2.0 MATERIAL ACCOUNTING POLICIES2.1 Basis of Preparation:
These financial statements are the separate financial
statements of the Company (also called standalone financial
statements) prepared in accordance with Indian Accounting
Standards (‘Ind AS’) notified under section 133 of the
Companies Act 2013, read together with the Companies
(Indian Accounting Standards) Rules, 2015 (as amended).
These financial statements have been prepared and
presented under the historical cost convention, on the accrual
basis of accounting except for certain financial assets and
financial liabilities that are measured at fair values at the end
of each reporting period, as stated in the accounting policies
set out below. The accounting policies have been applied
consistently over all the periods presented in these financial
statements.
2.2 Statement of Compliance:
The financial statements comply in all material aspects with
Indian Accounting Standards (Ind AS) and other relevant
provisions of the Act.
2.3 Inventories:
Inventories are valued at cost as per moving weighted
average price or net realisable value, whichever is lower
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.
Inventories of stores and spare parts are valued at cost.
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and to
make the sale.
2.4 Property, plant and equipment:
Freehold land is carried at historical cost and not depreciated.
All other property, plant and equipment are stated at historical
cost less accumulated depreciation and accumulated
impairment losses. Historical cost includes expenditure that
is directly attributable to the acquisition of the items. Cost
includes its purchase price including non cenvatable taxes
and duties, directly attributable costs of bringing the asset to
its present location and condition and initial estimate of costs
of dismantling and removing the item and restoring the site
on which it is located. Properties in the course of construction
are carried at cost, less any recognised impairment loss.
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.
Subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefits associated with
the item will flow to the Company and the cost of the item can
be measured reliably.
The carrying amount of any component accounted for as a
separate asset is derecognised when replaced. All other
repairs and maintenance are charged to statement of profit
or loss during the reporting period in which they are incurred.
Machinery spares, stand-by equipment and servicing
equipment are recognised as property, plant and equipment
when they meet the definition of property, plant and equipment.
Otherwise, such items are classified as inventory.
An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount.
The residual values and useful lives of property, plant and
equipment are reviewed at each financial year end and
changes, if any, are accounted in the line with revisions to
accounting estimates.
Depreciation
Depreciation is calculated using the straight-line method
to allocate their cost, net of their residual values, over their
estimated useful lives. Depreciation on the subsequent cost
capitalisation are depreciated over the remaining useful life
of the assets.
Depreciation has been provided on straight line method and
in the manner specified in Schedule II of the Companies Act,
2013 based on the useful life specified in Schedule II except
where management estimate of useful life is different.
The useful lives have been determined based on technical
evaluation done by the management’s expert taking into
account the nature of the asset, past history of replacement,
anticipated technology changes etc, which are different than
those specified by Schedule II to the Companies Act, 2013
are given below:
The residual values are not more than 5% of the original cost
of the asset. The assets’ residual values and useful lives are
reviewed, and adjusted if appropriate, at the end of each
reporting period.
2.5 Goodwill and Intangible assets:
Intangible assets that are acquired by the Company, which
have finite useful lives, are measured at cost less accumulated
amortisation and accumulated impairment losses. Cost
includes expenditures that are directly attributable to the
acquisition of the intangible asset.
In respect of business combination that occurred prior to
transition date, goodwill is included on the basis of its deemed
cost, which represents the amount recorded under previous
GAAP.
Subsequent expenditure
Subsequent expenditure is capitalised only when it increase
the future economic benefits embodied in the specific assets
to which it relates. All other expenditure are recognised in
profit or loss as incurred.
Amortisation
Amortisation is recognised in profit or loss on a straight line
basis over the estimated useful lives of the intangible assets
from the date that they are available for use. The estimated
useful lives are as follows:
Goodwill arising on merger of Dishman Pharmaceuticals and
Chemicals Ltd (DPCL) with the Company has been recognised
as per the Court scheme. Said Goodwill was being amortized
over the period of 15 years from the Appointed Date i.e. 1st
January, 2015. In accordance with the power confirmed to
Board of Directors by Honorable High Court through scheme,
Further the Company has revised the balance estimate useful
life of till perpetuity i.e. 99 years effective from 01-04-2024.
Internally generated intangible asset: Research and
Development
Expenditure on research activity is recognised as expense
in the period in which it is incurred. An internally generated
intangible asset arising from development is recognised, if any
only if, all of the following conditions have been fulfilled:
• Development costs can be measured reliably;
• The product or process is technically and commercially
feasible. Future economic benefits are probable; and
• The Company intends to and has sufficient resources to
complete development and to use or sell the asset.
2.6 Borrowing cost:
General and specific borrowing costs that are directly
attributable to the acquisition, construction or production of a
qualifying asset are capitalised during the period of time that
is required to complete and prepare the asset for its intended
use. Qualifying assets are assets that necessarily take a
substantial period of time to get ready for their intended use.
Other borrowing costs are expensed in the period in which
they are incurred.
2.7 Impairment of property, plant and equipment
and intangible assets:
Consideration is given at each balance sheet date to determine
whether there is any indication of impairment of the carrying
amount of the Company’s each class of the property, plant
and equipment or intangible assets. If any indication exists,
an asset’s recoverable amount is estimated. An impairment
loss is recognized whenever the carrying amount of an asset
exceeds its recoverable amount. The recoverable amount
is the greater of the net selling price and value in use. In
assessing value in use, the estimated future cash flows are
discounted to their present value based on an appropriate
discount factor.
2.8 Impairment of non-financial assets:
Goodwill is tested for impairment annually as at 31 March and
when circumstances indicate that the carrying value may be
impaired.
Impairment is determined for goodwill by assessing the
recoverable amount of each CGU (or group of CGU’s) to
which the goodwill relates. When the recoverable amount of
the CGU is less than its carrying amount, an impairment loss
is recognised. Impairment losses relating to goodwill are not
reversed in future periods.
2.9 Foreign Currency translation:
Functional and Presentation currency
Items included in the financial statements of the Company
are measured using the currency of the primary economic
environment in which the entity operates (‘the functional
currency’). The financial statements are presented in Indian
rupee (INR), which is Company’s functional and presentation
currency.
Transaction and balances
Transactions in foreign currencies are initially recognised
in the financial statements using exchange rates prevailing
on the date of transaction. Monetary assets and liabilities
denominated in foreign currencies are translated to the
functional currency at the exchange rates prevailing at
the reporting date and foreign exchange gain or loss are
recognised in profit or loss.
Non-monetary items that are measured at fair value in a
foreign currency are translated using the exchange rates
at the date when the fair value was determined. Translation
differences on non-monetary assets and liabilities such as
equity instruments held at fair value through profit or loss are
recognised in profit or loss as part of the fair value gain or
loss and translation differences on non-monetary assets such
as equity investments classified as FVOCI are recognised
in other comprehensive income. Non-monetary items
denominated in a foreign currency and measured at historical
cost are translated at the exchange rate prevalent at the
date of transaction. Foreign exchange differences regarded
as an adjustment to the borrowing cost are presented in the
Statement of profit or loss with in finance cost. All other foreign
currency differences arising on translation are recognised in
statement of profit and loss on net basis with in other gain/
(losses).
2.10 Revenue recognition:
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Company and the revenue
can be reliably measured, regardless of when the payment
is being made. Revenue is measured at the fair value of the
consideration received or receivable, taking into account
contractually defined terms of payment. Amounts disclosed as
revenue are net of returns, trade discount, rebates, sales tax,
value added taxes and Goods & Services Tax.
Sale of goods
Revenue from sale of goods is recognised when the control of
the goods have been transferred to the buyer, the associated
costs and possible return of goods can be estimated reliably,
there is no continuing management involvement with the
goods, and the amount of revenue can be measured reliably.
The performance obligation in the case of sale of goods is
satisfied at a point in time i.e. when the material shift to the
customer or on delivery to the customer as may be specified
in the contract.
Sales of services
Revenue from services rendered is generally recognized in
proportion to the stage of completion of the transaction at
the reporting date. The stage of completion of the contract is
determined based on actual service provided as a proportion
of the total service to be provided. Revenues from contracts
priced on a time and material basis are recognised when
services are rendered and related costs are incurred.
Dividend and interest income
Dividend is recognised as income 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 is accrued on 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.
Export Incentives
Export incentives are recognised as income when the right to
receive credit as per the terms of the scheme is established in
respect of the exports made and where there is no significant
uncertainty regarding th e u ltimate collection of th e relevant
export proceeds.
2.11 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, employee state
insurance scheme and superannuation fund 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. The present value of the defined
benefit obligation is determined by discounting the estimated
future cash outflows by reference to market yields at the end
of the reporting period on government bonds that have terms
approximating to the terms of the related obligation.
The net interest cost is calculated by applying the discount
rate to the net balance of the defined benefit obligation and
the fair value of plan assets. This cost is included in employee
benefit expense in the statement of profit and loss.
Re-measurement gains and losses arising from experience
adjustments and changes in actuarial assumptions are
recognised in the period in which they occur, directly in
other comprehensive income. They are included in retained
earnings in the statement of changes in equity and in the
balance sheet and will not be reclassified to profit or loss.
Changes in the present value of the defined benefit
obligation resulting from plan amendments or curtailments are
recognised immediately in profit or loss as past service cost.
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.
2.12 Taxation:
Income tax expense represents the sum of the tax currently
payable and deferred tax.
Current tax
The current income tax charge is calculated on the basis of
the tax laws enacted or substantively enacted at the end of
the reporting period. Taxable profit differs from ‘profit before
tax’ as reported in the 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.
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 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 setoff.
MAT Credits are in the form of unused tax credits that are
carried forward by the Company for a specified period of time,
hence it is grouped with Deferred Tax Asset.
Current and deferred tax for the year
Current and deferred tax are recognised in profit or 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.
2.13 Leases:
The Company, as a lessee, recognises a right-of-use asset
and a lease liability for its leasing arrangements, if the contract
conveys the right to control the use of an identified asset.
The contract conveys the right to control the use of an
identified asset, if it involves the use of an identified asset
and the Company has substantially all of the economic
benefits from use of the asset and has right to direct the use
of the identified asset. The cost of the right-of-use asset shall
comprise of the amount of the initial measurement of the lease
liability adjusted for any lease payments made at or before the
commencement date plus any initial direct costs incurred. The
right-of-use assets is subsequently measured at cost less any
accumulated depreciation, accumulated impairment losses, if
any and adjusted for any remeasurement of the lease liability.
The right of- use assets is depreciated using the straight-line
method from the commencement date over the shorter of
lease term or useful life of right-of-use asset.
The Company measures the lease liability at the present value
of the lease payments that are not paid at the commencement
date of the lease. The lease payments are discounted using
the interest rate implicit in the lease, if that rate can be readily
determined. If that rate cannot be readily determined, the
Company uses incremental borrowing rate.
For short-term and low value leases, the Company recognises
the lease payments as an operating expense on a straight-line
basis over the lease term.
2.14 Financial instruments:
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
A. Financial assets
(i) Classification, recognition and measurement:
Financial assets are recognized when the Company becomes
a party to the contractual provisions of the instrument.
The company classifies its financial assets in the following
measurement categories:
a) those to be measured subsequently at fair value (either
through other comprehensive income, or through profit
or loss); and
b) those to be measured at amortised cost.
The classification depends on the company’s business model for managing the financial assets and whether 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.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For
investments in debt instruments, this will depend on the business model in which the investment is held. For investments in
equity instruments, this will depend on whether the company has made an irrevocable election at the time of initial recognition to
account for the equity investment at fair value through other comprehensive income.
(ii) Impairment:
In accordance with Ind AS 109, the Company applies Expected
Credit Loss (ECL) model for measurement and recognition of
impairment loss on the following financial assets and credit
risk exposure:
a) Financial assets that are debt instruments, and are
measured at amortised cost e.g., loans, debt securities,
deposits, and bank balance;
b) Trade receivables.
The Company follows ‘simplified approach’ for recognition of
impairment loss allowance on trade receivables which do not
contain a significant financing component.
The application of simplified approach does not require the
Company to track changes in credit risk. Rather, it recognises
impairment loss allowance based on lifetime ECLs at each
reporting date, right from its initial recognition. The Company
uses a provision matrix to determine impairment loss
allowance on the portfolio of trade receivables. The provision
matrix is based on its historically observed default rates over
the expected life of the trade receivable and is adjusted for
forward looking estimates. At every reporting date, historical
observed default rates are updated and changes in the
forward- looking estimates are analysed.
(iii) Derecognition of financial assets:
A. financial asset is derecognised only when:
(a) the company has transferred the rights to receive cash
flows from the financial asset; or
(b) retains the contractual rights to receive the cash flows of
the financial asset, but assumes a contractual obligation
to pay the cash flows to one or more recipients.
Where the company has transferred an asset, the company
evaluates whether it has transferred substantially all risks and
rewards of ownership of the financial asset. In such cases, the
financial asset is derecognised. Where the company has not
transferred substantially all risks and rewards of ownership of
the financial asset, the financial asset is not derecognised.
Where the company has neither transferred a financial asset
nor retains substantially all risks and rewards of ownership
of the financial asset, the financial asset is derecognised if
the company has not retained control of the financial asset.
Where the company retains control of the financial asset, the
asset is continued to be recognised to the extent of continuing
involvement in the financial asset.
(iv) Foreign exchange gain or losses:
The fair value of financial assets denominated in a foreign
currency is determined in that foreign currency and translated
at the spot rate at the end of each reporting period.
For foreign currency denominated financial assets measured
at amortised cost and FVTPL, the exchange difference
are recognised in profit or loss except for those which are
designated and outstanding as hedging instruments in the
hedging relationship.
Changes in the carrying amount of investments in equity
instruments at FVTOCI relating to changes in foreign currency
rates are recognised in other comprehensive income.
For the purpose of recognising foreign exchange gain and
losses, FVTOCI debt instruments are treated as financial
assets measured at amortised cost. Thus, the exchange
differences on the amortised cost are recognised in profit or
loss and other changes in the fair value of FVTOCI financial
assets are recognised in other comprehensive income.
(v) Investments in Subsidiaries:
The Company can value its investment in subsidiary as per
one of the below options:
1. As per the option stated under Ind AS 101 and measured
investments in equity instruments of subsidiaries at Cost
as per Ind AS 27. The Carrying amount is reduced to
recognise impairment, if any, in value of investments; or
2. At fair value through OCI or fair value through profit or
loss method as per the option given under Ind AS 109.
B. Financial liabilities and equity instruments:
Debt and equity instruments issued by a entity are classified
as either financial liabilities or as equity in accordance with the
substance of the contractual arrangements and the definitions
of a financial liability and an equity instrument.
Classification, recognition and measurement:
(a) Equity Instruments:
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the company are
recognised at the proceeds received, net of direct issue costs.
(b) Financial liabilities:
Initial recognition and measurement:
Financial liabilities are initially recognised at fair value plus any
transaction costs that are attributable to the acquisition of the
financial liabilities except financial liabilities at FVTPL which
are initially measured at fair value.
Subsequent measurement:
The financial liabilities are classified for subsequent
measurement into following categories:
- at amortised cost;
- at fair value through profit or loss (FVTPL).
(i) Financial liabilities at amortised cost:
The company is classifying the following under amortised cost:
- Borrowings from banks
- Borrowings from others
- Finance lease liabilities
- Trade payables
Amortised cost for financial liabilities represents amount
at which financial liability is measured at initial recognition
minus the principal repayments, plus or minus the cumulative
amortisation using the effective interest method of any
difference between that initial amount and the maturity
amount.
(ii) Financial liabilities at fair value through profit or loss:
Financial liabilities held for trading are measured at FVTPL.
Financial liabilities at FVTPL are stated at fair value with any
gains or losses arising on remeasurement, recognised in
profit or loss. The net gain or loss recognised in profit or loss
incorporates any interest paid on the financial liability and is
included in the ‘other gains and losses’ line item.
Derecognition:
A financial liability is removed from the balance sheet when
the obligation is discharged, or is cancelled, or expires. When
an existing financial liability is replaced by another from the
same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange
or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference
in the respective carrying amounts is recognised in the
Statement of Profit and Loss.
(c) Financial guarantees contracts:
Financial guarantee contracts issued by the Company
are those contracts that require a payment to be made
to reimburse the holder for a loss it incurs because the
specified debtor fails to make a payment when due in
accordance with the terms of a debt instrument. Financial
guarantee contracts are recognised in itiallyasa liability at fair
value,adjustedfortransactioncoststhatare directly attributable
to the issuance of the guarantee. Subsequently, the liability
is measured at the higher of the amount of loss allowance
determined as per impairment requirements of Ind AS 109
and the amount recognised less cumulative amortisation.
C. Derivative financial instruments:
Foreign exchange forward contracts are entered into by the
Company to mitigate the risk of changes in foreign exchange
rates associated with certain payables, receivables and
forecasted transactions denominated in certain foreign
currencies. Derivative contracts which do not qualify for hedge
accounting under Ind AS109, are initially recognized at fair
value on the date the contract is entered into and subsequently
measured at fair value through profit or loss. Gain or loss arising
from changes in the fair value of the derivative contracts are
recognised in other comprehensive income. Realized gain or
loss arising on forward contract / hedging instrument relating
to forecast sales are included under Other Operating Revenue
in the Statement of Profit and Loss. Derivatives contracts
which are qualified for hedge accounting under Ind AS 109,
are initially recognized at fair value on the date the contract is
entered into and subsequently measured at fair value through
other comprehensive income.
D. Offsetting financial instruments:
Financial assets and liabilities are offset and the net amount
is reported in the balance sheet where there is a legally
enforceable right to offset the recognised amounts and there
is an intention to settle on a net basis or realise the asset and
settle the liability simultaneously.
2.15 Fair value measurement:
The Company measures financial instruments, such as, certain
investments at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction
to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability; or
- In the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must be
accessible by the company.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in
their economic best interest.
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as
a whole:
• Level 1 — Quoted (unadjusted) market prices in active
markets for identical assets or liabilities.
• Level 2 — Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
directly or indirectly observable.
• Level 3 — Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
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