NOTES SALES Sales include Rs 668,787 thousand (2010: Rs 4,503,757 thousand) in respect of sale of purchased fertilizers and are

exclusive of trade allowances and sales tax of Rs Nil and Rs 7,431,849 thousand respectively (2010: Rs 1,053,250 thousand and Rs Nil respectively). CGS: These include operating lease rentals amounting to Rs 48,967 thousand (2010: Rs 58,472 thousand). This includes provision for slow moving spares amounting to Rs 36,772 thousand (2010: Rs 32,958 thousand). Cost of purchased fertilizer is net of subsidy of Rs Nil per bag (2010: Rs 500 per bag) on potassic and phosphatic fertilizers as notified by the Ministry of Food, Agriculture and Live Stock, Government of Pakistan. Investment in associate at cost Investment in associate represents 93,750 thousand fully paid ordinary shares of Rs 10 each representing 6.79% of FCCL share capital as at December 31, 2011. Market value of the Companys investment as at December 31, 2011 was Rs 309,375 thousand (December 31, 2010 was Rs 470,625 thousand). The recoverable amount of the investment in Fauji Cement Company Limited was tested for impairment based on value in use, in accordance with IAS - 36 Impairment of Assets. The value in use calculations are based on cash flow projections. These are then extrapolated for a period of 5 years using a steady long term expected demand growth of 3% and terminal value determined based on long term earning multiples. The cash flows are discounted using applicable discount rate. Based on this calculation, no impairment is required to be accounted for against the carrying amount of investment. The Company is committed not to dispose off its investment in FCCL so long as the loan extended to FCCL by The Royal Bank of Scotland Limited, remains outstanding or without prior consent of FCCL. Investment in joint venture at cost The Company has 12.5% equity participation in PMP, amounting to Moroccan Dirhams (MAD) 100,000 thousand equivalent to Rs 705,925 thousand. PMP is a joint venture between the Company, Fauji Foundation, FFBL and Officie Cherifien Des Phosphates, Morocco. The principal activity of PMP is to manufacture and market Phosphoric acid, fertilizer and other related products in Morocco and abroad.

According to the Shareholders agreement, if any legal restriction is laid on dividends by PMP, the investment will be converted to interest bearing loan. The Company has also committed not to pledge shares of PMP without prior consent of PMPs lenders. Investment in FFBL at cost Investment in FFBL represents 475,233 thousand fully paid ordinary shares of Rs 10 each representing 50.88% of FFBLs share capital as at December 31, 2011. Market value of the Companys investment as at December 31, 2011 was Rs 20,165,069 thousand (2010: Rs 16,980,075 thousand). Investment in FFCEL - at cost Investment in FFCEL represents 145,000 thousand fully paid shares of Rs 10 each. FFCEL has been incorporated for the purpose of implementing a project comprising the establishment and operation of wind power generation facility and the supply of electricity. Under the terms of project financing agreements with the lender, the Company is committed to contribute further amounts aggregating upto Rs 1,558,500 thousand in the event of cost over-runs during the construction phase of the project of FFCEL. The Company currently holds 100% shareholding interest in FFCEL, out of which 70,000 shares amounting to Rs 700 thousand are held in the name of seven nominee directors of the Company in FFCEL. As at December 31, 2011, 58,650 thousand shares of FFCEL are pledged as security under project financing agreements. All present and future movable and fixed assets excluding immovable properties, land and buildings of the Company are secured against guarantees given by the banks in favour of National Transmission and Despatch Company amounting to USD 1,732,500 on behalf of FFCEL. Investments available for sale Certificates of Investment (COI) These represent placements in certificates of investment of a financial institution for periods ranging from one to five years at profit rates ranging from 8.1% to 14.18% per annum (2010: 8.1% to 14.18% per annum). Pakistan Investment Bonds (PIBs) PIBs with 3, 5, 7 and 10 years tenure were purchased and are due to mature within a period of 4 years. Profit is receivable on half yearly basis with coupon rates ranging from 8% to 11.75% per annum (2010: 11% to 14% per annum). These PIBs have face value of Rs 164 million and PIBs with face value of Rs 100 million are under lien of a bank against loan for capital expenditure requirements.

Term Finance Certificates (TFCs) These include 4,992 & 20,000 certificates of Rs 5,000 each of Pakistan Mobile Communications Limited and Engro Chemicals Pakistan Limited respectively. Profit is receivable on half yearly basis at the rate of six months KIBOR + 2.85% and 1.55% per annum respectively. These represent investments having maturities ranging between 1 to 12 months and are being carried at cost as management expects there would be insignificant difference in the rate of returns on comparative investments. Term Deposits amounting to Rs1,450,000 thousand (2010: Rs Nil) are under lien of an islamic financial institution in respect of Istisna facility availed. Balances with banks include Rs 180,825 thousand (2010: Rs 171,047 thousand) in respect of security deposits received. Local currency deposit accounts include Rs 17,192 thousand (2010: Rs 17,192 thousand) under lien of a bank, against a guarantee issued on behalf of the Company. Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Provision for current taxation is based on taxable income at the applicable rates of taxation after taking into account tax credits and tax rebates, if any. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is not recognised for the temporary differences arising on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences arising on the initial recognition of goodwill. Deferred tax is calculated at the rates that are expected to apply to the period when the differences reverse, based on tax rates that have been enacted. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised

simultaneously. The Company takes into account the current income tax law and decisions taken by the taxation authorities. Instances where the Companys views differ from the income tax department at the assessment stage and where the Company considers that its view on items of material nature is in accordance with law, the amounts are shown as contingent liabilities. Property, plant and equipment and capital work in progress Property, plant and equipment including those acquired on PSFL acquisition, are stated at cost less accumulated depreciation and impairment losses, if any except freehold land and capital work in progress, which are stated at cost less impairment losses, if any. Cost comprises acquisition and other directly attributable costs. Property, plant and equipment acquired on PSFL acquisition are stated at their cost to the Company, which represents their fair value on acquisition, less accumulated depreciation. Depreciation is provided on a straight-line basis and charged to profit and loss account to write off the depreciable amount of each asset over its estimated useful life at the rates specified in note 14. Depreciation on addition in property, plant and equipment is charged from the date when the asset becomes available for use upto the date of its disposal. The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognised, if any. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised in profit and loss account. The Company reviews the useful life and residual value of property, plant and equipment on a regular basis. Any change in estimates in future years might affect the carrying amounts of the respective items of property, plant and equipment with a corresponding effect on depreciation charge. The carrying amount of the Companys assets is reviewed at each balance sheet date to determine whether there is any indication of impairment. If such indications exist, the assets recoverable amount is estimated in order to determine the extent of the impairment loss, if any. Impairment loss is recognised as expense in the profit and loss account. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount

that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. For non-financial assets and available-for-sale financial assets that are debt securities, the reversal is recognised in profit and loss account. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in statement of comprehensive income. Goodwill On acquisition of an entity, excess of the purchase consideration over the fair value of the identifiable assets and liabilities acquired is initially recognised as goodwill and thereafter tested for impairment annually. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment. Subsequent to the initial recognition goodwill is recognised at cost less impairment, if any.