Mar 31, 2023
1. Company Overview
Biocon Limited ("Biocon" or "the Company"), is engaged in the manufacture of biotechnology products and research services. The Company is a public limited company incorporated and domiciled in India and has its registered office in Bengaluru, Karnataka, India. The Company''s shares are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India.
1.2 Basis of preparation of financial statements
a) Statement of compliance
The standalone financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of Companies Act, 2013, (the ''Act'') and other relevant provisions of the Act.
These standalone financial statements have been prepared for the Company as a going concern on the basis of relevant Ind AS that are effective at the Company''s annual reporting date, March 31, 2023. These standalone financial statements were authorised for issuance by the Company''s Board of Directors on May 23, 2023.
Details of the Company''s accounting policies are included in Note 2.
b) Functional and presentation currency
These standalone financial statements are
presented in Indian rupees (INR), which is also the functional currency of the Company. All amounts have been rounded-off to the nearest million, unless otherwise indicated.
c) Basis of measurement
These standalone financial statements have been prepared on the historical cost basis (i.e on accrual basis), except for the following items:
⢠Certain financial assets and liabilities
(including derivative instruments) are
measured at fair value; and
⢠Net defined benefit assets/(liability) are measured at fair value of plan assets, less present value of defined benefit obligations.
d) Use of estimates and judgements
The preparation of the standalone financial statements in conformity with Ind AS requires Management to make estimates, judgements and assumptions. These estimates, judgements and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the standalone financial statements.
Judgements
Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements is included in the following notes:
⢠|
Note 2(a) and 36 |
Financial instruments; |
⢠|
Note 2(b), |
â Useful lives of property, plant and |
2(c) and 2(d) |
equipment, intangible assets and investment property |
|
⢠|
Note 2(p) and 38 |
â Lease, whether an agreement contains a lease; |
⢠|
Note 2(m) and 33 |
Provision for income taxes and â related tax contingencies and Evaluation of recoverability of deferred tax assets. |
⢠|
Note 2(k) and 21 |
Revenue Recognition: whether â revenue from sale of product and licensing income is recognised over time or at a point in time; |
1.3 Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ended March 31, 2023 is included in the following notes:
â Note 2(h)(ii) - impairment test of non-financial assets; key assumptions underlying recoverable amounts including the recoverability of expenditure on internally-generated intangible assets;
â Note 18 and 33 - recognition of deferred tax assets: availability of future taxable profit against which tax losses carried forward can be used;
â Note 36 - impairment of financial assets; and
â Note 17 and 34 - recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources.
1.4 Measurement of fair values
A number of the Company''s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
â Level 1: quoted prices (unadjusted) in active
markets for identical assets or liabilities.
â Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
â Level 3: inputs for the asset or liability that
are not based on observable market data (unobservable inputs).
The Company has an established control
framework with respect to the measurement of fair values. This includes a finance team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values.
The Company regularly reviews significant
unobservable inputs and valuation adjustments. If third party information is used to measure fair values, then the finance team assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of Ind AS, including the level
in the fair value hierarchy in which the valuations should be classified
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
â Note 30 - share based payment
arrangements;
â Note 4 (a) - investment property; and
â Note 2(a) -financial instruments.
and 36
2 Significant accounting policies
a. Financial instruments
i. Recognition and initial measurement
Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Company becomes a party to the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue.
ii. Classification and subsequent
measurement
Financial assets
On initial recognition, a financial asset is classified as measured at
â amortised cost;
â Fair value through other comprehensive income - equity investment; or
â Fair value through profit and loss (FVTPL)
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
â the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
â the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
â the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
â the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment''s fair value in OCI (designated as FVOCI - equity investment). This election is made on an investment- byinvestment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described
above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS 103 applies are classified as at FVPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable. If the Company decides to classify an equity instrument as at FVOCI, then all fair value changes on the instrument, excluding dividends, are recognised in the OCI. There is no recycling of the amounts from OCI to the Statement of Profit and Loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss to retained earnings. Equity instruments included within the FVPL category are measured at fair value with all changes recognised in the Statement of Profit and Loss.
Equity investments in subsidiaries are carried at cost less accumulated impairment losses, if any. Where an indication of impairment exists,the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in subsidiaries, the difference between net disposal proceeds and the carrying amounts are recognised in the Statement of Profit and Loss.
Financial assets: Subsequent measurement and gains and losses |
|
Financial |
These assets are |
assets at FVTPL |
subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in statement of profit and loss. However, see Note 36 for derivatives designated as hedging instruments. |
Financial assets |
These assets are |
at amortised cost |
subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in statement of profit and loss. Any gain or loss on derecognition is recognised in statement of profit and loss. |
Equity |
These assets are |
investments |
subsequently measured |
at FVOCI |
at fair value. Dividends are recognised as income in statement of profit and loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are not reclassified to statement of profit and loss. |
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held- for- trading, or it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in statement of profit and loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in statement of profit and loss. Any gain or loss on derecognition is also recognised in statement of profit and loss.
Financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control of the financial asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Company''s continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Financial liabilities
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
The Company also derecognises a financial liability when its terms are modified and the cash flows under the modified terms are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised in statement of profit and loss.
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
v. Derivative financial instruments and hedge accounting
The Company holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.
Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in statement of profit and loss.
The Company designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and interest rates.
At inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in other equity under ''effective portion of cash flow hedges''. The effective portion of changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in statement of profit and loss.
If a hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in other equity remains there until, for a hedge of a transaction resulting in recognition of a non-financial item, it is included in the non-financial item''s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in other equity are immediately reclassified to statement of profit and loss.
The Company has created an Employee Welfare Trust (EWT) for providing share-based payment to its employees. Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. When the treasury shares are issued to the employees by EWT, the amount received is recognised as an increase in equity and the resultant gain / (loss) is transferred to / from securities premium.
viii. Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Company''s cash management.
Cash dividend to equity holders The Company recognises a liability to make cash to equity holders when the distribution is authorised and the distribution is no longer at the discretion of the Company. As per the corporate laws in India, a distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in equity. Interim dividends are recorded as a liability on the date of declaration by the Company''s Board of Directors.
b. Property, plant and equipment
i. Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. The cost of an item of
property, plant and equipment comprises its purchase price including import duty and non refundable taxes or levies , any other costs directly attributable to bringing the item to working condition for its intended use, and estimated costs of dismantling and removing the item and restoring the site on which it is located.
Expenditure incurred on startup and commissioning of the project and/ or substantial expansion, including the expenditure incurred on trial runs (net of trial run receipts, if any) up to the date of commencement of commercial production are capitalised.If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in statement of profit and loss.
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.
Advances paid towards acquisition of property, plant and equipment outstanding at each Balance Sheet date, are shown under other non-current assets and cost of assets not ready for intended use before the year end, are shown as capital work-in-progress.
ii. Depreciation
Depreciation is calculated on cost of items of property, plant and equipment less their estimated residual values over their estimated useful lives using the straight-line method. Freehold land is not depreciated.
The estimated useful lives of items of property, plant and equipment for the current and comparative periods are as follows: |
|||
Asset |
Assets Classification |
Management estimate of useful life |
Useful life as per Schedule II |
Building |
Building |
25 years |
30 years |
Roads |
Building |
5 years |
5 years |
Plant and equipment (including Electrical installation and Lab equipment ) |
Plant and Machinery |
9-11 years |
8-20 years |
Computers and servers |
Plant and Machinery |
3 years |
3-6 years |
Office equipment |
Plant and Machinery |
5 years |
5 years |
Research and development equipment |
Research and development equipment |
9 years |
5-10 years |
Furniture and fixtures |
Furniture and fixtures |
6 years |
10 years |
Vehicles |
Vehicles |
6 years |
6-10 years |
Leasehold improvements |
Leasehold improvements |
5 years or lease period whichever is lower |
|
Leasehold land |
Land and Right to use-assets |
90 years or lease period whichever is lower |
The estimated useful lives of items of property, plant and equipment for the current and comparative periods are as follows:
Depreciation method, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. Based on technical evaluation and consequent advice, the management believes that its estimates of useful lives as given above best represent the period over which management expects to use these assets.
Depreciation on additions (disposals) is provided on a pro-rata basis i.e. from (upto) the date on which asset is ready for use (disposed of).
iii. Reclassification to investment property
When the use of a property changes from owner-occupied to investment property, the property is reclassified as investment property at its carrying amount on the date of reclassification.
internally generated: Research and development Expenditure on research activities is recognised in statement of profit and loss as incurred.
Development expenditure is capitalised as part of the cost of the resulting intangible asset only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in statement of profit and loss as incurred. Subsequent to initial recognition, the asset is measured at cost less accumulated amortisation and any accumulated impairment losses.
Others
Other intangible assets are initially measured at cost. Subsequently, such intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses.
i. Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on brands, is recognised in statement of profit and loss as incurred.
ii. Amortisation
Intangible assets are amortised on a straight line basis over the estimated useful life as follows:
â Computer software 3-5 years
â Marketing and 5-10 years
Manufacturing rights
â Customer 5 years
related intangibles
â Intellectual 5-10 years
property rights
Amortisation method, useful lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Upon initial recognition, an investment property is measured at cost. Subsequent to initial recognition, investment property is measured at cost less accumulated depreciation and accumulated impairment losses, if any.
Based on technical evaluation and consequent advice, the management believes a period of 25 years as representing the best estimate of the period over which investment properties (which are quite similar) are expected to be used. Accordingly, the Company depreciates investment properties over a period of 25 years on a straight-line basis. The useful life estimate of 25 years is different from the indicative useful life of relevant type of
buildings mentioned in Part C of Schedule II to the Act i.e. 30 years. Any gain or loss on disposal of an investment property is recognised in statement of profit and loss.
In accordance with Ind AS 103, Business combinations, the Company accounts for business combinations after acquisition date using the acquisition method when control is transferred to the Company. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The cost of acquisition also includes the fair value of any contingent consideration and deferred consideration, if any. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in OCI and accumulated in equity as capital reserve if there exists clear evidence of the underlying reasons for classifying the business combination as resulting in a bargain purchase; otherwise the gain is recognised directly in equity as capital reserve. Transaction costs are expensed as incurred.
Business combinations between entities under common control is accounted for at carrying value.
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out formula, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their present location and condition. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of fixed production overheads based on normal operating capacity.
Provisions are made towards slow-moving and obsolete items based on historical experience of utilisation on a product category basis, which consideration of product lines and market conditions.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and selling expenses. The net realisable value of work-in-progress is determined with reference to the selling prices of related finished products.
Raw materials, components and other supplies held for use in the production of finished products are not written down below cost except in cases where material prices have declined and it is estimated that the cost of the finished products will exceed their net realisable value.
The comparison of cost and net realisable value is made on an item-by-item basis.
g. Foreign currency Transactionsandtranslations:
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at balance sheet date exchange rates are generally recognised in Statement of Profit and Loss.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example translation differences on non-monetary assets such as equity investments classified as FVOCI are recognised in other comprehensive income (OCI).
i. Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss ("ECL") model for measurement and recognition of impairment loss on following:
â financial assets measured at
amortised cost; and
Loss allowance for trade receivables with no significant financing component is measured at an amount equal to lifetime expected
credit losses. For all other financial assets, ECL are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL.
Loss allowance for financial assets measured at amortised cost are deducted from gross carrying amount of the assets. The amount of ECL (or reversal) that is required to adjust the loss allowance at the reporting date is recognised as an impairment gain or loss in the Statement of Profit and Loss.
ii. Impairment of non-financial assets
The Company assess at each reporting date whether there is any indication that the carrying amount may not be recoverable. If any such indication exists, then the asset''s recoverable amount is estimated and an impairment loss is recognised if the carrying amount of an asset or Cash Generating Unit (CGU) exceeds its estimated recoverable amount in the statement of profit and loss.
The recoverable amount of a CGU (or an individual asset) is higher of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flow, discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to CGU (or the asset).
The Company''s non-financial assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset''s recoverable amount is estimated. For impairment testing, assets that do not generate independent cash inflows are grouped together into cash-generating units (CGUs). Each CGU represents the smallest group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or CGUs.
Impairment loss recognised in respect of a CGU is allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets of the CGU (or group of CGUs) on a pro rata basis.
An impairment loss in respect of other assets for which impairment loss has been recognised in prior periods, the Company reviews at each reporting date whether there is any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. Such a reversal is made only to the extent that the asset''s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
i. Short-term employee benefits:
All employee benefits falling due within twelve months from the end of the period in which the employees render the related services are classified as short-term employee benefits, which include benefits like salaries, wages, short term compensated absences, performance incentives, etc. and are recognised as expenses in the period in which the employee renders the related service and measured accordingly."
ii. Post-employment benefits:
Post-employment benefit plans are classified into defined benefits plans and defined contribution plans as under:"
The Company provides for gratuity, a defined benefit plan ("the Gratuity Plan") covering the eligible employees of the Company. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee''s salary
and the tenure of the employment with the Company.
Liability with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary, at each balance sheet date using the projected unit credit method. The defined benefit plan is administered by a trust formed for this purpose through the Company gratuity scheme.
The Company recognises the net obligation of a defined benefit plan as a liability in its balance sheet. Gains or losses through remeasurement of the net defined benefit liability are recognised in other comprehensive income and are not reclassified to profit and loss in the subsequent periods. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognised in other comprehensive income. The effect of any plan amendments are recognised in the statement of profit and loss.
Eligible employees of the Company receive benefits from provident fund, which is a defined contribution plan. Both the eligible employees and the Company make monthly contributions to the Government administered provident fund scheme equal to a specified percentage of the eligible employee''s salary. Amounts collected under the provident fund plan are deposited with in a government administered provident fund. The Company has no further obligation to the plan beyond its monthly contributions. Company''s contribution to the provident fund is charged to Statement of Profit and Loss.
iii. Compensated absences:
The Company has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences
is determined by actuarial valuation performed by an independent actuary at each balance sheet date using the projected unit credit method on the additional amount expected to be paid/availed as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognised is the period in which the absences occur.
The liability in respect of all defined benefit plans and other long term benefits is accrued in the books of account on the basis of actuarial valuation carried out by an independent actuary using the Projected Unit Credit Method. The obligation is measured at the present value of estimated future cash flows. The discount rates used for determining the present value of obligation under defined benefit plans, is based on the market yields on Government securities as at the Balance Sheet date, having maturity periods approximating to the terms of related obligations.
Remeasurement gains and losses on other long term benefits are recognised in the Statement of Profit and Loss in the year in which they arise. Remeasurement gains and losses in respect of all defined benefit plans arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in other comprehensive income. They are included in other equity in the Statement of Changes in Equity and in the Balance Sheet. Changes in the present value of the defined benefit obligation resulting from plan amendments or curtailments are recognised immediately in profit or loss as past service cost. Gains or losses on the curtailment or settlement of any defined benefit plan are recognised when the curtailment or settlement occurs. Any differential between the plan assets (for a funded defined benefit plan) and the defined benefit obligation as per actuarial valuation is recognised as a liability if it is a deficit or as an asset if it is a surplus (to the
extent of the lower of present value of any economic benefits available in the form of refunds from the plan or reduction in future contribution to the plan).
Past service cost is recognised as an expense in the Statement of Profit and Loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits are already vested immediately following the introduction of, or changes to, a defined benefit plan, the past service cost is recognised immediately in the Statement of Profit and Loss. Past service cost may be either positive (where benefits are introduced or improved) or negative (where existing benefits are reduced).
iv. Share-based compensation
The grant date fair value of equity settled share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as expense is based on the estimate of the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market vesting conditions at the vesting date.
The grant date fair value of options granted (net of estimated forfeiture) to employees of the Company is recognised as an employee expense.
The Company has adopted the policy to account for Employees Welfare Trust as a legal entity separate from the Company but as a subsidiary of the Company. Any loan from the Company to the trust is accounted for as a loan in accordance with its term.
The expense is recorded for each separately vesting portion of the award as if the award was, in substance, multiple awards. The
increase in equity recognised in connection with share based payment transaction is presented as a separate component in equity under "share based payment reserve". The amount recognised as an expense is adjusted to reflect the actual number of stock options that vest. For the option awards, grant date fair value is determined under the optionpricing model (Black-Scholes-Merton). Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures materially differ from those estimates.
j. Provisions (other than for employee benefits)
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. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows (representing the best estimate of the expenditure required to settle the present obligation at the balance sheet date) at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. Expected future operating losses are not provided for.
Onerous contracts
A contract is considered to be onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the present value of the
lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before such a provision is made, the Company recognises any impairment loss on the assets associated with that contract.
k. Revenue from contracts with customers
i. Sale of goods
Revenue is recognised when a promise in a customer contract (performance obligation) has been satisfied by transferring control over the promised goods to the customer. Control over a promised goods refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, those goods. Control is usually transferred upon shipment, delivery to, upon receipt of goods by the customer, in accordance with the delivery and acceptance terms agreed with the customers. However, in certain cases, revenue is recognized on sale of products where shipment is on hold at specific request of the customer provided performance obligation conditions has been satisfied and control is transferred, with customer taking title of the goods. The amount of revenue to be recognised (transaction price) is based on the consideration expected to be received in exchange for goods, excluding amounts collected on behalf of third parties such as goods and services tax or other taxes directly linked to sales. If a contract contains more than one performance obligation, the transaction price is allocated to each performance obligation based on their relative stand-alone selling prices. Revenue from product sales are recorded net of allowances for estimated rebates, cash discounts and estimates of product returns, all of which are established at the time of sale.
For contracts with distributors, no sales are recognised when goods are physically transferred to the distributor under a consignment arrangement, or if the distributor acts as an agent. In such cases, sales are recognised when control over the goods transfers to the end-customer, and
distributor''s commissions are presented within marketing and distribution.
The consideration received by the Company in exchange for its goods may be fixed or variable. Variable consideration is only recognised when it is considered highly probable that a significant revenue reversal will not occur once the underlying uncertainty related to variable consideration is subsequently resolved.
ii. Milestone payments and out licensing arrangements
The Company enters into certain dossier sales, licensing and supply arrangements that, in certain instances, include certain performance obligations. Based on an evaluation of whether or not these obligations are inconsequential or perfunctory, the Company recognise or defer the upfront payments received under these arrangements.
Income from out-licensing agreements typically arises from the receipt of upfront, milestone and other similar payments from third parties for granting a license to product- or technology- related intellectual property (IP). These agreements may be entered into with no further obligation or may include commitments to regulatory approval, co-marketing or manufacturing. These may be settled by a combination of upfront payments, milestone payments and other fees. These arrangements typically also consist of subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Milestone payments which are contingent on achieving certain clinical milestones are recognised as revenues either on achievement of such milestones, if the
Milestones are considered substantive, or over the period we have continuing performance obligations, if the milestones are not considered substantive. Whether to consider these commitments as a single performance obligation or separate ones, or even being in scope of Ind-AS 115''Revenues from Contracts with Customers, is not straightforward and requires some judgement. Depending on the conclusion, this may result in all revenue being calculated at inception and either being recognised at point in time or spread over the term of a longer performance obligation. Where performance obligations may not be distinct, this will bundled with the subsequent product supply obligations. The new standard provides an exemption for sales-based royalties for licenses of intellectual property which will continue to be recognised as revenue as underlying sales are incurred.
The Company recognises a deferred income (contract liability) if consideration has been received (or has become receivable) before the company transfers the promised goods or services to the customer. Deferred income mainly relates to remaining performance obligations in (partially) unsatisfied longterm contracts or are related to amounts the Company expects to receive for goods and services that have not yet been transferred to customers under existing, non-cancellable or otherwise enforceable contracts.
Contract assets are recognised when there is excess of revenue earned over billings on contracts. Contract assets are classified as unbilled receivables (only act of invoicing is pending) when there is unconditional right to receive cash, and only passage of time is required, as per contractual terms.
iii. Royalty income and profit share
The Royalty income and profit share earned through a License or collaboration partners is recognised as the underlying sales are recorded by the Licensee or collaboration partners.
iv. Sales Return Allowances
The Company accounts for sales return by recording an allowance for sales return concurrent with the recognition of revenue
at the time of a product sale. The allowance is based on Company''s estimate of expected sales returns. The estimate of sales return is determined primarily by the Company''s historical experience in the markets in which the Company operates.
v. Dividends
Dividend is recognised when the Company''s right to receive the payment is established, which is generally when shareholders approve the dividend.
vi. Rental income
Rental income from investment property is recognised in statement of profit and loss on a straight-line basis over the term of the lease except where the rentals are structured to increase in line with expected general inflation. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.
vii. Contribution received from customers/ co-development partners towards plant and equipment
Contributions received from customers/ co-development partners towards items of property, plant and equipment which require an obligation to supply goods to the customer in the future, are recognised as a credit to deferred revenue. The contribution received is recognised as revenue from operations over the useful life of the assets. The Company capitalises the gross cost of these assets as the Company controls these assets.
viii. Interest income and expense
Interest income or expense is recognised using the effective interest method.
The Company recognises government grants at their fair value only when there is reasonable assurance that the conditions attached to them will be complied with, and the grants will be received. Government grants received in relation to assets are recognised as deferred income and amortised over the useful life of such asset. Government
grants, which are revenue in nature are either recognised as income or deducted in reporting the related expense based on the terms of the grant, as applicable.
Income tax comprises of current and deferred income tax. Income tax expense is recognised in statement of profit and loss except to the extent that it relates to an item recognised directly in equity in which case it is recognised in other comprehensive income. Current income tax for current year and prior periods is recognised at the amount expected to be paid or recovered from the tax authorities, using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Current tax assets and liabilities are offset only if there is a legally enforceable right to set off the recognised amounts, and it is intended to realise the asset and settle the liability on a net basis or simultaneously.
Deferred income tax assets and liabilities are recognised for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when:
â temporary differences arising on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss at the time of transaction; and
â temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax assets (DTA) include Minimum Alternate Tax (MAT) paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability.
Deferred income tax assets and liabilities are measured using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognised as income or expense in the period that includes the enactment or substantive enactment date. A deferred income tax assets is recognised to the extent it is probable that future taxable income will be available against which the deductible temporary timing differences and tax losses can be utilised. The Company offsets income-tax assets and liabilities, where it has a legally enforceable right to set off the recognised amounts and where it intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used
Borrowing costs are interest and other costs (including exchange differences relating to foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs) incurred in connection with the borrowing of funds. Borrowing costs directly attributable to acquisition or construction of an asset which necessarily take a substantial period of time to get ready for their intended use are capitalised as part of the cost of that asset. Other borrowing costs are recognised as an expense in the period in which they are incurred.
Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
Basic earnings per share is computed using the weighted average number of equity shares outstanding during the period adjusted for treasury shares held. Diluted earnings per share is computed using the weighted-average number of equity and dilutive equivalent shares outstanding during the period, using the treasury stock method for options and warrants, except where the results would be anti-dilutive.
(i) The Company as lessee:
The Company assesses whether a contract contains a lease, at the inception of contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assesses whether a contract conveys the right to control use of an identified asset, the Company assesses whether:
⢠The contract involves use of an identified asset;
⢠The Company has substantially all the economic benefits from the use of the asset through the period of lease; and
⢠The Company has the right to direct the use of an asset.
At the date of commencement of lease, the Company recognises a Right-of-use asset ("ROU") and a corresponding liability for all lease arrangements in which it is a lessee, except for leases with the term of twelve months or less (short term leases) and low value leases. For short term and low value leases, the Company recognises the lease payment as an operating expense on straight line basis over the term of lease. Certain lease agreements include an option to extend or terminate the lease before the end of lease
Mar 31, 2022
1. Company Overview
Biocon Limited ("Biocon" or "the Company"), is engaged in the manufacture of biotechnology products and research services. The Company is a public limited company incorporated and domiciled in India and has its registered office in Bengaluru, Karnataka, India. The Company''s shares are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India.
a) Statement of compliance
The standalone financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of Companies Act, 2013, (the ''Act'') and other relevant provisions of the Act.
These standalone financial statements have been prepared for the Company as a going concern on the basis of relevant Ind AS that are effective at the Company''s annual reporting date, March 31, 2022. These standalone financial statements were authorised for issuance by the Company''s Board of Directors on April 28, 2022.
Details of the Company''s accounting policies are included in Note 2.
b) Functional and presentation currency
These standalone financial statements are presented in Indian rupees (INR), which is also the functional currency of the Company. All amounts have been rounded-off to the nearest million, unless otherwise indicated.
c) Basis of measurement
These standalone financial statements have been prepared on the historical cost basis (i.e on accrual basis), except for the following items:
Certain financial assets and liabilities (including derivative instruments) are measured at fair value; and
Net defined benefit assets/(liability) are measured at fair value of plan assets, less present value of defined benefit obligations.
d) Use of estimates and judgements
The preparation of the standalone financial statements in conformity with Ind AS requires Management to make estimates, judgements and assumptions. These estimates, judgements and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the standalone financial statements.
Judgements
Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements is included in the following notes:
⢠Note 2(a) and 36 â Financial instruments;
⢠Note 2(b), 2(c) and 2(d) â Useful lives of property, plant and equipment, intangible assets and investment property;
⢠Note 2(p) and 38 â Lease, whether an agreement contains a lease;
⢠Note 35 â Measurement of defined benefit obligation; key actuarial assumptions;
⢠Note 30 â Share based payments;
⢠Note 2(m) and 33 â Provision for income taxes and related tax contingencies and Evaluation of
recoverability of deferred tax assets.
⢠Note 2(k) and 21 â Revenue Recognition: whether revenue from sale of product and licensing income is
recognised over time or at a point in time;
I nformation about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ended March 31, 2022 is included in the following notes:
â Note 2(h)(ii) - impairment test of non-financial assets; key assumptions underlying recoverable amounts including the recoverability of expenditure on internally-generated intangible assets;
â Note 18 and 33 - recognition of deferred tax assets: availability of future taxable profit against which tax losses carried forward can be used;
â Note 36 - impairment of financial assets; and
â Note 17 and 34 - recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources.
A number of the Company''s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
â Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
â Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
â Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Company has an established control framework with respect to the measurement of fair values. This includes a finance team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values.
The Company regularly reviews significant unobservable inputs and valuation adjustments. If third party information is used to measure fair values, then the finance team assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of Ind AS, including the level in the fair value hierarchy in which the valuations should be classified
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
â Note 30 - share based payment arrangements;
â Note 4 (a) - investment property; and
â Note 2(a) and 36 - financial instruments.
2. Significant accounting policies
a. Financial instruments
i. Recognition and initial measurement
Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Company becomes a party to the contractual provisions of the instrument. A financial asset or financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue.
ii. Classification and subsequent measurement Financial assets
On initial recognition, a financial asset is classified as measured at
â amortised cost;
â Fair value through other comprehensive income - equity investment; or
â Fair value through profit and loss (FVTPL)
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
â the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
â the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
â the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
â the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment''s fair value in OCI (designated as FVOCI - equity investment). This election is made on an investment- by- investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS 103 applies are classified as at FVPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument-byinstrument basis. The classification is made on initial recognition and is irrevocable. If the Company decides to classify an equity instrument as at FVOCI, then all fair value changes on the instrument, excluding dividends, are recognised in the OCI. There is no recycling of the amounts from OCI to the Statement of Profit and Loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss to retained earnings. Equity instruments included within the FVPL category are measured at fair value with all changes recognised in the Statement of Profit and Loss.
Investments in subsidiaries
Equity investments in subsidiaries are carried at cost less accumulated impairment losses, if any. Where an indication of impairment exists,the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in subsidiaries, the difference between net disposal proceeds and the carrying amounts are recognised in the Statement of Profit and Loss.
Financial assets: Subsequent measurement and gains and losses |
|
Financial assets at FVTPL |
These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in statement of profit and loss. However, see Note 36 for derivatives designated as hedging instruments. |
Financial assets at amortised cost |
These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in statement of profit and loss. Any gain or loss on derecognition is recognised in statement of profit and loss. |
Equity investments at FVOCI |
These assets are subsequently measured at fair value. Dividends are recognised as income in statement of profit and loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are not reclassified to statement of profit and loss. |
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held- for- trading, or it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in statement of profit and loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in statement of profit and loss. Any gain or loss on derecognition is also recognised in statement of profit and loss.
iii. Derecognition Financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control of the financial asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Company''s continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Financial liabilities
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
The Company also derecognises a financial liability when its terms are modified and the cash flows under the modified terms are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised in statement of profit and loss.
iv. Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
v. Derivative financial instruments and hedge accounting
The Company holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.
Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in statement of profit and loss.
The Company designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and interest rates.
At inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
vi. Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in other equity under ''effective portion of cash flow hedges''. The effective portion of changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in statement of profit and loss. If a hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in other equity remains there until, for a hedge of a transaction resulting in recognition of a non-financial item, it is included in the non-financial item''s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in other equity are immediately reclassified to statement of profit and loss.
vii. Treasury shares
The Company has created an Employee Welfare Trust (EWT) for providing share-based payment to its employees. Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. When the treasury shares are issued to the employees by EWT, the amount received is recognised as an increase in equity and the resultant gain / (loss) is transferred to / from securities premium.
viii. Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Company''s cash management.
Cash dividend to equity holders
The Company recognises a liability to make cash to equity holders when the distribution is authorised and the distribution is no longer at the discretion of the Company. As per the corporate laws in India, a distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in equity. Interim dividends are recorded as a liability on the date of declaration by the Company''s Board of Directors.
b. Property, plant and equipment
i. Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. The cost of an item of property, plant and equipment comprises its purchase price including import duty and non refundable taxes or levies , any other costs directly attributable to bringing the item to working condition for its intended use, and estimated costs of dismantling and removing the item and restoring the site on which it is located. Property, plant and equipment (continued)
Expenditure incurred on startup and commissioning of the project and/or substantial expansion, including the expenditure incurred on trial runs (net of trial run receipts, if any) up to the date of commencement of commercial production are capitalised.If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in statement of profit and loss. Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.
Advances paid towards acquisition of property, plant and equipment outstanding at each Balance Sheet date, are shown under other non-current assets and cost of assets not ready for intended use before the year end, are shown as capital work-in-progress.
ii. Depreciation
Depreciation is calculated on cost of items of property, plant and equipment less their estimated residual values over their estimated useful lives using the straight-line method. Freehold land is not depreciated.
The estimated useful lives of items of property, plant and equipment for the current and comparative periods are as follows:
Asset |
Assets Classification |
Management estimate of useful life |
Useful life as per Schedule II |
Building |
Building |
25 years |
30 years |
Roads |
Building |
5 years |
5 years |
Plant and equipment (including Electrical installation and Lab equipment ) |
Plant and Machinery |
9-11 years |
8-20 years |
Computers and servers |
Plant and Machinery |
3 years |
3-6 years |
Office equipment |
Plant and Machinery |
5 years |
5 years |
Research and development equipment |
Research and development equipment |
9 years |
5-10 years |
Furniture and fixtures |
Furniture and fixtures |
6 years |
10 years |
Vehicles |
Vehicles |
6 years |
6-10 years |
Leasehold improvements |
Leasehold improvements |
5 years or lease period whichever is lower |
|
Leasehold land |
Land and Right to use-assets |
90 years or lease period whichever is lower |
Depreciation method, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. Based on technical evaluation and consequent advice, the management believes that its estimates of useful lives as given above best represent the period over which management expects to use these assets.
Depreciation on additions (disposals) is provided on a pro-rata basis i.e. from (upto) the date on which asset is ready for use (disposed of).
Property, plant and equipment (continued)
iii. Reclassification to investment property
When the use of a property changes from owner-occupied to investment property, the property is reclassified as investment property at its carrying amount on the date of reclassification.
Internally generated: Research and development
Expenditure on research activities is recognised in statement of profit and loss as incurred.
Development expenditure is capitalised as part of the cost of the resulting intangible asset only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in statement of profit and loss as incurred. Subsequent to initial recognition, the asset is measured at cost less accumulated amortisation and any accumulated impairment losses.
Others
Other intangible assets are initially measured at cost. Subsequently, such intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on brands, is recognised in statement of profit and loss as incurred.
ii. Amortisation Intangible assets are amortised on a straight line basis over the estimated useful life as follows |
|
â Computer software |
3-5 years |
â Marketing and Manufacturing rights |
5-10 years |
â Customer related intangibles |
5 years |
â Intellectual property rights |
5-10 years |
Amortisation method, useful lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
d. Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Upon initial recognition, an investment property is measured at cost. Subsequent to initial recognition, investment property is measured at cost less accumulated depreciation and accumulated impairment losses, if any.
Based on technical evaluation and consequent advice, the management believes a period of 25 years as representing the best estimate of the period over which investment properties (which are quite similar) are expected to be used. Accordingly, the Company depreciates investment properties over a period of 25 years on a straight-line basis. The useful life estimate of 25 years is different from the indicative useful life of relevant type of buildings mentioned in Part C of Schedule II to the Act i.e. 30 years. Any gain or loss on disposal of an investment property is recognised in statement of profit and loss.
I n accordance with Ind AS 103, Business combinations, the Company accounts for business combinations after acquisition date using the acquisition method when control is transferred to the Company. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The cost of acquisition also includes the fair value of any contingent consideration and deferred consideration, if any. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in OCI and accumulated in equity as capital reserve if there exists clear evidence of the underlying reasons for classifying the business combination as resulting in a bargain purchase; otherwise the gain is recognised directly in equity as capital reserve. Transaction costs are expensed as incurred.
Business combinations between entities under common control is accounted for at carrying value.
I nventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out formula, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their present location and condition. In the case of manufactured inventories and work-inprogress, cost includes an appropriate share of fixed production overheads based on normal operating capacity.
Provisions are made towards slow-moving and obsolete items based on historical experience of utilisation on a product category basis, which consideration of product lines and market conditions.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The net realisable value of work-in-progress is determined with reference to the selling prices of related finished products.
Raw materials, components and other supplies held for use in the production of finished products are not written down below cost except in cases where material prices have declined and it is estimated that the cost of the finished products will exceed their net realisable value.
The comparison of cost and net realisable value is made on an item-by-item basis.
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of
monetary assets and liabilities denominated in foreign currencies at balance sheet date exchange rates are generally recognised in Statement of Profit and Loss.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example translation differences on non-monetary assets such as equity investments classified as FVOCI are recognised in other comprehensive income (OCI).
h. Impairment
i. Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss ("ECL") model for measurement and recognition of impairment loss on following:
â financial assets measured at amortised cost; and
Loss allowance for trade receivables with no significant financing component is measured at an amount equal to lifetime expected credit losses. For all other financial assets, ECL are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL.
Loss allowance for financial assets measured at amortised cost are deducted from gross carrying amount of the assets. The amount of ECL (or reversal) that is required to adjust the loss allowance at the reporting date is recognised as an impairment gain or loss in the Statement of Profit and Loss.
ii. Impairment of non-financial assets
The Company assess at each reporting date whether there is any indication that the carrying amount may not be recoverable. If any such indication exists, then the asset''s recoverable amount is estimated and an impairment loss is recognised if the carrying amount of an asset or Cash Generating Unit (CGU) exceeds its estimated recoverable amount in the statement of profit and loss.
The recoverable amount of a CGU (or an individual asset) is higher of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flow, discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to CGU (or the asset).
The Company''s non-financial assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset''s recoverable amount is estimated. For impairment testing, assets that do not generate independent cash inflows are grouped together into cash-generating units (CGUs). Each CGU represents the smallest group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or CGUs.
Impairment loss recognised in respect of a CGU is allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets of the CGU (or group of CGUs) on a pro rata basis.
An impairment loss in respect of other assets for which impairment loss has been recognised in prior periods, the Company reviews at each reporting date whether there is any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. Such a reversal is made only to the extent that the asset''s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
i. Short-term employee benefits:
All employee benefits falling due within twelve months from the end of the period in which the employees render the related services are classified as short-term employee benefits, which include benefits like salaries, wages, short term compensated absences, performance incentives, etc. and are recognised as expenses in the period in which the employee renders the related service and measured accordingly."
ii. Post-employment benefits:
Post-employment benefit plans are classified into defined benefits plans and defined contribution plans as under:" Gratuity
The Company provides for gratuity, a defined benefit plan ("the Gratuity Plan") covering the eligible employees of the Company. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee''s salary and the tenure of the employment with the Company.
Liability with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary, at each balance sheet date using the projected unit credit method. The defined benefit plan is administered by a trust formed for this purpose through the Company gratuity scheme.
The Company recognises the net obligation of a defined benefit plan as a liability in its balance sheet. Gains or losses through re-measurement of the net defined benefit liability are recognised in other comprehensive income and are not reclassified to profit and loss in the subsequent periods. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognised in other comprehensive income. The effect of any plan amendments are recognised in the statement of profit and loss.
Provident Fund
Eligible employees of the Company receive benefits from provident fund, which is a defined contribution plan. Both the eligible employees and the Company make monthly contributions to the Government administered provident fund scheme equal to a specified percentage of the eligible employee''s salary. Amounts collected under the provident fund plan are deposited with in a government administered provident fund. The Company has no further obligation to the plan beyond its monthly contributions. Company''s contribution to the provident fund is charged to Statement of Profit and Loss.
iii. Compensated absences: ]
The Company has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each balance sheet date using the projected unit credit method on the additional amount expected to be paid/availed as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on nonaccumulating compensated absences is recognised is the period in which the absences occur.
The liability in respect of all defined benefit plans and other long term benefits is accrued in the books of account on the basis of actuarial valuation carried out by an independent actuary using the Projected Unit Credit Method. The obligation is measured at the present value of estimated future cash flows. The discount rates used for determining the present value of obligation under defined benefit plans, is based on the market yields on Government securities as at the Balance Sheet date, having maturity periods approximating to the terms of related obligations.
Remeasurement gains and losses on other long term benefits are recognised in the Statement of Profit and Loss in the year in which they arise. Remeasurement gains and losses in respect of all defined benefit plans arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in other comprehensive income. They are included in other equity in the Statement of Changes in Equity and in the Balance Sheet. Changes in the present value of the defined benefit obligation resulting from plan amendments or curtailments are recognised immediately in profit or loss as past service cost. Gains or losses on the curtailment or settlement of any defined benefit plan are recognised when the curtailment or settlement occurs. Any differential between the plan assets (for a funded defined benefit plan) and the defined benefit obligation as per actuarial valuation is recognised as a liability if it is a deficit or as an asset if it is a surplus (to the extent of the lower of present value of any economic benefits available in the form of refunds from the plan or reduction in future contribution to the plan).
Past service cost is recognised as an expense in the Statement of Profit and Loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits are already vested immediately following the introduction of, or changes to, a defined benefit plan, the past service cost is recognised immediately in the Statement of Profit and Loss. Past service cost may be either positive (where benefits are introduced or improved) or negative (where existing benefits are reduced).
The grant date fair value of equity settled share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as expense is based on the estimate of the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market vesting conditions at the vesting date.
The grant date fair value of options granted (net of estimated forfeiture) to employees of the Company is recognised as an employee expense.
The Company has adopted the policy to account for Employees Welfare Trust as a legal entity separate from the Company but as a subsidiary of the Company. Any loan from the Company to the trust is accounted for as a loan in accordance with its term.
The expense is recorded for each separately vesting portion of the award as if the award was, in substance, multiple awards. The increase in equity recognised in connection with share based payment transaction is presented as a separate component in equity under "share based payment reserve". The amount recognised as an expense is adjusted to reflect the actual number of stock options that vest. For the option awards, grant date fair value is determined under the option-pricing model (Black-Scholes-Merton). Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures materially differ from those estimates.
j. Provisions (other than for employee benefits)
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. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows (representing the best estimate of the expenditure required to settle the present obligation at the balance sheet date) at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. Expected future operating losses are not provided for.
Onerous contracts
A contract is considered to be onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before such a provision is made, the Company recognises any impairment loss on the assets associated with that contract.
i. Sale of goods
Revenue is recognised when a promise in a customer contract (performance obligation) has been satisfied by transferring control over the promised goods to the customer. Control over a promised goods refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, those goods. Control is usually transferred upon shipment, delivery to, upon receipt of goods by the customer, in accordance with the delivery and acceptance terms agreed with the customers. However, in certain cases, revenue is recognized on sale of products where shipment is on hold at specific request of the customer provided performance obligation conditions has been satisfied and control is transferred, with customer taking title of the goods. The amount of revenue to be recognised (transaction price) is based on the consideration expected to be received in exchange for goods, excluding amounts collected on behalf of third parties such as goods and services tax or other taxes directly linked to sales. If a contract contains more than one performance obligation, the transaction price is allocated to each performance obligation based on their relative stand-alone selling prices. Revenue from product sales are recorded net of allowances for estimated rebates, cash discounts and estimates of product returns, all of which are established at the time of sale.
For contracts with distributors, no sales are recognised when goods are physically transferred to the distributor under a consignment arrangement, or if the distributor acts as an agent. In such cases, sales are recognised when control over the goods transfers to the end-customer, and distributor''s commissions are presented within marketing and distribution.
The consideration received by the Company in exchange for its goods may be fixed or variable. Variable consideration is only recognised when it is considered highly probable that a significant revenue reversal will not occur once the underlying uncertainty related to variable consideration is subsequently resolved.
ii. Milestone payments and out licensing arrangements
The Company enters into certain dossier sales, licensing and supply arrangements that, in certain instances, include certain performance obligations. Based on an evaluation of whether or not these obligations are inconsequential or perfunctory, the Company recognise or defer the upfront payments received under these arrangements.
Income from out-licensing agreements typically arises from the receipt of upfront, milestone and other similar payments from third parties for granting a license to product- or technology- related intellectual property (IP). These agreements may be entered into with no further obligation or may include commitments to regulatory approval, co-marketing or manufacturing. These may be settled by a combination of upfront payments, milestone payments and other fees. These arrangements typically also consist of subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Milestone payments which are contingent on achieving certain clinical milestones are recognised as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period we have continuing performance obligations, if the milestones are not considered substantive. Whether to consider these commitments as a single performance obligation or separate ones, or even being in scope of Ind-AS 115''Revenues from Contracts with Customers, is not straightforward and requires some judgement. Depending on the conclusion, this may result in all revenue being calculated at inception and either being recognised at point in time or spread over the term of a longer performance obligation. Where performance obligations may not be distinct, this will bundled with the subsequent product supply obligations. The new standard provides an exemption for sales-based royalties for licenses of intellectual property which will continue to be recognised as revenue as underlying sales are incurred.
The Company recognises a deferred income (contract liability) if consideration has been received (or has become receivable) before the company transfers the promised goods or services to the customer. Deferred income mainly relates to remaining performance obligations in (partially) unsatisfied long-term contracts or are related to amounts the Company expects to receive for goods and services that have not yet been transferred to customers under existing, noncancellable or otherwise enforceable contracts.
Contract assets are recognised when there is excess of revenue earned over billings on contracts. Contract assets are classified as unbilled receivables (only act of invoicing is pending) when there is unconditional right to receive cash, and only passage of time is required, as per contractual terms.
iii. Royalty income and profit share
The Royalty income and profit share earned through a License or collaboration partners is recognised as the underlying sales are recorded by the Licensee or collaboration partners.
iv. Sales Return Allowances
The Company accounts for sales return by recording an allowance for sales return concurrent with the recognition of revenue at the time of a product sale. The allowance is based on Company''s estimate of expected sales returns. The estimate of sales return is determined primarily by the Company''s historical experience in the markets in which the Company operates.
v. Dividends
Dividend is recognised when the Company''s right to receive the payment is established, which is generally when shareholders approve the dividend.
vi. Rental income
Rental income from investment property is recognised in statement of profit and loss on a straight-line basis over the term of the lease except where the rentals are structured to increase in line with expected general inflation. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.
vii. Contribution received from customers/co-development partners towards plant and equipment
Contributions received from customers/co-development partners towards items of property, plant and equipment which require an obligation to supply goods to the customer in the future, are recognised as a credit to deferred revenue. The contribution received is recognised as revenue from operations over the useful life of the assets. The Company capitalises the gross cost of these assets as the Company controls these assets.
viii. Interest income and expense
Interest income or expense is recognised using the effective interest method.
The Company recognises government grants at their fair value only when there is reasonable assurance that the conditions attached to them will be complied with, and the grants will be received. Government grants received in relation to assets are recognised as deferred income and amortised over the useful life of such asset. Government grants, which are revenue in nature are either recognised as income or deducted in reporting the related expense based on the terms of the grant, as applicable.
I ncome tax comprises of current and deferred income tax. Income tax expense is recognised in statement of profit and loss except to the extent that it relates to an item recognised directly in equity in which case it is recognised in other comprehensive income. Current income tax for current year and prior periods is recognised at the amount expected to be paid or recovered from the tax authorities, using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Current tax assets and liabilities are offset only if there is a legally enforceable right to set off the recognised amounts, and it is intended to realise the asset and settle the liability on a net basis or simultaneously.
Deferred income tax assets and liabilities are recognised for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when:
â temporary differences arising on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss at the time of transaction; and
â temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax assets (DTA) include Minimum Alternate Tax (MAT) paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability.
Deferred income tax assets and liabilities are measured using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognised as income or expense in the period that includes the enactment or substantive enactment date. A deferred income tax assets is recognised to the extent it is probable that future taxable income will be available against which the deductible temporary timing differences and tax losses can be utilised. The Company offsets income-tax assets and liabilities, where it has a legally enforceable right to set off the recognised amounts and where it intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used
Borrowing costs are interest and other costs (including exchange differences relating to foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs) incurred in connection with the borrowing of funds. Borrowing costs directly attributable to acquisition or construction of an asset which necessarily take a substantial period of time to get ready for their intended use are capitalised as part of the cost of that asset. Other borrowing costs are recognised as an expense in the period in which they are incurred.
Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
o. Earnings per share
Basic earnings per share is computed using the weighted average number of equity shares outstanding during the period adjusted for treasury shares held. Diluted earnings per share is computed using the weighted-average number of equity and dilutive equivalent shares outstanding during the period, using the treasury stock method for options and warrants, except where the results would be anti-dilutive.
(i) The Company as lessee:
The Company assesses whether a contract contains a lease, at the inception of contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assesses whether a contract conveys the right to control use of an identified asset, the Company assesses whether:
⢠The contract involves use of an identified asset;
⢠The Company has substantially all the economic benefits from the use of the asset through the period of lease; and
⢠The Company has the right to direct the use of an asset.
At the date of commencement of lease, the Company recognises a Right-of-use asset ("ROU") and a corresponding liability for all lease arrangements in which it is a lessee, except for leases with the term of twelve months or less (short term leases) and low value leases. For short term and low value leases, the Company recognises the lease payment as an operating expense on straight line basis over the term of lease. Certain lease agreements include an option to extend or terminate the lease before the end of lease term. ROU assets and the lease liabilities includes these options when it is reasonably certain that they will be exercised.
Right-of-use assets are depreciated from the commencement date on a straight-line basis over the shorter of the lease term and useful life of the underlying asset. Right-of-use assets are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e., higher of fair value less cost to sell and the value-in-use) is determined on individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the Cash Generating Unit (CGU) to which the asset belongs.
The lease liability is initially measured at amortised cost at the present value of the future lease payments. The lease payments are discounted using the interest rate explicit in the lease or, if not readily determinable, using the incremental borrowing rates in the country of domicile of these leases. Lease liabilities are remeasured with a corresponding adjustment to the related right-of- use assets if the Company changes its assessment if whether it will exercise an extension or a termination of option.
Lease liability and ROU asset have been separately presented in the Balance Sheet and the lease payments have been classified as financing cash flows.
(ii) The Company as a Lessor:
Leases for which the Company is a lessor is classified as a finance or operating lease. Whenever the terms of the lease transfer substantially all the risk and rewards of ownership to the lessee, the contract is classified as finance lease. All other leases are classified as operating lease.
q. Operating cycle
The operating cycle is the time between the acquisitio
Mar 31, 2021
1. Company Overview
Biocon Limited ("Biocon" or "the Company"), is engaged in the manufacture of biotechnology products and research services. The Company is a public limited company incorporated and domiciled in India and has its registered office in Bengaluru, Karnataka, India. The Company''s shares are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India.
a) Statement of compliance
The standalone financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of Companies Act, 2013, (the ''Act'') and other relevant provisions of the Act.
These standalone financial statements have been prepared for the Company as a going concern on the basis of relevant Ind AS that are effective at the Company''s annual reporting date, March 31, 2021. These standalone financial statements were authorised for issuance by the Company''s Board of Directors on April 28, 2021.
Details of the Company''s accounting policies are included in Note 2.
b) Functional and presentation currency
These standalone financial statements are presented in Indian rupees (INR), which is also the functional currency of the Company. All amounts have been rounded-off to the nearest million, unless otherwise indicated.
c) Basis of measurement
These standalone financial statements have been prepared on the historical cost basis (i.e on accrual basis), except for the following items:
⢠Certain financial assets and liabilities (including derivative instruments) are measured at fair value; and
⢠Net defined benefit assets/(liability) are measured at fair value of plan assets, less present value of defined benefit obligations.
d) Use of estimates and judgements
The preparation of the standalone financial statements in conformity with Ind AS requires Management to make estimates, judgements and assumptions. These estimates, judgements and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the standalone financial statements.
Judgements
Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements is included in the following notes:
Note 2(a) and 36 |
â Financial instruments; |
|
Note 2(b), 2(c) and 2(d) |
â Useful lives of property, plant and equipment, intangible assets and investment property; |
|
Note 2(p) and 38 |
â Lease, whether an agreement contains a lease; |
|
Note 35 |
â Measurement of defined benefit obligation; key actuarial assumptions; |
|
Note 30 |
â Share based payments; |
|
Note 2(m) and 33 |
â Provision for income taxes and related tax contingencies and Evaluation of recoverability of deferred tax assets. |
|
⢠|
Note 2(k) and 21 |
â Revenue Recognition: whether revenue from licensing income is recognised over time or at a point in time; |
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ended March 31,2021 is included in the following notes:
â Note 2(h)(ii) - impairment test of non-financial assets; key assumptions underlying recoverable amounts including the recoverability of expenditure on internally-generated intangible assets;
â Note 18 and 33 - recognition of deferred tax assets: availability of future taxable profit against which tax losses carried forward can be used;
â Note 36 - impairment of financial assets; and
â Note 17 and 34 - recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources.
A number of the Company''s accounting policies and disclosures require the measurement of fair values, for both financial and nonfinancial assets and liabilities.
Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
â Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
â Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
â Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Company has an established control framework with respect to the measurement of fair values. This includes a finance team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values.
The Company regularly reviews significant unobservable inputs and valuation adjustments. If third party information is used to measure fair values, then the finance team assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of Ind AS, including the level in the fair value hierarchy in which the valuations should be classified
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
â Note 30 - share based payment arrangements;
â Note 4 (a) - investment property; and
â Note 2(a) and 36 - financial instruments.
2 Significant accounting policies
i. Recognition and initial measurement
Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Company becomes a party to the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue.
//. Classification and subsequent measurement Financial assets
On initial recognition, a financial asset is classified as measured at
â amortised cost;
â Fair value through other comprehensive income - equity investment; or
â Fair value through profit and loss (FVTPL)
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
â the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
â the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
â the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
â the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment''s fair value in OCI (designated as FVOCI - equity investment). This election is made on an investment-by- investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS 103 applies are classified as at FVPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable. If the Company decides to classify an equity instrument as at FVOCI, then all fair value changes on the instrument, excluding dividends, are recognised in the OCI. There is no recycling of the amounts from OCI to the Statement of Profit and Loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss to retained earnings. Equity instruments included within the FVPL category are measured at fair value with all changes recognised in the Statement of Profit and Loss.
investments in subsidiaries
Equity investments in subsidiaries are carried at cost less accumulated impairment losses, if any. Where an indication of impairment exists,the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On disposal of investments in subsidiaries, the difference between net disposal proceeds and the carrying amounts are recognised in the Statement of Profit and Loss.
Financial assets: Subsequent measurement and gains and losses
Financial assets at FVTPL |
These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in statement of profit and loss. However, see Note 36 for derivatives designated as hedging instruments. |
Financial assets at amortised cost |
These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in statement of profit and loss. Any gain or loss on derecognition is recognised in statement of profit and loss. |
Equity investments at FVOCI |
These assets are subsequently measured at fair value. Dividends are recognised as income in statement of profit and loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are not reclassified to statement of profit and loss. |
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held- for- trading, or it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in statement of profit and loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in statement of profit and loss. Any gain or loss on derecognition is also recognised in statement of profit and loss.
Hi. Derecognition Financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control of the financial asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the transferred asset to the extent of the Company''s continuing involvement. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Financial liabilities
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
The Company also derecognises a financial liability when its terms are modified and the cash flows under the modified terms are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised in statement of profit and loss.
iv Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
v Derivative financial instruments and hedge accounting
The Company holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.
Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in statement of profit and loss.
The Company designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and interest rates.
At inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
vi. Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in other equity under ''effective portion of cash flow hedges''. The effective portion of changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in statement of profit and loss.
If a hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in other equity remains there until, for a hedge of a transaction resulting in recognition of a non-financial item, it is included in the non-financial item''s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in other equity are immediately reclassified to statement of profit and loss.
vii. Treasury shares
The Company has created an Employee Welfare Trust (EWT) for providing share-based payment to its employees. Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. When the treasury shares are issued to the employees by EWT, the amount received is recognised as an increase in equity and the resultant gain / (loss) is transferred to / from securities premium.
viii. Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Company''s cash management.
Cash dividend to equity holders
The Company recognises a liability to make cash to equity holders when the distribution is authorised and the distribution is no longer at the discretion of the Company. As per the corporate laws in India, a distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in equity. Interim dividends are recorded as a liability on the date of declaration by the Company''s Board of Directors.
i. Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. The cost of an item of property, plant and equipment comprises its purchase price including import duty and non refundable taxes or levies , any other costs directly attributable to bringing the item to working condition for its intended use, and estimated costs of dismantling and removing the item and restoring the site on which it is located.
Expenditure incurred on startup and commissioning of the project and/or substantial expansion, including the expenditure incurred on trial runs (net of trial run receipts, if any) up to the date of commencement of commercial production are capitalised. If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in statement of profit and loss.
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.
Advances paid towards acquisition of property, plant and equipment outstanding at each Balance Sheet date, are shown under other non-current assets and cost of assets not ready for intended use before the year end, are shown as capital work-in-progress.
ii. Depreciation
Depreciation is calculated on cost of items of property, plant and equipment less their estimated residual values over their estimated useful lives using the straight-line method. Freehold land is not depreciated.
The estimated useful lives of items of property, plant and equipment for the current and comparative periods are as follows:
Asset |
Assets Classification |
Management estimate of useful life |
Useful life as per Schedule II |
Building |
Building |
25 years |
30 years |
Roads |
Building |
5 years |
5 years |
Plant and equipment (including Electrical installation and Lab equipment ) |
Plant and Machinery |
9-11 years |
8-20 years |
Computers and servers |
Plant and Machinery |
3 years |
3-6 years |
Office equipment |
Plant and Machinery |
5 years |
5 years |
Research and development equipment |
Research and development equipment |
9 years |
5-10 years |
Furniture and fixtures |
Furniture and fixtures |
6 years |
10 years |
Vehicles |
Vehicles |
6 years |
6-10 years |
Leasehold improvements |
Leasehold improvements |
5 years or lease period whichever is lower |
- |
Leasehold land |
Land and Right to use-assets |
90 years or lease period whichever is lower |
- |
Depreciation method, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. Based on technical evaluation and consequent advice, the management believes that its estimates of useful lives as given above best represent the period over which management expects to use these assets.
Depreciation on additions (disposals) is provided on a pro-rata basis i.e. from (upto) the date on which asset is ready for use (disposed of).
Hi. Reclassification to investment property
When the use of a property changes from owner-occupied to investment property, the property is reclassified as investment property at its carrying amount on the date of reclassification.
Internally generated: Research and development
Expenditure on research activities is recognised in statement of profit and loss as incurred.
Development expenditure is capitalised as part of the cost of the resulting intangible asset only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in statement of profit and loss as incurred. Subsequent to initial recognition, the asset is measured at cost less accumulated amortisation and any accumulated impairment losses.
Others
Other intangible assets are initially measured at cost. Subsequently, such intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses.
i. Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on brands, is recognised in statement of profit and loss as incurred.
ii. Amortisation
Intangible assets are amortised on a straight line basis over the estimated useful life as follows:
â Computer software |
3-5 years |
â Marketing and Manufacturing rights |
5-10 years |
â Customer related intangibles |
5 years |
â Intellectual property rights |
5-10 years |
Amortisation method, useful lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Upon initial recognition, an investment property is measured at cost. Subsequent to initial recognition, investment property is measured at cost less accumulated depreciation and accumulated impairment losses, if any.
Based on technical evaluation and consequent advice, the management believes a period of 25 years as representing the best estimate of the period over which investment properties (which are quite similar) are expected to be used. Accordingly, the Company depreciates investment properties over a period of 25 years on a straight-line basis. The useful life estimate of 25 years is different from the indicative useful life of relevant type of buildings mentioned in Part C of Schedule II to the Act i.e. 30 years.
Any gain or loss on disposal of an investment property is recognised in statement of profit and loss.
In accordance with Ind AS 103, Business combinations, the Company accounts for business combinations after acquisition date using the acquisition method when control is transferred to the Company. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The cost of acquisition also includes the fair value of any contingent consideration and deferred consideration, if any. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in OCI and accumulated in equity as capital reserve if there exists clear evidence of the underlying reasons for classifying the business combination as resulting in a bargain purchase; otherwise the gain is recognised directly in equity as capital reserve. Transaction costs are expensed as incurred. Business combinations between entities under common control is accounted for at carrying value.
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out formula, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their present location and condition. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of fixed production overheads based on normal operating capacity.
Provisions are made towards slow-moving and obsolete items based on historical experience of utilisation on a product category basis, which consideration of product lines and market conditions.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The net realisable value of work-in-progress is determined with reference to the selling prices of related finished products.
Raw materials, components and other supplies held for use in the production of finished products are not written down below cost except in cases where material prices have declined and it is estimated that the cost of the finished products will exceed their net realisable value.
The comparison of cost and net realisable value is made on an item-by-item basis.
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at balance sheet date exchange rates are generally recognised in Statement of Profit and Loss.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example translation differences on non-monetary assets such as equity investments classified as FVOCI are recognised in other comprehensive income (OCI).
i. impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss ("ECL") model for measurement and recognition of impairment loss on following:
â financial assets measured at amortised cost;
Loss allowance for trade receivables with no significant financing component is measured at an amount equal to lifetime expected credit losses. For all other financial assets, ECL are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL.
Loss allowance for financial assets measured at amortised cost are deducted from gross carrying amount of the assets. The amount of ECL (or reversal) that is required to adjust the loss allowance at the reporting date is recognised as an impairment gain or loss in the Statement of Profit and Loss.
//. impairment of non-financial assets
The Company assess at each reporting date whether there is any indication that the carrying amount may not be recoverable. If any such indication exists, then the asset''s recoverable amount is estimated and an impairment loss is recognised if the carrying amount of an asset or Cash Generating Unit (CGU) exceeds its estimated recoverable amount in the statement of profit and loss.
The recoverable amount of a CGU (or an individual asset) is higher of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flow, discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to CGU (or the asset).
The Company''s non-financial assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset''s recoverable amount is estimated. For impairment testing, assets that do not generate independent cash inflows are grouped together into cash-generating units (CGUs). Each CGU represents the smallest group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or CGUs.
Impairment loss recognised in respect of a CGU is allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets of the CGU (or group of CGUs) on a pro rata basis.
An impairment loss in respect of other assets for which impairment loss has been recognised in prior periods, the Company reviews at each reporting date whether there is any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. Such a reversal is made only to the extent that the asset''s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
i. Short-term employee benefits:
All employee benefits falling due within twelve months from the end of the period in which the employees render the related services are classified as short-term employee benefits, which include benefits like salaries, wages, short term compensated absences, performance incentives, etc. and are recognised as expenses in the period in which the employee renders the related service and measured accordingly."
ii. Post-employment benefits:
Post-employment benefit plans are classified into defined benefits plans and defined contribution plans as under:"
Gratuity
The Company provides for gratuity, a defined benefit plan ("the Gratuity Plan") covering the eligible employees of the Company. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee''s salary and the tenure of the employment with the Company.
Liability with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary, at each balance sheet date using the projected unit credit method. The defined benefit plan is administered by a trust formed for this purpose through the Company gratuity scheme.
The Company recognises the net obligation of a defined benefit plan as a liability in its balance sheet. Gains or losses through remeasurement of the net defined benefit liability are recognised in other comprehensive income and are not reclassified to profit and loss in the subsequent periods. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognised in other comprehensive income. The effect of any plan amendments are recognised in the statement of profit and loss.
Provident Fund
Eligible employees of the Company receive benefits from provident fund, which is a defined contribution plan. Both the eligible employees and the Company make monthly contributions to the Government administered provident fund scheme equal to a specified percentage of the eligible employee''s salary. Amounts collected under the provident fund plan are deposited with in a government administered provident fund. The Company has no further obligation to the plan beyond its monthly contributions. Company''s contribution to the provident fund is charged to Statement of Profit and Loss.
Hi. Compensated absences:
The Company has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each balance sheet date using the projected unit credit method on the additional amount expected to be paid/availed as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognised is the period in which the absences occur.
The liability in respect of all defined benefit plans and other long term benefits is accrued in the books of account on the basis of actuarial valuation carried out by an independent actuary using the Projected Unit Credit Method. The obligation is measured at the present value of estimated future cash flows. The discount rates used for determining the present value of obligation under defined benefit plans, is based on the market yields on Government securities as at the Balance Sheet date, having maturity periods approximating to the terms of related obligations.
Remeasurement gains and losses on other long term benefits are recognised in the Statement of Profit and Loss in the year in which they arise. Remeasurement gains and losses in respect of all defined benefit plans arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in other comprehensive income. They are included in other equity in the Statement of Changes in Equity and in the Balance Sheet. Changes in the present value of the defined benefit obligation resulting from plan amendments or curtailments are recognised immediately in profit or loss as past service cost. Gains or losses on the curtailment or settlement of any defined benefit plan are recognised when the curtailment or settlement occurs. Any differential between the plan assets (for a funded defined benefit plan) and the defined benefit obligation as per actuarial valuation is recognised as a liability if it is a deficit or as an asset if it is a surplus (to the extent of the lower of present value of any economic benefits available in the form of refunds from the plan or reduction in future contribution to the plan).
Past service cost is recognised as an expense in the Statement of Profit and Loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits are already vested immediately following the introduction of, or changes to, a defined benefit plan, the past service cost is recognised immediately in the Statement of Profit and Loss. Past service cost may be either positive (where benefits are introduced or improved) or negative (where existing benefits are reduced).
iv Share-based compensation
The grant date fair value of equity settled share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as expense is based on the estimate of the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market vesting conditions at the vesting date.
The grant date fair value of options granted (net of estimated forfeiture) to employees of the Company is recognised as an employee expense.
The Company has adopted the policy to account for Employees Welfare Trust as a legal entity separate from the Company but as a subsidiary of the Company. Any loan from the Company to the trust is accounted for as a loan in accordance with its term.
The expense is recorded for each separately vesting portion of the award as if the award was, in substance, multiple awards. The increase in equity recognised in connection with share based payment transaction is presented as a separate component in equity under "share based payment reserve". The amount recognised as an expense is adjusted to reflect the actual number of stock options that vest. For the option awards, grant date fair value is determined under the option-pricing model (Black-Scholes-Merton). Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures materially differ from those estimates.
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. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows (representing the best estimate of the expenditure required to settle the present obligation at the balance sheet date) at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. Expected future operating losses are not provided for.
Onerous contracts
A contract is considered to be onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before such a provision is made, the Company recognises any impairment loss on the assets associated with that contract.
i. Sale of goods
Revenue is recognised when a promise in a customer contract (performance obligation) has been satisfied by transferring control over the promised goods to the customer. Control over a promised goods refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, those goods. Control is usually transferred upon shipment, delivery to, upon receipt of goods by the customer, in accordance with the delivery and acceptance terms agreed with the customers. The amount of revenue to be recognised (transaction price) is based on the consideration expected to be received in exchange for goods, excluding amounts collected on behalf of third parties such as goods and services tax or other taxes directly linked to sales. If a contract contains more than one performance obligation, the transaction price is allocated to each performance obligation based on their relative stand-alone selling prices. Revenue from product sales are recorded net of allowances for estimated rebates, cash discounts and estimates of product returns, all of which are established at the time of sale.
For contracts with distributors, no sales are recognised when goods are physically transferred to the distributor under a consignment arrangement, or if the distributor acts as an agent. In such cases, sales are recognised when control over the goods transfers to the end-customer, and distributor''s commissions are presented within marketing and distribution.
The consideration received by the Company in exchange for its goods may be fixed or variable. Variable consideration is only recognised when it is considered highly probable that a significant revenue reversal will not occur once the underlying uncertainty related to variable consideration is subsequently resolved.
ii. Milestone payments and out licensing arrangements
The Company enters into certain dossier sales, licensing and supply arrangements that, in certain instances, include certain performance obligations. Based on an evaluation of whether or not these obligations are inconsequential or perfunctory, the Company recognise or defer the upfront payments received under these arrangements.
Income from out-licensing agreements typically arises from the receipt of upfront, milestone and other similar payments from third parties for granting a license to product- or technology- related intellectual property (IP). These agreements may be entered into with no further obligation or may include commitments to regulatory approval, co-marketing or manufacturing. These may be settled by a combination of upfront payments, milestone payments and other fees. These arrangements typically also consist of subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Milestone payments which are contingent on achieving certain clinical milestones are recognised as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period we have continuing performance obligations, if the milestones are not considered substantive. Whether to consider these commitments as a single performance obligation or separate ones, or even being in scope of Ind-AS 115''Revenues from Contracts with Customers, is not straightforward and requires some judgement. Depending on the conclusion, this may result in all revenue being calculated at inception and either being recognised at point in time or spread over the term of a longer performance obligation. Where performance obligations may not be distinct, this will bundled with the subsequent product supply obligations. The new standard provides an exemption for sales-based royalties for licenses of intellectual property which will continue to be recognised as revenue as underlying sales are incurred.
The Company recognises a deferred income (contract liability) if consideration has been received (or has become receivable) before the company transfers the promised goods or services to the customer. Deferred income mainly relates to remaining performance obligations in (partially) unsatisfied long-term contracts or are related to amounts the Company expects to receive for goods and services that have not yet been transferred to customers under existing, non-cancellable or otherwise enforceable contracts.
Contract assets are recognised when there is excess of revenue earned over billings on contracts. Contract assets are classified as unbilled receivables (only act of invoicing is pending) when there is unconditional right to receive cash, and only passage of time is required, as per contractual terms.
Hi. Royalty income and profit share
The Royalty income and profit share earned through a License or collaboration partners is recognised as the underlying sales are recorded by the Licensee or collaboration partners.
iv. Sales Return Allowances
The Company accounts for sales return by recording an allowance for sales return concurrent with the recognition of revenue at the time of a product sale. The allowance is based on Company''s estimate of expected sales returns. The estimate of sales return is determined primarily by the Company''s historical experience in the markets in which the Company operates.
v Dividends
Dividend is recognised when the Company''s right to receive the payment is established, which is generally when shareholders approve the dividend.
vi. Rental income
Rental income from investment property is recognised in statement of profit and loss on a straight-line basis over the term of the lease except where the rentals are structured to increase in line with expected general inflation. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.
vii. Contribution received from customers/co-development partners towards plant and equipment
Contributions received from customers/co-development partners towards items of property, plant and equipment which require an obligation to supply goods to the customer in the future, are recognised as a credit to deferred revenue. The contribution received is recognised as revenue from operations over the useful life of the assets. The Company capitalises the gross cost of these assets as the Company controls these assets.
viii. Interest income and expense
Interest income or expense is recognised using the effective interest method.
The Company recognises government grants at their fair value only when there is reasonable assurance that the conditions attached to them will be complied with, and the grants will be received. Government grants received in relation to assets are recognised as deferred income and amortised over the useful life of such asset. Government grants, which are revenue in nature are either recognised as income or deducted in reporting the related expense based on the terms of the grant, as applicable.
Income tax comprises of current and deferred income tax. Income tax expense is recognised in statement of profit and loss except to the extent that it relates to an item recognised directly in equity in which case it is recognised in other comprehensive income. Current income tax for current year and prior periods is recognised at the amount expected to be paid or recovered from the tax authorities, using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Current tax assets and liabilities are offset only if there is a legally enforceable right to set off the recognised amounts, and it is intended to realise the asset and settle the liability on a net basis or simultaneously.
Deferred income tax assets and liabilities are recognised for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when:
â temporary differences arising on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss at the time of transaction; and
â temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax assets (DTA) include Minimum Alternate Tax (MAT) paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability.
Deferred income tax assets and liabilities are measured using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognised as income or expense in the period that includes the enactment or substantive enactment date. A deferred income tax assets is recognised to the extent it is probable that future taxable income will be available against which the deductible temporary timing differences and tax losses can be utilised. The Company offsets income-tax assets and liabilities, where it has a legally enforceable right to set off the recognised amounts and where it intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.
Borrowing costs are interest and other costs (including exchange differences relating to foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs) incurred in connection with the borrowing of funds. Borrowing costs directly attributable to acquisition or construction of an asset which necessarily take a substantial period of time to get ready for their intended use are capitalised as part of the cost of that asset. Other borrowing costs are recognised as an expense in the period in which they are incurred.
Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
Basic earnings per share is computed using the weighted average number of equity shares outstanding during the period adjusted for treasury shares held. Diluted earnings per share is computed using the weighted-average number of equity and dilutive equivalent shares outstanding during the period, using the treasury stock method for options and warrants, except where the results would be anti-dilutive.
() The Company as lessee:
The Company assesses whether a contract contains a lease, at the inception of contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assesses whether a contract conveys the right to control use of an identified asset, the Company assesses whether:
⢠The contract involves use of an identified asset;
⢠The Company has substantially all the economic benefits from the use of the asset through the period of lease; and
⢠The Company has the right to direct the use of an asset.
At the date of commencement of lease, the Company recognises a Right-of-use asset ("ROU") and a corresponding liability for all lease arrangements in which it is a lessee, except for leases with the term of twelve months or less (short term leases) and low value leases. For short term and low value leases, the Company recognises the lease payment as an operating expense on straight line basis over the term of lease. Certain lease agreements include an option to extend or terminate the lease before the end of lease term. ROU assets and the lease liabilities includes these options when it is reasonably certain that they will be exercised.
Right-of-use assets are depreciated from the commencement date on a straight-line basis over the shorter of the lease term and useful life of the underlying asset. Right-of-use assets are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e., higher of fair value less cost to sell and the value-in-use) is determined on individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the Cash Generating Unit (CGU) to which the asset belongs.
The lease liability is initially measured at amortised cost at the present value of the future lease payments. The lease payments are discounted using the interest rate explicit in the lease or, if not readily determinable, using the incremental borrowing rates in the country of domicile of these leases. Lease liabilities are remeasured with a corresponding adjustment to the related right-of- use assets if the Company changes its assessment if whether it will exercise an extension or a termination of option.
Lease liability and ROU asset have been separately presented in the Balance Sheet and the lease payments have been classified as financing cash flows.
(i) The Company as a Lessor:
Leases for which the Company is a lessor is classified as a financ
Mar 31, 2019
a. Financial instruments
i. Recognition and initial measurement
Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Company becomes a party to the contractual provisions of the instrument.
T financial asset or financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue.
ii. Classification and subsequent measurement Financial assets
On initial recognition, a financial asset is classified as measured at
â amortised cost;
â Fair value through other comprehensive income (FVOCI) - debt investment;
â FVOCI - equity investment; or
â FVTPL
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
â the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
â the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
â the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
â the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
O n initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investmentâs fair value in OCI (designated as FVOCI - equity investment). This election is made on an investment- by- investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Financial assets: Subsequent measurement and gains and losses
Financial assets at FVTPL These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in statement of profit and loss. However, see Note 36 for derivatives designated as hedging instruments.
Financial assets at amortised cost These assets are subsequently measured at amortised cost using the effective interest method.
The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in statement of profit and loss. Any gain or loss on derecognition is recognised in statement of profit and loss.
Debt investments at FVOCI These assets are subsequently measured at fair value. Interest income under the effective interest method, foreign exchange gains and losses and impairment are recognised in statement of profit and loss. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to statement of profit and loss.
Equity investments at FVOCI These assets are subsequently measured at fair value. Dividends are recognised as income in statement of profit and loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are not reclassified to statement of profit and loss.
Financial liabilities: Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for- trading, or it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in statement of profit and loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in statement of profit and loss. Any gain or loss on derecognition is also recognised in statement of profit and loss.
iii. Derecognition Financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control of the financial asset.
At the Company enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all or substantially all of the risks and rewards of the transferred assets, the transferred assets are not derecognised.
Financial liabilities
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
The Company also derecognises a financial liability when its terms are modified and the cash flows under the modified terms are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised in statement of profit and loss.
iv. Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
v. Derivative financial instruments and hedge accounting
The Company holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.
Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in statement of profit and loss.
The Company designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and interest rates.
At inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Cash flow hedges
Then a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in other equity under âeffective portion of cash flow hedgesâ. The effective portion of changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in statement of profit and loss.
The hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in other equity remains there until, for a hedge of a transaction resulting in recognition of a non-financial item, it is included in the non-financial itemâs cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in other equity are immediately reclassified to statement of profit and loss.
vi. Treasury shares
The Company has created an Employee Welfare Trust (EWT) for providing share-based payment to its employees. Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. When the treasury shares are issued to the employees by EWT, the amount received is recognised as an increase in equity and the resultant gain / (loss) is transferred to / from securities premium.
vii. Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Companyâs cash management.
Cash dividend to equity holders
The Company recognises a liability to make cash to equity holders when the distribution is authorised and the distribution is no longer at the discretion of the Company. As per the corporate laws in India, a distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in equity. Interim dividends are recorded as a liability on the date of declaration by the Companyâs Board of Directors.
b. Property, plant and equipment
i. Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. The cost of an item of property, plant and equipment comprises the cost of materials and direct labor, any other costs directly attributable to bringing the item to working condition for its intended use, and estimated costs of dismantling and removing the item and restoring the site on which it is located.
If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in statement of profit and loss.
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.
ii. Depreciation
Depreciation is calculated on cost of items of property, plant and equipment less their estimated residual values over their estimated useful lives using the straight-line method. Assets acquired under finance leases are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Freehold land is not depreciated.
The estimated useful lives of items of property, plant and equipment for the current and comparative periods are as follows:
Depreciation method, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. Based on technical evaluation and consequent advice, the management believes that its estimates of useful lives as given above best represent the period over which management expects to use these assets.
Depreciation on additions (disposals) is provided on a pro-rata basis i.e. from (upto) the date on which asset is ready for use (disposed of).
iii. Reclassification to investment property
W hen the use of a property changes from owner-occupied to investment property, the property is reclassified as investment property at its carrying amount on the date of reclassification.
c. Intangible assets
Internally generated: Research and development
Expenditure on research activities is recognised in statement of profit and loss as incurred.
Development expenditure is capitalised as part of the cost of the resulting intangible asset only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in statement of profit and loss as incurred. Subsequent to initial recognition, the asset is measured at cost less accumulated amortisation and any accumulated impairment losses.
Others
Other intangible assets are initially measured at cost. Subsequently, such intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses.
i. Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in statement of profit and loss as incurred.
ii. Amortisation
Intangible assets are amortised on a straight line basis over the estimated useful life as follows:
â Computer software 3-5 years
â Marketing and Manufacturing rights 5-10 years
â Customer related intangibles 5 years Amortisation method, useful lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
d. Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Upon initial recognition, an investment property is measured at cost. Subsequent to initial recognition, investment property is measured at cost less accumulated depreciation and accumulated impairment losses, if any.
Based on technical evaluation and consequent advice, the management believes a period of 25 years as representing the best estimate of the period over which investment properties (which are quite similar) are expected to be used. Accordingly, the Company depreciates investment properties over a period of 25 years on a straight-line basis. The useful life estimate of 25 years is different from the indicative useful life of relevant type of buildings mentioned in Part C of Schedule II to the Act i.e. 30 years.
Any gain or loss on disposal of an investment property is recognised in statement of profit and loss.
e. Business combination
An accordance with Ind AS 103, Business combinations, the Company accounts for business combinations after acquisition date using the acquisition method when control is transferred to the Company. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The cost of acquisition also includes the fair value of any contingent consideration and deferred consideration, if any. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in OCI and accumulated in equity as capital reserve if there exists clear evidence of the underlying reasons for classifying the business combination as resulting in a bargain purchase; otherwise the gain is recognised directly in equity as capital reserve. Transaction costs are expensed as incurred.
Business combinations between entities under common control is accounted for at carrying value.
f. Inventories
A inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out formula, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their present location and condition. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of fixed production overheads based on normal operating capacity.
A net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The net realisable value of work-in-progress is determined with reference to the selling prices of related finished products.
A saw materials, components and other supplies held for use in the production of finished products are not written down below cost except in cases where material prices have declined and it is estimated that the cost of the finished products will exceed their net realisable value.
The comparison of cost and net realisable value is made on an item-by-item basis.
g. Impairment
i. Impairment of financial assets
An accordance with Ind AS 109, the Company applies expected credit loss (âECLâ) model for measurement and recognition of impairment loss on following:
â financial assets measured at amortised cost; and
â financial assets measured at FVOCI- debt investments.
Loss allowance for trade receivables with no significant financing component is measured at an amount equal to lifetime expected credit losses. For all other financial assets, ECL are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL.
Loss allowance for financial assets measured at amortised cost are deducted from gross carrying amount of the assets.
ii. Impairment of non-financial assets
The Company assess at each reporting date whether there is any indication that the carrying amount may not be recoverable. If any such indication exists, then the assetâs recoverable amount is estimated and an impairment loss is recognised if the carrying amount of an asset or CGU exceeds its estimated recoverable amount in the statement of profit and loss.
Goodwill is tested annually for impairment. For the purpose of impairment testing, goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of a CGU (or an individual asset) is higher of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flow, discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to CGU (or the asset).
The Companyâs non-financial assets, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assetâs recoverable amount is estimated. For impairment testing, assets that do not generate independent cash inflows are grouped together into cash-generating units (CGUs). Each CGU represents the smallest group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or CGUs.
A impairment loss recognised in respect of a CGU is allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets of the CGU (or groups of CGUs) on a pro rata basis.
An impairment loss in respect of goodwill is not subsequently reversed. In respect of other assets for which impairment loss has been recognised in prior periods, the Company reviews at each reporting date whether there is any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. Such a reversal is made only to the extent that the assetâs carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
h. Employee benefits
i. Gratuity
The Company provides for gratuity, a defined benefit plan (âthe Gratuity Planâ) covering the eligible employees of the Company. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs salary and the tenure of the employment with the Company.
Liability with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary, at each balance sheet date using the projected unit credit method. The defined benefit plan is administered by a trust formed for this purpose through the Company gratuity scheme.
The Company recognises the net obligation of a defined benefit plan as a liability in its balance sheet. Gains or losses through re-measurement of the net defined benefit liability are recognised in other comprehensive income and are not reclassified to profit and loss in the subsequent periods. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognised in other comprehensive income. The effect of any plan amendments are recognised in the statement of profit and loss.
ii. Provident Fund
Lligible employees of the Company receive benefits from provident fund, which is a defined contribution plan. Both the eligible employees and the Company make monthly contributions to the Government administered provident fund scheme equal to a specified percentage of the eligible employeeâs salary. Amounts collected under the provident fund plan are deposited with in a government administered provident fund. The Company has no further obligation to the plan beyond its monthly contributions.
iii. Compensated absences
Ihe Company has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each balance sheet date using the projected unit credit method on the additional amount expected to be paid/availed as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognised is the period in which the absences occur.
iv. Share-based compensation
The grant date fair value of equity settled share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as expense is based on the estimate of the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market vesting conditions at the vesting date.
i. Provisions (other than for employee benefits)
I provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows (representing the best estimate of the expenditure required to settle the present obligation at the balance sheet date) at a pretax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. Expected future operating losses are not provided for.
Onerous contracts
I contract is considered to be onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before such a provision is made, the Company recognises any impairment loss on the assets associated with that contract.
j. Revenue from contracts with customers
The Company has implemented new standard Ind-AS 115 âRevenue from Contracts with Customersâ effective April 1, 2018 using cumulative effect method. The effect of initially applying this standard is recognised at the date of initial application (i.e. April 1, 2018). The Company has evaluated its open arrangements on out-licensing with reference to upfront non-refundable fees received in earlier periods and concluded that some of the performance obligations may not be distinct and hence would need to be bundled with the subsequent product supply obligations. Accordingly standard is applied retrospectively only to contracts that are not completed as at the date of initial application and comparative information presented for year ended March 31, 2018 has not been restated i.e. it is presented, as previously reported, under Ind-AS 18, Ind-AS 11 and related interpretations. Additionally, the disclosure requirements in Ind-AS 115 have not generally been applied to comparative information.
i. Sale of goods
Revenue is recognised when a promise in a customer contract (performance obligation) has been satisfied by transferring control over the promised goods to the customer. Control over a promised good refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, those goods. Control is usually transferred upon shipment, delivery to, upon receipt of goods by the customer, in accordance with the delivery and acceptance terms agreed with the customers. The amount of revenue to be recognised (transaction price) is based on the consideration expected to be received in exchange for goods, excluding amounts collected on behalf of third parties such as sales tax or other taxes directly linked to sales. If a contract contains more than one performance obligation, the transaction price is allocated to each performance obligation based on their relative stand-alone selling prices. Revenue from product sales are recorded net of allowances for estimated rebates, cash discounts and estimates of product returns, all of which are established at the time of sale.
For contracts with distributors, no sales are recognised when goods are physically transferred to the distributor under a consignment arrangement, or if the distributor acts as an agent. In such cases, sales are recognised when control over the goods transfers to the end-customer, and distributorâs commissions are presented within marketing and distribution.
The consideration received by the Company in exchange for its goods may be fixed or variable. Variable consideration is only recognised when it is considered highly probable that a significant revenue reversal will not occur once the underlying uncertainty related to variable consideration is subsequently resolved.
ii. Milestone payments and out licensing arrangements
The Company enters into certain dossier sales, licensing and supply arrangements that, in certain instances, include certain performance obligations. Based on an evaluation of whether or not these obligations are inconsequential or perfunctory, the Company recognise or defer the upfront payments received under these arrangements.
Income from out-licensing agreements typically arises from the receipt of upfront, milestone and other similar payments from third parties for granting a license to product- or technology- related intellectual property (IP). These agreements may be entered into with no further obligation or may include commitments to regulatory approval, co-marketing or manufacturing. These may be settled by a combination of upfront payments, milestone payments and other fees. These arrangements typically also consist of subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Milestone payments which are contingent on achieving certain clinical milestones are recognised as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period we have continuing performance obligations, if the milestones are not considered substantive. Whether to consider these commitments as a single performance obligation or separate ones, or even being in scope of Ind-AS 115âRevenues from Contracts with Customers, is not straightforward and requires some judgement. Depending on the conclusion, this may result in all revenue being calculated at inception and either being recognised at point in time or spread over the term of a longer performance obligation. Where performance obligations may not be distinct, this will bundled with the subsequent product supply obligations. The new standard provides an exemption for sales-based royalties for licenses of intellectual property which will continue to be recognised as revenue as underlying sales are incurred.
The Company recognises a deferred income (contract liability) if consideration has been received (or has become receivable) before the company transfers the promised goods or services to the customer. Deferred income mainly relates to remaining performance obligations in (partially) unsatisfied long-term contracts or are related to amounts the Company expects to receive for goods and services that have not yet been transferred to customers under existing, non-cancellable or otherwise enforceable contracts.
Contract assets are recognised when there is excess of revenue earned over billings on contracts. Contract assets are classified as unbilled receivables (only act of invoicing is pending) when there is unconditional right to receive cash, and only passage of time is required, as per contractual terms.
iii. Royalty income and profit share
The Royalty income and profit share earned through a License or collaboration partners is recognised as the underlying sales are recorded by the Licensee or collaboration partners.
iv. Sales Return Allowances
The Company accounts for sales return by recording an allowance for sales return concurrent with the recognition of revenue at the time of a product sale. The allowance is based on Companyâs estimate of expected sales returns. The estimate of sales return is determined primarily by the Companyâs historical experience in the markets in which the Company operates.
v. Dividends
T ividend is recognised when the Companyâs right to receive the payment is established, which is generally when shareholders approve the dividend.
vi. Rental income
Rental income from investment property is recognised in statement of profit and loss on a straight-line basis over the term of the lease except where the rentals are structured to increase in line with expected general inflation. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.
vii. Contribution received from customers/co-development partners towards plant and equipment
Contributions received from customers/co-development partners towards items of property, plant and equipment which require an obligation to supply goods to the customer in the future, are recognised as a credit to deferred revenue. The contribution received is recognised as revenue from operations over the useful life of the assets. The Company capitalises the gross cost of these assets as the Company controls these assets.
viii. Interest income and expense
Interest income or expense is recognised using the effective interest method. k. Government grants
The Company recognises government grants only when there is reasonable assurance that the conditions attached to them will be complied with, and the grants will be received. Government grants received in relation to assets are recognised as deferred income and amortised over the useful life of such asset. Government grants, which are revenue in nature are either recognised as income or deducted in reporting the related expense based on the terms of the grant, as applicable.
l. Income taxes
A income tax comprises current and deferred income tax. Income tax expense is recognised in statement of profit and loss except to the extent that it relates to an item recognised directly in equity in which case it is recognised in other comprehensive income. Current income tax for current year and prior periods is recognised at the amount expected to be paid or recovered from the tax authorities, using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Deferred income tax assets and liabilities are recognised for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when:
â taxable temporary differences arising on the initial recognition of goodwill;
â Temporary differences arising on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss at the time of transaction;
â Temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred income tax assets and liabilities are measured using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognised as income or expense in the period that includes the enactment or substantive enactment date. A deferred income tax assets is recognised to the extent it is probable that future taxable income will be available against which the deductible temporary timing differences and tax losses can be utilised. The Company offsets income tax assets and liabilities, where it has a legally enforceable right to set off the recognised amounts and where it intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
m. Borrowing cost
A borrowing costs are interest and other costs (including exchange differences relating to foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs) incurred in connection with the borrowing of funds. Borrowing costs directly attributable to acquisition or construction of an asset which necessarily take a substantial period of time to get ready for their intended use are capitalised as part of the cost of that asset. Other borrowing costs are recognised as an expense in the period in which they are incurred.
n. Leases
i. Assets held under lease
Leases of property, plant and equipment that transfer to the Company substantially all the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to similar owned assets.
Assets held under leases that do not transfer to the Company substantially all the risks and rewards of ownership (i.e. operating leases) are not recognised in the Companyâs Balance sheet.
ii. Lease payments
Payments made under operating leases are generally recognised in profit or loss on a straight-line basis over the term of the lease unless such payments are structured to increase in line with expected general inflation to compensate for the lessorâs expected inflationary cost increases.
o. Earnings per share
basic earnings per share is computed using the weighted average number of equity shares outstanding during the period adjusted for treasury shares held. Diluted earnings per share is computed using the weighted-average number of equity and dilutive equivalent shares outstanding during the period, using the treasury stock method for options and warrants, except where the results would be anti-dilutive.
p. Recent Indian Accounting Standards (Ind AS)
Ind AS 116 - Leases
A n March2019, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) Amendment Rules, 2019, notifying Ind AS 116 âLeasesâ (New Revenue Standard), which replaces Ind AS 17 âLeasesâ, including appendices thereto. Ind AS 116 is effective for annual periods beginning on or after April 01, 2019. Ind AS 116 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under Ind AS 17. The standard includes two recognition exemptions for lessees - leases of âlow-valueâ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
Iessor accounting under Ind AS 116 is substantially unchanged from todayâs accounting under Ind AS 17. Lessors will continue to classify all leases using the same classification principle as in Ind AS 17 and distinguish between two types of leases: operating and finance leases.
The Company will adopt the standard, effective from April 1, 2019. The adoption of this standard is not expected to have a material impact on its standalone financial statements.
Ind /AS 12 Appendix C, Uncertainty over income Tax Treatments
In March30, 2019 , the Ministry of Corporate Affairs has notified Ind AS 12 Appendix C, Uncertainty over Income Tax treatments which is to be applied while performing the determination of taxable profit (or loss), tax bases, unused tax credits and tax rates, when there is uncertainty over Income Tax treatments under Ind AS 12. According to the appendix, companies need to determine the probability of the relevant tax authority accepting each tax treatments, or group of tax treatments, that the companies have used or plan to use in their income tax filing which has to be considered to compute the most likely amount or the expected value of the tax treatment when determining taxable profit (or loss), tax base, unused tax losses, unused tax credits and tax rates.
The standard permits two possible method of transition - i) Full retrospective approach- Under this approach, Appendix C will be applied retrospectively to each reporting period presented in accordance with Ind AS 8 - Accounting policies, Changes in Accounting Estimates and Errors, without using hindsight and ii) Retrospectively with cumulative effect of initially applying Appendix C recognised by adjusting equity on initial application, without adjusting comparatives.
The effective date for adoption of Ind AS 12 Appendix C is annual period beginning on or after April 01, 2019. The Company is in the process of evaluating the impact of the new standard and decide the approach once the said evaluation has been completed.
The effect of adoption of Ind AS 12 Appendix C is not expected to be material in the standalone financial statements.
Amendments to Ind AS 12- Income taxes
In March30, 2019 , the Ministry of Corporate Affairs issued amendments to the guidance in Ind AS 12, âIncome Taxesâ, in connection with accounting for dividend distribution taxes.
The amendment clarified that an entity shall recognise the income tax consequences of dividend in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events.
Effective date for application of this amendment is annual period beginning on or after April 01, 2019. The Company is currently evaluating the effect of this amendment on the standalone financial statements.
Amendment to Ind AS 19- plan amendment, curtailment or settlement
In March30, 2019, Ministry of Corporate Affairs issued amendments to Ind AS 19, âEmployee benefitsâ, in connection with accounting for plan amendments, curtailments and settlements.
The amendment require an entity:
â Io use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement; and
â Io recognise in profit or loss as part of past of service cost, or a gain or loss on settlement, any reduction in a surplus, even is that surplus was not previously recognised because of the impact of the asset ceiling.
Effective date for application of this amendment is annual period beginning on or after April 01, 2019.The adoption of this amendment is not expected to have a material impact on its standalone financial statements.
Ind AS 109 - Prepayment Features with Negative Compensation
The amendments relate to the existing requirements in Ind AS 109 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments. The adoption of this standard is not expected to have a material impact on its standalone financial statements.
Ind AS 23 - Borrowing Costs
The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings. The adoption of this standard is not expected to have a material impact on its standalone financial statements.
Mar 31, 2018
1. Company Overview
1.1 Reporting entity
Biocon Limited ("Bioconâ or "the Companyâ), is engaged in the manufacture of biotechnology products and research services. The Company is a public limited company incorporated and domiciled in India and has its registered office in Bengaluru, Karnataka, India. The Company''s shares are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India.
1.2 Basis of preparation of financial statements
a) Statement of compliance
The standalone financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of Companies Act, 2013, (the ''Act'') and other relevant provisions of the Act.
These standalone financial statements have been prepared for the Company as a going concern on the basis of relevant Ind AS that are effective at the Company''s annual reporting date, March 31, 2018. These standalone financial statements were authorised for issuance by the Company''s Board of Directors on April 26, 2018.
Details of the Company''s accounting policies are included in Note 2.
b) Functional and presentation currency
These standalone financial statements are presented in Indian rupees (''), which is also the functional currency of the Company. All amounts have been rounded-off to the nearest million, unless otherwise indicated.
c) Basis of measurement
These standalone financial statements have been prepared on the historical cost basis, except for the following items:
- Certain financial assets and liabilities (including derivative instruments) are measured at fair value;
- Net defined benefit assets/(liability) are measured at fair value of plan assets, less present value of defined benefit obligations;
d) Use of estimates and judgments
The preparation of the financial statements in conformity with Ind AS requires management to make estimates, judgments and assumptions. These estimates, judgments and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the standalone financial statements.
Judgments
Information about Judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the financial statements is included in the following notes:
- Note 1.2(b) â Assessment of functional currency;
- Note 2(a) and 36 â Financial instruments;
- Note 2(b), 2(c) and 2(d) â Useful lives of property, plant and equipment, intangible assets and investment property;
- Note 2(n) â Lease classification;
- Note 35 â measurement of defined benefit obligation; key actuarial assumptions;
- Note 30 â Share based payments; and
- Note 2(l) and 33 â Provision for income taxes and related tax contingencies and Evaluation of recoverability of deferred tax assets.
1.3 Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending March 31, 2019 is included in the following notes:
â Note 2(g)(ii) - impairment test of non-financial assets; key assumptions underlying recoverable amounts including the recoverability of expenditure on internally-generated intangible assets;
â Note 18 and 33 - recognition of deferred tax assets: availability of future taxable profit against which tax losses carried forward can be used;
â Note 36 - impairment of financial assets; and
â Note 17 and 34 - recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources.
1.4 Measurement of fair values
A number of the Company''s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
â Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
â Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
â Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
â Note 30 - share based payment arrangements;
â Note 4 - investment property; and
â Note 2(a) and 36 - financial instruments.
2 Significant accounting policies
a. Financial instruments
i. Recognition and initial measurement
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue.
ii. Classification and subsequent measurement Financial assets
On initial recognition, a financial asset is classified as measured at
â mortised cost;
â Fair value through other comprehensive income (FVOCI) - debt investment;
â FVOCI - equity investment; or
â FVTPL
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.
A financial asset is measured at mortised cost if it meets both of the following conditions and is not designated as at FVTPL:
â the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
â the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
â the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
â the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment''s fair value in OCI (designated as FVOCI - equity investment). This election is made on an investment- by- investment basis.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to
Financial liabilities: Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held- for-trading, or it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in statement of profit and loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in statement of profit and loss. Any gain or loss on derecognition is also recognized in statement of profit and loss.
iii. Derecognition Financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control of the financial asset.
If the Company enters into transactions whereby it transfers assets recognized on its balance sheet, but retains either all or substantially all of the risks and rewards of the transferred assets, the transferred assets are not derecognized .
Financial liabilities
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
The Company also derecognises a financial liability when its terms are modified and the cash flows under the modified terms are substantially different. In this case, a new financial liability based on the modified terms is recognized at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognized in statement of profit and loss.
iv. Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
v. Derivative financial instruments and hedge accounting
The Company holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.
Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognized in statement of profit and loss.
The Company designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and interest rates.
At inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in OCI and accumulated in other equity under ''effective portion of cash flow hedges''. The effective portion of changes in the fair value of the derivative that is recognized in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in statement of profit and loss.
If a hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in other equity remains there until, for a hedge of a transaction resulting in recognition of a non-financial item, it is included in the non-financial item''s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in other equity are immediately reclassified to statement of profit and loss.
vi. Treasury shares
The Company has created an Employee Welfare Trust (EWT) for providing share-based payment to its employees. Own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from equity. When the treasury shares are issued to the employees by EWT, the amount received is recognized as an increase in equity and the resultant gain / (loss) is transferred to / from securities premium.
vii. Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Company''s cash management.
Cash dividend to equity holders
The Company recognizes a liability to make cash to equity holders when the distribution is authorized and the distribution is no longer at the discretion of the Company. As per the corporate laws in India, a distribution is authorized when it is approved by the shareholders. A corresponding amount is recognized directly in equity. Interim dividends are recorded as a liability on the date of declaration by the Company''s Board of Directors.
b. Property, plant and equipment
i. Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. The cost of an item of property, plant and equipment comprises the cost of materials and direct labor, any other costs directly attributable to bringing the item to working condition for its intended use, and estimated costs of dismantling and removing the item and restoring the site on which it is located.
If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in statement of profit and loss.
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.
ii. Depreciation
Depreciation is calculated on cost of items of property, plant and equipment less their estimated residual values over their estimated useful lives using the straight-line method. Assets acquired under finance leases are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Freehold land is not depreciated.
Depreciation method, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. Based on technical evaluation and consequent advice, the management believes that its estimates of useful lives as given above best represent the period over which management expects to use these assets.
Depreciation on additions (disposals) is provided on a pro-rata basis i.e. from (upto) the date on which asset is ready for use (disposed of).
iii. Reclassification to investment property
When the use of a property changes from owner-occupied to investment property, the property is reclassified as investment property at its carrying amount on the date of reclassification.
c. Intangible assets
Internally generated: Research and development
Expenditure on research activities is recognized in statement of profit and loss as incurred.
Development expenditure is capitalized as part of the cost of the resulting intangible asset only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognized in statement of profit and loss as incurred. Subsequent to initial recognition, the asset is measured at cost less accumulated amortization and any accumulated impairment losses.
Others
Other intangible assets are initially measured at cost. Subsequently, such intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses.
i. Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in statement of profit and loss as incurred.
ii. Amortization
Intangible assets are amortized on a straight line basis over the estimated useful life as follows:
â Computer software 3-5 years
â Marketing and Manufacturing rights 5-10 years
â Customer related intangibles 5 years
Amortization method, useful lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
d. Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Upon initial recognition, an investment property is measured at cost. Subsequent to initial recognition, investment property is measured at cost less accumulated depreciation and accumulated impairment losses, if any.
Based on technical evaluation and consequent advice, the management believes a period of 25 years as representing the best estimate of the period over which investment properties (which are quite similar) are expected to be used. Accordingly, the Company depreciates investment properties over a period of 25 years on a straight-line basis. The useful life estimate of 25 years is different from the indicative useful life of relevant type of buildings mentioned in Part C of Schedule II to the Act i.e. 30 years.
Any gain or loss on disposal of an investment property is recognized in statement of profit and loss.
e. Business combination
In accordance with Ind AS 103, Business combinations, the Company accounts for business combinations after acquisition date using the acquisition method when control is transferred to the Company. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The cost of acquisition also includes the fair value of any contingent consideration and deferred consideration, if any. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in OCI and accumulated in equity as capital reserve if there exists clear evidence of the underlying reasons for classifying the business combination as resulting in a bargain purchase; otherwise the gain is recognized directly in equity as capital reserve. Transaction costs are expensed as incurred.
f. Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in first-out formula, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their present location and condition. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of fixed production overheads based on normal operating capacity.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The net realizable value of work-in-progress is determined with reference to the selling prices of related finished products.
Raw materials, components and other supplies held for use in the production of finished products are not written down below cost except in cases where material prices have declined and it is estimated that the cost of the finished products will exceed their net realizable value.
The comparison of cost and net realizable value is made on an item-by-item basis.
g. Impairment
i. Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss ("ECLâ) model for measurement and recognition of impairment loss on following:
â financial assets measured at amortized cost; and
â financial assets measured at FVOCI- debt investments.
Loss allowance for trade receivables with no significant financing component is measured at an amount equal to lifetime expected credit losses. For all other financial assets, ECL are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL.
Loss allowance for financial assets measured at amortized cost are deducted from gross carrying amount of the assets.
ii. Impairment of non-financial assets
The Company assess at each reporting date whether there is any indication that the carrying amount may not be recoverable. If any such indication exists, then the asset''s recoverable amount is estimated and an impairment loss is recognized if the carrying amount of an asset or CGU exceeds its estimated recoverable amount in the statement of profit and loss.
Goodwill is tested annually for impairment. For the purpose of impairment testing, goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of a CGU (or an individual asset) is higher of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flow, discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to CGU (or the asset).
The Company''s non-financial assets, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset''s recoverable amount is estimated. For impairment testing, assets that do not generate independent cash inflows are grouped together into cash-generating units (CGUs). Each CGU represents the smallest group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or CGUs.
Impairment loss recognized in respect of a CGU is allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets of the CGU (or groups of CGUs) on a pro rata basis.
An impairment loss in respect of goodwill is not subsequently reversed. In respect of other assets for which impairment loss has been recognized in prior periods, the Company reviews at each reporting date whether there is any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. Such a reversal is made only to the extent that the asset''s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized .
h. Employee benefits
i. Gratuity
The Company provides for gratuity, a defined benefit plan ("the Gratuity Planâ) covering the eligible employees of the Company. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee''s salary and the tenure of the employment with the Company.
Liability with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary, at each balance sheet date using the projected unit credit method. The defined benefit plan is administered by a trust formed for this purpose through the Company gratuity scheme.
The Company recognizes the net obligation of a defined benefit plan as a liability in its balance sheet. Gains or losses through re-measurement of the net defined benefit liability are recognized in other comprehensive income and are not reclassified to profit and loss in the subsequent periods. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognized in other comprehensive income. The effect of any plan amendments are recognized in the statement of profit and loss.
ii. Provident Fund
Eligible employees of the Company receive benefits from provident fund, which is a defined contribution plan. Both the eligible employees and the Company make monthly contributions to the Government administered provident fund scheme equal to a specified percentage of the eligible employee''s salary. Amounts collected under the provident fund plan are deposited with in a government administered provident fund. The Company has no further obligation to the plan beyond its monthly contributions.
iii. Compensated absences
The Company has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each balance sheet date using the projected unit credit method on the additional amount expected to be paid/availed as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognized in the period in which the absences occur.
iv. Share-based compensation
The grant date fair value of equity settled share-based payment awards granted to employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as expense is based on the estimate of the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market vesting conditions at the vesting date.
i. Provisions (other than for employee benefits)
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows (representing the best estimate of the expenditure required to settle the present obligation at the balance sheet date) at a pretax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost. Expected future operating losses are not provided for.
Onerous contracts
A contract is considered to be onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before such a provision is made, the Company recognizes any impairment loss on the assets associated with that contract.
j. Revenue
i. Sale of goods
Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimate reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. The timing of transfers of risks and rewards varies depending on the individual terms of sale. Revenue from the sale of goods includes excise duty and is measured at the fair value of the consideration received or receivable, net of returns, sales tax and applicable trade discounts and allowances.
ii. Milestone payments and out licensing arrangements
The Company enters into certain dossier sales, licensing and supply arrangements that, in certain instances, include certain performance obligations. Based on an evaluation of whether or not these obligations are inconsequential or perfunctory, the Company recognize or defer the upfront payments received under these arrangements. The deferred revenue is recognized in the Standalone statement of operations in the period in which our remaining performance obligations are completed.
These arrangements typically also consist of subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Milestone payments which are contingent on achieving certain clinical milestones are recognized as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period we have continuing performance obligations, if the milestones are not considered substantive. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid.
iii. Sales Return Allowances
The Company accounts for sales return by recording an allowance for sales return concurrent with the recognition of revenue at the time of a product sale. The allowance is based on Company''s estimate of expected sales returns. The estimate of sales return is determined primarily by the Company''s historical experience in the markets in which the Company operates.
iv. Dividends
Dividend is recognized when the Company''s right to receive the payment is established, which is generally when shareholders approve the dividend.
v. Rental income
Rental income from investment property is recognized in statement of profit and loss on a straight-line basis over the term of the lease except where the rentals are structured to increase in line with expected general inflation. Lease incentives granted are recognized as an integral part of the total rental income, over the term of the lease.
vi. Contribution received from customers/co-development partners towards plant and equipment
Contributions received from customers/co-development partners towards items of property, plant and equipment which require an obligation to supply goods to the customer in the future, are recognized as a credit to deferred revenue. The contribution received is recognized as revenue from operations over the useful life of the assets. The Company capitalizes the gross cost of these assets as the Company controls these assets.
vii. Interest income and expense
Interest income or expense is recognized using the effective interest method.
k. Government grants
The Company recognizes government grants only when there is reasonable assurance that the conditions attached to them will be complied with, and the grants will be received. Government grants received in relation to assets are recognized as deferred income and amortized over the useful life of such asset. Grants related to income are deducted in reporting the related expense.
l. Income taxes
Income tax comprises current and deferred income tax. Income tax expense is recognized in statement of profit and loss except to the extent that it relates to an item recognized directly in equity in which case it is recognized in other comprehensive income. Current income tax for current year and prior periods is recognized at the amount expected to be paid or recovered from the tax authorities, using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Deferred income tax assets and liabilities are recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when:
â taxable temporary differences arising on the initial recognition of goodwill;
â temporary differences arising on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss at the time of transaction;
â temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred income tax assets and liabilities are measured using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the period that includes the enactment or substantive enactment date. A deferred income tax assets is recognized to the extent it is probable that future taxable income will be available against which the deductible temporary timing differences and tax losses can be utilized. The Company offsets income-tax assets and liabilities, where it has a legally enforceable right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
m. Borrowing cost
Borrowing costs are interest and other costs (including exchange differences relating to foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs) incurred in connection with the borrowing of funds. Borrowing costs directly attributable to acquisition or construction of an asset which necessarily take a substantial period of time to get ready for their intended use are capitalized as part of the cost of that asset. Other borrowing costs are recognized as an expense in the period in which they are incurred.
n. Leases
i. Assets held under lease
Leases of property, plant and equipment that transfer to the Company substantially all the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to similar owned assets.
Assets held under leases that do not transfer to the Company substantially all the risks and rewards of ownership (i.e. operating leases) are not recognized in the Company''s Balance sheet.
ii. Lease payments
Payments made under operating leases are generally recognized in profit or loss on a straight-line basis over the term of the lease unless such payments are structured to increase in line with expected general inflation to compensate for the less orâs expected inflationary cost increases.
o. Earnings per share
Basic earnings per share is computed using the weighted average number of equity shares outstanding during the period adjusted for treasury shares held. Diluted earnings per share is computed using the weighted-average number of equity and dilutive equivalent shares outstanding during the period, using the treasury stock method for options and warrants, except where the results would be anti-dilutive.
p. Recent Indian Accounting Standards (Ind AS)
Following new standard and amendment to Ind AS have not been applied by the Company as they are effective for annual periods beginning on or after April 1, 2018:
Ind AS 115 Revenue from Contracts with Customers
Ind AS 21 The effect of changes in Foreign Exchange rates
I n March 2018, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) Amendment Rules, 2018, notifying Ind AS 115 ''Revenue from Contracts with Customers'' (New Revenue Standard), which replaces Ind AS 11 ''Construction Contracts'' and Ind AS 18''Revenue''. The core principle of the New Revenue Standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Some of the key changes introduced by the New Revenue Standard include additional guidance for multiple-element arrangements, measurement approaches for variable consideration, specific guidance for licensing of intellectual property. The new standard also provides guidance on evaluation of performance obligations being distinct to enable separate recognition and could impact timing of recognition of certain elements of multiple element arrangements.
Significant additional disclosures in relation to revenue are also prescribed. The New Revenue Standard also provides two broad alternative transition options - Retrospective Method and Cumulative Effect Method - with certain practical expedients available under the Retrospective Method. The Company is in the process of evaluating the impact of the New Revenue Standard on the present and future arrangements and shall determine the appropriate transition option once the said evaluation has been completed.
Ind /AS 21 - The effect of changes in Foreign Exchange rates
The amendment clarifies on the accounting of transactions that include the receipt or payment of advance consideration in a foreign currency. The appendix explains that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the nonmonetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt. The Company is evaluating the impact of this amendment on its financial statements.
The Company has allotted 400,000,000 equity shares of Rs, 5 each fully paid up as bonus shares on June 19, 2017 in the ratio of 2:1 (two equity shares of Rs, 5 each for every one equity share of Rs, 5 each held in the Company as on the record date i.e. June 17, 2017) by capitalization of securities premium account. In accordance with Ind AS 33, Earnings per share, the Earnings per share data has been adjusted to give effect to the bonus issue.
Mar 31, 2017
1. Company Overview
1.1 Reporting entity
Biocon Limited (âBioconâ or âthe Companyâ), is engaged in the manufacture of biotechnology products and research services. The Company is a public Limited company incorporated and domiciled in India and has its registered office in Bangalore, Karnataka, India. The Company''s shares are Listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India.
1.2 Basis of preparation of financial statements
a) Statement of compliance
A he standalone financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under Section 133 of Companies Act, 2013, (the ''Act'') and other relevant provisions of the Act.
The Company''s standalone financial statements up to and for the year ended March 31, 2016 were prepared in accordance with the Companies (Accounting Standards) Rules, 2006, notified under Section 133 of the Act, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (âPrevious GAAPâ).
A s these are the Company''s first standalone financial statements prepared in accordance with Indian Accounting Standards (Ind AS), Ind AS 101, First-time Adoption of Indian Accounting Standards has been applied. An explanation of how the transition to Ind AS has affected the previously reported financial position, financial performance and cash flows of the Company is provided in Note 41.
These standalone financial statements have been prepared for the Company as a going concern on the basis of relevant Ind AS that are effective at the Company''s Annual reporting date, March 31, 2017. These standalone financial statements were authorized for issuance by the Company''s Board of Directors on April 27, 2017.
Details of the Company''s accounting policies are included in Note 2.
b) Functional and presentation currency
These standalone financial statements are presented in Indian rupees (INR), which is also the functional currency of the Company. ALL amounts have been rounded-off to the nearest million, unless otherwise indicated.
c) Basis of measurement
These standalone financial statements have been prepared on the historical cost basis, except for the following items:
- Certain financial assets and Liabilities (including derivative instruments) are measured at fair value;
- Net defined benefit assets/(Liability) are measured at fair value of plan assets, Less present value of defined benefit obligations.
d) Use of estimates and judgments
A he preparation of the financial statements in conformity with Ind AS requires management to make estimates, judgments and assumptions. These estimates, judgments and assumptions affect the application of accounting policies and the reported amounts of assets and Liabilities, the disclosures of contingent assets and Liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the standalone financial statements.
Judgments
Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the financial statements is included in the following notes:
- Note 1.2(b) â Assessment of functional currency;
- Note 2(a) and 39 â Financial instruments;
- Note 2(b), 2(c) and 2(d) â Useful Lives of property, plant and equipment, intangible assets and investment property;
- Note 38 â Assets and obligations relating to employee benefits;
- Note 31 â Share based payments; and
- Note 2(L) and 35 â provision for income taxes and related tax contingencies and Evaluation of Recoverability of deferred tax assets.
1.3 Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending March 31, 2018 is included in the following notes:
â Note 18 and 35 - recognition of deferred tax assets: availability of future taxable profit against which tax Losses carried forward can be used;
â Note 39 - impairment of financial assets; and
â Note 17 and 36 - recognition and measurement of provisions and contingencies: key assumptions about the Likelihood and magnitude of an outflow of resources.
1.4 Measurement of fair values
A number of the Company''s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and Liabilities.
Fair values are categorized into different Levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
â Level 1: quoted prices (unadjusted) in active markets for identical assets or Liabilities.
â Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or Liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
â Level 3: inputs for the asset or Liability that are not based on observable market data (unobservable inputs).
W hen measuring the fair value of an asset or a Liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a Liability fall into different Levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same Level of the fair value hierarchy as the Lowest Level input that is significant to the entire measurement.
A he Company recognizes transfers between Levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in the following notes:
â Note 31 - share based payment arrangements;
â Note 4 - investment property; and
â Note 2(a) and 39 - financial instruments.
2. Significant accounting policies
a. Financial instruments
i. Recognition and initial measurement
Trade receivables and debt securities issued are initially recognized when they are originated. ALL other financial assets and financial Liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.
A financial asset or financial Liability is initially measured at fair value plus, for an item not at fair value through profit and Loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue.
ii. Classification and subsequent measurement Financial assets
On initial recognition, a financial asset is classified as measured at
â amortized cost;
â FVOCI - debt investment;
â FVOCI - equity investment; or
â FVTPL
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:
â the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
â the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
â the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
â the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A n initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment''s fair value in OCI (designated as FVOCI - equity investment). This election is made on an investment- by- investment basis.
ALL financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Financial Liabilities are classified as measured at amortized cost or FVTPL. A financial Liability is classified as at FVTPL if it is classified as held-for- trading, or it is a derivative or it is designated as such on initial recognition. Financial Liabilities at FVTPL are measured at fair value and net gains and Losses, including any interest expense, are recognized in statement of profit and Loss. Other financial Liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and Losses are recognized in statement of profit and Loss. Any gain or Loss on de-recognition is also recognized in statement of profit and Loss.
iii. De-recognition Financial assets
T he Company de-recognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control of the financial asset.
If the Company enters into transactions whereby it transfers assets recognized on its balance sheet, but retains either all or substantially all of the risks and rewards of the transferred assets, the transferred assets are not derecognized.
Financial liabilities
The Company derecognizes a financial Liability when its contractual obligations are discharged or cancelled, or expire.
T he Company also derecognizes a financial Liability when its terms are modified and the cash flows under the modified terms are substantially different. In this case, a new financial Liability based on the modified terms is recognized at fair value. The difference between the carrying amount of the financial Liability extinguished and the new financial Liability with modified terms is recognized in statement of profit and Loss.
iv. Offsetting
Financial assets and financial Liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company currently has a Legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the Liability simultaneously.
v. Derivative financial instruments and hedge accounting
The Company holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.
Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognized in statement of profit and Loss.
T he Company designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and interest rates.
To inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Cash flow hedges
T hen a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in OCI and accumulated in other equity under ''effective portion of cash flow hedges''. The effective portion of changes in the fair value of the derivative that is recognized in OCI is Limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in statement of profit and Loss.
T he hedge no Longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated
in other equity remains there until, for a hedge of a transaction resulting in recognition of a non-financial item, it is included in the non-financial item''s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit and Loss in the same period or periods as the hedged expected future cash flows affect profit and Loss.
If the hedged future cash flows are no Longer expected to occur, then the amounts that have been accumulated in other equity are immediately reclassified to statement of profit and Loss.
vi. Treasury shares
The Company has created an Employee Welfare Trust (EWT) for providing share-based payment to its employees. Own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from equity. When the treasury shares are issued to the employees by EWT, the amount received is recognized as an increase in equity and the resultant gain/ (Loss) is transferred to/ from securities premium.
vii. Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or Less, which are subject to an insignificant risk of changes in value. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Company''s cash management.
Cash dividend to equity holders
The Company recognizes a Liability to make cash to equity holders when the distribution is authorized and the distribution is no Longer at the discretion of the Company. As per the corporate Laws in India, a distribution is authorized when it is approved by the shareholders. A corresponding amount is recognized directly in equity. Interim dividends are recorded as a Liability on the date of declaration by the Company''s Board of Directors.
b. Property, plant and equipment
i. Recognition and measurement
A teems of property, plant and equipment are measured at cost Less accumulated depreciation and accumulated impairment Losses, if any. The cost of a self-constructed item of property, plant and equipment comprises the cost of materials and direct Labor, any other costs directly attributable to bringing the item to working condition for its intended use, and estimated costs of dismantling and removing the item and restoring the site on which it is Located.
A significant parts of an item of property, plant and equipment have different useful Lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or Loss on disposal of an item of property, plant and equipment is recognized in statement of profit and Loss.
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.
ii. Depreciation
Appreciation is calculated on cost of items of property, plant and equipment Less their estimated residual values over their estimated useful Lives using the straight-Line method. Assets acquired under finance Leases are depreciated over the shorter of the Lease term and their useful Lives unless it is reasonably certain that the Company will obtain ownership by the end of the Lease term. Freehold Land is not depreciated.
c. Intangible assets
Internally generated: Research and development
Expenditure on research activities is recognized in statement of profit and Loss as incurred.
Development expenditure is capitalized as part of the cost of the resulting intangible asset only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognized in statement of profit and Loss as incurred. Subsequent to initial recognition, the asset is measured at cost Less accumulated amortization and any accumulated impairment Losses.
Others
At their intangible assets are initially measured at cost. Subsequently, such intangible assets are measured at cost Less accumulated amortization and any accumulated impairment Losses.
i. Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. ALL other expenditure, including expenditure on internally generated goodwill and brands, is recognized in statement of profit and Loss as incurred.
ii. Amortization
Goodwill is not amortized and is tested for impairment Annually.
Other intangible assets are amortized on a straight Line basis over the estimated useful Life as follows:
â Computer software 3-5 years
â Marketing and Manufacturing rights 5-10 years
â Customer related intangibles 5 years
Amortization method, useful Lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
d. Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Upon initial recognition, an investment property is measured at cost. Subsequent to initial recognition, investment property is measured at cost Less accumulated depreciation and accumulated impairment Losses, if any.
Based on technical evaluation and consequent advice, the management believes a period of 25 years as representing the best estimate of the period over which investment properties (which are quite similar) are expected to be used. Accordingly, the Company depreciates investment properties over a period of 25 years on a straight-Line basis. The useful Life estimate of 25 years is different from the indicative useful Life of relevant type of buildings mentioned in Part C of Schedule II to the Act i.e. 30 years.
Any gain or Loss on disposal of an investment property is recognized in statement of profit and Loss.
e. Business combination
An accordance with Ind AS 103, Business combinations, the Company accounts for business combinations after acquisition date using the acquisition method when control is transferred to the Company (see Note 42). The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and Liabilities incurred or assumed at the date of exchange. The cost of acquisition also includes the fair value of any contingent consideration and deferred consideration, if any. Any goodwill that arises is tested Annual ly for impairment. Any gain on a bargain purchase is recognized in OCI and accumulated in equity as capital reserve if there exists clear evidence of the underlying reasons for classifying the business combination as resulting in a bargain purchase; otherwise the gain is recognized directly in equity as capital reserve. Transaction costs are expensed as incurred.
f. Inventories
Inventories are measured at the Lower of cost and net realizable value. The cost of inventories is based on the first-in first-out formula, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their present Location and condition. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of fixed production overheads based on normal operating capacity.
At realizable value is the estimated selling price in the ordinary course of business, Less the estimated costs of completion and selling expenses. The net realizable value of work-in-progress is determined with reference to the selling prices of related finished products.
Few materials, components and other supplies held for use in the production of finished products are not written down below cost except in cases where material prices have declined and it is estimated that the cost of the finished products will exceed their net realizable value.
The comparison of cost and net realizable value is made on an item-by-item basis.
g. Impairment
i. Impairment of financial assets
An accordance with Ind AS 109, the Company applies expected credit Loss (âECLâ) model for measurement and recognition of impairment Loss on following:
â financial assets measured at amortized cost; and
â financial assets measured at FVOCI- debt investments.
Loss allowance for trade receivables with no significant financing component is measured at an amount equal to Lifetime expected credit Losses. For all other financial assets, ECL are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at Lifetime ECL.
Loss allowance for financial assets measured at amortized cost are deducted from gross carrying amount of the assets. For debt securities at FVOCI, the Loss allowance is charged to statement of profit and Loss and is recognized in OCI.
ii. Impairment of non-financial assets
T he Company assess at each reporting date whether there is any indication that the carrying amount may not be recoverable. If any such indication exists, then the asset''s recoverable amount is estimated and an impairment Loss is recognized if the carrying amount of an asset or CGU exceeds its estimated recoverable amount in the statement of profit and Loss.
Goodwill is tested Annually for impairment. For the purpose of impairment testing, goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
The Company''s non-financial assets, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset''s recoverable amount is estimated. For impairment testing, assets that do not generate independent cash inflows are grouped together into cash-generating units (CGUs). Each CGU represents the smallest group of assets that generates cash inflows that are Largely independent of the cash inflows of other assets or CGUs.
Impairment Loss recognized in respect of a CGU is allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets of the CGU (or groups of CGUs) on a pro rata basis.
The impairment Loss in respect of goodwill is not subsequently reversed. In respect of other assets for which impairment Loss has been recognized in prior periods, the Company reviews at each reporting date whether there is any indication that the Loss has decreased or no Longer exists. An impairment Loss is reversed if there has been a change in the estimates used to determine the recoverable amount. Such a reversal is made only to the extent that the asset''s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment Loss had been recognized.
h. Employee benefits
i. Gratuity
T he Company provides for gratuity, a defined benefit plan ("the Gratuity Plan") covering the eligible employees of the Company. The Gratuity Plan provides a Lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs salary and the tenure of the employment with the Company.
Liability with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary, at each balance sheet date using the projected unit credit method. The defined benefit plan is administered by a trust formed for this purpose through the Company gratuity scheme.
T he Company recognizes the net obligation of a defined benefit plan as a Liability in its balance sheet. Gains or Losses through re-measurement of the net defined benefit Liability are recognized in other comprehensive income and are not reclassified to profit and Loss in the subsequent periods. The actual return of the portfolio of plan assets, in excess of the yields computed by applying the discount rate used to measure the defined benefit obligation is recognized in other comprehensive income. The effect of any plan amendments are recognized in the statement of profit and Loss.
ii. Provident Fund
Legible employees of the Company receive benefits from provident fund, which is a defined contribution plan. Both the eligible employees and the Company make monthly contributions to the Government administered provident fund scheme equal to a specified percentage of the eligible employeeâs salary. Amounts collected under the provident fund plan are deposited with in a government administered provident fund. The Company has no further obligation to the plan beyond its monthly contributions.
iii. Compensated absences
The Company has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each balance sheet date using the projected unit credit method on the additional amount expected to be paid/availed as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognized is the period in which the absences occur
iv. Share-based compensation
The grant date fair value of equity settled share-based payment awards granted to employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as expense is based on the estimate of the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market vesting conditions at the vesting date.
i. Provisions (other than for employee benefits)
T provision is recognized if, as a result of a past event, the Company has a present Legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows (representing the best estimate of the expenditure required to settle the present obligation at the balance sheet date) at a pretax rate that reflects current market assessments of the time value of money and the risks specific to the Liability. The unwinding of the discount is recognized as finance cost. Expected future operating Losses are not provided for
Onerous contracts
T contract is considered to be onerous when the expected economic benefits to be derived by the Company from the contract are Lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the present value of the Lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before such a provision is made, the Company recognizes any impairment Loss on the assets associated with that contract.
j. Revenue
i. Sale of goods
Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimate reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. The timing of transfers of risks and rewards varies depending on the individual terms of sale. Revenue from the sale of goods includes excise duty and is measured at the fair value of the consideration received or receivable, net of returns, sales tax and applicable trade discounts and allowances.
ii. Milestone payments and out licensing arrangements
The Company enters into certain dossier sales, Licensing and supply arrangements that, in certain instances, include certain performance obligations. Based on an evaluation of whether or not these obligations are inconsequential or perfunctory, we recognize or defer the upfront payments received under these arrangements. The deferred revenue is recognized in the Standalone statement of operations in the period in which we complete our remaining performance obligations.
These arrangements typically also consist of subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Milestone payments which are contingent on achieving certain clinical milestones are recognized as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period we have continuing performance obligations, if the milestones are not considered substantive. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid.
iii. Sales Return Allowances
The Company accounts for sales return by recording an allowance for sales return concurrent with the recognition of revenue at the time of a product sale. The allowance is based on Company''s estimate of expected sales returns. The estimate of sales return is determined primarily by the Company''s historical experience in the markets in which the Company operates.
iv. Dividends
Dividend is recognized when the Company''s right to receive the payment is established, which is generally when shareholders approve the dividend.
v. Rental income
Rental income from investment property is recognized in statement of profit and Loss on a straight-Line basis over the term of the Lease except where the rentals are structured to increase in Line with expected general inflation. Lease incentives granted are recognized as an integral part of the total rental income, over the term of the Lease.
vi. Contribution received from customers/co-development partners towards plant and equipment
Contributions received from customers/co-development partners towards items of property, plant and equipment which require an obligation to supply goods to the customer in the future, are recognized as a credit to deferred revenue. The contribution received is recognized as revenue from operations over the useful Life of the assets. The Company capitalizes the gross cost of these assets as the Company controls these assets.
k. Government grants
The Company recognizes government grants only when there is reasonable assurance that the conditions attached to them will be complied with, and the grants will be received. Government grants received in relation to assets are presented as a reduction to the carrying amount of the related asset. Grants related to income are deducted in reporting the related expense.
l. Income taxes
Income tax comprises current and deferred income tax. Income tax expense is recognized in statement of profit and Loss except to the extent that it relates to an item recognized directly in equity in which case it is recognized in other comprehensive income. Current income tax for current year and prior periods is recognized at the amount expected to be paid or recovered from the tax authorities, using the tax rates and Laws that have been enacted or substantively enacted by the balance sheet date.
Deferred income tax assets and Liabilities are recognized for all temporary differences arising between the tax bases of assets and Liabilities and their carrying amounts in the financial statements except when:
â taxable temporary differences arising on the initial recognition of goodwill;
â Temporary differences arising on the initial recognition of assets or Liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or Loss at the time of transaction;
â Temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no Longer probable that the related tax benefit will be realized.
Deferred income tax assets and Liabilities are measured using the tax rates and Laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and Liabilities is recognized as income or expense in the period that includes the enactment or substantive enactment date. A deferred income tax assets is recognized to the extent it is probable that future taxable income will be available against which the deductible temporary timing differences and tax Losses can be utilized. The Company offsets income-tax assets and Liabilities, where it has a Legally enforceable right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize the asset and settle the Liability simultaneously.
m. Borrowing cost
Sorrowing costs are interest and other costs (including exchange differences relating to foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs) incurred in connection with the borrowing of funds. Borrowing costs directly attributable to acquisition or construction of an asset which necessarily take a substantial period of time to get ready for their intended use are capitalized as part of the cost of that asset. Other borrowing costs are recognized as an expense in the period in which they are incurred.
n. Earnings per share
Basic earnings per share is computed using the weighted average number of equity shares outstanding during the period adjusted for treasury shares held. Diluted earnings per share is computed using the weighted-average number of equity and dilutive equivalent shares outstanding during the period, using the treasury stock method for options and warrants, except where the results would be anti-dilutive.
Mar 31, 2014
A. Use of estimates
The preparation of financial statements in conformity with Indian GAAP
requires management to make judgements, estimates and assumptions that
affect the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities, at the end of
the reporting period. Although these estimates are based upon
management''s best knowledge of current events and actions, actual
results could differ from these estimates.
b. Tangible fixed assets
Fixed assets are stated at cost, except for certain freehold land and
buildings revalued on November 1, 1994, which are shown at estimated
replacement cost as determined by valuers less impairment loss, if any,
net of accumulated depreciation and accumulated impairment losses, if
any. The cost comprises purchase price, borrowing costs if
capitalization criteria are met and other directly attributable cost of
bringing the asset to its working condition for the intended use. Any
trade discounts and rebates are deducted in arriving at the purchase
price.
Leasehold land on a lease-cum-sale basis are capitalised at the
allotment rates charged by the Municipal Authorities.
Subsequent expenditure related to an item of fixed asset is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard of performance.
All other expenses on existing fixed assets, including routine repair
and maintenance expenditure and cost of replacing parts, are charged to
the statement of profit and loss for the period during which such
expenses are incurred.
The Company adjusts exchange differences arising on translation /
settlement of long-term foreign currency monetary items pertaining to
the acquisition of a depreciable asset to the cost of the asset and
depreciates the same over the remaining life of the asset. In
accordance with MCA circular dated August 09, 2012, exchange
differences adjusted to the cost of fixed assets are total differences,
arising on long- term foreign currency monetary items pertaining to the
acquisition of a depreciable asset, for the period.
Gains or losses arising from disposal of fixed assets are measured as
the difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statement of profit and
loss when the asset is disposed.
Assets funded by third parties are capitalised at gross value and the
funds so received are recorded as funding received from co-developer
and amortised over the useful life of the assets.
c. Depreciation on tangible fixed assets
Depreciation on fixed assets is calculated on a straight-line basis
using the rates arrived at based on the useful lives estimated by the
management, or those prescribed under the Schedule XIV to the Companies
Act, 1956, whichever is higher. The Company has used the following
rates to provide depreciation on its fixed assets.
Used assets acquired from third parties are depreciated on a straight
line basis over their remaining useful life of such assets.
The depreciation charge over and above the depreciation calculated on
the original cost of the revalued assets is transferred from the
revaluation reserve to the statement of profit and loss. Assets costing
individually less than Rs. 5,000 are fully depreciated in the year of
purchase.
d. Intangible assets
intangible assets acquired separately are measured on initial
recognition at cost. Following initial recognition, intangible assets
are carried at cost less accumulated amortization and accumulated
impairment losses, if any. Internally generated intangible assets,
excluding capitalized development costs, are not capitalized and
expenditure is reflected in the statement of profit and loss in the
year in which the expenditure is incurred.
Computer Software which is not an integral part of the related hardware
is classified as an intangible asset.
intangible assets are amortized on a straight line basis over the
estimated useful economic life. The Company uses a rebuttable
presumption that the useful life of an intangible asset will not exceed
its remaining patent life or ten years, whichever is lower. If the
persuasive evidence exists to the affect that useful life of an
intangible asset exceeds ten years, the Company amortizes the
intangible asset over the best estimate of its useful life. Such
intangible assets and intangible assets not yet available for use are
tested for impairment annually. All other intangible assets are
assessed for impairment whenever there is an indication that the
intangible asset may be impaired.
The amortization period and the amortization method are reviewed at
least at each financial year end. If the expected useful life of the
asset is significantly different from previous estimates, the
amortization period is changed accordingly. If there has been a
significant change in the expected pattern of economic benefits from
the asset, the amortization method is changed to reflect the changed
pattern. Such changes are accounted for in accordance with AS 5, Net
Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies.
Gains or losses arising from disposal of an intangible asset are
measured as the difference between the net disposal proceeds and the
carrying amount of the asset and are recognized in the statement of
profit and loss when the asset is disposed.
Amortisation of intangible assets:
a. Intellectual Property rights/marketing rights are amortized on a
straight line basis over the estimated useful economic life of five
years
b. Manufacturing rights are amortized on a straight line basis over
the estimated useful economic life of ten years
c. Computer Software is amortised over a period of three - five years,
being its estimated useful life
Research and development costs
Research and development costs, incurred for development of products
are expensed as incurred. Development costs which relate to the design
and testing of new or improved materials, products or processes or for
existing products in new territories are recognised as an intangible
asset when the company can demonstrate all the following.
a. it is technically feasible to complete the development of asset and
it will be available for sale / use
b. it is expected that such development will be completed and used /
sold
c. it is expected that such assets will generate future economic
benefits
d. there are adequate resources to complete such development
e. it is possible to measure reliably the expenditure attributable to
the asset during development
Research and development expenditure of a capital nature is added to
fixed assets. Following the initial recognition of the development
expenditure as an asset, the cost model is applied requiring the asset
to be carried at cost less any accumulated amortization and accumulated
impairment losses. The carrying value of the development cost is tested
for impairment annually.
e. Borrowing Costs
Borrowing cost includes interest, amortization of ancillary costs
incurred in connection with the arrangement of borrowings and exchange
differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest cost.
Borrowing costs directly attributable to the acquisition, construction
or production of an asset that necessarily takes a substantial period
of time to get ready for its intended use or sale are capitalized as
part of the cost of the respective asset. All other borrowing costs are
expensed in the period they occur.
f. Impairment of tangible and intangible assets
The Company assesses at each reporting date whether there is an
indication that an asset may be impaired. If any indication exists, or
when annual impairment testing for an asset is required, the Company
estimates the asset''s recoverable amount. The recoverable amount is
determined for an individual asset, unless the asset does not generate
cash inflows that are largely independent of those from other assets or
groups of assets. Where the carrying amount of an asset exceeds its
recoverable amount, the asset is considered impaired and is written
down to its recoverable amount. In assessing value in use, the
estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset. In determining
net selling price, recent market transactions are taken into account,
if available. If no such transactions can be identified, an appropriate
valuation model is used impairment losses, including impairment on
inventories, are recognized in the statement of profit and loss, except
for previously revalued tangible fixed assets, where the revaluation
was taken to revaluation reserve. In this case, the impairment is also
recognized in the revaluation reserve up to the amount of any previous
revaluation.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
An assessment is made at each reporting date as to whether there is any
indication that previously recognized impairment losses may no longer
exist or may have decreased. If such indication exists, the Company
estimates the asset''s recoverable amount. A previously recognized
impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset''s recoverable amount since the
last impairment loss was recognized. The reversal is limited so that
the carrying amount of the asset does not exceed its recoverable
amount, nor exceed the carrying amount that would have been determined,
net of depreciation, had no impairment loss been recognized for the
asset in prior years. Such reversal is recognized in the statement of
profit and loss unless the asset is carried at a revalued amount, in
which case the reversal is treated as a revaluation increase.
g. Inventories
Inventories are valued as follows:
Raw materials and packing Lower of cost and net realizable value.
However, materials and other items
held for use in the production
materials of inventories are not written down below
cost if the finished products in which
they will be incorporated are expected
to be sold at or above cost. Cost is
determined on a first-in-first out basis.
Customs duty on imported raw materials
(excluding stocks in the bonded
warehouse) is treated as part of the
cost of the inventories.
Work-in-progress and Lower of cost and net realizable
value. Cost includes direct materials
(on a first-in-first out basis) and
finished goods labour and a proportion of manufacturing
overheads based on normal operating
capacity. Cost of finished goods
includes excise duty.
Traded goods Lower of cost and net realizable value.
Cost includes the purchase price and
other associated costs directly
incurred in bringing the inventory
to its present location. Cost is
determined on a first-in-first out basis.
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale.
h. Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. The following specific recognition criteria must
also be met before revenue is recognised.
(i) Sale of products:
Revenue from sale of products is recognised when the significant risks
and rewards of ownership of the goods have passed to the buyer The
Company collects sales taxes and value added taxes (VAT) on behalf of
the government and, therefore, these are not economic benefits flowing
to the Company. Hence, they are excluded from revenue. Excise duty
deducted from revenue (gross) is the amount that is included in the
revenue (gross) and not the entire amount of liability arising during
the year.
(ii) Sale of services:
The Company enters into certain dossier sales, licensing and supply
agreements relating to various products. Revenue from such arrangements
is recognised upon completion of performance obligations or on a
proportional performance basis over the period the Company performs its
obligations, under the terms of the agreements. Proportionate
performance is measured based upon the efforts / costs incurred to date
in relation to the total estimated efforts/costs to complete the
contract. The Company monitors estimates of the total contract revenue
and cost on a routine basis throughout the contract period. The
cumulative impact of any change in estimates of the contract revenue or
costs is reflected in the period in which the changes become known. In
the event that the loss is anticipated on a particular contract,
provision is made for the estimated loss.
In respect of services, the Company collects service tax on behalf of
the government and, therefore, it is not an economic benefit flowing to
the Company. Hence, it is excluded from revenue.
(iii) Interest Income: Interest income is recognized on a time
proportion basis taking into account the amount outstanding and the
applicable interest rate. Interest income is included under the head
"other income" in the statement of profit and loss
(iv) Dividend income: Dividend income is recognized when the Company''s
right to receive dividend is established by the reporting date
i. Investments
investments that are readily realisable and intended to be held for not
more than twelve months from the date on which such investments are
made are classified as current investments. All other investments are
classified as long-term investments.
On initial recognition, all investments are measured at cost. The cost
comprises purchase price and directly attributable acquisition charges
such as brokerage, fees and duties. If an investment is acquired, or
partly acquired, by the issue of shares or other securities, the
acquisition cost is the fair value of the securities issued. If an
investment is acquired in exchange for another asset, the acquisition
is determined by reference to the fair value of the asset given up or
by reference to the fair value of the investment acquired, whichever is
more clearly evident.
Current investments are carried in the financial statements at lower of
cost and fair value determined on an individual investment basis
Long-term investments are carried at cost. However, provision for
diminution in value is made to recognize a decline other than temporary
in the value of the investments.
On disposal of an investment, the difference between its carrying
amount and net disposal proceeds is charged or credited to the
statement of profit and loss.
j. Retirement benefits
Retirement benefit in the form of Provident Fund is a defined
contribution scheme and the contributions are charged to the statement
of profit and loss for the year when the employee renders the related
service and the contributions to the government funds are due. The
Company has no obligation other than the contribution payable to
provident fund authorities.
Gratuity liability is a defined benefit obligation and is provided for
on the basis of an actuarial valuation on projected unit credit method
made at the end of each financial year. The gratuity benefit of the
Company is administered by a trust formed for this purpose through the
group gratuity scheme. Actuarial gains and losses for defined benefit
plan are recognized in full in the period in which they occur in the
statement of profit and loss.
Accumulated leave, which is expected to be utilised within the next 12
months, is treated as short-term employee benefit. The Company measures
the expected cost of such absences as the additional amount that it
expects to pay as a result of the unused entitlement that has
accumulated at the reporting date.
The Company treats accumulated leave expected to be carried forward
beyond 12 months, as long -term employee benefit for measurement
purposes. Such long-term compensated absences are provided for based on
the actuarial valuation using the projected unit credit method at the
year-end. Actuarial gains/losses are immediately taken to the statement
of profit and loss and are not deferred. The Company presents the
entire leave as a current liability in the balance sheet, since it does
not have an unconditional right to defer its settlement for 12 months
after the reporting date.
k. Foreign currency translation
Foreign currency transaction and balances
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 retranslated using the exchange
rate prevailing at the reporting date. 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
Non-monetary items which are carried at fair value or other similar
valuation denominated in a foreign currency are translated using the
exchange rates at the date when such values were determined.
Exchange Differences
The Company accounts for exchange differences arising on translation /
settlement of foreign currency monetary items as below:
(i) Exchange differences arising on a monetary item that, in substance,
forms part of the Company''s net investment in a non-Integra foreign
operation is accumulated in the foreign currency translation reserve in
the financial statements until the disposal of the net investment, at
which time they are recognised as income or as expenses
(ii) Exchange differences arising on long-term foreign currency
monetary items related to acquisition of a fixed asset are capitalized
and depreciated over the remaining useful life of the asset
(iii) Exchange differences arising on other long-term foreign currency
monetary items are accumulated in the "Foreign Currency Monetary Item
Translation Difference Account" and amortized over the remaining life
of the concerned monetary item
(iv) All other exchange differences are recognized as income or as
expenses in the period in which they arise
For the purpose of (ii) and (iii) above, the Company treats a foreign
monetary item as "long-term foreign currency monetary item", if it has
a term of 12 months or more at the date of its origination. In
accordance with MCA circular dated August 09, 2012, exchange
differences for this purpose, are total differences arising on
long-term foreign currency monetary items for the period.
Forward exchange contracts entered into to hedge foreign currency risk
of an existing asset / liability
The premium or discount arising at the inception of forward exchange
contract is amortized and recognized as an expense/ income over the
life of the contract. Exchange differences on such contracts, except
the contracts which are long-term foreign currency monetary items, are
recognized in the statement of profit and loss in the period in which
the exchange rates change. Any profit or loss arising on cancellation
or renewal of such forward exchange contract is also recognized as
income or as expense for the period. Any gain/ loss arising on forward
contracts which are long-term foreign currency monetary items are
recognized in accordance with paragraph (ii) and (iii).
I. Income tax
Tax expense comprises current and deferred tax. Current income tax is
measured at the amount expected to be paid to the tax authorities in
accordance with the Income Tax Act, 1961 enacted in India. The tax
rates and tax laws used to compute the amount are those that are
enacted or substantively enacted, at the reporting date. Current income
tax relating to items recognized directly in equity is recognized in
equity and not in the statement of profit and loss.
Deferred income taxes reflect the impact of timing differences between
taxable income and accounting income originating during the current
year and reversal of timing differences for the earlier years. Deferred
income tax relating to items recognized directly in equity is
recognized in equity and not in the statement of profit and loss.
Deferred tax is measured using the tax rates and the tax laws enacted
or substantively enacted at the reporting date. Deferred tax liability
is recognised for all taxable timing differences. Deferred tax assets
are recognised 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 realised. In situations where the
Company has unabsorbed depreciation or carry forward tax losses, all
deferred tax assets are recognised only if there is virtual certainty
supported by convincing evidence that they can be realised against
future taxable profits.
In the situations where the Company is entitled to a tax holiday under
the Income-tax Act, 1961 enacted in India or tax laws prevailing in the
respective tax jurisdictions where it operates, no deferred tax (asset
or liability) is recognized in respect of timing differences which
reverse during the tax holiday period, to the extent the Company''s
gross total income is subject to the deduction during the tax holiday
period. Deferred tax in respect of timing differences which reverse
after the tax holiday period is recognized in the year in which the
timing differences originate. However, the Company restricts
recognition of deferred tax assets to the extent that it has become
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available against which such
deferred tax assets can be realized. For recognition of deferred taxes,
the timing differences which originate first are considered to reverse
first.
At each reporting date, the Company re-assesses unrecognised deferred
tax assets. It recognises unrecognised deferred tax assets to the
extent that it has become reasonably certain or virtually certain, as
the case may be that sufficient future taxable income will be available
against which such deferred tax assets can be realised.
The carrying amount of deferred tax assets are reviewed at each
reporting date. The Company writes-down the carrying amount of a
deferred tax asset to the extent that it is no longer reasonably
certain or virtually certain, as the case may be, that sufficient
future taxable income will be available against which deferred tax asset
can be realised. Any such write-down is reversed to the extent that it
becomes reasonably certain or virtually certain, as the case may be,
that sufficient future taxable income will be available.
Deferred tax assets and deferred tax liabilities are offset, if a
legally enforceable right exists to set-off current tax assets against
current tax liabilities and the deferred tax assets and deferred taxes
relate to the same taxable entity and the same taxation authority.
Minimum Alternate Tax (MAT) paid in a year is charged to the statement
of profit and loss as current tax. The Company recognizes MAT credit
available as an asset only to the extent that there is convincing
evidence that the Company will pay normal income tax during the
specified period, i.e., the period for which MAT credit is allowed to
be carried forward. In the year in which the Company recognizes MAT
credit as an asset in accordance with the Guidance Note on "Accounting
for Credit Available in respect of Minimum Alternative Tax under the
Income-tax Act, 1961", the said asset is created by way of credit to
the statement of profit and loss and shown as "MAT Credit Entitlement."
The Company reviews the "MAT credit entitlement" asset at each
reporting date and writes down the asset to the extent the Company does
not have convincing evidence that it will pay normal tax during the
specified period.
m. Employee stock compensation costs
Employees (including senior executives) of the Company also receive
remuneration in the form of share based payment transactions, whereby
employees render services as consideration for equity instruments
(equity-settled transactions).
In accordance with the SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, the cost of
equity-settled transactions is measured using the intrinsic value
method and recognized, together with a corresponding increase in the
"Stock options outstanding account" in reserves. The cumulative expense
recognized for equity-settled transactions at each reporting date until
the vesting date reflects the extent to which the vesting period has
expired and the Company''s best estimate of the number of equity
instruments that will ultimately vest. The expense or credit recognized
in the statement of profit and loss for a period represents the
movement in cumulative expense recognized as at the beginning and end
of that period and is recognized in employee benefits expense.
n. Earnings per share (EPS)
Basic earnings per share are calculated by dividing the net profit or
loss for the year attributable to equity shareholders by the weighted
average number of equity shares outstanding during the year. Partly
paid equity shares are treated as a fraction of an equity share to the
extent that they are entitled to participate in dividends relative to a
fully paid equity share during the reporting period. The weighted
average number of equity shares outstanding during the year is adjusted
for events such as bonus issue; bonus element in a rights issue to
existing shareholders; share split; and reverse share split
(consolidation of shares) that have changed the number of equity shares
outstanding, without a corresponding change in resources
For the purpose of calculating diluted earnings per 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.
For the purpose of calculating Basic EPS, shares allotted to the ESOP
trust pursuant to the employee share based payment plan are not included
in the shares outstanding till the employees have exercised their right
to obtain shares, after fulfilling the requisite vesting conditions
Till such time, the shares so allotted are considered as dilutive
potential equity shares for the purpose of calculating Diluted EPS.
o. Operating lease
Where the Company is a Lessee
Leases of assets under which all the risks and rewards of ownership are
effectively retained by the lessor are classified as operating leases
Lease payments under operating leases are recognised as an expense on a
straight-line basis over the lease term.
Where the Company is a Lessor
Leases in which the Company does not transfer substantially all the
risks and benefits of ownership of the asset are classified as
operating leases. Assets subject to operating leases are included in
fixed assets. Lease income is recognised on a straight line basis over
the lease term. Costs, including depreciation are recognised as an
expense. Initial direct costs such as legal costs, brokerage costs, etc
are recognised immediately in the statement of profit and loss.
p. Segment reporting
Identification of segments
The Company''s operating businesses are organised and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and services to different markets. The analysis of
geographical segments is based on the areas in which major operating
divisions of the Company operates.
Inter-segment Transfers
The Company generally accounts for inter-segment sales and transfers at
an agreed marked-up price.
Allocation of common costs
Common allocable costs are allocated to each segment according to the
relative contribution of each segment to the total common costs.
Unallocated items
The Corporate and other segment include general corporate income and
expense items which are not allocated to any business segment.
Segment policies
The Company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the Company as a whole.
q. Provisions
A provision is recognised when the Company has a present obligation as
a result of past event; it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation
Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the reporting
date. These estimates are reviewed at each reporting date and adjusted
to reflect the current best estimates.
Where the Company expects some or all of a provision to be reimbursed,
for example under an insurance contract, the reimbursement is
recognized as a separate asset but only when the reimbursement is
virtually certain. The expense relating to any provision is presented
in the statement of profit and loss net of any reimbursement.
r. Contingent liability
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
the 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 a
contingent liability but discloses its existence in the financial
statements.
s. Expenditure on new projects and substantial expansion
Expenditure directly relating to construction activity is capitalised.
Indirect expenditure incurred during construction period is capitalised
as part of the indirect construction cost to the extent to which the
expenditure is directly related to construction or is incidental
thereto. Other indirect expenditure (including borrowing costs) incurred
during the construction period which is not related to the construction
activity nor is incidental thereto is charged to the statement of
profit and loss. Income earned during construction period is deducted
from the total of the indirect expenditure. All direct capital
expenditure on expansion is capitalised. As regards indirect
expenditure on expansion, only that portion is capitalised which
represents the marginal increase in such expenditure involved as a
result of capital expansion. Both direct and indirect expenditure are
capitalised only if they increase the value of the asset beyond its
original standard of performance.
t. Cash and cash equivalents
Cash and cash equivalents for the purpose of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
u. Derivative instruments
In accordance with the ICAI announcement, derivative contracts, other
than foreign currency forward contracts covered under AS 11, are marked
to market on a portfolio basis, and the net loss, if any, after
considering the offsetting effect of gain on the underlying hedged
item, is charged to the statement of profit and loss. Net gain, if any,
after considering the offsetting effect of loss on the underlying
hedged item, is ignored.
Mar 31, 2013
A. Use of estimates
The preparation of financial statements in conformity with Indian GAAP
requires management to make judgements, estimates and assumptions that
affect the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities, at the end of
the reporting period. Although these estimates are based upon
management''s best knowledge of current events and actions, actual
results could differ from these estimates.
b. Tangible fixed assets
Fixed assets are stated at cost, except for certain freehold land and
buildings revalued on November 1, 1994, which are shown at estimated
replacement cost as determined by valuers less impairment loss, if any,
net of accumulated depreciation and accumulated impairment losses, if
any. The cost comprises purchase price, borrowing costs if
capitalization criteria are met and other directly attributable cost of
bringing the asset to its working condition for the intended use. Any
trade discounts and rebates are deducted in arriving at the purchase
price. Leasehold land on a lease-cum-sale basis are capitalized at the
allotment rates charged by the Municipal Authorities.
Subsequent expenditure related to an item of fixed asset is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard of performance.
All other expenses on existing fixed assets, including routine repair
and maintenance expenditure and cost of replacing parts, are charged to
the statement of profit and loss for the period during which such
expenses are incurred.
The Company adjusts exchange differences arising on
translation/settlement of long-term foreign currency monetary items
pertaining to the acquisition of a depreciable asset to the cost of the
asset and depreciates the same over the remaining life of the asset. In
accordance with MCA circular dated August 09, 2012, exchanged
differences adjusted to the cost of fixed assets are total differences,
arising on long-term foreign currency monetary items pertaining to the
acquisition of a depreciable asset, for the period.
Gains or losses arising from disposal of fixed assets are measured as
the difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statement of profit and
loss when the asset is disposed.
Assets funded by third parties are capitalized at gross value and the
funds so received are recorded as funding received from co-developer
and amortized over the useful life of the assets.
c. Depreciation on tangible fixed assets
Depreciation on fixed assets is calculated on a straight-line basis
using the rates arrived at based on the useful lives estimated by the
management, or those prescribed under the Schedule XIV to the Companies
Act, 1956, whichever is higher. The Company has used the following
rates to provide depreciation on its fixed assets.
Used assets acquired from third parties are depreciated on a straight
line basis over their remaining useful life of such assets.
The depreciation charge over and above the depreciation calculated on
the original cost of the revalued assets is transferred from the
revaluation reserve to the statement of profit and loss. Assets costing
individually less than Rs. 5,000 only are fully depreciated in the year
of purchase.
d. Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. Following initial recognition, intangible assets
are carried at cost less accumulated amortization and accumulated
impairment losses, if any. Internally generated intangible assets,
excluding capitalized development costs, are not capitalized and
expenditure is reflected in the statement of profit and loss in the
year in which the expenditure is incurred.
Computer Software which is not an integral part of the related hardware
is classified as an intangible asset.
Intangible assets are amortized on a straight line basis over the
estimated useful economic life. The Company uses a rebuttable
presumption that the useful life of an intangible asset will not exceed
its remaining patent life or ten years, whichever is lower. If the
persuasive evidence exists to the affect that useful life of an
intangible asset exceeds ten years, the Company amortizes the
intangible asset over the best estimate of its useful life. Such
intangible assets and intangible assets not yet available for use are
tested for impairment annually. All other intangible assets are
assessed for impairment whenever there is an indication that the
intangible asset may be impaired.
The amortization period and the amortization method are reviewed at
least at each financial year end. If the expected useful life of the
asset is significantly different from previous estimates, the
amortization period is changed accordingly. If there has been a
significant change in the expected pattern of economic benefits from
the asset, the amortization method is changed to reflect the changed
pattern. Such changes are accounted for in accordance with AS 5, Net
Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies.
Gains or losses arising from disposal of an intangible asset are
measured as the difference between the net disposal proceeds and the
carrying amount of the asset and are recognized in the statement of
profit and loss when the asset is disposed.
Amortization of intangible assets:
a. Intellectual Property rights/marketing rights are amortized on a
straight line basis over the estimated useful economic life of five
years.
b. Computer Software is amortized over a period of three-five years,
being its estimated useful life.
Research and Development Costs
Research and development costs, including technical know-how fees,
incurred for development of products are expensed as incurred.
Development costs which relate to the design and testing of new or
improved materials, products or processes or for existing products in
new territories are recognised as an intangible asset to the extent
that:
a. it is technically feasible to complete the development of asset and
it will be available for sale / use.
b. it is expected that such development will be completed and
used/sold
c. it is expected that such assets will generate future economic
benefits
d. there are adequate resources to complete such development
e. it is possible to measure reliably the expenditure attributable to
the asset during development
Research and development expenditure of a capital nature is added to
fixed assets. Following the initial recognition of the development
expenditure as an asset, the cost model is applied requiring the asset
to be carried at cost less any accumulated amortization and accumulated
impairment losses. The carrying value of the development cost is tested
for impairment annually.
e. Borrowing Costs
Borrowing cost includes interest, amortization of ancillary costs
incurred in connection with the arrangement of borrowings and exchange
differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest cost.
Borrowing costs directly attributable to the acquisition, construction
or production of an asset that necessarily takes a substantial period
of time to get ready for its intended use or sale are capitalized as
part of the cost of the respective asset. All other borrowing costs are
expensed in the period they occur.
f. Impairment of tangible and intangible assets
The Company assesses at each reporting date whether there is an
indication that an asset may be impaired. If any indication exists, or
when annual impairment testing for an asset is required, the Company
estimates the asset''s recoverable amount. The recoverable amount is
determined for an individual asset, unless the asset does not generate
cash inflows that are largely independent of those from other assets or
groups of assets. Where the carrying amount of an asset exceeds its
recoverable amount, the asset is considered impaired and is written
down to its recoverable amount. In assessing value in use, the
estimated future cash flows are discounted to their present value using
a pre- tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset. In
determining net selling price, recent market transactions are taken
into account, if available. If no such transactions can be identified,
an appropriate valuation model is used.
Impairment losses, including impairment on inventories, are recognized
in the statement of profit and loss, except for previously revalued
tangible fixed assets, where the revaluation was taken to revaluation
reserve. In this case, the impairment is also recognized in the
revaluation reserve up to the amount of any previous revaluation.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
An assessment is made at each reporting date as to whether there is any
indication that previously recognized impairment losses may no longer
exist or may have decreased. If such indication exists, the Company
estimates the asset''s recoverable amount. A previously recognized
impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset''s recoverable amount since the
last impairment loss was recognized. The reversal is limited so that
the carrying amount of the asset does not exceed its recoverable
amount, nor exceed the carrying amount that would have been determined,
net of depreciation, had no impairment loss been recognized for the
asset in prior years. Such reversal is recognized in the statement of
profit and loss unless the asset is carried at a revalued amount, in
which case the reversal is treated as a revaluation increase.
g. Inventories
Inventories are valued as follows:
Raw materials and packing materials
Lower of cost and net realizable value. However, materials and other
items held for use in the production of inventories are not written
down below cost if the finished products in which they will be
incorporated are expected to be sold at or above cost. Cost is
determined on a first-in-first out basis. Customs duty on imported raw
materials (excluding stocks in the bonded warehouse) is treated as part
of the cost of the inventories.
Work-in-progress and finished goods
Lower of cost and net realizable value. Cost includes direct materials
(on a first-in-first out basis) and labour and a proportion of
manufacturing overheads based on normal operating capacity. Cost of
finished goods includes excise duty.
Traded goods Lower of cost and net realizable value. Cost includes the
purchase price and other associated costs directly incurred in bringing
the inventory to its present location. Cost is determined on a
first-in-first out basis.
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale.
h. Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. The following specific recognition criteria must
also be met before revenue is recognised.
(i) Sale of products:
Revenue from sale of products is recognized when the significant risks
and rewards of ownership of the goods have passed to the buyer. The
Company collects sales taxes and value added taxes (VAT) on behalf of
the government and, therefore, these are not economic benefits flowing
to the Company. Hence, they are excluded from revenue. Excise duty
deducted from revenue (gross) is the amount that is included in the
revenue (gross) and not the entire amount of liability arising during
the year.
(ii) Sale of services :
The Company enters into certain dossier sales, licensing and supply
agreements relating to various products. Revenue from such arrangements
is recognized upon completion of performance obligations or on a
proportional performance basis over the period the Company performs its
obligations, under the terms of the agreements. Proportionate
performance is measured based upon the efforts/costs incurred to date
in relation to the total estimated efforts/costs to complete the
contract. The Company monitors estimates of the total contract revenue
and cost on a routine basis throughout the contract period. The
cumulative impact of any change in estimates of the contract revenue or
costs is reflected in the period in which the changes become known. In
the event that the loss is anticipated on a particular contract,
provision is made for the estimated loss.
In respect of services, the Company collects service tax on behalf of
the government and, therefore, it is not an economic benefit flowing to
the Company. Hence, it is excluded from revenue.
(iii) Interest Income:
Interest income is recognized on a time proportion basis taking into
account the amount outstanding and the applicable interest rate.
Interest income is included under the head "other income" in the
statement of profit and loss.
(iv) Dividend income:
Dividend income is recognized when the Company''s right to receive
dividend is established by the reporting date.
i. Investments
Investments that are readily realisable and intended to be held for not
more than twelve months from the date on which such investments are
made are classified as current investments. All other investments are
classified as long-term investments.
On initial recognition, all investments are measured at cost. The cost
comprises purchase price and directly attributable acquisition charges
such as brokerage, fees and duties. If an investment is acquired, or
partly acquired, by the issue of shares or other securities, the
acquisition cost is the fair value of the securities issued. If an
investment is acquired in exchange for another asset, the acquisition
is determined by reference to the fair value of the asset given up or
by reference to the fair value of the investment acquired, whichever is
more clearly evident.
Current investments are carried in the financial statements at lower of
cost and fair value determined on an individual investment basis.
Long-term investments are carried at cost. However, provision for
diminution in value is made to recognize a decline other than temporary
in the value of the investments.
On disposal of an investment, the difference between its carrying
amount and net disposal proceeds is charged or credited to the
statement of profit and loss.
j. Retirement benefits
Retirement benefit in the form of Provident Fund is a defined
contribution scheme and the contributions are charged to the statement
of profit and loss for the year when the employee renders the related
service and the contributions to the government funds are due. The
Company has no obligation other than the contribution payable to
provident fund authorities.
Gratuity liability is a defined benefit obligation and is provided for
on the basis of an actuarial valuation on projected unit credit method
made at the end of each financial year. The gratuity benefit of the
Company is administered by a trust formed for this purpose through the
group gratuity scheme. Actuarial gains and losses for defined benefit
plan are recognized in full in the period in which they occur in the
statement of profit and loss.
Accumulated leave, which is expected to be utilized within the next 12
months, is treated as short-term employee benefit. The Company measures
the expected cost of such absences as the additional amount that it
expects to pay as a result of the unused entitlement that has
accumulated at the reporting date.
The Company treats accumulated leave expected to be carried forward
beyond 12 months, as long-term employee benefit for measurement
purposes. Such long-term compensated absences are provided for based on
the actuarial valuation using the projected unit credit method at the
year-end. Actuarial gains/losses are immediately taken to the statement
of profit and loss and are not deferred. The Company presents the
entire leave as a current liability in the balance sheet, since it does
not have an unconditional right to defer its settlement for 12 months
after the reporting date.
k. Foreign currency translation Foreign currency transaction and
balances 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 retranslated using the exchange
rate prevailing at the reporting date. 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.
Non-monetary items which are carried at fair value or other similar
valuation denominated in a foreign currency are translated using the
exchange rates at the date when such values were determined.
Exchange Differences
The Company accounts for exchange differences arising on
translation/settlement of foreign currency monetary items as below:
(i) Exchange differences arising on a monetary item that, in substance,
forms part of the Company''s net investment in a non-integral foreign
operation is accumulated in the foreign currency translation reserve in
the financial statements until the disposal of the net investment, at
which time they are recognized as income or as expenses.
(ii) Exchange differences arising on long-term foreign currency
monetary items related to acquisition of a fixed asset are capitalized
and depreciated over the remaining useful life of the asset.
(iii) Exchange differences arising on other long-term foreign currency
monetary items are accumulated in the "Foreign Currency Monetary Item
Translation Difference Account" and amortized over the remaining life
of the concerned monetary item.
(iv) All other exchange differences are recognized as income or as
expenses in the period in which they arise.
For the purpose of (ii) and (iii) above, the Company treats a foreign
monetary item as "long-term foreign currency monetary item", if it
has a term of 12 months or more at the date its origination. In
accordance with MCA circular dated August 09, 2012, exchange
differences for this purpose, are total differences arising on
long-term foreign currency monetary items for the period.
Forward exchange contracts entered into to hedge foreign currency risk
of an existing asset/liability
The premium or discount arising at the inception of forward exchange
contract is amortized and recognized as an expense/income over the life
of the contract. Exchange differences on such contracts, except the
contracts which are long-term foreign currency monetary items, are
recognized in the statement of profit and loss in the period in which
the exchange rates change. Any profit or loss arising on cancellation
or renewal of such forward exchange contract is also recognized as
income or as expense for the period. Any gain/loss arising on forward
contracts which are long-term foreign currency monetary items are
recognized in accordance with paragraphs (ii) and (iii).
l. Income tax
Tax expense comprises current and deferred tax. Current income tax is
measured at the amount expected to be paid to the tax authorities in
accordance with the Income-tax Act, 1961 enacted in India. The tax
rates and tax laws used to compute the amount are those that are
enacted or substantively enacted, at the reporting date. Current income
tax relating to items recognized directly in equity is recognized in
equity and not in the statement of profit and loss.
Deferred income taxes reflect the impact of timing differences between
taxable income and accounting income originating during the current
year and reversal of timing differences for the earlier years. Deferred
income tax relating to items recognized directly in equity is
recognized in equity and not in the statement of profit and loss.
Deferred tax is measured using the tax rates and the tax laws enacted
or substantively enacted at the reporting date. Deferred tax liability
is recognized for all taxable timing differences. 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, all
deferred tax assets are recognized only if there is virtual certainty
supported by convincing evidence that they can be realised against
future taxable profits.
In the situations where the Company is entitled to a tax holiday under
the Income-tax Act, 1961 enacted in India or tax laws prevailing in the
respective tax jurisdictions where it operates, no deferred tax (asset
or liability) is recognized in respect of timing differences which
reverse during the tax holiday period, to the extent the Company''s
gross total income is subject to the deduction during the tax holiday
period. Deferred tax in respect of timing differences which reverse
after the tax holiday period is recognized in the year in which the
timing differences originate. However, the Company restricts
recognition of deferred tax assets to the extent that it has become
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available against which such
deferred tax assets can be realized. For recognition of deferred taxes,
the timing differences which originate first are considered to reverse
first.
At each reporting date, the Company re-assesses unrecognized deferred
tax assets. It recognizes unrecognized deferred tax assets to the
extent that it has become reasonably certain or virtually certain, as
the case may be that sufficient future taxable income will be available
against which such deferred tax assets can be realised.
The carrying amount of deferred tax assets are reviewed at each
reporting date. The Company writes-down the carrying amount of a
deferred tax asset to the extent that it is no longer reasonably
certain or virtually certain, as the case may be, that sufficient
future taxable income will be available against which deferred tax
asset can be realized. Any such write-down is reversed to the extent
that it becomes reasonably certain or virtually certain, as the case
may be, that sufficient future taxable income will be available.
Deferred tax assets and deferred tax liabilities are offset, if a
legally enforceable right exists to set-off current tax assets against
current tax liabilities and the deferred tax assets and deferred taxes
relate to the same taxable entity and the same taxation authority.
Minimum Alternate Tax (MAT) paid in a year is charged to the statement
of profit and loss as current tax. The Company recognizes MAT credit
available as an asset only to the extent that there is convincing
evidence that the Company will pay normal income tax during the
specified period, i.e., the period for which MAT credit is allowed to
be carried forward. In the year in which the Company recognizes MAT
credit as an asset in accordance with the Guidance Note on "Accounting
for Credit Available in respect of Minimum Alternative Tax under the
Income-tax Act, 1961", the said asset is created by way of credit to
the statement of profit and loss and shown as "MAT Credit
Entitlement." The Company reviews the "MAT credit entitlement"
asset at each reporting date and writes down the asset to the extent
the Company does not have convincing evidence that it will pay normal
tax during the specified period.
m. Employee stock compensation costs
Employees (including senior executives) of the Company also receive
remuneration in the form of share-based payment transactions, whereby
employees render services as consideration for equity instruments
(equity-settled transactions).
In accordance with the SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, the cost of
equity-settled transactions is measured using the intrinsic value
method and recognized, together with a corresponding increase in the
"Stock options outstanding account" in reserves. The cumulative
expense recognized for equity-settled transactions at each reporting
date until the vesting date reflects the extent to which the vesting
period has expired and the Company''s best estimate of the number of
equity instruments that will ultimately vest. The expense or credit
recognized in the statement of profit and loss for a period represents
the movement in cumulative expense recognized as at the beginning and
end of that period and is recognized in employee benefits expense.
n. Earnings Per Share (EPS)
Basic earnings per share are calculated by dividing the net profit or
loss for the year attributable to equity shareholders by the weighted
average number of equity shares outstanding during the year. Partly
paid equity shares are treated as a fraction of an equity share to the
extent that they are entitled to participate in dividends relative to a
fully paid equity share during the reporting period. The weighted
average number of equity shares outstanding during the year is adjusted
for events such as bonus issue; bonus element in a rights issue to
existing shareholders; share split; and reverse share split
(consolidation of shares) that have changed the number of equity shares
outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per 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.
For the purpose of calculating Basic EPS, shares allotted to the ESOP
trust pursuant to the employee share based payment plan are not
included in the shares outstanding till the employees have exercised
their right to obtain shares, after fulfilling the requisite vesting
conditions. Till such time, the shares so allotted are considered as
dilutive potential equity shares for the purpose of calculating Diluted
EPS.
o. Operating lease
Where the Company is a Lessee
Leases of assets under which all the risks and rewards of ownership are
effectively retained by the lessor are classified as operating leases.
Lease payments under operating leases are recognized as an expense on a
straight-line basis over the lease term.
Where the Company is a Lessor
Leases in which the Company does not transfer substantially all the
risks and benefits of ownership of the asset are classified as
operating leases. Assets subject to operating leases are included in
fixed assets. Lease income is recognized on a straight line basis over
the lease term. Costs, including depreciation are recognized as an
expense. Initial direct costs such as legal costs, brokerage costs,
etc. are recognized immediately in the statement of profit and loss.
p. Segment reporting
Identification of segments
The Company''s operating businesses are organised and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and services to different markets. The analysis of
geographical segments is based on the areas in which major operating
divisions of the Company operates.
Inter-segment Transfers
The Company generally accounts for inter-segment sales and transfers at
an agreed marked-up price.
Allocation of common costs
Common allocable costs are allocated to each segment according to the
relative contribution of each segment to the total common costs.
Unallocated items
The Corporate and other segment include general corporate income and
expense items which are not allocated to any business segment. Segment
policies
The Company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the Company as a whole.
q. Provisions
A provision is recognized when the Company has a present obligation as
a result of past event; it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation.
Provisions are not discounted to its present value and are determined
based on best estimate required to settle the obligation at the
reporting date. These estimates are reviewed at each reporting date and
adjusted to reflect the current best estimates.
Where the Company expects some or all of a provision to be reimbursed,
for example under an insurance contract, the reimbursement is
recognized as a separate asset but only when the reimbursement is
virtually certain. The expense relating to any provision is presented
in the statement of profit and loss net of any reimbursement.
r. Contingent liability
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
the 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 a
contingent liability but discloses its existence in the financial
statements.
s. Expenditure on new projects and substantial expansion
Expenditure directly relating to construction activity is capitalized.
Indirect expenditure incurred during construction period is capitalised
as part of the indirect construction cost to the extent to which the
expenditure is directly related to construction or is incidental
thereto. Other indirect expenditure (including borrowing costs)
incurred during the construction period which is not related to the
construction activity nor is incidental thereto is charged to the
statement of profit and loss. Income earned during construction period
is deducted from the total of the indirect expenditure. All direct
capital expenditure on expansion is capitalized. As regards indirect
expenditure on expansion, only that portion is capitalized which
represents the marginal increase in such expenditure involved as a
result of capital expansion. Both direct and indirect expenditure are
capitalized only if they increase the value of the asset beyond its
original standard of performance.
t. Cash and cash equivalents
Cash and cash equivalents for the purpose of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
u. Derivative instruments
In accordance with the ICAI announcement, derivative contracts, other
than foreign currency forward contracts covered under AS 11, are marked
to market on a portfolio basis, and the net loss, if any, after
considering the offsetting effect of gain on the underlying hedged
item, is charged to the statement of profit and loss. Net gain, if any,
after considering the offsetting effect of loss on the underlying
hedged item, is ignored.
v. Measurement of EBITDA
As permitted by the Guidance Note on the Revised Schedule VI to the
Companies Act, 1956, the Company has elected to present Earnings before
interest, tax, depreciation and amortization (EBITDA) as a separate
line item on the face of the statement of profit and loss. The Company
measures EBITDA on the basis of profit/(loss) from continuing
operations. In its measurement, the Company does not include
depreciation and amortization expense, finance costs and tax expense.
Mar 31, 2012
A. (i) Change in accounting policy
Presentation and disclosure of financial statements
During the year ended March 31, 2012, the revised Schedule VI notified
under the Companies Act, 1956 has become applicable to the Company, for
preparation and presentation of its financial statements. The adoption
of the revised Schedule VI does not impact recognition and measurement
principles followed for preparation of financial statements. However,
it has significant impact on the presentation and disclosures made in
the financial statements. The Company has also reclassified the
previous year's figures in accordance with the requirements applicable
in the current year
(ii) Use of estimates
The preparation of financial statements in conformity with Indian GAAP
requires management to make judgments, estimates and assumptions that
affect the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities, at the end of
the reporting period. Although these estimates are based upon
management's best knowledge of current events and actions, actual
results could differ from these estimates.
b. Tangible fixed assets
Fixed assets are stated at cost, except for revalued freehold land and
buildings, which are shown at estimated replacement cost as determined
by valuers less impairment loss, if any, net of accumulated
depreciation and accumulated impairment losses, if any. The cost
comprises purchase price, borrowing costs if capitalization criteria
are met and other directly attributable cost of bringing the asset to
its working condition for the intended use. Any trade discounts and
rebates are deducted in arriving at the purchase price.
Leasehold land on a lease-cum-sale basis are capitalized at the
allotment rates charged by the Municipal Authorities.
Subsequent expenditure related to an item of fixed asset is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard of performance.
All other expenses on existing fixed assets, including routine repair
and maintenance expenditure and cost of replacing parts, are changed to
the statement of profit and loss for the period during which such
expenses are incurred.
The Company adjusts exchange differences arising on translation/
settlement of long-term foreign currency monetary items pertaining to
the acquisition of a depreciable asset to the cost of the asset and
depreciates the same over the remaining life of the asset.
Gains or losses arising from disposal of fixed assets are measured as
the difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statement of profit and
loss when the asset is disposed.
Assets funded by third parties are capitalized at gross value and the
funds so received are recorded as deferred revenue and amortized over
the useful life of the assets.
c. Depreciation on tangible fixed assets
Depreciation on fixed assets is calculated on a straight-line basis
using the rates arrived at based on the useful lives estimated by the
management, or those prescribed under the Schedule XIV to the Companies
Act, 1956, whichever is higher. The Company has used the following
rates to provide depreciation on its fixed assets.
Leasehold improvements are being depreciated over the lease term or
estimated useful life whichever is lower. Used assets acquired from
third parties are depreciated on a straight line basis over their
remaining useful life of such assets.
The depreciation charge over and above the depreciation calculated on
the original cost of the revalued assets is transferred from the
revaluation reserve to the statement of profit and loss.
d. Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. Following initial recognition, intangible assets
are carried at cost less accumulated amortization and accumulated
impairment losses, if any. Internally generated intangible assets,
excluding capitalized development costs, are not capitalized and
expenditure is reflected in the statement of profit and loss in the
year in which the expenditure is incurred.
Computer Software which is not an integral part of the related hardware
is classified as an intangible asset.
Intangible assets are amortized on a straight line basis over the
estimated useful economic life. The Company uses a rebuttable
presumption that the useful life of an intangible asset will not exceed
its remaining patent life or ten years, whichever is higher. If the
persuasive evidence exists to the affect that useful life of an
intangible asset exceeds ten years, the Company amortizes the
intangible asset over the best estimate of its useful life. Such
intangible assets and intangible assets not yet available for use are
tested for impairment annually. All other intangible assets are
assessed for impairment whenever there is an indication that the
intangible asset may be impaired.
The amortization period and the amortization method are reviewed at
least at each financial year end. If the expected useful life of the
asset is significantly different from previous estimates, the
amortization period is changed accordingly. If there has been a
significant change in the expected pattern of economic benefits from
the asset, the amortization method is changed to reflect the changed
pattern. Such changes are accounted for in accordance with AS 5, Net
Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies.
Gains or losses arising from disposal of an intangible asset are
measured as the difference between the net disposal proceeds and the
carrying amount of the asset and are recognized in the statement of
profit and loss when the asset is disposed.
Amortization of intangible assets:
a. Intellectual Property rights /marketing rights are amortized on a
straight line basis over the estimated useful economic life of five
years.
b. Computer Software is amortized over a period of three - five years,
being its estimated useful life.
Research and Development Costs
Research and development costs, including technical know-how fees,
incurred for development of products are expensed as incurred.
Development costs which relate to the design and testing of new or
improved materials, products or processes or for existing products in
new territories are recognized as an intangible asset to the extent
that it is expected that such assets will generate future economic
benefits. Research and development expenditure of a capital nature is
added to fixed assets.
Following the initial recognition of the development expenditure as an
asset, the cost model is applied requiring the asset to be carried at
cost less any accumulated amortization and accumulated impairment
losses. The carrying value of the development cost is tested for
impairment annually.
e. Borrowing Costs
Borrowing cost includes interest, amortization of ancillary costs
incurred in connection with the arrangement of borrowings and exchange
differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest cost.
Borrowing costs directly attributable to the acquisition, construction
or production of an asset that necessarily takes a substantial period
of time to get ready for its intended use or sale are capitalized as
part of the cost of the respective asset. All other borrowing costs are
expensed in the period they occur
f. Impairment of tangible and intangible assets
The Company assesses at each reporting date whether there is an
indication that an asset may be impaired. If any indication exists, or
when annual impairment testing for an asset is required, the Company
estimates the asset's recoverable amount. The recoverable amount is
determined for an individual asset, unless the asset does not generate
cash inflows that are largely independent of those from other assets or
groups of assets. Where the carrying amount of an asset exceeds its
recoverable amount, the asset is considered impaired and is written
down to its recoverable amount. In assessing value in use, the
estimated future cash flows are discounted to their present value using
a pre- tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset. In
determining net selling price, recent market transactions are taken
into account, if available. If no such transactions can be identified,
an appropriate valuation model is used.
Impairment losses of continuing operations, including impairment on
inventories, are recognized in the statement of profit and loss, except
for previously revalued tangible fixed assets, where the revaluation
was taken to revaluation reserve. In this case, the impairment is also
recognized in the revaluation reserve up to the amount of any previous
revaluation.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
An assessment is made at each reporting date as to whether there is any
indication that previously recognized impairment losses may no longer
exist or may have decreased. If such indication exists, the Company
estimates the asset's recoverable amount. A previously recognized
impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset's recoverable amount since the
last impairment loss was recognized. The reversal is limited so that
the carrying amount of the asset does not exceed its recoverable
amount, nor exceed the carrying amount that would have been determined,
net of depreciation, had no impairment loss been recognized for the
asset in prior years. Such reversal is recognized in the statement of
profit and loss unless the asset is carried at a revalued amount, in
which case the reversal is treated as a revaluation increase.
g. Inventories
Inventories are valued as follows:
Raw materials and packing Lower of cost and net realizable value.
However, materials and other items held for use in the production
materials of inventories are not written down below cost if the
finished products in which they will be incorporated are expected to be
sold at or above cost. Cost is determined on a first-in-first out
basis. Customs duty on imported raw materials (excluding stocks in the
bonded warehouse) is treated as part of the cost of the inventories.
Work-in-progress and finished Lower of cost and net realizable value.
Cost includes direct materials and labour and a proportion of goods
manufacturing overheads based on normal operating capacity. Cost of
finished goods includes excise duty.
Traded goods Lower of cost and net realizable value. Cost includes the
purchase price and other associated costs directly incurred in bringing
the inventory to its present location.
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale.
h. Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. The following specific recognition criteria must
also be met before revenue is recognized.
(i) Sale of products:
Revenue from sale of products is recognized when the significant risks
and rewards of ownership of the goods have passed to the buyer. The
Company collects sales taxes and value added taxes (VAT) on behalf of
the government and, therefore, these are not economic benefits flowing
to the Company. Hence, they are excluded from revenue. Excise duty
deducted from revenue (gross) is the amount that is included in the
revenue (gross) and not the entire amount of liability arising during
the year.
(ii) Sale of services:
The Company enters into certain dossier sales, licensing and supply
Agreements relating to various products. Revenue from such arrangements
is recognized upon completion of performance obligations or on a
proportional performance basis over the period the Company performs its
obligations, under the terms of the agreements. Proportionate
performance is measured based upon the efforts/ costs incurred to date
in relation to the total estimated efforts / costs to complete the
contract. The Company monitors estimates of the total contract revenue
and cost on a routine basis throughout the contract period. The
cumulative impact of any change in estimates of the contract revenue or
costs in reflected in the period in which the changes become known. In
the event that the loss is anticipated on a particular contract,
provision is made for the estimated loss.
In respect of services, the Company collects service tax on behalf of
the government and, therefore, it is not an economic benefit flowing to
the Company. Hence, it is excluded from revenue.
(iii) Interest Income:
Interest income is recognized on a time proportion basis taking into
account the amount outstanding and the applicable interest rate.
Interest income is included under the head "other income" in the
statement of profit and loss.
(iv) Dividend income:
Dividend income is recognized when the Company's right to receive
dividend is established by the reporting date.
i. Investments
Investments that are readily realizable and intended to be held for not
more than twelve months from the date on which such investments are
made are classified as current investments. All other investments are
classified as long-term investments.
On initial recognition, all investments are measured at cost. The cost
comprises purchase price and directly attributable acquisition charges
such as brokerage, fees and duties. If an investment is acquired, or
partly acquired, by the issue of shares or other securities, the
acquisition cost is the fair value of the securities issued. If an
investment is acquired in exchange for another asset, the acquisition
is determined by reference to the fair value of the asset given up or
by reference to the fair value of the investment acquired, whichever is
more clearly evident. Current investments are carried in the financial
statements at lower of cost and fair value determined on an individual
investment basis. Long-term investments are carried at cost. However,
provision for diminution in value is made to recognize a decline other
than temporary in the value of the investments.
On disposal of an investment, the difference between its carrying
amount and net disposal proceeds is charged or credited to the
statement of profit and loss j. Retirement benefits Retirement benefit
in the form of Provident Fund is a defined contribution scheme and the
contributions are charged to the statement of profit and loss for the
year when the contributions to the government funds are due. The
Company has no obligation other than the contribution payable to
provident fund authorities.
Gratuity liability is a defined benefit obligation and is provided for
on the basis of an actuarial valuation on projected unit credit method
made at the end of each financial year. The gratuity benefit of the
Company is administered by a trust formed for this purpose through the
group gratuity scheme. Actuarial gains and losses for defined benefit
plan are recognized in full in the period in which they occur in the
statement of profit and loss.
Accumulated leave, which is expected to be utilized within the next 12
months, is treated as short-term employee benefit. The Company measures
the expected cost of such absences as the additional amount that it
expects to pay as a result of the unused entitlement that has
accumulated at the reporting date.
The Company treats accumulated leave expected to be carried forward
beyond 12 months, as long -term employee benefit for measurement
purposes. Such long-term compensated absences are provided for based on
the actuarial valuation using the projected unit credit method at the
year-end. Actuarial gains/losses are immediately taken to the statement
of profit and loss and are not deferred. The Company presents the
entire leave as a current liability in the balance sheet, since it does
not have an unconditional right to defer its settlement for 12 months
after the reporting date.
k. Foreign currency translation
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 retranslated using the exchange
rate prevailing at the reporting date. 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.
Non-monetary items which are carried at fair value or other similar
valuation denominated in a foreign currency are translated using the
exchange rates at the date when such values were determined.
Exchange Differences
From accounting period commencing on or after 7 December 2006, the
Company accounts for exchange differences arising on translation/
settlement of foreign currency monetary items as below:
(i) Exchange differences arising on a monetary item that, in substance,
forms part of the Company's net investment in a non-integral foreign
operation is accumulated in the foreign currency translation reserve in
the financial statements until the disposal of the net investment, at
which time they are recognized as income or as expenses.
(ii) Exchange differences arising on long-term foreign currency
monetary items related to acquisition of a fixed asset are capitalized
and depreciated over the remaining useful life of the asset. For this
purpose, the Company treats a foreign monetary item as "long-term
foreign currency monetary item", if it has a term of 12 months or
more at the date of its origination.
(iii) Exchange differences arising on other long-term foreign currency
monetary items are accumulated in the "Foreign Currency Monetary Item
Translation Difference Account and amortized over the remaining life of
the concerned monetary item.
(iv) All other exchange differences are recognized as income or as
expenses in the period in which they arise.
Forward exchange contracts entered into to hedge foreign currency risk
of an existing asset/ liability
The premium or discount arising at the inception of forward exchange
contract is amortized and recognized as an expense/ income over the
life of the contract. Exchange differences on such contracts, except
the contracts which are long-term foreign currency monetary items, are
recognized in the statement of profit and loss in the period in which
the exchange rates change. Any profit or loss arising on cancellation
or renewal of such forward exchange contract is also recognized as
income or as expense for the period. Any gain/ loss arising on forward
contracts which are long-term foreign currency monetary items are
recognized in accordance with paragraph (ii) and (iii). l. Income tax
Tax expense comprises current and deferred tax. Current income tax is
measured at the amount expected to be paid to the tax authorities in
accordance with the Income Tax Act 1961 enacted in India. The tax rates
and tax laws used to compute the amount are those that are enacted or
substantively enacted, at the reporting date. Current income tax
relating to items recognized directly in equity is recognized in equity
and not in the statement of profit and loss.
Deferred income taxes reflect the impact of timing differences between
taxable income and accounting income originating during the current
year and reversal of timing differences for the earlier years. Deferred
income tax relating to items recognized directly in equity is
recognized in equity and not in the statement of profit and loss.
Deferred tax is measured using the tax rates and the tax laws enacted
or substantively enacted at the reporting date. Deferred tax liability
is recognized for all taxable timing differences. 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, all
deferred tax assets are recognized only if there is virtual certainty
supported by convincing evidence that they can be realized against
future taxable profits.
In the situations where the Company is entitled to a tax holiday under
the Income-tax Act, 1961 enacted in India or tax laws prevailing in the
respective tax jurisdictions where it operates, no deferred tax (asset
or liability) is recognized in respect of timing differences which
reverse during the tax holiday period, to the extent the Company's
gross total income is subject to the deduction during the tax holiday
period. Deferred tax in respect of timing differences which reverse
after the tax holiday period is recognized in the year in which the
timing differences originate. However, the Company restricts
recognition of deferred tax assets to the extent that it has become
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available against which such
deferred tax assets can be realized. For recognition of deferred taxes,
the timing differences which originate first are considered to reverse
first.
At each reporting date, the Company re-assesses unrecognized deferred
tax assets. It recognizes unrecognized deferred tax assets to the
extent that it has become reasonably certain or virtually certain, as
the case may be that sufficient future taxable income will be available
against which such deferred tax assets can be realized.
The carrying amount of deferred tax assets are reviewed at each
reporting date. The Company writes-down the carrying amount of a
deferred tax asset to the extent that it is no longer reasonably
certain or virtually certain, as the case may be, that sufficient
future taxable income will be available against which deferred tax
asset can be realized. Any such write-down is reversed to the extent
that it becomes reasonably certain or virtually certain, as the case
may be, that sufficient future taxable income will be available.
Deferred tax assets and deferred tax liabilities are offset, if a
legally enforceable right exists to set-off current tax assets against
current tax liabilities and the deferred tax assets and deferred taxes
relate to the same taxable entity and the same taxation authority
Minimum Alternate Tax (MAT) paid in a year is charged to the statement
of profit and loss as current tax. The Company recognizes MAT credit
available as an asset only to the extent that there is convincing
evidence that the Company will pay normal income tax during the
specified period, i.e., the period for which MAT credit is allowed to
be carried forward. In the year in which the Company recognizes MAT
credit as an asset in accordance with the Guidance Note on "Accounting
for Credit Available in respect of Minimum Alternative Tax under the
Income-tax Act, 1961", the said asset is created by way of credit to
the statement of profit and loss and shown as "MAT Credit Entitlement.
The Company reviews the "MAT credit entitlement asset at each reporting
date and writes down the asset to the extent the Company does not have
convincing evidence that it will pay normal tax during the specified
period.
m. Employee stock compensation costs
Employees (including senior executives) of the Company also receive
remuneration in the form of share based payment transactions, whereby
employees render services as consideration for equity instruments
(equity-settled transactions).
In accordance with the SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, the cost of
equity-settled transactions is measured using the intrinsic value
method and recognized, together with a corresponding increase in the
"Stock options outstanding account" in reserves. The cumulative
expense recognized for equity-settled transactions at each reporting
date until the vesting date reflects the extent to which the vesting
period has expired and the Company's best estimate of the number of
equity instruments that will ultimately vest. The expense or credit
recognized in the statement of profit and loss for a period represents
the movement in cumulative expense recognized as at the beginning and
end of that period and is recognized in employee benefits expense. n.
Earnings Per Share (EPS)
Basic earnings per share are calculated by dividing the net profit or
loss for the year attributable to equity shareholders by the weighted
average number of equity shares outstanding during the year. Partly
paid equity shares are treated as a fraction of an equity share to the
extent that they are entitled to participate in dividends relative to a
fully paid equity share during the reporting period. The weighted
average number of equity shares outstanding during the year is adjusted
for events such as bonus issue, bonus element in a rights issue to
existing shareholders, share split, and reverse share split
(consolidation of shares) that have changed the number of equity shares
outstanding, without a corresponding change in resources.
For the purpose of calculating diluted earnings per 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.
o. Operating lease
Where the Company is a Lessee
Leases of assets under which all the risks and rewards of ownership are
effectively retained by the lessor are classified as operating leases.
Lease payments under operating leases are recognized as an expense on a
straight-line basis over the lease term.
Where the Company is a Lessor
Leases in which the Company does not transfer substantially all the
risks and benefits of ownership of the asset are classified as
operating leases Assets subject to operating leases are included in
fixed assets. Lease income is recognized on a straight line basis over
the lease term. Costs, including depreciation are recognized as an
expense. Initial direct costs such as legal costs, brokerage costs, etc
are recognized immediately in the statement of profit and loss. p.
Segment reporting Identification of segments
The Company's operating businesses are organized and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and services to different markets. The analysis of
geographical segments is based on the areas in which major operating
divisions of the Company operates.
Inter-segment Transfers
The Company generally accounts for inter-segment sales and transfers at
an agreed marked-up price.
Allocation of common costs
Common allocable costs are allocated to each segment according to the
relative contribution of each segment to the total common costs.
Unallocated items
The Corporate and other segment include general corporate income and
expense items which are not allocated to any business segment. Segment
policies
The Company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the Company as a whole. q. Provisions
A provision is recognized when the Company has a present obligation as
a result of past event; it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation.
Provisions are not discounted to its present value and are determined
based on best estimate required to settle the obligation at the
reporting date. These estimates are reviewed at each reporting date and
adjusted to reflect the current best estimates.
Where the Company expects some or all of a provision to be reimbursed,
for example under an insurance contract, the reimbursement is
recognized as a separate asset but only when the reimbursement is
virtually certain. The expense relating to any provision is presented
in the statement of profit and loss net of any reimbursement.
r. Contingent liability
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
the 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 a
contingent liability but discloses its existence in the financial
statements.
s. Expenditure on new projects and substantial expansion
Expenditure directly relating to construction activity is capitalized.
Indirect expenditure incurred during construction period is capitalized
as part of the indirect construction cost to the extent to which the
expenditure is directly related to construction or is incidental
thereto. Other indirect expenditure (including borrowing costs)
incurred during the construction period which is not related to the
construction activity nor is incidental thereto is charged to the
statement of profit and loss. Income earned during construction period
is deducted from the total of the indirect expenditure. All direct
capital expenditure on expansion is capitalized. As regards indirect
expenditure on expansion, only that portion is capitalized which
represents the marginal increase in such expenditure involved as a
result of capital expansion. Both direct and indirect expenditure are
capitalized only if they increase the value of the asset beyond its
original standard of performance.
t. Cash and cash equivalents
Cash and cash equivalents for the purpose of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
u. Derivative instruments
In accordance with the ICAI announcement, derivative contracts, other
than foreign currency forward contracts covered under AS 11, are marked
to market on a portfolio basis, and the net loss, if any, after
considering the offsetting effect of gain on the underlying hedged
item, is charged to the statement of profit and loss. Net gain, if any,
after considering the offsetting effect of loss on the underlying
hedged item, is ignored.
v. Measurement of EBITDA
As permitted by the Guidance Note on the Revised Schedule VI to the
Companies Act, 1956, the Company has elected to present Earnings before
interest, tax, depreciation and amortization (EBITDA) as a separate
line item on the face of the statement of profit and loss. The Company
measures EBITDA on the basis of profit / (loss) from continuing
operations. In its measurement, the Company does not include
depreciation and amortisation expense, finance costs and tax expense.
(b) Terms/rights attached to equity shares
The Company has only one class of equity shares having a par value of Rs
5 per share. Each holder of equity shares is entitled to one vote per
share. The Company declares and pays dividends in Indian Rupees. The
dividend proposed by the Board of Directors is subject to the approval
of the shareholders in the ensuing Annual General Meeting.
During the year ended March 31, 2012, the amount of interim dividend
per share recognized as distributions to equity shareholders was Rs Nil
(March 31, 2011 - Rs 1.50) and final dividends proposed for distribution
to equity shareholders was Rs 5 (March 31, 2011 - Rs 3).
In the event of liquidation of the Company, the holders of equity
shares will be entitled to receive remaining assets of the Company,
after distribution of all preferential amounts, if any. The
distribution will be in proportion to the number of equity shares held
by the shareholders.
(c) Aggregate number of bonus shares issued during the period of five
years immediately preceding the reporting date On September 15, 2008,
the Company issued 100,000,000 equity shares of Rs 5 each as fully paid
bonus shares by capitalization of balance in the securities premium
account of Rs 500.
As per records of the Company, including its register of
shareholders/members. The above shareholding represents both legal and
beneficial ownerships of shares.
(e) Shares reserved for issue under options
For details of shares reserved for issue under the employee stock
option (ESOP) plan of the Company, please refer to note 30.
(a) On February 9, 2000, the Company obtained an order from the
Karnataka Sales Tax Authority for allowing deferment of sales tax
(including turnover tax) for a period upto 12 years with respect to
sales from its Hebbagodi manufacturing facility for an amount not
exceeding Rs 649. This is an interest free liability The amount is
repayable in 10 equal half yearly installments of Rs.65 each starting
from February 2012.
(b) On March 31, 2005, the Company entered into an agreement with the
Council of Scientific and Industrial Research ('CSIR'), for an
unsecured loan of Rs 3 for carrying out part of the research and
development project under the New Millennium Indian Technology
Leadership Initiative ('NMITLI') Scheme. The loan is repayable over 10
equal annual installments of Rs 0.3 starting from April 2009 and carry
an interest rate of 3 percent per annum.
(c) (i) On March 31, 2009, the Department of Scientific and Industrial
Research ('DSIR') sanctioned financial assistance for a sum of Rs 17 to
the Company for part financing one of its research projects. The
assistance is repayable in the form of royalty payments for three years
post commercialization of the project in five equal annual installments
of Rs 4 each. The said projects have been completed during the year
ended March 31, 2010 and the repayments would commence from April 1,
2013.
(ii) In addition, during the FY 2010-11, the Company has further
received Rs 4 towards a development project out of sanctioned amount of
Rs 12. The assistance is repayable in the form of royalty payments for a
period of five years post commercialization of the project in five
equal annual installments of Rs 3 each. The said product has not yet
been commercialized as at March 31, 2012.
(d) On November 3, 2009, the Department of Biotechnology ('DBT') under
the Biotechnology Industrial Partnership Programme ('BIPP') has
sanctioned financial assistance for a sum of Rs 53 to the Company for
financing one of its research projects. Of the said sanctioned amount,
the Company had received a sum of Rs 37 during year ended March 31, 2011
and the remaining amount of Rs 16 during the year. The loan is repayable
over 10 half yearly installments of Rs 5 after two years from date of
completion of the project and carries an interest rate of 2 percent per
annum.
In addition, on May 23, 2011, the DBT under the BIPP has sanctioned
financial assistance of Rs 40 to the Company for financing another
research project. Of the sanctioned amount, the Company has received a
sum of Rs 12 during the year. The loan is repayable over 10 half yearly
installments of Rs 4 after one year from date of completion of the
project and carries an interest rate of 2 percent per annum.
(e) On August 25, 2010, the Department of Science and Technology
('DST') under the Drugs and Pharmaceutical Research Programme ('DPRP')
has sanctioned financial assistance for a sum of Rs 70 to the Company
for financing one of its research projects. Of the said sanctioned
amount, the Company has received the first installment of Rs 14 during
the year ended March 31, 2011 and the remaining amount during the year
ended March 31, 2012. The loan is repayable over 10 annual installments
of Rs 7 each starting from July 1, 2012, and carries an interest rate of
3 percent per annum.
(f) In respect of the financial assistance received under the aforesaid
programmes (refer note (b) to (e) above), the Company is required to
utilize the funds for the specified projects and is required to obtain
prior approvals from the said authorities for disposal of assets /
Intellectual property rights acquired / developed under the above
programmes.
(a) Land includes land held on leasehold basis: Gross Block Rs 226
(March 31, 2011 - Rs 226) ; Net Block Rs 226 (March 31, 2011- Rs 226)
(b) On December 5, 2002, Karnataka Industrial Areas Development Board
('KIADB') allotted land aggregating to 26.75 acres to the Company for Rs
64 on a lease-cum-sale basis for a period of 6 years, extended
subsequently for further period of 14 years. During the year ended
March 31, 2005, the Company acquired an additional 41.25 acres of land
for Rs 99 from KIADB. During the quarter ended June 30, 2005, the
Company paid an advance of Rs 56 towards allotment of additional 19.68
acres of land, offered to the Company by KIADB on December 20, 2003.
The Company has received the possession certificate from KIADB in
January 2006 and entered into an agreement with KIADB to acquire this
plot of land on lease-cum-sale basis for a period of 20 years during
the year ended March 31, 2007. The registration for a part of the land
under this lease is pending settlement of certain disputes in respect
of claims made against KIADB.
(c) Additions to fixed assets during the year ended March 31, 2012,
include assets of Rs 214 (March 31, 2011 - Rs 173) of which, Rs 52 (March
31, 2011 - Rs 86) has been funded by the co-development partner. The
Company has capitalized and depreciated the gross cost of these assets.
The funding received from the co-development partner is reflected as a
part of Deferred revenues in note 7 & 10 and the depreciation charge
for the year has been adjusted for the proportionate amount recovered
from the co-development partner. Also refer note 27.
(d) Also refer note 35 (ii)(b) for assets given on lease.
(e) Plant and equipment include Computer and Office equipments.
(a) The Company acquired patents relating to certain technologies
(collectively IPs) from M/s Nobex Inc. During the year ended March 31,
2007, the Company licensed out the IP-Apaza for further development and
commercialization. Effective October 2006, the Company commenced
amortization of Apaza over a period of 5 years, being the estimated
useful life of the IPs.
During the year ended March 31, 2010, the Company transferred the right
to develop and commercialize Oral Insulin to Biocon Research Ltd
('BRL'), a wholly owned subsidiary for a consideration of Rs 673. As the
development and marketing rights of Oral Insulin have certain
obligations of the parties to conclude the arrangements, the same has
been treated as deferred revenues by the Company.
(b) During the year ended March 31, 2009, the Company acquired
marketing rights of hR3 and EPO from Biocon Biopharmaceuticals Private
Limited ('BBPL') for a sum of Rs 129. These rights give the Company an
exclusive right of marketing the products in certain territories.
Effective April 2010, the Company commenced amortization of these
rights over a period of 5 years, being the estimated useful life of
these rights.
(a) During the year ended March 31, 2009, Biocon Research Limited
('BRL') was incorporated as a wholly owned subsidiary for undertaking
research in novel and innovative drug products. BRL commenced
commercial activities during the year ended March 31, 2010 and as at
March 31, 2012 has a negative net worth of Rs 776 (March 31, 2011- Rs
373) due to its early stage of operations and research activities. BRL
is a research & development company and of strategic importance to the
Company. Accordingly, the management is of the view that there is no
diminution in the value of the investment. The Company has committed to
support BRL to fund its operations. The Company has granted an
interest-free unsecured long-term loan of Rs 117 as at March 31, 2012.
The Company also has receivables of Rs 2,068 (March 31, 2011 - Rs 1,441)
towards the research and development support extended by the Company.
(b) During the year ended March 31, 2009, Biocon SA a wholly owned
subsidiary was incorporated in Switzerland for development and
marketing of biopharmaceutical products in various markets outside
India. As at March 31, 2009, Biocon SA held 78% equity interest in
AxiCorp GmbH, Germany and subsequently in April 2011, Biocon SA
divested its entire shareholding, consequent to an offer made by
minority shareholders of Axicorp.
(c ) BBPL is a wholly owned subsidiary and is engaged in research,
development, manufacturing and marketing of biopharmaceuticals. As at
March 31, 2012, BBPL's networth is Rs 73 ( March 31, 2011 - Rs 17).
Further, the Company has committed to support BBPL to fund its
operations and granted an unsecured long-term loan of Rs 1,377 (March
31, 2011 - Rs 1,343) which is repayable by March 2014. BBPL is of
strategic importance to the Company and accordingly, the management is
of the view that there is no diminution in the value of the investment.
(d) NeoBiocon was incorporated in Abu Dhabi as a 50% joint venture
between the Company and Mr. B R Shetty and is engaged in marketing and
distribution of biopharmaceuticals in the Middle-East region. As at
March 31, 2012, the aggregate amount of Biocon's interest in the
assets, liabilities, income and expenses of NeoBiocon is Rs 102 (March
31, 2011 - Rs 47), Rs 46 (March 31, 2011 - Rs 23), Rs 114 (March 31, 2011 -
Rs 60) and Rs 81 (March 31, 2011 - Rs 38) respectively. The share of the
Company in the accumulated profit of NeoBiocon as at March 31, 2012
stood at Rs 50 (March 31, 2011 - Rs 17).
(e) As on March 31, 2012, the ESOP Trust held 4,091,721 shares (March
31, 2011 - 4,457,536) of the Company towards grant / exercise of shares
to / by employees of the Company and its subsidiaries under the ESOP
Scheme. Also refer note 30.
(f) Vaccinex Inc., USA ('Vaccinex') is engaged in research and
development activities and has been incurring losses and has a negative
net worth. As Vaccinex is a development stage enterprise and of
strategic importance to the Company, management believes that there is
no other than temporary diminution in the value of this investment.
(g) The Company has 30% (March 31, 2011 - 30%) voting rights in IATRICa
Inc., USA.
(h) During the year ending March 31, 2011 Biocon Sdn.Bhd was
incorporated as a wholly owned subsidiary in Malaysia for development
and manufacture of biopharmaceuticals. Biocon Malaysia is setting up a
biopharmaceutical manufacturing facility in Malaysia and is yet to
commence commercial operations as at March 31, 2012.
(i) During the year ended March 31, 2012, the Company transferred its
entire shareholding in Clinigene International Limited, a wholly owned
subsidiary to Syngene International Limited, another subsidiary for a
consideration of Rs 1 based on a valuation performed by an independent
valuer. As on the date of transfer, Clinging had a negative networth
of Rs 46.
(j) The Company has invested in National Savings Certificates
(unquoted) which are not disclosed above since amounts are rounded off
to Rupees million.
30. Employee stock compensation
On September 27, 2001, Biocon's Board of Directors approved the Biocon
Employee Stock Option Plan ('ESOP Plan 2000') for the grant of stock
options to the employees of the Company and its subsidiaries / joint
venture company. A Compensation Committee has been constituted to
administer the plan through a trust established specifically for this
purpose, called the Biocon India Limited Employee Welfare Trust (ESOP
Trust).
The ESOP Trust shall make additional purchase of equity shares of the
Company using the proceeds from the loan obtained from the Company,
other cash inflows from allotment of shares to employees under the ESOP
Plan and shall subscribe, when allotted to such number of shares as is
necessary for transferring to the employees. The ESOP Trust may also
receive shares from the promoters for the purpose of issuance to the
employees under the ESOP Plan. The Compensation Committee shall
determine the exercise price which will not be less than the face value
of the shares.
Grant I
In September 2001 , the Company granted 71,510 options (face value of
shares Rs 5 each) under the ESOP Plan 2000 to be exercised at a grant
price of Rs 10 (before adjusting bonus and share split). The options
vested with the employees equally over a four year period.
Grant II
In January 2004, the Company granted 142,100 options (face value of
shares - Rs 5 each) under ESOP Plan 2000 to be exercised at a price of Rs
5 per share. The options vest with the employees equally over a four
year period.
Grant III
In January 2004, the Board of Directors announced the Biocon Employee
Stock Option Plan (ESOP Plan 2004) for the grant of stock options to
the employees of the Company and its subsidiaries / joint venture
company, pursuant to which the Compensation Committee on March 19, 2004
granted 422,000 options (face value of shares - Rs 5 each) under the
ESOP Plan 2004 to be exercised at a grant price of Rs 315 being the
issue price determined for the IPO through the book building process.
The options vest with the employees equally over a four year period.
Grant IV
In July 2006, the Company approved the grant of 3,478,200 options (face
value of shares - Rs 5 each) to its employees under the existing ESOP
Plan 2000. The options under this grant would vest to the employees as
25%, 35% and 40% of the total grant at the end of first, second, third
year from the date of the grant, respectively, with an exercise period
of three years for each grant. The vesting conditions include service
terms and performance grade of the employees. These options are
exercisable at a discount of 20% to the market price of Company's
shares on the date of grant.
Grant V
In April 2008, the Company approved the grant of 813,860 options (face
value of shares - Rs 5 each) to its employees under the existing ESOP
Plan 2000. The options under this grant would vest to the employees as
25%, 35% and 40% of the total grant at the end of first, second, third
year from the date of grant, respectively, with an exercise period of
three years for each grant. The vesting conditions include service
terms and performance grade of the employees. These options are
exercisable at the market price of Company's shares on the date of
grant.
Mar 31, 2011
A. (i) Basis of preparation
The financial statements have been prepared to comply in all material
respects with the Accounting Standards, notified by the Companies
(Accounting Standards) Rules, 2006 (as amended) and the relevant
provisions of the Companies Act, 1956. The financial statements have
been prepared under the historical cost convention except in case of
assets for which provision for impairment is made and revaluation is
carried out, on an accrual basis. The accounting policies have been
consistently applied by the Company and are consistent with those used
in the previous year except where a newly issued accounting standard is
initially adopted or a revision to an existing accounting standard
requires a change in accounting policy hitherto in use.
For the purpose of administration of the employee stock option plans of
the Company, the Company has established the Biocon India Limited
Employee Welfare Trust (ESOP Trust). In accordance with the
guidelines framed by the Securities and Exchange Board of India
(SEBI), financial statements of the Company have been prepared as if
the Company itself is administering the ESOP Scheme.
(ii) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period. Although these estimates are based upon managements best
knowledge of current events and actions, actual results could differ
from these estimates.
b. Fixed assets and depreciation
Fixed assets are stated at cost, except for revalued freehold land and
buildings, which are shown at estimated replacement cost as determined
by valuers less impairment loss, if any, and accumulated depreciation.
The Company capitalises all costs relating to the acquisition and
installation of fixed assets. Assets partly funded by third parties are
capitalised at gross value and the funds so received are recorded as
deferred revenue and amortised over the useful life of the assets.
Fixed assets, other than freehold land, but including revalued
buildings, are depreciated pro rata to the period of use, on the
straight line method at the annual rates based on the estimated useful
lives, or at the rates prescribed under schedule XIV of the Companies
Act, 1956 whichever is higher as follows:
Leasehold land on a lease-cum-sale basis are capitalised at the
allotment rates charged by the Municipal Authorities. Leasehold
improvements are being depreciated over the lease term or useful life
whichever is lower. Used assets acquired from third parties are
depreciated on a straight line basis over their remaining useful life
of such assets.
The depreciation charge over and above the depreciation calculated on
the original cost of the revalued assets is transferred from the
revaluation reserve to the profit and loss account.
Assets individually costing less than Rs. 5 are fully depreciated in
the year of purchase.
c. Impairment of assets
The carrying amounts of assets are reviewed at each balance sheet date
if there is any indication of impairment based on internal/external
factors. An impairment loss is recognised wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the assets net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that refects
current market assessments of the time value of money and risks
specific to the asset. After impairment, depreciation is provided on
the revised carrying amount of the asset over its remaining useful
life. A previously recognised impairment loss is increased or reversed
depending on changes in circumstances. However the carrying value after
reversal is not increased beyond the carrying value that would have
prevailed by charging usual depreciation if there was no impairment.
d. Intangible assets
Intellectual Property rights/marketing rights
Costs relating to intellectual property/marketing rights are
capitalised and amortised on a straight-line basis over the period of
expected future sales from the use of the said intangible asset, i.e.
over their estimated useful lives not exceeding ten years.
Computer Software
Software which is not an integral part of the related hardware is
classified as an intangible asset and is being amortised over a period
of three - five years, being its estimated useful life.
Research and Development Costs
Research and development costs, including technical know-how fees,
incurred for development of products are expensed as incurred, except
for development costs which relate to the design and testing of new or
improved materials, products or processes or for existing products in
new territories which are recognised as an intangible asset to the
extent that it is expected that such assets will generate future
economic benefits. Research and development expenditure of a capital
nature is added to fixed assets. Development costs carried forward is
amortised on a straight line basis, over the period of expected future
sales from the related project, not exceeding ten years.
The carrying value of intellectual property/marketing rights and
development costs is reviewed for impairment annually when the asset is
not yet in use, and otherwise when events or changes in circumstances
indicate that the carrying value may not be recoverable.
e. Inventories
Inventories are valued as follows:
Raw materials and packing Lower of cost and net realizable value.
materials However, materials and other items held
for use in the production of inventories
are not written down below cost if the
finished products in which they will be
incorporated are expected to be sold at
or above cost. Cost is determined on a
first-in-frst-out basis. Customs duty
on imported raw materials (excluding
stocks in the bonded warehouse) is
treated as part of the cost of the
inventories.
Work-in-progress and Lower of cost and net realizable value.
finished goods Cost includes direct materials and labour
and a proportion of manufacturing
overheads based on normal operating
capacity. Cost of finished goods includes
excise duty.
Traded goods Lower of cost and net realizable value.
Cost includes the purchase price and
other associated costs directly incurred
in bringing the inventory to its present
location.
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale.
f. Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured.
(i) Revenue is recognised when the significant risks and rewards of
ownership of the goods have passed to the buyer and are recorded net of
excise duty, sales tax and other levies. For the purposes of disclosure
in these financial statements, sales are refected gross and net of
excise duty in the profit and loss account.
(ii) The Company enters into certain dossier sales, licensing and
supply agreements relating to various products. Revenue from such
arrangements is recognised upon completion of performance obligations
or on a proportional performance basis over the period the
Company performs its obligations, under the terms of the agreements.
Proportionate performance is measured based upon the efforts incurred
to date in relation to the total estimated efforts to complete the
contract. The Company monitors estimates of the total contract revenue
and cost on a routine basis throughout the contract period. The
cumulative impact of any change in estimates of the contract revenue or
costs is refected in the period in which the changes become known. In
the event that the loss is anticipated on a particular contract,
provision is made for the estimated loss.
(iii) Interest income is recognised on an accrual basis. Dividends are
accounted for when the right to receive the payment is established.
g. Investments
Investments that are readily realisable and intended to be held for not
more than twelve months are classified as current investments. All
other investments are classified as long-term investments. Long-term
investments are stated at cost. However, provision for diminution in
value is made to recognise a decline other than temporary in the value
of the investments. Current investments are carried at lower of cost
and fair value and determined on an individual investment basis.
h. Retirement benefits
(i) Retirement benefit in the form of Provident Fund is a defined
contribution scheme and the contributions are charged to the Profit and
Loss Account of the year when the contributions to the government funds
are due.
(ii) Gratuity liability is a defined benefit obligation and is provided
for on the basis of an actuarial valuation on projected unit credit
method made at the end of each financial year. The gratuity benefit of
the Company is administered by a trust formed for this purpose through
the group gratuity scheme.
(iii) Short-term compensated absences are provided for based on
estimates. Long-term compensated absences are provided for based on
actuarial valuation made at the end of each financial year. The
actuarial valuation is done as per projected unit credit method made at
the end of each financial year.
(iv) Actuarial gains/losses are immediately taken to profit and loss
account and are not deferred.
i. Foreign currency transactions
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 a monetary item that, in substance,
form part of the Companys net investment in a non-integral foreign
operation is accumulated in a foreign currency translation reserve in
the financial statements until the disposal of the net investment, at
which time they are recognised as income or as expenses.
Exchange differences, in respect of accounting periods commencing on or
after December 7, 2006, arising on reporting of long-term foreign
currency monetary items at rates different from those at which they
were initially recorded during the period, or reported in previous
financial statements, in so far as they relate to the acquisition of a
depreciable capital asset, are added to or deducted from the cost of
the asset and are depreciated over the balance life of the asset, and
in other cases, are accumulated in a "Foreign Currency Monetary Item
Translation Difference Account" in the financial statements and
amortized over the balance period of such long-term asset/liability but
not beyond accounting period ending on or before March 31, 2011.
Exchange differences arising on the settlement of monetary items not
covered above, or on reporting such monetary items at rates different
from those at which they were initially recorded during the year, or
reported in previous financial statements, are recognised as income or
as expenses in the year in which they arise.
Forward Exchange Contracts not intended for trading or speculation
purposes
The premium or discount arising at the inception of forward exchange
contracts is amortised as expense or income over the life of the
contract. Exchange differences on such contracts are recognised in the
statement of profit and loss in the year in which the exchange rates
change. Any profit or loss arising on cancellation or renewal of
forward exchange contract is recognised as income or as expense on the
date of such cancellation/renewal. However, exchange difference in
respect of accounting period commencing on or after December 7, 2006
arising on the forward exchange contract undertaken to hedge the long
term foreign currency monetary item, in so far as they
relate to the acquisition of depreciable capital asset, are added to or
deducted from the cost of asset and in other cases, are accumulated in
"Foreign Currency Monetary Item Translation Difference Account" and
amortised over the balance period of such long-term asset / liability
but not beyond March 31, 2011.
j. Income tax
Tax expense comprises current and deferred tax. Current income tax is
measured at the amount expected to be paid to the tax authorities in
accordance with the Indian Income Tax Act 1961. Deferred income taxes
refects the impact of current period timing differences between taxable
income and accounting income for the year net of reversals 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 recognised 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 realised. In situations
where the Company has unabsorbed depreciation or carry forward tax
losses, all deferred tax assets are recognised only if there is virtual
certainty supported by convincing evidence that they can be realised
against future taxable profits. At each balance sheet date the Company
re-assesses unrecognised deferred tax assets. It recognises
unrecognised deferred tax assets to the extent that it has become
reasonably certain or virtually certain, as the case may be that
sufficient future taxable income will be available against which such
deferred tax assets can be realised.
The carrying amount of deferred tax assets are reviewed at each balance
sheet date. The Company writes-down the carrying amount of a deferred
tax asset to the extent that it is no longer reasonably certain or
virtually certain, as the case may be, that sufficient future taxable
income will be available against which deferred tax asset can be
realised. Any such write-down is reversed to the extent that it becomes
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available.
Minimum Alternative Tax (MAT) credit is recognised 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. In the year in
which the MAT credit becomes eligible to be recognised as an asset in
accordance with the recommendations contained in the Guidance Note
issued by the Institute of Chartered Accountants of India, the said
asset is created by way of a credit to the profit and loss account and
shown as MAT Credit Entitlement. The Company reviews the same at each
balance sheet date and writes down the carrying amount of MAT Credit
Entitlement to the extent there is no longer convincing evidence to the
effect that Company will pay normal Income Tax during the specified
period.
k. Borrowing costs
Borrowing costs that are attributable to the acquisition and
construction of a qualifying asset are capitalised as a part of the
cost of the asset. Other borrowing costs are recognised as an expense
in the year in which they are incurred.
l. Employee stock compensation costs
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by the Institute
of Chartered Accountants of India. The Company measures compensation
cost relating to employee stock options using the intrinsic value
method. Compensation expense is amortized over the vesting period of
the option on a straight line basis.
m. Earnings per share (EPS)
Basic earnings per share are calculated by dividing the net profit or
loss for the year attributable to equity shareholders by the weighted
average number of equity shares outstanding during the year. Partly
paid equity shares are treated as a fraction of an equity share to the
extent that they were entitled to participate in dividends relative to
a fully paid equity share during the reporting year. The weighted
average number of equity shares outstanding during the year is adjusted
for events of bonus issue; bonus element in a rights issue to existing
shareholders; share split; and reverse share split (consolidation of
shares).
For the purpose of calculating diluted earnings per 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.
n. Operating lease
Where the Company is a Lessee
Leases of assets under which all the risks and rewards of ownership are
effectively retained by the lessor are classified as operating leases.
Lease payments under operating leases are recognised as an expense on a
straight-line basis over the lease term.
Where the Company is a Lessor
Assets subject to operating leases are included in fixed assets. Lease
income is recognised on a straight-line basis over the lease term.
Costs, including depreciation are recognised as an expense. Initial
direct costs such as legal costs, brokerage costs, etc are recognised
immediately.
o. Segment reporting
Identification of segments
The Companys operating businesses are organised and managed separately
according to the nature of products manufactured/traded, with each
segment representing a strategic business unit that offers different
products to different markets. The analysis of geographical segments is
based on the areas in which the Companys products are sold.
Inter-segment Transfers
The Company generally accounts for inter-segment sales and transfers at
an agreed marked-up price.
Allocation of common costs
Common allocable costs are allocated to each segment according to the
relative contribution of each segment to the total common costs.
Unallocated items
The Corporate and other segment include general corporate income and
expense items which are not allocated to any business segment.
Segment policies
The Company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the Company as a whole.
p. Provisions
A provision is recognised when an enterprise has a present obligation
as a result of past event; 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 best estimate required to
settle the obligation at the balance sheet date. These are reviewed at
each balance sheet date and adjusted to refect the current best
estimates.
q. Expenditure on new projects and substantial expansion
Expenditure directly relating to construction activity is capitalised.
Indirect expenditure incurred during construction period is capitalised
as part of the indirect construction cost to the extent to which the
expenditure is directly related to construction or is incidental
thereto. Other indirect expenditure (including borrowing costs)
incurred during the construction period which is not related to the
construction activity nor is incidental thereto is charged to the
Profit and Loss Account. Income earned during construction period is
deducted from the total of the indirect expenditure. All direct capital
expenditure on expansion is capitalised. As regards indirect
expenditure on expansion, only that portion is capitalised which
represents the marginal increase in such expenditure involved as a
result of capital expansion. Both direct and indirect expenditure are
capitalised only if they increase the value of the asset beyond its
original standard of performance.
r. Cash and Cash Equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
s. Derivative Instruments
As per the ICAI Announcement, accounting for derivative contracts,
other than those covered under AS-11, are marked to market on a
portfolio basis, and the net loss after considering the offsetting
effect on the underlying hedge item is charged to the profit and loss
account. Net gains are ignored.
Mar 31, 2010
A. (i) Basis of preparation
The financial statements have been prepared to comply in all material
respects with the Accounting Standards, notified by the Companies
Accounting Standards Rules, 2006 (as amended) and the relevant
provisions of the Companies Act, 1956. The financial statements have
been prepared under the historical cost convention except in case of
assets for which provision for impairment is made and revaluation is
carried out, on an accrual basis. The accounting policies have been
consistently applied by the Company and are consistent with those used
in the previous year except where a newly issued accounting standard is
initially adopted or a revision to an existing accounting standard
requires a change in accounting policy hitherto in use.
For the purpose of administration of the employee stock option plans of
the Company, the Company has established the Biocon India Limited
Employee Welfare Trust (ÃESOP TrustÃ). In accordance with the
guidelines framed by the Securities and Exchange Board of India
(ÃSEBIÃ), financial statements of the Company have been prepared as if
the Company itself is administering the ESOP Scheme.
(ii) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period. Although these estimates are based upon managementÃs best
knowledge of current events and actions, actual results could differ
from these estimates.
b. Fixed assets and depreciation
Fixed assets are stated at cost, except for revalued freehold land and
buildings, which are shown at estimated replacement cost as determined
by valuers less impairment loss, if any, and accumulated depreciation.
The Company capitalises all costs relating to the acquisition and
installation of fixed assets.
Fixed assets, other than freehold land, but including revalued
buildings, are depreciated pro rata to the period of use, on the
straight line method at the annual rates based on the estimated useful
lives, or at the rates prescribed under Schedule XIV of the Companies
Act, 1956 whichever is higher as follows:
Leasehold land on a lease-cum-sale basis are capitalised at the
allotment rates charged by the Municipal Authorities. Leasehold
mprovements are being depreciated over the lease term or useful life
whichever is lower. Used assets acquired from third parties are
depreciated on a straight line basis over their remaining useful life
of such assets as estimated by an independent external valuer
The depreciation charge over and above the depreciation calculated on
the original cost of the revalued assets is transferred from the
revaluation reserve to the profi t and loss account
Assets individually costing less than Rs 5 are fully depreciated in the
year of purchase
c. Impairment of assets
The carrying amounts of assets are reviewed at each balance sheet date
if there is any indication of impairment based on internal/external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the assetÃs net selling price and value in use. In
assessing value in use, the estimated future cash fl ows are discounted
to their present value at the weighted average cost of capital. After
impairment, depreciation is provided on the revised carrying amount of
the asset over its remaining useful life. A previously recognised
impairment loss is increased or reversed depending on changes in
circumstances. However the carrying value after reversal is not
increased beyond the carrying value that would have prevailed by
charging usual depreciation if there was no impairment
d. Intangible assets
Intellectual Property rights/marketing rights
Costs relating to intellectual property/marketing rights are
capitalised and amortised on a straight-line basis over the period of
expected future sales from the use of the said intangible asset, i.e.,
over their estimated useful lives not exceeding ten years
Computer Software
Software which is not an integral part of the related hardware is
classifi ed as an intangible asset and is being amortised over a period
of three-five years, being its estimated useful life
Research and Development Costs
Research and development costs, including technical know-how fees,
incurred for development of products are expensed as incurred, except
for development costs which relate to the design and testing of new or
improved materials, products or processes or for existing products in
new territories which are recognised as an intangible asset to the
extent that it is expected that such assets will generate future
economic benefi ts. Research and development expenditure of a capital
nature is added to fi xed assets. Development costs carried forward is
amortised on a straight-line basis, over the period of expected future
sales from the related project, not exceeding ten years
The carrying value of intellectual property/marketing rights and
development costs is reviewed for impairment annually when the asset is
not yet in use, and otherwise when events or changes in circumstances
indicate that the carrying value may not be recoverable
e. Inventories
nventories are valued as follows:
Raw materials and packing Lower of cost and net realizable value.
However, materials and other items held for use in the
materials production of inventories are not written down below cost if
the fi nished products in which they will be
incorporated are expected to be sold at or above cost. Cost is
determined on a first-in-first out basis Customs duty on imported raw
materials (excluding stocks in the bonded warehouse) is treated as part
of the cost of the inventories
Work-in-progress and finished Lower of cost and net realizable value.
Cost includes direct materials and labour and a proportion of goods
manufacturing overheads based on normal operating capacity. Cost of fi
nished goods includes excise
duty
Traded goods Lower of cost and net realizable value. Cost includes the
purchase price and other associated costs
directly incurred in bringing the inventory to its present location
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale
f. Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured
(i) Revenue is recognised when the signifi cant risks and rewards of
ownership of the goods have passed to the buyer and are recorded net of
excise duty, sales tax and other levies. For the purposes of disclosure
in these fi nancial statements, sales are refl ected gross and net of
excise duty in the profi t and loss account
(ii) The Company enters into certain dossier sales, licensing and
supply agreements relating to various products. Revenue from such
arrangements is recognised upon completion of performance obligations
or on a proportional performance basis over the period the Company
performs its obligations, under the terms of the agreements.
(iii) Interest Income is recognised on an accrual basis. Dividends are
accounted for when the right to receive the payment is established.
g. Investments
Investments that are readily realisable and intended to be held for not
more than twelve months are classified as current investments. All
other investments are classified as long-term investments. Long-term
investments are stated at cost. However, provision for diminution in
value is made to recognise a decline other than temporary in the value
of the investments. Current investments are carried at lower of cost
and fair value and determined on an individual investment basis.
h. Retirement benefits
(i) Retirement benefit in the form of Provident Fund is a defined
contribution scheme and the contributions are charged to the Profit and
Loss Account of the year when the contributions to the government funds
are due.
(ii) Gratuity liability is a defined benefit obligation and is provided
for on the basis of an actuarial valuation on projected unit credit
method made at the end of each financial year. The gratuity benefit of
the Company is administered by a trust formed for this purpose through
the group gratuity scheme.
(iii) Leave encashment liability is in accordance with the rules of the
Company. Short-term compensated absences are provided for based on
estimates. Long-term compensated absences are provided for based on
actuarial valuation made at the end of each financial year. The
actuarial valuation is done as per projected unit credit method made at
the end of each financial year.
(iv) Actuarial gains/losses are immediately taken to profit and loss
account and are not deferred.
i. Foreign currency transactions
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 a monetary item that, in substance,
form part of the companyÃs net investment in a non-integral foreign
operation is accumulated in a foreign currency translation reserve in
the financial statements until the disposal of the net investment, at
which time they are recognised as income or as expenses.
Exchange differences, in respect of accounting periods commencing on or
after December 7, 2006, arising on reporting of long-term foreign
currency monetary items at rates different from those at which they
were initially recorded during the period, or reported in previous
financial statements, in so far as they relate to the acquisition of a
depreciable capital asset, are added to or deducted from the cost of
the asset and are depreciated over the balance life of the asset, and
in other cases, are accumulated in a ÃForeign Currency Monetary Item
Translation Difference Accountà in the financial statements and
amortized over the balance period of such long-term asset/ liability
but not beyond accounting period ending on or before March 31, 2011.
Exchange differences arising on the settlement of monetary items not
covered above, or on reporting such monetary items at rates different
from those at which they were initially recorded during the year, or
reported in previous financial statements, are recognized as income or
as expenses in the year in which they arise.
Forward Exchange Contracts not intended for trading or speculation
purposes
The premium or discount arising at the inception of forward exchange
contracts is amortised as expense or income over the life of the
contract. Exchange differences on such contracts are recognised in the
statement of profit and loss in the year in which the exchange rates
change. Any profit or loss arising on cancellation or renewal of
forward exchange contract is recognised as income or as expense on the
date of such cancellation / renewal. However, exchange difference in
respect of accounting period commencing on or after December 7, 2006
arising on the forward exchange contract undertaken to hedge the
long-term foreign currency monetary item, in so far as they relate to
the acquisition of depreciable capital asset, are added to or deducted
from the cost of asset and in other cases, are accumulated in ÃForeign
Currency Monetary Item Translation Difference Accountà and amortised
over the balance period of such long-term asset / liability but not
beyond March 31, 2011.
j. Income tax
Tax expense comprises current, deferred and fringe benefi t tax.
Current income tax and fringe benefi t tax is measured at the amount
expected to be paid to the tax authorities in accordance with the
Indian Income Tax Act 1961. Deferred income taxes reflects the impact
of current period timing differences between taxable income and
accounting income for the year net of reversals 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 recognised only to the extent that there is reasonable
certainty that suffi cient future taxable income will be available
against which such deferred tax assets can be realised. In situations
where the Company has unabsorbed depreciation or carry forward tax
losses, all deferred tax assets are recognised only if there is virtual
certainty supported by convincing evidence that they can be realised
against future taxable profits. At each balance sheet date the Company
re-assesses unrecognised deferred tax assets. It recognises
unrecognised deferred tax assets to the extent that it has become
reasonably certain or virtually certain, as the case may be that suffi
cient future taxable ncome will be available against which such
deferred tax assets can be realised
The carrying amount of deferred tax assets are reviewed at each balance
sheet date. The Company writes-down the carrying amount of a deferred
tax asset to the extent that it is no longer reasonably certain or
virtually certain, as the case may be, that suffi cient future taxable
ncome will be available against which deferred tax asset can be
realised. Any such write-down is reversed to the extent that it becomes
reasonably certain or virtually certain, as the case may be, that suffi
cient future taxable income will be available
Minimum Alternative Tax (MAT) credit is recognised 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. In the year in
which the MAT credit becomes eligible to be recognized as an asset in
accordance with the recommendations contained in the Guidance Note
issued by the Institute of Chartered Accountants of ndia, the said
asset is created by way of a credit to the profi t and loss account and
shown as MAT Credit Entitlement. The Company reviews the same at each
balance sheet date and writes down the carrying amount of MAT Credit
Entitlement to the extent there is no longer convincing evidence to the
effect that Company will pay normal Income Tax during the specifi ed
period
k. Borrowing costs
Borrowing costs that are attributable to the acquisition and
construction of a qualifying asset are capitalised as a part of the
cost of the asset. Other borrowing costs are recognised as an expense
in the year in which they are incurred
l. Employee stock compensation costs
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by the Institute
of Chartered Accountants of India. The Company measures compensation
cost relating to employee stock options using the intrinsic value
method. Compensation expense is amortized over the vesting period of
the option on a straight-line basis
m. Earnings per share (EPS)
Basic earnings per share are calculated by dividing the net profi t or
loss for the year attributable to equity shareholders by the weighted
average number of equity shares outstanding during the year. Partly
paid equity shares are treated as a fraction of an equity share to the
extent that they were entitled to participate in dividends relative to
a fully paid equity share during the reporting year. The weighted
average number of equity shares outstanding during the year is adjusted
for events of bonus issue; bonus element in a rights issue to existing
shareholders; share split; and reverse share split (consolidation of
shares)
For the purpose of calculating diluted earnings per share, the net
profi t 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
n. Operating lease
Where the Company is a Lessee
Leases of assets under which all the risks and rewards of ownership are
effectively retained by the lessor are classifi ed as operating leases
Lease payments under operating leases are recognised as an expense on a
straight-line basis over the lease term
Where the Company is a Lessor
Assets subject to operating leases are included in fixed assets. Lease
income is recognised on a straight-line basis over the lease term
Costs, including depreciation are recognised as an expense. Initial
direct costs such as legal costs, brokerage costs, etc. are recognised
immediately.
o. Segment reporting
Identification of segments
The CompanyÃs operating businesses are organised and managed separately
according to the nature of products manufactured/traded, with each
segment representing a strategic business unit that offers different
products to different markets. The analysis of geographical segments is
based on the areas in which the CompanyÃs products are sold.
Inter-segment Transfers
The Company generally accounts for inter-segment sales and transfers at
an agreed marked-up price.
Allocation of common costs
Common allocable costs are allocated to each segment according to the
relative contribution of each segment to the total common costs.
Unallocated items
The Corporate and other segment include general corporate income and
expense items which are not allocated to any business segment.
Segment policies
The Company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the Company as a whole.
p. Provisions
A provision is recognised when an enterprise has a present obligation
as a result of past event; 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 best 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 best
estimates.
q. Expenditure on new projects and substantial expansion
Expenditure directly relating to construction activity is capitalised.
Indirect expenditure incurred during construction period is capitalised
as part of the indirect construction cost to the extent to which the
expenditure is directly related to construction or is incidental
thereto. Other indirect expenditure (including borrowing costs)
incurred during the construction period which is not related to the
construction activity nor is incidental thereto is charged to the
Profit and Loss Account. Income earned during construction period is
deducted from the total of the indirect expenditure. All direct capital
expenditure on expansion is capitalised. As regards indirect
expenditure on expansion, only that portion is capitalised which
represents the marginal increase in such expenditure involved as a
result of capital expansion. Both direct and indirect expenditure are
capitalised only if they increase the value of the asset beyond its
original standard of performance.
r. Cash and Cash Equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
s. Derivative Instruments
As per the ICAI Announcement, accounting for derivative contracts,
other than those covered under AS-11, are marked to market on a
portfolio basis, and the net loss after considering the offsetting
effect on the underlying hedge item is charged to the profit and loss
account. Net gains are ignored.