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Dr Reddys Laboratories
BSE: 500124|NSE: DRREDDY|ISIN: INE089A01023|SECTOR: Pharmaceuticals
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Accounting Policy Year : Mar '15
a) Basis of preparation
 
 The financial statements of Dr. Reddy''s Laboratories Limited (DRL or
 the Company) have been prepared and presented in accordance with the
 accounting principles generally accepted in India (Indian GAAP). Indian
 GAAP comprises Accounting Standards specified under Section 133 of the
 Companies Act, 2013, read with Rule 7 of Companies (Accounts) Rules,
 2014, other pronouncements of the Institute of Chartered Accountants of
 India, the relevant provisions of the Companies Act, 2013 and
 guidelines issued by the Securities and Exchange Board of India (SEBI)
 (Collectively referred to as IGAAP). The financial statements are
 presented in Indian Rupees rounded off to the nearest million.
 
 b) Use of estimates
 
 The preparation of the financial statements in conformity with IGAAP
 requires the Company''s management to make estimates and assumptions
 that affect the reported amounts of assets and liabilities and
 disclosure of contingent liabilities on the date of the financial
 statements and reported amounts of revenues and expenses for the year.
 Examples of such estimates include estimation of useful lives of
 tangible and intangible assets, valuation of inventories, assessment of
 recoverable amounts of deferred tax assets and cash generating units,
 provision for sales returns, provision for obligations relating to
 employees, provisions against litigations and contingencies. Actual
 results could differ from these estimates. Estimates and underlying
 assumptions are reviewed on an ongoing basis. Any revision to
 accounting estimates is recognised prospectively in the current and
 future periods.
 
 c) Current and non current classification
 
 All the assets and liabilities have been classified as current or non
 current as per the Company''s normal operating cycle and other criteria
 set out in the Schedule III to the Companies Act, 2013.
 
 Assets:
 
 An asset is classified as current when it satisfies any of the
 following criteria:
 
 a) it is expected to be realised in, or is intended for sale or
 consumption in, the Company''s normal operating cycle;
 
 b) it is held primarily for the purpose of being traded;
 
 c) it is expected to be realised within twelve months after the
 reporting date; or
 
 d) it is cash or cash equivalent unless it is restricted from being
 exchanged or used to settle a liability for at least twelve months
 after the reporting date.
 
 Liabilities:
 
 A liability is classified as current when it satisfies any of the
 following criteria:
 
 a) it is expected to be settled in the Company''s normal operating
 cycle;
 
 b) it is held primarily for the purpose of being traded;
 
 c) it is due to be settled within twelve months after the reporting
 date; or
 
 d) the Company does not have an unconditional right to defer settlement
 of the liability for at least twelve months after the reporting date.
 Terms of a liability that could, at the option of the counterparty,
 result in its settlement by the issue of equity instruments do not
 affect its classification.
 
 Current assets / liabilities include the current portion of non current
 assets / liabilities respectively. All other assets / liabilities are
 classified as non current.
 
 d) Tangible fixed assets and depreciation
 
 Fixed assets are carried at the cost of acquisition or construction
 less accumulated depreciation. The cost of fixed assets includes non
 refundable taxes, duties, freight and other incidental expenses related
 to the acquisition and installation of the respective assets.
 
 When parts of an item of property, plant and equipment have different
 useful lives, they are accounted for as separate items (major
 components) of property, plant and equipment.
 
 Subsequent expenditure related to an item of tangible fixed asset is
 capitalised only if it increases the future benefits from the existing
 assets beyond its previously assessed standards of performance.
 
 Depreciation on tangible fixed assets is provided using the
 straight-line method based on the useful life of the assets as
 estimated by the Company''s management. Depreciation is calculated on a
 pro-rata basis from the date of installation till the date the assets
 are sold or disposed. Assets acquired on finance leases and lease hold
 improvements are depreciated over the period of the lease agreement or
 the useful life whichever is shorter.
 
 Gains or losses from disposal of tangible fixed assets are recognised
 in the statement of profit and loss.
 
 Schedule II to the Companies Act, 2013 (Schedule) prescribes the
 useful lives for various classes of tangible assets. For certain class
 of assets, based on the technical evaluation and assessment, the
 Company believes that the useful lives adopted by it best represent the
 period over which an asset is expected to be available for use.
 Accordingly, for these assets, the useful lives estimated by the
 Company are different from those prescribed in the Schedule.
 
 Advances paid towards acquisition of tangible fixed assets outstanding
 at each balance sheet date are shown under long term loans and
 advances.  Cost of assets not ready for intended use, as on the balance
 sheet date, is shown as capital work-in-progress.
 
 e) Borrowing costs
 
 General and specific borrowing costs directly attributable to
 acquisition or construction of those fixed assets which necessarily
 take a substantial period of time to get ready for their intended use
 are capitalised. Borrowing costs are interest and other costs incurred
 by the Company in connection with the borrowing of funds. All other
 borrowing costs are recognised in the statement of profit and loss in
 the period in which they are incurred.
 
 f) Intangible assets and amortisation
 
 Intangible assets are recorded at the consideration paid for
 acquisition including any import duties and other taxes (other than
 those subsequently recoverable by the enterprise from the taxing
 authorities), and any directly attributable expenditure in making the
 asset ready for its intended use.
 
 Intangible assets are amortised on a systematic basis over the best
 estimate of their useful lives, commencing from the date the asset is
 available to the Company for its use.
 
 The Management''s estimates of the useful lives for various categories
 of intangible assets are given below:
 
 The amortisation period and the amortisation method are reviewed at
 least at each financial year end. If the expected useful life of the
 asset is significantly different from previous estimates, the
 amortisation period is changed accordingly.
 
 An intangible asset is derecognised on disposal or when no future
 economic benefits are expected from its use and disposal. Gains or
 losses arising from the disposal of intangible assets are recognised in
 the statement of profit and loss.
 
 g) Investments
 
 Investments that are readily realisable and are intended to be held for
 not more than 12 months from the date, on which such investments are
 made, are classified as current investments. All other investments are
 classified as non current investments.
 
 Current investments are carried at the lower of cost and fair value.
 The comparison of cost and fair value is done separately in respect of
 each individual investment.
 
 Non current investments are carried at cost less any
 other-than-temporary diminution in value, determined separately for
 each individual investment.  The reduction in the carrying amount is
 reversed when there is a rise in the value of the investment or if the
 reasons for the reduction no longer exist.  Any reduction in the
 carrying amount and any reversal in such reductions are charged or
 credited to the statement of profit and loss.
 
 h) Inventories
 
 Inventories are valued at the lower of cost and net realisable value
 (NRV). Cost of inventories comprises all cost of purchase, production
 or conversion costs and other costs incurred in bringing the
 inventories to their present location and condition. In the case of
 finished goods and work-in-progress, cost includes an appropriate share
 of overheads based on normal operating capacity. The cost of all
 categories of inventory is determined using weighted average cost
 method. NRV is the estimated selling price in the ordinary course of
 the business, less the estimated costs of completion and the estimated
 costs necessary to make the sale.
 
 i) Research and development
 
 Expenditure on research activities undertaken with the prospect of
 gaining new scientific or technical knowledge and understanding is
 recognized as expense in the statement of profit and loss when
 incurred.
 
 Development activities involve a plan or design for the production of
 new or substantially improved products and processes. Development
 expenditure is capitalized only if:
 
 a) the product or the process is technically and commercially feasible;
 
 b) future economic benefits are probable and ascertainable;
 
 c) the Company intends to and has sufficient resources, technical and
 financial, to complete development of the product and has the ability
 to use or sell the asset; and
 
 d) development costs can be measured reliably.
 
 j) Employee benefits Defined benefit plans
 
 The liability in respect of defined benefit plans and other
 post-employment benefits is calculated using the projected unit credit
 method and spread over the period during which the benefit is expected
 to be derived from employees'' services, consistent with the advice of
 qualified actuaries. The long term obligations are measured at present
 value of estimated future cash flows discounted at rates reflecting the
 yields on risk free government bonds that have maturity dates
 approximating the terms of the Company''s obligations. Short term
 employee benefit obligations are measured on an undiscounted basis and
 are expensed as the related service is provided.
 
 All actuarial gains and losses arising during the year are recognized
 in the statement of profit and loss.
 
 Other long term employee benefits
 
 The Company''s net obligation in respect of other long term employee
 benefits is the amount of future benefit that employees have earned in
 return for their service in the current and previous periods. That
 benefit is discounted to determine its present value. Re-measurements
 are recognized in the statement of profit and loss in the period in
 which they arise.
 
 Defined contribution plans
 
 The Company''s contributions to defined contribution plans are
 recognized in the statement of profit and loss as and when the services
 are received from the employees.
 
 Compensated leave of absence
 
 The Company provides for accumulation of compensated absences by
 certain categories of its employees. These employees can carry forward
 a portion of the unutilized compensated absences and utilize it in
 future periods or receive cash in lieu thereof as per Company policy.
 The Company records an obligation for compensated absences in the
 period in which the employee renders the services that increases this
 entitlement. The measurement of such obligation is based on actuarial
 valuation as at the balance sheet date carried out by a qualified
 actuary.
 
 Employee stock option schemes
 
 In accordance with the SEBI guidelines, the cost calculated based on
 intrinsic value method i.e., the excess of the market price of shares,
 at the date prior to the day of grant of options under the Employee
 stock option schemes, over the exercise price is treated as employee
 compensation and amortised over the vesting period.
 
 k) Foreign currency transactions and balances
 
 Foreign currency transactions are recorded using the exchange rates
 prevailing on the dates of the respective transactions. Exchange
 differences arising on foreign currency transactions settled during the
 year are recognised in the statement of profit and loss.
 
 Monetary assets and liabilities denominated in foreign currencies as at
 the balance sheet date are reported using the foreign exchange rates as
 at the balance sheet date. The resultant exchange differences are
 recognised in the statement of profit and loss. Non monetary assets and
 liabilities are carried at the rates prevailing on the date of
 transaction.
 
 Exchange differences arising on a monetary item that, in substance,
 forms part of the Company''s net investment in a non integral foreign
 operation are accumulated in a foreign currency translation reserve in
 the Company''s financial statements. Such exchange differences are
 recognized in the statement of profit and loss in the event of disposal
 of the net investment.
 
 l) Derivative instruments and hedge accounting
 
 The Company uses forward contracts, option contracts and swap contracts
 (derivatives) to mitigate its risk of changes in foreign currency
 exchange rates and interest rates. The Company does not use derivatives
 for trading or speculative purposes.
 
 The premium or discount on foreign exchange forward contracts is
 amortized as income or expense over the life of the contract. The
 exchange difference is calculated and recorded in accordance with AS 11
 (revised)  The Effect of Changes in Foreign Exchange Rates in the
 statement of profit and loss. The changes in the fair value of foreign
 currency option contracts and swap contracts are recognised in the
 statement of profit and loss as they arise. Fair value of such option
 and swap contracts is determined based on the appropriate valuation
 techniques considering the terms of the contract.
 
 Pursuant to ICAI Announcement Accounting for Derivatives on the early
 adoption of AS 30 Financial Instruments: Recognition and Measurement,
 the Company has adopted the Standard, to the extent that the adoption
 does not conflict with existing mandatory accounting standards and
 other authoritative pronouncements, Company law and other regulatory
 requirements.
 
 Cashflow hedges
 
 The Company classifies its derivative contracts that hedge foreign
 currency risk associated with highly probable forecasted transactions
 as cash flow hedges and measures them at fair value. The effective
 portion of such cash flow hedges is recorded as part of reserves and
 surplus within the Company''s hedging reserve, and re-classified into
 the statement of profit and loss as revenue in the period corresponding
 to the occurrence of the forecasted transactions. The ineffective
 portion is immediately recorded in the statement of profit and loss.
 
 The Company also designates certain non derivative financial
 liabilities, such as foreign currency borrowings from banks, as hedging
 instruments for the hedge of foreign currency risk associated with
 highly probable forecasted transactions and, accordingly, applies cash
 flow hedge accounting for such relationships. Re-measurement gain/loss
 on such non derivative financial liabilities is recorded as part of
 reserves and surplus within the Company''s hedging reserve, and
 re-classified in the statement of profit and loss as revenue in the
 period corresponding to the occurrence of the forecasted transactions.
 
 If the hedging instrument no longer meets the criteria for hedge
 accounting, gets expired or is sold, terminated or exercised before the
 occurrence of the forecasted transaction, the hedge accounting on such
 transaction is discontinued prospectively. The cumulative gain or loss
 previously recognized in hedging reserve continues to remain there
 until the forecasted transaction occurs. If the forecasted transaction
 is no longer expected to occur, the balance in hedging reserve is
 recognized immediately in the statement of profit and loss.
 
 m) Revenue recognition Sale of goods
 
 Revenue is recognized when the significant risks and rewards of
 ownership have been transferred to the buyer, recovery of the
 consideration is reasonably certain, the associated costs and possible
 return of goods can be estimated reliably, there is no continuing
 management involvement with the goods and the amount of revenue can be
 measured reliably.
 
 Revenue from the sale of goods includes excise duty and is net of
 returns, sales tax and applicable trade discounts and allowances.
 
 Revenue includes shipping and handling costs billed to the customer.
 
 Sales returns
 
 The Company accounts for sales returns 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. The estimate of sales returns is determined
 primarily by the Company''s historical experience in the markets in
 which the Company operates.
 
 Profit share revenues
 
 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.
 
 Revenue in an amount equal to the base purchase price is recognized in
 these transactions upon delivery of products to the business partners.
 An additional amount representing the profit share component is
 recognized as revenue in the period which corresponds to the ultimate
 sales of the products made by business partners only when the
 collectability of the profit share becomes probable and a reliable
 measurement of the profit share is available.
 
 Service Income
 
 Service income is recognised as per the terms of contracts with
 customers when the related services are performed, or the agreed
 milestones are achieved.
 
 License fee
 
 The Company enters into certain dossier sales, licensing and supply
 arrangements with various parties. Income from licensing arrangements
 is generally recognised over the term of the contract. Some of these
 arrangements include certain performance obligations by the Company.
 Revenue from such arrangements is recognized in the period in which the
 Company completes all its performance obligations.
 
 Dividend and interest income
 
 Dividend income is recognised when the unconditional right to receive
 the income is established. Income from interest on deposits, loans and
 interest bearing securities is recognised on a time proportion basis.
 
 Export incentives
 
 Export entitlements are recognised as reduction from cost of material
 consumed when the right to receive credit as per the terms of the
 scheme is established in respect of the exports made and where there is
 no significant uncertainty regarding the ultimate collection of the
 relevant export proceeds.
 
 n) Income tax expense
 
 Income tax expense comprises current tax and deferred tax charge or
 credit.
 
 Current tax
 
 The current charge for income taxes is calculated in accordance with
 the relevant tax regulations applicable to the Company.
 
 Deferred tax
 
 Deferred tax charge or credit reflects the tax effects of timing
 differences between accounting income and taxable income for the
 period. The deferred tax charge or credit and the corresponding
 deferred tax liabilities or assets are recognised using the tax rates
 that have been enacted or substantially enacted by the balance sheet
 date. Deferred tax assets are recognised only to the extent there is
 reasonable certainty that the assets can be realised in future;
 however, where there is unabsorbed depreciation or carry forward of
 losses, deferred tax assets are recognised only if there is a virtual
 certainty of realisation of such assets.
 
 Deferred tax assets are reviewed at each balance sheet date and are
 written-down or written-up to reflect the amount that is
 reasonably/virtually certain (as the case may be) to be realised.
 
 Minimum Alternate Tax
 
 Minimum Alternate Tax (MAT) credit is recognized as an asset only
 when and to the extent there is convincing evidence that the Company
 will pay normal income tax during the specified period. Such asset is
 reviewed at each balance sheet date and the carrying amount of the MAT
 credit asset is written down to the extent there is no longer
 convincing evidence to the effect that the Company will pay normal
 income tax during the specified period.
 
 o) Earnings per share
 
 The basic earnings per share (EPS) is computed by dividing the profit
 after tax for the year by the weighted average number of equity shares
 outstanding during the year. For the purpose of calculating diluted
 earnings per share, profit after tax for the year and the weighted
 average number of shares outstanding during the year are adjusted for
 the effects of all dilutive potential equity shares. The dilutive
 potential equity shares are deemed converted as of the beginning of the
 period, unless they have been issued at a later date. The diluted
 potential equity shares have been adjusted for the proceeds receivable
 had the shares been actually issued at fair value (i.e., the average
 market value of the outstanding shares).
 
 p) Provisions, contingent liabilities and contingent assets
 
 A provision is recognised when the Company has a present obligation as
 a result of past events and it is probable that an outflow of resources
 embodying economic benefits will be required to settle the obligation.
 Provisions are measured at the best estimate of the expenditure
 required to settle the present obligation at the balance sheet date.
 
 A disclosure for a contingent liability is made when there is a
 possible obligation or a present obligation that may, but probably will
 not, require an outflow of resources. Where there is a possible
 obligation or a present obligation in respect of which the likelihood
 of outflow of resources is remote, no provision or disclosure is made.
 
 Contingent assets are not recognised in the financial statements.
 However, contingent assets are assessed continually and if it is
 virtually certain that an inflow of economic benefits will arise, the
 asset and related income are recognised in the period in which the
 change occurs.
 
 q) Impairment of assets
 
 The Company assesses at each balance sheet date whether there is any
 indication that an asset may be impaired. If any such indication
 exists, the Company estimates the recoverable amount of the asset.
 
 For the purpose of impairment testing, assets are grouped together into
 the smallest group of assets (Cash Generating Unit or CGU) that
 generates cash inflows from continuing use that are largely independent
 of the cash inflows of other assets or CGUs.
 
 The recoverable amount of an asset or CGU is the greater of its value
 in use and its net selling price. Value in use is the present value of
 the estimated future cash flows expected to arise from the continuing
 use of an asset and from its disposal at the end of its useful life.
 
 If such recoverable amount of the asset or the recoverable amount of
 the CGU to which the asset belongs is less than its carrying amount,
 the carrying amount is reduced to its recoverable amount. The reduction
 is treated as an impairment loss and is recognised in the statement of
 profit and loss. If at the balance sheet date there is an indication
 that if a previously assessed impairment loss no longer exists, the
 recoverable amount is reassessed and the asset is reflected at the
 recoverable amount subject to a maximum of amortised historical cost.
 
 r) Leases
 
 At the inception of the lease, a lease arrangement is classified as
 either a finance lease or an operating lease, based on the substance of
 the lease arrangement.
 
 Finance leases
 
 A finance lease is a lease that transfers substantially all the risks
 and rewards incident to ownership of an asset. A finance lease is
 recognized as an asset and a liability at the commencement of the
 lease, at the lower of the fair value of the asset and the present
 value of the minimum lease payments.  Initial direct costs, if any, are
 also capitalized and, subsequent to initial recognition, the asset is
 accounted for in accordance with the accounting policy applicable to
 that asset. Minimum lease payments made under finance leases are
 apportioned between the finance expense and the reduction of the
 outstanding liability. The finance expense is allocated to each period
 during the lease term so as to produce a constant periodic rate of
 interest on the remaining balance of the liability.
 
 Operating leases
 
 Other leases are operating leases, and the leased assets are not
 recognized on the Company''s balance sheet. Payments made under
 operating leases are recognized in the statement of profit and loss on
 a straight-line basis over the term of the lease.
 
 s) Cash and cash equivalents
 
 Cash and cash equivalents consist of cash on hand, demand deposits and
 short term, highly liquid investments that are readily convertible into
 known amounts of cash and which are subject to insignificant risk of
 changes in value. For this purpose, short term means investments
 having maturity of three months or less from the date of investment.
Source : Dion Global Solutions Limited
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