NOTES TO THE ACCOUNTS

FOR THE YEAR ENDED SEPTEMBER 30, 2002

1. STATUS AND ACTIVITIES

The Company is limited by shares incorporated in Pakistan under the Companies Ordinance 1984 and listed on Stock Exchanges in Pakistan. The principal business of the Company is manufacture and sale of yarn. The mills is located at Tehsil Jaranwala, District Faisalabad, in the Province of Punjab.

2. BASIS OF ACCOUNTING

The Company has accumulated losses of Rs. 220.610 million as at September 30, 2002 as against Issued, subscribed and paid up capital of Rs. 126.012 million. Its current liabilities exceeded its current assets by Rs. 108.848 million. In veiw of rapid and consistent improvement in financial performance witnessed in recent years and as projected for future years, continuing financial support from directors and associates and more importantly the strong asset base to secure the liabilities, these accounts have been prepared on a going concern basis.

3.SIGNIFICANT ACCOUNTING POLICIES

           3.1 Accounting convention and basis of preparation

                These accounts have been prepared under 'historical cost convention' except certain assets which are stated at

                valuation. These accounts are prepared in accordance with International Accounting Standards issued by the             

                International Accounting Standards Committee (IASC) as applicable in Pakistan, interpretations issued by the IASC

                as adopted in Pakistan and the requirements of the Companies Ordinance, 1984.

           3.2 Significant changes in accounting policies

                The company has adopted the International Accounting Standard 39: Financial Instruments, Recognition and

                Measurement with effect from October 01, 2001. The adoption of this IAS has resulted in classifying its long term

                investment portfolio as available for sale investments and valuing them at fair value. This change has not affected the

                accounts as these investments had already been valued at market value.

          3.3  Staff retirement benefits.

                 The Company operates an unfunded gratuity scheme covering all its employees. Provision is made annually on the

                 basis of last drawn salary and length of service of the employee.

                The management is of the opinion that the carrying amount of the liability recognized at the balance sheet date

                approximates the amount required to settle the liability.

         3.4   Taxation

              Current

              Provision for current taxation is based on taxable income at current tax rates after taking into account tax rebates

              and tax credits available under the law.

              Deferred  

              The Company accounts for deferred taxation on all material timing differences using the liability method. However,

              deferred tax to certain extent is not provided, if it can be established with reasonable probability that these timing

              differences will not reverse in the foreseeable future.   

        3.5  Operating assets

                    Operating assets except freehold land are stated at cost / valuation less accumulated depreciation. Freehold land

                    is stated at cost / valuation..

                    Depreciation is charged to income applying the reducing balance method at the rates specified in operating assets

                    note except plant and machinery on which depreciation is charged on unit of production method subject to

                    minimum of Rs. 6 million to cover obsolescence.

                    Depreciation on additions during the year is charged on the basis of whole year. No depreciation is charged on

                    deletions during the year.

                    Maintenance and normal repairs are charged to income as and when incurred. Major renewals and improvements

                    are capitalized.

                    Gains and losses on disposal of assets are included in current income.

        3.6 Investments

                    Investments in securities are recognised on a trade date basis and are initially measured at cost inclusive of

                    transaction cost.

                   Available for sale

                   These are investments that do not fall under held for trading or held to maturity.

                   Available for sale investments are measured at fair value on subsequent reporting dates. Surplus / deficit arising

                   from remeasurement is taken to profit and loss account.

        3.7  Stores, spares and loose tools

                   These are valued at moving average cost.

        3.8  Stock in trade

                   These are valued at lower of cost and net realisable value. Cost has been determined as follows:

                                            Raw material

                                            in hand                                                     Weighted average cost

                                            in transit                                                    Cost accumulated upto the

                                                                                                            balance sheet date

                                            Work in process                                      Average manufacturing

                                            Finished Goods                                        Average manufacturing cost

                                            Wastes are valued at net realisable value.

        3.9  Trade debts.

                    Known bad debts are written off and provision is made for debts considered doubtful.

        3.10  Rates of exchange

                    Assets and liabilities in foreign currencies are translated into Pak Rupees at the rates of exchange ruling at the

                    balance sheet date, except those covered under forward exchange contracts which are converted at the        

                    contracted rates. Exchange differences are included in current income.

        3.11  Revenue recognition

                    Sales are recorded on despatch of goods.

        3.12  Impairment

                    An assessment is made at each balance sheet date to determine whether there is an indication for impairment of

                    any asset or group of assets. If any such indication exists, the recoverable amount of that asset is estimated and

                    impairment losses are recognized in the profit and loss account.

        3.13  Trade and other payable

                    Liabilities for trade and other amounts payable are carried at cost which is the fair value of the consideration to be

                    paid in the future for goods and services received whether or not billed to the company.

        3.14  Provisions

                    Provisions are recognized when the company has a legal and constructive obligation as a result of a past event, it

                    is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and

                    a reliable estimate can be made to the amount of the obligation.

4. SURPLUS ON REVALUATION OF FIXED ASSETS

    Outstanding balance                                                                            2002                        2001

                                                                                                             Rupees                     Rupees          

                                                                                                         126,661,282           126,661,282

                    Revaluation of land, building on freehold land and plant and machinery have been carried out as on September

                    30, 1998 by an independent valuer M/s. M. Yousuf Adil Saleem & Co., Chartered Accountants, Faisalabad on

                    the basis of depreciated replacement values.

5. LONG TERM LOANS

Opening balance           164,509       3,691,416    2,233,959   12,110,000   63,349,644   81,549,528   104,695,759

Obtained during        

 the year                           --                    --              --                  --                --                    --                --          

                                    164,509      3,691,416    2,233,959    12,110,000   63,349,644    81,549,528  104,695,759

Paid during

the year                             --          (1,039,134)          --         (2,050,000)  (1,150,394)    (4,239,528) (41,601,196)

Shown under

current

liabilities                       164,509    2,652,282     2,233,959   10,060,000    62,199,250     77,310,000   81,549,528

Shown under current liabilities

Installments due           164,509   2,652,282      2,233,959    10,060,000          --           15,110,750      9,425,935

Payable with in                  --            --                    --                --                    --                     --           8,773,949

one year 

                                  164,509   2,652,282      2,233,959     10,060,000          --            15,110,750   18,199,884

                                        --            --                    --                    --             62,199,250   2,199,250    63,349,644

Security                                           Secured          Secured         Secured        Secured        Unsecured

Number of installments                         16                   10                  10                24                 --

Payment rest                                  Half Yearly   Half Yearly       Half Yearly       Monthly           --

Date of first installment                  July01, 1993  Jan01, 1998     Jan01, 1998   Dec25, 1999     --

Mark up/interest per annum(%)            14                    14                  14                 17              --

Sub Note                                            5.1                   5.2                 5.2                 5.2             5.3

5.1 It is secured against first charge by way of equitable mortgage on fixed assets of the Company, hypothecation of plant and machinery and equipment and floating charge on book debts. It is further secured by a demand promissory note and personal guarantee of the directors of the Company. In case of default in payment of any installment of principal and/or interest on due date, additional interest @ 5% per annum will be payable on the amount of default.

5.2 These represent loans created against deferral of installments of IBRD loan. These are covered against securities provided to secure IBRD loan ( Refer Note 5.1)

5.3 It is interest free. Terms of repayment have not been decided, However, it is confirmed by the lenders that they will not claim repayment within the next twelve months from the balance sheet date.

9. OPERATING ASSETS

Free hold            13,544,000        --                 13,544,000                    ---                        ---                        --                        ---                 13,544,000       

Building on

freehold land

    Factory           25,790,000        --                 25,790,000            6,219,408                   ---                     1,957,059           8,176,467         17,613,533            10

    Residential       4,806,000        --                   4,806,000            1,138,445                   ---                        366,756           1,505,201           3,300,799            10

Plant and

machinery        216,051,001     1,208,640     217,259,641          32,514,285                   ---                   13,614,526         46,128,811        171,130,830        UMP

Factory

equipments         2,007,902           12,000        2,019,902             1,304,459                  ---                           71,544           1,376,003              643,899            10

Electric

appliances             693,488          --                    693,488                 412,783                  ---                           28,071              440,854             252,634             10

Office

equipment           1,320,381           10,495       1,330,876                 703,598                  ---                           62,728              766,326             564,550             10

Electric installation

and

equipments      10,888,348          200,000     11,088,348             6,862,887                   ---                        422,546            7,285,433          3,802,915             10

Furniture and

fixture                     244,281         --                     244,281                149,767                   ---                            9,451               159,218               85,063             10

Vehicles              6,588,304         --                  6,588,304             4,120,250                   ---                        493,611            4,613,861          1,974,443             20

        Rupees    281,933,705       1,431,135  283,364,840            53,425,882                  ---                   17,026,292          70,452,174      212,912,666                

2001 Rupees  280,529,784        1,466,921  281,933,705           38,581,798            (31,126)                14,875,210          53,425,882      228,507,823

                                                      (63,000)                                                                                                                                                                                    

9.1 DEPRECIATION FOR  THE YEAR HAS

        BEEN ALLOCATED AS UNDER:                                                            2002                                2001

                                                                                                                            Rupees                           Rupees

Cost of goods manufactured                                                                              16,345,240                       14,179,164

Administrator expenses                                                                                          681,052                             696,046

                                                                                                                        17,026,292                        14,875,210

9.2 Had there no revaluation, the related figures of freehold land, building on freehold land and plant and machinery at September 30,2002 would have been as fallows:

                                                                                                     Cost            Accumulated            Written down

                                                                                                                        depreciation                    value

Freehold land                                                                            3,848,875                    ---                   3,848,875

Building on freehold land           

        Factory                                                                           31,432,789        20,746,387                10,686,402

        residential                                                                          5,503,671          3,678,706                  1,824,965

Plant and machinery                                                               209,661,067      136,001,057                73,660,010

                                Rupees                                                  250,446,402      160,426,150                90,020,252

2001                        Rupees                                                  249,237,762      153,390,109                95,847,653

10. LONG TERM INVESTMENT

                                                                                                                        2002                            2003

                                                                                                                    Rupees                        Rupees

       Available for sale

       Muslim Commercial Bank Ltd.

455 (2001 - 329) Ordinary shares of

Rs. 10/- each (Including) 270

(2001 - 229) bonus shares)                                                                            7,305                            7,305

Gain on remeasurement                                                                                  5,117                                 --   

                                                                                                                    12,422                            7,305

11. STORES AND SPARES

        Stores                                                                                                  786,414                      1,006,045

        Spares                                                                                                 551,676                         206,914

                                                                                                                 1,338,090                     1,212,959

12. STOCK IN TRADE

        Raw material

                In hand                                                                                     11,376,572                        80,175

                In transit                                                                                           --                          4,193,171

        Work in progress                                                                                1,849,016                   2,820,586

        Finished goods                                                                                    3,430,725                 21,858,323

        Waste                                                                                                    309,863                   1,948,498

                                                                                                                 16,966,176                 30,900,753

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J.A. Textile Mills Ltd.

16 C, People's Colony

  Faisalabad 38090, PAKISTAN

Tel: 92-41-721953-6

Fax: 92-41-712399

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