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Accounting Policies of Zenotech Laboratories Ltd. Company

Mar 31, 2016

1. Significant accounting policies

1.1 Company overview

Zenotech Laboratories Limited is a public limited company listed on BSE. Zenotech Laboratories Limited was incorporated on June 15, 1989 as a Private Limited company by the name of MAA Shakti Mills Private Limited under the Companies Act, 1956. On April 1, 1992, its name was changed to Sunline Tubes Private Limited and August 25, 1993 it was converted into a Public Limited Company. Subsequently, on December 6, 2000 its name was changed to Sunline Technologies Limited. In 2004, the said Company entered into a scheme of amalgamation with Zenotech Laboratories Private Limited. The Hon’ble High Court of Andhra Pradesh sanctioned the scheme of amalgamation by its order dated July 1, 2004 with effect from November 1, 2003 pursuant to which, its name was changed to its present form, Zenotech Laboratories Limited with effect from August 10, 2004.

The Company is a pharmaceutical specialty generic injectables company engaged in the area of manufacturing biotechnology products. The Company’s injectables product portfolio primarily serves niche therapy areas like oncology and anesthesiology.

1.2 Basis of preparation of financial statements

The Company maintains its accounts on accrual basis following the historical cost convention in accordance with generally accepted accounting principles (GAAP), in compliance with provisions of the Companies Act, 2013 and as specified in the Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules 2014 prescribed by the Central Government]. The other Accounting Standards as issued by ICAI, not yet notified are also considered, wherever applicable, except to the extent where compliance with the other statutory promulgations override the same requiring a different treatment. The accounting policies are consistent with those used in the previous year.

1.3 Use of estimates

The preparation of financial statements in conformity with Indian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities on the date of the financial statements and the results of operations during the reporting year. Examples of such estimates include provision for future obligation under employee benefit plans, net realizable value of inventory and estimated useful lives of fixed assets. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. Any revision to accounting to accounting estimates is recognized prospectively in current and future periods.

1.4 Going concern

The Company has accumulated losses and its net worth has been completely eroded, the Company has incurred a net cash loss during the current and previous years and, the Company’s current liabilities exceeded its current assets as at the balance sheet date. The financial statements have been prepared on a going concern basis; notwithstanding the above conditions as the company is confident of raising further funds, with which it will be able to meet its business operations for growth and revival.

1.5 Fixed assets and Depreciation

Fixed assets (Tangible/ Intangible) are stated at cost less accumulated depreciation/amortization and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Borrowing costs relating to acquisition of fixed assets which take substantial period of time to get ready for use are included to the extent they relate to the period till such assets are ready for intended use. All other borrowing costs are expensed in the period they occur.

Expenditure directly relating to construction activity is capitalized to the extent those relate to the construction activity or is incidental thereto

Depreciation is provided using the Straight Line Method (‘SLM’) over the useful lives of the assets considered by the management which is in line with the rates prescribed under schedule II to the Companies Act 2013, as given below:

Depreciation and amortization methods, useful lives and residual values are reviewed periodically, including at each financial year end. Depreciation is charged on a proportionate basis for all assets purchased and sold during the year.

Assets costing below Rs.5,000 are depreciated in full in the same year.

The cost of fixed assets not ready for their intended use before such date, are disclosed as capital work-in-progress.

1.6 Foreign currency translations:

Initial recognition

Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

Conversion

Foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction; and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.

Exchange differences

Exchange differences arising on the settlement of monetary items at rates different from those at which they were initially recorded during the period and exchange differences arising due to restatement at the reporting date are recognized as income or as expenses in the period in which they arise.

1.7 Investments:

Long term investments are stated at cost of acquisition less provision for permanent diminution in value of such investments.

1.8 Inventories:

Inventories are valued at the lower of cost and net realizable value. Cost of inventories comprises cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The method of determining cost of various categories of inventories is as below:

i) Raw materials, Packing materials, Stores and spares - First - in - First Out method.

ii) Finished goods and Work-in-process - Weighted average method, which comprises direct material costs and appropriate overheads.

Inventories are stated net of write downs or allowances on account of obsolete, damaged or slow moving inventories.

1.9 Employee Retirement benefits:

i) Gratuity: Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation made at the end of each financial year under the projected unit credit method. Actuarial gains/losses comprise experience adjustments and the effect of changes in actuarial assumptions and are recognized immediately in the Statement of Profit & Loss as Income on the basis of valuation by an independent Actuary. The liability is unfunded.

ii) Provident Fund: A retirement benefit in the form of provident fund scheme is a defined contribution and the contribution is charged to the statement of profit and loss of the year when the contribution to the respective fund is due. There are no other obligations other than the contribution payable to the respective fund

iii) Compensated Absences: Liability in respect of compensated absence is determined and charged to the statement of profit and loss on the basis of valuation by an independent actuary.

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

1.10 Revenue recognition:

Revenue from Sale of goods is recognized on dispatch and upon transfer of significant risk and rewards of ownership to the customer. Sales include amount recovered towards excise duty but excludes sales tax and is net of sales returns.

Price variance is accounted as and when the amounts are confirmed as recoverable.

Interest on deposits is recognized on the time proportion method using the underlying interest rates.

1.11 Taxation:

Tax expense comprises of current and deferred tax. Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the provisions of the Income Tax Act, 1961. Deferred income taxes reflect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the Company has unabsorbed depreciation or carry forward tax losses, deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits.

Minimum Alternative Tax (“MAT”) credit is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. Such asset is reviewed at each Balance Sheet date and the carrying amount of the MAT credit asset is written down to the extent there is no longer a convincing evidence to the effect that the company will pay normal income tax during the specified period.

1.12 Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset or a group of assets comprising a cash generating unit may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. For an asset or group of assets that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its 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 if 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. An impairment loss is reversed only to the extent that the carrying amount of asset does not exceed the net book value that would have been determined; if no impairment loss had been recognized.

1.13 Provisions

A provision is recognized when the Company has a present obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on management estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates.

1.14 Earnings per equity share

Basic earnings per equity share are calculated by dividing the profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.

For the purpose of calculating diluted earnings per equity share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares.

1.15 Contingent Liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize the contingent liability but discloses its existence in the financial statements.

2.25 a) Update on the events and circumstances relating to ongoing differences with Dr. Jayaram Chigurupati, the erstwhile Promoter and Managing Director of the Company.

Post acquisition of stake in the Company by Ranbaxy Laboratories Limited (Sun Pharmaceutical Industries Limited effective from 24 March 2015 pursuant to a merger scheme) and Daiichi Sankyo Company Limited (herein after referred to as the “current promoters”) there were disagreements on various accounts between the erstwhile promoters and the current promoters resulting in various legal cases being filed by both the parties before various forums. The current Management was denied and, therefore, could not gain access to the factory and other premises of the Company due to which a legal case was filed before the Company Law Board (CLB), Chennai, for taking over the physical possession of the factory premises from Dr. Jayaram Chigurupati, the erstwhile Promoter and Managing Director of the Company. Owing to the protracted legal case, the physical possession of the factory premises could be taken over on November 13, 2011 in the presence of CLB appointed Advocate Commissioner, in pursuance to an Order passed by the CLB. Subsequent to the gaining of the possession of the factory premises, further assessment by the current Management revealed that, among others, certain books and records, supplementary documents and statutory register till the period 12 November 2011 were missing and which are still not in the possession of the current Management. The Honorable Company Law Board vide order dated 8 October 2012 further directed Erstwhile Promoter and Managing Director of the Company to return all the documents and provide written details of all missing documents/ assets/ statutory records / equipment of the Company. The Honorable High Court of Andhra Pradesh has also passed a similar order. The Company has not yet been provided with these documents/ information.

The current Management, therefore, based on the available limited records, statutory returns filed, supplementary documents, invoices, external corroborative evidence and after considering the various non compliances under the Companies Act, 1956, listing agreement and Foreign Exchange Management Act, etc post 12 November 2011, reconstructed financial statements for the years ended 31 March 2011 and 2012. Management is also in the process of regularizing and compounding such non compliances with the various authorities concerned.

Since matters relating to several financial and non financial irregularities are sub-judice and various legal proceedings are ongoing, any further adjustments / disclosures to the financial statements, if required, would be made in the financial statements of the Company as and when the outcome of the above uncertainties is known and the consequential adjustments / disclosures are identifiable/ determinable.


Mar 31, 2015

1.1 Company overview

Zenotech Laboratories Limited is a public limited company listed on BSE. Zenotech Laboratories Limited was incorporated on June 15, 1989 as a Private Limited company by the name of MAA Shakti Mills Private Limited under the Companies Act, 1956. On April 1, 1992, its name was changed to Sunline Tubes Private Limited and August 25, 1993 it was converted into a Public Limited Company. Subsequently, on December 6, 2000 its name was changed to Sunline Technologies Limited. In 2004, the said Company entered into a scheme of amalgamation with Zenotech Laboratories Private Limited. The Hon'ble High Court of Andhra Pradesh sanctioned the scheme of amalgamation by its order dated July 1, 2004 with effect from November 1, 2003 pursuant which, its name was changed to its present form, Zenotech Laboratories Limited with effect from August 10, 2004.

The Company is a pharmaceutical specialty generic injectables company engaged in the area of manufacturing bio- technology products. The Company's injectables product portfolio primarily serves niche therapy areas like oncology and anesthesiology.

1.2 Basis of preparation of financial statements

The financial statements of the Company have been prepared and presented in accordance with Indian Generally Accepted Accounting Principles (GAAP) under the historical cost convention on the accrual basis. GAAP comprises accounting standards notified by the Central Government of India under Section 133 of the Companies Act, 2013, other pronouncements of Institute of Chartered Accountants of India and the relevant provisions of Companies Act, 2013.

1.3 Going concern

The Company has accumulated losses and its net worth has been completely eroded, the Company has incurred a net cash loss during the current and previous years and, the Company's current liabilities exceeded its current assets as at the balance sheet date. The financial statements have been prepared on a going concern basis, notwithstanding the above conditions as one of the significant shareholder (Ranbaxy Laboratories Limited, now merged with Sun Pharmaceutical Industries Limited pursuant to a merger scheme) had undertaken to provide such financial support as necessary, to enable the Company to continue its operations and to meet its liabilities as and when they fall due. Accordingly these financial statements do not include any adjustments relating to the recoverability and classification of carrying amount of assets or the amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern. Based on the information available with the Company, the said undertaking provided has not been withdrawn and continues to be valid.

1.4 Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities on the date of the financial statements. Actual results could differ from those estimates. Any revision to accounting estimates is recognized prospectively in current and future periods. Refer note 2.25 certain key factors impacting the management estimates.

1.5 Current–non-current classification

All assets and liabilities are classified into current and non-current.

Assets

An asset is classified as current when it satisfies any of the following criteria:

a. it is expected to be realized in, or is intended for sale or consumption in, the Company's normal operating cycle;

b. it is held primarily for the purpose of being traded;

c. it is expected to be realized within 12 months after the reporting date; or

d. it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.

Current assets include the current portion of non-current financial assets. All other assets are classified as non- current.

Liabilities

A liability is classified as current when it satisfies any of the following criteria:

a. it is expected to be settled in the Company's normal operating cycle;

b. it is held primarily for the purpose of being traded;

c. it is due to be settled within 12 months after the reporting date; or

d. the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as non-current.

Operating cycle

Operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents.

1.6 Fixed assets and Depreciation

Fixed assets are accounted for at cost of acquisition or construction inclusive of inward freight, duties, taxes and directly attributable costs of bringing the asset to its working condition for its intended use.

Advances paid towards the acquisition of fixed assets outstanding at each Balance Sheet date are shown as Capital Advances under Long-term loans and advances and assets under installation or under construction as at the Balance Sheet date are shown as Capital Work-in-Progress under Fixed assets.

Depreciation on tangible assets is provided on the straight-line method over the useful lives of assets estimated by the Management which coincide with the useful lives as prescribed under the Schedule II of the Companies Act, 2013. Depreciation for assets purchased/sold during a period is proportionately charged. The Management estimates the useful lives for the other fixed assets as follows:

Depreciation and amortization methods, useful lives and residual values are reviewed periodically, including at each financial year end. Depreciation is charged on a proportionate basis for all assets purchased and sold during the year.

The cost of fixed assets not ready for their intended use before such date, are disclosed as capital work-in-progress.

1.7 Research and development expenditure:

Revenue expenditure incurred on research and development is expensed as incurred and capital expenditure incurred is capitalized as fixed assets and depreciated in accordance with depreciation policy of the Company.

1.8 Foreign currency translations:

Foreign currency transactions are recorded at the rates of exchange prevailing on the dates of the respective transaction. Exchange differences arising on foreign exchange transactions settled during the year are recognized in the profit and loss account of the year.

Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date are translated at the closing exchange rates on that date, the resultant exchange differences are recognized in the statement of profit and loss.

1.9 Investments:

Long term investments are stated at cost of acquisition less provision for permanent diminution in value of such investments.

1.10 Inventories:

Inventories are valued at the lower of cost and net realisable value. Cost of inventories comprises cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The method of determining cost of various categories of inventories is as below:

i) Raw materials, Packing materials, Stores and spares-First-in-First Out method.

ii) Finished goods and Work-in-process–Weighted average method, which comprises direct material costs and appropriate overheads.

Inventories are stated net of write downs or allowances on account of obsolete, damaged or slow moving inventories.

1.11 Employee Retirement benefits:

Liability for employee benefits, both short-term and long-term, for present and past services which are due as per terms of employment are recorded in accordance with Accounting Standard (AS) 15 " Employee Benefits"..

i) Gratuity: Liability on account of Gratuity is determined and charged to the statement of profit and loss on the basis of valuation by an independent Actuary. The liability is unfunded.

ii) Provident Fund: Contribution to Provident Fund (a defined contribution plan) is recognized and expensed on accrual basis.

iii) Compensated Absences: Liability in respect of compensated absence is determined and charged to the statement of profit and loss on the basis of valuation by an independent actuary.

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

1.12 Revenue recognition:

Sale of goods is recognized on dispatch and upon transfer of significant risk and rewards of ownership to the customer. Sales include amount recovered towards excise duty but excludes sales tax and is net of sales returns.

Service income is recognized as per the terms of the contract with customers when the related services are performed.

Interest on deposits is recognized on the time proportion method using the underlying interest rates.

1.13 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 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 substantively 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 carried forward loss under taxation laws, deferred tax assets are recognized only if there is a virtual certainty of realization of such assets. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to reflect the amount that is reasonably/ virtually certain (as the case may be) to be realized.

The Company offsets, the current (on a year on year basis) and deferred tax assets and liabilities, where it has a legally enforceable right and where it intends to settle such assets and liabilities on a net basis.

1.14 Leases

Assets taken on lease where the company acquires substantially the entire risks and rewards incidental to ownership are classified as finance leases. The amount recorded is the lesser of the present value of minimum lease rental and other incidental expenses during the lease term or the fair value of the assets taken on lease. The rental obligations, net of interest charges, are reflected as secured loans. Leases that do not transfer substantially all the risks and rewards of ownership are classified as operating leases and recorded as expense on a straight line basis.

1.15 Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset or a group of assets comprising a cash generating unit may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. For an asset or group of assets that does not generate largely independent cash infl ows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its 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 if 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. An impairment loss is reversed only to the extent that the carrying amount of asset does not exceed the net book value that would have been determined, if no impairment loss had been recognized.

1.16 Provisions and contingent liabilities

The Company recognizes a provision when there is a present obligation as a result of a past event 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 that the likelihood of outflow of resources is remote, no provision or disclosure is made.

Provisions for onerous contracts, i.e. contracts where the expected unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it, are recognized when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation as a result of an obligating event, based on a reliable estimate of such obligation.

1.17 Earnings per share

Basic earnings per share ("EPS") is computed by dividing the net profi t after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profi t after tax for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the year, unless they have been issued at a later date.


Mar 31, 2014

1.1 Company overview

Zenotech Laboratories Limited is a public limited company listed on BSE. Zenotech Laboratories Limited was incorporated on June 15, 1989 as a Private Limited company by the name of MAA Shakti Mills Private Limited under the Companies Act, 1956. On April 1, 1992, its name was changed to Sunline Tubes Private Limited and August 25, 1993 it was converted into a Public Limited Company. Subsequently, on December 6, 2000 its name was changed to Sunline technologies Limited. In 2004, the said Company entered into a scheme of amalgamation with Zenotech Laboratories Private Limited. The Hon''ble High Court of Andhra Pradesh sanctioned the scheme of amalgamation by its order dated July 1, 2004 with effect from November 1, 2003 pursuant which, its name was changed to its present form, Zenotech Laboratories Limited with effect from August 10, 2004.

The Company is a pharmaceutical specialty generic injectables company engaged in the area of manufacturing bio-technology products. The Company''s injectables product portfolio primarily serves niche therapy areas like oncology and anesthesiology.

1.2 Basis of preparation of financial statements

The financial statements have been prepared and presented under the historical cost convention on the accrual basis of accounting in accordance with the generally accepted accounting principles in India and comply with the Accounting Standards (AS), prescribed by the Companies (Accounting Standards) Rules, 2006 and other pronouncements of Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956, to the extent applicable. The financial statements are presented in Indian rupees, unless otherwise stated.

1.3 Going concern

The financial statements have been prepared on a going concern basis, notwithstanding the accumulated losses, as one of the significant shareholder has undertaken to provide such financial support as necessary, to enable the Company to continue its operations and to meet its liabilities as and when they fall due. Accordingly these financial statements do not include any adjustments relating to the recoverability and classification of carrying amount of assets or the amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern.

1.4 Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities on the date of the financial statements. Actual results could differ from those estimates. Any revision to accounting estimates is recognised prospectively in current and future periods. Refer note 2.25 certain key factors impacting the management estimates.

1.5 Current-non-current classification

All assets and liabilities are classified into current and non-current.

Assets

An asset is classified as current when it satisfies any of the following criteria:

a. it is expected to be realised in, or is intended for sale or consumption in, the Company''s normal operating cycle;

b. it is held primarily for the purpose of being traded;

c. it is expected to be realised within 12 months after the reporting date; or

d. it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.

Current assets include the current portion of non-current financial assets. All other assets are classified as non- current.

Liabilities

A liability is classified as current when it satisfies any of the following criteria:

a. it is expected to be settled in the Company''s normal operating cycle;

b. it is held primarily for the purpose of being traded;

c. it is due to be settled within 12 months after the reporting date; or

d. the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as non- current.

Operating cycle

Operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents.

1.6 Fixed assets and Depreciation

Fixed assets are carried at cost of acquisition or construction less accumulated depreciation and impairment losses if any. The cost of fixed assets includes freight, duties, taxes and other incidental expenses related to the acquisition or construction of those fixed assets. Acquired intangible assets are recorded at the consideration paid for acquisition. Borrowing costs directly attributable to acquisition of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalised.

Depreciation on fixed assets is provided on the straight-line method and at the rates and in the manner specified in Schedule XIV to the Companies Act, 1956, except in respect of improvements to leasehold premises, where depreciation is charged over the lease period.

Assets individually costing Rs 5,000 or less, are depreciated fully in the year of purchase. Depreciation is charged on a proportionate basis for all assets purchased and sold during the year.

The cost of fixed assets not ready for their intended use before such date, are disclosed as capital work-in- progress.

1.7 Research and development expenditure:

Revenue expenditure incurred on research and development is expensed as incurred and capital expenditure incurred is capitalized as fixed assets and depreciated in accordance with depreciation policy of the Company.

1.8 Foreign currency translations:

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

Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date are translated at the closing exchange rates on that date, the resultant exchange differences are recognised in the statement of profit and loss.

1.9 Investments:

Long term investments are stated at cost of acquisition less provision for permanent diminution in value of such investments.

1.10 Inventories:

Inventories are valued at the lower of cost and net realisable value. Cost of inventories comprises cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The method of determining cost of various categories of inventories is as below:

i) Raw materials, Packing materials, Stores and spares - First - in - First Out method.

ii) Finished goods and Work-in-process - Weighted average method, which comprises direct material costs and appropriate overheads.

Inventories are stated net of write downs or allowances on account of obsolete, damaged or slow moving inventories.

1.11 Employee Retirement benefits:

Liability for employee benefits, both short and long term, for present and past services which are due as per terms of employment are recorded in accordance with Accounting Standard (AS) 15 " Employee Benefits" as notified by the Companies (Accounting Standards) Rules, 2006.

i) Gratuity: Liability on account of Gratuity is determined and charged to the statement of profit and loss on the basis of valuation by an independent Actuary. The liability is unfunded.

ii) Provident Fund: Contribution to Provident Fund (a defined contribution plan) is recognized and expensed on accrual basis.

iii) Compensated Absences: Liability in respect of compensated absence is determined and charged to the statement of profit and loss on the basis of valuation by an independent actuary.

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

1.12 Revenue recognition:

Sale of goods is recognized on dispatch and upon transfer of significant risk and rewards of ownership to the customer. Sales include amount recovered towards excise duty but excludes sales tax and is net of sales returns.

Service income is recognized as per the terms of the contract with customers when the related services are performed.

Interest on deposits is recognized on the time proportion method using the underlying interest rates.

1.13 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 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 recognised using the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty of realisation of such assets. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to reflect the amount that is reasonably/ virtually certain (as the case may be) to be realised.

The Company offsets, the current (on a year on year basis) and deferred tax assets and liabilities, where it has a legally enforceable right and where it intends to settle such assets and liabilities on a net basis.

1.14 Leases

Assets taken on lease where the company acquires substantially the entire risks and rewards incidental to ownership are classified as finance leases. The amount recorded is the lesser of the present value of minimum lease rental and other incidental expenses during the lease term or the fair value of the assets taken on lease. The rental obligations, net of interest charges, are reflected as secured loans. Leases that do not transfer substantially all the risks and rewards of ownership are classified as operating leases and recorded as expense on a straight line basis.

1.15 Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset or a group of assets comprising a cash generating unit may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. For an asset or group of assets that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profit and loss. If at the balance sheet date there is an indication that if 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. An impairment loss is reversed only to the extent that the carrying amount of asset does not exceed the net book value that would have been determined, if no impairment loss had been recognised.

1.16 Provisions and contingent liabilities

The Company recognises a provision when there is a present obligation as a result of a past event 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 that the likelihood of outflow of resources is remote, no provision or disclosure is made.

Provisions for onerous contracts, i.e. contracts where the expected unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it, are recognised when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation as a result of an obligating event, based on a reliable estimate of such obligation.

1.17 Earnings per share

Basic earnings per share ("EPS") is computed by dividing the net profit after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit after tax for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the year, unless they have been issued at a later date.

Notes:

a) The Company has a single class of equity shares. Accordingly, all equity shares rank equally with regard to dividends and share in the Company''s residual assets. The equity shares are entitled to receive dividend as declared from time to time. On winding up of the Company, the holders of equity shares will be entitled to receive residual assets of the Company, remaining after distribution of all preferential amounts in proportion to the number of equity shares held by the shareholders.

b) Under the Zenotech Stock Option Scheme 2005, total of 50,000 and 75,000 shares had been issued to the then directors during the year ended 31 March 2008 and 31 March 2009 respectively and 2,500 shares had been issued to employees during the year ended 31 March 2011.

2.3 Share application money

Under the Zenotech Employee Stock Option Scheme, 2005, the Company had granted 17,000 options (net of options lapsed) of which 4,250 vested options had been excercised during the year ended 31 March 2010, which was subject to approval of the Company Law Board. Of these, the Company alloted 2,500 shares vide Company Law Board order dated 6 August 2010 and balance is pending for allotment subject to approval of the Company Law Board. Accordingly, Rs.122,000 received on exercise of options has been shown under Share application money.

1. Term loans from banks are secured by way of first charge on the current assets and Corporate Guarantee from Ranbaxy Laboratories Limited. The same has been taken at 10.25% to 11.25% interest p.a. and loan is repayble with one year from the date of disbursement.

2. Term loans from related party has been taken at 10.25% to 11.25% interest p.a. along with penal interest of 2% in case default in payment of interest. Loan is repayble on demand.

2.25 a) Update on the events and circumstances relating to ongoing differences with Dr. Jayaram Chigurupati, the erstwhile Promoter and Managing Director of the Company.

Post acquisition of stake in the Company by Ranbaxy Laboratories Limited and Daiichi Sankyo Company Limited (herein after referred to as the "current promoters") there were disagreements on various accounts between the erstwhile promoters and the current promoters resulting in various legal cases being filed by both the parties before various forums. The current Management was denied and, therefore, could not gain access to the factory and other premises of the Company due to which a legal case was filed before the Company Law Board (CLB), Chennai, for taking over the physical possession of the factory premises from Dr. Jayaram Chigurupati, the erstwhile Promoter and Managing Director of the Company.. Owing to the protracted legal case, the physical possession of the factory premises could be taken over on November 13, 2011, in pursuance to an Order passed by the CLB in the presence of CLB appointed Advocate Commissioner. Subsequent to the gaining of the possession of the factory premises, further assessment by the current Management revealed that, among others, certain books and records, supplementary documents and statutory register till the period 12 November 2011 were missing and which are still not in the possession of the current Management. The Honorable Company Law Board vide order dated 8 October 2012 further directed Erstwhile Promoter and Managing Director of the Company to return all the documents and provide written details of all missing documents/ assets/ statutory records / equipment of the Company. The Honorable High Court of Andhra Pradesh has also passed a similar order. The Company has not yet been provided with these documents/ information.

The current Management, therefore, based on the available limited records, statutory returns filed, supplementary documents, invoices, external corroborative evidence and after considering the various non compliances under the Companies Act, 1956 and listing agreement etc post 12 November 2011, reconstructed financial statements for the years ended 31 March 2011 and 2012. Management is also in the process of regularizing and compounding such non compliances with the various authorities concerned.

Since matters relating to several financial and non financial irregularities are sub-judice and various legal proceedings are ongoing, any further adjustments / disclosures to the financial statements, if required, would be made in the financial statements of the Company as and when the outcome of the above uncertainties is known and the consequential adjustments / disclosures are identifiable/ determinable.

b) Investment in subsidiaries:

Upon obtaining control of the Company, the current Management observed that no books of account and records were available regarding its overseas subsidiaries. The current management is yet to receive any response from the erstwhile Managing Director on the queries raised regarding details pertaining to these subsidiaries and seeking documents / certificates related to forex transactions with these subsidiaries including certain loans and investment made in the same. Provision has not been made for potential financial consequences arising out of such ongoing evaluations, the outcome of which will depend on the nature and extent of non compliances which is currently not determinable.

c) During the previous year, the Company had filed required declaration under the Sick Industrial Companies (Special Provisions) Act, 1985 with the Board of Industrial and Financial Reconstruction (BIFR) for potential sickness as the net worth of the Company has been eroded by more than fifty percent. The Management is in the process of taking all required steps to revive the Company and to increase the net worth including other steps as may be suggested by the BIFR from time to time.


Mar 31, 2013

1.1 Company overview

Zenotech Laboratories Limited is a public limited company listed on BSE. Zenotech Laboratories Limited was incorporated on June 15, 1989 as a Private Limited company by the name of MAA Shakti Mills Private Limited under the Companies Act, 1956. On April 1, 1992, its name was changed to Sunline Tubes Private Limited and August 25, 1993 it was converted into a Public Limited Company. Subsequently, on December 6, 2000 its name was changed to Sunline technologies Limited. In 2004, the said Company entered into a scheme of amalgamation with Zenotech Laboratories Private Limited. The Hon''ble High Court of Andhra Pradesh sanctioned the scheme of amalgamation by its order dated July 1, 2004 with effect from November 1, 2003 pursuant which, its name was changed to its present form, Zenotech Laboratories Limited with effect from August 10, 2004.

The Company is a pharmaceutical specialty generic injectables company engaged in the area of manufacturing bio-technology products. The Company''s injectables product portfolio primarily serves niche therapy areas like oncology and anesthesiology.

1.2 Basis of preparation of fi nancial statements

The fi nancial statements have been prepared and presented under the historical cost convention on the accrual basis of accounting in accordance with the generally accepted accounting principles in India and comply with the Accounting Standards (AS), prescribed by the Companies (Accounting Standards) Rules, 2006 and other pronouncements of Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956, to the extent applicable. The fi nancial statements are presented in Indian rupees, unless otherwise stated. Refer note 2.27 for the basis of preparation of the fi nancial statements for the year ended 31 March 2012.

1.3 Going concern

The fi nancial statements have been prepared on a going concern basis, notwithstanding the accumulated losses, as one of the signifi cant shareholder has undertaken to provide such fi nancial support as necessary, to enable the Company to continue its operations and to meet its liabilities as and when they fall due. Accordingly these fi nancial statements do not include any adjustments relating to the recoverability and classifi cation of carrying amount of assets or the amounts and classifi cation of liabilities that may be necessary if the entity is unable to continue as a going concern.

1.4 Use of estimates

The preparation of fi nancial statements in conformity with generally accepted accounting principles (GAAP) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities on the date of the fi nancial statements. Actual results could differ from those estimates. Any revision to accounting estimates is recognised prospectively in current and future periods. Refer note 2.27 certain key factors impacting the management estimates.

1.5 Current–non-current classifi cation

All assets and liabilities are classifi ed into current and non-current. Assets

An asset is classifi ed as current when it satisfi es any of the following criteria:

a. it is expected to be realised in, or is intended for sale or consumption in, the company''s normal operating cycle;

b. it is held primarily for the purpose of being traded;

c. it is expected to be realised within 12 months after the reporting date; or

d. it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.

Current assets include the current portion of non-current fi nancial assets. All other assets are classifi ed as non-current.

Liabilities

A liability is classifi ed as current when it satisfi es any of the following criteria:

a. it is expected to be settled in the company''s normal operating cycle;

b. it is held primarily for the purpose of being traded;

c. it is due to be settled within 12 months after the reporting date; or

d. the company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classifi cation.

Current liabilities include current portion of non-current fi nancial liabilities. All other liabilities are classifi ed as non-current.

Operating cycle

Operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents.

1.6 Fixed assets and Depreciation

Fixed assets are carried at cost of acquisition or construction less accumulated depreciation and impairment losses if any. The cost of fi xed assets includes freight, duties, taxes and other incidental expenses related to the acquisition or construction of those fi xed assets. Acquired intangible assets are recorded at the consideration paid for acquisition. Borrowing costs directly attributable to acquisition of those fi xed assets which necessarily take a substantial period of time to get ready for their intended use are capitalised.

Depreciation on fi xed assets is provided on the straight-line method and at the rates and in the manner specifi ed in Schedule XIV to the Companies Act, 1956, except in respect of improvements to leasehold premises, where depreciation is charged over the lease period.

Assets individually costing Rs. 5,000 or less, are depreciated fully in the year of purchase. Depreciation is charged on a proportionate basis for all assets purchased and sold during the year.

The cost of fi xed assets not ready for their intended use before such date, are disclosed as capital work-in-progress.

1.7 Product development expenditure:

Direct material and overhead costs in relation to product development activities are treated as deferred revenue expenditure and amortized over fi ve years from the date revenue is generated from the respective products. All other revenue expenditure is expensed as incurred and capital expenditure incurred on product development is capitalized as fi xed assets and depreciated in accordance with depreciation policy of the Company. The Company has written off product development expenditure fully during the year.

1.8 Foreign currency translations:

Foreign currency transactions are recorded at the rates of exchange prevailing on the dates of the respective transaction. Exchange differences arising on foreign exchange transactions settled during the year are recognised in the profi t and loss account of the year.

Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date are translated at the closing exchange rates on that date, the resultant exchange differences are recognised in the statement of profi t and loss.

1.9 Investments:

Long term investments are stated at cost of acquisition less provision for permanent diminution in value of such investments.

1.10 Inventories:

Inventories are valued at the lower of cost and net realisable value. Cost of inventories comprises cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The method of determining cost of various categories of inventories is as below: i) Raw materials, Packing materials, Stores and spares - First - in - First Out method.

ii) Finished goods and Work-in-process – Weighted average method, which comprises direct material costs and appropriate overheads.

Inventories are stated net of write downs or allowances on account of obsolete, damaged or slow moving inventories.

1.11 Employee Retirement benefi ts:

Liability for employee benefi ts, both short and long term, for present and past services which are due as per terms of employment are recorded in accordance with Accounting Standard (AS) 15 " Employee Benefi ts" as notifi ed by the Companies (Accounting Standards) Rules, 2006.

i) Gratuity: Liability on account of Gratuity is determined and charged to the statement of profi t and loss on the

basis of valuation by an independent Actuary. The liability is unfunded.

ii) Provident Fund: Contribution to Provident Fund (a defi ned contribution plan) is recognized and expensed on accrual basis.

iii) Compensated Absences: Liability in respect of compensated absence is determined and charged to the statement of profi t and loss on the basis of valuation by an independent actuary.

All actuarial gains and losses arising during the year are recognized in the statement of profi t and loss.

1.12 Revenue recognition:

Sale of goods is recognized on despatch and upon transfer of signifi cant risk and rewards of ownership to the customer. Sales include amount recovered towards excise duty but excludes sales tax and is net of sales returns.

Royalty income is recognized as per the terms of the contract with customers when the related goods or services are sold/ performed by the Customers on behalf of the Company.

Service income is recognized as per the terms of the contract with customers when the related services are performed.

Interest on deposits is recognized on the time proportion method using the underlying interest rates.

1.13 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 (refl ecting the tax effects of 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 recognised using the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty of realisation of such assets. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to refl ect the amount that is reasonably/ virtually certain (as the case may be) to be realised.

The Company offsets, the current (on a year on year basis) and deferred tax assets and liabilities, where it has a legally enforceable right and where it intends to settle such assets and liabilities on a net basis.

1.14 Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset or a group of assets comprising a cash generating unit may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. For an asset or group of assets that does not generate largely independent cash infl ows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the statement of profi t and loss. If at the balance sheet date there is an indication that if a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is refl ected at the recoverable amount subject to a maximum of depreciable historical cost. An impairment loss is reversed only to the extent that the carrying amount of asset does not exceed the net book value that would have been determined, if no impairment loss had been recognised.

1.15 Leases

Assets taken on lease where the company acquires substantially the entire risks and rewards incidental to ownership are classifi ed as fi nance leases. The amount recorded is the lesser of the present value of minimum lease rental and other incidental expenses during the lease term or the fair value of the assets taken on lease. The rental obligations, net of interest charges, are refl ected as secured loans. Leases that do not transfer substantially all the risks and rewards of ownership are classifi ed as operating leases and recorded as expense on a straight line basis.

1.16 Provisions and contingent liabilities

The Company recognises a provision when there is a present obligation as a result of a past event that probably requires an outfl ow 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 outfl ow of resources. Where there is a possible obligation or a present obligation that the likelihood of outfl ow of resources is remote, no provision or disclosure is made.

Provisions for onerous contracts, i.e. contracts where the expected unavoidable costs of meeting the obligations under the contract exceed the economic benefi ts expected to be received under it, are recognised when it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle a present obligation as a result of an obligating event, based on a reliable estimate of such obligation.

1.17 Earnings per share

Basic earnings per share ("EPS") is computed by dividing the net profi t after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profi t after tax for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the year, unless they have been issued at a later date.


Mar 31, 2011

1.1 Company overview

Zenotech Laboratories Limited is a public limited company listed on BSE. Zenotech Laboratories Limited was incorporated on June 15, 1989 as a Private Limited company by the name of MAA Shakti Mills Private Limited under the Companies Act, 1956. On April 1, 1992, its name was changed to Sunline Tubes Private Limited and on August 25, 1993 it was converted into a Public Limited Company. Subsequently, on December 6, 2000 its name was changed to Sunline technologies Limited. In 2004, the said Company entered into a scheme of amalgamation with Zenotech Laboratories Private Limited. The Hon'ble High Court of Andhra Pradesh sanctioned the scheme of amalgamation by its order dated July 1, 2004 with effect from November 1, 2003 pursuant which, its name was changed to its present form, Zenotech Laboratories Limited with effect from August 10, 2004.

The Company commenced pharmaceutical operations in 2003 and has since become a specialty generic injectables company with expertise in the area of bio-technology. The Company's injectables product portfolio primarily serves niche therapy areas like oncology and anesthesiology.

1.2 Basis of preparation of financial statements

The financial statements have been prepared and presented under the historical cost convention on the accrual basis of accounting in accordance with the generally accepted accounting principles in India and comply with the Accounting Standards (AS), prescribed by the Companies (Accounting Standards) Rules, 2006 and other pronouncements of Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956, to the extent applicable. The financial statements are presented in Indian rupees, unless otherwise stated. The financial statements have been prepared and presented from the reconstructed books of accounts as detailed in note 1 of Schedule 22.

1.3 Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities on the date of the financial statements. Actual results could differ from those estimates. Any revision to accounting estimates is recognised prospectively in current and future periods. Refer note 1 of schedule 22 for certain key factors impacting the management estimates.

1.4 Fixed assets and Depreciation

Fixed assets are carried at cost of acquisition or construction less accumulated depreciation and impairment losses, if any. The cost of fixed assets includes freight, duties, taxes and other incidental expenses related to the acquisition or construction of those fixed assets. Acquired intangible assets are recorded at the consideration paid for acquisition. Borrowing costs directly attributable to acquisition of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalised.

Depreciation on fixed assets is provided on the straight-line method and at the rates and in the manner specified in Schedule XIV to the Companies Act, 1956, except in respect of improvements to leasehold premises, where depreciation is charged over the lease period.

Assets individually costing Rs 5,000 or less, are depreciated fully in the year of purchase. Depreciation is charged on a proportionate basis for all assets purchased and sold during the year.

The cost of fixed assets not ready for their intended use before such date, are disclosed as capital work-in- progress.

1.5 Product development expenditure

Direct material and overhead costs in relation to product development activities are treated as deferred revenue expenditure and amortized over five years from the date of revenue is generated from the respective products. All other revenue expenditure is expensed as incurred and capital expenditure incurred on product development is capitalized as fixed assets and depreciated in accordance with depreciation policy of the Company. The Company has written off product development expenditure fully during the year.

1.6 Foreign currency translations

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

Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date are translated at the closing exchange rates on that date, the resultant exchange differences are recognised in the profit and loss account.

1.7 Investments

Long term investments are stated at cost of acquisition less provision for permanent diminution in value of such investments.

1.8 Inventories

Inventories are valued at the lower of cost and net realisable value. Cost of inventories comprises cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The method of determining cost of various categories of inventories is as below:

i) Raw materials, Packing materials, Stores and spares - First - in - First Out method.

ii) Finished goods and Work-in-process - Weighted average method, which comprises direct material costs and appropriate overheads.

Inventories are stated net of write downs or allowances on account of obsolete, damaged or slow moving inventories.

1.9 Employee Retirement benefits

Liability for employee benefits, both short and long term, for present and past services which are due as per terms of employment are recorded in accordance with Accounting Standard (AS) 15 " Employee Benefits" as notified by the Companies (Accounting Standards) Rules, 2006.

i) Gratuity

Liability on account of Gratuity is determined and charged to Profit and Loss account on the basis of valuation by an independent Actuary. The liability is unfunded.

ii) Provident Fund

Contribution to Provident Fund (a defined contribution plan) is recognized and expensed on accrual basis.

iii) Compensated Absences

Liability in respect of compensated absence is determined and charged to Profit and Loss account on the basis of valuation by an independent actuary.

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

1.10 Revenue recognition

Sale of goods is recognized on despatch and upon transfer of significant risk and rewards of ownership to the customer. Sales include amount recovered towards excise duty but excludes sales tax and is net of sales returns.

Service income is recognized as per the terms of the contract with customers when the related services are performed.

Interest on deposits is recognized on the time proportion method using the underlying interest rates.

1.11 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 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 recognised using the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty of realisation of such assets. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to reflect the amount that is reasonably/ virtually certain (as the case may be) to be realised.

The Company offsets, the current (on a year on year basis) and deferred tax assets and liabilities, where it has a legally enforceable right and where it intends to settle such assets and liabilities on a net basis.

1.12 Leases

Assets taken on lease where the company acquires substantially the entire risks and rewards incidental to ownership are classified as finance leases. The amount recorded is the lesser of the present value of minimum lease rental and other incidental expenses during the lease term or the fair value of the assets taken on lease. The rental obligations, net of interest charges, are reflected as secured loans. Leases that do not transfer substantially all the risks and rewards of ownership are classified as operating leases and recorded as expense on a straight line basis.

1.13 Miscellaneous expenditure

Written off over a period of five years or the period over which the benefit of the expenditure is expected to be derived.

1.14 Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset or a group of assets comprising a cash generating unit may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. For an asset or group of assets that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the profit and loss account. If at the balance sheet date there is an indication that if 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. An impairment loss is reversed only to the extent that the carrying amount of asset does not exceed the net book value that would have been determined, if no impairment loss had been recognised.

1.15 Provisions and contingent liabilities

The Company recognises a provision when there is a present obligation as a result of a past event 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 that the likelihood of outflow of resources is remote, no provision or disclosure is made.

Provisions for onerous contracts, i.e. contracts where the expected unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it, are recognised when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation as a result of an obligating event, based on a reliable estimate of such obligation.

1.16 Earnings per share

Basic earnings per share ("EPS") is computed by dividing the net profit after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit after tax for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the year, unless they have been issued at a later date.

a) 1,11,27,664 equity shares of Rs.10/- each issued to erstwhile shareholders of Credence Pharmaceuticals Limited and Hemarus Healthcare Private Limited pursuant to Scheme of Amalgamation.

b) 91,82,500 equity shares of Rs.10/- each issued to erstwhile Shareholders of Zenotech Laboratories Private Limited, pursuant to Scheme of Amalgamation.

c) Under the Zenotech Stock Option Scheme 2005, the Company has granted (net of options lapsed) 1,25,000 options of which 125,000 vested options have been exercised.

d) Under the Zenotech Employee Stock Option Scheme 2005, the Company Granted 17,000 options [net of options lapsed) of which 4,250 vested options have been excercised during the previous year and are pending allotment to the extent of 1,750 shares. (Refer Note 19 of Schedule 22)]

e) Under the Zenotech Employee Stock Option Scheme 2005, the Company Granted 32,500 options (net of options lapsed) unvested as on 31.03.2011

Note 1: Secured by way of hypothecation of plant and machinery and mortgage of land related to Biologics facility and R&D facility and personal guanratee of the Dircetor of the Company.

Note 2: Secured by way of paripassu first charge on the whole of movable properties of the Company including movable plant and machinery, both present and future and paripassu first charge of land or other immovable property of the Company, present and future, and personal gurantee of the Director of the Company.

Note 3: Secured by way of hypothecation of the respective vehicles.

a. Background

The Company in August 2006, with an intention to mobilize funds for funding the Company's product development and Abbreviated New Drug Application (ANDA) filings in the United States and European Union had made a preferential allotment of 2,000,000 equity shares of Rs. 10/- each at Rs. 100/- (inclusive of a premium of Rs.90/- per share) to Ranbaxy Laboratories Limited ('Ranbaxy') under relevant SEBI Guidelines.

In October 2007, pursuant to entering of definitive agreements among Dr. Jayaram Chigurupati and associates ('Erstwhile Promoters'), the Company and Ranbaxy;

- Ranbaxy had purchased 7,878,906 equity shares from erstwhile promoters;

- Ranbaxy had been allotted 5,489,536 equity shares on preferential basis; and

- the aforesaid acquisition triggered Open Offer by Ranbaxy to the then shareholders of the Company wherein, it acquired 758,851 shares of Company.

Pursuant to above acquisition of equity shares, Ranbaxy held 16,127,293 shares of the Company constituting 46.94% of the then paid-up capital of the Company and become the single largest shareholder of the Company.

Subsequent to Daiichi Sankyo Company Limited (Daiichi) acquiring 63.92% stake in Ranbaxy in October 2008, Daiichi announced an open offer to acquire 20% share of the Company at a price of Rs. 113.62 per share. Aggrieved by the pricing of the share, erstwhile promoters and few other shareholders filed a petition in the Hon'ble High Court of Madras. An interim injunction in connection with the offer was given by the Hon'ble High Court of Madras which was subsequently quashed by the Hon'ble Supreme Court on an appeal filed by Daiichi against the said injunction. Meanwhile some of the shareholders (excluding Ranbaxy) including erstwhile promoter of the Company filed a petition with Securities Appellate Tribunal (SAT) with respect to the pricing of Open Offer. SAT directed Daiichi to price the open offer at Rs. 160/- per share. Daiichi filed an appeal against the SAT order in the Supreme Court. The Supreme Court vide its order dated July 8, 2010 has ruled in favor of Daiichi and allowed the open offer to be made by Daiichi to the Shareholders of the Company at the price of Rs 113.62 per share.

In the mean time, the erstwhile promoters had filed a petition under Section 397, 398 and other applicable provisions of the Companies Act, 1956 in 2009 with the Company Law Board (CLB) alleging oppression against Ranbaxy and its associates. Ranbaxy had filed another on October 7, 2009 before CLB counter alleging oppression and mismanagement against erstwhile promoters. These petitions related to various matters relating to control and management of the Company's affairs.

b. Developments during the year, state of affairs which exist and circumstances resulting in reconstruction of the books of accounts.

i. The CLB through its various interim orders allowed Ranbaxy to appoint its nominee directors and also appointment of Mr. B K Raizada as one more Managing Director of the Company. Some of the interim orders were challenged by Dr. Jayaram Chigurupati (Co-Managing Director) in the Hon'ble High Court of Andhra Pradesh which were found to be without any substance by the Hon'ble High Court and were accordingly dismissed.

The Co-Managing Director unilaterally terminated the lease deed of the premises where the Registered Office of the Company was located, which forced current Management to shift the Registered Office to the Factory premises with effect from 1 August 2011. However, the current Management have been unable to get the possession of books of account, records and other information pertaining to accounts, finance, legal, secretarial matters, etc., which were maintained at the previous registered office.

Upon obtaining possession of the factory premises under the supervision of Advocate Commissioner (appointed by CLB vide its order dated November 11, 2011) on November 13, 2011, the current Management carried out various steps to restore operations including a detailed technical and business assessment of the status of entire manufacturing facilities, all its fixed assets, inventories, legal review of pending cases, search of documents, accounting books and records and other key records of the Company to the extent available in the factory.

The current Management based on a best effort basis and so far as practicable under the circumstances embarked upon a exercise of reconstruction of books of accounts which comprised of various steps and limitations including but not limited to the following:

a. In absence of the historical cost details relating to all the items of fixed assets purchased/ constructed, the Company engaged an independent certified valuer to value its existing assets. The value as prescribed by the independent certified valuer in aggregate is in excess of the carrying value of the assets and accordingly no adjustments were warranted. However, in the absence of all underlying documents and a definitive business plan relating to certain items of building under construction and plant and machineries, classified under capital work in progress and fixed assets, the Management has impaired the same fully in the current year.

b. The current Management based on statutory returns filed and supporting records available with it observed various non compliances of applicable laws and regulations including the Companies Act, 1956, SEBI regulations, listing agreement, etc. The Management is in the process of evaluating financial impact, if any, of such non compliances. Further the Management is also in process of regularizing and compounding such non compliances with various authorities concerned.

c. Per the audited financials of 2009-10 and previous years, the Company has the following overseas subsidiaries:

i. Zenotech Farmaceutica Do Brasil Ltda, Brazil

ii. Zenotech Laboratories Nigeria Ltd, Nigeria

iii. Zenotech Inc., USA

Upon taking control of the Company, the current Management observed that no books of account and records were available regarding its overseas subsidiaries. As part of efforts to obtain relevant information, the Company through its consultants and local advisors in the respective countries above reached out to the overseas subsidiaries. The Management has been unable to retrieve any relevant information, books and records and based on all reasonable efforts that it could have made under the circumstances believes that information relating to the subsidiaries is missing and the entities are either delinquent or do not exist anymore. This was further substantiated by the fact that in once case the Company has a written confirmation from one of the erstwhile auditors of a subsidiary they did the last audit of that subsidiary way back in the year 2006. The Company also has a written communication from legal counsel that the subsidiary has ceased to operate in a substantial manner and there is no listing of the Company in the last known business address of that entity. Furthermore, in another case per the records of the Corporate Affairs Commission of the country, the subsidiary does not exist.

This also led the current Management to believe that the annual reports for the prior years' presented by the previous management misrepresented that there were software problems in the years 2008 to 2010, on account of which the accounts of the subsidiaries could not audited.

In addition, the Company, as part of its efforts to reconstruct the books and records, also attempted to reach out to various bankers through whom the foreign exchange payments have been made over the years to these overseas subsidiaries. While the Company has some limited information on copies of SWIFT transmissions from one of its Authorised dealer, the majority of the foreign exchange remittances to these overseas subsidiaries had been made through another Authorised dealer. But as of the date, we have not been provided the relevant documentation from said Bank despite repeated requests. The Company plans to issue a notice to the said Bank, with a copy to the Reserve Bank of India (RBI) in this regard to expedite the process of obtaining copies of the relevant documentation that could be used for establishing the veracity of the remittances.

There have also been no responses from any of the entities for requests of balance confirmation letters circulated. Considering the above matters and as a result of non availability of primary books and records, during the year, the Management has on a prudent basis, written down the investments in its subsidiaries and loans and advances to these subsidiaries, in addition the write down of the investments of Brazil and Nigeria in the year 2008-09.

The Management is currently in the process of evaluating the extent of the missing information and the regulatory non compliances, if, any relating to the above subsidiaries. Provision has not been made for potential financial consequences arising out of such ongoing evaluations, the outcome of which will depend on the nature and extent of non compliances which is currently not determinable.

d. The Company has received communications from various tax authorities regarding non compliances of provision of certain provisions of laws related to direct and indirect taxes. The Company is in the process of assessment of the same. However, as a matter of abundant caution, the Company has provided towards potential financial consequences expected to arise out of such non compliances.

e. The current Management has been unable to obtain possession of secretarial records and relevant supporting documents to substantiate the reasonableness of the administrative and other expenses, product development expenses, manufacturing expenses except for power and fuel. The Management believes that, as no further significant claims have been received subsequent to year end till date, the unrecorded liabilities, if any, are not expected to be material.

Due to non availability of all relevant books of account and records with the current Management, the Company's current management carried out a detailed exercise including as mentioned above as part of its operational reviews to reconstruct the books of accounts and other financial information by obtaining photocopies/ duplicate copies, requisite information of relevant books and records from external sources including previous auditors, banks and financial institutions, customers, suppliers, tax authorities, Ministry of Corporate Affairs, employees and other relevant sources.

The events as explained above and the operating restructuring of the Zenotech business by the current management has led to certain one off exceptional costs being recognized in the financial statements for the year ended March 31, 2011. These relate to:


Mar 31, 2010

A) Basis of Accounting:

The financial statements have been prepared under historical cost convention, on accrual basis, in accordance with the generally accepted accounting principles in India and in accordance with Accounting Standards as notified by Companies (Accounting Standards) Rules 2006.

b) Use of Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the result of operations during the reporting period. Although these estimates are based on managements knowledge of current events and actions, actual results could differ from those estimates.

c) Fixed assets:

Fixed Assets are carried at cost of acquisition or construction less accumulated depreciation. The actual cost capitalized comprises of cost of acquisition of the asset, clearing charges in case of imported assets, duties, taxes and other incidental expenditure incurred for acquiring the assets. Borrowing costs directly attributable to acquisition or construction of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalized.

d) Depreciation:

Depreciation on fixed assets is provided on the straight-line method and at the rates and in the manner specified in Schedule XIV to the Companies Act, 1956, except in respect of improvements to leasehold premises, where depreciation is charged over the lease period.

e) Product development expenditure:

Direct material and overhead costs in relation to product development activities are treated as deferred revenue expenditure and amortized over five years from the date revenue is generated from the respective products. All other revenue expenditure is expensed as incurred and capital expenditure incurred on product development is capitalized as fixed assets and depreciated in accordance with depreciation policy of the Company.

f) Foreign currency translations:

Transactions denominated in foreign currencies are recorded at the exchange rate prevailing at the time of transaction. Monetary assets and liabilities related to foreign currency transactions remaining unsettled at the end of the year are translated at year end rates. The difference in translation of monetary assets and liabilities and realized gains and losses to foreign exchange transactions are recognized in Profit and Loss account.

g) Investments:

Long term investments are stated at cost of acquisition less provision for permanent diminution in value of such investments.

h) Inventories:

Inventories are valued at the lower of cost and net realisable value. Cost of inventories comprises cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The method of determining cost of various categories of inventories is as below:

i) Raw materials, Packing materials, Stores and spares - First - in - First Out method.

ii) Finished goods and Work-in-process - Weighted average method, which comprises direct material costs and appropriate overheads.

i) Retirement benefits:

Liability for employee benefits, both short and long term, for present and past services which are due as per terms of employment are recorded in accordance with Accounting Standard (AS) 15 " Employee Benefits" as notified by the Companies (Accounting Standards) Rules, 2006.

i) Gratuity

Liability on account of Gratuity is determined and charged to Profit and Loss account on the basis of valuation by an independent Actuary. The liability is unfunded.

ii) Provident Fund

Contribution to Provident Fund (a defined contribution plan) is recognized and expensed on accrual basis.

iii) Compensated Absences

Liability in respect of compensated absence is determined and charged to Profit and Loss account on the basis of valuation by an independent actuary.

j) Revenue recognition:

Sale of goods is recognized at the point of dispatch of finished goods to customers. Sales include amount recovered towards excise duty but excludes sales tax and is net of sales returns.

Service income is recognized as per the terms of the contract with customers when the related services are performed.

Income from interest on deposits is recognised on time proportionate basis.

k) Taxes on Income :

Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognized, subject to the consideration of prudence, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods.

l) Leases :

The Companys significant leasing arrangements are in respect of operating leases for office premises. The leasing arrangements which are not cancelable range between 11 months to 5 years are generally and usually renewable by mutual consent on agreed terms. The aggregate lease rents payable are charged as rent in the Profit and Loss account.

m) Miscellaneous expenditure:

Written off over a period of five years or the period over which the benefit of the expenditure is expected to be derived.

o. Subsequent to Daiichi Sankyo Company Limited (Daiichi) acquiring 63.92% stake in Ranbaxy Laboratories Limited (Ranbaxy) in October 2008, Daiichi announced an open offer to acquire 20% shares of Zenotech Laboratories Limited (the Company) at Rs. 113.62 per share. Aggrieved by the pricing of the share, one of the shareholders filed a petition in the Honble High Court of Madras. The Company has been named as Respondent in the said case. An interim injunction in connection with the offer was given by the Honble High Court of Madras and subsequently it was quashed by the Honble Supreme Court based on a petition filed by Daiichi against the said injunction. Meanwhile some of the shareholders (excluding Ranbaxy) including Promoter and Managing Director of the Company filed a petition with Securities Appellate Tribunal (SAT) with respect to the pricing of the share of the Company. SAT directed Daiichi to price the open offer at Rs. 160 per share. Daiichi has filed an appeal against the SAT order in the Supreme Court. The Supreme Court vide its order dated July 8, 2010 has ruled in favour of Daiichi and allowed the open offer to be made at the price of Rs. 113.62 per share.


Mar 31, 2009

A) Basis of Accounting:

The financial statements have been prepared under historical cost convention, in accordance with the generally accepted accounting principles in India and in accordance with Accounting Standards as notified by Companies (Accounting Standards) Rules 2006.

b) Use of Accounting Estimates:

The preparation of Financial Statements in conformity with Accounting Standards 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 Financial Statement and the reported amount of revenues and expenses during the reporting period. Differences between the actual results and estimates are recognized in the period in which the results are know and materialized.

c) Fixed assets:

Fixed Assets are carried at cost of acquisition or construction less accumulated depreciation. The actual cost capitalized comprises of cost of acquisition of the asset, clearing charges in case of imported assets, duties, taxes and other incidental expenditure incurred for acquiring the assets. Borrowing costs directly attributable to acquisition or construction of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalized.

d) Depreciation:

Depreciation on fixed assets is provided on the straight-line method and at the rates and in the manner specified in Schedule XIV to the Companies Act, 1956, except in respect of improvements to leasehold premises, where depreciation is charged over the lease period.

e) Product development expenditure:

Expenses on personnel, consultancy, material, overhead costs and depreciation on assets procured for product development activities are treated as deferred revenue expenditure and amortized over five years from the date revenue is generated from the respective products. All other revenue expenditure is expensed as incurred and capital expenditure incurred on product development is capitalized as fixed assets and depreciated in accordance with depreciation policy of the Company.

f) Foreign currency translations:

Transactions denominated in foreign currencies are recorded at the exchange rate prevailing at the time of transaction. Monetary assets and liabilities related to foreign currency transactions remaining unsettle at the end of the year are translated at year end rates. The difference in translation of monetary assets and liabilities and realized gains and losses to foreign exchange transactions are recognized in Profit and Loss account.

g) Investments:

Long term investments are stated at cost of acquisition. Provision for diminution in value of long term investments other than temporary is made in the accounts.

h) Inventories:

Inventories are valued at the lower of cost and net realisable value. Cost of inventories comprises cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The method of determining cost of various categories of inventories is as below:

i) Raw materials, Packing materials, Stores and spares - First-in - First Out method.

ii) Finished goods and Work-in-process - Weighted average method, which comprises direct material costs and appropriate overheads.

i) Retirement benefits:

Liability for employee benefits, both short and long term, for present and past services which are due as per terms of employment are recorded in accordance with Accounting Standard (AS) 15 " Employee Benefits" as notified by the Companies (Accounting Standards) Rules, 2006.

i) Gratuity

In accordance with the Payment of Gratuity Act, 1972 the Company provides for Gratuity covering its eligible employees. The liability is unfunded.

Liability on account of Gratuity is -

- determined and charged to Profit and Loss account on the basis of valuation by an independent Actuary. ii) Provident Fund

Contribution to Provident Fund (a defined contribution plan) is recognized and expensed on accrual basis.

iii) Compensated Absences

Leave liability is determined and charged to Profit and Loss account on the basis of valuation by an independent Actuary.

j) Revenue recognition:

Sale of goods is recognized at the point of dispatch of finished goods to customers. Sales include amount recovered towards excise duty but excludes sales tax and is net of sales returns.

Service income is recognized as per the terms of the contract with customers when the related services are performed.

Income from interest on deposits is recognised on time proportionate basis.

k) Taxes on Income :

Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognized, subject to the consideration of prudence, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods.

l) Leases :

The Companys significant leasing arrangements are in respect of operating leases for office premises. The leasing arrangements which are not cancelable range between 11 months to 5 years are generally and usually renewable by mutual consent on agreed terms. The aggregate lease rents payable are charged as rent in the Profit and Loss account.

m) Miscellaneous expenditure:

Written off over a period of five years or the period over which the benefit of the expenditure is expected to be derived.


Mar 31, 2008

A) Basis of Accounting

The financial statements have been prepared under historical cost convention on an accrual basis and are in accordance with the mandatory Accounting Standards and the relevant provisions of the Companies Act, 1956.

b) Fixed assets

Fixed Assets are carried at cost of acquisition or construction less accumulated depreciation. The actual cost capitalized comprises of cost of acquisition of the asset, clearing charges in case of imported assets, duties, taxes and other incidental expenditure incurred for acquiring the assets. Borrowing costs directly attributable to acquisition or construction of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalized.

c) Depreciation

Depreciation on fixed assets is provided on the straight-line method and at the rates and in the manner specified in Schedule XIV to the Companies Act, 1956, except in respect of improvements to leasehold premises, where depreciation is charged over the lease period on a straight line basis.

d) Product development expenditure

Expenses on personnel, consultancy, material, overhead costs and depreciation on assets procured for Product development activities are treated as deferred revenue expenditure and amortized over five years from the date revenue is generated from the respective products. All other revenue expenditure is expensed as incurred and capital expenditure incurred on Product development is capitalized as fixed assets and depreciated in accordance with depreciation policy of the Company.

e) Foreign currency translations

Foreign currency transactions are accounted at the exchange rates prevailing at the date of the transaction. In respect of monetary items denominated in foreign currencies, exchange differences arising out of settlement or on conversion at the closing rate are recognized in the profit and loss account except that exchange differences related to acquisition of fixed assets are adjusted in the carrying amount of the related fixed assets.

f) Investments

Long term investments are stated at cost.

g) Inventories

Inventories are valued at the lower of cost and net realisable value. Cost of inventories comprises all cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The method of determining cost of various categories of inventories is as below:

i) Raw materials, Packing materials, Stores and spares: First-in-First Out method.

ii) Finished goods and Work-in-process: Weighted average method, which comprises direct material costs and appropriate overheads.

h) Retirement benefits

Retirement benefits to employees are provided for by means of gratuity and provident fund.

Gratuity and leave encashment liabilities are accrued based on the actuarial valuation as at the balance sheet date.

i) Revenue recognition

Sale of goods is recognized at the point of dispatch of finished goods to customers. Sales include amount recovered towards excise duty but excludes sales tax and is net of sales returns.

Service income is recognized as per the terms of the contract with customers when the related services are performed.

Income from interest on deposits is recognised on time proportionate basis.

j) Taxes on Income

Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognized, subject to the consideration of prudence, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods.

k) Leases

The Companys significant leasing arrangements are in respect of operating leases for office premises. The leasing arrangements which are not cancelable range between 11 months to 5 years are generally and usually renewable by mutual consent on agreed terms. The aggregate lease rents payable are charged as rent in the Profit and Loss account.

l) Miscellaneous expenditure

Written off over a period of five years or the period over which the benefit of the expenditure is expected to be derived.

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