SENSEX NIFTY India | Accounting Policy > Pharmaceuticals > Accounting Policy followed by Dr Reddys Laboratories - BSE: 500124, NSE: DRREDDY
Dr Reddys Laboratories
BSE: 500124|NSE: DRREDDY|ISIN: INE089A01023|SECTOR: Pharmaceuticals
Jul 03, 17:00
34.1 (0.96%)
VOLUME 9,908
Jul 03, 17:00
40.05 (1.13%)
VOLUME 140,977
« Mar 13
Accounting Policy Year : Mar '14
a) Basis of preparation
 The nancial statements of Dr. Reddy’s Laboratories Limited (DR L or t
 he Company) have been prepared and presented in accordance with Indian
 Generally Accepted Accounting Principles (IGAAP) under historical cost
 convention on an accrual basis. Pursuant to circular 15/2013 dated
 13HSeptemberff2013 read with circular 08/2014 dated 4BApril2014 issued
 by the Ministry of Corporate Affairs, the existing accounting standards
 noti ed under the Companies Act, 1956 shall apply till the standards of
 accounting or any addendum thereto are prescribed by the Central
 Government in consultation and recommendation of the National Financial
 Reporting Authority.  Consequently, these nancial statements have been
 prepared to comply in all material aspects with accounting standards
 noti ed by the Central Government of India under Section 211 (3C) of
 the Companies Act, 1956, other pronouncements of the Institute of
 Chartered Accountants of India, the relevant provisions of the
 Companies Act, 1956 and guidelines issued by the Securities and
 Exchange Board of India (SEBI) (Collectively referred to as I GAAP).
 The nancial statements are presented in Indian rupees rounded off to
 the nearest million
 b) Use of estimates
 The preparation of the nancial 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 nancial
 statements and reported amounts of revenues and expenses for the year.
 Examples of such estimates include estimation of useful life of
 tangible and intangible assets, assessment of recoverable amounts of
 deferred tax assets, provision for obligations relating to employees,
 provisions against litigations and impairment of assets. 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 classifi cation
 All the assets and liabilities have been classi ed as current or non
 current as per the Company’s normal operating cycle and other criteria
 set out in the Revised Schedule VI to the Companies Act, 1956.
 An asset is classi ed as current when it satis es any of the following
 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 12 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 12 months after
 the reporting date.  Liabilities:
 A liability is classi ed as current when it satis es any of the
 following criteria:
 a) it is expected to be settled in the Company’s normal operating
 b) it is held primarily for the purpose of being traded
 c) it is due to be settled within 12 months after the reporting date;
 d) the Company does not have an unconditional right to defer settlement
 of the liability for at least 12 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 eBuity instruments do not affect its
 classi cation
 Current assets / liabilities include the current portion of non current
 nancial assets / liabilities respectively. All other assets /
 liabilities are classi ed as non current.
 d) Tangible fi xed assets and depreciation
 Fixed assets are carried at the cost of acquisition or construction
 less accumulated depreciation. The cost of xed assets includes non
 refundable taxes, duties, freight and other incidental expenses related
 to the acquisition and installation of the respective assets.
 Subsequent expenditure related to an item of tangible xed asset is
 capitalised only if it increases the future bene ts from the existing
 assets beyond its previously assessed standards of performance.
 Advances paid towards acquisition of tangible xed 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.
 Depreciation on tangible xed assets is provided using the straight-line
 method at the rates speci ed in Schedule XIV to the Companies Act, 1956
 or based on the useful life of the assets as estimated by the Company’s
 management, whichever is higher. Depreciation is calculated on a
 pro-rata basis from the date of installation till the date the assets
 are sold or disposed. Individual assets costing less than Rs.H5,000/- are
 depreciated in full in the year of acquisition. Assets acquired on
 nance leases are depreciated over the period of the lease agreement or
 the useful life whichever is shorter. Leasehold improvements are
 depreciated over their estimated useful life, or the remaining period
 of lease, whichever is shorter
 -(All amounts in Indian Rupees millions, except share data and where
 The Management’s estimates of the useful lives for various categories
 of xed assets are given below:
 - Factory and administrative buildings 20 to 30
 - Ancillary structures 3 to 10 Plant and machinery 3 to 15 Electrical
 equipment 5 to 15 Laboratory equipment 5 to 15 Furniture, xtures and of
 ce equipment 4 to 8 Vehicles 4 to 5
 Gains or losses from disposal of tangible xed assets are recognised in
 the statement of pro t and loss.
 e) Borrowing costs
 General and speci c borrowing costs directly attributable to
 acquisition or construction of those xed 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 pro t 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 Company’s management estimates the useful lives for the various
 intangible assets as follows: intangible asset is derecognised on
 disposal or when no future economic bene ts are expected from its use
 and disposal. Gains or losses arising from the disposal of intangible
 assets are recognised in the statement of pro t 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 classi ed as current investments. All other investments are
 classi ed 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 category of 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 pro t and loss.
 h) Inventories
 Inventories are valued at the lower of cost and net realisable value.
 Net realisable value (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. Cost of inventories
 comprises all cost of purchase, cost of conversion and other costs
 incurred in bringing the inventories to their present location and
 condition. The cost of all categories of inventory is determined using
 weighted average cost method
 i) Research and development
 Expenditure on research activities undertaken with the prospect of
 gaining new scienti c or technical knowledge and understanding is
 recognized as expense in the statement of pro t 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 the enterprise can demonstrate all
 of the following:
 a) the product or the process is technically and commercially feasible;
 b) future economic bene ts are probable and ascertainable;
 c) the Company intends to and has suf cient resources 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 benefi ts Defi ned benefi t plans
 The liability in respect of de ned bene t plans and other
 post-employment bene ts is calculated using the proEected unit credit
 method and spread over the period during which the bene t is expected
 to be derived from employees’ services, consistent with the advice of
 Huali ed actuaries. The long term obligations are measured at present
 value of estimated future cash ows discounted at rates re ecting the
 yields on risk free government bonds that have maturity dates
 approximating the terms of the Company’s obligations. Short term
 employee bene t 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 pro t and loss.
 Defi ned contribution plans
 The Company’s contributions to de ned contribution plans are charged to
 pro t or 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 Huali ed
 Employee stock option schemes
 In accordance with the SEBI guidelines, the cost is 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 pro t 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 pro t and loss. Non monetary assets and
 liabilities are carried at the rates prevailing on the date of
 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 nancial statements. Such exchange differences are
 recognized in the statement of pro t 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) in the statement of pro t and loss. The changes in the fair
 value of foreign currency option contracts and swap contracts are
 recognized in the statement of pro t 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 A ccounting for Derivatives on the early
 adoption of Accounting Standard AS-30 F inancial Instruments:
 Recognition and Measurement, the Company has adopted the Standard, to
 the extent that the adoption does not con ict with existing mandatory
 accounting standards and other authoritative pronouncements, Company
 law and other regulatory requirements.
 Cash flow hedges
 The Company classi es its derivative contracts that hedge foreign
 currency risk associated with highly probable forecasted transactions
 as cash ow hedges and measures them at fair value. The effective
 portion of such cash ow hedges is recorded as part of reserves and
 surplus within the Company’s h edging reserve, and re-classi ed into
 the statement of pro t 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 pro t and loss.
 The Company also designates certain non derivative nancial 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 ow hedge
 accounting for such relationships. Re-measurement gain/ loss on such
 non derivative nancial liabilities is recorded as part of reserves and
 surplus within the Company’s h edging reserve, and re-classi ed in the
 statement of pro t 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 pro t and loss.
 m) Revenue recognition
 Sale of goods
 Revenue is recognized when the signi cant 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.
 Profi t 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. Bn der 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 pro t share which is
 over and above the base purchase price.
 Revenue in an amount eBual to the base purchase price is recognized in
 these transactions upon delivery of products to the business partners.
 An additional amount representing the pro t 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 pro t share becomes probable and a reliable
 measurement of the pro t 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 signi cant 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
 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 re ects 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 re ect the amount that is
 reasonably/virtually certain (as the case may be) to be realised
 o) Earnings per share
 The basic earnings per share (E PS) is computed by dividing the pro t
 after tax for the year by the weighted average number of eBuity shares
 outstanding during the year. For the purpose of calculating diluted
 earnings per share, pro t after tax for the year and the weighted
 average number of shares outstanding during the year are adBusted for
 the effects of all dilutive potential eBuity shares. The dilutive
 potential eBuity shares are deemed converted as of the beginning of the
 period, unless they have been issued at a later date. The diluted
 potential eBuity shares have been adBusted 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 and 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 out ow of resources
 embodying economic bene ts will be reBuired to settle the obligation.
 Provisions are measured at the best estimate of the expenditure
 reBuired to settle the present obligation at the balance sheet date.
 Contingent liabilities and contingent assets
 A disclosure for a contingent liability is made when there is a
 possible obligation or a present obligation that may, but probably will
 not, reBuire an out ow of resources.  Bh ere there is a possible
 obligation or a present obligation in respect of which the likelihood
 of out ow of resources is remote, no provision or disclosure is made.
 Contingent assets are not recognised in the nancial statements.
 Bowever, contingent assets are assessed continually and if it is
 virtually certain that an in ow of economic bene ts 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 Bn it or CGB) that
 generates cash in ows from continuing use that are largely independent
 of the cash in ows of other assets or CGBs
 The recoverable amount of an asset or CGB 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 ows 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 CGB 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
 pro t 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 re ected at the
 recoverable amount subBect to a maximum of amortised historical cost.
 r) Leases
 The lease arrangement is classi ed as either a nance lease or an
 operating lease, at the inception of the lease, based on the substance
 of the lease arrangement.
 Finance leases
 A nance lease is a lease that transfers substantially all the risks and
 rewards incident to ownership of an asset. A nance 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 nance leases are
 apportioned between the nance expense and the reduction of the
 outstanding liability. The nance 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 pro t 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 liBuid investments that are readily convertible into
 known amounts of cash and which are subEect to insigni cant risk of
 changes in value. For this purpose, s hort term means investments
 having maturity of three months or less from the date of investment.
 -(a) Finance lease obligations are towards lease rentals payable for
 the vehicles leased by the Company. Lease rentals are paid in monthly
 instalment, with the last instalment due in April 2018
 (b) Sales tax deferment loan is repayable in 8 instalments, with the
 last instalment due on 31 March 2019.
 (c) External Commercial Borrowings of BSD 150 million carrying interest
 rate of LIBOR plus 179 bps and is repayable in ve eBual Buarterly
 instalments ending in February 2019. As part of the arrangement, the
 Company is required to comply with certain nancial covenants and the
 Company was in compliance with such covenants as of 31 March 2014.
 (d) Packing credit loans for the current year comprised of BS D and EBR
 denominated loans carrying interest rates of LIBOR plus 20 - 85 bps,
 RBB denominated loans carrying interest rate of Moscow Prime Offered
 Rate plus 60 bps, RBB denominated loans carrying xed interest rate of
 7.20% - 7.75% per annum and INR denom- inated loans carrying xed
 interest rate of 9.50% - 10%, and are repayable within 1 to 6 months
 from the date of drawdown. Packing Credit loans for the previous year
 comprised of BS D and EBR denominated loans carrying interest rates of
 LIBOR plus 50 - 125 bps and RBB denominated loans carrying xed interest
 rate of 7.25% - 8.00% per annum and are repayable within 1 to 6 months
 from the date of drawdown
 -(a) The principal amount remaining unpaid as at 31 March 2014 in
 respect of enterprises covered under the M icro, Small and Medium
 Enterprises Development Act, 2006 (MSMDA) is Rs. 97 (previous year: Rs.
 236). The interest amount computed based on the provisions under
 Section 16 of the MSMDA of Rs. 0.03 (previous year: Rs. 0.02) is remaining
 unpaid as of 31 March 2014. The interest amount of Rs. 0.02 that remained
 unpaid as at 31 March 2013 was paid fully during the current year.
 (b) The amount of interest due and payable for the period of delay in
 making payment (which have been paid but beyond the appointed day
 during the year) but without adding the interest speci ed under this
 Act is Rs. Nil (previous year: Rs. Nil).
 (c) The list of undertakings covered under MSMDA was determined by the
 Company on the basis of information available with the Company and has
 been relied upon by the auditors.
 -(a) In respect of shares of State Bank of India, the share certi cates
 were misplaced during transfer/lost in transit. The Company has
 initiated necessary legal action at the appropriate courts.
 (b) Shares held in Bu nshan Rotam Reddy Pharmaceutical Co. Limited,
 China , OOO Dr. Reddy’s Laboratories Limited, Russia, and Biomed Russia
 Limited, Russia are not denominated in number of shares as per the laws
 of the respective countries.
 (c) During the year ended 31 March 2014, the Company disposed its
 investment in Lacock Holdings Limited, Dr. Reddy’s Laboratories Inc.,
 Dr. Reddy’s Laboratories (Australia) Pty. Limited, Dr. Reddy’s
 Laboratories (Proprietary) Limited and OOO Dr. Reddy’s Laboratories
 Limited to its wholly owned subsidiary Dr. Reddy’s Laboratories SA,
 Switzerland. The aggregate loss on such disposal of investment recorded
 under Ot her expenses is Rs. 166.
 (d) Preference shares held by the Company in Aurigene Discovery
 Technologies Limited, India were redeemed during the year ended 31
 March 2014.
 (e) Rounded off in millions in the note above.
 -(b) Consequent to the increase in expected cash ows of some of the
 products forming part of product related intangibles pertaining to
 Company’s Global Generics segment, the Company assessed the
 recoverability of money advanced to one of its subsidiaries which had
 funded the acquisition of such product related intangibles and reversed
 Rs. 280 of provision for doubtful advances during the year
 (c) In the previous year, the Company had advanced a sum of Rs. 245
 towards investment in Reddy Pharma Iberia SA. As the shares were not
 alloted by the end of previous year, the said amount was classi ed as A
 dvance towards Investment. Further, the advance was provided for as not
 recoverable and recorded as other expenditure. In the current period,
 shares were issued to the Company and accordingly the earlier provision
 for advance is reclassi ed as provision for permanent diminution in the
 value of investments with an equivalent reversal in ot her expenses.
 (d) The Company assessed the recoverability of money advanced to Reddy
 Antilles N.V. and has created a provision for doubtful advances of Rs.147
 during the year
 (e) During the current year, the Company has advanced a sum of Rs. 2,184
 as working capital loan to Industrias Bu imicas Falcon de Mexico S.A.
 de C.V., Mexico, its wholly owned subsidiary.
Source : Dion Global Solutions Limited
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