2 Summary of material accounting policies
This note provides a list of the material accounting
policies adopted in the preparation of these Indian
Accounting Standards (Ind-AS) financial statements.
These policies have been consistently applied to all
the years.
2.01 Statement of compliance and basis of preparation
These standalone financial statements of the
Company have been prepared in accordance with
Indian Accounting Standards (Ind AS) notified under
the Companies (Indian Accounting Standards) Rules,
2015 (as amended from time to time) and presentation
and disclosure requirements of Division II of Schedule
III to the Companies Act, 2013, (Ind AS compliant
Schedule III) (as amended from time to time) as
applicable to the standalone financial statements.
These standalone financial statements are presented
in ' and all values are rounded to the nearest crores
(' 00,00,000), except when otherwise indicated. The
Company has prepared the financial statements on
the basis that it will continue to operate as a going
concern.
The financial statements have been prepared on a
historical cost basis, except for the following assets
and liabilities which have been measured at fair
value:
i) Certain financial assets and liabilities that are
measured at fair value (refer accounting policy
regarding financial instruments)
ii) Assets held for sale are measured at fair value
less cost to sell
iii) Defined benefit plans- plan assets are measured
at fair value
iv) Equity settled ESOP at grant date fair valuation
2.02 Current versus non-current classification
The Company presents assets and liabilities in
the balance sheet based on current/non- current
classification. An asset is treated as current when it
is:
- Expected to be realized or intended to be sold or
consumed in normal operating cycle
- Held primarily for purpose of trading
- Expected to be realised within twelve months
after the reporting period, or
- cash or cash equivalent unless restricted from
being exchanged or used to settle a liability
for at least twelve months after the reporting
period.
All other assets are classified as non-current.
A liability is current when:
- It is expected to be settled in normal operating
cycle
- It is held primarily for purpose of trading
- It is due to be settled within twelve months after
the reporting period, or
- There is no unconditional right to defer the
settlement of the liability for at least twelve
months after the reporting period
All other liabilities are classified as non current.
The terms of the liability that could, at the option of
the counterparty, result in its settlement by the issue
of equity instruments do not affect its classification.
Deferred tax assets and deferred tax liabilities are
classified as non- current assets and liabilities.
The operating cycle is the time between the acquisition
of assets for processing and their realisation in cash
and cash equivalents. The Company has identified
twelve months as its operating cycle.
2.03 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements are
measured using the currency of the primary
economic environment in which the entity
operates (‘the functional currency’). The
Company’s financial statements are presented
in Indian Rupee (?) which is also the Company’s
functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into
the functional currency using the exchange rate
prevailing at the date of the transaction. Foreign
exchange gains and losses resulting from the
settlement of such transactions and from the
translation of monetary assets and liabilities
denominated in foreign currencies at year end
exchange rate are generally recognised in the
statement of profit and loss.
Monetary assets and liabilities denominated
in foreign currencies are translated at the
functional currency spot rates of exchange at
the reporting date.
Non-monetary items that are measured in
terms of historical cost in a foreign currency are
translated using the exchange rates at the dates
of the initial transactions. Non- monetary items
measured at fair value in a foreign currency are
translated using the exchange rates at the date
when the fair value is determined.
(c) Exchange differences
Exchange differences arising on settlement or
translation of monetary items are recognized
as income or expense in statement of profit and
loss. The gain or loss arising on translation of
non-monetary items measured at fair value is
treated in line with the recognition of the gain or
loss on the change in fair value of the item (i.e.,
translation differences on items whose fair value
gain or loss is recognized in other comprehensive
income (OCI) or statement of profit and loss are
also recognized in OCI or statement of profit and
loss, respectively).
2.04 Fair value measurement
The Company measures financial instruments 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:
(i) In the principal market for asset or liability, or
(ii) 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 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.
A fair value measurement of a non- financial asset
takes into account a market participant’s ability to
generate economic benefits by using the asset in its
highest and best use or by selling it to another market
participant that would use the asset in its highest and
best use.
The Company uses valuation techniques that are
appropriate in the circumstances and for which
sufficient data are available to measure fair value,
maximising the use of relevant observable inputs and
minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is
measured or disclosed in the financial statements are
categorized 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
For assets and liabilities that are recognized in
the financial statements on a recurring basis, the
Company determines whether transfers have
occurred between levels in the hierarchy by re¬
assessing categorization (based on the lowest level
input that is significant to fair value measurement as
a whole) at the end of each reporting period.
I nvolvement of external valuers is decided upon
annually by the Management. Selection criteria
include market knowledge, reputation, independence
and whether professional standards are maintained.
Management decides, after discussions with the
external valuers, which valuation techniques and
inputs to use for each case.
At each reporting date, management analyses the
movements in the values of assets and liabilities
which are required to be remeasured or re-assessed
as per the Company’s accounting policies. For this
analysis, management verifies the major inputs
applied in the latest valuation by agreeing the
information in the valuation computation to contracts
and other relevant documents.
The management also compares the change in the
fair value of each asset and liability with relevant
external sources to determine whether the change is
reasonable.
For the purpose of fair value disclosures, the Company
has determined classes of assets and liabilities on
the basis of the nature, characteristics and risks of
the asset or liability and the level of the fair value
hierarchy as explained above.
2.05 Revenue from contracts with customers
The Company sells, manufactured and traded
range of pharmaceutical and healthcare products.
Revenue from contracts with customers involving
sale of these products is recognized at a point in time
when control of the product has been transferred,
and there are no unfulfilled obligation that could
affect the customer’s acceptance of the products.
Delivery occurs when the products are shipped to
specific location and control has been transferred to
the customers. The Company has objective evidence
that all criteria for acceptance has been satisfied.
(a) Sale of products
Revenue from contracts with customers in
respect of sale of products is recognised at
the point in time when control of the goods
is transferred to the customer, generally on
delivery of the goods and there are no unfulfilled
obligations.
Revenue towards satisfaction of a performance
obligation is measured at the amount of
transaction price (net of variable consideration)
allocated to that performance obligation.
The Company considers, whether there are
other promises in the contract in which separate
performance obligations, to which a portion of
the transaction price needs to be allocated. In
determining the transaction price for the sale
of products, the Company allocates a portion
of the transaction price to goods based on its
relative standalone prices and also considers the
following:-
(i) Variable consideration
If the consideration in a contract includes a
variable amount, the Company estimates
the amount of consideration to which it
will be entitled in exchange for transferring
the goods to the customer. The variable
consideration is estimated at contract
inception and constrained until it is highly
probable that a significant revenue
reversal in the amount of cumulative
revenue recognised will not occur when the
associated uncertainty with the variable
consideration is subsequently resolved.
The rights of return and schemes give rise
to variable consideration.
a. Right of return
The Company uses the expected
value method to estimate the variable
consideration given the large number
of contracts that have similar
characteristics. This allowance is
based on the Company’s estimate of
expected sales returns. With respect
to established products, the Company
considers its historical experience of
sales returns, levels of inventory in
the distribution channel, estimated
shelf life primarily basis remaining
shelf life of product in the distribution
channel, product discontinuances,
price changes of competitive products,
and the introduction of competitive
new products, to the extent each of
these factors impact the Company’s
business and markets. With respect
to new products introduced by
the Company, such products have
historically been either extensions of
an existing line of product where the
Company has historical experience
or in therapeutic categories where
established products exist and are
sold either by the Company or the
Company’s competitors.
b. Schemes
The Company operates several sales
incentive programmes wherein the
customers are eligible for several
benefits on achievement of underlying
conditions as prescribed in the scheme
program. Revenue from contracts with
customers is presented deducting cost
of all such schemes.
(b) Sale of services
Revenue from services are recognised as and
when services are rendered and on the basis
of contractual terms with the parties. The
performance obligation in respect of services is
satisfied over a period of time and acceptance
of the customer. In respect of these services,
payment is generally due upon completion of
services.
(c) Out-licensing arrangements
Revenue include amounts derived from product
out-licensing agreements. These arrangements
consist of an initial up-front payment on inception
of the license and subsequent payments
dependent on achieving certain milestones in
accordance with the terms prescribed in the
agreement. Non-refundable up-front license fees
received in connection with product out-licensing
agreements are deferred and recognised over
the period in which the Company has continuing
performance obligations. Milestone payments
which are contingent on achieving certain
clinical milestones are recognised as revenue
either on achievement of such milestones, if
the milestones are considered substantive, or
over the period the Company has continuing
performance obligations, if the milestones are
not considered substantive.
(d) Profit sharing revenues
The Company enters into arrangements for
the sale of its products in certain markets.
Under such arrangements, the Company sells
its products 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 dependent
on the ultimate net sale proceeds or net profits,
subject to any reductions or adjustments that
are required by the terms of 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 only to the
extent that it is highly probable that a significant
reversal will not occur.
(e) Other income
a. Interest income
For all debt instruments measured either at
amortized cost or at fair value through other
comprehensive income, interest income is
recorded using the effective interest rate
(EIR). EIR is the rate that exactly discounts
the estimated future cash payments
or receipts over the expected life of the
financial instrument or a shorter period,
where appropriate, to the gross carrying
amount of the financial asset or to the
amortized cost of a financial liability. When
calculating the EIR, the Company estimates
the expected cash flows by considering
all the contractual terms of the financial
instrument (for example, prepayment,
extension, call and similar options) but does
not consider the expected credit losses.
Interest income is included in other income
in the statement of profit and loss.
b. Export benefits
Revenue from export benefits arising from
duty drawback scheme and remission of
duties and taxes on exported products
scheme are recognized on export of goods in
accordance with their respective underlying
scheme at fair value of consideration
received or receivable.
(f) Trade receivables
A receivable is recognised if an amount of
consideration that is unconditional (i.e., only the
passage of time is required before payment of
the consideration is due). Refer to accounting
policies of financial assets in financial
instruments - initial recognition and subsequent
measurement.
(g) Contract liabilities
A contract liability is recognised if a payment
is received or a payment is due (whichever is
earlier) from a customer before the Company
transfers the related goods or services. Contract
liabilities are recognised as revenue when the
Company performs under the contract (i.e.,
transfers control of the related goods or services
to the customer).
2.06 Government grants
Grants from the government are recognised at their
fair value where there is a reasonable assurance
that the grant will be received, and all attached
conditions will be complied with. When the grant
relates to an expense item, it is recognised as income
on a systematic basis over the periods that the
related costs, for which it is intended to compensate,
are expensed. When the grant relates to an asset, it
is recognised as income in equal amounts over the
expected useful life of the related asset.
Government grants relating to the purchase of
property, plant and equipment are included in non¬
current liabilities as deferred income and are credited
to statement of profit and loss on a straight-line basis
over the expected lives of the related assets and
presented within other income.
2.07 Income tax
The income tax expense or credit for the period is the
tax payable on the current period’s taxable income
based on the applicable income tax rate and changes
in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.
(a) Current income tax
The current income tax expense is calculated
on the basis of the tax rates and tax laws
enacted or substantively enacted at the end
of the reporting period in the countries where
the Company operates and generates taxable
income. Management periodically evaluates
positions taken in tax returns with respect to
situations in which applicable tax regulation is
subject to interpretation and considers whether
it is probable that a taxation authority will accept
an uncertain tax treatment. The Company
measures its tax balances either based on
the most likely amount or the expected value,
depending on which method provides a better
prediction of the resolution of the uncertainty.
Current tax assets and tax liabilities are offset
where the entity has a legally enforceable
right to offset and intends either to settle on a
net basis, or to realise the asset and settle the
liability simultaneously.
(b) Deferred tax
Deferred income tax is provided using the
balance sheet approach on temporary
differences between the tax bases of assets
and liabilities and their carrying amounts in the
standalone financial statements at the reporting
date.
Deferred tax liabilities are recognised for all
taxable temporary differences, except:
- I n respect of initial recognition of goodwill
or asset or liability in a transaction that
is not a business combination and, at the
time of the transaction, affects neither the
accounting profit nor taxable profit or loss
and does not give rise to equal taxable and
deductible temporary differences.
- In respect of taxable temporary differences
associated with investments in subsidiaries,
associates and interests in joint ventures,
when the timing of the reversal of the
temporary differences can be controlled and
it is probable that the temporary differences
will not reverse in the foreseeable future.
Deferred tax assets are recognised for all
deductible temporary differences, the carry
forward of unused tax credits and unused tax
losses. Deferred tax assets are recognised to
the extent that it is probable that taxable profit
will be available against which the deductible
temporary differences, and unused tax losses
can be utilised, except:
- I n respect of initial recognition of an asset
or liability in a transaction that is not a
business combination and, at the time of the
transaction, affects neither the accounting
profit nor taxable profit or loss and does not
give rise to equal taxable and deductible
temporary differences.
- In respect of deductible temporary
differences associated with investments
in subsidiaries, associates and interests
in joint ventures, deferred tax assets are
recognised only to the extent that it is
probable that the temporary differences
will reverse in the foreseeable future and
taxable profit will be available against
which the temporary differences can be
utilised.
The carrying amount of deferred tax assets is
reviewed at each reporting date and reduced
to the extent that it is no longer probable that
sufficient taxable profit will be available to
allow all or part of the deferred tax asset to be
utilised. Unrecognised deferred tax assets are
re-assessed at each reporting date and are
recognised to the extent that it has become
probable that future taxable profits will allow
the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply in the
year when the asset is realised, or the liability is
settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted at
the reporting date.
Deferred tax relating to items recognised outside
statement of profit and loss is recognised outside
statement of profit and loss (either in OCI or in
equity). Deferred tax items are recognised in
correlation to the underlying transaction either
in OCI or directly in equity.
Deferred tax assets and liabilities are offset
where there is a legally enforceable right to offset
current tax assets and liabilities and where the
deferred tax balances relate to income taxes
levied by the same taxation authority.
In the situations where the Company is entitled
to a tax holiday under the Income Tax Act, 1961,
no deferred tax (asset or liability) is recognized
in respect of temporary differences which
reverse during the tax holiday period, to the
extent the entity’s gross total income is subject
to the deduction during the tax holiday period.
Deferred tax in respect of temporary differences
which reverse after the tax holiday period is
recognized in the year in which the temporary
differences originate. However, the Company
restricts recognition of deferred tax assets to
the extent it is probable that sufficient future
taxable income will be available against which
such deferred tax assets can be realized. For
recognition of deferred taxes, the temporary
differences which originate first are considered
to reverse first.
Current and deferred tax is recognised in
statement of profit and loss, except to the
extent that it relates to items recognised in other
comprehensive income or directly in equity. In
this case, the tax is also recognised in other
comprehensive income or directly in equity,
respectively.
(c) Minimum alternate tax (MAT)
Minimum alternate tax (MAT) paid in a year is
charged to the statement of profit and loss as
current tax for the year. The deferred tax asset
is recognised for MAT credit available only to
the extent that it is probable that the Company
will pay normal income tax during the specified
period, i.e., the period for which MAT credit is
allowed to be carried forward. In the year in
which the Company recognizes MAT credit as
an asset, it is created by way of credit to the
statement of profit and loss and shown as part
of deferred tax asset. The Company reviews the
"MAT credit entitlement” asset at each reporting
date and writes down the asset to the extent
that it is no longer probable that it will pay
normal tax during the specified period.
2.08 Non-current assets held for sale and discontinued
operations
The Company classifies non-current assets as held
for sale if their carrying amounts will be recovered
principally through a sale rather than through
continuing use. Non- current assets classified as held
for sale are measured at the lower of their carrying
amount and fair value less costs to sell. Costs to sell
are the incremental costs directly attributable to the
disposal of an asset, excluding finance costs and
income tax expense. Any expected loss is recognized
immediately in the statement of profit and loss.
The criteria for held for sale classification is regarded
as met only when the sale is highly probable, and the
assets is available for immediate sale in its present
condition. Actions required to complete the sale/
distribution should indicate that it is unlikely that
significant changes to the sale will be made or that
the decision to sell will be withdrawn. Management
must be committed to the sale and the sale expected
within one year from the date of classification.
The Company treats sale of the asset to be highly
probable when:
i) The appropriate level of management is
committed to a plan to sell the asset
ii) An active programme to locate a buyer
and complete the plan has been initiated (if
applicable)
iii) The asset is being actively marketed for sale at a
price that is reasonable in relation to its current
fair value,
iv) The sale is expected to qualify for recognition as
a completed sale within one year from the date
of classification, and
v) Actions required to complete the plan indicate
that it is unlikely that significant changes to
the plan will be made or that the plan will be
withdrawn.
Property, plant and equipment and intangible assets
once classified as held for sale are not depreciated or
amortized.
Assets and liabilities classified as held for sale are
presented separately as current items in the balance
sheet.
Discontinued operations are excluded from the
results of continuing operations and are presented
separately as ‘profit or loss before tax from
discontinued operations,’ tax expense/(income) of
discontinued operations,’ and ‘profit or loss after tax
from discontinued operations,’ in the statement of
profit and loss.
Additional disclosures are provided in Note 51. All
other notes to the financial statements mainly include
amounts for continuing operations, unless otherwise
mentioned.
2.09 Property, plant and equipment
Property, Plant and equipment are stated at cost,
less accumulated depreciation and accumulated
impairment losses, if any. Freehold land is carried
at historical cost. Capital work in progress is stated
at cost, net of accumulated impairment loss, if
any. The cost comprises of purchase price, taxes,
duties, freight and other incidental expenses directly
attributable and related to acquisition and installation
of the concerned assets and are further adjusted
by the amount of input tax credit availed wherever
applicable. Such cost includes the cost of replacing
part of the plant and equipment and borrowing costs
for long-term construction projects if the recognition
criteria are met. When significant parts of plant and
equipment are required to be replaced at intervals,
the Company depreciates them separately based
on their specific useful lives. Likewise, when a major
inspection is performed, its cost is recognised in the
carrying amount of the plant and equipment as a
replacement if the recognition criteria are satisfied. All
other repair and maintenance costs are recognised in
statement of profit and loss as incurred. The present
value of the expected cost for the decommissioning
of an asset after its use is included in the cost of
the respective asset if the recognition criteria for a
provision are met.
An item of property, plant and equipment and any
significant part initially recognized is derecognized
upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain or
loss arising on derecognition of the asset (calculated
as the difference between the net disposal proceeds
and the carrying amount of the asset) is included in
the statement of profit and loss when the asset is
derecognised.
Capital work- in- progress includes cost of property,
plant and equipment under installation / under
development as at the balance sheet date.
Depreciation on property, plant and equipment is
calculated on prorata basis on straight-line method
using the useful lives of the assets estimated by
management. The useful life is as follows:
Type of asset Useful lives estimated by management
(Years) Useful lives as per Schedule II of Companies
Act, 2013 (Years)
The Company, based on technical assessment made
by technical expert and management estimate,
depreciates certain items of building, plant and
equipment and furniture and fixtures over estimated
useful lives which are different from the useful life
prescribed in Schedule II to the Companies Act, 2013.
The management believes that these estimated
useful lives are realistic and reflect fair approximation
of the period over which the assets are likely to be
used. The residual values are not more than 5% of
the original cost of the assets. The asset’s residual
values and useful lives are reviewed, and adjusted if
appropriate.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and adjusted
prospectively, if appropriate.
Lease hold improvements are depreciated on straight
line basis over shorter of the asset’s useful life and
their lease term.
2.10 Investment properties
Property that is held for long term rental yields or
for capital appreciation or for 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
to initial recognition, investment properties are
stated at cost less accumulated depreciation and
accumulated impairment loss, if any.
Though the Company measures investment property
using cost-based measurement, the fair value of
investment property is disclosed in the notes. Fair
values are determined based on an annual evaluation
performed by an external independent valuer
applying a valuation model as per Ind AS 113 "Fair
value measurement”.
Investment properties are derecognised either
when they have been disposed of or when they are
permanently withdrawn from use and no future
economic benefit is expected from their disposal.
The difference between the net disposal proceeds
and the carrying amount of the asset is recognised
in statement of profit and loss in the period of
derecognition.
The Company depreciates building component of
investment property over 30 years from the date of
original purchase.
Transfer of property from investment property to the
property, plant and equipment is made when the
property is no longer held for long term rental yields
or for capital appreciation or both at carrying amount
of the property transferred.
2.11 Intangible assets
Goodwill
Goodwill is initially measured at cost, being the excess
of the aggregate of the consideration transferred over
the fair value of net identifiable assets acquired and
liabilities assumed. If the fair value of the net assets
acquired is in excess of the aggregate consideration
transferred, the Company re-assesses whether it has
correctly identified all of the assets acquired and all
of the liabilities assumed and reviews the procedures
used to measure the amounts to be recognised at the
acquisition date. If the reassessment still results in an
excess of the fair value of net assets acquired over the
aggregate consideration transferred, then the gain
is recognised in other comprehensive income and
accumulated in equity as capital reserve. However,
if there is no clear evidence of bargain purchase,
the entity recognizes the gain directly in equity as
capital reserve, without routing the same through
other comprehensive income.
After initial recognition, goodwill is measured at cost
less any accumulated impairment losses, if any. For
the purpose of impairment testing, goodwill acquired
in a business combination from the acquisition
date is allocated to each of the Company’s cash¬
generating units that are expected to benefit from the
combination, irrespective of whether other assets or
liabilities of the acquiree are assigned to those units.
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 recognised
in statement of profit and loss. An impairment loss
recognised for goodwill is not reversed in subsequent
periods.
Where goodwill has been allocated to a cash¬
generating unit and part of the operation within that
unit is disposed off, the goodwill associated with the
disposed operation is included in the carrying amount
of the operation when determining the gain or loss on
disposal. Goodwill disposed in these circumstances is
measured based on the relative values of the disposed
operation and the portion of the cash-generating unit
retained.
Other intangible assets
Other intangible assets acquired separately are
measured on initial recognition at cost. The cost of
intangible assets acquired in business combination
is their fair value at the date of acquisition. Following
initial recognition, intangible assets are carried at
cost less accumulated amortization and accumulated
impairment losses, if any. Internally generated
intangibles, excluding capitalized development cost,
are not capitalized and the related expenditure is
reflected in statement of profit and loss in the period
in which the expenditure is incurred. Cost comprises
the purchase price and any attributable cost of
bringing the asset to its working condition for its
intended use.
The useful lives of intangible assets are assessed as
either finite or indefinite. Intangible assets with finite
lives are amortized over their useful economic lives
and assessed for impairment whenever there is an
indication that the intangible asset may be impaired.
The amortization period and the amortization method
for an intangible asset with a finite useful life is
reviewed at least at the end of each reporting period.
Changes in the expected useful life or the expected
pattern of consumption of future economic benefits
embodied in the asset is accounted for by changing
the amortization period or method, as appropriate,
and are treated as changes in accounting estimates.
The amortization expense on intangible assets with
finite lives is recognized in the statement of profit
and loss in the expense category consistent with the
function of the intangible assets.
Intangible assets with indefinite useful lives are not
amortized, but are tested for impairment annually,
either individually or at the cash-generating unit level.
The assessment of indefinite life is reviewed annually
to determine whether the indefinite life continues to
be supportable. If not, the change in useful life from
indefinite to finite is made on a prospective basis.
An intangible asset is derecognised upon disposal
(i.e., at the date the recipient obtains control) or
when no future economic benefits are expected
from its use or disposal. Gains or losses arising from
disposal of the intangible assets are measured as the
difference between the net disposal proceeds and the
carrying amount of the asset and are recognized in
the statement of profit and loss when the assets are
disposed off.
Intangible assets with finite useful life are amortized
on a straight line basis over their estimated useful life
as under:
Research and development cost
Research costs are expensed as incurred.
Development expenditure incurred on an individual
project is recognized as an intangible asset when the
Company can demonstrate all the following:
i) The technical feasibility of completing the
intangible asset so that it will be available for
use or sale;
ii) Its intention to complete the asset;
iii) Its ability to use or sale the asset;
iv) How the asset will generate future economic
benefits;
v) The availability of adequate resources to
complete the development and to use or sale the
asset; and
vi) The ability to measure reliably the expenditure
attributable to the intangible asset during
development.
Following the initial recognition of the development
expenditure as an asset, the cost model is applied
requiring the asset to be carried at cost less any
accumulated amortization and accumulated
impairment losses. Amortization of the asset begins
when development is complete and the asset is
available for use. It is amortized on straight line basis
over the estimated useful life. During the period of
development, the asset is tested for impairment
annually.
2.12 Borrowing costs
Borrowing cost includes interest and other costs
incurred in connection with the borrowing of funds
and charged to statement of profit and loss on the
basis of effective interest rate (EIR) method.
Borrowing costs directly attributable to the
acquisition, construction or production of an asset
that necessarily takes a substantial period of time to
get ready for its intended use or sale are capitalized
as part of the cost of the respective asset. All other
borrowing costs are recognized as expense in the
period in which they occur.
2.13 Leases
The Company assesses at contract inception
whether a contract is, or contains, a lease. That is,
if the contract conveys the right to control the use of
an identified asset for a period of time in exchange
for consideration.
Company as a lessee
The Company’s lease asset classes primarily comprise
of lease for land and building. The Company applies
a single recognition and measurement approach for
all leases, except for short-term leases and leases
of low-value assets. The Company recognises lease
liabilities to make lease payments and right-of-use
assets representing the right to use the underlying
assets.
(i) Right-of-use assets
The Company recognises right-of-use assets at
the commencement date of the lease (i.e., the
date the underlying asset is available for use).
Right-of-use assets are measured at cost, less
any accumulated depreciation and accumulated
impairment losses if any, and adjusted for any
remeasurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease
liabilities recognised, initial direct costs incurred,
and lease payments made at or before the
commencement date less any lease incentives
received. Right-of-use assets are depreciated on
a straight-line basis over the unexpired period of
respective leases ranging from 2-99 years.
If ownership of the right-of-use assets transfers
to the Company at the end of the lease term
or the cost reflects the exercise of a purchase
option, depreciation is calculated using the
estimated useful life of the asset. The right-of-
use assets are also subject to impairment. Refer
to the accounting policies in section ‘Impairment
of non-financial assets’.
(ii) Lease liabilities
At the commencement date of the lease, the
Company recognises lease liabilities measured
at the present value of lease payments to be
made over the lease term. The lease payments
include fixed payments (including in substance
fixed payments) less any lease incentives
receivable, variable lease payments that depend
on an index or a rate, and amounts expected
to be paid under residual value guarantees. The
lease payments also include the exercise price
of a purchase option reasonably certain to be
exercised by the Company and payments of
penalties for terminating the lease, if the lease
term reflects the Company exercising the option
to terminate. Variable lease payments that do
not depend on an index or a rate are recognised
as expenses (unless they are incurred to produce
inventories) in the period in which the event or
condition that triggers the payment occurs.
In calculating the present value of lease
payments, the Company uses its incremental
borrowing rate at the lease commencement
date because the interest rate implicit in the
lease is not readily determinable. After the
commencement date, the amount of lease
liabilities is increased to reflect the accretion
of interest and reduced for the lease payments
made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification,
a change in the lease term, a change in the lease
payments (e.g., changes to future payments
resulting from a change in an index or rate used
to determine such lease payments) or a change
in the assessment of an option to purchase the
underlying asset.
(iii) Short-term leases and leases of low-value
assets
The Company applies the short-term lease
recognition exemption to its short-term leases
(i.e., those leases that have a lease term of 12
months or less from the commencement date
and do not contain a purchase option). It also
applies the lease of low-value assets recognition
exemption to leases that are considered to be
low value. Lease payments on short-term leases
and leases of low-value assets are recognised as
expense on a straight-line basis over the lease
term.
2.14 Inventories
(a) Basis of valuation
I nventories are valued at lower of cost and
net realizable value after providing cost of
obsolescence, if any. However, materials and
other items held for use in the production of
inventories are not written down below cost
if the finished products in which they will be
incorporated are expected to be sold at or above
cost. The comparison of cost and net realizable
value is made on an item-by-item basis.
(b) Method of valuation
(i) Cost of raw materials has been determined
by using moving weighted average
cost method and comprises all costs
of purchase, duties, taxes (other than
those subsequently recoverable from tax
authorities) and all other costs incurred in
bringing the inventories to their present
location and condition.
(ii) Cost of finished goods and work-in-progress
includes direct material and labour and a
proportion of manufacturing overheads
based on normal operating capacity but
excluding borrowing cost. Fixed production
overheads are allocated on the basis of
normal capacity of production facilities.
Cost is determined on moving weighted
average basis.
(iii) Cost of traded goods has been determined
by using moving weighted average
cost method and comprises all costs
of purchase, duties, taxes (other than
those subsequently recoverable from tax
authorities) and all other costs incurred in
bringing the inventories to their present
location and condition.
(iv) Net realizable value is the estimated selling
price in the ordinary course of business,
less estimated costs of completion and
estimated costs necessary to make the sale.
2.15 Impairment of non- financial assets
The Company assesses, at each reporting date,
whether there is an indication that an asset may be
impaired. If any indication exists, or when annual
impairment testing for an asset is required, the
Company estimates the asset’s recoverable amount.
An asset’s recoverable amount is the higher of an
asset’s or cash-generating unit’s (CGU) fair value less
costs of disposal and its value in use. The recoverable
amount is determined for an individual asset, unless
the asset does not generate cash inflows that are
largely independent of those from other assets or
groups of assets. When the carrying amount of an
asset or CGU exceeds its recoverable amount, the
asset is considered impaired and is written down to
its recoverable amount.
In assessing value in use, the estimated future cash
flows are discounted to their present value using a
pre-tax discount rate that reflects current market
assessments of the time value of money and the
risks specific to the asset. In determining fair value
less costs of disposal, recent market transactions are
taken into account. If no such transactions can be
identified, an appropriate valuation model is used.
These calculations are corroborated by valuation
multiples, quoted share prices for publicly traded
companies or other available fair value indicators.
The Company bases its impairment calculation on
detailed budgets and forecast calculations, which
are prepared separately for each of the Company’s
CGUs to which the individual assets are allocated.
These budgets and forecast calculations generally
cover a period of five years. For longer periods, a
long-term growth rate is calculated and applied to
project future cash flows after the last projected year.
To estimate cash flow projections beyond periods
covered by the most recent budgets/forecasts, the
Company extrapolates cash flow projections in the
budget using a steady or declining growth rate for
subsequent years, unless an increasing rate can
be justified. In any case, this growth rate does not
exceed the long-term average growth rate for the
products, industries, or country or countries in which
the Company operates, or for the market in which the
asset is used.
Impairment losses of continuing operations, including
impairment on inventories, are recognised in the
statement of profit and loss, except for properties
previously revalued with the revaluation surplus
taken to OCI. For such properties, the impairment is
recognised in OCI up to the amount of any previous
revaluation surplus.
An assessment is made at each reporting date
to determine whether there is an indication that
previously recognised impairment losses no longer
exist or have decreased. If such indication exists, the
Company estimates the asset’s or CGU’s recoverable
amount. A previously recognised impairment
loss is reversed only if there has been a change in
the assumptions used to determine the asset’s
recoverable amount since the last impairment loss
was recognised. The reversal is limited so that the
carrying amount of the asset does not exceed its
recoverable amount, nor exceed the carrying amount
that would have been determined, net of depreciation,
had no impairment loss been recognised for the asset
in prior years. Such reversal is recognised in the
statement of profit and loss unless the asset is carried
at a revalued amount, in which case, the reversal is
treated as a revaluation increase.
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