LOLC Property Investment Ltd. 10 –LOLC Asset Holding Ltd. 10 –LOLC Estates Ltd. 10 –250,884,814 159,042,067PAGE 174 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Notes to the Financial StatementsTransactions with Key Management PersonnelKey Management Personnel (KMPs) are defined as those persons having authority and responsibility for planning, directing and controllingthe activities of the Company as well as the subsidiaries, directly or indirectly. The Key Management Personnel of the Company and Group arethe Board of Directors of the Company and personnel holding designation Deputy General Manager and above in the Company. IndependentTransactions with KMPs and transactions with the Close Family Members (CFMs) of the KMPs, if any, also have been taken into considerationin the following disclosure:Key Management Personnel CompensationGroup Company2010/11 2009/10 2010/11 2009/10(Rs.) (Rs.) (Rs.) (Rs.)Short-term employment benefits 213,821,556 193,680,864 174,867,936 135,072,718Includes:- Directors’ fees 40,282,878 20,498,436 38,387,878 18,870,936- Directors’ emoluments 41,093,178 31,089,610 19,396,918 17,846,880Other TransactionsGroup Company2010/11 2009/10 2010/11 2009/10(Rs.) (Rs.) (Rs.) (Rs.)Advances granted – 15,689,869 – 15,689,869Deposits held with subsidiaries 516,251,281 133,907,755 – –Interest paid 35,749,864 9,325,881 – –Interest payable 13,483,774 1,790,490 – –Land and building purchased 110,000,000 – 110,000,000 –Operating lease facility granted 6,111,876 – 6,111,876 –Rentals paid during the year (691,528) – (691,528) –Balance rentals outstanding 5,420,348 – 5,420,348 –Transactions with Other Related PartiesTransactions, arrangements and agreements involving KMPs and their CFMs and Entities which are controlled, jointly controlled or significantlyinfluenced by the KMPs and their CFMs or shareholders who have either control, joint control or significant influence over the entity.Group Company2010/11 2009/10 2010/11 2009/10(Rs.) (Rs.) (Rs.) (Rs.)Ishara TradersLease vehicle and fixed assets purchased 388,375,000 296,637,433 330,050,000 225,367,432Opening balance 01 April 1,539,090,987 1,226,102,079 764,708,631 1,226,102,079Loans obtained during the year 4,300,579,120 1,195,528,790 1,000,000,000 367,119,758Loan settled during the year (1,980,815,335) (882,539,882) (1,764,708,631) (828,513,206)Closing balance 31 March 3,858,854,772 1,539,090,987 – 764,708,631Interest Paid 422,825,591 253,712,001 104,051,420 226,206,403Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 175

Notes to the Financial Statements47. Assets PledgedThe following assets have been pledged as security for liabilities:Group CompanyNature of Assets Nature of Liability Carrying Amount Pledged Carrying Amount PledgedGovernment TreasuryBondsForeign currencyterm depositsLease, hire purchase andloans receivablesMarketable shares andloans and buildingsLeasehold right2011 2010 2011 2010(Rs.) (Rs.) (Rs.) (Rs.)Secured against the Repo instrumentborrowings – 4,990,000,000 – 3,800,000,000Interest-bearing loansand borrowings 2,862,886,491 2,703,634,619 245,366,725 1,186,770,985Interest-bearing loansand borrowings 21,192,989,226 19,276,146,707 8,597,310,764 14,384,188,630Term loan/bank overdrafts/short-termloan/field and processingdevelopments and other 3,761,387,771 1,188,050,748 – –Bank overdrafts/term loans/investments in field developments 646,803,409 582,574,058 – –Leasehold properties/vehicles Finance leases 205,078,015 820,793,106 155,128,015 342,081,080Office premises/shares Term loan/loans – 1,237,462,000 – –Stock and book debts Term loan 940,000,000 – – –PAGE 176 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

AnnexesAnnexesStatement of Maturity Analysis ofAssets and Liabilities 178Ten Year Summary 180Summarised Quarterly Statistics 182Value Addition 184Awards and Accolades 186Milestones 187Group Companies 190Share Information 196Glossary 198Board of Directors 200Corporate Management Team 207Operational Management Team 213Notice of Meeting 218Corporate Information 219Form of ProxyEnclosedIntroducing the new LOLC 02The ORIX Connection 04Financial Highlights 08A Conglomerate in the Making 10Chairperson’s Statement 56Deputy Chairman’s Message 60Group MD/CEO’s Review 66Financial Review 72Corporate Governance 82Enterprise Risk Management 94Sustainability Report 100Financial Reports 107Annexes 177

Statement of Maturity Analysis ofAssets and LiabilitiesCompanyMaturity periodStatement of Maturity Analysis of Assets and Liabilities 0-12Months12-36Months36-60MonthsMore than 60Months(Rs. ’000) (Rs. ’000) (Rs. ’000) (Rs. ’000) (Rs. ’000)(a) Interest Earning AssetsInvestments in Government securities – – – – –Investments in CBSL securities – – – – –Fixed deposits and savings deposits with banks/finance companies 275,356 – – – 275,356(b) Loans and Advances Net of Provisionsand Income in SuspenseLeasing 513,114 889,476 20,058 – 1,422,648Hire purchase 235,584 32,891 16,683 – 285,158Loans to real estate/housing – – – – –Advances and other loans 3,576,886 1,178,034 1,063,252 – 5,818,172Instalment sales 766,007 – – – 766,007Operating leases 4,841 – – – 4,841Factoring 2,736,753 – – – 2,736,753(c) Non-Interest Earning AssetsCash and bank balances 392,012 – – – 392,012(d) Investments in -Subsidiary company – – – 8,944,162 8,944,162Associate company – – – 1,211,336 1,211,336Joint ventures – – – 136,384 136,384Dealing securities 2,814,792 – – – 2,814,792Debentures 28,000 – 686,400 – 714,400Stock (vehicles/real estate/machineries etc.) 1,750 – – – 1,750Investment in properties – 247,500 – – 247,500Other investments 35,000 – – – 35,000(e) Fixed Assets – – – 3,283,496 3,283,496Other intangible assets – – – 61,011 61,011(f) Other Current AssetsAmount due from subsidiaries 1,138,017 – – – 1,138,017Deferred tax assets 185,030 – – – 185,030Other current assets 678,902 – – – 678,902Total assets 13,382,044 2,347,901 1,786,393 13,636,389 31,152,727TotalPAGE 178 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Statement of Maturity Analysis of Assets and LiabilitiesMaturity periodStatement of Maturity Analysis of Assets and Liabilities 0-12Months12-36Months36-60MonthsMore than 60Months(Rs. ’000) (Rs. ’000) (Rs. ’000) (Rs. ’000) (Rs. ’000)(a) Interest Bearing LiabilitiesBank overdrafts 2,094,425 – – – 2,094,425Bank loans - Short-term loans 7,726,250 – – – 7,726,250- Commercial papers 2,025,012 – – – 2,025,012Redeemable preference shares –Debentures –Long-term borrowings 3,563,535 5,648,167 1,139,861 – 10,351,563Finance lease liabilities 110,439 71,580 – – 182,019(b) Non-Interest Bearing LiabilitiesAmount due to subsidiaries/associates 250,885 – – – 250,885(c) Other Liabilities –Leased equipment creditors 18,600 – – – 18,600Taxation payable 71,858 – – – 71,858Trade and other payables 903,348 – – – 903,348Retirement benefit obligation – – – 80,123 80,123Provision for possible losses – – – – –(d) Shareholders funds (excludingredeemable preference shares) – – – 7,448,644 7,448,644Total liabilities 16,764,352 5,719,747 1,139,861 7,528,767 31,152,727TotalInformation on the Freehold Land and Buildings of the CompanyAddress Building Extent Land Cost/Sq. Ft. Extent Valuation(Rs.)1. No. 100/1, Sri Jayawardenapura Mawatha, Rajagiriya 51,800 1A-0R-04.86P 685,000,0002. No. 100 A, Sri Jayawardenapura Mawatha, Rajagiriya 0A-2R-20.00P 245,000,0003. No. 25/7, Wimalawatta Road, Mirihana, Nugegoda 0A-0R-33.40P 20,000,0004. No. 156, Kolonnawa Road, Gothatuwa 69,121 1A-1R-33.71P 165,000,000Land and building purchased during the yearNo. 103, Sri Jayawardenapura Mawatha, Rajagiriya 0A-1R-12.50P 166,399,000No. 28A, Badulla Road, Nuwara Eliya 5,426 0A-0R-21.03P 114,399,000No. 62/40, Stanley Road, Jaffna 0A-0R-37.31P 64,630,000No. 241 A, Maithreepala Senanayake Mawatha, Anuradhapura 0A-0R-13.01P 18,807,102No. 240, Moragahayata,Colombo Road, Ratnapura 7,920 0A-0R-15.80P 29,319,0001,508,554,102Information on the Investment Properties of the CompanyBuilding Extent Land Cost/ ValueAddress Sq. Ft. Extent Valuation of Land(Rs.)(Rs.)No. 305/5, Rajagiriya Road, Nawala – 0A-3R-19.14P 234,982,202 236,500,000No. 246/56, Kandy Road, Eldeniya, Kadawatha 1,640 0A-0R-23.37P 7,292,023 11,000,000242,274,225 247,500,000Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 179

Ten Year SummaryFor the year ended 31 March(Rs. ‘000)2002 2003 2004 2005 2006 2007 2008 2009 2010 2011GROUPOPERATING RESULTSRevenue – – – – – – – 3,495,607 3,571,367 14,288,492Cost of sales – – – – – – – (2,993,076) (2,869,272) (9,911,222)Income 1,190,859 1,284,498 1,695,600 1,930,019 2,586,502 3,950,751 5,934,772 9,843,454 9,941,904 11,943,300Other income/(expenses) 74,476 37,548 78,323 121,410 55,571 207,675 313,376 282,660 1,388,560 5,845,536Interest costs (621,505) (537,538) (552,770) (617,597) (895,570) (1,787,751) (3,403,965) (6,441,182) (6,178,137) (6,420,588)Profit before operatingexpenses 643,830 784,508 1,221,153 1,433,832 1,746,503 2,370,675 2,844,183 4,187,463 5,854,422 15,745,518Other operating expenses (419,741) (494,562) (814,162) (855,600) (1,037,153) (1,372,936) (1,880,700) (3,080,622) (4,386,721) (7,913,592)Results from operatingactivities 224,089 289,946 406,991 578,232 709,350 997,739 963,483 1,106,841 1,467,701 7,831,926Negative goodwill – – (4,550) (6,429) – – 131,293 – 1,423,837 271,911Profit/(loss) on disposal ofsubsidiaries andassociates – – – – – – – – (167,088) –Share of profit ofassociate companies – – – – – – 88,277 140,458 116,337 178,522Profit before tax 224,089 289,946 402,441 571,803 709,350 997,739 1,183,053 1,247,299 2,840,787 8,282,359Income tax expense (6,064) (11,833) (11,832) 3,553 (20,762) 52,443 160,443 (192,122) (455,382) (1,259,279)Net profit after tax 218,025 278,113 390,609 575,356 688,588 1,050,182 1,343,496 1,055,177 2,385,405 7,023,080As at 31 MarchASSETSNet lending portfolio 4,241,235 4,668,719 5,853,064 7,173,915 11,123,245 16,103,706 21,434,958 32,697,993 35,084,686 58,416,332Total assets 6,208,850 7,038,427 8,986,749 10,706,443 16,226,692 24,483,950 32,994,258 46,287,066 75,371,319 111,813,532LIABILITIESTotal liabilities 4,678,240 5,272,820 7,063,271 8,342,029 13,295,525 20,659,031 27,816,389 40,195,588 55,631,672 77,090,381SHAREHOLDERS’ FUNDSShare capital 237,600 237,600 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200Reserves 1,243,478 1,471,054 1,386,382 1,863,134 2,424,847 3,309,657 4,649,019 5,536,270 7,428,554 12,521,139Minority interest 49,532 56,953 61,896 26,080 31,120 40,062 53,650 80,008 11,835,893 21,726,812Shareholders’ funds 1,530,610 1,765,607 1,923,478 2,364,414 2,931,167 3,824,919 5,177,869 6,091,478 19,739,647 34,723,151INVESTOR RATIOSReturn on assets (%) 4 4 5 6 5 5 5 3 4 8Return on equity (%) 15 17 21 27 26 31 30 19 26 37OTHER INFORMATIONNo. of branches 8 9 12 12 16 18 22 26 48 73No. of LIOC/mini branches – – – – – – 10 14 13 22No. of service centres – – – – – – – 11 36 72No. of subsidiarycompanies 5 5 6 7 8 8 9 9 41 48No. of associatecompanies – – – – – – 2 2 7 7No. of joint ventures – – – – – – 1 1 15 18PAGE 180 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Ten Year SummaryFor the year ended 31 March(Rs. ‘000)2002 2003 2004 2005 2006 2007 2008 2009 2010 2011COMPANYOPERATING RESULTSIncome 1,062,137 1,130,880 1,401,776 1,566,952 1,908,291 3,034,110 4,960,979 6,626,308 4,722,479 3,511,733Other income/(expenses) 69,862 32,679 97,806 145,294 93,449 291,840 261,254 71,445 1,022,138 2,832,627Interest costs (566,914) (492,557) (493,338) (532,298) (703,399) (1,442,881) (2,972,057) (4,205,474) (3,090,912) (2,384,015)Profit before operatingexpenses 565,085 671,002 1,006,244 1,179,948 1,298,341 1,883,069 2,250,176 2,492,279 2,653,705 3,960,345Other operating expenses (352,377) (415,469) (588,339) (617,719) (621,628) (972,865) (1,408,840) (1,910,159) (2,162,578) (2,062,356)Results from operatingactivities 212,708 255,533 417,905 562,229 676,713 910,204 841,336 582,120 491,127 1,897,989Profit before tax 212,708 255,533 417,905 562,229 676,713 910,204 841,336 582,120 491,127 1,897,989Income tax expense – – – – (12,701) 76,390 217,901 (76,532) (164,187) (374,646)Net profit after tax 212,708 255,533 417,905 562,229 664,012 986,594 1,059,237 505,588 326,940 1,523,343As at 31 MarchASSETSTotal assets 5,527,821 5,980,825 7,616,680 8,746,741 13,297,988 20,888,694 28,996,068 31,335,180 29,737,969 31,152,727LIABILITIESTotal liabilities 4,063,613 4,302,665 5,772,331 6,438,611 10,447,735 17,194,407 24,233,931 26,233,467 24,309,315 23,704,083SHAREHOLDERS’ FUNDSShare capital and reservesShare capital 237,600 237,600 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200Reserves 1,226,608 1,440,560 1,369,149 1,832,930 2,375,053 3,219,087 4,286,937 4,626,513 4,953,454 6,973,444Shareholders’ funds 1,464,208 1,678,160 1,844,349 2,308,130 2,850,253 3,694,287 4,762,137 5,101,713 5,428,654 7,448,644INVESTOR RATIOSBonus issues – – – – – – – – – –Gross dividends 77,220 77,220 92,664 110,009 142,560 71,280 106,920 133,056 – –Total assets to shareholders’funds (times) 4 4 4 4 5 6 6 6 5 4Return on assets (%) 4 4 6 7 6 6 4 2 1 5Return on equity (%) 15 16 24 27 26 30 25 10 6 24OTHER INFORMATIONNo. of employees 179 201 259 269 346 414 521 664 787 848Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 181

Summarised Quarterly StatisticsIncome Statements (Rs.’000)2010/11 2009/10For the 3 months ended 30-June 30-Sep. 31-Dec. 31-Mar. 30-June 30-Sep. 31-Dec. 31-Mar.COMPANYGross Income 965,505 842,464 805,030 898,734 1,377,308 1,160,328 1,080,664 1,104,179Other income/(expenses) 711,751 635,358 321,124 1,164,394 168,910 301,940 48,373 502,915Interest costs (505,958) (578,932) (632,349) (666,776) (938,660) (814,006) (824,729) (513,517)Profit before operating expenses 1,171,298 898,890 493,805 1,396,351 607,558 648,262 304,308 1,093,577Other operating expenses (545,791) (577,463) (431,882) (507,220) (445,253) (485,152) (535,700) (696,472)Results from operating activities 625,507 321,427 61,923 889,132 162,305 163,110 (231,392) 397,105Income tax expense (40,800) (40,800) (56,269) (236,777) (10,000) (40,000) – (114,187)Net profit after tax 584,707 280,627 5,654 652,355 152,305 123,110 (231,392) 282,918Balance Sheets (Rs.’000)As at 30-June 30-Sep. 31-Dec. 31-Mar. 30-June 30-Sep. 31-Dec. 31-Mar.Assets 28,744,921 35,001,430 34,901,357 31,152,727 33,054,574 32,753,452 33,255,887 29,737,969Liabilities 22,731,560 28,707,441 28,601,714 23,704,083 27,797,245 27,373,013 28,106,840 24,309,315Net assets 6,013,361 6,293,989 6,299,643 7,448,644 5,257,329 5,380,439 5,149,047 5,428,654Share capital and reserves 6,013,361 6,293,989 6,299,643 7,448,644 5,257,329 5,380,439 5,149,047 5,428,654Share capital 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200Reserves 5,538,161 5,818,789 5,824,443 6,973,444 4,782,129 4,905,239 4,673,847 4,953,454PAGE 182 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Summarised Quarterly StatisticsIncome Statements (Rs.’000)2010/11 2009/10For the 3 months ended 30-June 30-Sep. 31-Dec. 31-Mar. 30-June 30-Sep. 31-Dec. 31-Mar.GROUPRevenue 2,961,378 4,336,940 5,292,002 1,698,172 843,314 371,088 2,137 2,354,828Cost of sales (2,256,469) (2,790,898) (3,486,344) (1,377,511) (717,382) (325,548) (1,556) (1,824,787)Income 2,849,441 2,873,526 3,034,545 3,185,788 2,386,300 2,301,231 2,455,806 2,798,567Other income/(expenses) 95,049 2,681,963 1,444,327 1,624,197 262,673 618,553 169,899 337,435Interest costs (1,276,163) (1,812,108) (1,807,290) (1,525,027) (1,663,231) (1,506,823) (1,424,381) (1,583,701)Profit before operating expenses 2,373,236 5,289,423 4,477,240 3,605,619 1,111,674 1,458,501 1,201,905 2,082,342Other operating expenses (1,279,525) (1,893,936) (1,903,687) (2,836,443) (743,209) (916,231) (957,767) (1,769,514)Results from operating activities 1,093,711 3,395,487 2,573,553 769,176 368,465 542,270 244,138 312,828Negative goodwill – – – 271,910 – – – 1,423,837Profit/(loss) on disposal ofsubsidiaries and associates – – – – – – – (167,088)Share of profit of associate companies 57,276 (17,340) 31,461 107,125 30,458 21,805 13,230 50,844Profit before tax 1,150,987 3,378,147 2,605,014 1,148,211 398,923 564,075 257,368 1,620,421Income tax expense (295,211) (379,164) (442,166) (142,738) (62,725) (155,233) (196,842) (40,582)Net profit after tax 855,776 2,998,983 2,162,848 1,005,473 336,198 408,842 60,526 1,579,839Balance Sheets (Rs.’000)As at 30-June 30-Sep. 31-Dec. 31-Mar. 30-June 30-Sep. 31-Dec. 31-Mar.Assets 81,534,628 98,418,312 107,951,923 111,813,532 52,349,023 52,094,099 57,521,787 75,371,319Liabilities 59,816,837 73,313,020 80,706,001 77,090,381 45,744,562 45,122,820 50,489,982 55,631,672Net assets 21,717,791 25,105,292 27,245,922 34,441,185 6,604,461 6,971,279 7,031,805 19,739,647Share capital, reserves andminority interest 21,717,791 25,105,292 27,245,922 34,723,151 6,604,461 6,971,279 7,031,805 19,739,647Share capital 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200Reserves 8,174,413 10,103,889 10,838,695 12,521,139 5,856,224 6,249,214 6,295,150 7,428,554Minority interest 13,068,178 14,526,203 15,932,027 21,726,812 273,037 246,865 261,455 11,835,893Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 183

Value Addition2010/11 2009/10(Rs.) (%) (Rs.) (%)GROUPValue AddedIncome 16,320,570,256 10,643,999,067Other income 5,845,535,307 1,388,560,107Cost of borrowings and services (11,820,615,592) (9,603,598,263)Provisions 546,455,858 635,976,370Goodwill on consolidation 271,910,632 1,423,836,934Share of profits of associate companies 178,522,137 116,336,631Loss on disposal of subsidiaries and associates – (167,087,952)Value added tax 755,680,247 1,083,608,10012,098,058,845 5,521,630,994Distribution of Value AddedTo Employees 1,985,476,257 16 921,351,169 17Remuneration and other benefits 1,985,476,257 921,351,169To Government 2,014,959,415 17 1,538,990,006 28Indirect taxes 755,680,247 1,083,608,100Direct taxes 1,259,279,168 455,381,906To Providers of Capital 3,568,205,851 30 705,102,356 12Dividends to shareholders – –Minority interest 3,182,852,004 543,596,279Reserves 385,353,847 161,506,077To Expansion and Growth 4,529,417,322 37 2,356,187,463 43Retained profits 3,454,874,061 1,680,302,879Depreciation and amortisation 1,074,543,261 675,884,58412,098,058,845 100 5,521,630,994 100PAGE 184 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Value Addition2010/11 2009/10(Rs.) (%) (Rs.) (%)COMPANYValue AddedIncome 3,511,733,478 4,722,479,510Other income 2,832,627,486 1,022,138,022Cost of borrowings and services (3,520,578,315) (4,866,966,297)Provisions 100,485,684 447,278,102Value added tax 433,689,641 500,484,7173,357,957,974 1,825,414,054Distribution of Value AddedTo Employees 341,104,639 10 244,795,068 13Remuneration and other benefits 341,104,639 244,795,068To Government 808,335,813 24 664,671,592 36Indirect taxes 433,689,641 500,484,717Direct taxes 374,646,172 164,186,875To Providers of Capital 48,326,643 2 22,885,844 1Dividends to shareholders – –Reserves 48,326,643 22,885,844To Expansion and Growth 2,160,190,879 64 893,061,550 50Retained profits 1,475,016,645 304,054,786Depreciation and amortisation 685,174,234 589,006,7643,357,957,974 100 1,825,414,054 100Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 185

INTERIM FINANCIAL STATMENTSThree months ended 30 June 2011Lanka ORIX LEASING Company PLC

Lanka ORIX LEASING Company PLCBALANCE SHEETSAuditedGroup CompanyGroupCompany31 Mar 2011 31 Mar 2011 As at 30 June 2011 2010 2011 2010Rs.' 000 Rs.' 000 Rs.' 000 Rs.' 000 Rs.' 000 Rs.' 000ASSETS4,659,100 392,012 Cash and cash equivalents 3,861,034 2,500,757 711,762 521,362201,699 53,755 Short- term investments 2,315,916 247,156 52,351 76,56114,451,097 3,564,193 Investment securities 15,104,543 11,069,081 4,250,909 3,552,3522,456,188 221,601 Investment in term deposits 2,647,603 2,195,324 171,314 865,46928,936,757 1,712,647 Rentals receivable on leased assets/hire purchase/others 32,812,182 18,618,139 1,143,484 2,449,74128,713,568 8,554,925 Advances and other loans 32,995,484 15,955,166 5,826,174 7,744,430766,007 766,007 Installment sales 590,273 1,812,461 590,273 1,812,4611,599,184 1,750 Inventories 1,796,498 1,170,345 10,233 18,8345,637,082 1,816,916 Trade and other current assets 6,764,023 7,014,232 6,590,770 3,038,057305,536 - Pre-paid lease rentals 303,492 47,193 - -439,650 247,500 Investment properties 584,106 517,277 310,801 305,57516,262 - Real estate stocks 16,262 22,930 - -3,778,893 - Timber stocks 3,786,927 1,302,176 - -1,615,524 - Immature/mature plantations 1,536,002 1,796,782 - -- 136,385 Investment in joint venture companies - - 35,134 -2,759,079 1,211,336 Investment in associate companies 2,805,931 1,899,055 1,211,336 198,030- 8,944,162 Investments in subsidiary companies - - 8,565,286 4,707,465434,654 185,030 Deferred tax asset 429,072 773,112 185,030 430,784331,714 - Goodwill 331,714 151,415 - -239,531 61,011 Intangible assets 220,384 208,625 57,359 61,18614,472,007 3,283,496 Property, plant and equipment 14,872,105 14,233,402 3,230,692 2,962,614111,813,532 31,152,726 Total assets 123,773,551 81,534,628 32,942,908 28,744,921LIABILITIES AND EQUITYLiabilities4,029,204 2,094,425 Bank overdrafts 4,629,489 2,617,396 1,950,268 1,028,28916,348,137 - Deposits from customers 19,397,888 11,765,913 - -46,784,294 20,284,844 Interest bearing loans and borrowings 51,098,505 35,851,999 20,656,379 20,286,605516,720 71,858 Provision for taxation 741,490 462,449 113,078 77,9927,361,431 1,172,832 Trade and other payables 8,476,171 7,290,237 1,326,267 1,269,880872,361 - Deferred taxation 861,582 750,529 - -288,877 - Deferred Income 286,726 292,571 - -889,357 80,123 Retirement benefit obligation 883,969 785,743 85,134 68,79477,090,381 23,704,082 Total liabilities 86,375,820 59,816,837 24,131,126 22,731,560288,877 - Deferred Income 286,726 292,571 - -889,357 80,123 Retirement benefit obligation 883,969 785,743 85,134 68,79477,090,381 23,704,082 Total liabilities 86,375,820 59,816,837 24,131,126 22,731,560Equity475,200 475,200 Stated capital(475,200,000 shares) 475,200 475,200 475,200 475,2001,747,745 1,096,103 Reserves 1,887,175 823,992 1,102,688 552,29210,773,394 5,877,341 Retained earnings 12,417,700 7,350,421 7,233,894 4,985,86921,726,812 - Minority interest 22,617,656 13,068,178 - -34,723,151 7,448,644 Total equity 37,397,731 21,717,791 8,811,782 6,013,361111,813,532 31,152,726 Total liabilities and equity 123,773,551 81,534,628 32,942,908 28,744,92127.35 15.68 Net asset value per share (Rs.) 31.10 18.20 18.54 12.65The Board of Directors is responsible for the preparation and presentation of these financial statements.The Chief Financial Officer- LOLC Group certifies that thefinancial statements have been prepared in compliance with the requirements of the Companies Act no. 7 of 2007.(Sgd.) I. C. Nanayakkara (Sgd.) W.D.K. Jayawardena (Sgd.) (Mrs) S.S.KotakadeniyaDeputy Chairman Group Managing Director/CEO Chief Financial Officer-LOLC Group12 August 2011Rajagiriya.(Greater Colombo)Equity475,200 475,200 Stated capital(475,200,000 shares) 475,200 475,200 475,200 475,2001,747,745 1,096,103 Reserves 1,887,175 823,992 1,102,688 552,29210,773,394 5,877,341 Retained earnings 12,417,700 7,350,421 7,233,894 4,985,86912,996,339 7,448,644 Equity attributable to equity holders of the Company 14,780,075 8,649,613 8,811,782 6,013,36121,726,812 - Minority interest 22,617,656 13,068,178 - -34,723,151 7,448,644 Total equity 37,397,731 21,717,791 8,811,782 6,013,361111,813,532 12,996,339 31,152,726 7,448,644 Total Equity liabilities attributable and to equity holders of the Company 14,780,075 123,773,551 81,534,628 8,649,613 32,942,908 8,811,782 28,744,921 6,013,36127.35 15.68 Net asset value per share (Rs.) 31.10 18.20 18.54 12.65The Board of Directors is responsible for the preparation and presentation of these financial statements.The Chief Financial Officer- LOLC Group certifiesthat the financial statements have been prepared in compliance with the requirements of the Companies Act no. 7 of 2007.(Sgd.) I. C. Nanayakkara (Sgd.) W.D.K. Jayawardena (Sgd.) (Mrs) S.S.KotakadeniyaDeputy Chairman Group Managing Director/CEO Chief Financial Officer-LOLC Group12 August 2011Rajagiriya.(Greater Colombo)

Lanka ORIX LEASING Company PLCINCOME STATEMENTSGroupCompanyThree months endedThree months ended30/06/2011 30/06/2010 Variance 30/06/2011 30/06/2010 VarianceRs.' 000 Rs.' 000 % Rs.' 000 Rs.' 000 %GROSS REVENUE 9,113,888 5,905,868 54 2,395,566 1,677,256 43Revenue 3,615,680 2,961,378 22 - - -Less: cost of sales (2,821,385) (2,256,469) 25 - - -Gross profit 794,295 704,909 13 - - -Income 3,699,562 2,849,441 30 578,697 965,505 (40)Other Income/(expenses) 1,798,646 95,049 1,792 1,816,869 711,751 155Net interest costs (1,807,944) (1,276,163) 42 (450,990) (505,958) (11)PROFIT BEFORE OPERATING EXPENSES 4,484,559 2,373,236 89 1,944,576 1,171,298 66OPERATING EXPENSESDirect expenses excludingnet interest costs (720,050) (347,313) 107 (62,825) (33,913) 85Provision for bad and doubtful debts (338,790) (34,616) 879 (51,702) (46,001) 12Staff costs (429,184) (334,990) 28 (97,340) (139,244) (30)Depreciation and amortization (206,860) (193,316) 7 (165,952) (162,199) 2Other operating expenses (726,184) (369,291) 97 (143,619) (164,434) (13)RESULTS FROM OPERATING ACTIVITIES 2,063,491 1,093,710891,423,138 625,507128Share of profit of associate companies 46,854 57,276 (18) - - -PROFIT BEFORE TAXATION 2,110,345 1,150,986 83 1,423,138 625,507 128Taxation (307,162) (295,211) 4 (60,000) (40,800) 47PROFIT AFTER TAXATION 1,803,183 855,775 111 1,363,138 584,707 133Attributable to :Equity holders of the Company 1,725,043 726,199 138 1,363,138 584,707 133Minority interest 78,140 129,576 (40) - -PROFIT FOR THE PERIOD 1,803,183 855,775 111 1,363,138 584,707 133Basic earnings per share (Rs) 3.63 1.53 138Figures in brackets indicate deductionsNotes:1. The Balance Sheets as at 30 June 2011, the Income Statements, Cash Flow Statements and Statements of Changesin Equity of the Company and the Group for the three months ended 30 June 2011 are drawn up from unaudited FinancialStatements of the Company, its subsidiary companies, associate companies, joint venture companies and provideinformation as required by the Colombo Stock Exchange and SLAS 35. Further, provisions of the Companies Act No.7 of2007 has been considered in preparing the said financial statements of the Company and of the Group.2. Accounting policies and methods of computation as stated in the Annual Report 2010/11 are followed in the preparationInterim of these Financial Interim Financial Statements. Statements.3. Revenue includes revenue from trading, manufacturing, plantation and other activities of the Group.4. Income represents the income receivable for the period on all performing contracts, rentals on operating leases, incomeon factoring of client debtors, commission earned on insurance Premiums and IT service fees. It includes all incomerelated to operations such as interest on overdue rentals, profit/loss on leases and loans terminated and collections oncontracts written off.5. Other income includes foreign exchange gains, capital gains arising from marked to market valuation of quoted sharesheld for trading purposes and rent income. It also includes the disposal gain arising from the sale of 10% of a subsidiary -Lanka Orix Finance, amounting to Rs.1bn and 1.2bn in the Income Statements of the Group and Company respectively.6. All expenses related to management expenditure is fully provided for in the Financial Statements.7. There are no significant changes in the nature of the contingent liabilities disclosed in the Annual Report for the yearended 31 March 2011.8. Browns Investment limited, subsidiary of the group acquired 100% holding in Excel Global Holdings (pvt) Ltd group for aconsideration of Rs 875Mn subsequent to the Balance sheet date.

Lanka ORIX LEASING Company PLCCASH FLOW STATEMENTSFor the three months ended 30 June 2011 2010 2011 2010GroupCompanyRs.' 000 Rs.' 000 Rs.' 000 Rs.' 000Profit before income tax expense 2,110,345 1,150,986 1,423,138 625,507Adjustment for:(Profit)/loss on sale of property, plant and equipment (4,643) (2,546) (1,221) (1,872)Depreciation and amortisation 206,860 193,316 165,952 162,199Provision for defined benefit plans 62,244 43,128 5,244 3,377Allowances for doubtful debts 338,790 34,616 51,702 46,001Provision for fall/(Increase) in value of investments (136,560) (8,980) (285,166) (7,026)Capital gain on treasury bond (646) 21,665 (646) 23,389Investment income (72,235) (10,534) (19,785) -Finance cost 1,807,944 1,276,163 452,293 512,083Interest income (76,196) (144,326) (1,302) (6,125)(Profit)/Loss on sale of quoted and non-quoted shares (175,521) 52,718 (175,403) (561,760)(Profit)/Loss on sale of subsidiaries and associates (1,048,561) - (1,200,000) -Share of profit of equity accounted investees (46,853) (57,276) - -Operating profit before working capital changes 2,964,968 2,548,930 414,806 795,773Working capital changes(Increase)/Decrease in trade and other receivables (825,227) (2,116,916) (4,773,854) 578,988(Increase)/Decrease in inventories (197,314) 1,201,846 (8,483) (9,420)Increase/(Decrease) in trade and other payables 1,112,588 1,021,996 158,004 242,321(Increase)/Decrease Investment in leases,hire purchase and others (4,214,213) (786,440) 543,549 781,573(Increase)/decrease in timber/ Rubber Stock & Mature, Imature planatation 71,489 (488,948) - -(Increase)/Decrease Investment in advances and other loans (4,106,182) (1,189,110) 2,878,398 (704,338)Cash generated from operations (5,193,891) 191,358 (787,580) 1,684,897Finance cost paid (1,807,944) (1,276,163) (457,708) (579,430)Income tax paid (87,590) (33,218) (9,157) (17,707)Defined benefit plan costs paid (67,632) (17,389) (234) (222)Net cash used in operating activities (7,157,057) (1,135,412) (1,254,679) 1,087,538CASH FLOW FROM INVESTING ACTIVITIESInvestment in subsidiary companies - - - (1,275,936)Net cash outflow on acquisition of subsidiaries - (1,463,669) - -Investment in equity accounted investees - - 111,250 -Acquisition of property, plant and equipment (589,449) (352,858) (120,704) (328,942)(Acquisition)/ disposal proceeds from intangible assets - (19,394) 3,652 3,715Acquisition of investment properties (144,457) (18,984) (63,301) (8,905)Net proceeds from short term investments (2,114,217) (900,647) 1,404 (54,571)Proceeds from sale of subsidiaries, associates and shares 1,678,890 - 2,534,872 -Net additions to investments (340,720) 2,185,454 (1,191,497) 2,131,119Increase in investment in term deposits (191,415) 537,249 50,287 308,403Proceeds from the sale of property,plant and equipment 6,281 89,137 - 4,960Interest received 71,983 105,776 1,302 6,125Dividend received 19,786 - 19,786 -Rent received 486 - - -Net cash flow from investing activities (1,602,832) 162,064 1,347,051 785,968CASH FLOW FROM FINANCING ACTIVITIESNet cash proceeds from short term interest bearing loans and borrowings 589,298 89,823 589,298 (507,426)Principal repayment under finance lease liabilities (36,864) (72,677) (36,864) (61,363)Net proceeds from customer deposits 3,049,752 1,471,213 - -Proceeds from long term interest bearing loans and borrowings 5,236,530 2,227,847 173,368 591,097Repayments of long term interest bearing loans and borrowings (1,974,753) (1,955,153) (854,267) (1,471,756)Proceeds from issuance of debentures 500,000 - 500,000 -Dividend paid to minority shareholders (2,425) - - -Net cash generated from financing activities 7,361,538 1,761,053 371,535 (1,449,448)Net increase/(decrease) in cash and cash equivalents during the period (1,398,351) 787,705 463,907 424,058Cash and cash equivalents at the beginning of the period 629,896 (904,344) (1,702,413) (930,985)Cash and cash equivalents at the end of the period (768,455) (116,639) (1,238,506) (506,927)Analysis of Cash and Cash Equivalents at the end of the periodCash at banks and in hand 3,861,034 2,500,757 711,762 521,362Bank overdraft (4,629,489) (2,617,396) (1,950,268) (1,028,289)(768,455) (116,639) (1,238,506) (506,927)

Lanka ORIX LEASING Company PLCSTATEMENTS OF CHANGES IN EQUITYAttributable to Equity Holders of the CompanyFor the three months ended 30 June 2011 Stated Capital Reserves Retained Minority Totalearnings InterestGroup Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000Balance as at 1.04.10 475,200 765,858 6,662,697 11,553,926 19,457,681Profit for the period - - 726,199 129,576 855,775Acquisition of subsidiaries - - 19,659 1,384,676 1,404,335Transfers during the period - 58,134 (58,134) - -Balance as at 30.06.10 475,200 823,992 7,350,421 13,068,178 21,717,791Profit for the period - - 3,114,029 3,053,276 6,167,305Dividends forfeited - - 1,163 - 1,163Addition to minority through acquisition of subsidiaries - - - 1,703,111 1,703,111Change in Percentage holdings in subsidiary companies - - (100,974) (2,387,398) (2,488,372)Dividend paid to minority shareholders - - - (564,720) (564,720)Share issue of subsidiary companies - - - 3,845,767 3,845,767Revaluation of investments - 786,817 - 2,799,655 3,586,472Revaluation of Property Plant and Equipment - 546,889 - 231,141 778,030Deferred tax on Property Plant and Equipment - (1,198) - (22,198) (23,396)Realization of revaluations - (735,975) 735,975 - -Transfers during the period - 327,220 (327,220) - -Balance as at 31.03.11 475,200 1,747,745 10,773,394 21,726,812 34,723,151Profit for the period - - 1,725,043 78,140 1,803,183Change in percentage holding in subsidiaries andconsolidation adjustments - 53,877 4,816 815,129 873,822Trasfers during the period - 85,553 (85,553) - -Dividends paid to Minority Share Holders - - - (2,425) (2,425)Balance as at 30.06.11 475,200 1,887,175 12,417,700 22,617,656 37,397,731For the three months ended 30 June 2011 Stated Capital Reserves Retained Minority Totalearnings InterestCompany Rs '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000Balance as at 31.03.10 475,200 552,292 4,401,162 - 5,428,654Profit for the period - - 584,707 - 584,707Balance as at 30.06.10 475,200 552,292 4,985,869 - 6,013,361Profit for the period - - 938,636 - 938,636Dividends forfeited - - 1,163 - 1,163Revaluation of Property Plant and Equipment - 495,484 - - 495,484Transfers during the period - 48,327 (48,327) - -Balance as at 31.03.11 475,200 1,096,103 5,877,341 7,448,644Profit for the period - - 1,363,138 - 1,363,138Transfers during the period 6,585 (6,585) -Balance as at 30.06.11 475,200 1,102,688 7,233,894 - 8,811,782Market prices of shares recorded during the quarter ended30-Jun-11-Highest price (Rs.) 128.00-Lowest price (Rs.) 99.00-Last traded price (Rs.) 100.30Lanka ORIX LEASING Company PLC,100/1,Sri Jayewardenepura Mawatha,Rajagiriya,Sri Lanka

Lanka ORIX LEASING Company PLCSEGMENTAL INFORMATIONFor the three months ended 30 June 2011 Financial Insurance Trading Leisure Plantation Power & Others/ TotalServices Energy (adjustments)Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000Total revenue 5,462,055 4,146 2,797,865 167,855 739,666 11,495 (69,194) 9,113,888Net interest cost (1,739,331) (89,702) (41,566) (37,181) (792) 100,628 (1,807,944)Cost of sales - - (2,062,566) (40,436) (683,484) (5,107) (29,792) (2,821,385)Profit before operating expenses 3,722,724 4,146 645,597 85,852 19,001 5,597 1,642 4,484,559Operating expenses (1,589,091) (5,061) (430,254) (155,375) (211,470) (8,716) (21,101) (2,421,068)Results from operating activities 2,133,633 (915) 215,343 (69,523) (192,469) (3,119) (19,459) 2,063,491Share of profit of associate companies - - - - - - 46,854Profit before taxation 2,133,633 (915) 215,343 (69,523) (192,469) (3,119) (19,459) 2,110,345For the three months ended 30 June 2010 Financial Insurance Trading Leisure Plantation Power & Others/ TotalServices Broking Energy (adjustments)Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000Total revenue 3,548,546 18,295 1,846,217 8,568 902,136 10,587 (428,481) 5,905,868Net interest cost (1,205,454) (82) (47,126) - (4,690) - (18,811) (1,276,163)Cost of sales - - (1,418,137) (401) (638,351) - (199,580) (2,256,469)Profit before operating expenses 2,343,092 18,213 380,954 8,167 259,095 10,587 (646,872) 2,373,236Operating expenses (848,287) (19,038) (267,194) (735) (65,303) (9,373) (69,596) (1,279,526)Results from operating activities 1,494,805 (825) 113,760 7,432 193,792 1,214 (716,468) 1,093,710Share of profit of associate companies - - - - - - - 57,276Profit before taxation 1,494,805 (825) 113,760 7,432 193,792 1,214 (716,468) 1,150,986For the three months ended 30 June 2011 Financial Insurance Trading Leisure Plantation Power & Others/ TotalServices Energy (adjustments)Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000Capital expenditure 160,650 - 98,352 4,425 294,590 28,335 3,097 589,449Depreciation and amortisation of property, plant & equipment 152,235 - 11,134 23,461 17,305 1,060 1,665 206,860Provision for doubtful debts & bad debts written off 338,868 - (78) - - - - 338,790Total assets (as at 30.06.2011) 85,505,840 211,523 14,419,485 5,994,792 14,842,007 565,264 2,234,640 123,773,551Total liabilities (as at 30.06.2011) 74,852,926 9,086 4,351,359 1,749,576 3,818,742 143,765 1,450,366 86,375,820For the three months ended 30 June 2010 Financial Insurance Trading Leisure Plantation Power & Others/ TotalServices Broking Energy (Adjustments)Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000Capital expenditure 242,121 - 92 - 110,330 - 315 352,858Depreciation and amortisation of property, plant & equipment 175,002 1,173 210 420 3,648 12,863 193,316Provision for doubtful debts & bad debts written off 9,787 - 1,000 - 22,891 - 938 34,616Total assets (as at 30.06.2010) 56,786,908 131,850 8,955,289 4,774,053 7,976,175 328,442 2,581,911 81,534,628Total liabilities (as at 30.06.2010) 53,141,799 51,591 2,442,200 715,154 2,416,109 69,974 980,010 59,816,837

Lanka ORIX LEASING Company PLCDIRECTORS' SHAREHOLDINGS AS AT 30TH JUNE 2011Directors Name No of shares %Mrs. R. L. NanayakkaraChairpersonMr. I. C. NanayakkaraDeputy ChairmanDeshamanya M. D. D. PierisMr. R. A. FernandoMrs. K. U. AmarasingheMr. R. M. NanayakkaraMr. R. N. AsirwathamMr. W. D. K. JayawardenaManaging Director / Group CEOMr. K OkimotoMr. H. Ichida- -59,895,500 12.604%- -12,600 0.003%52,432,000 11.034%141,433,220 29.763%5,000 0.001%- -- -- -TOP 20 SHAREHOLDERS AS AT 30TH JUNE 2011Shareholder No. of % of IssuedSharesCapital1 Orix Corporation 142,560,000 30.0002 Mr. R M Nanayakkara 141,433,220 29.7633 Mr. I C Nanayakkara 59,895,500 12.6044 Mrs. K U Amarasinghe 52,432,000 11.0345 Sri Lanka Insurance Corporation Ltd- Life Fund 11,797,060 2.4836 Employees Provident Fund 8,632,200 1.8177 Mrs. I Nanayakkara 5,215,020 1.0978 Employees Trust Fund Board 3,209,600 0.6759 Mr. G G Ponnambalam 2,089,920 0.44010 HSBC - Mr. C P De Silva 2,000,000 0.42111 Bank of Ceylon - No. 2 A/C 1,546,000 0.32512 Mr. M Radhakrishnan 1,500,000 0.31613 HSBC - Mr. R C De Silva 1,500,000 0.31614 Capital Development & Investment Company PLC A/C 1,091,000 0.23015 Bank of Ceylon - No 01 Account 1,083,900 0.22816 Aviva NDB Insurance PLC A/C No.07 1,041,100 0.21918 Swastika Mills Ltd 1,006,800 0.21219 DPMC Financial Services (Pvt) Ltd Account No 01 922,500 0.19420 S N Fernando 818,440 0.172The Public Shareholding as at 30th June 2011 was 15.5%439,774,260 92.546