Accounting Policies of Strides Pharma Science Ltd. Company
Mar 31, 2023
Note No. 01 General information
Strides Pharma Science Limited (âthe Company or Stridesâ) is a pharmaceutical Company domiciled in India, with its registered office situated at 201, Devavrata, Sector 17, Vashi, Navi Mumbai - 400703 and corporate office in Bengaluru, India. The Company is public limited company incorporated under the provisions of India Companies Act and having its equity shares are listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in India. The Company develops and manufactures a wide range of IP-led niche pharmaceutical products.
Note No. 02 Basis of preparation of financial statements
The Company has made a profit of H 47 Million for the year ended March 31,2023. Further, as of March 31,2023, the Company has provided guarantees aggregating to H 11,213 Million in relation to the borrowings (out of which H 5,033 Million is outstanding as of March 31, 2023) of its associate company (âthe Associateâ).
Management of the Company and of the subsidiaries who have not complied with certain financial covenants related to their respective borrowings have obtained temporary relaxations for compliance with those financial covenants from the lenders as of the date of the issue of financial results. Management of the Associate has initiated discussions with its lenders seeking certain temporary relaxations for compliance with financial covenants related to its borrowings.
Further, to mitigate the situation, the Company has raised long-term and other financing facilities amounting to H 2,528 Million during the year ended March 31, 2023 and has issued equity warrants to the entity which is part of the Promoter Company that is expected to provide additional equity of H 513 Million by March 31, 2024. The Company has cash and cash equivalents of INR 821 Million as at March 31, 2023 and also undrawn borrowing facilities available from certain lenders.
Accordingly, based on the fact that the Company had generated positive cash flows in the current year and expects to generate positive operating cash flows in future periods, returned to positive EBITDA in the current year, temporary relaxations from lenders for compliance with financial covenants related to borrowings, its ability to raise new financing facilities, expected equity infusion in the year ending March 31, 2024 and the steps undertaken by management as
noted above, management believes that the Company will be able to continue to generate sufficient cash in the foreseeable future to meet its obligations as they fall due.
These standalone financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules 2015, as amended, notified under Section 133 of Companies Act, 2013, (the âActâ) and other relevant provisions of the Act.
The standalone financial statements were approved for issue by the Companyâs Board of Directors on May 25, 2023
2.2 Functional and presentation currency
These standalone financial statements are presented in Indian Rupees (H), which is also the Companyâs functional currency. All amounts have been rounded-off to two decimal places to the nearest Million, unless otherwise indicated.
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 asset/(liability) are measured at fair value of plan assets, less present value of defined benefit obligation; and
⢠Equity settled and cash settled share based payments that are measured at fair value.
2.4 Use of estimates and judgements
The preparation of the 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.
2.4.1 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 2.2 â Assessment of functional currency;
⢠Note 3.2 â Revenue recognition: whether revenue from sale of product and services is recognised overtime or at a point of time:
⢠Note 3.15 and 45 â Financial instruments;
⢠Note 3.9, 3.10 and 3.11â Useful lives of property, plant and equipment, investment property and intangible assets;
⢠Note 3.12.3 â Impairment of non financial assets:
⢠Note 41 â Measurement of defined benefit obligation; key actuarial assumptions;
⢠Note 40 â Share based payments;
⢠Note 3.8, 11, 32 and 39 (b) â Provision for income taxes and related tax contingencies and evaluation of recoverability of deferred tax assets.
2.4.2 Assumption and estimation uncertainty
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment is included in the following notes.
⢠Note 3.12.3 â Impairment testing of non-financial assets;
⢠Note 3.12.1 and 45 â Impairment testing of financial assets; and
⢠Note 3.14, 31 and 39 (b) â Recognition and measurement of Provisions and contingent liabilities.
As mentioned in para 1 above under âCorporate informationâ, the Company is into development and manufacture of pharmaceutical products. Based on the normal time between acquisition of assets and
their realisation in cash or cash equivalents, the Company has determined its operating cycle as 3 years to 5 years and 12 months relating to research and development activities and manufacturing of pharmaceutical products respectively. The above basis is used for classifying the assets and liabilities into current and non-current as the case may be.
2.6 Cash flow statement
Cash flows are reported using indirect method, whereby net profits before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments and items of income or expenses associated with investing or financing cash flows. The cash flows from regular revenue generating (operating activities), investing and financing activities of the Company are segregated.
2.7 Measurement of fair value
A number of the Companyâs 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:
⢠Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
⢠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).
⢠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,
⢠assets (or disposal groups) that are classified as held for sale in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.
3.1.1 Business combination under common control
The Company has followed the guidance given under Appendix C of Ind AS 103 (Business combination of entities under common control), while preparing these standalone financial statements.
Business combination involving common control is accounted by using pooling of interest method.
The pooling of interest method is considered to involve the following:
(i) The assets and liabilities of the combining entities are reflected at their carrying amounts.
(ii) No adjustments are made to reflect fair values, or recognise any new assets or liabilities. The only adjustments that are made are to harmonise accounting policies.
(iii) The financial information in the financial statements in respect of prior periods should be restated as if the business combination had occurred from the beginning of the preceding period in the financial statements, irrespective of the actual date of the combination. In this financial statement, the effect of transactions, when the entities are under common control, prior to the appointed date has been adjusted in the âother equityâ.
The identity of the reserves in the transferor companies has been maintained in the transferee Company.
The difference, if any, between the amount recorded as share capital issued plus any additional consideration in the form of cash or other assets and the amount of share capital of the transferor shall be transferred to capital reserve and should be presented separately from other capital reserves with disclosure of its nature and purpose in the notes.
3.2 Revenue from contracts with customers
The Company recognises revenue to depict the transfer of control over promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
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:
⢠Note 40 - Share based payment arrangements;
⢠Note 6 - Investment property and
⢠Note 45 - Financial instruments
Note No. 03 Significant accounting policies 3.1 Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange of control of the acquiree. Acquisition-related costs are generally recognised in statement of profit and loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:
⢠deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with Ind AS 12 Income Taxes and Ind AS 19 Employee Benefits respectively;
⢠liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Company entered into to replace share-based payment arrangements of the acquiree are measured in accordance with Ind AS 102 Share-based Payment at the acquisition date (see note 3.7.3); and
for those goods or services. A 5-step approach is used to recognise revenue as below:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligation in contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
3.2.1 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 standalone 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.
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.
Profit share revenues
The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in certain markets. Under such arrangements, the Company sells its products to the
business partners at a base purchase price agreed upon in the arrangement and is also entitled to a profit share which is over and above the base purchase price. The profit share is typically dependent on the business partnerâs ultimate net sale proceeds or net profits, subject to any reductions or adjustments that are required by the terms of the arrangement. Such arrangements typically require the business partner to provide confirmation of units sold and net sales or net profit computations for the products covered under the arrangement.
Revenue in an amount equal to the base purchase price is recognised in these transactions upon delivery of products to the business partners. An additional amount representing the profit share component is recognised as revenue in the period which corresponds to the ultimate sales of the products made by business partners only when the collectability of the profit share becomes probable and a reliable measurement of the profit share is available. Otherwise, recognition is deferred to a subsequent period pending satisfaction of such collectability and measurability requirements. In measuring the amount of profit share revenue to be recognised for each period, the Company uses all available information and evidence, including any confirmations from the business partner of the profit share amount owed to the Company, to the extent made available before the date the Companyâs Board of Directors authorises the issuance of its financial statements for the applicable period.
Sale to distributors
The Company appoints distributors in various territories who purchases the goods from the Company and thereafter sells them in the territory. In case the distributor is acting as an agent, the Company defers revenue recognition till the time goods are sold by the distributor to the end customer. On the other hand, if the distributor is principal, revenue is recognised upon the transfer of control over the goods to the distributor.
Right to reject or return goods
The Company also sells its products to the customers with a right to return the goods within the specified period of time. If the probability of acceptance by the customer is uncertain, recognition of revenue is
3.2.5 Rental income
The Companyâs policy for recognition of revenue from operating leases is described in note 3.3.2 below.
3.2.6 Dividend and interest income
Dividend income from investments is recognised when the shareholderâs right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably).
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assetâs net carrying amount on initial recognition.
3.3 Leases
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. 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 assess whether a contract conveys the right to control the use of an identified asset, the Company uses the definition of a lease in Ind AS 116.
3.3.1 The Company as lessee
At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of its relative standalone prices. However, for the leases of property the Company has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.
The Company recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
deferred till the expiry of right to return or acceptance by the customer whichever is earlier.
Price variations / Incentives
Incentives are accounted based on the assessment of whether the beneficiary (of the incentive) is acting as a principal or an agent. Where the beneficiary is a principal, the incentive is regarded as consideration paid to the customer and is reduced from revenue.
However, where the beneficiary is an agent, the incentive payment is recognised as an expense as the same is in the nature of commission.
Chargebacks / Reports claims by the wholesalers / distributors and Price Protections
Chargebacks and reports claims are estimated on the basis of the average trend of the past periods and recognised as reduction to revenue.
3.2.2 Sale of services
Revenue from services rendered, which primarily relate to contract research, is recognised in the statement of profit and loss as the underlying services are performed. Upfront payments received under these arrangements are deferred and recognised as revenue over the expected period over which the related services are expected to be performed.
3.2.3 Royalty, sale of licenses and Intellectual property rights
The Company enters into certain dossier sales, royalties, licensing and supply arrangements with various parties. Income from licensing arrangements is generally recognised over the term of the contract. Some of these arrangements include certain performance obligations by the Company. Revenue from such arrangements is recognised in the period in which the Company completes all its performance obligations.
3.2.4 Export and production linked incentives
Export incentives are accrued for based on fulfilment of eligibility criteria for availing the incentives and when there is no uncertainty in receiving the same. These incentives include estimated realisable values/ benefits from special import licenses and benefits under specified schemes as applicable.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Company will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Companyâs incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.
The Company determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
⢠fixed payments, including in-substance fixed payments;
⢠variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
⢠amounts expected to be payable under a residual value guarantee; and
⢠the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising
from a change in an index or rate, if there is a change in the Companyâs estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Short-term leases and leases of low-value assets.
The Company has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Company recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
The Companyâs significant leasing arrangements are mainly in respect of factory land and buildings, residential and office premises.
3.3.2 The Company as lessor
At inception or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative standalone prices.
When the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.
To classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset.
When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sublease separately. It assesses the lease classification of
(ii) finance charges in respect of finance leases, and
(iii) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in statement of profit and loss in the period in which they are incurred.
3.6 Employee benefits
3.6.1 Short-term employee benefits
All employee benefits falling due wholly within twelve months of rendering the services are classified as short-term employee benefits, which include benefits like salaries, wages, short-term compensated absences and performance incentives and are recognised as expenses in the period in which the employee renders the related service.
A liability is recognised for the amount expected to be paid under short-term cash bonus, if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
3.6.2 Post-employment benefits
Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions.
For defined benefit retirement plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gains and
a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Company applies the exemption described above, then it classifies the sub-lease as an operating lease.
If an arrangement contains lease and non-lease components, then the Company applies Ind AS 115 to allocate the consideration in the contract.
The Company recognises lease payments received under operating leases as income on a straight line basis over the lease term.
The Company applied the derecognition and impairment requirements in Ind AS 109 to the net investment in the lease.
3.4 Foreign currencies transactions and translation
Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency closing rates of exchange at the reporting date.
Exchange differences arising on settlement or translation of monetary items are recognised in Statement of Profit and Loss except to the extent of exchange differences which are regarded as an adjustment to interest costs on foreign currency borrowings that are directly attributable to the acquisition or construction of qualifying assets, are capitalised as cost of assets.
Non-monetary assets and liabilities that are measured in terms of historical cost in foreign currencies are not retranslated. Income and expense items in foreign currency are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used.
Borrowing costs include:
(i) interest expense calculated using the effective interest rate method,
losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding net interest), is reflected immediately in the balance sheet with a charge or credit recognised in other comprehensive income in the period in which they occur. Past service cost is recognised in statement of profit and loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset.
The retirement benefit obligation recognised in the balance sheet represents the actual deficit or surplus in the Companyâs defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.
A liability for a termination benefit is recognised at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognises any related restructuring costs. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they are discounted.
3.6.3 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 in the period in which the absences occur.
3.6.4 Defined contribution plan
A defined contribution plan is a post-employment benefit plan where the Companyâs legal or constructive obligation is limited to the amount that it contributes to a separate legal entity. The Company makes specified monthly contributions towards Government administered provident fund scheme. Obligations for contributions to defined contribution plan are expensed as an employee benefits expense in the statement of profit and loss in period in which the related service is provided by the employee. Prepaid contributions are recognised as an asset to the extent
that a cash refund or a reduction in future payments is available.
3.7 Share-based payment arrangements
3.7.1 Share-based payment transactions of the Company
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Companyâs estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in statement of profit and loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.
3.7.2 Cash settled share-based payment transactions of the Company
The fair value of the amount payable to employees in respect of cash settled share based payments is recognised as an expense with the corresponding increase in liabilities, over the period during which the employees becoming unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date based on the fair value of the underlying options. Any changes in the liability are recognised in the statement of profit or loss.
3.7.3 Share-based payment transactions of the acquiree in a business combination
When the share-based payment awards held by the employees of an acquiree (acquiree awards) are replaced by the Companyâs share-based payment awards (replacement awards), both the acquiree awards and the replacement awards are measured in accordance with Ind AS 102 (âmarket-based measureâ) at the acquisition date. The portion of the replacement awards that is included in measuring the consideration transferred in a business combination equals the market-based measure of the acquiree awards multiplied by the ratio of the portion of the vesting period completed to the greater of the total
vesting period or the original vesting period of the acquiree award. The excess of the market-based measure of the replacement awards over the market-based measure of the acquiree awards included in measuring the consideration transferred is recognised as remuneration cost for post-combination service.
However, when the acquiree awards expire as a consequence of a business combination and the Company replaces those awards when it does not have an obligation to do so, the replacement awards are measured at their market-based measure in accordance with Ind AS 102. All of the market-based measure of the replacement awards is recognised as remuneration cost for post-combination service.
Income tax expense represents the sum of current tax and deferred tax. The Company has determined that interest and penalties related to income taxes, including uncertain tax treatments, do not meet the definition of income taxes, and therefore accounted for them under Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets.
3.8.1 Current tax
Current tax is calculated based on taxable profit for the year. Taxable profit differs from âprofit before taxâ as reported in the standalone statement of profit and loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Companyâs current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
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.
3.8.2 Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those
deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets 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 tax liability. Accordingly, MAT is recognised as deferred tax asset in the Balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with the asset will be realised.
Current and deferred tax are recognised in statement of profit and loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
3.9 Property, plant and equipment
Property, plant and equipment held for use in the production or supply of goods or services, or for
administrative purposes, are stated in the balance sheet at cost less accumulated depreciation and accumulated impairment losses, if any.
Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Companyâs accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Company. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Depreciation on property, plant and equipment has been provided on the straight-line method as per the useful life prescribed in Schedule II to the Companies Act, 2013 except in respect of the following categories of assets, in whose case the life of the assets has been assessed to be different and are as under based on technical advice, taking into account the nature of the asset, the estimated usage of the asset, the operating conditions of the asset, past history of replacement, anticipated technological changes, manufacturers warranties and maintenance support, etc.
Plant and equipments : 3 to 20 years
Factory buildings : 5 to 30 years
Freehold land is not depreciated.
Asset held under finance leases are depreciated as per Ind AS 116.
Individual assets costing less than H 5,000 are depreciated in full in the year of purchase.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in statement of profit and loss.
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
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.
Asset held for sale
The Company categorises Non-current assets and liabilities as "held for saleâ, when there is a proposal/ intention to sell an asset or group of assets in its present condition.
The assets held for sale are carried at cost or fair value less costs related to disposal, whichever is lower and are not subject to depreciation.
Properties that is held for long-term rentals or for capital appreciation or both, and that is not occupied by the Company, is classified as investment property. Investment property is measured initially at its cost, including related transaction costs and where applicable borrowing costs. Subsequent expenditure is capitalised to the assetâs carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of the investment property is replaced, the carrying amount of the replaced part is derecognised.
Investment property are depreciated using the straight line method over their estimated useful lives. Investment properties generally have a useful life of 25-60 years. The useful life has been determined based on technical evaluation performed by the managementâs expert.
Investment properties are derecognised on disposal or when the investment properties are permanently withdrawn from use and no future economic benefits are expected from its disposal. The gains or losses from the disposal of investment properties are determined as difference between the carrying amount of the investment properties and the net disposal proceeds and are recognised in profit or loss in the period in which it is disposed.
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in statement of profit and loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
3.11.3 Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
3.11.4 Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in statement of profit and loss when the asset is derecognised.
3.11.5 Useful lives of intangible assets
Intangible assets are amortised over their estimated useful life on straight line method as follows:
Registration and Brands : 10 years to 25 years Software Licenses :5 years
3.12 Impairment of assets
3.12.1 Impairment of financial assets:
The Company assesses at each date of balance sheet, whether a financial asset or a group of financial assets is impaired. Ind AS 109 requires expected credit
Transfers to (or from) investment property are made only when there is a change in use. Transfers between investment property, owner-occupied property do not change the carrying amount of the property transferred and they do not change the cost of that property for measurement or disclosure purposes.
3.11.1 Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses, if any. Intangible assets with indefinite useful lives are not amortised and tested for impairment annually.
3.11.2 Internally-generated intangible assets - research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:
⢠the technical feasibility of completing the intangible asset so that it will be available for use or sale;
⢠the intention to complete the intangible asset and use or sell it;
⢠the ability to use or sell the intangible asset;
⢠how the intangible asset will generate probable future economic benefits;
⢠the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
⢠the ability to measure reliably the expenditure attributable to the intangible asset during its development.
losses to be measured through a loss allowance. The Company recognises lifetime expected losses for all contract assets and / or all trade receivables that do not constitute a financing transaction. For all other financial assets, expected credit losses are measured at an amount equal to the twelve-month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the financial asset has increased significantly, since initial recognition.
3.12.2 Impairment of investment in subsidiaries and associates
The Company reviews its carrying value of investments in subsidiaries and associates at cost, annually, or more frequently when there is an indication for impairment. If the recoverable amount is less than its carrying amount, the impairment loss is accounted for.
3.12.3 Impairment of non-financial assets
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal 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 reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cashgenerating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cashgenerating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in statement of profit and loss.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in statement of profit and loss.
Inventories are valued at the lower of cost and the net realisable value after providing for obsolescence and other losses, where considered necessary. Cost includes all charges in bringing the goods to the point of sale, including octroi and other levies, transit insurance and receiving charges. Cost is determined as follows:
Raw materials, packing materials and stores and spares: weighted average basis.
Work-in progress: at material cost and an appropriate share of production overheads.
Finished goods: material cost and an appropriate share of production overheads and excise duty, wherever applicable.
Stock-in trade: weighted average basis.
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.
3.14 Provisions (Other than employee benefits)
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
3.15.2 Other financial assets and financial liabilities
Other financial assets and financial liabilities are recognised when Company becomes a party to the contractual provisions of the instruments.
Initial recognition and measurement:
Other financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in statement of profit and loss. However, trade receivables that do not contain a significant financing component are measured at transaction price.
Subsequent measurement:
Financial assets at amortised cost
Financial assets are subsequently measured at amortised cost if these financial assets are held within a business whose objective is to hold these assets in order to collect contractual cash flows and contractual terms of financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at fair value through other comprehensive income
Financial assets are measured at fair value through other comprehensive income if these financial assets are held within business whose objective is achieved by both collecting contractual cash flows on specified dates that are solely payments of principal and interest on the principal amount outstanding and selling financial assets.
Financial assets at fair value through profit or loss
Financial assets are measured at fair value through profit or loss unless it measured at amortised cost or fair value through other comprehensive income on initial recognition. The transaction cost directly attributable to the acquisition of financial assets and liabilities at fair value through profit or loss are immediately recognised in the statement of profit and loss.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
3.14.1 Onerous contracts
Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Company has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract. Before a provision is recognised company will recognise an impairment loss on the assets associated with that contract.
3.14.2 Contingent liabilities
Contingent liability is a possible obligation arising from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity or a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability. The Company does not recognise a contingent liability but discloses its existence in the consolidated financial statements.
3.15.1 Investment in subs
Mar 31, 2018
Note No. 01 // General Information
Strides Shasun Limited (the Company'' or Strides'') is a pharmaceutical company domiciled in India, with its registered office situated at 201, Devavrata, Sector 17, Vashi, Navi Mumbai - 400703 and corporate office in Bengaluru, India. The Company has been incorporated under the provisions of Indian Companies Act and its equity shares are listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in India. Strides develops and manufactures a wide range of IP-led niche pharmaceutical products.
Note No. 02 // Basis of preparation of financial statements 2.1 Statement of compliance
These standalone financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules 2015, as amended, notified under Section 133 of Companies Act, 2013, (the ''Act'') and other relevant provisions of the Act.
The standalone financial statements were approved by the Board of Directors and authorised for issue on May 18, 2018.
2.2 Functional and presentation currency
These standalone financial statements are presented in Indian Rupees (''), which is also the Company''s functional currency. All amounts have been rounded-off to two decimal places to the nearest million, unless otherwise indicated.
2.3 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; and
- Equity settled share based payments that are measured at fair value
2.4 Use of estimates and judgments
The preparation of the financial statements in conformity with Ind AS which 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.
2.4.1 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 3.16 and 48 â Financial instruments;
- Note 3.10, 3.11 and 3.12â Useful lives of property, plant and equipment, intangible assets and investment property;
- Note 3.4 â Lease classification;
- Note 2.4.2.1 â Impairment of non financial assets:
- Note 44 â Measurement of defined benefit obligation; key actuarial assumptions;
- Note 43 â Share based payments;
- Note 3.9, 11, 39.1 and 42 (b) â Provision for income taxes and related tax contingencies and evaluation of recoverability of deferred tax assets.
2.4.2 Assumption and estimation uncertainty
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
2.4.2.1 Impairment of non-financial assets
Determining whether the asset is impaired requires to assess the recoverable amount of the asset or Cash Generating Unit (CGU) which is compared to the carrying amount of the asset or CGU, as applicable. Recoverable amount is the higher of fair value less costs of disposal and value in use. Where the carrying amount of an asset or CGU exceeds the recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
The value in use calculation requires the management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.
2.4.2.2 Impairment of financial assets
The impairment provisions for financial assets are based on assumptions about risk of default and expected cash loss rates. The Company uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on Company''s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.
2.4.2.3 Employee benefits
The cost of defined benefit plans are determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, attrition rate, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. (Refer note 44)
2.4.2.4 Share based compensation to employees
The Company has granted share based payment plans to its employees. Valuation models are used to calculate the expense for such share-based compensation to employees. These models require a number of assumptions to be made as input. These include financial assumptions as well as various assumptions around individual employee behavior. (Refer note 43)
2.4.2.5 Litigations
As explained in note 39.1, the Company is a party to certain commercial disputes and has also received notification of claims for significant amounts. There are number of factors that may affect the ultimate outcome in respect of this matter and accordingly, it is difficult to assess the impact of these disputes with accuracy. (Refer note 42b)
2.5 Operating cycle
As mentioned in para 1 above under ''Corporate information'', the Company is into development and manufacture of pharmaceutical products. Based on the normal time between acquisition of assets and their realization in cash or cash equivalents, the Company has determined its operating cycle as 3 years to 5 years and 12 months relating to research and development activities and manufacturing of pharmaceutical products respectively. The above basis is used for classifying the assets and liabilities into current and non-current as the case may be.
2.6 Cash flow statement
Cash flows are reported using indirect method, whereby net profits before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments and items of income or expenses associated with investing or financing cash flows. The cash flows from regular revenue generating (operating activities), investing and financing activities of the Company are segregated.
Note No. 03 // Significant accounting policies 3.1 Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquire and the equity interests issued by the Company in exchange of control of the acquiree. Acquisition-related costs are generally recognized in statement of profit and loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value, except that:
- deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with Ind AS 12 Income Taxes and Ind AS 19 Employee Benefits respectively;
- liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Company entered into to replace share-based payment arrangements of the acquiree are measured in accordance with Ind AS 102 Share-based Payment at the acquisition date (see note 3.8.2); and
- assets (or disposal groups) that are classified as held for sale in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer''s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
3.2 Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see note 3.1 above) less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to cash-generating units. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the business combination in which such goodwill arose.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in statement of profit and loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
3.3 Revenue recognition
Revenue from the sale of goods and sale of scrap is measured at the fair value of the consideration received or receivable, exclusive of sales tax, Goods and Service Tax (GST) and net of sales return, trade discounts, rebates and other similar allowances. Sales are presented gross of excise duties.
3.3.1 Sale of goods
Revenue from the sale of goods, sale of scrap, sale of dossiers and intellectual property rights are recognized when the following conditions are satisfied:
the Company has transferred to the buyer the significant risks and rewards of ownership of the goods to the buyer as per the terms of arrangement with buyer;
the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Company; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Profit share revenues
The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in certain markets. Under such arrangements, the Company sells its products to the business partners at a base purchase price agreed upon in the arrangement and is also entitled to a profit share which is over and above the base purchase price. The profit share is typically dependent on the business partner''s ultimate net sale proceeds or net profits, subject to any reductions or adjustments that are required by the terms of the arrangement.
Sale to distributors
The Company appoints distributors in various territories who purchases the goods from the Company and thereafter sells them in the territory. In case the distributor is acting as an agent, the Company defers revenue recognition till the time goods are sold by the distributor to the end customer. On the other hand, if the distributor is principal, revenue is recognized upon the transfer of significant risks and rewards of ownership of the goods to the distributor.
Right to reject or return goods
The Company also sells its products to the customers with a right to return the goods within the specified period of time. If the probability of acceptance by the customer is uncertain, recognition of revenue is deferred till the expiry of right to return or acceptance by the customer whichever is earlier.
Price variations / Incentives
Incentives are accounted based on the assessment of whether the beneficiary (of the incentive) is acting as a principal or an agent. Where the beneficiary is a principal, the incentive is regarded as consideration paid to the customer and is reduced from revenue. However, where the beneficiary is an agent, the incentive payment is recognized as an expense as the same is in the nature of commission.
Chargebacks / Reptos claims by the wholesalers / distributors and Price Protections
Chargebacks and reptos claims are estimated on the basis of the average trend of the past periods and recognized as reduction to revenue.
3.3.2 Rendering of services
Revenue from product development services:
(i) In respect of contracts where the Company undertakes to develop products for its customers (on an end-to end basis), revenues are recognized based on technical estimates of the stage of work completed under the contracts.
(ii) In respect of other contracts where the Company performs specifically identified services in the development of the products, revenues are recognized on the basis of the performance milestones provided in the contract.
Revenue from contract manufacturing is recognized based on the services rendered in accordance with the terms of the contract.
Income from rendering advisory / support services and capacity reservation is recognized based on contractual terms.
3.3.3Royalty and sale of licenses
The Company enters into certain dossier sales, royalties, licensing and supply arrangements with various parties. Income from licensing arrangements is generally recognized as per the terms of the contract.
3.3.4Dividend and interest income
Dividend income from investments is recognized when the shareholder''s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably).
Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset''s net carrying amount on initial recognition.
3.3.5Rental income
The Company''s policy for recognition of revenue from operating leases is described in note 3.4.1 below.
3.3.6 Export incentives
Export incentives are accrued for based on fulfillment of eligibility criteria for availing the incentives and when there is no uncertainty in receiving the same.
These incentives include estimated realizable values/ benefits from special import licenses and benefits under specified schemes as applicable.
3.4 Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
3.4.1 The Company as less or
Rental income from operating leases is generally recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.
3.4.2The Company as lessee
Assets held under finance leases are initially recognized as assets of the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the less or is included in the standalone balance sheet as a finance lease obligation.
Lease payments are apportioned between finance costs and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance costs are recognized immediately in statement of profit and loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company''s general policy on borrowing costs (see note 3.6 below). Contingent rentals are recognized as expenses in the periods in which they are incurred.
Rental expense from operating leases is generally recognized on a straight-line basis over the term of the relevant lease. Where the rentals are structured solely to increase in line with expected general inflation to compensate for the lessor''s expected inflationary cost increases, such increases are recognized in the year in which such benefits accrue. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
3.5 Foreign currencies transactions and translation
Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency closing rates of exchange at the reporting date.
Exchange differences arising on settlement or translation of monetary items are recognized in Statement of Profit and Loss except to the extent of exchange differences which are regarded as an adjustment to interest costs on foreign currency borrowings that are directly attributable to the acquisition or construction of qualifying assets, are capitalized as cost of assets.
Non-monetary assets and liabilities that are measured in terms of historical cost in foreign currencies are not retranslated. Income and expense items in foreign currency are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used.
3.6 Borrowing costs
Borrowing costs include:
(i) interest expense calculated using the effective interest rate method,
(ii) finance charges in respect of finance leases, and
(iii) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognized in statement of profit and loss in the period in which they are incurred.
3.7 Employee benefits
3.7.1 Short-term employee benefits
All employee benefits falling due wholly within twelve months of rendering the services are classified as short-term employee benefits, which include benefits like salaries, wages, short-term compensated absences and performance incentives and are recognized as expenses in the period in which the employee renders the related service.
3.7.2 Post-employment benefits
Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.
For defined benefit retirement plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding net interest), is reflected immediately in the balance sheet with a charge or credit recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and is not reclassified to statement of profit and loss. Past service cost is recognized in statement of profit and loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset.
The retirement benefit obligation recognized in the standalone balance sheet represents the actual deficit or surplus in the Company''s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.
A liability for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognizes any related restructuring costs.
3.7.3 Compensated absences
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized at an actuarially determined liability at the present value of the defined benefit obligation at the Balance sheet date. In respect of compensated absences expected to occur within twelve months after the end of the period in which the employee renders the related services, liability for short-term employee benefits is measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service. The same is disclosed under current liabilities - provisions.
3.8 Share-based payment arrangements
3.8.1Share-based payment transactions of the Company
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company''s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in statement of profit and loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.
3.8.2 Share-based payment transactions of the acquiree in a business combination
When the share-based payment awards held by the employees of an acquiree (acquiree awards) are replaced by the Company''s share-based payment awards (replacement awards), both the acquiree awards and the replacement awards are measured in accordance with Ind AS 102 ("market-based measure") at the acquisition date. The portion of the replacement awards that is included in measuring the consideration transferred in a business combination equals the market-based measure of the acquiree awards multiplied by the ratio of the portion of the vesting period completed to the greater of the total vesting period or the original vesting period of the acquiree award. The excess of the market-based measure of the replacement awards over the market-based measure of the acquiree awards included in measuring the consideration transferred is recognized as remuneration cost for post-combination service.
However, when the acquiree awards expire as a consequence of a business combination and the
Company replaces those awards when it does not have an obligation to do so, the replacement awards are measured at their market-based measure in accordance with Ind AS 102. All of the market-based measure of the replacement awards is recognized as remuneration cost for post-combination service.
3.9 Taxation
Income tax expense represents the sum of current tax and deferred tax.
3.9.1 Current tax
Current tax is calculated based on taxable profit for the year. Taxable profit differs from ''profit before tax'' as reported in the standalone statement of profit and loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Company''s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
3.9.2 Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the standalone financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets 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 tax liability. Accordingly, MAT is recognized as deferred tax asset in the Balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with the asset will be realized.
Current and deferred tax are recognized in statement of profit and loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
3.10 Property, plant and equipment
Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost less accumulated depreciation and accumulated impairment losses.
Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Company''s accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Company. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
The non refundable payments made with respect to Land taken on finance lease (where there is an option to purchase the same at the end of the lease period) is classified under Property, plant and Equipment as "Lease hold Land".
Depreciation is recognized so as to write off the cost of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.
Depreciation on tangible fixed assets has been provided on the straight-line method as per the useful life prescribed in Schedule II to the Companies Act, 2013 except in respect of the following categories of assets, in whose case the life of the assets has been assessed to be different and are as under based on technical advice, taking into account the nature of the asset, the estimated usage of the asset, the operating conditions of the asset, past history of replacement, anticipated technological changes, manufacturers warranties and maintenance support, etc.:
Dies and punches : 4 years
Mobiles phone : 3 years
Certain factory buildings : 18 years
Freehold land is not depreciated.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives. Individual assets costing less than ''5,000 are depreciated in full in the year of purchase.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in statement of profit and loss.
3.11 Investment property
Properties that is held for long-term rentals or for capital appreciation or both, and that is not occupied by the Company, is classified as investment property.
Investment property is measured initially at its cost, including related transaction costs and where applicable borrowing costs. Subsequent expenditure is capitalized to the asset''s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of the investment property is replaced, the carrying amount of the replaced part is derecognized.
Investment property are depreciated using the straight line method over their estimated useful lives. Investment properties generally have a useful life of 25-40 years. The useful life has been determined based on technical evaluation performed by the management''s expert.
3.12 Intangible assets
3.12.1 Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.
3.12.2 Internally-generated intangible assets - research and development expenditure
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, all of the following have been demonstrated:
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognized, development expenditure is recognized in statement of profit and loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
3.12.3 Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
3.12.4 Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in statement of profit and loss when the asset is derecognized.
3.12.5 Useful lives of intangible assets
Intangible assets are amortized over their estimated useful life on straight line method as follows:
Registration and Brands : 10 years to 25 years Software Licenses : 5 years
3.13 Impairment of assets
3.13.1 Impairment of financial assets:
The Company assesses at each date of balance sheet, whether a financial asset or a group of financial assets is impaired. Ind AS 109 requires expected credit losses to be measured through a loss allowance. The Company recognizes lifetime expected losses for all contract assets and / or all trade receivables that do not constitute a financing transaction. For all other financial assets, expected credit losses are measured at an amount equal to the twelve-month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the financial asset has increased significantly, since initial recognition.
3.13.2 Impairment of investment in subsidiaries, associates and joint ventures
The Company reviews its carrying value of investments in subsidiaries at cost, annually, or more frequently when there is an indication for impairment. If the recoverable amount is less than its carrying amount, the impairment loss is accounted for.
3.13.3 Impairment of goodwill
Refer note 3.2.
3.13.4 Impairment of non-financial assets other than goodwill
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal 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 reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in statement of profit and loss.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in statement of profit and loss.
3.14 Inventories
Inventories are valued at the lower of cost and the net realizable value after providing for obsolescence and other losses, where considered necessary. Cost includes all charges in bringing the goods to the point of sale, including octroi and other levies, transit insurance and receiving charges. Work-in-progress and finished goods include appropriate proportion of overheads and, where applicable, excise duty. Cost is determined as follows:
Raw materials, packing materials and stores and spares: weighted average basis
Work-in progress: at material cost and an appropriate share of production overheads
Finished goods: material cost and an appropriate share of production overheads and excise duty, wherever applicable
Stock-in trade: weighted average basis
3.15 Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
3.15.1 Onerous contracts
Present obligations arising under onerous contracts are recognized and measured as provisions. An onerous contract is considered to exist where the Company has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract.
3.15.2 Contingent liabilities
Contingent liabilities are disclosed in notes when there is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
3.16 Financial instruments
3.16.1 Investment in subsidiaries, associates and joint ventures The Company has accounted for its investments in subsidiaries, associates and joint ventures at cost less impairment.
3.16.2 Other financial assets and financial liabilities
Other financial assets and financial liabilities are recognized when Company becomes a party to the contractual provisions of the instruments.
Initial recognition and measurement:
Other financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in statement of profit and loss.
Subsequent measurement:
Financial assets at amortized cost
Financial assets are subsequently measured at amortized cost if these financial assets are held within a business whose objective is to hold these assets in order to collect contractual cash flows and contractual terms of financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at fair value through other comprehensive income
Financial assets are measured at fair value through other comprehensive income if these financial assets are held within business whose objective is achieved by both collecting contractual cash flows on specified dates that are solely payments of principal and interest on the principal amount outstanding and selling financial assets.
Financial assets at fair value through profit or loss
Financial assets are measured at fair value through profit or loss unless it measured at amortized cost or fair value through other comprehensive income on initial recognition. The transaction cost directly attributable to the acquisition of financial assets and liabilities at fair value through profit or loss are immediately recognized in the statement of profit and loss.
Financial liabilities
Financial liabilities are measured at amortized cost using effective interest rate method. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
3.16.3 Equity instruments
An equity instrument is a contract that evidences residual interest in the assets of the company after deducting all of its liabilities. Equity instruments recognized by the Company are recognized at the proceeds received net off direct issue cost.
3.16.4 Financial guarantee contracts
The Company enters into financial guarantee contracts with its subsidiaries. At the inception of a financial guarantee contract, a liability is recognized initially at fair value and then subsequently at the higher of the estimated loss and amortized cost, the changes in subsequent measurement being recognized in the Statement of Profit and Loss. Where a guarantee is issued for a consideration, a financial asset of an amount equal to the liability is initially recognized at amortized cost. Where a guarantee is issued for no consideration, the fair value is recognized as additional investment in the entity to which the guarantee relates.
3.16.5 Derivative financial instruments and hedge accounting
The Company uses various derivative financial instruments such as interest rate swaps, currency swaps and forward contracts to mitigate the risk of changes in interest rates and foreign exchange rates. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are also subsequently measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to the Statement of Profit and Loss, except for the effective portion of cash flow hedges which is recognized in Other Comprehensive Income and later to the Statement of Profit and Loss when the hedged item affects profit or loss or treated as basis adjustment if a hedged forecast transaction subsequently results in the recognition of a non-financial assets or non-financial liability."
Hedges that meet the criteria for hedge accounting are accounted for as follows:
a) Cash flow hedge
The Company designates derivative contracts or non derivative financial assets / liabilities as hedging instruments to mitigate the risk of movement in interest rates and foreign exchange rates for foreign exchange exposure on highly probable future cash flows attributable to a recognized asset or liability or forecast cash transactions. 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 the cash flow hedging reserve being part of other comprehensive income. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the Statement of Profit and Loss. If the hedging relationship no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging reserve until the underlying transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the Statement of Profit and Loss upon the occurrence of the underlying transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified in the Statement of Profit and Loss.
b) Fair value hedge
The Company designates derivative contracts or non derivative financial assets / liabilities as hedging instruments to mitigate the risk of change in fair value of hedged item due to movement in interest rates, foreign exchange rates and commodity prices.
Changes in the fair value of hedging instruments and hedged items that are designated and qualify as fair value hedges are recorded in the Statement of Profit and Loss. If the hedging relationship no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortized to Statement of Profit and Loss over the period of maturity."
3.17 Exceptional items
When an item of income or expense within profit or loss from ordinary activity is of such size, nature or incidence that their disclosure is relevant to explain the performance of the Company for the year, the nature and amount of such items is disclosed as exceptional items.
3.18 Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of our cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
3.19 Earnings per share
Basic Earnings Per Share (''EPS'') is computed by dividing the net profit attributable to the equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the net profit by the weighted average number of equity shares considered for deriving basic earnings per share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the year, unless issued at a later date. In computing diluted earnings per share, only potential equity shares that are dilutive and that either reduces earnings per share or increases loss per share are included. The number of shares and potentially dilutive equity shares are adjusted retrospectively for all periods presented in case of share splits.
3.20 Standards / amendments not yet effective
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:
I nd AS 115 Revenue from Contracts with Customers Ind AS 21 The effect of changes in Foreign Exchange rates
Ind AS 115 - Revenue from Contracts with Customers
In 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 non-monetary 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.
(iv) Fair value of investment properties
The fair value of the Company''s investment properties as at March 31, 2018 has been arrived at ^817.73 Million on the basis of a valuation carried out by independent valuers. The said valuers are registered with the authority which governs valuers in India and have appropriate qualifications and relevant experience in the valuation of properties in the relevant locations. The inputs used are as follows:
- Monthly market rent, taking into account the differences in location, and individual factors, such as frontage and size, between the comparables and the property; and
- Capitalization rate, taking into account the capitalization of rental income potential, nature of the property, and prevailing market condition.
(v) Refer note 20(i) for investment properties pledged as security towards borrowings.
Notes:
(i) Figures in brackets relate to previous year.
(ii) Allocation of goodwill to cash generating units:
Goodwill has been allocated for impairment testing purposes to the following cash-generating units:
- Regulated Markets
- Emerging Markets
The recoverable amount of this cash-generating unit is determined based on a value in use calculation which use cash flow projections based on financial budgets covering a five year period and a discount rate of 15.77% per annum (as at March 31, 2017: 15.77% per annum). The cash flows beyond five-year period have been extrapolated using a steady 2% per annum growth rate.
There is no change in the above said assumptions as compared to that of previous years.
The management believes that the projections used by the management for determining the "Value in use" of cash generating units reflect past experience and external sources of information and any reasonably possible change in the key assumptions on which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.
Refer note 40 for disclosures with respect to section 186(4) of Companies Act, 2013. Refer note 45 for related party transactions.
Mar 31, 2017
039390General Information
Strides Shasun Limited (Formerly Strides Arcolab Limited) (the ''Company'' or ''Strides'') is a pharmaceutical company headquartered in Bengaluru, India. Strides develops and manufactures a wide range of IP-led niche pharmaceutical products. The Company is listed on the BSE Limited and the National Stock Exchange of India Limited.
The standalone financial statements were approved by the Board of Directors and authorized for issue on May 18, 2017.
Significant accounting policies
2.1 Statement of compliance
These standalone financial statements have been prepared in accordance with Indian Accounting Standards (âInd AS") notified under the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016, as applicable. For periods up to and including the year ended March 31, 2016, the Company prepared its financial statements in accordance with the then applicable Accounting Standards in India (''previous GAAP''). These are the Company''s first Ind AS financial statements. The date of transition to Ind AS is April 1, 2015. Refer Note 4 for the explanations of transition to Ind AS including the details of first-time adoption exemptions availed by the Company.
2.2 Basis of measurement
The standalone financial statements have been prepared on the historical cost basis except for:
- certain financial assets and liabilities (including derivative instruments), plan assets of the defined benefit plan and equity settled share based payments that are measured at fair values at the end of each reporting period;- certain fixed assets of the Company which were fair valued in earlier years (prior to transition date), based on scheme of arrangement approved by the High court of Judicature. However, as explained in note 3.6, for transition to Ind AS, the Company has elected to continue with the carrying value of such assets as of April 01, 2015 measured as per previous GAAP and use that carrying value as deemed cost as of transition date.
2.3 Business combinations
Acquisitions of business are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange of control of the acquiree. Acquisition-related costs are generally recognized in statement of profit and loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value, except that:
- deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with Ind AS 12 Income Taxes and Ind AS 19 Employee Benefits respectively;
- liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Company entered into to replace share-based payment arrangements of the acquiree are measured in accordance with Ind AS 102 Share-based Payment at the acquisition date (see note 2.10.2); and
- assets (or disposal groups) that are classified as held for sale in accordance with Ind AS 105 Noncurrent Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer''s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
In case of a bargain purchase, before recognizing a gain in respect thereof, the Company determines whether there exists clear evidence of the underlying reasons for classifying the business combination as a bargain purchase. Thereafter, the Company reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and recognizes any additional assets or liabilities that are identified in that reassessment. The Company then reviews the procedures used to measure the amounts that Ind AS requires for the purposes of calculating the bargain purchase. If the gain remains after this reassessment and review, the Company recognizes it in other comprehensive income and accumulates the same in equity as capital reserve. This gain is attributed to the acquirer. If there does not exist clear evidence of the underlying reasons for classifying the business combination as a bargain purchase, the Company recognizes the gain, after reassessing and reviewing (as described above), directly in equity as capital reserve.
When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill or capital reserve, as the case maybe. Measurement period adjustments are adjustments that arise from additional information obtained during the ''measurement period'' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not premeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is premeasured at fair value at subsequent reporting dates with the corresponding gain or loss being recognized in statement of profit and loss.
When a business combination is achieved in stages, the Company''s previously held equity interest in the acquiree is premeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognized in statement of profit and loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to statement of profit and loss where such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date
2.4 Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see note 2.3 above) less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to cash-generating units. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the business combination in which such goodwill arose.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in statement of profit and loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
2.5 Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.
2.5.1 Sale of goods
Revenue from the sale of goods is recognized when the following conditions are satisfied:
- the Company has transferred to the buyer the significant risks and rewards of ownership of the goods to the buyer as per the terms of arrangement with buyer;
- the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
- the amount of revenue can be measured reliably;
- it is probable that the economic benefits associated with the transaction will flow to the Company; and
- the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Sale to Distributors
The Company appoints distributors in various territories who purchases the goods from the Company and thereafter sells them in the territory. In case the distributor is acting as an agent, the Company defers revenue recognition till the time goods are sold by the distributor to the end customer. On the other hand, if the distributor is principal, revenue is recognized upon the transfer of significant risks and rewards of ownership of the goods to the distributor.
Right to reject or return goods
The Company sells its products to the customers with a right to return the goods within the specified period of time. If the probability of acceptance by the customer is uncertain, recognition of revenue is deferred till the expiry of right to return or acceptance by the customer whichever is earlier.
Free samples
The Company distributes free samples to distributors, at various exhibitions and at medical conferences. The cost of samples distributed at exhibitions, medical conferences or to doctors directly are treated as marketing expense and clubbed under âBusiness Promotion Expense". However, free samples given to distributors (that are not acting as agents) is recognized as cost of goods sold. In case the free samples are not delivered at the same time as the related sales consignment, a reliable provision is made in this regard.
Price Variations / Incentives
Incentives are accounted based on the assessment of whether the beneficiary (of the incentive) is acting as a principal or an agent. Where the beneficiary is a principal, the incentive is regarded as consideration paid to the customer and is reduced from revenue. However, where the beneficiary is an agent, the incentive payment is recognized as an expense as the same is in the nature of commission.
Chargebackâs / Repots claims by the wholesalers / distributors and Price Protections
Chargebackâs and repots claims are estimated on the basis of the average trend of the past years and recognized as reduction to revenue.
2.5.2 Rendering of services
Revenue from product development services:
(i) In respect of contracts where the Company undertakes to develop products for its customers (on an end-to end basis), revenues are recognized based on technical estimates of the stage of work completed under the contracts.
(ii) In respect of other contracts where the Company performs specifically identified services in the development of the products, revenues are recognized on the basis of the performance milestones provided in the contract.
Revenue from contract manufacturing is recognized based on the services rendered in accordance with the terms of the contract
Income from rendering advisory / support services is recognized based on contractual terms.
2.5.3 Royalties
Share of profits and royalty incomes under manufacturing and supply agreements with customers are accrued based on confirmation received from customers.
2.5.4Dividend and interest income
Dividend income from investments is recognized when the shareholder''s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably).
Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset''s net carrying amount on initial recognition.
2.5.5 Rental income
The Company''s policy for recognition of revenue from operating leases is described in note 2.6.1 below.
2.5.6 Export Incentives
Export incentives are accrued for based on fulfillment of eligibility criteria for availing the incentives and when there is no uncertainty in receiving the same. These incentives include estimated realizable values/ benefits from special import licenses and benefits under specified schemes as applicable.
2.6 Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
2.6.1 The Company as less or
Amounts due from lessees under finance leases are recognized as receivables at the amount of the Company''s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Company''s net investment outstanding in respect of the leases.
Rental income from operating leases is generally recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.
2.6.2 The Company as lessee
Assets held under finance leases are initially recognized as assets of the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the less or is included in the standalone balance sheet as a finance lease obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in statement of profit and loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company''s general policy on borrowing costs (see note 2.8 below). Contingent rentals are recognized as expenses in the periods in which they are incurred.
Rental expense from operating leases is generally recognized on a straight-line basis over the term of the relevant lease. Where the rentals are structured solely to increase in line with expected general inflation to compensate for the less orâs expected inflationary cost increases, such increases are recognized in the year in which such benefits accrue. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
2.7 Foreign currencies transactions and translation
The functional currency of the Company is the Indian Rupee ('' ).
Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency closing rates of exchange at the reporting date.
Exchange differences arising on settlement or translation of monetary items are recognized in Statement of Profit and Loss except to the extent of exchange differences which are regarded as an adjustment to interest costs on foreign currency borrowings that are directly attributable to the acquisition or construction of qualifying assets, are capitalized as cost of assets.
Non-monetary assets and liabilities that are measured in terms of historical cost in foreign currencies are not retranslated. Income and expense items in foreign currency are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used.
2.8 Borrowing costs
Borrowing costs include:
(i) interest expense calculated using the effective interest rate method,
(ii) finance charges in respect of finance leases, and
(iii) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
I nterest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in statement of profit and loss in the period in which they are incurred.
2.9 Employee benefits
2.9.1 Retirement benefit costs and termination benefits
Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.
For defined benefit retirement plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding net interest), is reflected immediately in the balance sheet with a charge or credit recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and is not reclassified to statement of profit and loss. Past service cost is recognized in statement of profit and loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are categorised as follows:
- service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements);
- net interest expense or income; and
- remeasurement
The Company presents the first two components of defined benefit costs in statement of profit and loss in the line item ''Employee benefit expense''. Curtailment gains and losses are accounted for as past service costs.
The retirement benefit obligation recognized in the standalone balance sheet represents the actual deficit or surplus in the Company''s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.
A liability for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognizes any related restructuring costs.
2.9.2 Defined contribution plan
Contribution to defined contribution plans are recognized as expense when employees have rendered services entitling them to such benefits.
2.9.3 Compensated absences
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized at an actuarially determined liability at the present value of the defined benefit obligation at the Balance sheet date. In respect of compensated absences expected to occur within twelve months after the end of the period in which the employee renders the related services, liability for short-term employee benefits is measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.
2.9.4 Long term Incentive Plans
Under the Plan, certain employees are eligible for retention and performance linked payouts. These payouts are accrued as and when services are rendered and/ or when the specific performance criteria are met.
2.10 Share-based payment arrangements
2.10.1Share-based payment transactions of the Company
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company''s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in statement of profit and loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.
2.10.2 Share-based payment transactions of the acquiree in a business combination
When the share-based payment awards held by the employees of an acquiree (acquiree awards) are replaced by the Company''s share-based payment awards (replacement awards), both the acquiree awards and the replacement awards are measured in accordance with Ind AS 102 ("market-based measure") at the acquisition date. The portion of the replacement awards that is included in measuring the consideration transferred in a business combination equals the market-based measure of the acquiree awards multiplied by the ratio of the portion of the vesting period completed to the greater of the total vesting period or the original vesting period of the acquiree award. The excess of the market-based measure of the replacement awards over the market-based measure of the acquiree awards included in measuring the consideration transferred is recognized as remuneration cost for post-combination service.
However, when the acquiree awards expire as a consequence of a business combination and the Company replaces those awards when it does not have an obligation to do so, the replacement awards are measured at their market-based measure in accordance with Ind AS 102. All of the market-based measure of the replacement awards is recognized as remuneration cost for post-combination service.
2.11 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
2.11.1 Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ''profit before tax'' as reported in the standalone statement of profit and loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Company''s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
2.11.2 Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the standalone financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets 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 tax liability. Accordingly, MAT is recognized as deferred tax asset in the Balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with the asset will be realised.
2.11.3 Current and deferred tax for the year
Current and deferred tax are recognized in statement of profit and loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
2.12 Property, plant and equipment
Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost less accumulated depreciation and accumulated impairment losses.
Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Company''s accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Freehold land is not depreciated.
The non refundable payments made with respect to Land taken on finance lease (where there is an option to purchase the same at the end of the lease period) is classified under Property, plant and Equipment as "Lease hold Land".
Depreciation is recognized so as to write off the cost of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.
Depreciation on tangible fixed assets has been provided on the straight-line method as per the useful life prescribed in Schedule II to the Companies Act, 2013 except in respect of the following categories of assets, in whose case the life of the assets has been assessed to be different and are as under based on technical advice, taking into account the nature of the asset, the estimated usage of the asset, the operating conditions of the asset, past history of replacement, anticipated technological changes, manufacturers warranties and maintenance support, etc.:
Dies and punches : 4 years
Mobiles phone : 3 years
Certain factory buildings : 18 years
Individual assets costing less than '' 5,000 are depreciated in full in the year of purchase.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in statement of profit and loss.
When an item of property, plant and equipment is acquired in exchange for a non-monetary asset or assets, or a combination of monetary and nonmonetary assets, the cost of that item is measured at fair value (even if the entity cannot immediately derecognize the asset given up) unless the exchange transaction lacks commercial substance or the fair value of neither the asset received nor the asset given up is reliably measurable. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up.
For transition to Ind AS, the Company has elected to continue with the carrying value of all of its property, plant and equipment recognized as at April 1, 2015 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.
2.13 Investment property
Properties that is held for long-term rentals or for capital appreciation or both, and that is not occupied by the Company, is classified as investment property. Investment property is measured initially at its cost, including related transaction costs and where applicable borrowing costs. Subsequent expenditure is capitalized to the asset''s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of the investment property is replaced, the carrying amount of the replaced part is derecognized.
Investment property are depreciated using the straight line method over their estimated useful lives. Investment properties generally have a useful life of 25-40 years. The useful life has been determined based on technical evaluation performed by the management''s expert.
For transition to Ind AS, the Company has elected to continue with the carrying value of its investment property recognized as at April 1, 2015 (transition date) measured as per the previous GAAP and use that carrying value as the deemed cost of investment properties as of the transition date.
2.14 Intangible assets
2.14.1Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.
2.14.2Internally-generated intangible assets - research and development expenditure
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, all of the following have been demonstrated:
- the technical feasibility of completing the intangible asset so that it will be available for use or sale;
- the intention to complete the intangible asset and use or sell it;
- the ability to use or sell the intangible asset;
- how the intangible asset will generate probable future economic benefits;
- the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
- the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognized, development expenditure is recognized in statement of profit and loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
2.14.3Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
2.14.4Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in statement of profit and loss when the asset is derecognized.
2.14.5Useful lives of intangible assets
Intangible assets are amortized over their estimated useful life on straight line method as follows:
Registration and Brands : 10 years to 25 years Software Licenses : 5 years
2.14.6Deemed cost on transition to Ind AS
For transition to Ind AS, the Company has elected to continue with the carrying value of all of its intangible assets recognized as at April 1, 2015 (transition date) measured as per the previous GAAP and use that carrying value as its deemed cost as of the transition date.
2.15 Impairment of assets
2.15.1 Impairment of financial assets:
The Company assesses at each date of balance sheet, whether a financial asset or a group of financial assets is impaired. Ind AS 109 requires expected credit losses to be measured through a loss allowance. The Company recognizes lifetime expected losses for all contract assets and / or all trade receivables that do not constitute a financing transaction. For all other financial assets, expected credit losses are measured at an amount equal to the twelve-month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the financial asset has increased significantly, since initial recognition.
2.15.2Impairment of investment in subsidiaries, associates and joint ventures
The Company reviews its carrying value of investments in subsidiaries at cost, annually, or more frequently when there is an indication for impairment. If the recoverable amount is less than its carrying amount, the impairment loss is accounted for.
2.15.3Impairment of goodwill
Refer note 2.4.
2.15.4Impairment of non-financial assets other than goodwill
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal 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 reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in statement of profit and loss.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in statement of profit and loss.
2.16 Inventories
Inventories are valued at the lower of cost and the net realizable value after providing for obsolescence and other losses, where considered necessary. Cost includes all charges in bringing the goods to the point of sale, including octroi and other levies, transit insurance and receiving charges. Work-in-progress and finished goods include appropriate proportion of overheads and, where applicable, excise duty. Cost is determined as follows:
Raw materials, packing materials and consumables: weighted average basis
Work-in progress: at material cost and an appropriate share of production overheads
Finished goods: material cost and an appropriate share of production overheads and excise duty, wherever applicable
Stock-in trade: weighted average basis
2.17 Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
2.17.1Onerous contracts
Present obligations arising under onerous contracts are recognized and measured as provisions. An onerous contract is considered to exist where the Company has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract.
2.17.2Restructurings
A restructuring provision is recognized when the Company has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.
2.17.3Contingent liabilities
Contingent liabilities are disclosed in notes when there is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
2.17.4Dividends
Provision is made for the amount of any dividend declared, being appropriately authorized and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.
2.18 Financial instruments
2.18.1Investment in subsidiaries, associates and joint ventures
The Company has accounted for its investments in subsidiaries, associates and joint ventures at cost less impairment.
2.18.2Other financial assets and financial liabilities
Other financial assets and financial liabilities are recognized when Company becomes a party to the contractual provisions of the instruments.
Initial recognition and measurement:
Other financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in statement of profit and loss.
Subsequent measurement:
Financial assets at amortized cost
Financial assets are subsequently measured at amortized cost if these financial assets are held within a business whose objective is to hold these assets in order to collect contractual cash flows and contractual terms of financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at fair value through other comprehensive income
Financial assets are measured at fair value through other comprehensive income if these financial assets are held within business whose objective is achieved by both collecting contractual cash flows on specified dates that are solely payments of principal and interest on the principal amount outstanding and selling financial assets.
Financial assets at fair value through profit or loss
Financial assets are measured at fair value through profit or loss unless it measured at amortized cost or fair value through other comprehensive income on initial recognition. The transaction cost directly attributable to the acquisition of financial assets and liabilities at fair value through profit or loss are immediately recognized in the statement of profit and loss.
Financial liabilities
Financial liabilities are measured at amortized cost using effective interest rate method. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
2.18.3Equity instruments
An equity instrument is a contract that evidences residual interest in the assets of the company after deducting all of its liabilities. Equity instruments recognized by the Company are recognized at the proceeds received net off direct issue cost.
2.18.4Financial guarantee contracts
The Company enters into financial guarantee contracts with its subsidiaries. At the inception of a financial guarantee contract, a liability is recognized initially at fair value and then subsequently at the higher of the estimated loss and amortized cost, the changes in subsequent measurement being recognized in the Statement of Profit and Loss. Where a guarantee is issued for a consideration, a financial asset of an amount equal to the liability is initially recognized at amortized cost. Where a guarantee is issued for no consideration, the fair value is recognized as additional investment in the entity to which the guarantee relates
2.18.5Derivative financial instruments and hedge accounting
The Company uses various derivative financial instruments such as interest rate swaps, currency swaps and forward contracts to mitigate the risk of changes in interest rates and foreign exchange rates. Such derivative financial instruments are initially recognized
at fair value on the date on which a derivative contract is entered into and are also subsequently measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to the Statement of Profit and Loss, except for the effective portion of cash flow hedges which is recognized in Other Comprehensive Income and later to the Statement of Profit and Loss when the hedged item affects profit or loss or treated as basis adjustment if a hedged forecast transaction subsequently results in the recognition of a non-financial assets or non-financial liability.
Hedges that meet the criteria for hedge accounting are accounted for as follows:
a) Cash flow hedge
The Company designates derivative contracts or non derivative financial assets / liabilities as hedging instruments to mitigate the risk of movement in interest rates and foreign exchange rates for foreign exchange exposure on highly probable future cash flows attributable to a recognized asset or liability or forecast cash transactions. 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 the cash flow hedging reserve being part of other comprehensive income. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the Statement of Profit and Loss. If the hedging relationship no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging reserve until the underlying transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the Statement of Profit and Loss upon the occurrence of the underlying transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified in the Statement of Profit and Loss.
b) Fair value hedge
The Company designates derivative contracts or non derivative financial assets / liabilities as hedging instruments to mitigate the risk of change in fair value of hedged item due to movement in interest rates, foreign exchange rates and commodity prices.
Changes in the fair value of hedging instruments and hedged items that are designated and qualify as fair value hedges are recorded in the Statement of Profit and Loss. If the hedging relationship no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortized to Statement of Profit and Loss over the period of maturity.
2.19 Exceptional items
The Company classifies the following as exceptional items in the Statement of Profit and Loss:
(a) Exchange gain / loss arising on account of restatement and settlement of long-term foreign currency loans;
(b) Profit / loss on disposal of non-current investments and / or dividends received from proceeds of such disposal and provision for / reversals of provision for diminution in noncurrent investments, goodwill and other assets;
(c) Profit / loss arising on account of discontinuance of products / development activities; and
(d) Restructuring cost
2.20 Service Tax Input credit
Service tax input credit is accounted for in the books in the period in which the underlying service received is accounted and when there is no uncertainty in availing / utilizing the credits.
2.21 Operating Cycle
As mentioned in para 1 above under ''Corporate information'', the Company is into development and manufacture of pharmaceutical products. Based on the normal time between acquisition of assets and their realization in cash or cash equivalents, the Company has determined its operating cycle as 3 years to 5 years and 12 months relating to research and development activities and manufacturing of pharmaceutical products respectively. The above basis is used for classifying the assets and liabilities into current and non-current as the case may be.
2.22 Key sources of estimation uncertainty
In the application of the Company''s accounting policies, the directors of the Company are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
2.22.1Impairment of non-financial assets
Determining whether the asset is impaired requires to assess the recoverable amount of the asset or Cash Generating Unit (CGU) which is compared to the carrying amount of the asset or CGU, as applicable. Recoverable amount is the higher of fair value less costs of disposal and value in use. Where the carrying amount of an asset or CGU exceeds the recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.
2.22.2Impairment of financial assets
The impairment provisions for financial assets are based on assumptions about risk of default and expected cash loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on Company''s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.
2.22.3 Useful lives of property, plant and equipment
The Company reviews the useful life of property, plant and equipment at the end of each reporting period. This assessment may result in change in the depreciation expense in future periods.
2.22.4 Employee Benefits
The cost of defined benefit plans are determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty.
2.22.5 Share Based Compensation to Employees
The Company has granted share based payment plans to its employees. Valuation models are used to calculate the expense for such share-based compensation to employees. These models require a number of assumptions to be made as input. These include financial assumptions as well as various assumptions around individual employee behavior.
2.22.6Litigations
As explained in note 39.1, the Company is a party to certain commercial disputes and has also received notification of claims for significant amounts. There are number of factors that may affect the ultimate outcome in respect of this matter and accordingly, it is difficult to assess the impact of these disputes with accuracy.
2.23 Standards / amendments not yet effective
In March 2017, the Ministry of Corporate affairs issued the Companies (Indian Accounting standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7 "Statement of Cash flows" and Ind AS 102 "Share Based Payments". The said amendments are effective from April 1, 2017. Among the said amendments, only the amendment to Ind AS 7 "Statement of cash flows" is relevant to the company.
Amendment to Ind AS 7:
The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate the changes in liabilities arising from financing activities, including both changes arising from cash flows and non cash flows. The said amendment suggests inclusion of reconciliation of closing balance of liabilities arising from finance activities, to meet the disclosure requirement. The effect on the financial statements is being evaluated by the company.
Mar 31, 2015
1 significant accounting policies
1. The financial statements of the Company have been prepared in
accordance with the Generally Accepted Accounting Principles in India
(Indian GAAP) to comply with the Accounting Standards specified under
Section 133 of the Companies Act, 2013, read with Rule 7 of the
Companies (Accounts) Rules, 2014 and the relevant provisions of the
Companies Act, 2013 ("the 2013 Act") / Companies Act, 1956 ("the 1956
Act"), as applicable. The financial statements have been prepared on
accrual basis under the historical cost convention except for:
(i) fixed assets which were fair valued in earlier years based on the
Scheme of Arrangement approved by the Honorable High Courts of
Judicature (the 'Scheme') or,
(ii) financial assets and liabilities which were fair valued as
permitted by Accounting Standard (AS) 30: 'Financials Instruments:
Recognition and Measurement' read with AS 31 'Financial Instruments:
Presentation' and AS 32 'Financials Instruments: Disclosure' issued by
the Institute of Chartered Accountants of India, to the extent such
standards do not conflict with other standards notified under Companies
(Accounting Standards) Rules, 2006 (as amended).
The accounting policies adopted in the preparation of the financial
statements are consistent with those followed in the previous year.
2. Use of estimates
The preparation of the financial statements in conformity with Indian
GAAP requires the Management to make estimates and assumptions
considered in the reported amounts of assets and liabilities (including
contingent liabilities) and the reported income and expenses during the
year. The Management believes that the estimates used in preparation of
the financial statements are prudent and reasonable. Future results
could differ due to these estimates and the differences between the
actual results and the estimates are recognised in the periods in which
the results are known / materialise.
3. Inventories
Inventories are valued at the lower of cost and the net realisable
value after providing for obsolescence and other losses, where
considered necessary. Cost includes all charges in bringing the goods
to the point of sale, including octroi and other levies, transit
insurance and receiving charges. Work-in-progress and finished goods
include appropriate proportion of overheads and, where applicable,
excise duty. Cost is determined as follows:
Raw materials, packing materials
and consumables weighted average basis
Work in progress at material cost and an
appropriate share of
production overheads
Finished Goods material cost and an appropriate
share of production overheads and
excise duty, wherever applicable
Stock in trade weighted average basis
4. Cash and cash equivalents (for purposes of Cash Flow Statement)
Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short-term balances (with an original maturity of three
months or less from the date of acquisition), highly liquid investments
that are readily convertible into known amounts of cash and which are
subject to insignificant risk of changes in value.
5. Cash flow statement
Cash flows are reported using the indirect method, whereby profit /
(loss) before extraordinary items and tax is adjusted for the effects
of transactions of non-cash nature and any deferrals or accruals of
past or future cash receipts or payments. The cash flows from
operating, investing and financing activities of the Company are
segregated based on the available information.
6. Depreciation and amortisation
Depreciable amount for assets is the cost of an asset, or other amount
substituted for cost, less its estimated residual value.
Depreciation on tangible fixed assets has been provided on the
straight-line method as per the useful life prescribed in Schedule II
to the Companies Act, 2013 except in respect of the following
categories of assets, in whose case the life of the assets has been
assessed as under based on technical advice, taking into account the
nature of the asset, the estimated usage of the asset, the operating
conditions of the asset, past history of replacement, anticipated
technological changes, manufacturers warranties and maintenance
support, etc.:
Dies and punches : 4 years
Mobiles phone : 3 years
Certain factory building : 18 years
Leasehold land is amortised over the duration of the lease.
Intangible assets are amortised over their estimated useful life on
straight line method as follows:
Registration and Brands : 5 to 10 years
Software Licenses : 5 years
With respect to assets carried at fair value as permitted under the
Scheme, depreciation / amortization is recorded under the straight line
method over the balance useful life of the respective assets.
Individual assets costing less than Rs. 5,000 are depreciated in full
in the year of purchase.
The estimated useful life of the intangible assets and the amortisation
period are reviewed at the end of each financial year and the
amortisation period is revised to reflect the changed pattern, if any.
7. Revenue recognition
(a) Sale of goods: Sales are recognised, net of returns and trade
discounts, on transfer of significant risks and rewards of ownership to
the buyer as per the terms of the arrangements with buyer. Sales
include excise duty but exclude sales tax and value added tax.
(b) Revenue from product development services:
(i) In respect of contracts where the Company undertakes to develop
products for its customers (on an end- to end basis), revenues are
recognized based on technical estimates of the stage of work completed
under the contracts.
(ii) In respect of other contracts where the Company performs
specifically identified services in the development of the products,
revenues are recognized on the basis of the performance milestones
provided in the contract.
(c) Revenue from contract manufacturing is recognised based on the
services rendered in accordance with the terms of the contract.
(d) Export incentives are accrued for based on fulfillment of
eligibility criteria for availing the incentives and when there is no
uncertainty in receiving the same. These incentives include estimated
realisable values/benefits from special import licenses and benefits
under Duty Entitlement Pass Book Schemes, Focus Market Schemes, and
Market-Linked Focus Product Schemes wherever applicable.
(e) Income from rendering advisory / support services is recognized
based on contractual terms.
(f) Share of profits and royalty incomes under manufacturing and supply
agreements with customers are accrued based on confirmation received
from customers.
8. Other income
Interest income is accounted on accrual basis. Dividend income is
accounted for when the right to receive is established. The Company
provides corporate guarantees to subsidiaries and charges a commission
for providing such guarantees. Such incomes are accrued in terms of the
agreements with the parties.
9. Fixed Assets
Tangible fixed assets, except to the extent permitted to be fair valued
under the Scheme, are carried at cost less accumulated depreciation and
impairment losses, if any. The cost of fixed assets comprises its
purchase price net of any trade discounts and rebates, any import
duties and other taxes (other than those subsequently recoverable from
the tax authorities), any directly attributable expenditure on making
the asset ready for its intended use, other incidental expenses and
interest on borrowings attributable to acquisition of qualifying fixed
assets up to the date the asset is ready for its intended use.
Machinery spares which can be used only in connection with an item of
fixed asset and whose use is expected to be irregular are capitalised
and depreciated over the useful life of the principal item of the
relevant assets. Subsequent expenditure on fixed assets after its
purchase / completion is capitalised only if such expenditure results
in an increase in the future benefits from such asset beyond its
previously assessed standard of performance.
Fixed assets acquired in full or part exchange for another asset are
recorded at the fair market value or the net book value of the asset
given up, adjusted for any balancing cash consideration. Fair market
value is determined either for the assets acquired or asset given up,
whichever is more clearly evident. Fixed assets acquired in exchange
for securities of the Company are recorded at the fair market value of
the assets or the fair market value of the securities issued, whichever
is more clearly evident.
The Company fair valued land and machineries upon the Scheme becoming
effective (December 31, 2009) and such assets are carried at the fair
value less accumulated depreciation and impairment losses, if any.
Fixed assets retired from active use and held for sale are stated at
the lower of their net book value and net realisable value and are
disclosed separately.
Capital work-in-progress:
Projects under which tangible fixed assets are not yet ready for their
intended use are carried at cost, comprising direct cost, related
incidental expenses and attributable interest.
Intangible assets are carried at cost less accumulated amortization and
impairment losses, if any. The cost of an intangible asset comprises
its purchase price, including any import duties and other taxes (other
than those subsequently recoverable from the taxing authorities), and
any directly attributable expenditure on making the asset ready for its
intended use and net of any trade discounts and rebates. Subsequent
expenditure on an intangible asset after its purchase / completion is
recognised as an expense when incurred unless it is probable that such
expenditure will enable the asset to generate future economic benefits
in excess of its originally assessed standards of performance and such
expenditure can be measured and attributed to the asset reliably, in
which case such expenditure is added to the cost of the asset. In-house
product development costs are capitalised in accordance with paragraph
2.18 below.
Intangible assets under development:
Expenditure on Research and development (Refer note 2.18) eligible for
capitalisation are carried as Intangible assets under development where
such assets are not yet ready for their intended use.
10. Foreign currency transactions and translations Initial recognition
Transactions in foreign currencies entered into by the Company are
accounted at the exchange rates prevailing on the date of the
transaction or at rates that closely approximate the rate at the date
of the transaction.
Integral foreign operations: Transactions in foreign currencies entered
into by the Company's integral foreign operations are accounted at the
exchange rates prevailing on the date of the transaction or at rates
that closely approximate the rate at the date of the transaction.
Net investment in non-integral foreign operations: Net investment in
non-integral foreign operations is accounted at the exchange rates
prevailing on the date of the transaction or at rates that closely
approximate the rate at the date of the transaction.
Non-integral foreign operations: Transactions of non-integral foreign
operations are translated at the exchange rates prevailing on the date
of the transaction or at rates that closely approximate the rate at the
date of the transaction.
Measurement at the balance sheet date
Foreign currency monetary items (other than derivative contracts) of
the Company, outstanding at the balance sheet date are restated at the
year-end rates. Non- monetary items of the Company are carried at
historical cost.
Integral foreign operations: Foreign currency monetary items (other
than derivative contracts) of the Company's integral foreign operations
outstanding at the balance sheet date are restated at the year-end
rates. Non- monetary items of the Company's integral foreign operations
are carried at historical cost.
Net investment in non-integral foreign operations: Foreign currency
monetary items (other than derivative contracts) of the Company's net
investment in non- integral foreign operations outstanding at the
balance sheet date are restated at the year-end rates.
Non-integral foreign operations: All assets and liabilities of
non-integral foreign operations are translated at the year-end rates.
Treatment of exchange differences
Exchange differences arising on settlement / restatement of short-term
foreign currency monetary assets and liabilities of the Company are
recognised as income or expense in the Statement of Profit and Loss.
Integral foreign operations: Exchange differences arising on settlement
/ restatement of short-term foreign currency monetary assets and
liabilities of the Company's integral foreign operations are recognised
as income or expense in the Statement of Profit and Loss.
Net investment in non-integral foreign operations: The exchange
differences on restatement of long-term receivables / payables from /
to non-integral foreign operations that are considered as net
investment in such operations is accounted as per policy for long-term
foreign currency monetary items stated in para (v) below until disposal
/ recovery of such net investment, in which case the accumulated
balance in "Foreign currency translation reserve" is recognised as
income / expense in the same period in which the gain or loss on
disposal / recovery is recognised.
Non-integral foreign operations: The exchange differences relating to
non-integral foreign operations are accumulated in a "Foreign currency
translation reserve" until disposal of the operation, in which case the
accumulated balance in "Foreign currency translation reserve" is
recognised as income / expense in the same period in which the gain or
loss on disposal is recognised.
Exchange difference on long-term foreign currency monetary items: The
exchange differences arising on settlement / restatement of long-term
foreign currency monetary items are capitalised as part of the
depreciable fixed assets to which the monetary item relates and
depreciated over the remaining useful life of such assets. If such
monetary items do not relate to acquisition of depreciable fixed
assets, the exchange difference is amortised over the maturity period /
upto the date of settlement of such monetary items, whichever is
earlier, and charged to the Statement of Profit and Loss except in case
of exchange differences arising on net investment in non-integral
foreign operations, where such amortisation is taken to "Foreign
currency translation reserve" until disposal / recovery of the net
investment. The unamortised exchange difference is carried under
Reserves and surplus as "Foreign currency monetary item translation
difference account" net of the tax effect thereon, where applicable.
Accounting for forward contracts
Premium / discount on forward exchange contracts, which are not
intended for trading or speculation purposes, are amortised over the
period of the contracts if such contracts relate to monetary items as
at the balance sheet date. Any profit or loss arising on cancellation
or renewal of such a forward exchange contract is recognised as income
or as expense in the period in which such cancellation or renewal is
made. Refer Notes 2.21 for accounting for forward exchange contracts
relating to firm commitments and highly probable forecast transactions.
11. Investments
Long-term investments are carried individually at cost less provision
for diminution, other than temporary, in the value of such investments.
Current investments are carried individually, at the lower of cost and
fair value. Cost of investments include acquisition charges such as
brokerage, fees and duties.
12. Employee benefits
Employee benefits include provident fund, superannuation fund, employee
state insurance scheme, gratuity fund, compensated absences, long
service awards and post-employment medical benefits.
Defined contribution plans
The Company's contribution to provident fund, superannuation fund and
employee state insurance scheme are considered as defined contribution
plans and are charged as an expense based on the amount of contribution
required to be made and when services are rendered by the employees.
Defined benefit plans
For defined benefit plans in the form of gratuity fund. The cost of
providing benefits is determined using the Projected Unit Credit
method, with actuarial valuations being carried out at each balance
sheet date. Actuarial gains and losses are recognised in the Statement
of Profit and Loss in the period in which they occur. Past service cost
is recognised immediately to the extent that the benefits are already
vested and otherwise is amortised on a straight-line basis over the
average period until the benefits become vested. The retirement benefit
obligation recognised in the Balance Sheet represents the present value
of the defined benefit obligation as adjusted for unrecognised past
service cost, as reduced by the fair value of scheme assets. Any asset
resulting from this calculation is limited to past service cost, plus
the present value of available refunds and reductions in future
contributions to the schemes.
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees are recognised
during the year when the employees render the service. These benefits
include performance incentive and compensated absences which are
expected to occur within twelve months after the end of the period in
which the employee renders the related service.
The cost of short-term compensated absences is accounted as under:
(a) in case of accumulated compensated absences, when employees render
the services that increase their entitlement of future compensated
absences; and
(b) in case of non-accumulating compensated absences, when the absences
occur.
Long-term employee benefits
Compensated absences which are not expected to occur within twelve
months after the end of the period in which the employee renders the
related service are recognised as a liability at the present value of
the defined benefit obligation as at the balance sheet date less the
fair value of the plan assets out of which the obligations are expected
to be settled.
Long Term Incentive Plan ('Plan')
Under the Plan, certain employees are eligible for retention and
performance linked payouts. These payouts are accrued as and when
services are rendered and/ or when the specific performance criteria
are met.
13. Employee share based payments
The Company has formulated Employee Stock Option Plans (ESOP) in
accordance with the SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999. The Plans provide for grant of
options to employees of the Company and its subsidiaries to acquire
equity shares of the Company that vest in a graded manner and that are
to be exercised within a specified period. In accordance with the SEBI
Guidelines, the excess, if any, of the closing market price on the day
prior to the grant of the options (under ESOP) over the exercise price
is amortized on a straight line basis over the vesting period in the
Statement of Profit and Loss / Reserve for Business Restructure.
Employee stock options granted under the above ESOP on or after April
1, 2005 are accounted under the 'Intrinsic Value Method' stated in the
Guidance Note on Employee Share Based Payments issued by the Institute
of Chartered Accountants of India.
Options with a cash settlement feature are fair valued at the time of
the grant and at each reporting date. Changes in the fair value of the
Options at each reporting date are recognised in the Statement of
Profit and Loss.
14. Borrowing costs
Borrowing costs include interest, amortisation of ancillary costs
incurred and exchange differences arising from foreign currency
borrowings to the extent they are regarded as an adjustment to the
interest cost. Costs in connection with the borrowing of funds to the
extent not directly related to the acquisition of qualifying assets are
charged to the Statement of Profit and Loss over the tenure of the
loan. Borrowing costs, allocated to and utilised for qualifying assets,
pertaining to the period from commencement of activities relating to
construction / development of the qualifying asset upto the date of
capitalisation of such asset are added to the cost of the assets.
Capitalisation of borrowing costs is suspended and charged to the
Statement of Profit and Loss during extended periods when active
development activity on the qualifying assets is interrupted.
15. Leases
Where the Company as a lessor leases assets under finance leases, such
amounts are recognized as receivables at an amount equal to the net
investment in the lease and the finance income is based on a constant
rate of return on the outstanding net investment.
Assets leased by the Company in its capacity as lessee where
substantially all the risks and rewards of ownership vest in the
Company are classified as finance leases. Such leases are capitalized
at the inception of the lease at the lower of the fair value or the
present value of the minimum lease payments and a liability is created
for an equivalent amount. Each lease rental paid is allocated between
the liability and the interest cost so as to obtain a constant periodic
rate of interest on the outstanding liability for each year.
Lease arrangements where the risks and rewards incidental to ownership
of an asset substantially vests with the lessor are recognized as
operating leases. Lease rentals under operating leases are recognized
in the Statement of Profit and Loss on a straight-line basis over the
lease term.
16. Earnings per share
Basic earnings per share is computed by dividing the profit / (loss)
after tax (including the post-tax effect of extraordinary items, if
any) by the weighted average number of equity shares outstanding during
the year. Diluted earnings per share is computed by dividing the
profit / (loss) after tax (including the post-tax effect of
extraordinary items, if any) as adjusted for dividend, interest and
other charges to expense or income (net of any attributable taxes)
relating to the dilutive potential equity shares, by the weighted
average number of equity shares considered for deriving basic earnings
per share and the weighted average number of equity shares which could
have been issued on the conversion of all dilutive potential equity
shares. Potential equity shares are deemed to be dilutive only if their
conversion to equity shares would decrease the net profit per share
from continuing ordinary operations. Potential dilutive equity shares
are deemed to be converted as at the beginning of the period, unless
they have been issued at a later date. The dilutive potential equity
shares are adjusted for the proceeds receivable had the shares been
actually issued at fair value (i.e. average market value of the
outstanding shares). Dilutive potential equity shares are determined
independently for each period presented. The number of equity shares
and potentially dilutive equity shares are adjusted for share splits /
reverse share splits and bonus shares, as appropriate.
17. Taxes on income
Current tax is the amount of tax payable on the taxable income for the
year as determined in accordance with the applicable tax rates and the
provisions of the Income Tax Act, 1961 and other applicable tax laws.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which
gives future economic benefits in the form of adjustment to future
income tax liability, is considered as an asset if there is convincing
evidence that the Company will pay normal income tax. Accordingly, MAT
is recognised as an asset in the Balance Sheet when it is highly
probable that future economic benefit associated with it will flow to
the Company.
Deferred tax is recognised on timing differences, being the differences
between the taxable income and the accounting income that originate in
one period and are capable of reversal in one or more subsequent
periods. Deferred tax is measured using the tax rates and the tax laws
enacted or substantively enacted as at the reporting date. Deferred tax
liabilities are recognised for all timing differences. Deferred tax
assets are recognised for timing differences of items other than
unabsorbed depreciation and carry forward losses only to the extent
that reasonable certainty exists that sufficient future taxable income
will be available against which these can be realised. However, if
there are unabsorbed depreciation and carry forward of losses and items
relating to capital losses, deferred tax assets are recognised only if
there is virtual certainty supported by convincing evidence that there
will be sufficient future taxable income available to realise the
assets. Deferred tax assets and liabilities are offset if such items
relate to taxes on income levied by the same governing tax laws and the
Company has a legally enforceable right for such set off. Deferred tax
assets are reviewed at each balance sheet date for their realisability.
Current and deferred tax relating to items directly recognised in
reserves are recognised in reserves and not in the Statement of Profit
and Loss.
18. Research and development expenses
Revenue expenditure pertaining to research is charged to the Statement
of Profit and Loss. Development costs of products are also charged to
the Statement of Profit and Loss unless a product's technical
feasibility has been established, in which case such expenditure is
capitalised. The amount capitalised comprises expenditure that can be
directly attributed or allocated on a reasonable and consistent basis
to creating, producing and making the asset ready for its intended use.
Fixed assets utilised for research and development are capitalised and
depreciated in accordance with the policies stated for Fixed Assets.
19. Impairment of assets
The carrying values of assets / cash generating units at each balance
sheet date are reviewed for impairment if any indication of impairment
exists. The following intangible assets are tested for impairment each
financial year even if there is no indication that the asset is
impaired:
(a) an intangible asset that is not yet available for use; and (b) an
intangible asset that is amortised over a period exceeding ten years
from the date when the asset is available for use.
If the carrying amount of the assets exceed the estimated recoverable
amount, an impairment is recognised for such excess amount. The
impairment loss is recognised as an expense in the Statement of Profit
and Loss, unless the asset is carried at revalued amount, in which case
any impairment loss of the revalued asset is treated as a revaluation
decrease to the extent a revaluation reserve is available for that
asset.
The recoverable amount is the greater of the net selling price and
their value in use. Value in use is arrived at by discounting the
future cash flows to their present value based on an appropriate
discount factor.
When there is indication that an impairment loss recognised for an
asset (other than a revalued asset) in earlier accounting periods no
longer exists or may have decreased, such reversal of impairment loss
is recognised in the Statement of Profit and Loss, to the extent the
amount was previously charged to the Statement of Profit and Loss. In
case of revalued assets such reversal is not recognised.
20 Provisions and contingencies
A provision is recognised when the Company has a present obligation as
a result of past events and it is probable that an outflow of resources
will be required to settle the obligation in respect of which a
reliable estimate can be made. Provisions (excluding retirement
benefits) are not discounted to their present value and are determined
based on the 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. Contingent liabilities
are disclosed in the Notes. Contingent assets are not recognised in the
financial statements.
21 Financial Assets, Financial Liabilities, Financial Instruments,
Derivatives and Hedge Accounting
(a) The Company classifies its financial assets into the following
categories: Financial instruments at fair value through Statement of
Profit and Loss, loans and receivables, held to maturity investments
and available for sale financial assets.
Financial assets of the Company mainly include cash and bank balances,
trade receivables, loans and advances and derivative financial
instruments with a positive fair value.
Financial liabilities of the Company mainly comprise secured and
unsecured loans, trade payables, accrued expenses and derivative
financial instruments with a negative fair value.
Financial assets/ liabilities are recognized on the balance sheet when
the Company becomes a party to the contractual provisions of the
instrument. Financial assets are derecognized when all of risks and
rewards of the ownership have been transferred. The transfer of risks
and rewards is evaluated by comparing the exposure, before and after
the transfer, with the variability in the amounts and timing of the net
cash flows of the transferred assets.
Available for sale financial assets (not covered under the notified
Accounting Standards) are carried at fair value, with changes in fair
value being recognised in Equity, unless they are designated in a fair
value hedge relationship, where such changes are recognised in the
Statement of Profit and Loss. Loans and receivables, considered not to
be in the nature of short-term receivables, are discounted to their
present value. Short-term receivables with no stated interest rates
are measured at original invoice amount, if the effect of discounting
is immaterial. Non-interest-bearing deposits, meeting the criteria of
financial asset, are discounted to their present value.
Financial liabilities held for trading and liabilities designated at
fair value, are carried at fair value through Statement of Profit and
Loss.
Other financial liabilities are carried at amortized cost using the
effective interest method. The Company measures the short-term payables
with no stated rate of interest at original invoice amount, if the
effect of discounting is immaterial.
Financial liabilities are derecognized when extinguished.
(b) Determining fair value
Where the classification of a financial instrument requires it to be
stated at fair value, fair value is determined with reference to a
quoted market price for that instrument or by using a valuation model.
Where the fair value is calculated using financial markets pricing
models, the methodology is to calculate the expected cash flows under
the terms of each specific contract and then discount these values back
to a present value.
(c) Hedge accounting
The Company uses foreign currency forward contracts to hedge its risks
associated with foreign currency fluctuations relating to highly
probable forecast transactions. The Company designates such forward
contracts in a cash flow hedging relationship by applying the hedge
accounting principles set out in "Accounting Standard 30 Financial
Instruments: Recognition and
Measurement" issued by the ICAI. These forward contracts are stated at
fair value at each reporting date. Changes in the fair value of these
forward contracts that are designated and effective as hedges of future
cash flows are recognised directly in "Hedging reserve account" under
Reserves and surplus, net of applicable deferred income taxes and the
ineffective portion is recognised immediately in the Statement of
Profit and Loss. Amounts accumulated in the "Hedging reserve account"
are reclassified to the Statement of Profit and Loss in the same
periods during which the forecasted transaction affects profit or
loss. Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or no longer qualifies
for hedge accounting. For forecasted transactions, any cumulative gain
or loss on the hedging instrument recognised in "Hedging reserve
account" is retained until the forecasted transaction occurs. If the
forecasted transaction is no longer expected to occur, the net
cumulative gain or loss recognised in "Hedging reserve account" is
immediately transferred to the Statement of Profit and Loss.
(d) Derivative contracts
The Company enters into derivative contracts in the nature of foreign
currency swaps, currency options, and forward contracts with an
intention to hedge its existing assets and liabilities, firm
commitments and highly probable transactions in foreign currency.
Derivative contracts which are closely linked to the existing assets
and liabilities are accounted as per the policy stated for Foreign
currency transactions and translations.
Derivative contracts designated as a hedging instrument for highly
probable forecast transactions are accounted as per the policy stated
for Hedge Accounting.
All other derivative contracts are marked -to- market and losses are
recognised in the Statement of Profit and Loss. Gains arising on the
same are not recognised, until realised, on grounds of prudence.
22. Service tax input credit
Service tax input credit is accounted for in the books in the period in
which the underlying service received is accounted and when there is no
uncertainty in availing / utilising the credits.
23. Deferred Revenue Expenditure
The Company operates in an environment which requires the manufacturing
facilities to be approved by industry regulators in certain territories
prior to manufacture and sale of products in such territories. If the
interval between the date the facility is ready to commence commercial
production and the date at which commercial production is expected to
commence is prolonged, all expenses incurred during this period are
treated as deferred revenue expenditure and amortised over a period not
exceeding 3 years from the date of receipt of approvals.
24. Exceptional items
The Group classifies the following as exceptional items in the
Statement of Profit and Loss:
(a) Exchange gain / loss arising on account of restatement and
settlement of (i) long term foreign currency loans and advances, (ii)
intra-group loans and advances
(b) Changes in fair value of embedded derivatives in FCCBs and option
contracts;
(c) Profit / loss on disposal of non-current investments and / or
dividends received from proceeds of such disposal and provision for /
reversals of provision for diminution in non-current investments,
goodwill and other assets.
(d) Profit / loss arising on account of discontinuance of products /
development activities.
(e) Restructuring costs.
25. Operating cycle
As mentioned in para 1 above under 'Corporate information', the Company
is into development and manufacture of pharmaceutical products. Based
on the normal time between acquisition of assets and their realisation
in cash or cash equivalents, the Company has determined its operating
cycle as 3 years to 5 years and 12 months relating to Research and
Development activities and Manufacturing of Pharmaceutical products
respectively. The above basis is used for classifying the assets and
liabilities into current and non-current as the case may be.
Mar 31, 2014
1.1 Basis for preparation of financial statements
(a) The financial statements of the Company have been prepared in
accordance with the Generally Accepted Accounting Principles in India
(Indian GAAP) to comply with the Accounting Standards notified under
the Section 211(3C) of the Companies Act, 1956 (which continue to be
applicable in respect of Section 133 of the Companies Act, 2013 ("the
2013 Act") in terms of General Circular 15/2013 dated September 13,
2013 of the Ministry of Corporate Affairs) and the relevant provisions
of the 1956 Act/ 2013 Act, as applicable. The financial statements have
been prepared on accrual basis under the historical cost convention
except for certain:
(i) Fixed assets which were fair valued in earlier years based on the
Scheme of Arrangement approved by the Honourable High Courts of
Judicature (the ''Scheme'') or,
(ii) Financial assets and Liabilities which have been fair valued as
permitted by Accounting Standard (AS) 30: ''Financials Instruments:
Recognition and Measurement'' read with AS 31 ''Financial Instruments:
Presentation'' and AS 32 ''Financials Instruments: Disclosure'' issued by
the Institute of Chartered Accountants of India, to the extent such
standards do not conflict with other standards notified under Companies
(Accounting Standards) Rules, 2006(as amended).
The accounting policies adopted in the preparation of the financial
statements are consistent with those followed in the previous year.
2.2 Use of estimates
The preparation of the financial statements in conformity with Indian
GAAP requires the Management to make estimates and assumptions
considered in the reported amounts of assets and liabilities (including
contingent liabilities) and the reported incomes and expenses during
the year. The Management believes that the estimates used in
preparation of the financial statements are prudent and reasonable.
Future results could differ due to these estimates and the differences
between the actual results and the estimates are recognized in the
periods in which the results are known/materialise.
2.3 Inventories
Inventories comprise raw materials, packing materials, consumables,
work in progress and finished goods. These are valued at the lower of
cost and net realisable value after providing for obsolescence and
other losses, where considered necessary. Cost is determined as
follows:
Raw materials, packing materials and consumables weighted average basis
Work in progress at material cost and an appropriate share of
production overheads Finished Goods material cost and an appropriate
share of production overheads and excise duty, wherever applicable
Stock in trade
weighted average basis
2.4 Cash flow statement
Cash flows are reported using the indirect method, whereby profit /
(loss) before extraordinary items and tax is adjusted for the effects
of transactions of non-cash nature and any deferrals or accruals of
past or future cash receipts or payments. The cash flows from
operating, investing and financing activities of the Company are
segregated based on the available information.
Cash and cash equivalents (for the purpose of cash flow statement)
Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short-term balances, highly liquid investments that are
readily convertible into known amounts of cash and which are subject to
insignificant risk of changes in value.
2.5 Revenue
(a) Revenue from sales is recognized on transfer of significant risks
and rewards to the purchaser as per the terms of the arrangement with
the purchaser. Sales include excise duty and are stated net of
discounts, other taxes, and sales returns.
(b) Revenue from product development services:
(i) In respect of contracts where the Company undertakes to develop
products for its customers (on an end-to end basis), revenues are
recognised based on technical estimates of the stage of work completed
under the contracts.
(ii) In respect of other contracts where the Company performs
specifically identified services in the development of the products,
revenues are recognized on the basis of the performance milestones
provided in the contract.
(c) Revenue from contract manufacturing is recognised based on the
services rendered in accordance with the terms of the contract.
(d) Export incentives are accrued for based on fulfilment of
eligibility criteria for availing the incentives and when there is no
uncertainty in receiving the same. These incentives include estimated
realisable values/ benefits from special import licenses and benefits
under Duty Entitlement Pass Book Schemes, Focus Market Schemes, and
Market-Linked Focus Product Schemes wherever applicable.
(e) Income from rendering advisory services is recognized based on
contractual terms.
(f) Share of profits and royalty incomes under manufacturing and supply
agreements with customers are accrued based on confirmation received
from customers.
2.6 Other income
Dividends are recognised whenever the right to receive dividends is
established. Interest income is recognized on accrual basis.
The Company provides corporate guarantees to subsidiaries and charges a
commission for providing such guarantees. Such incomes are accrued in
terms of the agreements with the parties.
2.7 Tangible fixed assets
Fixed assets, except to the extent permitted to be fair valued under
the Scheme, are carried at cost less accumulated depreciation and
impairment losses, if any. The cost of fixed assets includes interest
on borrowings attributable to acquisition of qualifying fixed assets up
to the date the asset is ready for its intended use and other
incidental expenses incurred up to that date. Machinery spares which
can be used only in connection with an item of fixed asset and whose
use is expected to be irregular are capitalised and depreciated over
the useful life of the principal item of the relevant assets.
Subsequent expenditure relating to fixed assets is capitalised only if
such expenditure results in an increase in the future benefits from
such asset beyond its previously assessed standard of performance.
Fixed assets acquired in full or part exchange for another asset are
recorded at the fair market value or the net book value of the asset
given up, adjusted for any balancing cash consideration. Fair market
value is determined either for the assets acquired or asset given up,
whichever is more clearly evident.
The Company fair valued land and machineries upon the Scheme becoming
effective (December 31, 2009) and such assets are carried at the fair
value less accumulated depreciation and impairment losses, if any.
Capital work-in-progress
Projects under which assets are not ready for its intended use and
other Capital Work-in-Progress are carried at cost, comprising direct
cost, related incidental expenses and attributable interest.
2.8 intangible assets
Intangible assets are carried at cost less accumulated amortization and
impairment losses, if any. The cost of an intangible asset comprises
its purchase price, including any import duties and other taxes (other
than those subsequently recoverable from the taxing authorities), and
any directly attributable expenditure on making the asset ready for its
intended use and net of any trade discounts and rebates. Subsequent
expenditure on an intangible asset after its purchase / completion is
recognised as an expense when incurred unless it is probable that such
expenditure will enable the asset to generate future economic benefits
in excess of its originally assessed standards of performance and such
expenditure can be measured and attributed to the asset reliably, in
which case such expenditure is added to the cost of the asset. In-house
product development costs are capitalised in accordance with paragraph
2.20 below.
2.9 Depreciation/ Amortisation
The following assets are depreciated / amortised over the useful lives
under the straight line method.
Registrations and Brands : 5 to 10 years Software Licenses : 5 years
Defined contribution plans
The Company''s contribution to provident fund and employee state
insurance scheme are considered as defined contribution plans and are
charged as an expense based on the amount of contribution required to
be made and when services are rendered by the employees.
Defined benefit plans
Liability for gratuity is funded with SBI Life Insurance Company
Limited and Life Insurance Corporation of India. Gratuity expenses for
the year are accounted based on actuarial valuation carried out as at
the end of the fiscal year using the Projected Unit Credit method, with
actuarial valuation being carried out at each balance sheet date.
Actuarial gains and losses are recognised in the Statement of Profit
and Loss in the period in which they occur. Past service cost is
recognised immediately to the extent that the benefits are already
vested and otherwise is amortised on a straight-line basis over the
average period until the benefits become vested. The retirement
obligation recognised in the balance sheet represents the present value
of the defined benefit obligation as adjusted for unrecognised past
service cost, as reduced by the fair value of the scheme assets. Any
asset resulting from this calculation is limited to past service cost,
plus the present value of available refunds and reductions in future
contributions to the scheme.
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees are recognized
during the period when the employees render the service. These benefits
include performance incentives and compensated absences which are
expected to occur within twelve months after the end of the period in
which the employee renders the related service. The cost of such
compensated absences is accounted as under:
(a) in case of accumulated compensated absences, when employees render
the services that increase their entitlement of future compensated
absences; and
(b) in case of non - accumulating compensated absences, when the
absences occur
Long term employee benefits
Compensated absences which are not expected to occur within twelve
months after the end of the period in which the employee renders the
related services are recognized as a liability at the present value of
the defined benefit obligation as at the balance sheet date less the
fair value of the plan assets out of which the obligations are expected
to be settled.
Long Term Incentive Plan (''Plan'')
Under the Plan, certain employees are eligible for retention and
performance linked payouts. These payouts are accrued as and when
services are rendered and / or when the specific performance criteria
are met.
2.15 Employee share based payments
The Company has formulated Employee Stock Option Plans (ESOP) in
accordance with the SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999. The Plans provide for grant of
options to employees of the Company and its subsidiaries to acquire
equity shares of the Company that vest in a graded manner and that are
to be exercised within a specified period. In accordance with the SEBI
Guidelines, the excess, if any, of the closing market price on the day
prior to the grant of the options (under ESOP) over the exercise price
is amortized on a straight line basis over the vesting period in the
Statement of Profit and Loss / Reserve for Business Restructure.
Employee stock options granted under the above ESOP on or after April
01, 2005 are accounted under the ''Intrinsic Value Method'' stated in the
Guidance Note on Employee Share Based Payments issued by the Institute
of Chartered Accountants of India.
Options with a cash settlement feature are fair valued at the time of
the grant and at each reporting date. Changes in the fair value of the
Options at each reporting date are recognised in the Statement of
Profit and Loss.
2.16 Borrowing costs
Borrowing costs includes interest; amortisation of ancillary costs
incurred and exchange differences arising from foreign currency
borrowings to the extent they are regarded as an adjustment to the
interest cost. Borrowing costs, related to acquisition for qualifying
assets, pertaining to the period from commencement of activities
relating to construction / development of the qualifying asset upto the
date of capitalisation of such asset are added to the cost of the
assets. Capitalisation of borrowing costs is suspended and charged to
the Statement of Profit and Loss during extended periods when active
development activity on the qualifying assets is interrupted.
2.17 Leases
Where the Company as a lessor leases assets under finance leases, such
amounts are recognized as receivables at an amount equal to the net
investment in the lease and the finance income is based on a constant
rate of return on the outstanding net investment.
Assets leased by the Company in its capacity as lessee where
substantially all the risks and rewards of ownership
vest in the Company are classified as finance leases. Such leases are
capitalized at the inception of the lease at the lower of the fair
value or the present value of the minimum lease payments and a
liability is created for an equivalent amount. Each lease rental paid
is allocated between the liability and the interest cost so as to
obtain a constant periodic rate of interest on the outstanding
liability for each year.
Lease arrangements where the risks and rewards incidental to ownership
of an asset substantially vests with the lessor are recognized as
operating leases. Lease rentals under operating leases are recognized
in the Statement of Profit and Loss on a straight-line basis.
2.18 Earnings per share
Basic earnings per share is computed by dividing the profit/ (loss)
after tax(includingthepost-tax effectofextraordinary items, if any) by
the weighted average number of equity shares outstanding during the
year. Diluted earnings per share is computed by dividing the
profit/(loss) after tax (including the post-tax effect of any
extraordinary items, if any) as adjusted for dividend, interest and
other charges to expense or income relating to the dilutive potential
equity shares, by the weighted average number of equity shares
considered for deriving basic earnings per share and also the weighted
average number of equity shares which could have been issued on the
conversion of all dilutive potential equity shares. Potential equity
shares are deemed to be dilutive if only their conversion to equity
shares would decrease the net profit per share. Potential dilutive
equity shares are deemed to be converted as at the beginning of the
period, unless they have been issued at a later date. The dilutive
potential equity shares are adjusted for the proceeds receivable had
the shares been actually issued at fair value (i.e. average market
value of the outstanding shares). Dilutive potential equity shares are
determined independently for each period presented. The number of
equity shares and potentially dilutive equity shares are adjusted for
share splits/reverse share splits and bonus shares, as appropriate.
2.19 Taxes on income
Current tax is the amount of tax payable on the taxable income for the
year as determined in accordance with the provisions of the Income-tax
Act, 1961.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which
gives future economic benefits in the form of adjustment to future
income tax liability, is considered as an asset if there is convincing
evidence that the Company will pay normal income tax. Accordingly, MAT
is recognized as an asset in the balance sheet when it is probable that
future economic benefit associated with it will flow to the Company.
Deferred tax is recognized on timing differences, being the differences
between the taxable income and the accounting income that originate in
one period and are capable of reversal in one or more subsequent
periods. Deferred tax is measured using the tax rates and the tax laws
enacted or substantively enacted as at the reporting date. Deferred tax
liabilities are recognized for all timing differences. Deferred tax
assets in respect of unabsorbed depreciation and carry forward of
losses are recognized only if there is virtual certainty that there
will be sufficient future taxable income available to realize such
assets. Deferred tax assets are recognized for timing differences of
other items only to the extent that reasonable certainty exists that
sufficient future taxable income will be available against which these
can be realized. Deferred tax assets and liabilities are offset if such
items relate to taxes on income levied by the same governing tax laws
and the Company has a legally enforceable right for such set off.
Deferred tax assets are reviewed at each Balance sheet date for their
realisability.
Current and deferred tax relating to items directly recognised in
reserves, are recognised in reserves and not in the Statement of Profit
and Loss.
2.20 Research & Development Expenditure
Revenue expenditure pertaining to research is charged to the Statement
of Profit and Loss. Development costs of products are also charged to
the Statement of Profit and Loss unless a product''s technical
feasibility has been established, in which case such expenditure is
capitalised. The amount capitalised comprises expenditure that can be
directly attributed or allocated on a reasonable and consistent basis
to creating, producing and making the asset ready for its intended use.
Fixed assets utilised for research and development are capitalised and
depreciated in accordance with the policies stated for Tangible Fixed
Assets and Intangible Fixed Assets.
2.21 Impairment of Assets
The carrying values of assets / cash generating units at each Balance
Sheet date are reviewed for impairment. If any indication of
impairment exists, the recoverable amount of such assets is estimated
and impairment is recognized, if the carrying amount of these assets
exceeds their recoverable amount. The recoverable amount is the greater
of the net selling price and their value in use. Value in use is
arrived at by discounting the future cash flows to their present value
based on an appropriate discount factor. When there is indication that
an impairment loss recognized for an asset in prior accounting periods
no longer exists or may have decreased such reversal of impairment loss
is recognized in the Statement of Profit and Loss.
2.22 Provisions and Contingencies
A provision is recognized when the Company has a present obligation as
a result of past events and it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions (excluding retirement
benefits) are not discounted to their 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. Contingent liabilities are not
recognised but are disclosed in the notes to the financial statement.
2.23 Financial Assets, Financial Liabilities, Financial Instruments,
Derivatives and Hedge Accounting
(a) The Company classifies its financial assets into the following
categories: financial instruments at fair value through Statement of
Profit and Loss, loans and receivables, held to maturity investments
and available for sale financial assets.
Financial assets of the Company mainly include cash and bank balances,
trade receivables, loans and advances and derivative financial
instruments with a positive fair value.
Financial liabilities of the Company mainly comprise secured and
unsecured loans, trade payables, accrued expenses and derivative
financial instruments with a negative fair value.
Financial assets / liabilities are recognized on the balance sheet when
the Company becomes a party to the contractual provisions of the
instrument. Financial assets are derecognised when all of risks and
rewards of the ownership have been transferred. The transfer of risks
and rewards is evaluated by comparing the exposure, before and after
the transfer, with the variability in the amounts and timing of the net
cash flows of the transferred assets.
Available for sale financial assets (not covered under the notified
Accounting Standards) are carried at fair value, with changes in fair
value being recognised in Equity, unless they are designated in a fair
value hedge relationship, where such changes are recognised in the
Statement of Profit and Loss. Loans and receivables, considered not to
be in the nature of short-term receivables, are discounted to their
present value. Short-term receivables with no stated interest rates
are measured at original invoice amount, if the effect of discounting
is immaterial. Non-interest-bearing deposits, meeting the criteria of
financial asset, are discounted to their present value.
Financial liabilities held for trading and liabilities designated at
fair value, are carried at fair value through Statement of Profit and
Loss.
Other financial liabilities are carried at amortized cost using the
effective interest method. The Company measures the short-term payables
with no stated rate of interest at original invoice amount, if the
effect of discounting is immaterial.
Financial liabilities are derecognised when extinguished.
(b) Determining fair value
Where the classification of a financial instrument requires it to be
stated at fair value, fair value is determined with reference to a
quoted market price for that instrument or by using a valuation model.
Where the fair value is calculated using financial markets pricing
models, the methodology is to calculate the expected cash flows under
the terms of each specific contract and then discount these values back
to a present value.
(c) hedge accounting
The Company uses foreign currency forward contracts to hedge its risks
associated with foreign currency fluctuations relating to firm
commitments and highly probable forecast transactions. The Company
designates such forward contracts in a cash flow hedging relationship
by applying the hedge accounting principles set out in Accounting
Standard 30 ''Financial Instruments: Recognition and Measurement'' issued
by the Institute of Chartered Accountants of India. These forward
contracts are stated at fair value at each reporting date. Changes in
the fair value of these forward contracts that are designated as hedges
of future cash flows are recognized directly in ''Hedge reserve account''
under Reserves and surplus, net of applicable deferred income taxes, if
any, to the extent such hedges are considered effective and the
ineffective portion is recognized immediately in the Statement of
Profit and Loss. Amounts accumulated in the Hedge reserve account are
reclassified to the Statement of Profit and Loss in the same periods
during which the forecasted transaction affects profit and loss. Hedge
accounting is discontinued when the hedging instrument expires or is
sold, terminated, or exercised, or no longer qualifies for hedge
accounting. For forecasted transactions, any cumulative exchange gain
or loss on the hedging instrument recognized in ''Hedge reserve account''
is retained until the forecasted transaction occurs. If the forecasted
transaction is no longer excepted to occur, the net cumulative exchange
gain or loss recognized in Hedge reserve account is immediately
transferred to the Statement of Profit and Loss.
(d) Derivative contracts
The Company enters into derivative contracts in the nature of foreign
currency swaps, currency options, forward contracts with an intention
to hedge its existing assets and liabilities, firm commitments and
highly probable transactions. Such derivative contracts which are
closely linked to the existing assets and liabilities are accounted as
per the accounting policy stated for foreign currency transactions and
translations.
Derivative contracts designated as a hedging instrument for highly
probable forecast transactions are accounted as per the policy stated
for Hedge accounting.
All other derivative contracts are marked-to-market and losses / gains
are recognized in the Statement of Profit and Loss.
Dec 31, 2012
1.1 Basis for preparation of financial statements :
(a) The financial statements of the Company have been prepared in
accordance with the Generally Accepted Accounting Principles in India
(Indian GAAP) to comply with the Accounting Standards notified under
the Companies (Accounting Standards) Rules, 2006 (as amended) and the
relevant provisions ofthe Companies Act, 1956. The financial statements
have been prepared on accrual basis under the historical cost
convention except for certain financial and other assets and
liabilities which are measured on fair value basis as permitted by:
(i) the Scheme ofArrangement approved bythe Honorable High Courts
ofJudicature (the ''Scheme'') or,
(ii) Accounting Standard (AS) 30: ''Financials Instruments: Recognition
and Measurement'' read with AS 31 ''Financial Instruments: Presentation''
and AS 32 ''Financials Instruments: Disclosure'' issued bythe Institute
of Chartered Accountants of India, to the extent such standards do not
conflict with other standards notified under Companies (Accounting
Standards) Rules, 2006(as amended).
The accounting policies adopted in the preparation of the financial
statements are consistent with those followed in the previous year.
1.2 Use of estimates :
The preparation ofthe financial statements in conformity with Indian
GAAP requires the Management to make estimates and assumptions
considered in the reported amounts of assets and liabilities (including
contingent liabilities) and the reported incomes and expenses during
the year. The Management believes that the estimates used in
preparation ofthe financial statements are prudent and reasonable.
Future results could differ due to these estimates and the differences
between the actual results and the estimates are recognised in the
periods in which the results are known/ materialise.
1.3 Inventories :
Inventories comprise raw materials, packing materials, consumables,
work in progress and finished goods. These are valued at the lower of
cost and net realisable value after providing for obsolescence and
other losses, where considered necessary. Cost is determined as
follows:
1.4 Cash flow statement:
Cash flows are reported using the indirect method, whereby profit /
(loss) before extraordinary items and tax is adjusted for the effects
of transactions of non-cash nature and any deferrals or accruals of
past or future cash receipts or payments. The cash flows from
operating, investing and financing activities ofthe Company are
segregated based on the available information.
Cash and cash equivalents (for the purpose of cash flow statement)
Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short-term balances, highly liquid investments that are
readily convertible into known amounts of cash and which are subject to
insignificant risk ofchanges in value.
1.5 Depreciation/ Amortisation :
The following assets are depreciated / amortised over the useful lives
under the straight line method.
Registrations and Brands : 5 to 10 years
Software Licenses : 5 years
In respect of all other assets, depreciation is provided under the
straight-line method at the rates and in the manner prescribed under
Schedule XIV of the Companies Act, 1956, based on technical estimates
that indicate the useful lives would be comparable with or higher than
those arrived at using these rates.
With respect to assets carried at fair value as permitted under the
Scheme, depreciation / amortisation is recorded under the straight line
method over the balance useful life ofthe respective assets.
Individual assets costing less than Rs. 5,000 are depreciated in full
in the year of purchase.
The estimated useful life ofthe intangible assets and the amortisation
period are reviewed at the end ofeach financial year and the
amortisation method is revised to reflect the changed useful life.
1.6 Revenue :
(a) Revenue from sales is recognised on transfer of significant risks
and rewards to the purchaser, which generally coincides with the
delivery of the goods in terms of the arrangement with the purchaser.
Sales include excise duty and are stated net of discounts, other taxes,
and sales returns.
(b) Revenue from product development services:
(i) In the respect of contracts where the Company undertakes to develop
products for its customers (on an end- to end basis), revenues are
recognised based on technical estimates ofthe stage of work completed
under the contracts.
(ii) In respect of other contracts where the Company performs
specifically identified services in the development ofthe products,
revenues are recognised on the basis ofthe performance milestones
provided in the contract.
(c) Revenue from contract manufacturing is recognised based on the
services rendered in accordance with the terms of the contract.
(d) Export incentives are accrued for based on fulfillment of
eligibility criteria for availing the incentives and when there is no
uncertainty in receiving the same. These incentives include estimated
realisable values/benefits from special import licenses and benefits
under Duty Entitlement Pass Book Schemes, Focus Market Schemes, and
Market-Linked Focus Product Schemes wherever applicable.
(e) Income from rendering advisory services is recognised based on
contractual terms.
(f) Share of Profits and Royalty incomes under manufacturing and supply
agreements with Customers are accrued based on confirmation received
from customers.
1.7 Other income :
Dividends are recognised whenever the right to receive dividends is
established. Interest income is recognised on accrual basis.
The Company provides corporate guarantees to subsidiaries and charges a
commission for providing such guarantees. Such incomes are accrued in
terms ofthe agreements with the parties.
1.8 Tangible fixed assets :
Fixed assets, except to the extent permitted to be fair valued under
the Scheme, are carried at cost less accumulated depreciation and
impairment losses, if any. The cost of fixed assets includes interest
on borrowings attributable to acquisition of qualifying fixed assets up
to the date the asset is ready for its intended use and other
incidental expenses incurred up to that date. Machinery spares which
can be used only in connection with an item of fixed asset and whose
use is expected to be irregular are capitalised and depreciated over
the useful life ofthe principal item ofthe relevant assets. Subsequent
expenditure relating to fixed assets is capitalised only if such
expenditure results in an increase in the future benefits from such
asset beyond its previously assessed standard of performance.
Fixed assets acquired in full or part exchange for another asset are
recorded at the fair market value or the net book value of the asset
given up, adjusted for any balancing cash consideration. Fair market
value is determined either for the assets acquired or asset given up,
whichever is more clearly evident.
The Company fair valued land and machineries upon the Scheme becoming
effective (December 31, 2009) and such assets are carried at the fair
value less accumulated depreciation and impairment losses, if any.
Capital work-in-progress
Projects under which assets are not ready for its intended use and
other Capital Work-in-Progress are carried at cost, comprising direct
cost, related incidental expenses and attributable interest.
1.9 Intangible assets :
Intangible assets are carried at cost less accumulated amortisation and
impairment losses, if any. The cost of an intangible asset comprises
its purchase price, including any import duties and other taxes (other
than those subsequently recoverable from the taxing authorities), and
any directly attributable expenditure on making the asset ready for its
intended use and net of any trade discounts and rebates. Subsequent
expenditure on an intangible asset after its purchase / completion is
recognised as an expense when incurred unless it is probable that such
expenditure will enable the asset to generate future economic benefits
in excess of its originally assessed standards of performance and such
expenditure can be measured and attributed to the asset reliably, in
which case such expenditure is added to the cost ofthe asset. In-house
product development costs are capitalised in accordance with paragraph
2.20 below.
1.10 Deferred Revenue Expenditure :
The Company operates in an environment which requires the manufacturing
facilities to be approved by industry regulators in certain territories
prior to manufacture and sale of products in such territories. If the
interval between the date the facility is ready to commence commercial
production and the date at which commercial production is expected to
commence is prolonged, all expenses incurred during this period are
treated as deferred revenue expenditure and amortised over a period not
exceeding 3 years from the date of receipt of approvals.
1.11 Foreign currency transactions and translations :
Initial recognition
Transactions in foreign currencies are accounted at the exchange rates
prevailing on the date of the transaction or at rates that closely
approximate the rate at the date of the transaction.
Measurement of foreign currency monetary items at the balance sheet
date
Foreign currency monetary items (other than derivative contracts) at
the balance sheet date are restated at year end rates.
In the case of integral operations, assets and liabilities (other than
non-monetary items), are translated at the exchange rate prevailing on
the balance sheet date. Non-monetary items are carried at historical
cost. Revenue and expenses are translated at yearly average exchange
rates prevailing during the year.
In the case of non-integral operations, assets and the liabilities are
translated at the exchange rates prevailing on the balance sheet date.
Revenue and expenses are translated at yearly average exchange rates
prevailing during the year.
Treatment of exchange differences
Exchange differences arising on settlement / restatement of foreign
currency monetary assets and liabilities of the Company and their
integral foreign operations are recognised as income or expense in the
Statement of Profit and Loss. The exchange differences on
restatement/settlement of loans to non-integral foreign operations that
are considered as net investment in such operations are accumulated in
the Exchange reserve (on consolidation), until disposal / recovery of
the net investment.
Accounting of forward contracts
Premium/discount on forward exchange contracts, which are not intended
for trading or speculation purposes, are amortised over the period of
the contracts, if such contracts relate to monetary items as at the
balance sheet date. Refer paragraph2.23 in this Section for accounting
for forward exchange contracts relating to firm commitments and highly
probable forecast transactions.
1.12 Exceptional items :
The Company consistently classifies the following as exceptional items
in the Statement of Profit and Loss:
(a) Exchange gain / loss arising on account of restatement and
settlement of (i) long term foreign currency loans, (ii) foreign
currency loans given to (or received from) subsidiaries ofthe Company,
(iii) Foreign Currency Convertibles Bonds (FCCBs);
(b) Changes in fair value of embedded derivatives in FCCBs and option
contracts;
(c) Profit / loss on sale of non-current investments and provision for
diminution in non-current investments.
1.13 Investments :
Long-term investments are carried individually at cost less provision
for diminution, other than temporary, in the value of such investments.
Current investments are carried individually, at the lower of cost and
fair value. Costs of investments include acquisition charges such as
brokerage, fees and duties.
1.14 Employee benefits:
Employee benefits include provident fund, gratuity fund and compensated
absences.
Defined contribution plans
The Company''s contribution to provident fund are considered defined
contribution plans and are charged as an expense as they fall due based
on the amount of contribution required to be made.
Defined benefit plans
Liability for gratuity is funded with SBI Life Insurance Company
Limited and Life Insurance Corporation of India. Gratuity expenses for
the year are accounted based on actuarial valuation carried out as at
the end of the fiscal year using the Projected Unit Credit method, with
actuarial valuation being carried out at each balance sheet date.
Actuarial gains and losses are recognised in the Statement of Profit
and Loss in the period in which they occur. Past service cost is
recognised immediately to the extent that the benefits are already
vested and otherwise is amortised on a straight-line basis over the
average period until the benefits become vested. The retirement
obligation recognised in the balance sheet represents the present value
ofthe defined benefit obligation as adjusted for unrecognised past
service cost, as reduced bythe fair value ofthe scheme assets. Any
asset resulting from this calculation is limited to past service cost,
plus the present value of available refunds and reductions in future
contributions to the scheme.
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees are recognised
during the period when the employees render the service. These benefits
include performance incentives and compensated absences which are
expected to occur within twelve months after the end ofthe period in
which the employee renders the related service. The cost of such
compensated absences is accounted as under:
(a) in case of accumulated compensated absences, when employees render
the services that increase their entitlement of future compensated
absences; and
(b) in case of non - accumulating compensated absences, when the
absences occur Long term employee benefits
Compensated absences which are not expected to occur within twelve
months after the end ofthe period in which the employee renders the
related services are recognised as a liability at the present value
ofthe defined benefit obligation as at the balance sheet date less the
fair value ofthe plan assets out of which the obligations are expected
to be settled.
Long Term Incentive Plan (''Plan''):
Under the Plan, certain employees are eligible for retention and
performance linked payouts. These payouts are accrued as and when
services are rendered and or when the specific performance criteria are
met.
1.15 Employee share based payments :
The Company has formulated Employee Stock Option Plans (ESOP) in
accordance with the SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999. The Plans provide for grant of
options to employees of the Company and its subsidiaries to acquire
equity shares of the Company that vest in a graded manner and that are
to be exercised within a specified period. In accordance with the SEBI
Guidelines, the excess, if any, ofthe closing market price on the day
prior to the grant of the options (under ESOP) over the exercise price
is amortised on a straight line basis over the vesting period in the
Statement of Profit and Loss /Reserve for Business Restructure.
Employee stock options granted under the above ESOP on after April 1,
2005 are accounted under the ''Intrinsic Value Method'' stated in the
Guidance Note on Employee Share Based Payments issued by the Institute
of Chartered Accountants of India.
Options with a cash settlement feature are fair valued at the time of
the grant and at each reporting date. Changes in the fair value ofthe
Options at each reporting date are recognised in the Statement of
Profit and Loss.
1.16 Borrowing costs:
Borrowing costs includes interest, amortisation of ancillary costs
incurred and exchange differences arising from foreign currency
borrowings to the extent they are regarded as an adjustment to the
interest cost. Borrowing costs, related to acquisition for qualifying
assets, pertaining to the period from commencement of activities
relating to construction / development of the qualifying asset upto the
date of capitalisation of such asset is added to the cost of the
assets. Capitalisation of borrowing costs is suspended and charged to
the Statement of Profit and Loss during extended periods when active
development activity on the qualifying assets is interrupted.
1.17 Leases :
Where the Company as a lessor leases assets under finance leases, such
amounts are recognised as receivables at an amount equal to the net
investment in the lease and the finance income is based on a constant
rate of return on the outstanding net investment.
Assets leased by the Company in its capacity as lessee where
substantially all the risks and rewards of ownership vest in the
Company are classified as finance leases. Such leases are capitalised
at the inception of the lease at the lower of the fair value or the
present value of the minimum lease payments and a liability is created
for an equivalent amount. Each lease rental paid is allocated between
the liability and the interest cost so as to obtain a constant periodic
rate of interest on the outstanding liability for each year.
Lease arrangements where the risks and rewards incidental to ownership
of an asset substantially vests with the lessor are recognised as
operating leases. Lease rentals under operating leases are recognised
in the Statement of Profit and Loss on a straight-line basis.
1.18 Earnings per share :
Basic earnings per share is computed by dividing the profit/(loss)
aftertax (including the post-tax effect of extraordinary items, if any)
by the weighted average number of equity shares outstanding during the
year. Diluted earnings per share is computed by dividing the
profit/(loss) after tax (including the post-tax effect of any
extraordinary items, if any) as adjusted for dividend, interest and
other charges to expense or income relating to the dilutive potential
equity shares, by the weighted average number of equity shares
considered for deriving basic earnings per share and also the weighted
average number of equity shares which could have been issued on the
conversion of all dilutive potential equity shares. Potential equity
shares are deemed to be dilutive if only their conversion to equity
shares would decrease the net profit per share. Potential dilutive
equity shares are deemed to be converted as at the beginning of the
period, unless they have been issued at a later date. The dilutive
potential equity shares are adjusted for the proceeds receivable had
the shares been actually issued at fair value (i.e. average market
value ofthe outstanding shares). Dilutive potential equity shares are
determined independently for each period presented. The number of
equity shares and potentially dilutive equity shares are adjusted for
share splits/reverse share splits and bonus shares, as appropriate.
1.19 Taxes on income :
Current tax is the amount of tax payable on the taxable income for the
year as determined in accordance with the provisions ofthe Income-tax
Act, 1961.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which
gives future economic benefits in the form ofadjustment to future
income tax liability, is considered as an asset if there is convincing
evidence that the Company will pay normal income tax. Accordingly, MAT
is recognised as an asset in the balance sheet when it is probable that
future economic benefit associated with it will flow to the Company.
Deferred tax is recognised on timing differences, being the differences
between the taxable income and the accounting income that originate in
one period and are capable of reversal in one or more subsequent
periods. Deferred tax is measured using the tax rates and the tax laws
enacted or substantively enacted as at the reporting date. Deferred tax
liabilities are recognised for all timing differences. Deferred tax
assets in respect of unabsorbed depreciation and carryforward of losses
are recognised only if there is virtual certainty that there will be
sufficient future taxable income available to realise such assets.
Deferred tax assets are recognised for timing differences of other
items only to the extent that reasonable certainty exists that
sufficient future taxable income will be available against which these
can be realised. Deferred tax assets and liabilities are offset if such
items relate to taxes on income levied by the same governing tax laws
and the Company has a legally enforceable right for such set off.
Deferred tax assets are reviewed at each Balance sheet date for their
realisability.
Current and deferred tax relating to items directly recognised in
equity, is recognised in equity and not in the Statement of Profit and
Loss.
1.20 Research & Development Expenditure :
Revenue expenditure pertaining to research is charged to the Statement
of Profit and Loss. Development costs of products are also charged to
the Statement of Profit and Loss / Reserve for Business Restructure
unless a product''s technological feasibility and commercial viability
has been established, in which case such expenditure is capitalised.
The amount capitalised comprises expenditure that can be directly
attributed, or allocated on a reasonable and consistent basis, to
creating, producing and making the asset ready for its intended use.
Fixed assets utilised for research and development are capitalised and
depreciated in accordance with the policies stated for tangible fixed
assets and intangible fixed assets.
1.21 Impairment of Assets :
The carrying values of assets / cash generating units at each Balance
Sheet date are reviewed for impairment. If any indication of impairment
exists, the recoverable amount of such assets is estimated and
impairment is recognised, if the carrying amount of these assets
exceeds their recoverable amount. The recoverable amount is the greater
ofthe net selling price and their value in use. Value in use is arrived
at by discounting the future cash flows to their present value based on
an appropriate discount factor. When there is indication that an
impairment loss recognised for an asset in prior accounting periods no
longer exists or may have decreased such reversal of impairment loss is
recognised in the Statement of Profit and Loss.
1.22 Provisions and Contingencies :
A provision is recognised when the Company has a present obligation as
a result of past events and it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions (excluding retirement
benefits) are not discounted to their 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. Contingent liabilities are not
recognised but are disclosed in the notes to the financial statement.
1.23 Financial Assets, Financial Liabilities, Financial Instruments,
Derivatives and Hedge Accounting :
(a) The Company classifies its financial assets into the following
categories: financial instruments at fair value through Statement of
Profit and Loss, loans and receivables, held to maturity investments
and available for sale financial assets.
Financial assets ofthe Company mainly include cash and bank balances,
trade receivables, loans and advances and derivative financial
instruments with a positive fair value.
Financial liabilities of the Company mainly comprise secured and
unsecured loans, trade payables, accrued expenses and derivative
financial instruments with a negative fair value.
Financial assets/ liabilities are recognised on the balance sheet when
the Company becomes a party to the contractual provisions ofthe
instrument. Financial assets are derecognised when all ofrisks and
rewards ofthe ownership have been transferred. The transfer of risks
and rewards is evaluated by comparing the exposure, before and after
the transfer, with the variability in the amounts and timing ofthe net
cash flows of the transferred assets.
Available for sale financial assets (not covered under the notified
Accounting Standards) are carried at fair value, with changes in fair
value being recognised in Equity, unless they are designated in a fair
value hedge relationship, where such changes are recognised in the
Statement of Profit and Loss. Loans and receivables, considered not to
be in the nature of short-term receivables, are discounted to their
present value. Short-term receivables with no stated interest rates are
measured at original invoice amount, if the effect of discounting is
immaterial. Non- interest-bearing deposits, meeting the criteria of
financial asset, are discounted to their present value.
Financial liabilities held for trading and liabilities designated at
fair value, are carried at fair value through Statement of Profit and
Loss.
Other financial liabilities are carried at amortised cost using the
effective interest method. The Company measures the short-term payables
with no stated rate of interest at original invoice amount, if the
effect of discounting is immaterial.
Financial liabilities are derecognised when extinguished.
(b) Determining fair value
Where the classification of a financial instrument requires it to be
stated at fair value, fair value is determined with reference to a
quoted market price for that instrument or by using a valuation model.
Where the fair value is calculated using financial markets pricing
models, the methodology is to calculate the expected cash flows under
the terms of each specific contract and then discount these values back
to a present value.
(c) Hedge accounting
The Company uses foreign currency forward contracts to hedge its risks
associated with foreign currency fluctuations relating to firm
commitments and highly probable forecast transactions. The Company
designates such forward contracts in a cash flow hedging relationship
by applying the hedge accounting principles set out in Accounting
Standard 30 ''Financial Instruments: Recognition and Measurement''
issued by the Institute of Chartered Accountants of India. These
forward contracts are stated at fair value at each reporting date.
Changes in the fair value of these forward contracts that are
designated as hedges of future cash flows are recognised directly in
''Hedge reserve account'' under Reserves and surplus, net of applicable
deferred income taxes, if any, to the extent such hedges are considered
effective and the ineffective portion is recognised immediately in the
Statement of Profit and Loss. Amounts accumulated in the Hedge reserve
account are reclassified to the Statement of Profit and Loss in the
same periods during which the forecasted transaction affects profit and
loss. Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or no longer qualifies
for hedge accounting. For forecasted transactions, any cumulative
exchange gain or loss on the hedging instrument recognised in ''Hedge
reserve account'' is retained until the forecasted transaction occurs.
If the forecasted transaction is no longer expected to occur, the net
cumulative exchange gain or loss recognised in Hedge reserve account is
immediately transferred to the Statement of Profit and Loss.
(d) Derivative contracts
The Company enters into derivative contracts in the nature of foreign
currency swaps, currency options, forward contracts with an intention
to hedge its existing assets and liabilities, firm commitments and
highly probable transactions. Such derivative contracts which are
closely linked to the existing assets and liabilities are accounted as
per the accounting policy stated for foreign currency transactions and
translations.
Derivative contracts designated as a hedging instrument for highly
probable forecast transactions are accounted as per the policy stated
for Hedge accounting.
All other derivative contracts are marked-to-market and losses / gains
are recognised in the Statement of Profit and Loss.
Detail of the rights, preferences and restrictions attaching to each
class of shares outstanding Equity shares of Rs. 10/- each: The Company
has only one class of equity shares, having a par value of Rs.10/-. The
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 approval by the shareholders at
the ensuing Annual General Meeting. In the event of liquidation ofthe
Company, the holders ofthe equity shares will be entitled to receive
any of the remaining assets ofthe Company, after distribution to all
other parties concerned. The distribution will be in proportion to
number of equity shares held by the shareholders.
Dec 31, 2010
1. Basis for preparation of financial statements
(a) The financial statements are prepared under the historical cost
convention on accrual basis except for certain financial & other
assets, liabilities which are measured on fair value basis as permitted
by
(i) the Scheme of Arrangement approved by the Honorable High Courts of
Judicature (Ãthe Scheme) or,
(ii) Accounting Standard (AS) 30: Financials Instruments: ÃRecognition
and Measurement read with AS 31 Financial Instruments: ÃPresentation
and AS 32 Financials Instruments: ÃDisclosure, to the extent such
standards do not conflict with other standards notified under section
211 (3C) of the Companies Act, 1956.
(b) In terms of a Business Transfer Agreement (BTA) with Agila
Specialties Private Limited (ASPL), formerly known as Strides
Specialties Private Limited, a wholly owned subsidiary of the Company,
the specialties business of the Company was transferred off to ASPL
with effect from December 30, 2009. As per the BTA, pending completion
of certain formalities and regulatory approvals, the Company continues
to carry on the Specialties Business in Trust and on behalf of ASPL.
The financial statements do not include transactions pertaining to
ASPL.
2. Revenue
2.1 Revenue from export sales is recognized on the basis of the
shipping bills for exports. Revenue from domestic sales is recognized
based on the passage of title to goods which generally coincides with
dispatch. Sales include excise duty and are stated net of discounts,
other taxes, and sales returns.
2.2 Revenue from development services:
(a) In respect of contracts which require development on end to end
basis, revenue is recognised based on technical estimates of the stage
of work.
(b) In respect of other development contracts, revenue is recognised on
the basis of the performance milestones provided in the contract.
2.3 Revenue from sale of dossiers is recognised on percentage
completion method. The extent of completion is determined based on
costs incurred and the total cost for completion of the contracts.
2.4 Revenue from contract manufacturing is recognised based on the
services rendered in accordance with the terms of the contract.
2.5 Export incentives are accounted on accrual basis and include
estimated realisable values/benefits from special import licenses and
benefits under Duty Entitlement Pass Book schemes, wherever applicable.
2.6 Dividend income is recognized whenever the right to receive
dividends is established.
2.7 Interest and other income is recognized on accrual basis.
3. Fixed Assets
Fixed assets and intangibles (other than in-house product development
costs) are recorded at their acquisition cost and subsequent
improvements thereto except in case of assets which are recorded at
fair value as per the Scheme. Cost includes related pre- operative
project expenditure and interest on borrowings attributable to the
funds borrowed in respect of qualifying assets, for the period up to
completion of construction or when the assets are ready to be put to
use, as applicable. In-house product development costs are capitalised
in accordance with Paragraph 8 below.
4. Impairment of Assets
As at each Balance Sheet date, the carrying amount of fixed assets is
tested for impairment if impairment conditions exist. An impairment
loss is recognised when the carrying amount of an asset exceeds its
recoverable amount. Recoverable amount is determined:
(a) in the case of an individual asset, at the higher of the net
selling price and value in use.
(b) in the case of cash generating units, at the higher of the units
net selling price and the value in use.
Value in use is determined as the present value of estimated future
cash flows from the continuing use of an asset and from its disposal at
the end of its useful life.
5. Depreciation/Amortisation
Depreciation is provided under the straight-line method at the rates
and in the manner prescribed under Schedule XIV of the Companies Act,
1956, based on technical estimates that indicate the useful lives would
be comparable with or higher than those arrived at using these rates.
With respect to assets carried at fair value cost as permitted under
the Scheme, depreciation/amortization is recorded under the straight
line method over the balance useful life of the respective assets.
Individual assets costing less than Rs.5,000 are depreciated in full in
the year of purchase.
6. Inventories
Inventories comprise raw materials, packing materials, consumables,
work in process and finished goods. These are valued at the lower of
cost and net realisable value. Cost is determined as follows:
Raw materials, packing Weighted average basis
materials and consumables
Work in process at material cost and an appropriate
share of production overheads
Finished Goods material cost and an appropriate
share of production overheads and excise
duty, wherever applicable
7. Employee benefits
The Companys contribution to Provident Fund is charged to revenue on
accrual basis.
Leave balances standing to the credit to the employees that are
expected to be availed in the short term are provided for on full cost
basis. Liability for unavailed leave considered to be long term is
carried based on an actuarial valuation.
Liability for gratuity is funded with SBI Life Insurance Company
Limited. Gratuity expenses for the year are accounted based on
actuarial valuation carried out as at the end of the year. The
obligation recognised in the balance sheet represents the present value
of the defined benefit obligation as adjusted for unrecognized past
service cost, and as reduced by the fair value of the scheme assets.
Any asset resulting from this calculation is limited to past service
cost, plus the present value of available refunds and reductions in
future contributions to the scheme.
Short term employee benefits like medical, leave travel, etc are
accrued based on the terms of employment on a time proportion basis.
The Company has introduced Long Term Employee Compensation Plan under
which certain employees are eligible for retention and performance
linked payouts. These payouts are accrued as services are rendered and
or when the specific performance criteria are met.
8. Research & Development Expenditure
Development expenses incurred on specific/identified in-house developed
products are capitalised from the date on which the Company is able to
demonstrate technical feasibility and probable future economic benefits
in respect of the products. The amount capitalised comprises
expenditure that can be directly attributed, or allocated on a
reasonable and consistent basis, to creating, producing and making the
asset ready for its intended use.
Other development and research expenses are charged to the Profit and
Loss account/Reserve for Business Restructure (`BRR).
Fixed assets acquired for Research & Development activities are
capitalised and depreciated in accordance with the policy of the
Company in paragraph 3 and 5 above.
9. Foreign currency transactions
The transactions denominated in foreign currency are recorded at the
exchange rates prevailing on the date of the transaction. Monetary
items denominated in foreign currencies at year end are translated at
the exchange rate prevailing on the date of the balance sheet. Exchange
differences on settlement or restatement are adjusted in the profit &
loss account.
10. Investments
(a) Current investments are carried at lower of cost and fair market
value. Provision is made to recognize decline, if any, in the carrying
value.
(b) Long-term investments are valued at cost except for investments
which are recorded at fair value as per the Scheme less impairment
considered to be other than temporary.
11. Leases
Lease arrangements, where the risks and rewards incident to ownership
of an asset substantially vest with the lessor, are classified as
operating leases and the lease rentals thereon are charged to the
Profit and Loss Account on accrual basis. Assets acquired under
finance lease arrangements are recognised as an asset and a liability
is setup at the inception of the lease, at an amount equal to lower of
the fair value of leased assets or the present value of the future
minimum lease payments.
12. Financial Assets, Financial Liabilities, Financial Instruments,
Derivatives and Hedge Accounting
(a) The Company classifies its financial assets into the following
categories: financial instruments at fair value through profit and
loss, loans and receivables, held to maturity investments and available
for sale financial assets.
Financial assets of the Company mainly include cash and bank balances,
sundry debtors, loans and advances and derivative financial instruments
with a positive fair value.
Financial liabilities of the Company mainly comprise secured and
unsecured loans, sundry creditors, accrued expenses and derivative
financial instruments with a negative fair value.
Financial assets/liabilities are recognized on the balance sheet when
the Company becomes a party to the contractual provisions of the
instrument. Financial assets are derecognized when all of risks and
rewards of the ownership have been transferred. The transfer of risks
and rewards is evaluated by comparing the exposure, before and after
the transfer, with the variability in the amounts and timing of the net
cash flows of the transferred assets.
Available for sale financial assets (not covered under the notified
Accounting Standards) are carried at fair value, with changes in fair
value being recognised in Equity, unless they are designated in a fair
value hedge relationship, where such changes are recognised in the
Profit and Loss account. Loans and receivables, considered not to be in
the nature of short-term receivables, are discounted to their present
value. Short-term receivables with no stated interest rates are
measured at original invoice amount, if the effect of discounting is
immaterial. Non-interest-bearing deposits, meeting the criteria of
financial asset, are discounted to their present value.
Financial liabilities held for trading and liabilities designated at
fair value, are carried at fair value through profit and loss.
Other financial liabilities are carried at amortized cost using the
effective interest method. The Company measures the short- term
payables with no stated rate of interest at original invoice amount, if
the effect of discounting is immaterial.
Financial liabilities are derecognized when extinguished.
(b) Determining fair value
Where the classification of a financial instrument requires it to be
stated at fair value, fair value is determined with reference to a
quoted market price for that instrument or by using a valuation model.
Where the fair value is calculated using financial markets pricing
models, the methodology is to calculate the expected cash flows under
the terms of each specific contract and then discount these values back
to a present value.
(c) Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign
currency assets and liabilities. The Company limits the effects of
foreign exchange rate fluctuations by following established risk
management policies including the use of derivatives. The Company
enters into forward exchange financial instruments where the
counterparty is a bank. Changes in fair values of these financial
instruments that do not qualify as a Cash flow hedge accounting are
adjusted in the Profit and Loss.
(d) Hedge Accounting
Some financial instruments and derivatives are used to hedge interest
rate, exchange rate, commodity, equity exposures and exposures to
certain indices. Where derivatives are held for risk management
purposes and when transactions meet the criteria specified in AS 30,
the Company applies fair value hedge accounting or cash flow hedge
accounting as appropriate to the risks being hedged.
(e) Fair value hedge accounting
Changes in the fair value of financial instruments and derivatives that
qualify for and are designated as fair value hedges are recorded in the
Profit and Loss Account, together with changes in the fair value
attributable to the risk being hedged in the hedged asset or liability.
If the hedged relationship no longer meets the criteria for hedge
accounting, it is discontinued.
13. Employee Stock Option Schemes
Employee stock options are accounted in accordance with the guidelines
stipulated by SEBI and Guidance Note on Accounting for Employee
Share-based Payments. The difference between the market price of the
shares underlying the options granted on the date of grant of option
and the option price is expensed in the profit & loss Account or `BRR.
14. Income Tax
Income Tax comprises the current tax provision and the net change in
the deferred tax asset or liability during the year. Deferred tax
assets and liabilities are recognized for the future tax consequences
arising out of temporary differences between the carrying values of the
assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates applicable
on the Balance Sheet date. Deferred tax assets are recognised and
carried forward to the extent that there is a reasonable/virtual
certainty (as applicable) that sufficient future taxable income will be
available against which such deferred tax asset can be realised. The
effect on deferred tax assets and liabilities resulting from change in
tax rates is recognized in the income statement in the period of
enactment of the change.
Minimum alternative tax (`MAT) paid in accordance to the tax laws,
which gives rise to future economic benefits in the form of adjustment
of future income tax liability, is considered as an asset if there is
convincing evidence that the Company will pay normal income tax in
future years. Accordingly, MAT is recognized as an asset in the balance
sheet when it is probable that the future economic benefit associated
with it will flow to the Company and the asset can be measured
reliably.
15. Deferred Revenue Expenditure
The Company operates in an environment which requires the manufacturing
facilities to be approved by industry regulators in certain territories
prior to manufacture and sale of products in such territories. If the
interval between the date off the facility is ready to commence
commercial production and the date at which commercial production is
expected to commence is prolonged, all expenses incurred during this
period are treated as deferred revenue expenditure and amortised over a
period not exceeding 3 years from the date of receipt of approvals.
16. Use of estimates
The preparation of financial statements requires the Management to make
estimates and assumptions considered in the reported amounts of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expenses during
the reporting period. Examples of such estimates include the useful
life of fixed assets (including intangible assets), provision for
doubtful debts/advances, provision for employee benefits, deferred
employee compensations, allowances for slow moving/non moving
inventory, provision for tax, estimate of percentage of completion of
work under contracts for development services and sale of dossiers.
Management believes that the estimates used in the preparation of the
financial statements are prudent and reasonable. Future results may
vary from these estimates.
17. Provisions and Contingencies
A provision is recognised when the Company has a present legal or
constructive obligation as a result of past event and it is probable
that an outflow of resources will be required to settle the obligation,
in respect of which reliable estimate can be made. Provisions
(excluding retirement benefits) are not discounted to its present value
and are determined based on best estimate required to settle the
obligation. Contingent liabilities are not recognised but are disclosed
in the notes to financial statements.
Dec 31, 2009
1. Basis for preparation of financial statements
The financial statements are prepared under the historical cost
convention on accrual basis except for certain financial & other
assets, liabilities which are measured on fair value basis as permitted
by the Accounting Standards or as per the Scheme of Arrangement
approved by the Honorable High Courts of Judicature.
2. Revenue
2.1 Revenue from export sales is recognised on the basis of the
shipping bills for exports. Revenue from domestic sales is recognised
based on the passage of title to goods which generally coincides with
dispatch. Sales include excise duty and are stated net of discounts,
other taxes, and sales returns.
2.2 Revenue from development services:
(a) In respect of contracts which require development on end to end
basis, revenue is recognised based on technical estimates of the stage
of work.
(b) In respect of other development contracts, revenue is recognised on
the basis of the performance milestones provided in the contract.
2.3 Revenue from sale of dossiers is recognised on percentage
completion method. The extent of completion is determined based on
costs incurred and the total cost for completion of the contracts.
2.4 Revenue from contract manufacturing is recognised based on the
services rendered in accordance with the terms of the contract.
2.5 Export incentives are accounted on accrual basis and include
estimated realisable values/ benefits from special import licenses and
benefits under Duty Entitlement Pass Book schemes, wherever applicable.
2.6 Dividend income is recognised whenever the right to receive
dividends is established.
2.7 Interest and other income is recognised on accrual basis
3. Fixed Assets
Fixed assets and intangibles (other than in-house product development
costs) are recorded at their acquisition cost and subsequent
improvements thereto except in case of assets which are recorded at
fair value as per the Scheme of Arrangement approved by the Honorable
High Courts of Judicature. Cost includes related pre-operative project
expenditure and interest on borrowings attributable to the funds
borrowed in respect of qualifying assets, for the period up to
completion of construction or when the assets are ready to be put to
use, as applicable. In-house product development costs are capitalised
in accordance with Paragraph 8 below.
4. Impairment of Assets
As at each Balance Sheet date, the carrying amount of fixed assets is
tested for impairment if impairment conditions exist. An impairment
loss is recognised when the carrying amount of an asset exceeds its
recoverable amount. Recoverable amount is determined:
(a) in the case of an individual asset, at the higher of the net
selling price and value in use.
(b) in the case of cash generating units, at the higher of the unitÃs
net selling price and the value in use.
Value in use is determined as the present value of estimated future
cash flows from the continuing use of an asset and from its disposal at
the end of its useful life.
5. Depreciation/ Amortisation
Depreciation is provided under the straight-line method at the rates
and in the manner prescribed under Schedule XIV of the Companies Act,
1956, based on technical estimates that indicate the useful lives would
be comparable with or higher than those arrived at using these rates.
In the case of the following assets, depreciation is provided/
amortised under the straight line method over the useful life of the
assets as follows:
Dies and Punches : 4 years
Registrations and Brands : 5 to 10 years
Software Licenses : 5 years
With respect to assets carried at fair value cost, depreciation is
provided / amortised under the straight line method over the useful
life of the respective assets.
Individual assets costing less than Rs.5,000 are depreciated in full in
the year of purchase.
6. Inventories
Inventories comprise raw materials, packing materials, consumables,
work in process and finished goods. These are valued at the lower of
cost and net realisable value. Cost is determined as follows:
Raw materials, packing weighted average basis
materials and consumables
Work in process at material cost and an
appropriate share of production overheads
Finished Goods material cost and an appropriate share of
production overheads and excise duty,
wherever applicable
7. Employee benefits
The CompanyÃs contribution to Provident Fund is charged to revenue on
accrual basis.
Leave balances standing to the credit to the employees that are
expected to be availed in the short term are provided for on full cost
basis. Liability for unavailed leave considered to be long term is
carried based on an actuarial valuation.
Liability for gratuity is funded with SBI Life Insurance Company
Limited. Gratuity expenses for the year are accounted based on
actuarial valuation carried out as at the end of the fiscal year. The
obligation recognised in the balance sheet represents the present value
of the defined benefit obligation as adjusted for unrecognised past
service cost, and as reduced by the fair value of scheme assets. Any
asset resulting from this calculation is limited to past service cost,
plus the present value of available refunds and reductions in future
contributions to the scheme.
Short term employee benefits like medical, leave travel, etc are
accrued based on the terms of employment on a time proportion basis.
The Company has introduced Long Term Employee Compensation Plan under
which certain employees are eligible for retention and performance
linked payouts. These payouts are accrued as services are rendered and
or when the specific performance criteria are met.
8. Research & Development Expenditure
Development expenses incurred on specific/ identified in-house
developed products are capitalised from the date on which the Company
is able to demonstrate technical feasibility and probable future
economic benefits in respect of the products. The amount capitalised
comprises expenditure that can be directly attributed, or allocated on
a reasonable and consistent basis, to creating, producing and making
the asset ready for its intended use.
Other development and research expenses are charged to the Profit and
Loss account / BRR.
Fixed assets acquired for Research & Development activities are
capitalised and depreciated in accordance with the policy of the
Company in paragraph 1.3 and 1.5 above.
9. Foreign currency transactions
The transactions denominated in foreign currency are recorded at the
exchange rates prevailing on the date of the transaction. Monetary
items denominated in foreign currencies at year end are translated at
the exchange rate prevailing on the date of the balance sheet. Exchange
differences on settlement or restatement are adjusted in the profit &
loss account.
10. Investments
Current investments are carried at lower of cost and fair market value.
Provision is made to recognise decline, if any, in the carrying value.
Long-term investments are valued at cost less impairment considered to
be other than temporary, except for investments which are:
a. Designated as hedged items for changes in the spot rate of the
foreign currency underlying in the investment. Such investments are
carried at fair values by restating the underlying foreign currency at
the closing spot rates.
b. Recorded at fair value as per the Scheme of Arrangement approved by
the Honorable High Courts of Judicature.
11. Leases
Lease arrangements, where the risks and rewards incident to ownership
of an asset substantially vest with the lessor, are classified as
operating leases and the lease rentals thereon are charged to the
Profit and Loss Account on accrual basis. Assets acquired under finance
lease arrangements are recognised as an asset and a liability is setup
at the inception of the lease, at an amount equal to lower of the fair
value of leased assets or the present value of the future minimum lease
payments.
12. Financial Assets, Financial Liabilities, Financial Instruments,
Derivatives and Hedge Accounting
(a) The Company classifies its financial assets into the following
categories: financial instruments at fair value through profit and
loss, loans and receivables, held to maturity investments and available
for sale financial assets.
Financial assets of the Company mainly include cash and bank balances,
sundry debtors, loans and advances and derivative financial instruments
with a positive fair value.
Financial liabilities of the Company mainly comprise secured and
unsecured loans, sundry creditors, accrued expenses and derivative
financial instruments with a negative fair value.
Financial assets/ liabilities are recognised on the balance sheet when
the Company becomes a party to the contractual provisions of the
instrument. Financial assets are derecognised when all of risks and
rewards of the ownership have been transferred. The transfer of risks
and rewards is evaluated by comparing the exposure, before and after
the transfer, with the variability in the amounts and timing of the net
cash flows of the transferred assets.
Available for sale financial assets (not covered under other Accounting
Standards) are carried at fair value, with changes in fair value being
recognised in Equity, unless they are designated in a Fair value hedge
relationship, where such changes are recognised in the Profit and Loss
account. Loans and receivables, considered not to be in the nature of
Short-term receivables, are discounted to their present value.
Short-term receivables with no stated interest rates are measured at
original invoice amount, if the effect of discounting is immaterial.
Non-interest-bearing deposits, meeting the criteria of financial asset,
are discounted to their present value.
Financial liabilities held for trading and liabilities designated at
fair value, are carried at fair value through profit and loss.
Other financial liabilities are carried at amortised cost using the
effective interest method. The Company measures the short-term payables
with no stated rate of interest at original invoice amount, if the
effect of discounting is immaterial.
Financial liabilities are derecognised when extinguished.
(b) Determining fair value
Where the classification of a financial instrument requires it to be
stated at fair value, fair value is determined with reference to a
quoted market price for that instrument or by using a valuation model.
Where the fair value is calculated using financial markets pricing
models, the methodology is to calculate the expected cash flows under
the terms of each specific contract and then discount these values back
to a present value.
(c) Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign
currency assets and liabilities. The Company limits the effects of
foreign exchange rate fluctuations by following established risk
management policies including the use of derivatives. The Company
enters into forward exchange financial instruments where the
counterparty is a bank. Changes in fair values of these financial
instruments that do not qualify as a Cash flow hedge accounting are
adjusted in the Profit and Loss.
(d) Hedge Accounting
Some financial instruments and derivatives are used to hedge interest
rate, exchange rate, commodity and equity exposures and exposures to
certain indices. Where derivatives are held for risk management
purposes and when transactions meet the criteria specified in
Accounting Standard 30, the Company applies fair value hedge accounting
or cash flow hedge accounting as appropriate to the risks being hedged.
(e) Fair value hedge accounting
Changes in the fair value of financial instruments and derivatives that
qualify for and are designated as fair value hedges are recorded in the
Profit and Loss Account, together with changes in the fair value
attributable to the risk being hedged in the hedged asset or liability.
If the hedged relationship no longer meets the criteria for hedge
accounting, it is discontinued.
13. Employee Stock Option Schemes
Employee stock options are accounted in accordance with the guidelines
stipulated by SEBI and Guidance Note on Accounting for Employee
Share-based Payments. The difference between the market price of the
shares underlying the options granted on the date of grant of option
and the option price is expensed under ÃPersonnel costÃ.
14. Income Tax
Income Tax comprises the current tax provision and the net change in
the deferred tax asset or liability during the year. Deferred tax
assets and liabilities are recognised for the future tax consequences
arising out of temporary differences between the carrying values of the
assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates applicable
on the Balance Sheet date. Deferred tax assets are recognised and
carried forward to the extent that there is a reasonable/ virtual
certainty (as applicable) that sufficient future taxable income will be
available against which such deferred tax asset can be realised. The
effect on deferred tax assets and liabilities resulting from change in
tax rates is recognised in the income statement in the period of
enactment of the change.
15. Use of estimates
The preparation of financial statements requires the Management to make
estimates and assumptions considered in the reported amounts of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expenses during
the reporting period. Examples of such estimates include the useful
life of fixed assets (including intangible assets), provision for
doubtful debts/ advances, provision for employee benefits, allowances
for slow moving/ non moving inventory, provision for tax, estimate of
percentage of completion of work under contracts for development
services and sale of dossiers.
Management believes that the estimates used in the preparation of the
financial statements are prudent and reasonable. Future results may
vary from these estimates.
16. Provisions and Contingencies
A provision is recognised when the Company has a present legal or
constructive obligation as a result of past event and it is probable
that an outflow of resources will be required to settle the obligation,
in respect of which reliable estimate can be made. Provisions
(excluding retirement benefits) are not discounted to its present value
and are determined based on best estimate required to settle the
obligation. Contingent liabilities are not recognised but are disclosed
in the notes to financial statements.
1 significant accounting policies
1. The financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards specified under Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014 and the relevant provisions of the Companies Act, 2013 ("the 2013 Act") / Companies Act, 1956 ("the 1956 Act"), as applicable. The financial statements have been prepared on accrual basis under the historical cost convention except for:
(i) fixed assets which were fair valued in earlier years based on the Scheme of Arrangement approved by the Honorable High Courts of Judicature (the 'Scheme') or,
(ii) financial assets and liabilities which were fair valued as permitted by Accounting Standard (AS) 30: 'Financials Instruments: Recognition and Measurement' read with AS 31 'Financial Instruments: Presentation' and AS 32 'Financials Instruments: Disclosure' issued by the Institute of Chartered Accountants of India, to the extent such standards do not conflict with other standards notified under Companies (Accounting Standards) Rules, 2006 (as amended).
The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the previous year.
2. Use of estimates
The preparation of the financial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known / materialise.
3. Inventories
Inventories are valued at the lower of cost and the net realisable value after providing for obsolescence and other losses, where considered necessary. Cost includes all charges in bringing the goods to the point of sale, including octroi and other levies, transit insurance and receiving charges. Work-in-progress and finished goods include appropriate proportion of overheads and, where applicable, excise duty. Cost is determined as follows:
Raw materials, packing materials and consumables weighted average basis
Work in progress at material cost and an appropriate share of production overheads
Finished Goods material cost and an appropriate share of production overheads and excise duty, wherever applicable
Stock in trade weighted average basis
4. Cash and cash equivalents (for purposes of Cash Flow Statement)
Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.
5. Cash flow statement
Cash flows are reported using the indirect method, whereby profit / (loss) before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information.
6. Depreciation and amortisation
Depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less its estimated residual value.
Depreciation on tangible fixed assets has been provided on the straight-line method as per the useful life prescribed in Schedule II to the Companies Act, 2013 except in respect of the following categories of assets, in whose case the life of the assets has been assessed as under based on technical advice, taking into account the nature of the asset, the estimated usage of the asset, the operating conditions of the asset, past history of replacement, anticipated technological changes, manufacturers warranties and maintenance support, etc.:
Dies and punches : 4 years
Mobiles phone : 3 years
Certain factory building : 18 years
Leasehold land is amortised over the duration of the lease.
Intangible assets are amortised over their estimated useful life on straight line method as follows:
Registration and Brands : 5 to 10 years
Software Licenses : 5 years
With respect to assets carried at fair value as permitted under the Scheme, depreciation / amortization is recorded under the straight line method over the balance useful life of the respective assets.
Individual assets costing less than Rs. 5,000 are depreciated in full in the year of purchase.
The estimated useful life of the intangible assets and the amortisation period are reviewed at the end of each financial year and the amortisation period is revised to reflect the changed pattern, if any.
7. Revenue recognition
(a) Sale of goods: Sales are recognised, net of returns and trade discounts, on transfer of significant risks and rewards of ownership to the buyer as per the terms of the arrangements with buyer. Sales include excise duty but exclude sales tax and value added tax.
(b) Revenue from product development services:
(i) In respect of contracts where the Company undertakes to develop products for its customers (on an end- to end basis), revenues are recognized based on technical estimates of the stage of work completed under the contracts.
(ii) In respect of other contracts where the Company performs specifically identified services in the development of the products, revenues are recognized on the basis of the performance milestones provided in the contract.
(c) Revenue from contract manufacturing is recognised based on the services rendered in accordance with the terms of the contract.
(d) Export incentives are accrued for based on fulfillment of eligibility criteria for availing the incentives and when there is no uncertainty in receiving the same. These incentives include estimated realisable values/benefits from special import licenses and benefits under Duty Entitlement Pass Book Schemes, Focus Market Schemes, and Market-Linked Focus Product Schemes wherever applicable.
(e) Income from rendering advisory / support services is recognized based on contractual terms.
(f) Share of profits and royalty incomes under manufacturing and supply agreements with customers are accrued based on confirmation received from customers.
8. Other income
Interest income is accounted on accrual basis. Dividend income is accounted for when the right to receive is established. The Company provides corporate guarantees to subsidiaries and charges a commission for providing such guarantees. Such incomes are accrued in terms of the agreements with the parties.
9. Fixed Assets
Tangible fixed assets, except to the extent permitted to be fair valued under the Scheme, are carried at cost less accumulated depreciation and impairment losses, if any. The cost of fixed assets comprises its purchase price net of any trade discounts and rebates, any import duties and other taxes (other than those subsequently recoverable from the tax authorities), any directly attributable expenditure on making the asset ready for its intended use, other incidental expenses and interest on borrowings attributable to acquisition of qualifying fixed assets up to the date the asset is ready for its intended use.
Machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be irregular are capitalised and depreciated over the useful life of the principal item of the relevant assets. Subsequent expenditure on fixed assets after its purchase / completion is capitalised only if such expenditure results in an increase in the future benefits from such asset beyond its previously assessed standard of performance.
Fixed assets acquired in full or part exchange for another asset are recorded at the fair market value or the net book value of the asset given up, adjusted for any balancing cash consideration. Fair market value is determined either for the assets acquired or asset given up, whichever is more clearly evident. Fixed assets acquired in exchange for securities of the Company are recorded at the fair market value of the assets or the fair market value of the securities issued, whichever is more clearly evident.
The Company fair valued land and machineries upon the Scheme becoming effective (December 31, 2009) and such assets are carried at the fair value less accumulated depreciation and impairment losses, if any.
Fixed assets retired from active use and held for sale are stated at the lower of their net book value and net realisable value and are disclosed separately.
Capital work-in-progress:
Projects under which tangible fixed assets are not yet ready for their intended use are carried at cost, comprising direct cost, related incidental expenses and attributable interest.
Intangible assets are carried at cost less accumulated amortization and impairment losses, if any. The cost of an intangible asset comprises its purchase price, including any import duties and other taxes (other than those subsequently recoverable from the taxing authorities), and any directly attributable expenditure on making the asset ready for its intended use and net of any trade discounts and rebates. Subsequent expenditure on an intangible asset after its purchase / completion is recognised as an expense when incurred unless it is probable that such expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standards of performance and such expenditure can be measured and attributed to the asset reliably, in which case such expenditure is added to the cost of the asset. In-house product development costs are capitalised in accordance with paragraph 2.18 below.
Intangible assets under development:
Expenditure on Research and development (Refer note 2.18) eligible for capitalisation are carried as Intangible assets under development where such assets are not yet ready for their intended use.
10. Foreign currency transactions and translations Initial recognition
Transactions in foreign currencies entered into by the Company are accounted at the exchange rates prevailing on the date of the transaction or at rates that closely approximate the rate at the date of the transaction.
Integral foreign operations: Transactions in foreign currencies entered into by the Company's integral foreign operations are accounted at the exchange rates prevailing on the date of the transaction or at rates that closely approximate the rate at the date of the transaction.
Net investment in non-integral foreign operations: Net investment in non-integral foreign operations is accounted at the exchange rates prevailing on the date of the transaction or at rates that closely approximate the rate at the date of the transaction.
Non-integral foreign operations: Transactions of non-integral foreign operations are translated at the exchange rates prevailing on the date of the transaction or at rates that closely approximate the rate at the date of the transaction.
Measurement at the balance sheet date
Foreign currency monetary items (other than derivative contracts) of the Company, outstanding at the balance sheet date are restated at the year-end rates. Non- monetary items of the Company are carried at historical cost.
Integral foreign operations: Foreign currency monetary items (other than derivative contracts) of the Company's integral foreign operations outstanding at the balance sheet date are restated at the year-end rates. Non- monetary items of the Company's integral foreign operations are carried at historical cost.
Net investment in non-integral foreign operations: Foreign currency monetary items (other than derivative contracts) of the Company's net investment in non- integral foreign operations outstanding at the balance sheet date are restated at the year-end rates.
Non-integral foreign operations: All assets and liabilities of non-integral foreign operations are translated at the year-end rates.
Treatment of exchange differences
Exchange differences arising on settlement / restatement of short-term foreign currency monetary assets and liabilities of the Company are recognised as income or expense in the Statement of Profit and Loss.
Integral foreign operations: Exchange differences arising on settlement / restatement of short-term foreign currency monetary assets and liabilities of the Company's integral foreign operations are recognised as income or expense in the Statement of Profit and Loss.
Net investment in non-integral foreign operations: The exchange differences on restatement of long-term receivables / payables from / to non-integral foreign operations that are considered as net investment in such operations is accounted as per policy for long-term foreign currency monetary items stated in para (v) below until disposal / recovery of such net investment, in which case the accumulated balance in "Foreign currency translation reserve" is recognised as income / expense in the same period in which the gain or loss on disposal / recovery is recognised.
Non-integral foreign operations: The exchange differences relating to non-integral foreign operations are accumulated in a "Foreign currency translation reserve" until disposal of the operation, in which case the accumulated balance in "Foreign currency translation reserve" is recognised as income / expense in the same period in which the gain or loss on disposal is recognised.
Exchange difference on long-term foreign currency monetary items: The exchange differences arising on settlement / restatement of long-term foreign currency monetary items are capitalised as part of the depreciable fixed assets to which the monetary item relates and depreciated over the remaining useful life of such assets. If such monetary items do not relate to acquisition of depreciable fixed assets, the exchange difference is amortised over the maturity period / upto the date of settlement of such monetary items, whichever is earlier, and charged to the Statement of Profit and Loss except in case of exchange differences arising on net investment in non-integral foreign operations, where such amortisation is taken to "Foreign currency translation reserve" until disposal / recovery of the net investment. The unamortised exchange difference is carried under Reserves and surplus as "Foreign currency monetary item translation difference account" net of the tax effect thereon, where applicable.
Accounting for forward contracts
Premium / discount on forward exchange contracts, which are not intended for trading or speculation purposes, are amortised over the period of the contracts if such contracts relate to monetary items as at the balance sheet date. Any profit or loss arising on cancellation or renewal of such a forward exchange contract is recognised as income or as expense in the period in which such cancellation or renewal is made. Refer Notes 2.21 for accounting for forward exchange contracts relating to firm commitments and highly probable forecast transactions.
11. Investments
Long-term investments are carried individually at cost less provision for diminution, other than temporary, in the value of such investments. Current investments are carried individually, at the lower of cost and fair value. Cost of investments include acquisition charges such as brokerage, fees and duties.
12. Employee benefits
Employee benefits include provident fund, superannuation fund, employee state insurance scheme, gratuity fund, compensated absences, long service awards and post-employment medical benefits.
Defined contribution plans
The Company's contribution to provident fund, superannuation fund and employee state insurance scheme are considered as defined contribution plans and are charged as an expense based on the amount of contribution required to be made and when services are rendered by the employees.
Defined benefit plans
For defined benefit plans in the form of gratuity fund. The cost of providing benefits is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in the Statement of Profit and Loss in the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the schemes.
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees are recognised during the year when the employees render the service. These benefits include performance incentive and compensated absences which are expected to occur within twelve months after the end of the period in which the employee renders the related service.
The cost of short-term compensated absences is accounted as under:
(a) in case of accumulated compensated absences, when employees render the services that increase their entitlement of future compensated absences; and
(b) in case of non-accumulating compensated absences, when the absences occur.
Long-term employee benefits
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related service are recognised as a liability at the present value of the defined benefit obligation as at the balance sheet date less the fair value of the plan assets out of which the obligations are expected to be settled.
Long Term Incentive Plan ('Plan')
Under the Plan, certain employees are eligible for retention and performance linked payouts. These payouts are accrued as and when services are rendered and/ or when the specific performance criteria are met.
13. Employee share based payments
The Company has formulated Employee Stock Option Plans (ESOP) in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Plans provide for grant of options to employees of the Company and its subsidiaries to acquire equity shares of the Company that vest in a graded manner and that are to be exercised within a specified period. In accordance with the SEBI Guidelines, the excess, if any, of the closing market price on the day prior to the grant of the options (under ESOP) over the exercise price is amortized on a straight line basis over the vesting period in the Statement of Profit and Loss / Reserve for Business Restructure.
Employee stock options granted under the above ESOP on or after April 1, 2005 are accounted under the 'Intrinsic Value Method' stated in the Guidance Note on Employee Share Based Payments issued by the Institute of Chartered Accountants of India.
Options with a cash settlement feature are fair valued at the time of the grant and at each reporting date. Changes in the fair value of the Options at each reporting date are recognised in the Statement of Profit and Loss.
14. Borrowing costs
Borrowing costs include interest, amortisation of ancillary costs incurred and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Costs in connection with the borrowing of funds to the extent not directly related to the acquisition of qualifying assets are charged to the Statement of Profit and Loss over the tenure of the loan. Borrowing costs, allocated to and utilised for qualifying assets, pertaining to the period from commencement of activities relating to construction / development of the qualifying asset upto the date of capitalisation of such asset are added to the cost of the assets. Capitalisation of borrowing costs is suspended and charged to the Statement of Profit and Loss during extended periods when active development activity on the qualifying assets is interrupted.
15. Leases
Where the Company as a lessor leases assets under finance leases, such amounts are recognized as receivables at an amount equal to the net investment in the lease and the finance income is based on a constant rate of return on the outstanding net investment.
Assets leased by the Company in its capacity as lessee where substantially all the risks and rewards of ownership vest in the Company are classified as finance leases. Such leases are capitalized at the inception of the lease at the lower of the fair value or the present value of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost so as to obtain a constant periodic rate of interest on the outstanding liability for each year.
Lease arrangements where the risks and rewards incidental to ownership of an asset substantially vests with the lessor are recognized as operating leases. Lease rentals under operating leases are recognized in the Statement of Profit and Loss on a straight-line basis over the lease term.
16. Earnings per share
Basic earnings per share is computed by dividing the profit / (loss) after tax (including the post-tax effect of extraordinary items, if any) by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit / (loss) after tax (including the post-tax effect of extraordinary items, if any) as adjusted for dividend, interest and other charges to expense or income (net of any attributable taxes) relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net profit per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). Dilutive potential equity shares are determined independently for each period presented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits / reverse share splits and bonus shares, as appropriate.
17. Taxes on income
Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961 and other applicable tax laws.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognised as an asset in the Balance Sheet when it is highly probable that future economic benefit associated with it will flow to the Company.
Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets are recognised for timing differences of items other than unabsorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, if there are unabsorbed depreciation and carry forward of losses and items relating to capital losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their realisability.
Current and deferred tax relating to items directly recognised in reserves are recognised in reserves and not in the Statement of Profit and Loss.
18. Research and development expenses
Revenue expenditure pertaining to research is charged to the Statement of Profit and Loss. Development costs of products are also charged to the Statement of Profit and Loss unless a product's technical feasibility has been established, in which case such expenditure is capitalised. The amount capitalised comprises expenditure that can be directly attributed or allocated on a reasonable and consistent basis to creating, producing and making the asset ready for its intended use. Fixed assets utilised for research and development are capitalised and depreciated in accordance with the policies stated for Fixed Assets.
19. Impairment of assets
The carrying values of assets / cash generating units at each balance sheet date are reviewed for impairment if any indication of impairment exists. The following intangible assets are tested for impairment each financial year even if there is no indication that the asset is impaired:
(a) an intangible asset that is not yet available for use; and (b) an intangible asset that is amortised over a period exceeding ten years from the date when the asset is available for use.
If the carrying amount of the assets exceed the estimated recoverable amount, an impairment is recognised for such excess amount. The impairment loss is recognised as an expense in the Statement of Profit and Loss, unless the asset is carried at revalued amount, in which case any impairment loss of the revalued asset is treated as a revaluation decrease to the extent a revaluation reserve is available for that asset.
The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived at by discounting the future cash flows to their present value based on an appropriate discount factor.
When there is indication that an impairment loss recognised for an asset (other than a revalued asset) in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognised in the Statement of Profit and Loss, to the extent the amount was previously charged to the Statement of Profit and Loss. In case of revalued assets such reversal is not recognised.
20 Provisions and contingencies
A provision is recognised when the Company has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to their present value and are determined based on the 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. Contingent liabilities are disclosed in the Notes. Contingent assets are not recognised in the financial statements.
21 Financial Assets, Financial Liabilities, Financial Instruments, Derivatives and Hedge Accounting
(a) The Company classifies its financial assets into the following categories: Financial instruments at fair value through Statement of Profit and Loss, loans and receivables, held to maturity investments and available for sale financial assets.
Financial assets of the Company mainly include cash and bank balances, trade receivables, loans and advances and derivative financial instruments with a positive fair value.
Financial liabilities of the Company mainly comprise secured and unsecured loans, trade payables, accrued expenses and derivative financial instruments with a negative fair value.
Financial assets/ liabilities are recognized on the balance sheet when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when all of risks and rewards of the ownership have been transferred. The transfer of risks and rewards is evaluated by comparing the exposure, before and after the transfer, with the variability in the amounts and timing of the net cash flows of the transferred assets.
Available for sale financial assets (not covered under the notified Accounting Standards) are carried at fair value, with changes in fair value being recognised in Equity, unless they are designated in a fair value hedge relationship, where such changes are recognised in the Statement of Profit and Loss. Loans and receivables, considered not to be in the nature of short-term receivables, are discounted to their present value. Short-term receivables with no stated interest rates are measured at original invoice amount, if the effect of discounting is immaterial. Non-interest-bearing deposits, meeting the criteria of financial asset, are discounted to their present value.
Financial liabilities held for trading and liabilities designated at fair value, are carried at fair value through Statement of Profit and Loss.
Other financial liabilities are carried at amortized cost using the effective interest method. The Company measures the short-term payables with no stated rate of interest at original invoice amount, if the effect of discounting is immaterial.
Financial liabilities are derecognized when extinguished.
(b) Determining fair value
Where the classification of a financial instrument requires it to be stated at fair value, fair value is determined with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using financial markets pricing models, the methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value.
(c) Hedge accounting
The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to highly probable forecast transactions. The Company designates such forward contracts in a cash flow hedging relationship by applying the hedge accounting principles set out in "Accounting Standard 30 Financial Instruments: Recognition and
Measurement" issued by the ICAI. These forward contracts are stated at fair value at each reporting date. Changes in the fair value of these forward contracts that are designated and effective as hedges of future cash flows are recognised directly in "Hedging reserve account" under Reserves and surplus, net of applicable deferred income taxes and the ineffective portion is recognised immediately in the Statement of Profit and Loss. Amounts accumulated in the "Hedging reserve account" are reclassified to the Statement of Profit and Loss in the same periods during which the forecasted transaction affects profit or loss. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. For forecasted transactions, any cumulative gain or loss on the hedging instrument recognised in "Hedging reserve account" is retained until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, the net cumulative gain or loss recognised in "Hedging reserve account" is immediately transferred to the Statement of Profit and Loss.
(d) Derivative contracts
The Company enters into derivative contracts in the nature of foreign currency swaps, currency options, and forward contracts with an intention to hedge its existing assets and liabilities, firm commitments and highly probable transactions in foreign currency. Derivative contracts which are closely linked to the existing assets and liabilities are accounted as per the policy stated for Foreign currency transactions and translations.
Derivative contracts designated as a hedging instrument for highly probable forecast transactions are accounted as per the policy stated for Hedge Accounting.
All other derivative contracts are marked -to- market and losses are recognised in the Statement of Profit and Loss. Gains arising on the same are not recognised, until realised, on grounds of prudence.
22. Service tax input credit
Service tax input credit is accounted for in the books in the period in which the underlying service received is accounted and when there is no uncertainty in availing / utilising the credits.
23. Deferred Revenue Expenditure
The Company operates in an environment which requires the manufacturing facilities to be approved by industry regulators in certain territories prior to manufacture and sale of products in such territories. If the interval between the date the facility is ready to commence commercial production and the date at which commercial production is expected to commence is prolonged, all expenses incurred during this period are treated as deferred revenue expenditure and amortised over a period not exceeding 3 years from the date of receipt of approvals.
24. Exceptional items
The Group classifies the following as exceptional items in the Statement of Profit and Loss:
(a) Exchange gain / loss arising on account of restatement and settlement of (i) long term foreign currency loans and advances, (ii) intra-group loans and advances
(b) Changes in fair value of embedded derivatives in FCCBs and option contracts;
(c) Profit / loss on disposal of non-current investments and / or dividends received from proceeds of such disposal and provision for / reversals of provision for diminution in non-current investments, goodwill and other assets.
(d) Profit / loss arising on account of discontinuance of products / development activities.
(e) Restructuring costs.
25. Operating cycle
As mentioned in para 1 above under 'Corporate information', the Company is into development and manufacture of pharmaceutical products. Based on the normal time between acquisition of assets and their realisation in cash or cash equivalents, the Company has determined its operating cycle as 3 years to 5 years and 12 months relating to Research and Development activities and Manufacturing of Pharmaceutical products respectively. The above basis is used for classifying the assets and liabilities into current and non-current as the case may be.
1.1 Basis for preparation of financial statements
(a) The financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards notified under the Section 211(3C) of the Companies Act, 1956 (which continue to be applicable in respect of Section 133 of the Companies Act, 2013 ("the 2013 Act") in terms of General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs) and the relevant provisions of the 1956 Act/ 2013 Act, as applicable. The financial statements have been prepared on accrual basis under the historical cost convention except for certain:
(i) Fixed assets which were fair valued in earlier years based on the Scheme of Arrangement approved by the Honourable High Courts of Judicature (the ''Scheme'') or,
(ii) Financial assets and Liabilities which have been fair valued as permitted by Accounting Standard (AS) 30: ''Financials Instruments: Recognition and Measurement'' read with AS 31 ''Financial Instruments: Presentation'' and AS 32 ''Financials Instruments: Disclosure'' issued by the Institute of Chartered Accountants of India, to the extent such standards do not conflict with other standards notified under Companies (Accounting Standards) Rules, 2006(as amended).
The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the previous year.
2.2 Use of estimates
The preparation of the financial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported incomes and expenses during the year. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognized in the periods in which the results are known/materialise.
2.3 Inventories
Inventories comprise raw materials, packing materials, consumables, work in progress and finished goods. These are valued at the lower of cost and net realisable value after providing for obsolescence and other losses, where considered necessary. Cost is determined as follows:
Raw materials, packing materials and consumables weighted average basis Work in progress at material cost and an appropriate share of production overheads Finished Goods material cost and an appropriate share of production overheads and excise duty, wherever applicable
Stock in trade
weighted average basis
2.4 Cash flow statement
Cash flows are reported using the indirect method, whereby profit / (loss) before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information.
Cash and cash equivalents (for the purpose of cash flow statement)
Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.
2.5 Revenue
(a) Revenue from sales is recognized on transfer of significant risks and rewards to the purchaser as per the terms of the arrangement with the purchaser. Sales include excise duty and are stated net of discounts, other taxes, and sales returns.
(b) Revenue from product development services:
(i) In respect of contracts where the Company undertakes to develop products for its customers (on an end-to end basis), revenues are recognised based on technical estimates of the stage of work completed under the contracts.
(ii) In respect of other contracts where the Company performs specifically identified services in the development of the products, revenues are recognized on the basis of the performance milestones provided in the contract.
(c) Revenue from contract manufacturing is recognised based on the services rendered in accordance with the terms of the contract.
(d) Export incentives are accrued for based on fulfilment of eligibility criteria for availing the incentives and when there is no uncertainty in receiving the same. These incentives include estimated realisable values/ benefits from special import licenses and benefits under Duty Entitlement Pass Book Schemes, Focus Market Schemes, and Market-Linked Focus Product Schemes wherever applicable.
(e) Income from rendering advisory services is recognized based on contractual terms.
(f) Share of profits and royalty incomes under manufacturing and supply agreements with customers are accrued based on confirmation received from customers.
2.6 Other income
Dividends are recognised whenever the right to receive dividends is established. Interest income is recognized on accrual basis.
The Company provides corporate guarantees to subsidiaries and charges a commission for providing such guarantees. Such incomes are accrued in terms of the agreements with the parties.
2.7 Tangible fixed assets
Fixed assets, except to the extent permitted to be fair valued under the Scheme, are carried at cost less accumulated depreciation and impairment losses, if any. The cost of fixed assets includes interest on borrowings attributable to acquisition of qualifying fixed assets up to the date the asset is ready for its intended use and other incidental expenses incurred up to that date. Machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be irregular are capitalised and depreciated over the useful life of the principal item of the relevant assets. Subsequent expenditure relating to fixed assets is capitalised only if such expenditure results in an increase in the future benefits from such asset beyond its previously assessed standard of performance.
Fixed assets acquired in full or part exchange for another asset are recorded at the fair market value or the net book value of the asset given up, adjusted for any balancing cash consideration. Fair market value is determined either for the assets acquired or asset given up, whichever is more clearly evident.
The Company fair valued land and machineries upon the Scheme becoming effective (December 31, 2009) and such assets are carried at the fair value less accumulated depreciation and impairment losses, if any.
Capital work-in-progress
Projects under which assets are not ready for its intended use and other Capital Work-in-Progress are carried at cost, comprising direct cost, related incidental expenses and attributable interest.
2.8 intangible assets
Intangible assets are carried at cost less accumulated amortization and impairment losses, if any. The cost of an intangible asset comprises its purchase price, including any import duties and other taxes (other than those subsequently recoverable from the taxing authorities), and any directly attributable expenditure on making the asset ready for its intended use and net of any trade discounts and rebates. Subsequent expenditure on an intangible asset after its purchase / completion is recognised as an expense when incurred unless it is probable that such expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standards of performance and such expenditure can be measured and attributed to the asset reliably, in which case such expenditure is added to the cost of the asset. In-house product development costs are capitalised in accordance with paragraph 2.20 below.
2.9 Depreciation/ Amortisation
The following assets are depreciated / amortised over the useful lives under the straight line method.
Registrations and Brands : 5 to 10 years Software Licenses : 5 years
Defined contribution plans
The Company''s contribution to provident fund and employee state insurance scheme are considered as defined contribution plans and are charged as an expense based on the amount of contribution required to be made and when services are rendered by the employees.
Defined benefit plans
Liability for gratuity is funded with SBI Life Insurance Company Limited and Life Insurance Corporation of India. Gratuity expenses for the year are accounted based on actuarial valuation carried out as at the end of the fiscal year using the Projected Unit Credit method, with actuarial valuation being carried out at each balance sheet date. Actuarial gains and losses are recognised in the Statement of Profit and Loss in the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. The retirement obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, as reduced by the fair value of the scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees are recognized during the period when the employees render the service. These benefits include performance incentives and compensated absences which are expected to occur within twelve months after the end of the period in which the employee renders the related service. The cost of such compensated absences is accounted as under:
(a) in case of accumulated compensated absences, when employees render the services that increase their entitlement of future compensated absences; and
(b) in case of non - accumulating compensated absences, when the absences occur
Long term employee benefits
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability at the present value of the defined benefit obligation as at the balance sheet date less the fair value of the plan assets out of which the obligations are expected to be settled.
Long Term Incentive Plan (''Plan'')
Under the Plan, certain employees are eligible for retention and performance linked payouts. These payouts are accrued as and when services are rendered and / or when the specific performance criteria are met.
2.15 Employee share based payments
The Company has formulated Employee Stock Option Plans (ESOP) in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Plans provide for grant of options to employees of the Company and its subsidiaries to acquire equity shares of the Company that vest in a graded manner and that are to be exercised within a specified period. In accordance with the SEBI Guidelines, the excess, if any, of the closing market price on the day prior to the grant of the options (under ESOP) over the exercise price is amortized on a straight line basis over the vesting period in the Statement of Profit and Loss / Reserve for Business Restructure.
Employee stock options granted under the above ESOP on or after April 01, 2005 are accounted under the ''Intrinsic Value Method'' stated in the Guidance Note on Employee Share Based Payments issued by the Institute of Chartered Accountants of India.
Options with a cash settlement feature are fair valued at the time of the grant and at each reporting date. Changes in the fair value of the Options at each reporting date are recognised in the Statement of Profit and Loss.
2.16 Borrowing costs
Borrowing costs includes interest; amortisation of ancillary costs incurred and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Borrowing costs, related to acquisition for qualifying assets, pertaining to the period from commencement of activities relating to construction / development of the qualifying asset upto the date of capitalisation of such asset are added to the cost of the assets. Capitalisation of borrowing costs is suspended and charged to the Statement of Profit and Loss during extended periods when active development activity on the qualifying assets is interrupted.
2.17 Leases
Where the Company as a lessor leases assets under finance leases, such amounts are recognized as receivables at an amount equal to the net investment in the lease and the finance income is based on a constant rate of return on the outstanding net investment.
Assets leased by the Company in its capacity as lessee where substantially all the risks and rewards of ownership
vest in the Company are classified as finance leases. Such leases are capitalized at the inception of the lease at the lower of the fair value or the present value of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost so as to obtain a constant periodic rate of interest on the outstanding liability for each year.
Lease arrangements where the risks and rewards incidental to ownership of an asset substantially vests with the lessor are recognized as operating leases. Lease rentals under operating leases are recognized in the Statement of Profit and Loss on a straight-line basis.
2.18 Earnings per share
Basic earnings per share is computed by dividing the profit/ (loss) after tax(includingthepost-tax effectofextraordinary items, if any) by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit/(loss) after tax (including the post-tax effect of any extraordinary items, if any) as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and also the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Potential equity shares are deemed to be dilutive if only their conversion to equity shares would decrease the net profit per share. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). Dilutive potential equity shares are determined independently for each period presented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate.
2.19 Taxes on income
Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the provisions of the Income-tax Act, 1961.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognized as an asset in the balance sheet when it is probable that future economic benefit associated with it will flow to the Company.
Deferred tax is recognized on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognized for all timing differences. Deferred tax assets in respect of unabsorbed depreciation and carry forward of losses are recognized only if there is virtual certainty that there will be sufficient future taxable income available to realize such assets. Deferred tax assets are recognized for timing differences of other items only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realized. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set off. Deferred tax assets are reviewed at each Balance sheet date for their realisability.
Current and deferred tax relating to items directly recognised in reserves, are recognised in reserves and not in the Statement of Profit and Loss.
2.20 Research & Development Expenditure
Revenue expenditure pertaining to research is charged to the Statement of Profit and Loss. Development costs of products are also charged to the Statement of Profit and Loss unless a product''s technical feasibility has been established, in which case such expenditure is capitalised. The amount capitalised comprises expenditure that can be directly attributed or allocated on a reasonable and consistent basis to creating, producing and making the asset ready for its intended use. Fixed assets utilised for research and development are capitalised and depreciated in accordance with the policies stated for Tangible Fixed Assets and Intangible Fixed Assets.
2.21 Impairment of Assets
The carrying values of assets / cash generating units at each Balance Sheet date are reviewed for impairment. If any indication of impairment exists, the recoverable amount of such assets is estimated and impairment is recognized, if the carrying amount of these assets exceeds their recoverable amount. The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived at by discounting the future cash flows to their present value based on an appropriate discount factor. When there is indication that an impairment loss recognized for an asset in prior accounting periods no longer exists or may have decreased such reversal of impairment loss is recognized in the Statement of Profit and Loss.
2.22 Provisions and Contingencies
A provision is recognized when the Company has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to their 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. Contingent liabilities are not recognised but are disclosed in the notes to the financial statement.
2.23 Financial Assets, Financial Liabilities, Financial Instruments, Derivatives and Hedge Accounting
(a) The Company classifies its financial assets into the following categories: financial instruments at fair value through Statement of Profit and Loss, loans and receivables, held to maturity investments and available for sale financial assets.
Financial assets of the Company mainly include cash and bank balances, trade receivables, loans and advances and derivative financial instruments with a positive fair value.
Financial liabilities of the Company mainly comprise secured and unsecured loans, trade payables, accrued expenses and derivative financial instruments with a negative fair value.
Financial assets / liabilities are recognized on the balance sheet when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when all of risks and rewards of the ownership have been transferred. The transfer of risks and rewards is evaluated by comparing the exposure, before and after the transfer, with the variability in the amounts and timing of the net cash flows of the transferred assets.
Available for sale financial assets (not covered under the notified Accounting Standards) are carried at fair value, with changes in fair value being recognised in Equity, unless they are designated in a fair value hedge relationship, where such changes are recognised in the Statement of Profit and Loss. Loans and receivables, considered not to be in the nature of short-term receivables, are discounted to their present value. Short-term receivables with no stated interest rates are measured at original invoice amount, if the effect of discounting is immaterial. Non-interest-bearing deposits, meeting the criteria of financial asset, are discounted to their present value.
Financial liabilities held for trading and liabilities designated at fair value, are carried at fair value through Statement of Profit and Loss.
Other financial liabilities are carried at amortized cost using the effective interest method. The Company measures the short-term payables with no stated rate of interest at original invoice amount, if the effect of discounting is immaterial.
Financial liabilities are derecognised when extinguished.
(b) Determining fair value
Where the classification of a financial instrument requires it to be stated at fair value, fair value is determined with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using financial markets pricing models, the methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value.
(c) hedge accounting
The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to firm commitments and highly probable forecast transactions. The Company designates such forward contracts in a cash flow hedging relationship by applying the hedge accounting principles set out in Accounting Standard 30 ''Financial Instruments: Recognition and Measurement'' issued by the Institute of Chartered Accountants of India. These forward contracts are stated at fair value at each reporting date. Changes in the fair value of these forward contracts that are designated as hedges of future cash flows are recognized directly in ''Hedge reserve account'' under Reserves and surplus, net of applicable deferred income taxes, if any, to the extent such hedges are considered effective and the ineffective portion is recognized immediately in the Statement of Profit and Loss. Amounts accumulated in the Hedge reserve account are reclassified to the Statement of Profit and Loss in the same periods during which the forecasted transaction affects profit and loss. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. For forecasted transactions, any cumulative exchange gain or loss on the hedging instrument recognized in ''Hedge reserve account'' is retained until the forecasted transaction occurs. If the forecasted transaction is no longer excepted to occur, the net cumulative exchange gain or loss recognized in Hedge reserve account is immediately transferred to the Statement of Profit and Loss.
(d) Derivative contracts
The Company enters into derivative contracts in the nature of foreign currency swaps, currency options, forward contracts with an intention to hedge its existing assets and liabilities, firm commitments and highly probable transactions. Such derivative contracts which are closely linked to the existing assets and liabilities are accounted as per the accounting policy stated for foreign currency transactions and translations.
Derivative contracts designated as a hedging instrument for highly probable forecast transactions are accounted as per the policy stated for Hedge accounting.
All other derivative contracts are marked-to-market and losses / gains are recognized in the Statement of Profit and Loss.
1.1 Basis for preparation of financial statements :
(a) The financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions ofthe Companies Act, 1956. The financial statements have been prepared on accrual basis under the historical cost convention except for certain financial and other assets and liabilities which are measured on fair value basis as permitted by:
(i) the Scheme ofArrangement approved bythe Honorable High Courts ofJudicature (the ''Scheme'') or,
(ii) Accounting Standard (AS) 30: ''Financials Instruments: Recognition and Measurement'' read with AS 31 ''Financial Instruments: Presentation'' and AS 32 ''Financials Instruments: Disclosure'' issued bythe Institute of Chartered Accountants of India, to the extent such standards do not conflict with other standards notified under Companies (Accounting Standards) Rules, 2006(as amended).
The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the previous year.
1.2 Use of estimates :
The preparation ofthe financial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported incomes and expenses during the year. The Management believes that the estimates used in preparation ofthe financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known/ materialise.
1.3 Inventories :
Inventories comprise raw materials, packing materials, consumables, work in progress and finished goods. These are valued at the lower of cost and net realisable value after providing for obsolescence and other losses, where considered necessary. Cost is determined as follows:
1.4 Cash flow statement:
Cash flows are reported using the indirect method, whereby profit / (loss) before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities ofthe Company are segregated based on the available information.
Cash and cash equivalents (for the purpose of cash flow statement)
Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk ofchanges in value.
1.5 Depreciation/ Amortisation :
The following assets are depreciated / amortised over the useful lives under the straight line method.
Registrations and Brands : 5 to 10 years
Software Licenses : 5 years
In respect of all other assets, depreciation is provided under the straight-line method at the rates and in the manner prescribed under Schedule XIV of the Companies Act, 1956, based on technical estimates that indicate the useful lives would be comparable with or higher than those arrived at using these rates.
With respect to assets carried at fair value as permitted under the Scheme, depreciation / amortisation is recorded under the straight line method over the balance useful life ofthe respective assets.
Individual assets costing less than Rs. 5,000 are depreciated in full in the year of purchase.
The estimated useful life ofthe intangible assets and the amortisation period are reviewed at the end ofeach financial year and the amortisation method is revised to reflect the changed useful life.
1.6 Revenue :
(a) Revenue from sales is recognised on transfer of significant risks and rewards to the purchaser, which generally coincides with the delivery of the goods in terms of the arrangement with the purchaser. Sales include excise duty and are stated net of discounts, other taxes, and sales returns.
(b) Revenue from product development services:
(i) In the respect of contracts where the Company undertakes to develop products for its customers (on an end- to end basis), revenues are recognised based on technical estimates ofthe stage of work completed under the contracts.
(ii) In respect of other contracts where the Company performs specifically identified services in the development ofthe products, revenues are recognised on the basis ofthe performance milestones provided in the contract.
(c) Revenue from contract manufacturing is recognised based on the services rendered in accordance with the terms of the contract.
(d) Export incentives are accrued for based on fulfillment of eligibility criteria for availing the incentives and when there is no uncertainty in receiving the same. These incentives include estimated realisable values/benefits from special import licenses and benefits under Duty Entitlement Pass Book Schemes, Focus Market Schemes, and Market-Linked Focus Product Schemes wherever applicable.
(e) Income from rendering advisory services is recognised based on contractual terms.
(f) Share of Profits and Royalty incomes under manufacturing and supply agreements with Customers are accrued based on confirmation received from customers.
1.7 Other income :
Dividends are recognised whenever the right to receive dividends is established. Interest income is recognised on accrual basis.
The Company provides corporate guarantees to subsidiaries and charges a commission for providing such guarantees. Such incomes are accrued in terms ofthe agreements with the parties.
1.8 Tangible fixed assets :
Fixed assets, except to the extent permitted to be fair valued under the Scheme, are carried at cost less accumulated depreciation and impairment losses, if any. The cost of fixed assets includes interest on borrowings attributable to acquisition of qualifying fixed assets up to the date the asset is ready for its intended use and other incidental expenses incurred up to that date. Machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be irregular are capitalised and depreciated over the useful life ofthe principal item ofthe relevant assets. Subsequent expenditure relating to fixed assets is capitalised only if such expenditure results in an increase in the future benefits from such asset beyond its previously assessed standard of performance.
Fixed assets acquired in full or part exchange for another asset are recorded at the fair market value or the net book value of the asset given up, adjusted for any balancing cash consideration. Fair market value is determined either for the assets acquired or asset given up, whichever is more clearly evident.
The Company fair valued land and machineries upon the Scheme becoming effective (December 31, 2009) and such assets are carried at the fair value less accumulated depreciation and impairment losses, if any.
Capital work-in-progress
Projects under which assets are not ready for its intended use and other Capital Work-in-Progress are carried at cost, comprising direct cost, related incidental expenses and attributable interest.
1.9 Intangible assets :
Intangible assets are carried at cost less accumulated amortisation and impairment losses, if any. The cost of an intangible asset comprises its purchase price, including any import duties and other taxes (other than those subsequently recoverable from the taxing authorities), and any directly attributable expenditure on making the asset ready for its intended use and net of any trade discounts and rebates. Subsequent expenditure on an intangible asset after its purchase / completion is recognised as an expense when incurred unless it is probable that such expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standards of performance and such expenditure can be measured and attributed to the asset reliably, in which case such expenditure is added to the cost ofthe asset. In-house product development costs are capitalised in accordance with paragraph 2.20 below.
1.10 Deferred Revenue Expenditure :
The Company operates in an environment which requires the manufacturing facilities to be approved by industry regulators in certain territories prior to manufacture and sale of products in such territories. If the interval between the date the facility is ready to commence commercial production and the date at which commercial production is expected to commence is prolonged, all expenses incurred during this period are treated as deferred revenue expenditure and amortised over a period not exceeding 3 years from the date of receipt of approvals.
1.11 Foreign currency transactions and translations :
Initial recognition
Transactions in foreign currencies are accounted at the exchange rates prevailing on the date of the transaction or at rates that closely approximate the rate at the date of the transaction.
Measurement of foreign currency monetary items at the balance sheet date
Foreign currency monetary items (other than derivative contracts) at the balance sheet date are restated at year end rates.
In the case of integral operations, assets and liabilities (other than non-monetary items), are translated at the exchange rate prevailing on the balance sheet date. Non-monetary items are carried at historical cost. Revenue and expenses are translated at yearly average exchange rates prevailing during the year.
In the case of non-integral operations, assets and the liabilities are translated at the exchange rates prevailing on the balance sheet date. Revenue and expenses are translated at yearly average exchange rates prevailing during the year.
Treatment of exchange differences
Exchange differences arising on settlement / restatement of foreign currency monetary assets and liabilities of the Company and their integral foreign operations are recognised as income or expense in the Statement of Profit and Loss. The exchange differences on restatement/settlement of loans to non-integral foreign operations that are considered as net investment in such operations are accumulated in the Exchange reserve (on consolidation), until disposal / recovery of the net investment.
Accounting of forward contracts
Premium/discount on forward exchange contracts, which are not intended for trading or speculation purposes, are amortised over the period of the contracts, if such contracts relate to monetary items as at the balance sheet date. Refer paragraph2.23 in this Section for accounting for forward exchange contracts relating to firm commitments and highly probable forecast transactions.
1.12 Exceptional items :
The Company consistently classifies the following as exceptional items in the Statement of Profit and Loss:
(a) Exchange gain / loss arising on account of restatement and settlement of (i) long term foreign currency loans, (ii) foreign currency loans given to (or received from) subsidiaries ofthe Company, (iii) Foreign Currency Convertibles Bonds (FCCBs);
(b) Changes in fair value of embedded derivatives in FCCBs and option contracts;
(c) Profit / loss on sale of non-current investments and provision for diminution in non-current investments.
1.13 Investments :
Long-term investments are carried individually at cost less provision for diminution, other than temporary, in the value of such investments. Current investments are carried individually, at the lower of cost and fair value. Costs of investments include acquisition charges such as brokerage, fees and duties.
1.14 Employee benefits:
Employee benefits include provident fund, gratuity fund and compensated absences.
Defined contribution plans
The Company''s contribution to provident fund are considered defined contribution plans and are charged as an expense as they fall due based on the amount of contribution required to be made.
Defined benefit plans
Liability for gratuity is funded with SBI Life Insurance Company Limited and Life Insurance Corporation of India. Gratuity expenses for the year are accounted based on actuarial valuation carried out as at the end of the fiscal year using the Projected Unit Credit method, with actuarial valuation being carried out at each balance sheet date. Actuarial gains and losses are recognised in the Statement of Profit and Loss in the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. The retirement obligation recognised in the balance sheet represents the present value ofthe defined benefit obligation as adjusted for unrecognised past service cost, as reduced bythe fair value ofthe scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees are recognised during the period when the employees render the service. These benefits include performance incentives and compensated absences which are expected to occur within twelve months after the end ofthe period in which the employee renders the related service. The cost of such compensated absences is accounted as under:
(a) in case of accumulated compensated absences, when employees render the services that increase their entitlement of future compensated absences; and
(b) in case of non - accumulating compensated absences, when the absences occur Long term employee benefits
Compensated absences which are not expected to occur within twelve months after the end ofthe period in which the employee renders the related services are recognised as a liability at the present value ofthe defined benefit obligation as at the balance sheet date less the fair value ofthe plan assets out of which the obligations are expected to be settled.
Long Term Incentive Plan (''Plan''):
Under the Plan, certain employees are eligible for retention and performance linked payouts. These payouts are accrued as and when services are rendered and or when the specific performance criteria are met.
1.15 Employee share based payments :
The Company has formulated Employee Stock Option Plans (ESOP) in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Plans provide for grant of options to employees of the Company and its subsidiaries to acquire equity shares of the Company that vest in a graded manner and that are to be exercised within a specified period. In accordance with the SEBI Guidelines, the excess, if any, ofthe closing market price on the day prior to the grant of the options (under ESOP) over the exercise price is amortised on a straight line basis over the vesting period in the Statement of Profit and Loss /Reserve for Business Restructure.
Employee stock options granted under the above ESOP on after April 1, 2005 are accounted under the ''Intrinsic Value Method'' stated in the Guidance Note on Employee Share Based Payments issued by the Institute of Chartered Accountants of India.
Options with a cash settlement feature are fair valued at the time of the grant and at each reporting date. Changes in the fair value ofthe Options at each reporting date are recognised in the Statement of Profit and Loss.
1.16 Borrowing costs:
Borrowing costs includes interest, amortisation of ancillary costs incurred and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost. Borrowing costs, related to acquisition for qualifying assets, pertaining to the period from commencement of activities relating to construction / development of the qualifying asset upto the date of capitalisation of such asset is added to the cost of the assets. Capitalisation of borrowing costs is suspended and charged to the Statement of Profit and Loss during extended periods when active development activity on the qualifying assets is interrupted.
1.17 Leases :
Where the Company as a lessor leases assets under finance leases, such amounts are recognised as receivables at an amount equal to the net investment in the lease and the finance income is based on a constant rate of return on the outstanding net investment.
Assets leased by the Company in its capacity as lessee where substantially all the risks and rewards of ownership vest in the Company are classified as finance leases. Such leases are capitalised at the inception of the lease at the lower of the fair value or the present value of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost so as to obtain a constant periodic rate of interest on the outstanding liability for each year.
Lease arrangements where the risks and rewards incidental to ownership of an asset substantially vests with the lessor are recognised as operating leases. Lease rentals under operating leases are recognised in the Statement of Profit and Loss on a straight-line basis.
1.18 Earnings per share :
Basic earnings per share is computed by dividing the profit/(loss) aftertax (including the post-tax effect of extraordinary items, if any) by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit/(loss) after tax (including the post-tax effect of any extraordinary items, if any) as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and also the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Potential equity shares are deemed to be dilutive if only their conversion to equity shares would decrease the net profit per share. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value ofthe outstanding shares). Dilutive potential equity shares are determined independently for each period presented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate.
1.19 Taxes on income :
Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the provisions ofthe Income-tax Act, 1961.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form ofadjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognised as an asset in the balance sheet when it is probable that future economic benefit associated with it will flow to the Company.
Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets in respect of unabsorbed depreciation and carryforward of losses are recognised only if there is virtual certainty that there will be sufficient future taxable income available to realise such assets. Deferred tax assets are recognised for timing differences of other items only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set off. Deferred tax assets are reviewed at each Balance sheet date for their realisability.
Current and deferred tax relating to items directly recognised in equity, is recognised in equity and not in the Statement of Profit and Loss.
1.20 Research & Development Expenditure :
Revenue expenditure pertaining to research is charged to the Statement of Profit and Loss. Development costs of products are also charged to the Statement of Profit and Loss / Reserve for Business Restructure unless a product''s technological feasibility and commercial viability has been established, in which case such expenditure is capitalised. The amount capitalised comprises expenditure that can be directly attributed, or allocated on a reasonable and consistent basis, to creating, producing and making the asset ready for its intended use. Fixed assets utilised for research and development are capitalised and depreciated in accordance with the policies stated for tangible fixed assets and intangible fixed assets.
1.21 Impairment of Assets :
The carrying values of assets / cash generating units at each Balance Sheet date are reviewed for impairment. If any indication of impairment exists, the recoverable amount of such assets is estimated and impairment is recognised, if the carrying amount of these assets exceeds their recoverable amount. The recoverable amount is the greater ofthe net selling price and their value in use. Value in use is arrived at by discounting the future cash flows to their present value based on an appropriate discount factor. When there is indication that an impairment loss recognised for an asset in prior accounting periods no longer exists or may have decreased such reversal of impairment loss is recognised in the Statement of Profit and Loss.
1.22 Provisions and Contingencies :
A provision is recognised when the Company has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to their 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. Contingent liabilities are not recognised but are disclosed in the notes to the financial statement.
1.23 Financial Assets, Financial Liabilities, Financial Instruments, Derivatives and Hedge Accounting :
(a) The Company classifies its financial assets into the following categories: financial instruments at fair value through Statement of Profit and Loss, loans and receivables, held to maturity investments and available for sale financial assets.
Financial assets ofthe Company mainly include cash and bank balances, trade receivables, loans and advances and derivative financial instruments with a positive fair value.
Financial liabilities of the Company mainly comprise secured and unsecured loans, trade payables, accrued expenses and derivative financial instruments with a negative fair value.
Financial assets/ liabilities are recognised on the balance sheet when the Company becomes a party to the contractual provisions ofthe instrument. Financial assets are derecognised when all ofrisks and rewards ofthe ownership have been transferred. The transfer of risks and rewards is evaluated by comparing the exposure, before and after the transfer, with the variability in the amounts and timing ofthe net cash flows of the transferred assets.
Available for sale financial assets (not covered under the notified Accounting Standards) are carried at fair value, with changes in fair value being recognised in Equity, unless they are designated in a fair value hedge relationship, where such changes are recognised in the Statement of Profit and Loss. Loans and receivables, considered not to be in the nature of short-term receivables, are discounted to their present value. Short-term receivables with no stated interest rates are measured at original invoice amount, if the effect of discounting is immaterial. Non- interest-bearing deposits, meeting the criteria of financial asset, are discounted to their present value.
Financial liabilities held for trading and liabilities designated at fair value, are carried at fair value through Statement of Profit and Loss.
Other financial liabilities are carried at amortised cost using the effective interest method. The Company measures the short-term payables with no stated rate of interest at original invoice amount, if the effect of discounting is immaterial.
Financial liabilities are derecognised when extinguished.
(b) Determining fair value
Where the classification of a financial instrument requires it to be stated at fair value, fair value is determined with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using financial markets pricing models, the methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value.
(c) Hedge accounting
The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to firm commitments and highly probable forecast transactions. The Company designates such forward contracts in a cash flow hedging relationship by applying the hedge accounting principles set out in Accounting Standard 30 ''Financial Instruments: Recognition and Measurement'' issued by the Institute of Chartered Accountants of India. These forward contracts are stated at fair value at each reporting date. Changes in the fair value of these forward contracts that are designated as hedges of future cash flows are recognised directly in ''Hedge reserve account'' under Reserves and surplus, net of applicable deferred income taxes, if any, to the extent such hedges are considered effective and the ineffective portion is recognised immediately in the Statement of Profit and Loss. Amounts accumulated in the Hedge reserve account are reclassified to the Statement of Profit and Loss in the same periods during which the forecasted transaction affects profit and loss. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. For forecasted transactions, any cumulative exchange gain or loss on the hedging instrument recognised in ''Hedge reserve account'' is retained until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, the net cumulative exchange gain or loss recognised in Hedge reserve account is immediately transferred to the Statement of Profit and Loss.
(d) Derivative contracts
The Company enters into derivative contracts in the nature of foreign currency swaps, currency options, forward contracts with an intention to hedge its existing assets and liabilities, firm commitments and highly probable transactions. Such derivative contracts which are closely linked to the existing assets and liabilities are accounted as per the accounting policy stated for foreign currency transactions and translations.
Derivative contracts designated as a hedging instrument for highly probable forecast transactions are accounted as per the policy stated for Hedge accounting.
All other derivative contracts are marked-to-market and losses / gains are recognised in the Statement of Profit and Loss.
Detail of the rights, preferences and restrictions attaching to each class of shares outstanding Equity shares of Rs. 10/- each: The Company has only one class of equity shares, having a par value of Rs.10/-. The 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 approval by the shareholders at the ensuing Annual General Meeting. In the event of liquidation ofthe Company, the holders ofthe equity shares will be entitled to receive any of the remaining assets ofthe Company, after distribution to all other parties concerned. The distribution will be in proportion to number of equity shares held by the shareholders.
1. Basis for preparation of financial statements
(a) The financial statements are prepared under the historical cost convention on accrual basis except for certain financial & other assets, liabilities which are measured on fair value basis as permitted by
(i) the Scheme of Arrangement approved by the Honorable High Courts of Judicature (Ãthe Scheme) or,
(ii) Accounting Standard (AS) 30: Financials Instruments: ÃRecognition and Measurement read with AS 31 Financial Instruments: ÃPresentation and AS 32 Financials Instruments: ÃDisclosure, to the extent such standards do not conflict with other standards notified under section 211 (3C) of the Companies Act, 1956.
(b) In terms of a Business Transfer Agreement (BTA) with Agila Specialties Private Limited (ASPL), formerly known as Strides Specialties Private Limited, a wholly owned subsidiary of the Company, the specialties business of the Company was transferred off to ASPL with effect from December 30, 2009. As per the BTA, pending completion of certain formalities and regulatory approvals, the Company continues to carry on the Specialties Business in Trust and on behalf of ASPL. The financial statements do not include transactions pertaining to ASPL.
2. Revenue
2.1 Revenue from export sales is recognized on the basis of the shipping bills for exports. Revenue from domestic sales is recognized based on the passage of title to goods which generally coincides with dispatch. Sales include excise duty and are stated net of discounts, other taxes, and sales returns.
2.2 Revenue from development services:
(a) In respect of contracts which require development on end to end basis, revenue is recognised based on technical estimates of the stage of work.
(b) In respect of other development contracts, revenue is recognised on the basis of the performance milestones provided in the contract.
2.3 Revenue from sale of dossiers is recognised on percentage completion method. The extent of completion is determined based on costs incurred and the total cost for completion of the contracts.
2.4 Revenue from contract manufacturing is recognised based on the services rendered in accordance with the terms of the contract.
2.5 Export incentives are accounted on accrual basis and include estimated realisable values/benefits from special import licenses and benefits under Duty Entitlement Pass Book schemes, wherever applicable.
2.6 Dividend income is recognized whenever the right to receive dividends is established.
2.7 Interest and other income is recognized on accrual basis.
3. Fixed Assets
Fixed assets and intangibles (other than in-house product development costs) are recorded at their acquisition cost and subsequent improvements thereto except in case of assets which are recorded at fair value as per the Scheme. Cost includes related pre- operative project expenditure and interest on borrowings attributable to the funds borrowed in respect of qualifying assets, for the period up to completion of construction or when the assets are ready to be put to use, as applicable. In-house product development costs are capitalised in accordance with Paragraph 8 below.
4. Impairment of Assets
As at each Balance Sheet date, the carrying amount of fixed assets is tested for impairment if impairment conditions exist. An impairment loss is recognised when the carrying amount of an asset exceeds its recoverable amount. Recoverable amount is determined:
(a) in the case of an individual asset, at the higher of the net selling price and value in use.
(b) in the case of cash generating units, at the higher of the units net selling price and the value in use.
Value in use is determined as the present value of estimated future cash flows from the continuing use of an asset and from its disposal at the end of its useful life.
5. Depreciation/Amortisation
Depreciation is provided under the straight-line method at the rates and in the manner prescribed under Schedule XIV of the Companies Act, 1956, based on technical estimates that indicate the useful lives would be comparable with or higher than those arrived at using these rates.
With respect to assets carried at fair value cost as permitted under the Scheme, depreciation/amortization is recorded under the straight line method over the balance useful life of the respective assets.
Individual assets costing less than Rs.5,000 are depreciated in full in the year of purchase.
6. Inventories
Inventories comprise raw materials, packing materials, consumables, work in process and finished goods. These are valued at the lower of cost and net realisable value. Cost is determined as follows:
Raw materials, packing Weighted average basis materials and consumables
Work in process at material cost and an appropriate share of production overheads
Finished Goods material cost and an appropriate share of production overheads and excise duty, wherever applicable
7. Employee benefits
The Companys contribution to Provident Fund is charged to revenue on accrual basis.
Leave balances standing to the credit to the employees that are expected to be availed in the short term are provided for on full cost basis. Liability for unavailed leave considered to be long term is carried based on an actuarial valuation.
Liability for gratuity is funded with SBI Life Insurance Company Limited. Gratuity expenses for the year are accounted based on actuarial valuation carried out as at the end of the year. The obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of the scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.
Short term employee benefits like medical, leave travel, etc are accrued based on the terms of employment on a time proportion basis.
The Company has introduced Long Term Employee Compensation Plan under which certain employees are eligible for retention and performance linked payouts. These payouts are accrued as services are rendered and or when the specific performance criteria are met.
8. Research & Development Expenditure
Development expenses incurred on specific/identified in-house developed products are capitalised from the date on which the Company is able to demonstrate technical feasibility and probable future economic benefits in respect of the products. The amount capitalised comprises expenditure that can be directly attributed, or allocated on a reasonable and consistent basis, to creating, producing and making the asset ready for its intended use.
Other development and research expenses are charged to the Profit and Loss account/Reserve for Business Restructure (`BRR).
Fixed assets acquired for Research & Development activities are capitalised and depreciated in accordance with the policy of the Company in paragraph 3 and 5 above.
9. Foreign currency transactions
The transactions denominated in foreign currency are recorded at the exchange rates prevailing on the date of the transaction. Monetary items denominated in foreign currencies at year end are translated at the exchange rate prevailing on the date of the balance sheet. Exchange differences on settlement or restatement are adjusted in the profit & loss account.
10. Investments
(a) Current investments are carried at lower of cost and fair market value. Provision is made to recognize decline, if any, in the carrying value.
(b) Long-term investments are valued at cost except for investments which are recorded at fair value as per the Scheme less impairment considered to be other than temporary.
11. Leases
Lease arrangements, where the risks and rewards incident to ownership of an asset substantially vest with the lessor, are classified as operating leases and the lease rentals thereon are charged to the Profit and Loss Account on accrual basis. Assets acquired under
finance lease arrangements are recognised as an asset and a liability is setup at the inception of the lease, at an amount equal to lower of the fair value of leased assets or the present value of the future minimum lease payments.
12. Financial Assets, Financial Liabilities, Financial Instruments, Derivatives and Hedge Accounting
(a) The Company classifies its financial assets into the following categories: financial instruments at fair value through profit and loss, loans and receivables, held to maturity investments and available for sale financial assets.
Financial assets of the Company mainly include cash and bank balances, sundry debtors, loans and advances and derivative financial instruments with a positive fair value.
Financial liabilities of the Company mainly comprise secured and unsecured loans, sundry creditors, accrued expenses and derivative financial instruments with a negative fair value.
Financial assets/liabilities are recognized on the balance sheet when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when all of risks and rewards of the ownership have been transferred. The transfer of risks and rewards is evaluated by comparing the exposure, before and after the transfer, with the variability in the amounts and timing of the net cash flows of the transferred assets.
Available for sale financial assets (not covered under the notified Accounting Standards) are carried at fair value, with changes in fair value being recognised in Equity, unless they are designated in a fair value hedge relationship, where such changes are recognised in the Profit and Loss account. Loans and receivables, considered not to be in the nature of short-term receivables, are discounted to their present value. Short-term receivables with no stated interest rates are measured at original invoice amount, if the effect of discounting is immaterial. Non-interest-bearing deposits, meeting the criteria of financial asset, are discounted to their present value.
Financial liabilities held for trading and liabilities designated at fair value, are carried at fair value through profit and loss.
Other financial liabilities are carried at amortized cost using the effective interest method. The Company measures the short- term payables with no stated rate of interest at original invoice amount, if the effect of discounting is immaterial.
Financial liabilities are derecognized when extinguished.
(b) Determining fair value
Where the classification of a financial instrument requires it to be stated at fair value, fair value is determined with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using financial markets pricing models, the methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value.
(c) Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign currency assets and liabilities. The Company limits the effects of foreign exchange rate fluctuations by following established risk management policies including the use of derivatives. The Company enters into forward exchange financial instruments where the counterparty is a bank. Changes in fair values of these financial instruments that do not qualify as a Cash flow hedge accounting are adjusted in the Profit and Loss.
(d) Hedge Accounting
Some financial instruments and derivatives are used to hedge interest rate, exchange rate, commodity, equity exposures and exposures to certain indices. Where derivatives are held for risk management purposes and when transactions meet the criteria specified in AS 30, the Company applies fair value hedge accounting or cash flow hedge accounting as appropriate to the risks being hedged.
(e) Fair value hedge accounting
Changes in the fair value of financial instruments and derivatives that qualify for and are designated as fair value hedges are recorded in the Profit and Loss Account, together with changes in the fair value attributable to the risk being hedged in the hedged asset or liability. If the hedged relationship no longer meets the criteria for hedge accounting, it is discontinued.
13. Employee Stock Option Schemes
Employee stock options are accounted in accordance with the guidelines stipulated by SEBI and Guidance Note on Accounting for Employee Share-based Payments. The difference between the market price of the shares underlying the options granted on the date of grant of option and the option price is expensed in the profit & loss Account or `BRR.
14. Income Tax
Income Tax comprises the current tax provision and the net change in the deferred tax asset or liability during the year. Deferred tax assets and liabilities are recognized for the future tax consequences arising out of temporary differences between the carrying values of the assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applicable on the Balance Sheet date. Deferred tax assets are recognised and carried forward to the extent that there is a reasonable/virtual certainty (as applicable) that sufficient future taxable income will be available against which such deferred tax asset can be realised. The effect on deferred tax assets and liabilities resulting from change in tax rates is recognized in the income statement in the period of enactment of the change.
Minimum alternative tax (`MAT) paid in accordance to the tax laws, which gives rise to future economic benefits in the form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax in future years. Accordingly, MAT is recognized as an asset in the balance sheet when it is probable that the future economic benefit associated with it will flow to the Company and the asset can be measured reliably.
15. Deferred Revenue Expenditure
The Company operates in an environment which requires the manufacturing facilities to be approved by industry regulators in certain territories prior to manufacture and sale of products in such territories. If the interval between the date off the facility is ready to commence commercial production and the date at which commercial production is expected to commence is prolonged, all expenses incurred during this period are treated as deferred revenue expenditure and amortised over a period not exceeding 3 years from the date of receipt of approvals.
16. Use of estimates
The preparation of financial statements requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Examples of such estimates include the useful life of fixed assets (including intangible assets), provision for doubtful debts/advances, provision for employee benefits, deferred employee compensations, allowances for slow moving/non moving inventory, provision for tax, estimate of percentage of completion of work under contracts for development services and sale of dossiers.
Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results may vary from these estimates.
17. Provisions and Contingencies
A provision is recognised when the Company has a present legal or constructive obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to its present value and are determined based on best estimate required to settle the obligation. Contingent liabilities are not recognised but are disclosed in the notes to financial statements.
1. Basis for preparation of financial statements
The financial statements are prepared under the historical cost convention on accrual basis except for certain financial & other assets, liabilities which are measured on fair value basis as permitted by the Accounting Standards or as per the Scheme of Arrangement approved by the Honorable High Courts of Judicature.
2. Revenue
2.1 Revenue from export sales is recognised on the basis of the shipping bills for exports. Revenue from domestic sales is recognised based on the passage of title to goods which generally coincides with dispatch. Sales include excise duty and are stated net of discounts, other taxes, and sales returns.
2.2 Revenue from development services:
(a) In respect of contracts which require development on end to end basis, revenue is recognised based on technical estimates of the stage of work.
(b) In respect of other development contracts, revenue is recognised on the basis of the performance milestones provided in the contract.
2.3 Revenue from sale of dossiers is recognised on percentage completion method. The extent of completion is determined based on costs incurred and the total cost for completion of the contracts.
2.4 Revenue from contract manufacturing is recognised based on the services rendered in accordance with the terms of the contract.
2.5 Export incentives are accounted on accrual basis and include estimated realisable values/ benefits from special import licenses and benefits under Duty Entitlement Pass Book schemes, wherever applicable.
2.6 Dividend income is recognised whenever the right to receive dividends is established.
2.7 Interest and other income is recognised on accrual basis
3. Fixed Assets
Fixed assets and intangibles (other than in-house product development costs) are recorded at their acquisition cost and subsequent improvements thereto except in case of assets which are recorded at fair value as per the Scheme of Arrangement approved by the Honorable High Courts of Judicature. Cost includes related pre-operative project expenditure and interest on borrowings attributable to the funds borrowed in respect of qualifying assets, for the period up to completion of construction or when the assets are ready to be put to use, as applicable. In-house product development costs are capitalised in accordance with Paragraph 8 below.
4. Impairment of Assets
As at each Balance Sheet date, the carrying amount of fixed assets is tested for impairment if impairment conditions exist. An impairment loss is recognised when the carrying amount of an asset exceeds its recoverable amount. Recoverable amount is determined:
(a) in the case of an individual asset, at the higher of the net selling price and value in use.
(b) in the case of cash generating units, at the higher of the unitÃs net selling price and the value in use.
Value in use is determined as the present value of estimated future cash flows from the continuing use of an asset and from its disposal at the end of its useful life.
5. Depreciation/ Amortisation
Depreciation is provided under the straight-line method at the rates and in the manner prescribed under Schedule XIV of the Companies Act, 1956, based on technical estimates that indicate the useful lives would be comparable with or higher than those arrived at using these rates.
In the case of the following assets, depreciation is provided/ amortised under the straight line method over the useful life of the assets as follows:
Dies and Punches : 4 years
Registrations and Brands : 5 to 10 years Software Licenses : 5 years
With respect to assets carried at fair value cost, depreciation is provided / amortised under the straight line method over the useful life of the respective assets.
Individual assets costing less than Rs.5,000 are depreciated in full in the year of purchase.
6. Inventories
Inventories comprise raw materials, packing materials, consumables, work in process and finished goods. These are valued at the lower of cost and net realisable value. Cost is determined as follows:
Raw materials, packing weighted average basis materials and consumables
Work in process at material cost and an appropriate share of production overheads
Finished Goods material cost and an appropriate share of production overheads and excise duty, wherever applicable
7. Employee benefits
The CompanyÃs contribution to Provident Fund is charged to revenue on accrual basis.
Leave balances standing to the credit to the employees that are expected to be availed in the short term are provided for on full cost basis. Liability for unavailed leave considered to be long term is carried based on an actuarial valuation.
Liability for gratuity is funded with SBI Life Insurance Company Limited. Gratuity expenses for the year are accounted based on actuarial valuation carried out as at the end of the fiscal year. The obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the scheme.
Short term employee benefits like medical, leave travel, etc are accrued based on the terms of employment on a time proportion basis.
The Company has introduced Long Term Employee Compensation Plan under which certain employees are eligible for retention and performance linked payouts. These payouts are accrued as services are rendered and or when the specific performance criteria are met.
8. Research & Development Expenditure
Development expenses incurred on specific/ identified in-house developed products are capitalised from the date on which the Company is able to demonstrate technical feasibility and probable future economic benefits in respect of the products. The amount capitalised comprises expenditure that can be directly attributed, or allocated on a reasonable and consistent basis, to creating, producing and making the asset ready for its intended use.
Other development and research expenses are charged to the Profit and Loss account / BRR.
Fixed assets acquired for Research & Development activities are capitalised and depreciated in accordance with the policy of the Company in paragraph 1.3 and 1.5 above.
9. Foreign currency transactions
The transactions denominated in foreign currency are recorded at the exchange rates prevailing on the date of the transaction. Monetary items denominated in foreign currencies at year end are translated at the exchange rate prevailing on the date of the balance sheet. Exchange differences on settlement or restatement are adjusted in the profit & loss account.
10. Investments
Current investments are carried at lower of cost and fair market value. Provision is made to recognise decline, if any, in the carrying value.
Long-term investments are valued at cost less impairment considered to be other than temporary, except for investments which are:
a. Designated as hedged items for changes in the spot rate of the foreign currency underlying in the investment. Such investments are carried at fair values by restating the underlying foreign currency at the closing spot rates.
b. Recorded at fair value as per the Scheme of Arrangement approved by the Honorable High Courts of Judicature.
11. Leases
Lease arrangements, where the risks and rewards incident to ownership of an asset substantially vest with the lessor, are classified as operating leases and the lease rentals thereon are charged to the Profit and Loss Account on accrual basis. Assets acquired under finance lease arrangements are recognised as an asset and a liability is setup at the inception of the lease, at an amount equal to lower of the fair value of leased assets or the present value of the future minimum lease payments.
12. Financial Assets, Financial Liabilities, Financial Instruments, Derivatives and Hedge Accounting
(a) The Company classifies its financial assets into the following categories: financial instruments at fair value through profit and loss, loans and receivables, held to maturity investments and available for sale financial assets.
Financial assets of the Company mainly include cash and bank balances, sundry debtors, loans and advances and derivative financial instruments with a positive fair value.
Financial liabilities of the Company mainly comprise secured and unsecured loans, sundry creditors, accrued expenses and derivative financial instruments with a negative fair value.
Financial assets/ liabilities are recognised on the balance sheet when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when all of risks and rewards of the ownership have been transferred. The transfer of risks and rewards is evaluated by comparing the exposure, before and after the transfer, with the variability in the amounts and timing of the net cash flows of the transferred assets.
Available for sale financial assets (not covered under other Accounting Standards) are carried at fair value, with changes in fair value being recognised in Equity, unless they are designated in a Fair value hedge relationship, where such changes are recognised in the Profit and Loss account. Loans and receivables, considered not to be in the nature of Short-term receivables, are discounted to their present value. Short-term receivables with no stated interest rates are measured at original invoice amount, if the effect of discounting is immaterial. Non-interest-bearing deposits, meeting the criteria of financial asset, are discounted to their present value.
Financial liabilities held for trading and liabilities designated at fair value, are carried at fair value through profit and loss.
Other financial liabilities are carried at amortised cost using the effective interest method. The Company measures the short-term payables with no stated rate of interest at original invoice amount, if the effect of discounting is immaterial.
Financial liabilities are derecognised when extinguished.
(b) Determining fair value
Where the classification of a financial instrument requires it to be stated at fair value, fair value is determined with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using financial markets pricing models, the methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value.
(c) Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign currency assets and liabilities. The Company limits the effects of foreign exchange rate fluctuations by following established risk management policies including the use of derivatives. The Company enters into forward exchange financial instruments where the counterparty is a bank. Changes in fair values of these financial instruments that do not qualify as a Cash flow hedge accounting are adjusted in the Profit and Loss.
(d) Hedge Accounting
Some financial instruments and derivatives are used to hedge interest rate, exchange rate, commodity and equity exposures and exposures to certain indices. Where derivatives are held for risk management purposes and when transactions meet the criteria specified in Accounting Standard 30, the Company applies fair value hedge accounting or cash flow hedge accounting as appropriate to the risks being hedged.
(e) Fair value hedge accounting
Changes in the fair value of financial instruments and derivatives that qualify for and are designated as fair value hedges are recorded in the Profit and Loss Account, together with changes in the fair value attributable to the risk being hedged in the hedged asset or liability.
If the hedged relationship no longer meets the criteria for hedge accounting, it is discontinued.
13. Employee Stock Option Schemes
Employee stock options are accounted in accordance with the guidelines stipulated by SEBI and Guidance Note on Accounting for Employee Share-based Payments. The difference between the market price of the shares underlying the options granted on the date of grant of option and the option price is expensed under ÃPersonnel costÃ.
14. Income Tax
Income Tax comprises the current tax provision and the net change in the deferred tax asset or liability during the year. Deferred tax assets and liabilities are recognised for the future tax consequences arising out of temporary differences between the carrying values of the assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applicable on the Balance Sheet date. Deferred tax assets are recognised and carried forward to the extent that there is a reasonable/ virtual certainty (as applicable) that sufficient future taxable income will be available against which such deferred tax asset can be realised. The effect on deferred tax assets and liabilities resulting from change in tax rates is recognised in the income statement in the period of enactment of the change.
15. Use of estimates
The preparation of financial statements requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Examples of such estimates include the useful life of fixed assets (including intangible assets), provision for doubtful debts/ advances, provision for employee benefits, allowances for slow moving/ non moving inventory, provision for tax, estimate of percentage of completion of work under contracts for development services and sale of dossiers.
Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results may vary from these estimates.
16. Provisions and Contingencies
A provision is recognised when the Company has a present legal or constructive obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to its present value and are determined based on best estimate required to settle the obligation. Contingent liabilities are not recognised but are disclosed in the notes to financial statements.
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