Bata understated 9-month losses, says Batliboi

Shoe major Bata India Ltd has understated its losses for the first nine months of 2003 at Rs 11.90 crore against Rs 11.72 crore in the corresponding period of the previous year.

The figure was stated by its statutory auditors S R Batliboi. Batliboi has also noted that there was an unfunded pension liability in the books of Bata India in the senior staff pension fund account to the extent of Rs 2.85 crore as of September 2003 "" the third quarter for Bata India Ltd.

This also included an advance amount of Rs 23.8 lakh to the senior staff pension fund.

Also, there was an excess funding for management staff pension fund to the extent of Rs 1.78 crore. This, according to the company, was due to a hike in premium announced by the Life Insurance Corporation of India (LIC) and would be made good in the next five years.

Meanwhile, the main factor which contributed to the understatement of losses at Bata India was the royalty payment calculations.

Batliboi has mentioned that as per the royalty agreement with Bata Ltd of Canada, a royalty of 1.5 per cent on sales was payable subject to an annual ceiling of $2 million, against which expenses of Rs 2.64 crore, including taxes, have been charged to and included in the technical service fees in the accompanying statement of un-audited financial results for the quarter September, 2003.

This represents 25 per cent of the above ceiling instead of Rs 2.97 crore on the basis of 1.5 per cent of sales as per the agreement.

"This has resulted in the understatement of losses by BIL to the extent of Rs 32.8 lakh for the third quarter ending September 2003. The loses for the nine-month period was also similarly understated by Rs 1.19 crore "" including Rs 87 lakh for the first six months," the auditor stated.

Bata officials said that the final figure would be arrived at only after accounts of the full year was finalised so, the difference is the short-term would be made good in the annual accounts. The company, according to its auditors, has failed to provide for ascertained losses of Rs 64.9 lakh on account of loss of inventories.

Batliboi also mentioned that the management has not recognised any deferred tax assets during the third quarter and has retained net deferred tax assets of Rs 4.92 crore arising up to December 2002.

The management is, however, of the opinion that that there is a certainty of realisability to such extent. "We are therefore unable to express any opinion on such virtual certainty and consequent carry forward of such deferred tax assets created in the previous year," Batliboi has said in its report.