3. Material accounting policies
a. Property, plant and equipment (PPE)
Recognition and initial measurement
The cost of an item of property, plant and equipment shall
be recognised as an asset if, and only if 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.
Items of property, plant and equipment (including capital-
work-in progress) are measured at cost (which includes
capitalised borrowing costs, if any) less accumulated
depreciation and accumulated impairment losses, if
any. Freehold land is carried at historical cost less any
accumulated impairment losses.
Cost of an item of property, plant and equipment includes
its purchase price, duties, taxes, after deducting trade
discounts and rebates, any directly attributable cost of
bringing the item to its working condition for its intended
use and estimated costs of dismantling and removing the
item and restoring the site on which it is located.
The cost of a self-constructed item of property, plant and
equipment comprises the cost of materials, direct labour
and any other costs directly attributable to bringing the
item to its intended working condition and estimated
costs of dismantling, removing and restoring the site on
which it is located, wherever applicable.
If significant parts of an item of property, plant and
equipment have different useful lives, then they are
accounted for as separate items (major components)
of property, plant and equipment. Any gain or loss on
disposal of an item of property, plant and equipment is
recognised in profit or loss.
Transition to Ind AS
The cost of property, plant and equipment at 1 April
2016, the Company’s date of transition to Ind AS was
determined with reference to its carrying value recognized
as per the previous GAAP (deemed cost), as at the date of
transition to Ind AS
Subsequent expenditure
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 can be
measured reliably.
Depreciation
Depreciation is calculated on cost of items of property,
plant and equipment less their estimated residual value
using straight line method over the useful lives of assets
estimated by the Company. Depreciation rates followed
by the Company coincides with rates prescribed in
Schedule II to the Companies Act, 2013. Depreciation
amount is recognised in the Statement of Profit and Loss.
Depreciation for assets purchased / sold during the period
is proportionately charged i.e. from/(upto) the date on
which asset is ready for use/(disposed off).
The estimated useful lives of items of property, plant and
equipment are as follows:
Freehold land is not depreciated.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are reviewed
at each reporting date and adjusted prospectively,
if appropriate.
De-recognition
An item of property, plant and equipment and any significant
part initially recognised is derecognised upon disposal or
when no future economic benefits are expected from its
use or disposal. Any gain or loss arising on de-recognition
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
Capital work-in-progress includes cost of property, plant
and equipment under installation / under development as
at the balance sheet date.
b. Other Intangible assets
Recognition and measurement
Other Intangible assets (software) acquired separately
are measured on initial recognition at their cost. The cost
comprises purchase price, borrowing cost if capitalisation
criteria are met and costs directly attributable cost of
bringing the asset to its working condition for the intended
use. Any trade discount and rebates are deducted in
arriving at the purchase price.
Following initial recognition, other intangible assets are
measured at cost less accumulated amortisation and any
accumulated impairment losses.
Amortisation
Amortisation is calculated to write off the cost of
intangible assets less their estimated residual values
using the straight line method over their useful lives and is
generally recognized in depreciation and amortisation in
the Statement of Profit and Loss.
The cost of capitalised software is amortised over a period
of 6 years and the Abbreviated New Drug Application
(‘ANDA’) acquired are amortised over a period of 10 years,
on a straight-line basis. Amortisation on the addition/
disposals is charged on pro-rata basis from/(until) the
date of such addition/(disposal).
Amortisation methods, useful lives and residual values
are reviewed at each reporting date and adjusted
if appropriate.
Transition to Ind AS
The cost of intangible assets at 1 April 2016, the Company’s
date of transition to Ind AS was determined with reference
to its carrying value recognized as per the previous GAAP
(deemed cost), as at the date of transition to Ind AS
Subsequent expenditure
Subsequent expenditure is capitalised only when it
increases the future economic benefits embodied in
the specific asset to which it relates and the cost can
be measured reliably. All other expenditure, including
expenditure on internally generated goodwill and brands,
is recognised in profit or loss as incurred.
c. Foreign currencies
Transactions in foreign currencies are initially recorded
by the Company at its functional currency spot rates at
the date of the transaction. Monetary assets and liabilities
denominated in foreign currency are translated at the
functional currency spot rates of exchange at the reporting
date. Exchange differences that arise on settlement of
monetary items or on reporting at each balance sheet
date are recognised as income or expenses in the period
in which they arise. Non-monetary assets and liabilities
that are measured at fair value in a foreign currency are
translated into the functional currency at the exchange
rate when the fair value was determined. Non-monetary
assets and liabilities which are carried at historical cost
denominated in a foreign currency are reported using
the exchange rates at the date of transaction. Foreign
currency exchange differences are generally recognised
in profit or loss, except foreign currency exchange
differences arising from the translation of the following
items which are recognised in OCI -
- an investment in equity securities designated as at
FVOCI (except on impairment, in which case foreign
currency differences that have been recognised in
OCI are reclassified to profit or loss).
d. Revenue from Contracts with Customer
The Company derives revenues primarily from sale of
finished dosage formulations, active pharmaceutical
ingredients (APIs) and agricultural chemicals, including
niche and technically complex molecules.
The Company generates revenue from its ordinary
activities i.e. from sale of goods and services. A contract
in this context shall fulfill all of the following conditions:
- Both the parties to the contract agree on
the contract terms
- Performance obligation of each of the parties
is identifiable and there exists a commitment to
perform their respective obligations; and
- The commercial substance or the purchase
consideration is measurable and the
collectability is probable.
Disaggregation of revenue
The Company disaggregates revenue from contracts with
customers by the nature of sale i.e. manufactured and
traded goods of pharmaceutical or agro chemical products
and sale of service and geography. The Company believes
that this disaggregation best depicts how the nature,
amount, timing and uncertainty of Company’s revenues
and cashflows are affected by industry, market and other
economic factors.
Contract balances
The Company classifies the right to consideration in
exchange for sales of goods as trade receivables, advance
consideration as contract liability against payment and
unredeemable customer loyalty points as contract liability
against performance obligation.
The specific recognition criteria described below must
also be met before revenue is recognised:
Sale of goods:
Revenue from sale of goods is recognised when a promise
in a customer contract (performance obligation) has
been satisfied by transferring control over the promised
goods to the customer. Control is usually transferred
upon shipment, delivery to, upon receipt of goods by the
customer, in accordance with the delivery and acceptance
terms agreed with the customers. The amount of revenue
to be recognised is based on the consideration expected
to be received in exchange for goods, excluding trade
discounts, volume discounts, sales returns, where
applicable and any taxes or duties collected on behalf of
the government which are levied on sales such as goods
and services tax, etc., where applicable.
The Company from time to time enters into marketing
arrangements with certain business partners for the sale of
its products in certain markets. Under such arrangements,
the Company sells its products to the business partners at
a non-refundable base purchase price agreed upon in the
arrangement and is also entitled to a profit share which
is over and above the base purchase price. The profit
share is typically dependent on the business partner’s
ultimate net sale proceeds or net profits, subject to any
reductions or adjustments that are required by the terms
of the arrangement. Such arrangements typically require
the business partner to provide confirmation of units sold
and net sales or net profit computations for the products
covered under the arrangement.
Revenue in an amount equal to the base purchase price is
recognised in these transactions upon delivery of products
to the business partners. The variable consideration i.e.
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.
At the end of each reporting period, the Company updates
the estimated transaction price (including updating
its assessment of whether an estimate of variable
consideration is constrained) to represent faithfully
the circumstances present at the end of the reporting
period and the changes in circumstances during the
reporting period.
Sale of services:
Revenue from sale of dossiers/ licenses/services, includes
in certain instances, certain performance obligations and
based on evaluation of whether or not these obligations
are in consequential or perfunctory, revenue is recognised
in accordance with the terms of the contracts with the
customers when the related performance obligation is
completed at point in time or spread over a period of time,
as applicable. These arrangements typically consist of an
initial upfront payment on inception of the agreement and
subsequent payments dependent on achieving certain
milestones in accordance with the terms prescribed in
the agreement. Milestone payments which are contingent
on achieving certain milestones are recognised as
revenues either on achievement of such milestones or
over the performance period depending on the terms
of the contract.
The Company does not expect to have any contracts
where the period between the transfer of the promised
goods or services to the customer and payment by the
customer exceeds one year. As a consequence, it does
not require to adjust any of the transaction prices for the
time value of money.
e. Borrowing costs
Borrowing costs are interest and other costs (including
exchange differences relating to foreign currency
borrowings to the extent that they are regarded as an
adjustment to interest costs) incurred in connection
with the borrowing of funds. Borrowing costs directly
attributable to the acquisition or construction of those
property, plant and equipment which necessarily takes a
substantial period of time to get ready for their intended
use are capitalised. All other borrowing costs are expensed
in the period in which they are incurred in the Statement of
Profit and Loss.
f. Government grants
Government grants are recognised where there is
reasonable assurance that the grant will be received and
all attached conditions will be complied with. When the
grant relates to revenue, it is recognised in the Statement
of Profit and Loss on a systematic basis over the periods
to which they relate. When the grant relates to an asset,
it is presented as a reduction to the carrying value of
the related asset.
Export benefits available under prevalent schemes are
accrued in the year in which the goods are exported
and no significant uncertainty exist regarding its
ultimate collection.
g. Leases
At inception of a contract, the Company assesses
whether a contract is, or contains, a lease. A contract is,
or contains, a lease if the contract conveys the right to
control the use of an identified asset for a period of time in
exchange for consideration.
i. Leases as a lessee
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.
The Company recognises right-of-use asset
representing its right to use the underlying asset for
the lease term at the lease commencement date.
The right-of-use assets is measured at cost which
comprises the initial amount of the lease liability
adjusted for any lease payments made at or before
the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle
and remove the underlying asset or to restore the
underlying asset or the site on which it is located,
less any lease incentives received.
The right-of-use asset is subsequently depreciated
using the straight-line method from the
commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the
lease term, unless the lease transfers ownership of
the underlying asset to the Company by the end of
the lease term or the cost of the right-of-use asset
reflects that the Company will exercise a purchase
option. In that case the right-of-use asset will be
depreciated over the useful life of the underlying asset,
which is determined on the same basis as those of
property and equipment. In addition, the right-of-use
asset is periodically reduced by impairment losses, if
any, and adjusted for certain remeasurements of the
lease liability. Impairment loss, if any, is recognised
in the Statement of profit and loss.
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.
The Company uses its incremental borrowing rate
as the discount rate. The Company determines its
incremental borrowing rate by obtaining interest
rates from various external financing sources and
makes certain adjustments to reflect the terms
of the lease and type of the asset leased. For
leases with reasonably similar characteristics, the
Company, on a lease-by-lease basis, may adopt
either the incremental borrowing rate specific to
the lease or the incremental borrowing rate for the
portfolio as a whole.
The lease payments include
- fixed payments, including in
substance fixed payment;
- variable lease payments that depend on an
index or a rate, initially measured using the
index or rate as at the commencement date;
- amount expected to be payable under a
residual value guarantees,
- exercise price of a purchase option where the
Company is reasonably certain to exercise that
option and payments of penalties for terminating
the lease, if the lease term reflects the lessee
exercising an option to terminate the lease.
The lease liability is subsequently remeasured by
increasing the carrying amount to reflect interest on
the lease liability, reducing the carrying amount to
reflect the lease payments made and remeasuring
the carrying amount to reflect any reassessment or
lease modifications or to reflect revised in-substance
fixed lease payments. The Company recognises the
amount of the re-measurement of lease liability due
to modification as an adjustment to the right-of use
asset and Statement of profit and loss depending
upon the nature of modification. Where the carrying
amount of the right-of-use asset is reduced to zero
and there is a further reduction in the measurement
of the lease liability, the Company recognises
any remaining amount of the re-measurement in
Statement of profit and loss.
The lease liability is measured at amortised cost
using the effective interest method. It is remeasured
when there is a change in future lease payments
arising from a change in an index or rate, if there is
a change in the Company’s estimate of the amount
expected to be payable under a residual value
guarantee, if the Company changes its assessment
of whether it will exercise a purchase, extension
or termination option or if there is a revised in¬
substance fixed lease payment.
When the lease liability is remeasured in this way,
a corresponding adjustment is made to the carrying
amount of the right-of-use asset, or is recorded in
profit or loss if the carrying amount of the right-of-
use asset has been reduced to zero
The Company presents right-of-use assets in
‘property, plant and equipment’ and lease liabilities
in ‘Financial liabilities’ in the Balance sheet.
Short-term leases and leases of low-value assets
The Company has elected not to apply the
requirements of Ind AS 116 Leases to short-term
leases of all assets that have a lease term of 12
months or less and leases for which the underlying
asset is of low value. The lease payments associated
with these leases are recognised as an expense on a
straight-line basis over the lease term.
ii. Leases as lessor
When the Company acts as a lessor, it determines at
lease inception whether each lease is a finance lease
or an operating lease.
To classify each lease, the Company makes an overall
assessment of whether the lease transfers substantially
all of the risks and rewards incidental to ownership of
the underlying asset. If this is the case, then the lease
is a finance lease; if not, then it is an operating lease.
As part of this assessment, the Company considers
certain indicators such as whether the lease is for the
major part of the economic life of the asset.
When the Company is an intermediate lessor, it
accounts for its interests in the head lease and
the sub-lease separately. It assesses the lease
classification of a sub-lease with reference to the
right-of-use asset arising from the head lease, not
with reference to the underlying asset. If a head lease
is a short-term lease to which the Company applies
the exemption described above, then it classifies the
sub-lease as an operating lease.
The Company recognises lease payments received
under operating leases as income on straight-line
basis over the lease term as part of ‘other income’.
h. Impairment of non-financial assets (Intangible
assets and property, plant and equipment)
At each reporting date, the Company reviews the carrying
amounts of its non-financial assets (other than inventories
and deferred tax assets) to determine whether there
is any indication of impairment. If any such indication
exists, then the asset’s recoverable amount is estimated.
Intangible assets with indefinite useful life are tested
annually for impairment.
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 to which the asset belongs. If such
assets are considered to be impaired, the impairment
to be recognised in the Statement of Profit and Loss is
measured by the amount by which the carrying value of
the assets exceeds the estimated recoverable amount of
the asset. Value in use is based on the estimated future
cash flows, 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 or cash generating unit.
An impairment loss is reversed in the Statement of Profit
and Loss if there has been a change in the estimates
used to determine the recoverable amount. The carrying
amount of the asset is increased to its revised recoverable
amount, provided that this amount does not exceed
the carrying amount that would have been determined
(net of any accumulated amortisation or depreciation)
had no impairment loss been recognised for the asset
in prior years.
i. Financial instruments
i. Recognition and Initial measurement
Trade receivables and debt securities issued are
initially recognised when they are originated. All other
financial assets and financial liabilities are initially
recognised when the Company becomes a party
to the contractual provisions of the instrument. At
the time of initial recognition, these financial assets
(unless it is a trade receivable without a significant
financing component) or financial liabilities are
measured at fair value. A trade receivable without a
significant financing component is initially measured
at the transaction price.
Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial
liabilities, that are not at fair value through profit or
loss, are added to the fair value on initial recognition.
ii. Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is classified
as measured at:
- amortised cost;
- FVOCI - debt investment;
- FVOCI - equity investment; or
- FVTPL.
The Company classifies financial assets as
subsequently measured at amortised cost, fair value
through other comprehensive income (“FVOCI”) or
fair value through profit or loss (“FVTPL”) on the
basis of following:
• the entity’s business model for managing the
financial assets and
• the contractual cash flow characteristics of the
financial asset.
Financial assets are not reclassified subsequent
to their initial recognition unless the Company
changes its business model for managing financial
assets, in which case all affected financial assets
are reclassified on the first day of the first reporting
period following the change in the business model.
Amortised Cost:
A financial asset shall be classified and measured at
amortised cost if both of the following conditions are
met and is not designated as FVTPL:
• the financial asset is held within a business
model whose objective is to hold financial assets
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.
Fair Value through OCI:
A financial asset shall be classified and measured
at fair value through OCI if both of the following
conditions are met and is not designated as FVTPL:
• the financial asset 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.
On initial recognition of an equity investment that is
not held for trading, the Company may irrevocably
elect to present subsequent changes in the
investment’s fair value in OCI. This election is made
on an investment-by-investment basis.
Fair Value through Profit or Loss:
A financial asset shall be classified and measured at
fair value through profit or loss unless it is measured
at amortised cost or at fair value through OCI.
All recognised financial assets are subsequently
measured in their entirety at either amortised cost
or fair value, depending on the classification of the
financial assets.
Classification of investments:
a. Debt instruments at amortised cost - A ‘debt
instrument’ is measured at the amortised cost
if both the following conditions are met:
• The asset is held within a business model
whose objective is to hold assets for
collecting contractual cash flows, and
• Contractual terms of the asset give rise on
specified dates to cash flows that are solely
payments of principal and interest (SPPI)
on the principal amount outstanding.
After initial measurement, such financial assets
are subsequently measured at amortised cost
using the effective interest rate (EIR) method.
Interest income, foreign exchange gains and
losses and impairment are recognised in profit
or loss. Any gain or loss on derecognition is
recognised in profit or loss.
b. Equity investments - All equity investments in
scope of Ind-AS 109 are measured at fair value.
Equity instruments which are held for trading
are classified at fair value through profit and loss
(FVTPL). For all other equity instruments, the
Company decides to classify the same either
as at fair value through other comprehensive
income (FVOCI) or fair value through profit
and loss (FVTPL). The Company makes such
election on an instrument by instrument basis.
The classification is made on initial recognition
and is irrevocable.
These assets are subsequently measured at
fair value. Dividends are recognised as income
in profit or loss unless the dividend clearly
represents a recovery of part of the cost of
the investment. Other net gains and losses are
recognised in OCI and are not reclassified to
profit or loss.
c. Mutual funds - All mutual funds in scope of
Ind-AS 109 are measured at fair value through
profit and loss (FVTPL). Net gains and losses,
including any interest or dividend income, are
recognised in profit or loss.
Interest income and dividend income:
For all financial instruments measured at amortised
cost, interest income is recorded using the effective
interest rate (EIR). Interest income is included in
other income in the Statement of Profit and Loss.
The ‘effective interest rate’ is the rate that exactly
discounts estimated future cash payments
or receipts through the expected life of the
financial instrument to:
- the gross carrying amount of the financial asset; or
- the amortised cost of the financial liability
In calculating interest income and expense, the
effective interest rate is applied to the gross carrying
amount of the asset (when the asset is not credit-
impaired) or to the amortised cost of the liability.
However, for financial assets that have become
credit-impaired subsequent to initial recognition,
interest income is calculated by applying the
effective interest rate to the amortised cost of the
financial asset. If the asset is no longer credit-
impaired, then the calculation of interest income
reverts to the gross basis.
Dividend income is recognised in profit or loss on
the date when the Company’s right to receive the
payment is established, which is generally when
shareholders approve the dividend.
Financial liabilities
Financial liabilities are classified as measured
at amortised cost or FVTPL. A financial liability
is classified as at FVTPL if it is classified as held-
for-trading, it is a derivative or it is designated as
such on initial recognition. Financial liabilities at
FVTPL are measured at fair value and net gains
and losses, including any interest expense, are
recognised in profit or loss. Other financial liabilities
are subsequently measured at amortised cost using
the effective interest method. Interest expense and
foreign exchange gains and losses are recognised
in profit or loss. Any gain or loss on derecognition is
also recognised in profit or loss. For trade and other
payables maturing within one year from the balance
sheet date, the carrying amounts approximate fair
value due to the short maturity of these instruments.
iii. De-recognition
Financial assets
The Company derecognises a financial asset when
the contractual rights to the cash flows from the
financial asset expire, or it transfers the right to
receive the contractual cash flows in a transaction in
which either substantially all of the risks and rewards
of ownership of the financial assets are transferred
or in which the Company neither transfers nor retains
substantially all of the risks and rewards of ownership
and does not retain control of the financial asset.
If the Company enters into transactions whereby it
transfers assets recognised on its balance sheet, but
retains either all or substantially all of the risks and
rewards of the transferred assets, the transferred
assets are not derecognised.
Financial liabilities
The Company derecognises a financial liability
when its contractual obligations are discharged or
cancelled or expire.
The Company also derecognises a financial liability
when its terms are modified and the cash flows under
the modified terms are substantially different. In this
case, a new financial liability based on the modified
terms is recognised at fair value. The difference
between the carrying amount of the financial liability
extinguished and a new financial liability with
modified terms is recognised in the Statement of
Profit and Loss.
iv. Offsetting
Financial assets and financial liabilities are offset
and the net amount presented in the balance sheet
when, and only when, the Company currently has a
legally enforceable right to set off the amounts and it
intends either to settle them on a net basis or realise
the asset and settle the liabilities simultaneously.
v. Financial guarantee contracts
Financial guarantee contracts are those contracts
that require a payment to be made to reimburse the
holder for a loss it incurs because the specified party
fails to make a payment when due in accordance with
the terms of a debt instrument. Financial guarantee
contracts are recognised initially as a liability at
fair value, adjusted for transaction costs that are
directly attributable to the issuance of the guarantee.
Subsequently, the liability is measured at the higher of
the amount of expected loss allowance determined
as per impairment requirements of Ind-AS 109 and
the amount recognised less cumulative amortisation.
j. Impairment of financial assets
The Company recognises loss allowances for ECLs on:
• financial assets measured at amortised cost;
• debt investments measured at FVOCI;
At each reporting date, the Company assesses whether
financial assets carried at amortised cost are credit -
impaired when one or more events that have a detrimental
impact on the estimated future cash flows of the financial
asset have occurred.
Evidence that a financial asset is credit impaired includes
the following observable data:
- Significant financial difficulty of the borrower
- a breach of contract;
- it is probable that the borrower will enter bankruptcy
or other financial reorganisation; or
- the disappearance of an active market for a security
because of financial difficulties
The Company measures loss allowances at an amount
equal to lifetime expected credit losses.
Loss allowances for trade receivables, loans, contract
assets are always measured at an amount equal to
lifetime expected credit losses. Lifetime expected credit
losses are the expected credit losses that result from
all possible default events over the expected life of a
financial instrument.
12-month expected credit losses are the portion of
expected credit losses that result from default events that
are possible within 12 months after the reporting date (or a
shorter period if the expected life of the instrument is less
than 12 months).
In all cases, the maximum period considered when
estimating expected credit losses is the maximum
contractual period over which the Company is exposed
to credit risk.
When determining whether the credit risk of a financial
asset has increased significantly since initial recognition
and when estimating ECLs, the Company considers
reasonable and supportable information that is relevant
and available without undue cost or effort. This includes
both quantitative and qualitative information and
analysis, based on the Company’s historical experience
and informed credit assessment, that includes forward¬
looking information.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses.
Credit losses are measured as the present value of all
cash shortfalls (i.e. the difference between the cash flows
due to the entity in accordance with the contract and the
cash flows that the Company expects to receive).
Write-off
The gross carrying amount of a financial asset is written
off (either partially or in full) to the extent that there is no
realistic prospect of recovery. This is generally the case
when the Company determines that the debtors does not
have assets or sources of income that could generate
sufficient cash flows to repay the amounts subject to the
write off. However, financial assets that are written off
could still be subject to enforcement activities in order
to comply with the Company’s procedures for recovery
of amounts due.
k. Inventories
Inventories are valued at the lower of cost or net realisable
value. The cost of inventories is determined on a moving
weighted average basis, and includes acquiring the
inventories, production or conversion costs and other
costs incurred in bringing them to their present location
and condition. In the case of raw materials and stock-in¬
trade, cost comprises of cost of purchase. In the case
of finished goods and work in progress, cost includes
an appropriate share of production overheads based on
normal operating capacity.
Net realisable value is the estimated selling price in
the ordinary course of business, less estimated costs
of completion and the estimated costs necessary
to make the sale.
The net realisable value of work-in-progress is determined
with reference to the selling prices of related finished
goods. Raw materials, components and other supplies
held for use in the production of finished products are not
written down below cost except in cases when a decline
in the price of materials indicates that the cost of the
finished products shall exceed the net realisable value.
The comparison of cost and net realisable value is made
on an item-by-Item basis.
The provision for inventory obsolescence is assessed
regularly based on estimated usage and shelf
life of products.
l. Income taxes
Income tax comprises current and deferred tax. It is
recognised in profit or loss except to the extent that it
relates to an item recognised directly in equity or in other
comprehensive income. The Company has determined
that interest and penalties related to income taxes,
including uncertain tax treatments, do not meet the
definition of income taxes, and therefore accounted for
them under Ind AS 37, Provisions, Contingent Liabilities
and Contingent Assets.
i. Current tax
Current tax comprises the expected tax payable or
receivable on the taxable income or loss for the year
and any adjustment to the tax payable or receivable
in respect of previous years. The amount of current
tax reflects the best estimate of the tax amount
expected to be paid or received after considering
the uncertainty, if any related to income taxes. It is
measured using tax rates (and tax laws) enacted or
substantively enacted by the reporting date.
Current tax assets and liabilities are offset only if there
is a legally enforceable right to set off the recognised
amounts, and it is intended to realise the asset and
settle the liability on a net basis or simultaneously.
ii. Deferred tax
Deferred tax is recognised in respect of temporary
differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
corresponding amounts used for taxation purposes.
Deferred tax is not recognised for:
- temporary differences arising on the initial
recognition of assets or liabilities in a
transaction that
• is not a business combination and
• at the time of the transaction (i) affects
neither accounting nor taxable profit or loss
and (ii) does not give rise to equal taxable
and deductible temporary differences
Deferred tax assets are recognised for unused tax
losses, unused tax credits and deductible temporary
differences to the extent that it is probable that future
taxable profits will be available against which they
can be used. Future taxable profits are determined
based on the reversal of relevant taxable temporary
differences. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it
is no longer probable that the related tax benefit will
be realised; such reductions are reversed when the
probability of future taxable profits improves.
Deferred tax assets recognised or unrecognised are
reviewed at each reporting date and are recognised
/ reduced to the extent that it is probable / no longer
probable respectively that the related tax benefit
will be realised.
Deferred tax is measured at the tax rates that are
expected to apply to the period when the asset is
realised or the liability is settled, based on the laws
that have been enacted or substantively enacted by
the reporting date.
The measurement of deferred tax reflects the tax
consequences that would follow from the manner in
which the Company expects, at the reporting date,
to recover or settle the carrying amount of its assets
and liabilities.
The Company offsets, the current tax assets and
liabilities (on a year on year basis) and deferred
tax assets and liabilities, where it has a legally
enforceable right and where it intends to settle such
assets and liabilities on a net basis. Deferred tax
relating to items recognised outside profit or loss
is recognised outside profit or loss (either in other
comprehensive income or in equity).
m. Cash and cash equivalents
Cash and cash equivalents includes cash on hand,
demand deposits with banks, other short-term highly
liquid investments with original maturities of three months
or less that are readily convertible into known amounts
of cash and which are subject to an insignificant risk of
changes in value.
n. Post-employment, long-term and short-term
employee benefits
Defined contribution plan
A defined contribution plan is a post-employment benefit
under which an entity pays a specific contribution to a
separate entity and has no obligation to pay any further
amounts. The Company’s contribution to provident fund
and employee state insurance schemes is charged to the
Statement of profit and loss during the period in which
the employee renders the related service. The Company’s
contributions towards Provident Fund are deposited
with the Regional Provident Fund Commissioner under a
defined contribution plan. The Company has no obligation,
other than the contribution payable to these funds.
Defined benefit plan
The Company has gratuity as defined benefit plan where
the amount that an employee will receive on retirement is
defined by reference to the employee’s length of service
and final salary. The liability recognised in the balance
sheet for defined benefit plans is the present value of the
defined benefit obligation (DBO) at the reporting date net of
fair value of plan assets. Management estimates the DBO
annually with the assistance of independent actuaries,
by adopting the projected unit credit method. Actuarial
gains and losses resulting from re-measurements of the
liability are included in other comprehensive income. The
Company determines the net interest expense (income)
on the net defined benefit liability (asset) for the period
by applying the discount rate determined by reference
to market yields at the end of the reporting period on
government bonds. Net interest expense and other
expenses related to defined benefit plans are recognised
in profit or loss.
The Company has subscribed to a group gratuity scheme
of Life Insurance Corporation of India (LIC). Under the
said policy, the eligible employees are entitled for gratuity
upon their resignation, retirement or in the event of death
in lumpsum after deduction of necessary taxes upto a
maximum limit of ?2 million. Liabilities in respect of the
Gratuity Plan are determined by an actuarial valuation,
based upon which the Company makes contributions to
the Gratuity Fund.
Other long-term employee benefits
The Company also provides benefit of compensated
absences to its employees which are in the nature of long¬
term benefit plan. Liability in respect of compensated
absences becoming due and expected to be availed more
than one year after the balance sheet date is estimated
on the basis of an actuarial valuation performed by an
independent actuary using the projected unit credit
method as on the reporting date. Actuarial gains and
losses arising from experience adjustments and changes
in actuarial assumptions are recorded in the Statement of
profit or loss in the year in which such gains or losses arise.
Short-term employee benefits
Short-term employee benefits comprise of employee
costs such as salaries, bonus etc. is recognized on the
basis of the amount paid or payable for the period during
which services are rendered by the employee. Short-term
employee benefits are measured on an undiscounted
basis and expensed as the related service is provided. A
liability is recognised for the amount expected to be paid
under short-term, if the Company has a present legal or
constructive obligation to pay this amount as a result of
past service provided by the employee and the obligation
can be estimated reliably.
o. Share-based payments
Certain employees of the Company are entitled to
remuneration in the form of equity settled instruments, for
rendering services over a defined vesting period. Equity
instruments granted are measured by reference to the
fair value of the instrument at the date of grant using an
appropriate valuation model.
The fair value determined at the grant date is expensed
over the vesting period of the respective tranches of such
grants. The stock compensation expense is determined
based on the Company’s estimate of equity instruments
that will eventually vest using fair value in accordance with
Ind AS 102, Share based payment. The cost is recognised,
together with a corresponding increase in ‘Share options
outstanding account’ reserves in Equity, over the period
in which the performance and / or service conditions are
fulfilled in employee benefits expense. The dilutive effect
of outstanding options is reflected as additional share
dilution in the computation of diluted earnings per share.
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