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Moneycontrol.com India | Accounting Policy > Pharmaceuticals > Accounting Policy followed by Aurobindo Pharma - BSE: 524804, NSE: AUROPHARMA
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Aurobindo Pharma
BSE: 524804|NSE: AUROPHARMA|ISIN: INE406A01037|SECTOR: Pharmaceuticals
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« Mar 10
Accounting Policy Year : Mar '11
a.  Basis of preparation
 
 These financial statements have been prepared under the historical cost
 convention on accrual basis to comply in all material respects with the
 notified Accounting Standards by the Companies Accounting Standards
 Rules, 2006 (as amended), other pronouncements of the Institute of
 Chartered Accountants of India and the relevant provisions of the
 Companies Act, 1956. The accounting policies have been consistently
 applied by the Company and are consistent with those used in the
 previous year.
 
 b.  Use of estimates
 
 The preparation of financial statements in conformity with generally
 accepted accounting principles requires management to make estimates
 and assumptions that affect the reported amounts of assets and
 liabilities and disclosure of contingent liabilities at the date of the
 financial statements and the results of operations during the reporting
 year. Although these estimates are based upon managements best
 knowledge of current events and actions, actual results could differ
 from these estimates.
 
 c.  Revenue recognition
 
 Revenue is recognized to the extent that it is probable that the
 economic benefits will flow to the Company and the revenue can be
 reliably measured.
 
 Revenue from sale of goods is recognized on dispatch (in respect of
 exports on the date of the bill of lading or airway bill) which
 coincides with transfer of significant risks and rewards to customer
 and is inclusive of excise duty and net of trade discounts, sales
 returns and sales tax, where applicable.
 
 Revenue from sale of dossiers/licenses is recognized in accordance with
 the terms of the relevant agreements as generally accepted and agreed
 with the customers.
 
 Interest is recognized on a time proportion basis taking into account
 the amount outstanding and the rate applicable.
 
 Dividend is recognized as and when the Companys right to receive
 payment is established.
 
 d.  Fixed assets and depreciation
 
 Fixed assets are stated at cost less accumulated depreciation,
 impairment losses and specific grant/subsidies, if any. Cost comprise
 of purchase price, freight, non refundable taxes and duties and any
 attributable cost of bringing the asset to its working condition for
 its intended use. Finance costs relating to acquisition of fixed assets
 which take substantial period of time to get ready for use are included
 to the extent they relate to the period till such assets are ready for
 intended use.
 
 Expenditure directly relating to construction activity is capitalized.
 Indirect expenditure is capitalized to the extent those relate to the
 construction activity or is incidental thereto. Income earned during
 construction period is deducted from the total expenditure relating to
 construction activity.
 
 Assets retired from active use and held for disposal are stated at
 their estimated net realizable values or net book values, whichever is
 lower.
 
 Assets under finance leases, where there is no reasonable certainty
 that the Company will obtain the ownership by the end of the lease term
 are capitalized and are depreciated over the lease term or estimated
 useful life of the asset, whichever is shorter.
 
 Premium paid on leasehold land is amortized over the lease term or
 estimated useful life, which- ever is shorter.
 
 Depreciation is provided on the straight-line method, based on the
 useful life of the assets as estimated by the Management which
 generally coincides with rates prescribed under Schedule XIV to the
 Companies Act, 1956 except assets acquired at the Bhiwadi unit in
 Rajasthan for which depreciation is provided on a straight-line basis,
 at the rates that are higher than those specified in Schedule XIV to
 the Companies Act, 1956 and are based on useful lives as estimated by
 Management. In these cases the rates are as under:
 
 Leasehold buildings: 5%
 
 Plant & Machinery : 20%
 
 Assets costing below Rs.5,000 are depreciated fully in the year of
 purchase.
 
 e.  Intangibles
 
 Cost relating to licenses, which are acquired, are capitalized and
 amortized on a straight-line basis over their useful life not exceeding
 ten years.
 
 f.  Impairment
 
 The carrying amounts of assets are reviewed at each balance sheet date
 if there is any indication of impairment based on internal/ external
 factors. An impairment loss is recognized wherever the carrying amount
 of an asset exceeds its recoverable amount. The recoverable amount is
 the greater of the assets net selling price and its value in use. In
 assessing value in use, the estimated future cash flows are discounted
 to their present value using a pre-tax discount rate that reflects
 current market assessments of the time value of money and risks
 specific to the asset.
 
 After impairment, depreciation is provided on the revised carrying
 amount of the asset over its remaining useful life.
 
 g.  Government grants and subsidies
 
 Grants and subsidies are recognized when there is a reasonable
 assurance that the grant or subsidy will be received and that all
 underlying conditions thereto will be complied with. When the grant or
 subsidy relates to an asset, its value is deducted in arriving at the
 carrying amount of the related asset.
 
 h.  Investments
 
 Investments that are readily realizable and intended to be held for not
 more than a year are classified as current investments. All other
 investments are classified as long term investments. Current
 investments are carried at lower of cost and fair value determined on
 individual investment basis.
 
 Long-term investments are carried at cost. However, diminution in value
 is provided to recognize a decline, other than temporary, in the value
 of the investments.
 
 i.  Inventories
 
 Raw materials, packing materials, stores, spares and consumables are
 valued at lower of cost, calculated on First-in-First out basis, and
 net realizable value. Items held for use in the production of
 inventories are not written down below cost if the finished product in
 which they will be incorporated are expected to be sold at or above
 cost.
 
 Finished goods and work-in-progress are valued at lower of cost and net
 realizable value. Cost includes materials, labor and a proportion of
 appropriate overheads. Cost of finished goods includes excise duty.
 Cost is determined on a weighted average basis.
 
 Trading goods are valued at lower of cost and net realizable value.
 
 Net realizable value is the estimated selling price in the ordinary
 course of business, reduced by the estimated costs of completion and
 costs to effect the sale.
 
 j.  Employee benefits
 
 Employee benefit in the form of provident fund is a defined
 contribution scheme and the contributions are charged to the Profit and
 Loss Account of the year when the contributions to the respective funds
 are due. There are no other obligations other than the contribution
 payable to the respective authorities.
 
 Gratuity is a defined benefit obligation and is provided for on the
 basis of an actuarial valuation on project unit credit method made at
 the end of each financial year.
 
 Short term compensated absences are provided for based on estimates.
 Long term compensated absences are provided for based on actuarial
 valuation. The actuarial valuation is done as per projected unit credit
 method at the end of each financial year.
 
 Actuarial gains/losses are immediately taken to Profit and Loss Account
 and are not deferred.
 
 k.  Income taxes
 
 Tax expense comprises of current and deferred tax. Current income tax
 is measured at the amount expected to be paid to the tax authorities in
 accordance with the Indian Income Tax Act, 1961. Deferred income taxes
 reflect the impact of current year timing differences between taxable
 income and accounting income for the year and reversal of timing
 differences of earlier years.
 
 Deferred tax is measured based on the tax rates and the tax laws
 enacted or substantively enacted at the balance sheet date. Deferred
 tax assets are recognized only to the extent that there is reasonable
 certainty that sufficient future taxable income will be available
 against which such deferred tax assets can be realized. In situations
 where the Company has unabsorbed depreciation or carry forward tax
 losses, all deferred tax assets are recognized only if there is virtual
 certainty supported by convincing evidence that they can be realized
 against future taxable profits.
 
 Unrecognized deferred tax assets of earlier years are re-assessed and
 recognized to the extent that it has become reasonably certain or
 virtually certain, as the case may be that future taxable income will
 be available against which such deferred tax assets can be realized.
 
 The carrying amount of deferred tax assets are reviewed at each balance
 sheet date. The Company writes-down the carrying amount of a deferred
 tax asset to the extent that it is no longer reasonably certain or
 virtually certain, as the case may be, that sufficient future taxable
 income will be available against which deferred tax asset can be
 realized. Any such write-down is reversed to the extent that it becomes
 reasonably certain or virtually certain, as the case may be, that
 sufficient future taxable income will be available.
 
 l.  Foreign exchange transactions
 
 Initial recognition: Foreign currency transactions are recorded in the
 reporting currency, by applying to the foreign currency amount the
 exchange rate between the reporting currency and foreign currency at
 the date of the transaction.
 
 Conversion: Foreign currency monetary items are reported at year-end
 rates. Non-monetary items which are carried in terms of historical cost
 denominated in foreign currency are reported using the exchange rate at
 the date of the transaction.
 
 Exchange differences: Exchange differences arising on the settlement of
 monetary items or on reporting monetary items of Company at rates
 different from those at which they were initially recorded during the
 year, or reported in previous financial statements, are recognized as
 income or as expenses in the year in which they arise.
 
 Forward Exchange contracts not intended for trading or speculation
 purposes: In case of forward exchange contracts, difference between the
 forward rate and the exchange rate on the date of transaction is
 recognized as expense or income over the life of the contract.
 Exchange differences on such contracts are recognized in the statement
 of profit and loss in the year in which the exchange rates change. Any
 profit or loss arising on cancellation or renewal of forward exchange
 contract is recognized as income or as expense for the year.
 
 m.  Export benefits, incentives and licenses
 
 Export benefits on account of entitlement to import of goods free of
 duty under the Duty Entitlement Pass Book under Duty Exemption Scheme
 and benefits on account of export promotion schemes included in
 revenues are accrued and accounted in the year of export.
 
 Other benefits in the form of Advance Licenses for imports are
 accounted for on purchase of imported materials.
 
 n.  Leases
 
 Finance leases, where the substantial risks and benefits incidental to
 ownership of the leased items are transferred to the Company, are
 capitalized at the lower of the fair value and present value of the
 minimum lease payments at the inception of the lease term and disclosed
 as leased assets. Lease payments are apportioned between the finance
 charges and reduction of the lease liability based on the implicit rate
 of return. Finance charges are charged directly against income. Lease
 management fees, legal charges and other initial direct costs are
 capitalized.
 
 Leases, where the lessor effectively retains substantially all the
 risks and benefits of ownership of the leased item are classified as
 operating leases. Operating lease payments are recognized as an expense
 in the Profit and Loss Account on a straight-line basis over the lease
 term.
 
 o.  Earnings per Share
 
 Basic earnings per share is calculated by dividing the net profit or
 loss for the year attributable to equity shareholders by the weighted
 average number of equity shares outstanding during the year.
 
 For the purpose of calculating diluted earnings per share, the net
 profit or loss for the year attributable to equity shareholders and the
 weighted average number of equity shares outstanding during the year
 are adjusted for the effects of all dilutive potential equity shares.
 
 The weighted average number of equity shares during the year is
 adjusted for shares split.
 
 p.  Provisions
 
 A provision is recognized when the Company has a present obligation as
 a result of past event and it is probable that an outflow of resources
 will be required to settle the obligation in respect of which a
 reliable estimate can be made. Provisions are not discounted to its
 present value and are determined based on best estimate required to
 settle the obligation at the balance sheet date. These are reviewed at
 each balance sheet date and adjusted to reflect the current best
 estimates.
 
 q.  Cash and cash equivalents
 
 Cash and cash equivalents in the cash flow statements comprise cash at
 bank and in hand and short-term investments with an original maturity
 of three months or less.
 
 r.  Employee Stock Compensation Cost
 
 Measurement and disclosure of the employee share-based payment plans is
 done in accordance with SEBI (Employee Stock Option Scheme and Employee
 Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
 Accounting for Employee Share Based Payments Plans, issued by the
 Institute of Chartered Accountants of India. The Company measures
 compensation cost relating to employee stock options using the
 intrinsic value method. Compensation expense, if any, is amortized over
 the vesting period of the option on a straight line basis.
 
Source : Dion Global Solutions Limited
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