KENYA - Kenya Seed Company subsidiaries in the neighbouring Tanzania and Uganda are in deep losses, which could affect their long-term viability, Auditor General Edward Ouko has warned.
The auditor in a report says Kibo Seed Company (Tanzania) has a net current liability of Sh21.4 million and accumulated loses of Sh9.5 million.
Mount Elgon Seed Company (Uganda) has a net liability of Sh154 million while Simlaw Seeds Company Uganda reported a net liability of Sh45.5 million as at June 30, 2014.
Mr Ouko said Simlaw Seeds Company Tanzania has continued to make loses which have accumulated to Sh500,000.
“The continued operation of these subsidiaries as going concerns is thus dependent upon continued financial support from parent company, creditors and their bankers,” Mr Ouko says in the seed company’s books of accounts for the financial year 2014.
Mr Ouko says the financial statements indicate that there is a claim pending in an arbitration process filed by a former contractor for alleged unlawful termination of a contract in which the aggrieved is seeking compensation of Sh786 million.
“The directors, having taken the advice of the legal advisors, are of the opinion that no liabilities will crystalise and therefore no provision have been made for the amount in the financial statements,” the report says.
Mr Ouko drew the attention of the company’s management to the financial statements, which indicate that there is a dispute regarding ownership of Kenya Seed Company.
“A suit was filed in court in 2005 by the agricultural Development Corporation, being major shareholders of the company against the former company’s directors. The matter is still pending in court,” says Mr Ouko.
He also raises concern over the valuation of the company’s land and buildings. Mr Ouko said Kenya Seed company financial statements reflect freehold land and buildings totaling Sh1,613,321,000 at cost or valuation.
“Further, records availed for audit review indicated that in the year 2008, a consultant was engaged to revalue the company’s assets in line with international accounting standards whereby land and buildings were valued at Sh1,570,489,000 and Sh1,539,001,000 respectively.”
Mr Ouko however notes that Kenya Seed adopted a conservative cost of Sh1,513,454,000 resulting in undervaluation of Sh1,513,366,000 on land and buildings.
“In the circumstances, the group property, plant and equipment bet book value of Sh1,887,366,000 is understated by an amount of Sh1,513,454,000 as at June 30, 2014,” Mr Ouko said.