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Notes to Accounts of Sun Pharma Advanced Research Company Ltd.

Mar 31, 2014

1 Contingent Liabilities and Commitments (to the extent not provided for)

Rs. in Thousand

As at As at 31st March, 2014 31st March, 2013

i Contingent Liabilities

Guarantees given by the bankers against Advance License Scheme 43,020 52,651

ii Commitments

Estimated amount of contracts remaining to be executed on capital 10,455 1,023 account and not provided for

2 Status of Utilisation of rights issue proceeds:

Given the highly unpredictable nature of the Company''s business of Pharmaceutical Research and Development, the actual utilisation of the funds varies from the projections.

** temporarily invested in Liquid Mutual Funds/Current Account with a Bank/ Inter Corporate Deposits

3 Disclosures relating to Share Capital

i Rights, Preferences and Restrictions attached to Equity Shares

The Company has only one class of shares referred to as equity shares having a par value of Rs. 1 per share. Each holder of equity shares is entitled to one vote per share however no shareholder who has not paid call money on his/her shares shall be entitled to vote either personally or by proxy in respect of any of such partly paid shares.

ii During the previous year, the Company had allotted 29,588,056 equity shares of Rs. 1 each, to its equity shareholders on rights basis in the ratio of 1 equity share of Rs. 1 each for every 7 equity shares of Rs. 1 each held, at a premium of Rs. 66 per equity share. On 60,071 (Previous Year 261,504) equity shares, calls has remained unpaid towards equity shares capital @ Rs.0.40 per equity share aggregating to Rs. 24 Thousand (Previous Year Rs. 105 Thousand) reduced from Share Capital in Note 1 above and towards securities premium @ Rs. 26.60 per equity share aggregating to Rs. 1,598 Thousand (Previous Year Rs. 6,956 Thousand).

4 The timing differences mainly relating to unabsorbed capital expenditure and carried forward losses under the Income Tax Act, 1961, results in a deferred tax asset as per Accounting Standard 22 on "Accountingfor Taxes on Income". Deferred tax asset has been recognised in respect of unabsorbed business losses/ capital expenditure, to the extent that future taxable income will be available from future reversal of any deferred tax liability recognised at the balance sheet date and is restricted to the extent of such liabilities, which management expects to be available aftertax holiday period u/s 80-IB of the Income Tax Act, 1961. As a prudent measure, the excess deferred tax asset (net) of Rs. 412,992 Thousand (Previous Year Rs. 495,642 Thousand) in relation to the above has not been recognised in the accounts as there is no virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised.

5 The net exchange gain / (loss) included under Revenue from Operations, Other Income, Cost of Materials Consumed and Other Expenses in the Statement of Profit and Loss aggregates Rs. 52,364 Thousand (Previous Year (Rs. 99,494 Thousand)).

6 Micro and Small Enterprises has been determined to the extent such parties have been identified on the basis of information available with the Company. This has been relied upon by the auditors.

There is no additional disclosure required to be made in this regard.

7 Accounting Standard (AS-17) on Segment Reporting

i Primary Segment

The Company has identified "Pharmaceuticals Research & Development" as the only primary reportable business segment.

8 As per the best estimate of the management, no provision is required to be made as per Accounting Standard - 29 on "Provisions, Contingent Liabilities and Contingent Assets" in respect of any present obligation as a result of a past event that could lead to probable outflow of resources, which would be required to settle the obligation.

9 Disclosure with respect to Accounting Standards-18 on "Related Party Disclosures" is as perAnnexure- "A" annexed.

10 Accounting Standard (AS-19) on Leases

i The Company has obtained premises for its business operations (including furniture and fittings, therein as applicable) under operating lease or leave and license agreements. These are generally not non-cancellable and range between 11 months to 5 years under leave and license, or longer for the lease and are renewable by mutual consent on mutually agreeable terms.

ii Lease payments are recognised in the Statement of Profit and Loss under "Rent" in Note No. 24

11 Accounting Standard (AS-15) on Employee Benefits

Contributions are made to Government Provident Fund, Family Pension Fund, ESIC and other Statutory Funds which covers all regular employees. While both the employees and the Company make predetermined contributions to the Provident Fund and ESIC, contribution to the Family Pension Fund are made only by the Company. The contributions are normally based on a certain proportion of the employee''s salary. Amount recognised as an expense in respect of these defined contribution plans, aggregate Rs. 16,571 Thousand (Previous Year Rs. 14,286 Thousand).

In respect of Gratuity, Contributions are made to LIC''s Recognised Group Gratuity Fund Scheme based on amount demanded by LIC of India. Provision for Gratuity is based on actuarial valuation done by independent actuary as at the year end. Actuarial Valuation for Compensated Absences is done as at the year end and the provision is made as per Company rules amounting toRs. 21,203 Thousand (Previous Year Rs. 22,075 Thousand) and it covers all regular employees. Major drivers in actuarial assumptions, typically, are years of service and employee compensation. Commitments are actuarially determined using the ''Projected Unit Credit'' method. Gains and Losses on changes in actuarial assumptions are accounted for in the Statement of Profit and Loss.

Category of Plan Assets

The Company''s Plan Assets in respect of Gratuity are funded through the Group Schemes of the Life Insurance Corporation of India.

The estimate of future salary increases, considered in the actuarial valuation, takes into account inflation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market.

Contribution expected to be made by the Company duringfinancial year end ing31st March, 2015 isRs. 6,897 Thousand (Previous Year Rs. 22,613 Thousand) as per premium intimation received from LIC of India.

12 The managerial remuneration to the extent of Rs. 19,966 Thousand is in excess of the limits approved by the Central Government. In this regard, the Company has made further representations to the Central Government providing the rationale for increase in the remuneration, the response in respect of which is awaited. In case the requisite approval is not received from the Central Government, the excess remuneration paid would be recovered from the Whole-time Director.

13 Previous year''s figure have been regrouped/ reclassified wherever necessary to correspond with the current year''s classification/ disclosure.

Accounting Standard (AS-18) " Related Party Disclosures "

Names of related parties and description of relationship

1. Key Management Personnel

Mr. Dilip S. Shanghvi, Chairman & Managing Director

Dr. T. Rajamannar, Wholetime Director (up to 24th April, 2014)

2. Enterprise under significant Influence of Key Management Personnel (with whom transactions are entered)

Sun Pharmaceutical Industries Ltd.

Sun Pharma Laboratories Ltd.

Sun Pharma Global FZE

Sun Pharmaceutical Industries Inc. (Upto 28th February, 2013)

Caraco Pharmaceutical Industries Ltd.

Sun Pharmaceutical Industries (Converted into Part IX Company as Sun Pharma Medication Pvt. Ltd. w.e.f. 31st August, 2012

which amalgamated in Sun Pharma Laboratories Limited w.e.f. 1st September 2012)

Sun Pharma Sikkim (Converted into Part IX Company as Sun Pharma Drugs Pvt. Ltd. w.e.f. 31st August, 2012 which amalgamated in Sun Pharma Laboratories Limited w.e.f. 1st September 2012)

Taro Pharmaceuticals Inc.


Mar 31, 2013

1 Contingent Liabilities and Commitments (to the extent not provided for)

Rs. in Thousand

As at As at 31st March, 2013 31st March, 2012

i Contingent Liabilities

Guarantees given by the bankers against Advance License Scheme 52,651 49,900

ii Commitments

Estimated amount of contracts remaining to be executed on capital account 1,023 7,797 and not provided for

2 Disclosures relating to Share Capital

i Rights, Preferences and Restrictions attached to Equity Shares

The Company has only one class of shares referred to as equity shares having a par value of Rs. 1 per share. Each holder of equity shares is entitled to one vote per share however, shareholder who has not paid call money on his/her shares shall not be entitled to vote either personally or by proxy in respect of any of such partly paid shares.

ii Equity Shares held by each shareholder holding more than 5 percent Equity Shares in the Company are as follows :

iv During the year, the Company has allotted 29,588,056 equity shares of Rs. 1 each, to its equity shareholders on rights basis in the ratio of 1 equity share of Rs. 1 each for every 7 equity shares of Rs. 1 each held, at a premium of Rs. 66 per equity share. On 261,504 equity shares, calls has remained unpaid towards equity shares capital @ Rs. 0.40 per equity share aggregating to Rs. 105 Thousand reduced from Share Capital in Note 1 above and towards security premium @ Rs. 26.60 per equity share aggregating to Rs. 6,956 Thousand.

3 The timing differences mainly relating to unabsorbed depreciation and carried forward losses under the Income Tax Act, 1961, results in a deferred tax asset as per AS 22 on "Accounting for Taxes on Income". Deferred tax asset has been recognised in respect of unabsorbed business losses / capital expenditure, to the extent that future taxable income will be available from future reversal of any deferred tax liability recognised at the balance sheet date and is restricted to the extent of such liabilities, which management expects to be available after tax holiday period u/s 80-IB of the Income Tax Act, 1961. As a prudent measure, the excess deferred tax asset (net) of Rs. 4,95,642 Thousand (Previous Year Rs. 4,36,838 Thousand) in relation to the above has not been recognised in the accounts as there is no virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised.

4 The net exchange loss / (gain) included under Revenue from Operations, Other Income, Cost of Materials Consumed and Other Expenses in the Statement of Profit and Loss aggregates Rs. 99,494 Thousand (Previous Year (Rs. 9,199 Thousand)).

5 Micro and Small Enterprises has been determined to the extent such parties have been identified on the basis of information available with the Company. This has been relied upon by the auditors.

There is no additional disclosure required to be made in this regard except for principal amount remaining unpaid of Rs. Nil as on 31st March, 2013 (Previous Year Rs. 57 Thousand).

6 Accounting Standard (AS-17) on Segment Reporting

i Primary Segment

The Company has identified "Pharmaceuticals Research & Development" as the only primary reportable business segment.

ii Secondary Segment (by Geographical Segment)

Consequent to the issue of equity shares, during the year, to its shareholders on rights basis, the Earnings Per Share for the previous year has been restated in accordance with Accounting Standard (AS - 20) on "Earnings Per Share" as notified under the Companies (Accounting Standards) Rules, 2006.

7 As per the best estimate of the management, no provision is required to be made as per Accounting Standard (AS-29) as notified by Companies (Accounting Standard) Rules, 2006 in respect of any present obligation as a result of a past event that could lead to probable outflow of resources, which would be required to settle the obligation.

8 Disclosure with respect to Accounting Standards (AS-18) on related party disclosure, as notified by Companies (Accounting Standard) Rules, 2006, is as per Annexure - "A" annexed.

9 Accounting Standard (AS-19) On Leases

i The Company has obtained premises for its business operations (including furniture and fittings, therein as applicable) under operating lease or leave and license agreements. These are generally not non-cancellable and range between 11 months to 5 years under leave and license, or longer for the lease and are renewable by mutual consent on mutually agreeable terms.

ii Lease payments are recognised in the Statement of Profit and Loss under "Rent" in Note No. 24

10 Accounting Standard (AS-15) on Employee Benefits

Contributions are made to Government Provident Fund, Family Pension Fund, ESIC and other Statutory Funds which covers all regular employees. While both the employees and the Company make predetermined contributions to the Provident Fund and ESIC, contribution to the Family Pension Fund are made only by the Company. The contributions are normally based on a certain proportion of the employee''s salary. Amount recognised as an expense in respect of these defined contribution plans, aggregate Rs. 14,286 Thousand (Previous Year Rs. 12,357 Thousand).

In respect of Gratuity, Contributions are made to LIC''s Recognised Group Gratuity Fund Scheme based on amount demanded by LIC of India. Provision for Gratuity is based on actuarial valuation done by independent actuary as at the year end. Actuarial Valuation for Compensated Absences is done as at the year end and the provision is made as per Company rules amounting to Rs. 22,075 Thousand (Previous Year Rs. 15,621 Thousand) and it covers all regular employees. Major drivers in actuarial assumptions, typically, are years of service and employee compensation. Commitments are actuarially determined using the ''Projected Unit Credit'' method. Gains and Losses on changes in actuarial assumptions are accounted for in the Statement of Profit and Loss.

Category of Plan Assets

The Company''s Plan Assets in respect of Gratuity are funded through the Group Schemes of the Life Insurance Corporation of India.

The estimate of future salary increases, considered in the actuarial valuation, takes into account inflation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market.

Contribution expected to be made by the Company during financial year ending 31st March, 2014 is Rs. 22,613 Thousand as per premium intimation received from LIC of India.

11 Previous year''s figure have been regrouped / reclassified wherever necessary to correspond with the current year''s classification / disclosure.


Mar 31, 2012

1 Contingent Liabilities and Commitments (to the extent not provided for)

Rs in Thousand As at As at 31st March, 2012 31st March, 2011

i Contingent Liabilities

Guarantees given by the bankers against Advance License Scheme 49,900 43,686

ii Commitments

Estimated amount of contracts remaining to be executed on 7,797 3,727 capital account and not provided for

2 The accumulated deficit of Rs 12,12,968 Thousand in the Statement of Profit and Loss has exceeded the aggregate of general reserve and paid up equity share capital, resulting in the net worth being negative at Rs 6,66,086 Thousand, as represented by shareholders' funds and also that the Company's current liabilities at Rs 14,50,042 Thousand have exceeded its current assets at Rs 1,82,174 Thousand. However, having regard to: (i) the nature of the Company's business; (ii) status of various projects of the Company some of which are at advanced stage of activity, which if successful could generate adequate cash flows; (iii) the Company having obtained shareholders' approval at their meeting held on 8th August, 2011 for issuing additional equity shares on a rights basis to its existing shareholders for an amount aggregating not in excess of Rs 20,00,000 Thousand, in respect of which the Draft Letter of Offer had been filed with the Securities and Exchange Board of India (SEBI) and SEBI has issued its observation letter to the Company on 25th April, 2012; the Company is in the process offinalising the Letter of Offer and initiating the opening of the Rights Issue; and (iv) in the interim, having procured loans and also received advances against share application money from the promoter group companies, to meet the fund requirements of the Company vis-a-vis the availability of funds with the Company, these financial statements have been prepared on the basis that the Company is a going concern and that no adjustments are required to the carrying value of assets and liabilities.

3 Disclosures relating to Share Capital

i Rights, Preferences and Restrictions attached to Equity Shares

The Company has only one class of shares referred to as equity shares having a par value of Rs 1 per share. Each holder of equity shares is entitled to one vote per share. The dividend, if any, proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

iii Nil (Previous Year 19,22,60,055) Equity Share have been allotted as fully paid up without payment being received in cash duringthe period of five years immediately precedingthe date as at which the Balance Sheet is prepared, to the shareholders of Sun Pharmaceutical Industries Limited pursuant to scheme of demerger.

4 The timing differences mainly relating to unabsorbed depreciation and carried forward losses under the Income Tax Act, 1961, results in a deferred tax asset as per AS 22 on "Accounting for Taxes on Income". Deferred tax asset has been recognised in respect of unabsorbed business losses / capital expenditure, to the extent that future taxable income will be available from future reversal of any deferred tax liability recognised at the balance sheet date and is restricted to the extent of such liabilities, which management expects to be available after tax holiday period u/s 80-IB of the Income Tax Act, 1961. As a prudent measure, the excess deferred tax asset (net) of Rs 4,36,838 Thousand (Previous YearRs 2,09,806 Thousand) in relation to the above has not been recognised in the accounts as there is no virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised.

5 The net exchange gain included under Revenue from Operations, Other Income and Cost of Materials Consumed in the Statement of Profit and Loss aggregates Rs 9,199 Thousand (Previous YearRs 10,413 Thousand).

6 Micro, Small and Medium Enterprises has been determined to the extent such parties have been identified on the basis of information available with the Company. This has been relied upon by the auditors.

There is no additional disclosure required to be made in this regard except for principal amount remaining unpaid of Rs 57 Thousand as on 31st March, 2012 (Previous YearRs 34 Thousand).

7 Accounting Standard (AS-17) on Segment Reporting

i Primary Segment

The Company has identified "Pharmaceuticals Research & Development" as the only primary reportable business segment.

8 As per the best estimate of the management, no provision is required to be made as per Accounting Standard (AS-29) as notified by Companies (Accounting Standard) Rules, 2006 in respect of any present obligation as a result of a past event that could lead to probable outflow of resources, which would be required to settle the obligation.

9 Disclosure with respect to Accounting Standards (AS-18) on related party disclosure, as notified by Companies (AccountingStandard) Rules, 2006, is as per Annexure - "A" annexed.

10 Accounting Standard (AS-19) On Operating Leases

i The Company has obtained premises for its business operations (including furniture and fittings, therein as applicable) under operating lease or leave and license agreements. These are generally not non-cancelable and range between 11 months to 5 years under leave and license, or longer for the lease and are renewable by mutual consent on mutually agreeable terms.

ii Lease payments are recognised in the Statement of Profit and Loss under "Rent" in Note No. 24

11 Details of Derivatives Instruments and Unhedged Foreign Currency Exposures

i The Company enters into Forward Exchange Contracts being derivative instruments, which are not intended for trading or speculative purposes, but for hedge purposes, to establish the amount of reporting currency required or available at the settlement date.

12 Accounting Standard (AS-15) on Employee Benefits

Contributions are made to Government Provident Fund, Family Pension Fund, ESIC and other Statutory Funds which covers all regular employees. While both the employees and the Company make predetermined contributions to the Provident Fund and ESIC, contribution to the Family Pension Fund are made only by the Company. The contributions are normally based on a certain proportion ofthe employee's salary. Amount recognised as an expense in respect of these defined contribution plans, aggregate Rs 12,357 Thousand (Previous YearRs 10,475 Thousand).

In respect of Gratuity, Contributions are made to LIC's Recognised Group Gratuity Fund Scheme based on amount demanded by LIC of India. Provision for Gratuity is based on actuarial valuation done by independent actuary as at the year end. Actuarial Valuation for Compensated Absences is done as at the year end and the provision is made as per Company rules amounting to Rs 15,621 Thousand (Previous YearRs 13,984 Thousand) and it covers all regular employees. Major drivers in actuarial assumptions, typically, are years of service and employee compensation. Commitments are actuarially determined using the 'Projected Unit Credit' method. Gains and Losses on changes in actuarial assumptions are accounted for in the Statement of Profit and Loss.

Category of Plan Assets

The Company's Plan Assets in respect of Gratuity are funded through the Group Schemes ofthe Life Insurance Corporation of India.

The estimate of future salary increases, considered in the actuarial valuation, takes into account inflation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market.

Contribution expected to be made by the Company during financial year ending 31st March, 2013 is Rs 16,188 Thousand as per premium intimation received from LIC of India.

13 The Revised Schedule VI has been effective from 1st April, 2011forthe presentation of financial statements. This has significantly impacted the disclosure and presentation made in the financial statements. Previous year's figure have been regrouped/ reclassified wherever necessary to correspond with the current year's classification / disclosure.

 
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