2.3 Summary of significant accounting policies
a) 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 the purpose of trading.
- Expected to be realized 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.
A liability is current when:
- It is expected to be settled in normal operating cycle.
- It is held primarily for the 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.
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their realization in cash
and cash equivalents. The Company has identified twelve months as its operating cycle.
b) Inventories
Inventories are valued at the lower of cost and net realisable value. Cost of raw materials, packing materials,
stores and spares is determined using weighted average cost method. Cost of finished goods and work-in¬
progress includes direct materials, labour and an appropriate proportion of manufacturing overheads based on
normal operating capacity. Finished goods are valued at lower of cost and net realisable value.Net realisable
value is the estimated selling price in the ordinary course of business less estimated costs of completion and
selling expenses. Provision is made for obsolete, slow-moving, non-moving and expired inventories wherever
considered necessary.
Stores and Spares:
- Valued at lower of cost and net realizable value. Cost is determined on a moving weighted average basis.
- Stores and Spares which do not meet the definition of property, plant and equipment are accounted as
inventories.
- Net Realizable Value in respect of store and spares is the estimated current procurement price in the
ordinary course of the business.
c) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprises cash at banks and on hand and short-term deposits
with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term
deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the
company's cash management. Cash and cash equivalents exclude balances that are not available for general
use by the Company.
d) Property, plant and equipment (PPE)
Property, plant and equipment (including capital work in progress) is stated at cost, net of accumulated
depreciation and accumulated impairment losses, if any. The cost comprises the purchase price, directly and
indirectly attributable costs arising directly from the development of the asset / project to its working condition for
the intended use. 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 recognized 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 recognized in profit or loss as
incurred.
Borrowing cost relating to acquisition / construction of property, plant & equipment which take substantial
period of time to get ready for its intended use are also included to the extent they relate to the period till such
assets are ready to be put to use.
Depreciation is calculated on a straight line basis over the useful lives of the assets prescribed in the Companies
Act, 2013.
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 income statement when the asset is derecognized.
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.
e) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually
defined terms of payment and excluding taxes or duties collected on behalf of the government.
Sale of products and services
Revenue from contracts with customers is recognised when control of the goods or services are transferred to
the customer at an amount that reflects the consideration to which the Company expects to be entitled in
exchange for those goods or services. The Company has generally concluded that it is the principal in its
revenue arrangements, since it is the primary obligor in all of its revenue arrangement, as it has pricing latitude
and is exposed to inventory and credit risks. Revenue is stated net of goods and service tax and net of returns,
chargebacks, rebates and other similar allowances. These are calculated on the basis of historical experience
and the specific terms in the individual contracts.
In determining the transaction price, the Company considers the effects of variable consideration, the existence
of significant financing components, noncash consideration, and consideration payable to the customer (if
any). The Company estimates variable consideration at contract inception 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.
Sales Returns
The Company accounts for sales returns accrual by recording an allowance for sales returns concurrent with
the recognition of revenue at the time of a product sale. 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, 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.
Interest income
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to
the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis,
by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that
exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's
net carrying amount on initial recognition.
Government Grants
The Company recognises government grants only when there is reasonable assurance that the conditions
attached to them will be complied with, and the grants will be received. 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, the Company deducts such grant
amount from the carrying amount of the asset.
f) Foreign Currency
On initial recognition, transactions in currencies other than the Company's functional currency (foreign currencies)
are translated at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated
in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that
date. Exchange differences arising on the settlement of monetary items or on translating monetary items at
rates different from those at which they were translated on initial recognition during the period or in previous
period are recognised in profit or loss in the period in which they arise except for:
- exchange differences on transactions entered into in order to hedge certain foreign currency risks
- exchange differences on foreign currency borrowings relating to assets under construction for future
productive use, which are included in the cost of those assets when they are regarded as an adjustment to
interest costs on those foreign currency borrowings, if any
g) Retirement and other employee benefits
All employee benefits payable wholly within 12 months rendering services are classified as short term employee
benefits. Benefits such as salaries, wages, short term compensated absences, performance incentives etc. and
the expected cost of bonus, ex-gratia are recognised during the period in which the employee renders related
service.
h) Provident fund
Retirement benefit in the form of provident fund is a defined contribution scheme. The company has no obligation,
other than the contribution payable to the provident fund. The company recognizes contribution payable to the
provident fund scheme as an expense, when an employee renders the related service. If the contribution
payable to the scheme for service received before the balance sheet date exceeds the contribution already
paid, the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid.
i) Gratuity fund
The company operates a defined benefit gratuity plan in India, which requires contributions to be made to a
separately administered fund. The cost of providing benefits under the defined benefit plan is determined using
the projected unit credit method.
Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts
included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts
included in net interest on the net defined benefit liability), are recognised immediately in the balance sheet
with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re¬
measurements are not reclassified to profit or loss in subsequent periods.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Company
recognises the following changes in the net defined benefit obligation as an expense in the statement of profit
and loss:
> Service costs comprising current service costs, past-service costs, gains and losses on curtailments and
non-routine settlements; and
> Net interest expense or income.
j) Compensated absences
Provision for compensated absence is determined using the projected unit credit method with actuarial valuation
being carried out at each balance sheet date. Accumulated leave, which is expected to be utilised within the
next twelve months, is treated as short term employee benefits. The company treats accumulated leave expected
to be carried forward beyond twelve months as long term compensated absence. The company measures the
expected cost of such absence as the additional amount that is expected to pay as a result of the unused
estimate that has accumulated at the reporting date.
k) Borrowing costs
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 capitalised as part of the cost of the
asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of
interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing cost also
includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
l) Segment reporting
The Chief Operational Decision Maker monitors the operating results of its business segments separately for
the purpose of making decisions about resource allocation and performance assessment. Segment performance
is evaluated based on profit or loss and is measured consistently with profit or loss in the financial statements.
In accordance with the Ind-As 108 -” Operating Segments” , the Company has determined its business segment
of manufacturing of pharmaceutical products. Since there are no other business segments in which the Company
operates, there are no other primary reportable segments. Therefore, the segment revenue, results, segment
assets, segment liabilities, total cost incurred to acquire segment assets, depreciation charge are all as is
reflected in the financial statement.
m) Related party transactions
Disclosure of transactions with Related Parties, as required by Ind-AS 24 “Related Party Disclosures” has been
set out in a separate note. Related parties as defined under Ind-AS 24 have been identified on the basis of
representations made by key managerial personnel and information available with the Company.
n) Earnings per share
The Basic EPS has been computed by dividing the income available to equity shareholders by the weighted
average number of equity shares outstanding during the accounting year. For the purpose of calculating diluted
earning per share, the profit or loss for the period attributable to equity shareholders and the weighted average
number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity
shares.
o) Taxes
Sakar Healthcare Limited is a company incorporated under the provisions of the Companies Act, 1956. It is
engaged in manufacturing of Pharmaceutical products providing Liquid Orals, Cephalosporin Tablet, Capsule,
Dry Powder Syrup, Dry Powder Injections, Liquid Injectable (SVP) in Ampoules,Vials & Lyophilized Injections,
Oral Solid Dossages and Research & Development of above products.
i) Current income tax
Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with
the Income-Tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are
those that are enacted or substantially enacted, at the reporting date.
Current income tax relating to items recognized outside the statement of profit and loss is recognized
outside the statement of profit and loss (either in OCI or in equity). Current tax items are recognized in
correlation to the underlying transaction either in OCI or directly in equity. Management periodically evaluates
positions taken in the tax returns with respect to situations in which applicable tax regulations are subject
to interpretation and establishes provisions where appropriate.
ii) Deferred tax
Deferred tax is provided using the balance sheet approach on temporary differences between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting
date.
Deferred tax liabilities are recognized for all taxable temporary differences, except
> When the deferred tax liability arises from the initial recognition of an asset or liability in a transaction
that affects neither the accounting profit nor taxable profit or loss.
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused
tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable
that taxable profit will be available against which the deductible temporary differences, and the carry
forward of unused tax credits and unused tax losses can be utilized, except:
> When the deferred tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that affects neither the accounting profit nor taxable
profit or loss.
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 future taxable profit will be available to allow all or part of the
deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting
date and are recognized 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 realized 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 assets and deferred tax liabilities are offset if a legally enforceable right exists to set off
current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity
and the same taxation authority.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss (either
in other comprehensive income or in equity). Deferred tax items are recognized in correlation to the
underlying transaction either in OCI or directly in equity.
Minimum alternate tax (MAT) paid in a year is charged to the statement of profit and loss as current tax.
The company recognizes MAT credit available as an asset only to the extent that there is convincing
evidence 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. Deferred tax include MAT Credit Entitlement. The
Company reviews the such tax credit asset at each reporting date and writes down the asset to the
extent The Company does not have sufficient taxable temporary difference /convincing evidence that it
will pay normal tax during the specified period. Deferred tax includes MAT tax credit.
p) 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. 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 group 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 fifth year.
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.
Intangible assets with indefinite useful lives are tested for impairment annually as at year end at the CGU level,
as appropriate, and when circumstances indicate that the carrying value may be impaired.
|