2 Material Accounting Policy Information
2.01 Property, Plant and Equipment (PPE) & Investment
Property
Property, Plant and Equipment is stated at cost, net of
accumulated depreciation and accumulated impairment
losses, if any. Property that is held for long-term rental
yields or for capital appreciation or both and that is not
occupied by the company is classified as investment
property, measured at cost. Cost comprises of the purchase
price net of eligible input tax credit, and any attributable
cost of bringing the assets to its working condition for its
intended use, including the cost of replacing parts and
borrowing costs for long-term construction projects if the
recognition criteria are met.
The cost and related accumulated depreciation are
eliminated from the financial statements upon sale or
retirement of the asset and the resultant gains or losses are
recognized in the statement of profit and loss. Assets to be
disposed of are reported at the lower of the carrying value
or the net realisable value less cost to sell. Freehold land is
carried at historical cost and not depreciated.
The company has adopted, “Cost Model" for accounting
of its Property Plant and Equipment and Investment
Property.
On transition to Ind AS, the Company has elected to
continue with the carrying amount of all its Property, Plant
& equipment and Investment Property recognised as at
1st April 2016 measured as per the previous GAAP and use
that carrying value as the deemed cost of the property,
plant and equipment.
2.02 Capital Work-in-Progress
Capital work-in-progress includes projects under
construction which are not ready for intended use are
carried at cost less impairment loss, if any.
Capital Work-in-Progress includes directly attributable
revenue expenditure incurred in connection with project
implementation for the period upto asset is ready for its
intended use by the management and are treated as part
of the project costs and capitalized. Such expenses are
capitalized only if the project to which they relate, involve
substantial expansion of capacity or up-gradation.
2.03 Intangible Assets
Intangible assets are carried at cost less accumulated
amortisation and impairment losses, if any. The cost of an
intangible asset comprises of its acquisition cost including
net taxes, and directly attributable expenditure on making
the asset ready for its 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 and the cost of the
item can be measured reliably.
Intangible assets are de-recognised either on their disposal
or where no future economic benefits are expected
from their use. Losses arising on such derecognition are
recorded in the profit or loss, and are measured as the
difference between the net disposal proceeds, if any, and
the carrying amount of respective intangible assets as on
the date of derecognition
Acquired research and development intangible assets
that are under development are recognised as intangible
assets under development. These assets are not amortised
but evaluated for potential impairment on an annual basis
or when there are indications that the carrying value may
not be recoverable. Any impairment is recognised as an
expense in the statement of profit and loss.
Payments for intangible assets that are acquired by the
Company from third parties as in-licensed or purchased
intellectual property rights, compounds and products
are capitalized. If additional payments are made to the
originator company to continue performing research and
development (“R&D") activities, an evaluation is made as
to the nature of the payments. Such additional payments
will be expensed if they represent the compensation
for subcontracted R&D services not resulting in an
additional transfer of intellectual property rights to the
Company. Such additional payments will be capitalized
if they represent the compensation for the transfer to the
Company of additional intellectual property developed at
the risk of the originator company.
2.04 Impairment of Assets
Non- Financial Assets
At each balance sheet date, the Company reviews the
carrying values of its property, plant and equipment
and intangible assets to determine whether there is any
indication that the carrying value of those assets may
not be recoverable through continuing use. If any such
indication exists, the recoverable amount of the asset is
reviewed in order to determine the extent of impairment
loss (if any). Where the asset does not generate cash flows
that are independent from other assets, the Company
estimates the recoverable amount of the cash generating
unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs
to sell 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. An impairment loss is
recognised in the statement of profit and loss as and when
the carrying value of an asset exceeds its recoverable
amount.
Where an impairment loss subsequently reverses, the
carrying value of the asset (or cash generating unit) is
increased to the revised estimate of its recoverable amount
so that the increased carrying value does not exceed the
carrying value 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 in the statement of profit and loss
immediately.
Financial Assets
At each balance sheet date, the Company assesses
whether a financial asset is to be impaired. Ind AS 109
requires the Company to apply expected credit loss
model for recognition and measurement of impairment
loss. In determining the allowances for doubtful trade
receivables, the Company has used a practical expedient
by computing the expected credit loss allowance for trade
receivables based on a provision matrix. The provision
matrix takes into account historical credit loss experience
and is adjusted for forward looking information.
The impairment loss is based on the ageing of the
receivables that are due and allowance rates used in the
provision matrix. For all other financial assets, expected
credit losses are measured at an amount equal to the
12-months 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.
2.05 Non-current assets held for sale
Non-current assets and disposal groups are classified as
held for sale if their carrying amount will be recovered
principally through a sale transaction rather than
through continuing use. This condition is regarded as
met only when the asset (or disposal group) is available
for immediate sale in its present condition subject only
to terms that are usual and customary for sales of such
asset (or disposal group) and its sale is highly probable.
Management must be committed to the sale, which should
be expected to qualify for recognition as a completed sale
within one year from the date of classification.
Non-current assets (and disposal groups) classified as held
for sale are measured at the lower of their carrying amount
and fair value less costs to sell. The loss on write down
of the carrying amount of the asset is recognized in the
Statement of Profit and Loss. Non-current assets held for
sale are not depreciated or amortised.
2.06 Borrowing Cost
Borrowing costs attributable to the acquisition and/or
construction of an qualifying asset, i.e., that necessarily
takes a substantial period of time to get ready for use in
the manner as intended by management, are capitalised
as part of the cost of the asset. All other borrowing costs
are expensed in the period in which they are incurred.
2.07 Inventories
Inventories consist of Raw Materials, Stores and Spares,
Packing Materials, Work-in-Progress, Goods in Transit and
Finished Goods and are measured at the lower of cost and
net realisable value.
Cost includes expenditures incurred in acquiring the
inventories, production or conversion costs and other
costs incurred in bringing them to their existing location
and condition. Cost of purchase is determined on a
moving average basis. In the case of Finished Goods and
Work-in-Progress, cost includes an appropriate share of
overheads based on normal operating capacity.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of
completion and selling expenses.
2.08 Financial Instruments
The Company recognises financial assets and financial
liabilities when it becomes a party to the contractual
provisions of the instrument.
a. Financial Assets
(i) Initial recognition and measurement
The Company recognizes financial assets when it becomes
a party to the contractual provisions of the instrument.
All financial assets are recognized at fair value on initial
recognition, except for trade receivables which are initially
measured at transaction price. Transaction costs that are
directly attributable to the acquisition of financial assets,
that are not at fair value through profit or loss, are added
to the fair value on initial recognition. Regular way trade
of financial assets are accounted for at trade date.
(ii) Subsequent measurement
For the purpose of subsequent measurement, financial
assets are classified in four categories:
• Financial assets at amortised cost
A financial asset is subsequently measured at
amortised cost, if it is held within a business model
whose objective is to hold the asset in order to collect
contractual cash flows and the contractual terms of
the financial asset give rise on specified dates to cash
flows that are solely payments of principal and interest
on the principal amount outstanding. After initial
measurement, debt instruments are subsequently
measured at amortised cost using the effective
interest rate method, less impairment, if any.
• Financial assets at fair value through other
comprehensive income
A financial asset is subsequently measured at fair
value through other comprehensive income if it is
held within a business model whose objective is
achieved by both collecting contractual cash flows
and selling financial assets and the contractual terms
of the financial asset give rise on specified dates to
cash flows that are solely payments of principal and
interest on the principal amount outstanding.
The Company has made an irrevocable election for its
investments which are classified as equity instruments
to present the subsequent changes in fair value in
other comprehensive income based on its business
model.
• Financial assets at fair value through profit or loss
Financial assets which are not classified in any of the
above categories are subsequently fair valued through
profit or loss.
(iii) De-recognition
The company derecognizes a financial asset when the
contractual rights to the cash flows from the financial asset
expire or it transfers the financial asset and the transfer
qualifies for de-recognition under Ind AS 109.
Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise
cash at banks and on hand and short-term deposits with
an original maturity of three months or less, which are
subject to an insignificant risk of changes in value. For the
purpose of the statement of cash flows, cash and cash
equivalents consist of cash and short-term deposits, as
defined above.
Trade receivables
Trade receivables are carried at original invoice amount less
any expected credit loss. Provisions are made where there
is evidence of a risk of non-payment, taking into account
ageing, previous experience and general economic
conditions. When a trade receivable is determined to be
uncollectable it is written off, firstly against any provision
available and then to the Statement of Profit and Loss.
• Investments in subsidiaries, associates and joint
ventures
The Company has elected to recognise its investments
in subsidiaries, associates and joint ventures at cost in
the separate financial statements in accordance with
the option available in Ind AS 27, 'Separate Financial
Statements'.
b. Financial Liabilities
(i) Initial recognition and measurement
The Company's financial liabilities include trade and other
payables, loans and borrowings including bank overdrafts,
financial guarantee contracts and derivative financial
instruments.
All financial liabilities are recognised initially at fairvalue
and, in the case of loans and borrowings and payables,
net of directly attributable transaction costs.
(ii) Subsequent measurement
The subsequent measurement of financial liabilities
depends on their classification as follows:
• Financial liabilities at fair value through profit
and loss
Financial liabilities at fair value through profit and
loss include financial liabilities held for trading.
The Company has not designated any financial
liabilities upon initial recognition at fair value through
profit and loss.
• Financial liabilities measured at amortised cost
After initial recognition, interest bearing loans and
borrowings are subsequently measured at amortised
cost using the effective interest rate method except for
those designated in an effective hedging relationship.
(iii) De-recognition
A financial liability (or a part of a financial liability) is
derecognized from the company's balance sheet when
the obligation specified in the contract is discharged or
cancelled or expires.
c. Derivative Financial Instruments
The company holds derivative financial instruments such
as foreign exchange forward and option contracts to
mitigate the risk of changes in exchange rates on foreign
currency exposures. The counter party for these contracts
is generally a bank and these are not designated as hedges
under Ind AS 109, Financial Instruments.
Any derivative that is either not designated a hedge, or
is so designated but is ineffective as per Ind AS 109, is
categorized as a financial asset or financial liability, at fair
value through profit or loss. Derivatives not designated as
hedges are recognized initially at fair value and attributable
transaction costs are recognized in the statement of profit
and loss when incurred. Subsequent to initial recognition,
these derivatives are measured at fair value through profit
or loss. Assets/liabilities in this category are presented as
current assets/current liabilities if they are either held for
trading or are expected to be realized within 12 months
after the balance sheet date.
2.09 Revenue & Income Recognition
Revenue from contracts with customers is recognised
on satisfaction of performance obligation, when control
of the goods is passed to the customer, at an amount
of transaction price that reflects the consideration the
company expects to receive. The point at which control
passes is determined based on terms of agreement with
the customer or as per general industry/market practice.
Estimated future returns are calculated based on specific
methodology and assumptions. The methodology and
assumptions used to estimate returns are monitored and
adjusted regularly in the light of contractual and legal
obligations, past trend & experience and projected market
conditions. Revenue is recognised net of such future
expected return and actual return.
Variable consideration arises on the sale of goods as
a result of profit sharing arrangement and various
deductions including chargeback. Revenue is recognised
considering the impact of variable consideration.
Revenue recognition in case of profit sharing is highly
uncertain hence the same is recognised based on
reasonable certainty of revenue.
The company enters into development and marketing
collaborations and out-licences of the company's
compounds or products to other parties. These contracts
give rise to fixed and variable consideration from upfront
payments, development milestones, sales-based profit
sharing and royalties.
Income dependent on the achievement of milestone
is recognised when the related event occurs and it is
highly probable that significant reversal in the amount
of cumulative revenue recognised will not occur.
Sales-based royalties on a licence of intellectual property
are recognised on confirmation of actual sales.
GST and other taxes on sales are excluded from revenue.
Income from operations includes incentives available
under prevalent schemes are recognised to the extent
considered receivable.
Other income is comprised of interest income, Gain / loss
on investments, dividend income and Insurance claim.
Dividend income and other income is recognized when
the right to receive payment is established.
2.10 Research and Development Expense
All revenue expenses related to research and development
including expenses in relation to development of
product/processes and expenses incurred in relation to
compliances with international regulatory authorities in
obtaining of Abbreviated New Drug Applications (ANDA)
and Drug Master Files (DMF) are charged to the statement
of profit and loss in the year in which it is incurred.
Development expenditure of certain nature is capitalised
as intangible assets under development when the criteria
for recognising an intangible asset are met, usually when a
regulatory filing is intended to be made in a major market
and approval is considered highly probable.
2.11 Employee benefits
Employee benefits include salaries, wages, contribution
to provident fund, gratuity, leave encashment towards
un-availed leave, and other compensated absences.
A Long Term Employment Benefits
(a) Defined Benefit Obligation Plans:
(i) Gratuity
Defined Benefit Obligation Plans:
The Company operates a defined benefit gratuity
plan which requires contributions to be made to a
separately administered fund by the Life Insurance
Corporation of India (LIC) and HDFC Life Insurance
Company Ltd. The cost of providing benefits under
the defined benefit plan is determined using the
projected unit credit method.
The service cost and the net interest cost are charged
to the Statement of Profit and Loss. Actuarial gains
and losses arise due to difference in the actual
experience and the assumed parameters and also
due to changes in the assumptions used for valuation.
The Company recognizes these re-measurements in
the Other Comprehensive Income (OCI).
(ii) Provident Fund
The Company's contribution to provident fund,
administered through a Company managed trust, is
recognised as an expense in the Statement of Profit
and Loss.
(b) Defined Contribution plans
Superannuation fund is administered by the HDFC
Life Insurance Company Ltd. The contribution to
Superannuation fund, Contribution to pension fund,
ESIC, EDLI and Labour Welfare Fund are recognised
as an expense in the statement of profit and loss.
(c) Leave Liability
The Company has a policy to allow accumulation
of leave by employees up to certain days.
Accumulated leave liability as at the year end is
provided as per actuarial valuation. The cost of
providing benefits under the defined benefit plan is
determined using the projected unit credit method.
Actuarial gains and losses arise due to difference in
the actual experience and the assumed parameters
and also due to changes in the assumptions used for
valuation. The Company recognizes these actuarial
gains and losses in the statement of Profit and Loss,
as income or expense.
B Short Term Employee Benefits
Short term benefits payable before twelve months
after the end of the reporting period in which the
employees have rendered service are accounted as
expense in statement of profit and loss.
2.12 Depreciation / Amortisation
Depreciation is calculated on a straight-line basis as per
the specified life of the assets as provided in schedule II
to the Companies Act, 2013
The management, based on internal technical evaluation,
believes that the useful lives as given above best represent
the period over which the assets are expected to be used.
The useful lives for certain assets is different from the
useful lives as prescribed under Part C of Schedule II of
the Companies Act, 2013, and the same is considered in
the above range of useful life. Leasehold Land is amortized
over the period of lease.
Depreciation methods, useful lives and residual values are
reviewed periodically, including at each financial year end.
Depreciation on PPE added during the year is
provided on pro rata basis from the month of addition.
Depreciation on sale / disposal of PPE is provided pro-rata
up to the preceding month of disposal/discarding.
2.13 Leases
As lessee
Initial measurement
Lease Liability: At the commencement date, The Company
measure the lease liability at the present value of the lease
payments that are not paid at that date. The lease payments
shall be discounted using incremental borrowing rate.
Right-to-use assets: Initially recognised at cost, which
comprises the initial amount of the lease liability
adjusted for any lease payments made at or prior to the
commencement date of the lease plus any initial direct
costs less any lease incentives.
Subsequent measurement
Lease Liability: The Company measure the lease liability
by (a) increasing the carrying amount to reflect interest
on the lease liability; (b) reducing the carrying amount
to reflect the lease payments made; and (c) remeasuring
the carrying amount to reflect any reassessment or lease
modifications.
Right-to-use assets: Subsequently measured at cost
less accumulated depreciation and impairment
losses. Right-of-use assets are depreciated from the
commencement date on a straight line basis over the
shorter of the lease term and useful life of the under lying
asset.
Impairment
Right to use assets are evaluated for recoverability
whenever events or changes in circumstances indicate
that their carrying amounts may not be recoverable.
For the purpose of impairment testing, the recoverable
amount (i.e. the higher of the fair value less cost to sell
and the value-in-use) is determined on an individual asset
basis unless the asset does not generate cash flows that
are largely independent of those from other assets. In such
cases, the recoverable amount is determined for the Cash
Generating Unit (CGU) to which the asset belongs.
Short term Lease and Leases of Low Value underlying
assets
Short term lease is that, at the commencement date, has
a lease term of 12 months or less. A lease that contains a
purchase option is not a short-term lease. Low value assets
lease are assessed based on the value of an underlying
asset when it is new, regardless of the age of the asset being
leased. If the company elected to apply for such lease, the
lessee shall recognise the lease payments associated with
those leases as an expense on either a straight-line basis
over the lease term or another systematic basis. The lessee
shall apply another systematic basis if that basis is more
representative of the pattern of the lessee's benefit.
As a lessor
Leases for which the company is a lessor is classified
as a finance or operating lease. Whenever the terms of
the lease transfer substantially all the risks and rewards
of ownership to the lessee, the contract is classified as a
finance lease. All other leases are classified as operating
leases.
Lease income is recognised in the statement of profit and
loss on straight line basis over the lease term.
2.14 Foreign Exchange Transactions
Transactions in foreign currencies are initially recorded by
the Company at the rate of exchange prevailing on the
date of the transaction.
Monetary assets and monetary liabilities denominated
in foreign currencies remaining unsettled at the end of
the year are converted at the exchange rate prevailing on
the reporting date. Differences arising on settlement or
conversion of monetary items are recognised in statement
of profit and loss.
Non-monetary items that are measured in terms of
historical cost in a foreign currency are recorded using the
exchange rates at the date of the transaction. In respect
of forward cover contracts, the mark to market loss / gain
as at the reporting date is charged to Statement of Profit
and Loss. In respect of options contracts to mitigate the
probable foreign exchange fluctuation risk, the options
contracts are fair valued and the resultant variation as
at the reporting date is charged to Statement of Profit
and Loss.
2.15 Taxes
a. Current income tax
Income tax expense is recognised in the statement
of profit and loss except to the extent that it relates to
items recognised in Other Comprehensive Income
(OCI) or directly in equity, in such case it is recognised
in OCI or directly in equity respectively. Current income
tax for current and prior periods is recognized at the
amount expected to be paid to or recovered from the tax
authorities, using the tax rates and tax laws that have been
enacted or substantively enacted on the reporting date.
The company offsets current tax assets and current tax
liabilities, where it has a legally enforceable right to set
off the recognized amounts and where it intends either to
settle on a net basis, or to realize the asset and settle the
liability simultaneously.
b. Deferred tax
Deferred income tax assets and liabilities are recognized
for all temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the
financial statements. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that
it is no longer probable that the related tax benefit will
be realized. The benefit of credit against the payment
made towards Minimum Alternate Tax for the earlier
years is available in accordance with the provisions of the
section 115J (AA) of Income Tax Act 1961 over the period
of subsequent 15 assessment year and it is recognised to
the extent of deferred tax liability in view of the certainty
involved of its realisation against reversal of deferred tax
liability.
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