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Shasun Pharmaceuticals Ltd. Accounting Policies | Accounting Policy of Shasun Pharmaceuticals Ltd.
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Accounting Policies of Shasun Pharmaceuticals Ltd. Company

Mar 31, 2013

1.1 Basis of preparation of financial statements

The financial statements have been prepared and presented in accordance with Indian Generally Accepted Accounting Principles (GAAP) under the historical cost convention using the accrual basis. GAAP comprises accounting standards notified by the Central Government of India under Section 211(3C) of the Companies Act, 1956 other pronouncements of Institute of Chartered Accountants of India, the provisions of Companies Act, 1956 and guidelines issued by Securities and Exchange Board of India (SEBI).

1.2 Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in India requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities on the date of the financial statements. Management believes that the estimates made in the preparation of financial statements are prudent and reasonable. Actual results could differ from those estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.

1.3 Tangible assets, intangible assets, depreciation and amortization

Tangible assets are stated at cost of acquisition or construction, less accumulated depreciation. Cost includes inward freight, duties, taxes and incidental expenses related to acquisition and installation of the asset. Borrowing costs directly attributable to acquisition or construction of tangible assets, which necessarily take a substantial period of time to be ready for their intended use, are capitalized.

Depreciation on tangible assets is provided using the straight-line method at the rates specified in schedule XIV to the Companies Act, 1956 or based on the useful lives of the assets as estimated by the management, whichever is higher. The management''s estimates of the useful lives for various categories of tangible assets are given below:

Depreciation is charged on pro-rata basis for assets purchased / sold during the year. Individual assets costing less than Rs. 5,000/- are depreciated at 100%.

Intangible assets are recorded at the consideration paid for acquisition and are amortized over their estimated useful lives ranging from 3 to 5 years on a straight-line basis, commencing from the date the asset is available to the Company for its use.

The cost of assets not ready to be put to use before the yearend is disclosed under capital work in progress.

1.4 Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount (higher of net realizable value and value in use) of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than the carrying amount, the carrying amount is reduced to its recoverable amount.

The reduction is treated as an impairment loss and is recognized in the Statement of profit and loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciable historical cost.

1.5 Revenue recognition

Revenue from sale of goods is recognised when significant risks and rewards in respect of ownership of products are transferred to customers. Revenue from sale of goods is recognised in case of exports on the date of the bill of lading or airway bill which coincides with transfer of significant risks and rewards to customer and is net of trade discounts, sales returns and sales tax, where applicable. Revenue from domestic sales is primarily recognized on dispatch basis.

Service income is recognised as per the terms of contracts with customers when the related services are performed, or when the agreed milestones are achieved. Upfront non-refundable payments received under these arrangements are deferred and recognized as revenue over the expected period over which the related services are expected to be performed.

Dividend income is recognised when the unconditional right to receive the income is established.

Income from interest on deposits and loans is recognised on the time proportionate basis.

Export entitlements are recognised as income when the right to receive credit as per the terms of the scheme is established in respect of the exports made and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds.

1.6 Leases

Leases under which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Such assets are capitalized at fair value of the assets or present value of the minimum lease payments at the inception of the lease, whichever is lower.

Lease payments are apportioned between finance charges and reduction of the lease liability at the implicit rate of return. Finance charges are charged to the Statement of profit and loss.

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased items are classified as operating leases. Operating lease payments are recognised as an expense in the Statement of profit and loss on a straight line basis over the period of the lease or as and when the payments are made over the lease term.

1.7 Investments

Investments that are readily realizable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long-term investments.

Current investments are carried at the lower of cost and fair value. Long-term investments are carried at cost and provisions are recorded to recognize any decline, other than temporary, in the carrying value of each investment.

1.8 Inventories

Raw and packaging materials, stores and spare parts and lab chemicals are carried at cost. Cost includes purchase price (excluding those subsequently recoverable by the enterprise from the concerned revenue authorities), freight inwards and other expenditure incurred in bringing such inventories to their present location and condition. In determining the cost, weighted average cost method is used.

The carrying cost of raw and packing materials, stores and spare parts and lab chemicals are appropriately written down when there is a decline in replacement cost of such materials and finished products in which they will be incorporated are expected to be sold below cost.

Work in progress, manufactured finished goods and traded goods are valued at the lower of cost and net realizable value. The comparison of cost and net realizable value is made on an item by item basis. Cost of work in progress and manufactured finished goods is determined on a weighted average basis and comprises direct material, cost of conversion and other costs incurred in bringing these inventories to their present location and condition. Cost of traded goods is determined on weighted average basis.

The excise duty in respect of closing inventory of finished goods is included as part of inventory.

1.9 Employee benefits

The Company''s contribution in respect to Provident fund, Employees'' state insurance scheme, Pension fund and other defined contribution plans are charged to the Statement of profit and loss when incurred. The Company has no further obligation other than the monthly contributions to these funds.

Gratuity costs with respect to defined benefit schemes are accrued based on actuarial valuation, carried out by an independent actuary as at the balance sheet date. The contributions are made to approved ''Shasun Chemicals Employees Gratuity Trust Fund''. Liabilities are determined by actuarial valuation using projected unit credit method carried out by an independent actuary as at the balance sheet date.

Provision for compensated absences is made on the basis of actuarial valuation as at the balance sheet date by an independent actuary using projected unit credit method.

Under the superannuation scheme, a defined contribution plan, the Company pays fixed contributions to approved superannuation trust and has no obligation to pay further amounts. Such fixed contributions are charged to the Statement of profit and loss on accrual basis.

All actuarial gains and losses arising during the year are recognized immediately in the Statement of profit and loss.

1.10 Foreign currency transactions and derivative instruments

Foreign currency transactions are recorded using the exchange rates prevailing on the dates of the respective transactions. Exchange differences arising on foreign currency transactions settled during the year are recognised in the Statement of profit and loss.

Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date, not covered by forward exchange contracts, are translated at year-end rates. The resultant exchange differences are recognised in the Statement of profit and loss. Non-monetary assets are recorded at the rates prevailing on the date of the transaction.

Income and expenditure items at representative offices are translated at the respective monthly average rates. Monetary assets at representative offices at the balance sheet date are translated using the year-end rates. Non-monetary assets are recorded at the rates prevailing on the date of the transaction.

Forward contracts are entered into to hedge the foreign currency risk of the underlying outstanding at the balance sheet date. The premium or discount on all such contracts is amortized as income or expense over the life of the contract. Any profit or loss arising on the cancellation or renewal of forward contracts is recognised as income or expense for the period.

In relation to the forward contracts entered into to hedge the foreign currency risk of the underlying outstanding at the balance sheet date, the exchange difference is calculated and recorded in accordance with AS-11 (revised). The exchange difference on such a forward exchange contract is calculated as the difference of the foreign currency amount of the contract translated at the exchange rate at the reporting date, or the settlement date where the transaction is settled during the reporting period and the corresponding foreign currency amount translated at the later of the date of inception of the forward exchange contract and the last reporting date. Such exchange differences are recognized in the Statement of profit and loss in the reporting period in which the exchange rates change.

Pursuant to the notification of the Ministry of Corporate Affairs issued on December 29, 2011, the Company has decided to exercise the irrevocable option granted under the said notification. Accordingly, the exchange fluctuations on all long term monetary items so far as they relate to the acquisition of a depreciable capital asset, are added to or deducted from the cost of the asset and are depreciated over the balance life of such assets. In cases other than those falling under above are accumulated in ''Foreign Currency Monetary Item Translation Difference Account'' (FCMITDA), grouped under Reserves and Surplus, and amortized over the balance period of long-term monetary asset/liability but not beyond March 31, 2020.

In accordance with the announcement of ''Accounting for Derivatives” made by the Institute of Chartered Accountants of India (''ICAI'') on March 29, 2008, derivatives are marked to market and the changes in the value of such derivatives, to the extent they reflect a loss, are recognized in Statement of profit or loss.

1.11 Research and development

Research costs are expensed as and when incurred. Development expenditure is capitalized based on technical feasibility for each project and where future recoverability can reasonably be assured through probable future economic benefits.

The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use, and otherwise when events or changes in circumstances indicate that the carrying value may not be recoverable.

Materials identified for use in research and development process are carried as inventories and charged to Statement of profit and loss on issuance of such materials for research activities.

1.12 Taxation

Income tax expense comprises current tax (i.e. amount of tax for the year determined in accordance with the income tax law) and deferred tax charge or credit (reflecting the tax effects of the timing differences between accounting income and taxable income for the year). The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future; however, where there is unabsorbed depreciation or carry forward of losses under taxation laws, deferred tax assets are recognized only if there is virtual certainty of realization of such assets. Deferred tax assets are reviewed at each balance sheet date and written down or written up to reflect the amount that is reasonably and virtually certain respectively to be realized.

Minimum Alternate Tax (''MAT”) paid in accordance with tax laws, which gives rise to future economic benefits in the form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the company would pay normal income tax after tax holiday period and accordingly, MAT is recognized as an asset in the balance sheet when it is probable that the future economic benefit associated with it will flow to the company and the asset can be measured reliably. MAT credit entitlement is reviewed at each balance sheet date and written down to the extent there is no convincing evidence to the effect that the Company will pay normal income tax during the specified period.

1.13 Earnings per share

Basic earnings per share is computed by dividing net profit or loss for the period attributable to equity shareholders by the weighted average number of shares outstanding during the year. Diluted earnings per share amounts are computed after adjusting the effects of all dilutive potential equity shares. The number of shares used in computing diluted earnings per share comprises the weighted average number of shares considered for deriving basic earnings per share, and also the weighted average number of equity shares, which could have been issued on the conversion of all dilutive potential shares. In computing dilutive earnings per share, only potential equity shares that are dilutive and that decrease profit per share are included.

1.14 Employee stock option based compensation

The Company calculates the compensation cost based on the intrinsic value method wherein the excess of value of underlying equity shares as of the date of the grant of options over the exercise price of the options given to employees under the employee stock option schemes of the Company is amortised over the vesting period on a straight line basis. The Company follows the SEBI guidelines for accounting of employee stock options.

1.15 Cash flows

Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows operating, financing and investing activities of the Company are segregated.

1.16 Provisions, Contingent liabilities and Contingent assets

The Company creates a provision when there is present obligation as a result of past events that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Contingent assets are neither recognised nor disclosed in the financial statements.


Mar 31, 2012

1.1 Basis of preparation of financial statements

The financial statements have been prepared and presented in accordance with Indian Generally Accepted Accounting Principles (GAAP) under the historical cost convention using the accrual basis. GAAP comprises accounting standards notified by the Central Government of India under Section 211(3C) of the Companies Act, other pronouncements of Institute of Chartered Accountants of India, the provisions of Companies Act, 1956 and guidelines issued by Securities and Exchange Board of India (SEBI).

During the year ended March 31, 2012, the revised Schedule VI notified under the Companies Act, 1956 has become applicable to the Company for preparation and presentation of its financial statements. The adoption of revised Schedule VI does not impact recognition and measurement principles followed for preparation of financial statements. However, it has significant impact on presentation and disclosures made in the financial statements. The Company has also reclassified the previous year figures in accordance with the requirements applicable in the current year.

1.2 Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in India requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities on the date of the financial statements. Management believes that the estimates made in the preparation of financial statements are prudent and reasonable. Actual results could differ from those estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.

1.3 Fixed assets, intangible assets, depreciation and amortization

Fixed assets are stated at cost of acquisition or construction, less accumulated depreciation. Cost includes inward freight, duties, taxes and incidental expenses related to acquisition and installation of the asset. Borrowing costs directly attributable to acquisition or construction of fixed assets, which necessarily take a substantial period of time to be ready for their intended use, are capitalized.

Depreciation on fixed assets is provided using the straight-line method at the rates specified in schedule XIV to the Companies Act, 1956 or based on the useful lives of the assets as estimated by the management, whichever is higher. The management's estimates of the useful lives for various categories of fixed assets are given below:

Depreciation is charged on pro-rata basis for assets purchased / sold during the year. Individual assets costing less than Rs. 5,000/- are depreciated at 100%.

Intangible assets are recorded at the consideration paid for acquisition and are amortized over their estimated useful lives ranging from 3 to 5 years on a straight-line basis, commencing from the date the asset is available to the Company for its use.

The cost of assets not ready to be put to use before the year-end are disclosed under capital work-in-progress.

1.4 Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount (higher of net realizable value and value in use) of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than the carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the Statement of profit and loss. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciable historical cost.

1.5 Revenue recognition

Revenue from sale of goods is recognised when significant risks and rewards in respect of ownership of products are transferred to customers. Revenue from sale of goods is recognised in case of exports on the date of the bill of lading or airway bill which coincides with transfer of significant risks and rewards to customer and is net of trade discounts, sales returns and sales tax, where applicable. Revenue from domestic sales is primarily recognized on dispatch basis.

Service income is recognised as per the terms of contracts with customers when the related services are performed, or when the agreed milestones are achieved. Upfront non-refundable payments received under these arrangements are deferred and recognized as revenue over the expected period over which the related services are expected to be performed.

Dividend income is recognised when the unconditional right to receive the income is established.

Income from interest on deposits and loans is recognised on the time proportionate basis.

Export entitlements are recognised as income when the right to receive credit as per the terms of the scheme is established in respect of the exports made and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds.

1.6 Leases

Leases under which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Such assets are capitalized at fair value of the assets or present value of the minimum lease payments at the inception of the lease, whichever is lower.

Lease payments are apportioned between finance charges and reduction of the lease liability at the implicit rate of return. Finance charges are charged to the Statement of profit and loss.

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased items are classified as operating leases. Operating lease payments are recognised as an expense in the Statement of profit and loss on a straight line basis over the period of the lease or as and when the payments are made over the lease term.

1.7 Investments

Investments that are readily realizable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long-term investments.

Current investments are carried at the lower of cost and fair value. Long-term investments are carried at cost and provisions are recorded to recognize any decline, other than temporary, in the carrying value of each investment.

1.8 Inventories

Raw and packaging materials, stores and spare parts and lab chemicals are carried at cost. Cost includes purchase price (excluding those subsequently recoverable by the enterprise from the concerned revenue authorities), freight inwards and other expenditure incurred in bringing such inventories to their present location and condition. In determining the cost, weighted average cost method is used.

The carrying cost of raw and packing materials, stores and spare parts and lab chemicals are appropriately written down when there is a decline in replacement cost of such materials and finished products in which they will be incorporated are expected to be sold below cost.

Work in progress, manufactured finished goods and traded goods are valued at the lower of cost and net realizable value. The comparison of cost and net realizable value is made on an item by item basis. Cost of work in progress and manufactured finished goods is determined on a weighted average basis and comprises direct material, cost of conversion and other costs incurred in bringing these inventories to their present location and condition. Cost of traded goods is determined on weighted average basis.

The excise duty in respect of closing inventory of finished goods is included as part of inventory.

1.9 Employee benefits

The Company's contribution in respect to Provident fund, Employees' state insurance scheme, Pension fund and defined contribution plans are charged to the Statement of profit and loss when incurred.

Gratuity costs with respect to defined benefit schemes are accrued based on actuarial valuation, carried out by an independent actuary as at the balance sheet date. The contributions are made to approved 'Shasun Chemicals Employees Gratuity Trust Fund'. Liabilities are determined by actuarial valuation using projected unit credit method carried out by an independent actuary as at the balance sheet date.

Provision for compensated absences is made on the basis of actuarial valuation as at the balance sheet date by an independent actuary using projected unit credit method.

Under the superannuation scheme, a defined contribution plan, the Company pays fixed contributions to approved superannuation trust and has no obligation to pay further amounts. Such fixed contributions are charged to the Statement of profit and loss on accrual basis.

All actuarial gains and losses arising during the year are recognized in the Statement of profit and loss of the year.

1.10 Foreign currency transactions and derivative instruments

Foreign currency transactions are recorded using the exchange rates prevailing on the dates of the respective transactions. Exchange differences arising on foreign currency transactions settled during the year are recognised in the Statement of profit and loss.

Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date, not covered by forward exchange contracts, are translated at year-end rates. The resultant exchange differences are recognised in the Statement of profit and loss. Non-monetary assets are recorded at the rates prevailing on the date of the transaction.

Income and expenditure items at representative offices are translated at the respective monthly average rates. Monetary assets and liabilities at representative offices as at the balance sheet date are translated using the year-end rates. Non- monetary assets and liabilities are recorded at the rates prevailing on the date of the transaction.

Forward contracts are entered into to hedge the foreign currency risk of the underlying outstanding as at the balance sheet date. The premium or discount on all such contracts is amortized as income or expense over the life of the contract. Any profit or loss arising on the cancellation or renewal of forward contracts is recognised as income or expense for the period.

In relation to the forward contracts entered into to hedge the foreign currency risk of the underlying outstanding as at the balance sheet date, the exchange difference is calculated and recorded in accordance with AS-11 (revised). The exchange difference on such a forward exchange contract is calculated as the difference of the foreign currency amount of the contract translated at the exchange rate at the reporting date, or the settlement date where the transaction is settled during the reporting period and the corresponding foreign currency amount translated at the later of the date of inception of the forward exchange contract and the last reporting date. Such exchange differences are recognized in the Statement of profit and loss in the reporting period in which the exchange rates change.

Pursuant to the notification of the Ministry of Corporate Affairs issued on December 29, 2011, the Company has decided to exercise the irrevocable option granted under the said notification. Accordingly, the exchange fluctuations on all long term foreign currency monetary items:

a. So far as they relate to the acquisition of a depreciable capital asset, are added to or deducted from the cost of the asset and are depreciated over the balance life of such assets. Pursuant to this change, the profit after tax for the year, reserves and surplus and net fixed assets (including capital work-in-progress) are higher by Rs. 12.63.

b. In cases other than those falling under (a) above are accumulated in 'Foreign Currency Monetary Item Translation Difference Account' (FCMITDA) and amortized over the balance period of long-term monetary asset/liability but not beyond March 31, 2020. Pursuant to this change, the profit after tax for the year, reserves and surplus and other current and non-current assets are higher by Rs. 9.95.

In accordance with the announcement of "Accounting for Derivatives" made by the Institute of Chartered Accountants of India ('ICAI') on 29 March 2008, derivatives are marked to market and the changes in the value of such derivatives, to the extent they reflect a loss, are recognized in Statement of profit and loss.

1.11 Research and development

Revenue expenditure on research and development is expensed under the respective heads of account in the year in which it is incurred. Capital expenditure incurred on research and development is capitalised as fixed assets and depreciated in accordance with the Company's policy.

Materials identified for use in research and development process are carried as inventories and charged to Statement of profit and loss on issuance of such materials for research and development activities.

1.12 Taxation

Income tax expense comprises current tax (i.e. amount of tax for the year determined in accordance with the income tax law) and deferred tax charge or credit (reflecting the tax effects of the timing differences between accounting income and taxable income for the year). The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future; however, where there is unabsorbed depreciation or carry forward of losses under taxation laws, deferred tax assets are recognized only if there is virtual certainty of realization of such assets. Deferred tax assets are reviewed at each balance sheet date and written down or written up to reflect the amount that is reasonably and virtually certain respectively to be realized.

Minimum Alternate Tax ("MAT") paid in accordance with tax laws, which gives rise to future economic benefits in the form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the company would pay normal income tax after tax holiday period and accordingly, MAT is recognized as an asset in the balance sheet when it is probable that the future economic benefit associated with it will flow to the company and the asset can be measured reliably. MAT credit entitlement is reviewed at each balance sheet date and written down to the extent there is no convincing evidence to the effect that the Company will pay normal income tax during the specified period.

1.13 Earnings per share

Basic earnings per share is computed by dividing net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed after adjusting the effects of all dilutive potential equity shares. The number of shares used in computing diluted earnings per share comprises the weighted average number of shares considered for deriving basic earnings per share, and also the weighted average number of equity shares, which could have been issued on the conversion of all dilutive potential shares. In computing dilutive earnings per share, only potential equity shares that are dilutive and that decrease profit per share are included.

1.14 Employee stock option based compensation

The Company calculates the compensation cost based on the intrinsic value method wherein the excess of value of underlying equity shares as of the date of the grant of options over the exercise price of the options given to employees under the employee stock option schemes of the Company is amortised over the vesting period on a straight line basis. The Company follows the SEBI guidelines for accounting of employee stock options.

1.15 Cash flows

Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, financing and investing activities of the Company are segregated.

1.16 Provisions, Contingent liabilities and Contingent assets

The Company creates a provision when there is present obligation as a result of past events that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Contingent assets are neither recognised nor disclosed in the financial statements.

 
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