Depreciation Practice in Bangladesh

Introduction

Depreciation is a process to allocate fixed assets over their useful life. It will not show the value of assets rather it shows the net book value of the assets over their useful life. “Depreciation Expense” is recorded as an expense in the income statement account, but this is a non-cash expense for which no cash transaction is needed. Therefore, it needs to be added back in the cash flow statement. A contra asset account- Accumulated Depreciation is used to allocate the use of the asset for a specific period of time. Accumulated depreciation is subtracted from the net book value of the asset to get the new net book value after period ends.

Depreciation is a tool to determine the usage of a particular asset for a period; different ways can be used to calculate this amount of depreciation. All of the methods although provide same final result. Different approaches are used so that different purposes of different organizations can be served. Another reason for such choice is that, different asset may have different sort of usage for which one method may not result in a perfect way but other method may serve best.

Organizations which try to show more depreciation expense may use double declining balance method, by using this approach organization can show less net income and therefore they has to pay a less income tax for the period. Some organizations try to simplify the calculation, therefore they uses straight-line method. Some organizations have to deal with machineries to produce, they may use unit of output method.

Literature Review

Depreciation: In accounting jargon, the term Depreciation is meant to refer to the allocation of an asset's cost to the accounting periods benefited -- not an attempt to value the asset. Thus, it is often said that depreciation is a process of "allocation" not "valuation."

Determining the service life of an asset is an essential first step in calculating the amount of depreciation attributable to a specific period. Several factors must be considered:

Physical deterioration -- "Wear and tear" will eventually cause most assets to simply wear out and become useless. Thus, physical deterioration serves to establish an outer limit on the service life of an asset.

Obsolescence -- The shortening of service life due to technological advances that cause an asset to become out of date and less desirable.

Inadequacy -- An economic determinant of service life which is relevant when an asset is no longer fast enough or large enough to fill the competitive and productive needs of a company.

Factors such as the above must be considered in determining the service life of a particular asset. In some cases, all three factors must be considered. In other cases, one factor alone may control the determination of service life. Importantly, one should observe that service life can be completely different from physical life.

Recognize that some assets have an indefinite (or permanent) life. One prominent example is land. Accordingly, it is not considered to be a depreciable asset.

Different Depreciation Methodologies

After the cost and service life of an asset are determined, it is time to move on to the choice of depreciation method. The depreciation method is simply the pattern by which the cost is allocated to each of the periods involved in the service life. There are many methods from which to choose. Four popular methods are:

i. straight-line method, ii. units-of-output method,

iii. double-declining-balance method, and iv. Sum-of-the-years'-digits method.

In any given scenario, ample professional judgment must be applied in selecting the specific depreciation method to apply. It must be noted that the choice of depreciation method can become highly subjective. Some research suggests that such choices are unavoidably "arbitrary," despite the best of intentions. Having set the stage for consideration of multiple depreciation methods, it is now time to dig into the mechanics of each approach.

Most companies elect to stay with one of the fairly basic techniques -- as they all produce the same "final outcome" over the life of an asset, and that outcome is allocating the depreciable cost of the asset to the asset's service life.

Some Important Terminology:

Cost: The dollar amount assigned to a particular asset; usually the ordinary and necessary amount expended to get an asset in place and in condition for its intended use.Service life: The useful life of an asset to an enterprise, usually relating to the anticipated period of productive use of the item.Salvage value: Also called residual value; is the amount expected to be realized at the end of an asset's service life. The anticipated sales amount at the end of the service life is the salvage or residual value.Depreciable base: The cost minus the salvage value. Depreciable base is the amount of cost that will be allocated to the service life.

Book value: Also called net book value; refers to the balance sheet amount at a point in time that reveals the cost minus the amount of accumulated depreciation.

The Straight-Line Method: Under this simple and popular approach, the annual depreciation is calculated by dividing the depreciable base by the service life. The applicable depreciation expense would be included in each year's income statement and the appropriate balance sheet presentation would appear also.

The Units-of-Output Method: This technique involves calculations that are quite similar to the straight-line method, but it allocates the depreciable base over the units of output (e.g., machine hours) rather than years of use. It is logical to use this approach in those situations where the life is best measured by identifiable units of machine "consumption"

The Double-Declining-Balance Method (DDB): As one of several "accelerated depreciation" methods, DDB results in relatively large amounts of depreciation in early years of asset life and smaller amounts in later years. This method can be justified if the quality of service produced by an asset declines over time, or if repair and maintenance costs will rise over time to offset the declining depreciation amount. With this method, a fixed percentage of the straight-line rate (i.e., 200% or "double") is multiplied times the remaining book value of an asset to determine depreciation for a particular year. As time passes, book value and annual depreciation decrease.

The Sum-of-The-Years'-Digits Method: Under this technique, depreciation for any given year is determined by multiplying the depreciable base by a fraction; the numerator is a digit relating to the year of use.

(Walther, L. M. & Skousen, C. J. (2009) Long-Term Assets, Ventus Publishing ApS, Denmark)

Analysis and findings

Depreciation methods used by companies enlisted under different Industries of Bangladesh and are shown in the table below:

Company Name Industry Depreciation Method Used

GQ Ball Pen Miscellaneous   Diminishing balance Berger Paints Miscellaneous   Straight LineAl-Arafah Islami Bank Bank Reducing balance methodExim Bank Bank Straight line

Uttara Bank  Bank Reducing balance methodUnited Commercial Bank Bank Reducing balance method Southeast Bank Bank Straight line

AB Bank Limited  Bank Reducing balance methodEastern Bank Bank straight line & reducing balance

 Prime Bank Bank Reducing balance methodRupali Bank Bank Diminishing balance

Social Islami Bank Bank Reducing balance methodTrust Bank Limited Bank Straight line

Standard Bank Limited Bank Reducing balance methodDutch-Bangla Bank Bank Straight lineThe City Bank Bank Straight line

Niloy Cement Cement Diminishing balance Aramit Cement Cement Straight lineLafarge Cement Cement Straight lineMeghna Cement Cement Reducing BalanceConfidence Cement Cement Straight lineStandard Ceramic Ceramics Sector Reducing BalanceFu-Wang Ceramic Ceramics Sector Diminishing balance

National Tubes Engineering Reducing BalanceBD Lamps Engineering Straight lineAziz Pipe Engineering Diminishing balance BD Auto Engineering Reducing BalanceBOC Engineering Straight lineAftab Automobiles Engineering Diminishing balance Singer Bangladesh Engineering Reducing BalanceEastern Cables Engineering Straight line

Atlas Bangladesh Engineering Reducing BalanceNavana CNG Engineering Diminishing balance IDLC Finance Ltd Financial Institutions Straight linePremier Leasing Financial Institutions Straight lineUttara Finance Financial Institutions Straight lineUnited Leasing Financial Institutions Straight linePeoples Leasing Financial Institutions Diminishing balance

Bionic Sea Food Food & Allied Reducing BalanceDhaka Fisheries Food & Allied Reducing BalanceBeximco Fisheries Food & Allied Straight lineBAT BC Food & Allied Straight lineRahima Food Food & Allied Reducing BalanceFu-Wang Food Food & Allied Diminishing balance Gemini Sea Food Food & Allied Diminishing balance

Bangas Food & Allied Written down value AMCL (Pran) Food & Allied Reducing balance methodSummit Power Fuel & power Straight linePadma Oil Fuel & power Straight lineDESCO Fuel & power Reducing balance methodTitas Gas Fuel & power Diminishing balance BGIC Insurance Reducing balance method

Karnaphuli Insurance Insurance Diminishing balance

Phoenix Insurance Insurance Reducing balance methodNational Life Insurance Insurance Reducing balance methodPragati Insurance Insurance Straight linePrime Insurance Insurance Straight line

Sonar Bangla Insurance Insurance Reducing balance methodGreen Delta Insurance Insurance Straight line

Rupali Insurance Insurance Reducing balance methodRupali Life Insurance Insurance Reducing balance methodAgrani Insurance Insurance Straight line

Central Insurance Insurance Diminishing balance Dhaka Insurance Limited Insurance Diminishing balance Nitol Insurance Insurance Reducing balance methodBDCOM Online Ltd IT Diminishing balance

BOL IT Straight lineBeximco Pharma Pharmaceuticals & Chemicals Reducing Balance Reckitt Benckiser Pharmaceuticals & Chemicals straight lineSquare Pharma Pharmaceuticals & Chemicals Reducing BalanceLibra Infusion Pharmaceuticals & Chemicals Reducing BalanceAmbee Pharma Pharmaceuticals & Chemicals Reducing BalanceRenata Ltd. Pharmaceuticals & Chemicals Straight lineOrion Infusion Pharmaceuticals & Chemicals Straight lineGlaxo SmithKline Pharmaceuticals & Chemicals Straight lineThe Ibn Sina Pharmaceuticals & Chemicals Reducing BalanceACI Limited Pharmaceuticals & Chemicals Straight lineKohinoor Chemical Pharmaceuticals & Chemicals Reducing BalanceEastern Housing Services & Real Estate Diminishing balance

OCL Services & Real Estate Reducing balance method Summit Alliance Services & Real Estate Reducing balance methodBata Shoe Tannery Industries   Reducing balance and Straight lineSamata Leather Tannery Industries   Reducing BalanceApex Footwear Ltd Tannery Industries   Reducing BalanceApex Tannery Tannery Industries   Reducing BalanceSaiham Textile Textile Reducing Balance Apex Spining Textile Reducing Balance Mithun Knitting Textile Reducing BalancePrime textile Textile Diminishing balance Bangladesh Dyeing Textile Reducing BalanceDesh Garmants Textile Diminishing balance Monno Fabrics Textile Reducing BalanceBeximco Denims Textile Straight lineH.R.Textile Textile Straight line

Beximco Knitting Textile Straight lineSquare Textile Textile Straight lineTallu Spinning  Textile Straight lineRahim Textile Textile Reducing BalanceAl-Haj Textile Textile Diminishing balance

Quasem Silk Textile Reducing Balance

D epr eciation M eth od U sed by C om pan ys fr om D iffer en t I n dustr ies of B an gladesh

19%

37%

44%

0.99%

D im in ish in g b a la n c e

Stra ig h t Lin e

Re d u c in g b a la n c em e th o d

W ritte n d o w n v a lu e

In our survey of 101 companies of 14 industries, we found that about 44% of the companies using Reducing balance method to calculate depreciation and it is the majority. Among these companies, nearly 37% uses Straight line method to find out depreciation. While some of the companies’ uses combination of these two methods to determine depreciation. Pie chart shown above is presenting the depreciation method and their respective proportions in all industries.

Notably, none of the companies neither uses units-of-output method nor the sum-of-the-years'-digits method. Conversely, Bangas Foods from Food & Allied industry uses

written down value method to calculate its depreciation, which is a unique finding in our analysis.

Another important think we observed is that the majority of the companies of a particular industry follow the same method used by other companies of the same industry. That is, the companies have a tendency to go with the same method used by other companies of that respective industry, although it is not true in every case.

While going through the annual reports of different companies, we found that all of the companies stated which method they are using to determine depreciation. Depreciation techniques used by these companies are mentioned in their Annual Report under the Note to The Financial Statement part.

* Separate pie chart showing depreciation method used by different industries are provided in the appendix.

Recommendation

As we know that different methods of determining depreciation has the same final result. So, company should use methods that best serve the company’s purpose. Another tendency that we observed during our survey which we mentioned earlier that all the companies of same industry follow identical method but this is not essential to follow same approach. Companies should not bother choosing approaches which most of the companies following but they should consider their function and based on this they should decide which method they should apply.

Conclusion

Depreciation is vital for an organization as it helps to realize the net book value of the asset and it is a significant source of expenditure. So, companies should be very careful of selecting methods to determine depreciation. They should regularly check which approach is suitable to them and change estimates or method of depreciation if required. Those companies which are engaged in different nature of business should not follow uniform depreciation method; they should use different methods to allocate depreciation for different assets.

Inventory Valuation/Costing Practice in Bangladesh

Introduction

Inventory means the goods and services that businesses hold in stock. Their can be different types of inventories: finished goods, work-in-process or raw materials. These inventories are recorded as an asset of the organization in the balance sheet and they are expensed in the income statement as cost of goods sold and ending inventory. There are three major techniques to determine the cost of inventory. They are First in first out (FIFO), Last in Last out (LIFO), and weighted average cost. Companies can use one of these methods because all of these are approved by GAAP. Each method serves different purposes of an organization. Though, the cost of inventory remains same, companies can allocate this cost with different costing approaches based on their function. Most of the companies use different methods for different type of inventories. Therefore, two or more inventory costing method may found within one single organization.

Literature Review

Inventory include all costs that are "ordinary and necessary" to put the goods "in place" and "in condition" for their resale.This means that inventory cost would include the invoice price, freight-in, and similar items relating to the general rule. Conversely, "carrying costs" like interest charges (if money was borrowed to buy the inventory), storage costs, and insurance on goods held awaiting sale would not be included in inventory accounts; instead those costs would be expensed as incurred. Likewise, freight-out and sales commissions would be expensed as a selling cost rather than being included with inventory.

Costing Methods: Once the unit cost of inventory is determined via the preceding rules of logic, specific costing methods must be adopted. In other words, each unit of inventory will not have the exact same cost, and an assumption must be implemented to maintain a systematic approach to assigning costs to units on hand (and to units sold).

The methods from which to choose are varied, generally consisting of one of the following:

i. First-in, first-out (FIFO)ii. Last-in, first-out (LIFO)

iii. Weighted-average

Each of these methods entails certain cost-flow assumptions. Importantly, the assumptions bear no relation to the physical flow of goods; they are merely used to assign costs to inventory units. Another method that is the specific identification method; as its name suggests, it does not depend on a cost flow assumption.

First-in, First-out: With first-in, first-out, the oldest cost (i.e., the first in) is matched against revenue and assigned to cost of goods sold. Conversely, the most recent purchases are assigned to units in ending inventory.Last-in, First-out: Last-in, first-out is just the reverse of FIFO; recent costs are assigned to goods sold while the oldest costs remain in inventory.Weighted-Average: The weighted-average method relies on average unit cost to calculate cost of units sold and ending inventory. Average cost is determined by dividing total cost of goods available for sale by total units available for sale.

Accountants usually adopt one of these cost flow assumptions to track inventory costs within the accounting system. The actual physical flow of the inventory may or may not bear a resemblance to the adopted cost flow assumption.

The results above are consistent with the general rule that LIFO results in the lowest income (assuming rising prices), FIFO the highest, and weighted average an amount in between. Because LIFO tends to depress profits, so why a company would select this option; the answer is sometimes driven by income tax considerations. Lower income produces a lower tax bill, thus companies will tend to prefer the LIFO choice. Usually, financial accounting methods do not have to conform to methods chosen for tax purposes.

Accounting theorists may argue that financial statement presentations are enhanced by LIFO because it matches recently incurred costs with the recently generated revenues. Others maintain that FIFO is better because recent costs are reported in inventory on the balance sheet. Whichever side of this debate, it is important to note that the inventory method in use must be clearly communicated in the financial statements and related notes. Companies that use LIFO will frequently augment their reports with supplement data about what inventory would be if FIFO were instead used. No matter which method is selected, consistency in method of application should be maintained. This does not mean that changes cannot occur; however, changes should only be made if financial accounting is improved.

Specific Identification: As was noted earlier, another inventory method is specific identification. This method requires a business to identify each unit of merchandise with the unit's cost and retain that identification until the inventory is sold. Once a specific inventory item is sold, the cost of the unit is assigned to cost of goods sold. Specific identification requires tedious record keeping and is typically only used for inventories of uniquely identifiable goods that have a fairly high per-unit cost (e.g., automobiles, fine jewelry, and so forth).

Measuring Market Value: Market values are very subjective. In the case of inventory, applicable accounting rules define "market" as the replacement cost (not sales price!) of the goods. In other words, what would it cost for the company to acquire or reproduce the inventory?

However, the lower-of-cost-or-market rule can become slightly more complex because the accounting rules further specify that market not exceed a ceiling amount known as

"net realizable value" (NRV = selling price minus completion and disposal costs). The reason is this: occasionally "replacement cost" for an inventory item could be very high (e.g., a supply of slide rules at an office supply store) even though there is virtually no market for the item and it is unlikely to produce much net value when it is sold. Therefore, "market" for purposes of the lower of cost or market test should not exceed the net realizable value. Additionally, the rules stipulate that "market" should not be less than a floor amount, which is the net realizable value less a normal profit margin.

(Walther, L. (2009) Chapter 8- Inventory [Internet]. Available from: http://www.principlesofaccounting.com/chapter%208.htm [Accessed July 17, 2010])

Analysis and findings

The table shown below is the survey of the basis of inventory valuation techniques used by various companies of different industries in Bangladesh:

Company Name Industry Inventory Costing Methods Used Al-Arafah Islami Bank BankExim Bank BankUttara Bank  BankUnited Commercial Bank BankSoutheast Bank BankAB Bank Limited  BankEastern Bank Bank Prime Bank BankRupali Bank BankSocial Islami Bank BankTrust Bank Limited BankStandard Bank Limited BankDutch-Bangla Bank BankThe City Bank Bank

Niloy Cement Cement Lower of cost and net realizable valueAramit Cement Cement Lower of cost and net realizable valueLafarge Cement Cement Lower of cost and net realizable value

Meghna Cement Cement Weighted Average CostConfidence Cement Cement Lower of cost and net realizable valueStandard Ceramic Ceramics Sector Lower of cost and net realizable valueFu-Wang Ceramic Ceramics Sector Lower of cost and net realizable value

National Tubes Engineering Weighted Average CostBD Lamps Engineering FIFOAziz Pipe Engineering Weighted Average CostBD Auto Engineering Weighted Average costBOC Engineering Lower of cost and net realizable valueAftab Automobiles Engineering Lower of cost and net realizable value

Singer Bangladesh Engineering Weighted Average CostEastern Cables Engineering Weighted Average CostAtlas Bangladesh Engineering Lower of cost and net realizable value

Navana CNG Engineering Weighted Average Cost

IDLC Finance Ltd Financial Institutions Premier Leasing Financial Institutions  Uttara Finance Financial Institutions United Leasing Financial Institutions Peoples Leasing Financial Institutions Bionic Sea Food Food & Allied Lower of cost and net realizable valueDhaka Fisheries Food & Allied Net Realizable ValueBeximco Fisheries Food & Allied Lower of cost and net realizable value

BAT BC Food & Allied Lower of cost and net weighted average costRahima Food Food & Allied FIFOFu-Wang Food Food & Allied Lower of cost and net realizable valueGemini Sea Food Food & Allied Lower of cost and net realizable value

Bangas Food & Allied lower of cost and Weighted Average Cost

AMCL (Pran) Food & Allied lower of cost and Weighted Average Cost

Summit Power Fuel & power FIFOPadma Oil Fuel & power Lower of cost and net realizable value

DESCO Fuel & power

Lower of cost and net realizable value, weighted average method.

Titas Gas Fuel & power Weighted Average CostBGIC Insurance Karnaphuli Insurance Insurance Phoenix Insurance Insurance At CostNational Life Insurance Insurance Pragati Insurance Insurance Prime Insurance Insurance Sonar Bangla Insurance Insurance At CostGreen Delta Insurance Insurance Rupali Insurance Insurance Rupali Life Insurance Insurance  Agrani Insurance Insurance Central Insurance Insurance Dhaka Insurance Limited Insurance Nitol Insurance Insurance BDCOM Online Ltd IT Cost PriceBOL IT Lower of cost and net realizable valueGQ Ball Pen Miscellaneous   FIFOBerger Paints Miscellaneous   At Standard Cost

Beximco PharmaPharmaceuticals & Chemicals Lower of cost and net realizable value

Reckitt Benckiser Pharmaceuticals & Chemicals Lower of cost and net realizable valueSquare Pharma Pharmaceuticals & Chemicals Lower of cost and net realizable valueLibra Infusion Pharmaceuticals & Chemicals Lower of cost and net realizable valueAmbee Pharma Pharmaceuticals & Chemicals Lower of cost and net realizable valueRenata Ltd. Pharmaceuticals & Chemicals Lower of cost and net realizable value

Orion Infusion Pharmaceuticals & Chemicals Weighted Average CostGlaxo SmithKline Pharmaceuticals & Chemicals Lower of cost and net realizable valueThe Ibn Sina Pharmaceuticals & Chemicals Lower of cost and net realizable valueACI Limited Pharmaceuticals & Chemicals Lower of cost and net realizable value

Kohinoor Chemical Pharmaceuticals & Chemicals Lower of cost and net realizable valueEastern Housing Services & Real Estate Lower of cost and net realizable value

OCL Services & Real Estate FIFOSummit Alliance Services & Real Estate FIFOBata Shoe Tannery Industries   FIFOSamata Leather Tannery Industries   FIFO

Apex Footwear Ltd Tannery Industries   Lower of cost and net realizable value

Apex Tannery Tannery Industries   Weighted Average CostSaiham Textile Textile Lower of cost and net weighted average costApex Spining Textile Lower of cost and net realizable value

Mithun Knitting Textile Weighted Average CostPrime textile Textile Weighted Average CostBangladesh Dyeing Textile Weighted Average CostDesh Garmants Textile Lower of cost and net realizable valueMonno Fabrics Textile Average costBeximco Denims Textile Lower of cost and net realizable value

H.R.Textile Textile Lower of cost and net weighted average costBeximco Knitting Textile Lower of cost and net realizable valueSquare Textile Textile Lower of cost and net realizable valueTallu Spinning  Textile Lower of cost and net realizable value

Rahim Textile Textile Weighted Average CostAl-Haj Textile Textile Lower of cost and net realizable value

Quasem Silk Textile Weighted Average Cost

I n ven to r y C o sti n g M eth o d U sed b y C o m p a n i es f r o m D i ff er en t I n d u str i es o f

B a n gl a d esh

50%

21.43%

11.43%

1.43%

7.14%

4.29%

1.43%

1.43%

Lo w e r o f c o st a n d n e tre a liza b le v a lu e

W e ig h te d A v e ra g e C o st

FIFO

N e t Re a liza b le V a lu e

Lo w e r o f c o st a n d n e tw e ig h te d a v e ra g e c o st

A t C o st

A t Sta n d a rd C o st

A v e ra g e c o st

From our analysis on Inventory valuation method used by companies in Bangladesh, we can state that the majority of the companies (about 50%) in Bangladesh use lower of cost and net realizable value method. 21.43% of the companies uses weighted average cost method to measure inventory cost. FIFO method was used by almost 11% companies. Rest of the companies uses Net Realizable Value, Lower of cost and net weighted average cost, At Cost, At Standard Cost, Average cost method with smaller percentages.

In this analysis, we found that Bank, Financial Institutions, and Insurance industries do not included inventory costing technique they used in their annual report as these are the

service industries which do not deals with inventory for further production. However, two (2) of the insurance companies mentioned about their inventory costing method.

Interestingly, Last-in-first-out (LIFO), one of the popular methods was not used by a single company of our interest.

Next, some of the companies use two or more methods for different inventory accounts. They do so because inventories are usually unusual in nature and within a company there can be various types of inventories that are required. Lastly, it was found from our observations that the majority of the companies of an industry follow same methods for inventory costing.

* Separate pie chart showing Inventory Valuation method used by different industries are provided in the appendix.

Recommendation

As all of these three methods are accepted by GAAP, therefore companies can use one or multiple techniques. But they should be careful while choosing the most suitable method for a particular inventory. Different methods may also be useful for the company as a whole. For ex- when input prices are rising, LIFO shows the lowest profit and FIFO the highest. So, company may use FIFO when price is increasing to show higher profit. Similarly, when prices are rising, FIFO gives the best measure of the cost of the ending inventory at current prices. However if a company try to reduce its tax payment in this situation, it should follow LIFO because LIFO results in the lowest income taxes. Companies should not bother to stick with one method of inventory calculation, they should regularly check whether the selected approach is working best or not, if necessary then they should carefully change the valuation technique.

Conclusion

Inventory valuation is important tool to determine the cost of inventory. As different methods produces different results so companies use these methods interchangeably. Although they are conscious while choosing suitable method for their inventory but they also try to follow other companies of a same industry. Different methodology can be applicable for different purposes so companies should dedicate its effort to choose the best alternative.

Recent News Analysis

“Price Sensitive Information”

An article published in The Financial Express on Monday, April 12, 2010 about the 37th Annual General Meeting (AGM) of Berger Paints Bangladesh Ltd. This article was published to announce the date, time, and venue of the 37th AGM.

The report states on the company’s declaration of dividends. The company declared 150% cash dividend for the year ended 31st December, 2009.

According to the report, the Director and the secretary of the company Abdul Khalek, FCA announces the 37th AGM and dividend on behalf of Board of Directors in its 129th

meeting.

Furthermore, this article also states net asset value, net asset value per share, earning per share and net operating cash flow per share (NOCFPS).

This report shows that the company recently declared the 150 percent cash dividends for the recent past fiscal year and the shareholders who are entitled to receive the dividend are invited in AGM.

Part A – Background

Question 1 – Where is the company incorporated? Where are its primary locations?Answer:

The Company was incorporated on 6 June 1973 as a ‘Private' Company limited by Shares registered under the Companies Act. Subsequently the Company converted to ‘Public’ Company limited by shares vide extra ordinary general meeting held on 21 June 2005 and is listed both in Dhaka and Chittagong Stock Exchanges of Bangladesh. In December 2005, the company issued 5% shares to the public and listed with Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE).

The registered office of the Company is located at 43/3 Chatteswari Road, Chittagong. The Corporate office was shifted to Berger House, Plot No-8, Road No-2, Sector-3, Uttara, Dhaka on 1 January 2003.

Berger Paints Bangladesh has two factories and two plants in Bangladesh. Dhaka factory is located at Mouja – Taksur, Nabinagar, Savar, Dhaka. The state-of-the-art Dhaka factory is an addition to Berger's capacity, making it the paint giant in Bangladesh. Chittagong Factory is situated at 27-D, FIDC Road, Kalurghat Heavy Industrial Area, Chittagong-4212. Powder Coating Plant and Emulsion Plant aboth are located at Mouja – Taksur, Nabinagar, Savar, Dhaka.

The nationwide dealer network, supported by seven (7) sales depots strategically located at Dhaka, Chittagong, Rajshahi, Khulna, Bogra, Sylhet and Comilla has enabled them to strategically cater to all parts of the country.

Question 2 – Describe the nature of its business, primary products etc.Answer:

The principal activities of the Company throughout the year continued to be manufacturing and marketing of liquid and non-liquid paints & varnishes, emulsion and coating. Berger Paints Bangladesh Ltd. owns 100% shares of Jenson & Nicholson (Bangladesh) Limited – J & N (B) L. The principal activities of the Company until 12 August 1995 were trading & indenting. It has started production and marketing of tin containers and printing of tin sheets from 12 August 1995 and 1 September 1997 respectively in its factory at 70 East Nasirabad Industrial Area, Chittagong.

The product range includes specialized outdoor paints to protect against adverse weather conditions. Color Bank, superior Marine Paints, Textured Coatings, Heat Resistant Paints, Roofing Compounds, Epoxies and Powder Coatings. In each of these product categories, Berger has been the pioneer. Berger also provides customer support connecting consumers to technology through specialized Home Decor service giving free technical advice on surface preparation, colour consultancy, special colour schemes etc.

To bolster customer satisfaction, Berger launched Illusion-the first designer paint solution. The Company also launched Innova wood Coating and PowerBond adhesive to cater the needs of the customers.

Question 3 – What is the primary focus of the company’s management letter in the current year?Answer:

Primary focus of the company’s management letter in the current year was the successful performance over last year and affirming the target for future growth. The letter states that the company diversified to a number of new frontiers in the last financial year. Berger introduces vehicle re-finish brands like NEXA auto color, Bilux, and V-fleet.

In the decorative paint segment, Radiance interior Emulsion was launched.

To cater the growing demand in textile industry, in November 2009 Berger launched TexBond PB and TexBond FA as the import substitute printing binder (PB) and finishing agent (FA).

The letter entail, all the new products had been able to position themselves in the desired market segment and were gradually increasing their market shares.

The letter also ensures that Berger will remain focused on core business and organic growth, constant search for new products and business diversification will be there.