1.1 Basis of accounting and preparation of financial statements
The financial statements of the Company have been prepared in
accordance with the Generally Accepted Accounting Principles in India
(Indian GAAP) to comply with the Accounting Standards notified under
the Companies (Accounting Standards) Rules, 2006 (as amended) and the
relevant provisions of the Companies Act, 1956. The financial
statements have been prepared on accrual basis under the historical
cost convention except for certain fixed assets that are carried at
1.2 Use of Estimates
The preparation of the financial statements in conformity with Indian
GAAP requires the Management to make estimates and assumptions
considered in the reported amounts of assets and liabilities (including
contingent liabilities) and the reported income and expenses during the
year. The Management believes that the estimates used in preparation of
the financial statements are prudent and reasonable. Future results
could differ due to these estimates and the differences between the
actual results and the estimates are recognized in the periods in which
the results are known / materialized.
(i) Inventories other than by-products are valued at lower of cost and
net realizable value.
(ii) In respect of work-in-process and finished goods, cost includes
all applicable production overheads incurred in bringing such
inventories to their present location and condition. Cost also includes
all taxes and duties, but excludes duties and taxes that are
subsequently recoverable from taxing authorities.
(iii) In respect of Raw materials, bought out items, consumables and
stores and spares, cost is determined based on weighted average cost
(iv) Inventories of by-products are valued at estimated net realizable
1.4 Cash and cash equivalents (for purposes of Cash Flow Statement)
Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short-term balances (with an original maturity of three
months or less from the date of acquisition), highly liquid investments
that are readily convertible into known amounts of cash and which are
subject to insignificant risk of changes in value.
1.5 Cash flow statement
Cash flows are reported using the indirect method, whereby profit /
(loss) before extraordinary items and tax is adjusted for the effects
of transactions of non-cash nature and any deferrals or accruals of
past or future cash receipts or payments. The cash flows from
operating, investing and financing activities of the Company are
segregated based on the available information.
1.6 Depreciation and amortization
(i) Depreciation on fixed assets (other than revalued land and
buildings and leased assets) is calculated on straight line method on
Assets acquired up to June 30, 1987 are on the basis of specified period
under section 205(2) (b) of the Companies Act, 1956.
In respect of assets acquired after June 30, 1987, except assets
relating to Nutraceutical Division, depreciation is charged based on
estimated useful life of the assets at rates which are higher than the
rates specified in Schedule XIV of the Companies Act, 1956 The
depreciation rates followed are specified below : -
Buildings : 1.67% to 3.65%
Machinery : 4.75% to 25.89%
Vehicles : 23.75%
Computers : 31.67%
Furniture : 6.67 % to 33.33 %
Equipment : 4.75 % to 23.75 %
In respect of assets relating to Nutraceuticals Division, assets are
depreciated at rates specified in Schedule XIV of the Companies Act,
(ii) In respect of additions and deletions during the year,
depreciation charge is provided on pro-rata basis.
(iii) Leased assets are fully depreciated over the primary lease
(iv) Assets costing individually Rs 5,000 or less are fully depreciated
in the year of addition.
(v) The difference between the depreciation for the year on revalued
buildings and depreciation calculated on the original cost is recouped
from the fixed assets revaluation reserve.
(vi) Cost of patent is amortized over a period of 3 years.
1.7 Revenue Recognition
i) Sales are recognized, net of returns and trade discounts, on
transfer of significant risks and rewards of ownership to the buyer,
which generally coincides with the delivery of goods to customers.
Sales include excise duty but exclude sales tax and value added tax.
ii) Sales include excise duty recovered and are stated net of trade
discounts and sales returns.
iii) Income from services rendered is booked based on
agreements/arrangements with the concerned parties.
iv) Export Incentive under Duty Entitlement Pass Book Scheme are
treated as income in the year of export at the estimated realizable
v) Interest income is accounted on accrual basis.
vi) Dividend income is accounted for in the year in which the right to
receive the payment is established.
1.8 Fixed Assets
Tangible Fixed Assets (other than those which have been revalued) are
stated at historical cost less accumulated depreciation. Cost includes
related taxes, duties, freight, insurance and other incidental expenses
related to the acquisition and installation of assets and borrowing
cost incurred up to the date when the assets are ready for its intended
use, but excludes duties and taxes that are recoverable subsequently
from taxing authorities. The revalued fixed assets are restated at
their estimated current replacement values as on 30th June 1987 as
determined by the valuers.
Intangible Assets are stated at cost of acquisition less accumulated
Leasehold land and leasehold improvements are amortized over the
primary period of lease.
1.9 Foreign Currency Transactions
Premium / discount on forward exchange contracts, which are not
intended for trading or speculation purposes, are amortized over the
period of the contracts if such contracts relate to monetary items as
at the Balance Sheet date. Refer Notes 1.21 and 1.22 for accounting for
forward exchange contracts relating to firm commitments and highly
probable forecast transactions.
Long term investments are stated at cost. Provision for diminution in
value is made if the decline is other than temporary in nature. Current
Investments are carried at lower of cost and fair value.
1.11 Employee Benefits
a. Short Term Employee Benefits
All employee benefits payable wholly within twelve months of rendering
the service are classified as short term employee benefits. Short term
employee benefits, including accumulated compensated absences, at the
balance sheet date, are recognized as an expense as per the Company''s
scheme based on expected obligations on undiscounted basis.
b. Long Term Employee Benefits
The obligation for long term employee benefits such as long term
compensated absence is provided for based on actuarial valuation as at
the balance sheet date, using the Projected Unit Credit Method.
(i) Defined Contribution Plans
The company''s superannuation scheme, state governed provident fund
scheme and employee state insurance scheme are defined contribution
plans. Fixed contributions to the Superannuation Fund, which is
administered by trustees and managed by LIC are charged to the Profit
and Loss Account. The Company has no liability for future
Superannuation Fund benefits other than its annual contribution and
recognizes such contributions as an expense in the year incurred. The
contribution paid/payable under the schemes is recognized during the
period in which the employee renders the related service.
(ii) Defined Benefit Plans
Employees pension scheme and provident fund scheme managed by Trust are
the company''s defined benefit plans. The company also makes annual
contribution to a Gratuity fund administered by Life Insurance
Corporation of India. The present value of obligation under such
defined benefit plans is determined based on actuarial valuation as at
the balance sheet date, using the Projected Unit Credit Method.
Actuarial gains/losses are absorbed in the financial statements.
With respect to the Provident Fund Trust administered by the company,
the company shall make good deficiency, if any, in the interest rate
declared by Trust over statutory limit. Having regard to the assets of
the Fund and the return on the investments, the company does not expect
any deficiency in the foreseeable future.
(iii) Deferred Compensation cost
Stock options granted to the employees under the stock option scheme
established are evaluated as per the accounting treatment prescribed by
the Employee Stock Option Scheme and Employee Stock Purchase Scheme
Guidelines, 1999 issued by Securities and Exchange Board of India. The
Company follows the intrinsic value method of accounting for the
options and accordingly, the excess of market value of the stock
options as on date of grant over the exercise price of the options, if
any, is recognized as deferred employee compensation cost and is
charged to the Profit and Loss Account on graded vesting basis over the
vesting period of the options.
1.12 Borrowing costs
Borrowing costs include interest, amortization of ancillary costs
incurred and exchange differences arising from foreign currency
borrowings to the extent they are regarded as an adjustment to the
interest cost. Costs in connection with the borrowing of funds to the
extent not directly related to the acquisition of qualifying assets are
charged to the Statement of Profit and Loss over the tenure of the
loan. Borrowing costs, allocated to and utilized for qualifying assets,
pertaining to the period from commencement of activities relating to
construction / development of the qualifying asset up to the date of
capitalization of such asset is added to the cost of the assets.
Capitalization of borrowing costs is suspended and charged to the
Statement of Profit and Loss during extended periods when active
development activity on the qualifying assets is interrupted.
1.13 Segment reporting
The Company identifies primary segments based on
the dominant source, nature of risks and returns and the internal
organization and management structure. The operating segments are the
segments for which separate financial information is available and for
which operating profit/loss amounts are evaluated regularly by the
executive Management in deciding how to allocate resources and in
The accounting policies adopted for segment reporting are in line with
the accounting policies of the Company. Segment revenue, segment
expenses, segment assets and segment liabilities have been identified
to segments on the basis of their relationship to the operating
activities of the segment. Inter-segment revenue is accounted on the
basis of transactions which are primarily determined based on market /
fair value factors. Revenue, expenses, assets and liabilities which
relate to the Company as a whole and are not allocable to segments on
reasonable basis have been included under unallocated revenue /
expenses / assets / liabilities.
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased assets are classified as
operating leases. Operating lease payments are recognized as an expense
in the revenue account as per the lease terms.
1.15 Earnings per Share
Basic earnings per share is computed by dividing the profit / (loss)
after tax (including the post tax effect of extraordinary items, if
any) by the weighted average number of equity shares outstanding during
the year. Diluted earnings per share is computed by dividing the
profit / (loss) after tax (including the post tax effect of
extraordinary items, if any) as adjusted for dividend, interest and
other charges to expense or income relating to the dilutive potential
equity shares, by the weighted average number of equity shares
considered for deriving basic earnings per share and the weighted
average number of equity shares which could have been issued on the
conversion of all dilutive potential equity shares. Potential equity
shares are deemed to be dilutive only if their conversion to equity
shares would decrease the net profit per share from continuing ordinary
1.16 Taxes on Income
Current tax is the amount of tax payable on the taxable income for the
year as determined in accordance with the provisions of the Income Tax
Deferred tax is recognized for timing differences arising between the
taxable income and accounting income computed using the tax rates and
the laws that have been enacted or substantively enacted as of the
balance sheet date. Deferred Tax assets in respect of unabsorbed
depreciation and carry forward of losses under Tax Laws, are recognized
if there is virtual certainty that there will be sufficient future
taxable income available to realize such Deferred Tax assets. Other
Deferred Tax assets are recognized if there is a reasonable certainty
that there will be sufficient future taxable income available to
realize such Deferred Tax assets.
1.17 Insurance claims
Insurance claims are accounted for on the basis of claims admitted /
expected to be admitted and to the extent that there is no uncertainty
in receiving the claims.
1.18 Research and development expenses
Revenue expenditure pertaining to research is charged to the Statement
of Profit and Loss. Development costs of products are also charged to
the Statement of Profit and Loss unless a product''s technological
feasibility has been established, in which case such expenditure is
capitalized. The amount capitalized comprises expenditure that can be
directly attributed or allocated on a reasonable and consistent basis
to creating, producing and making the asset ready for its intended use.
Fixed assets utilized for research and development are capitalized and
depreciated in accordance with the policies stated for Tangible Fixed
Assets and Intangible Assets.
1.19 Impairment of Assets
The carrying values of assets / cash generating units at each Balance
Sheet date are reviewed for impairment. If any indication of
impairment exists, the recoverable amount of such assets is estimated
and impairment is recognized, if the carrying amount of these assets
exceeds their recoverable amount. The recoverable amount is the greater
of the net selling price and their value in use. Value in use is
arrived at by discounting the future cash flows to their present value
based on an appropriate discount factor. When there is indication that
an impairment loss recognized for an asset in earlier accounting
periods no longer exists or may have decreased, such reversal of
impairment loss is recognized in the Statement of Profit and Loss,
except in case of revalued assets.
1.20 Provision, Contingent Liabilities and Contingent Assets
Provisions are recognized only when there is a present obligation as a
result of past events and when a reasonable estimate of the amount of
obligation can be made. Contingent liability is disclosed for (i)
possible obligation which will be confirmed only by future
events not wholly within the control of the company or
(ii) present obligations arising from past events where it is not
probable that an outflow of resources will be required to settle the
obligation or a reliable estimate of the amount of the obligation
cannot be made. Contingent assets are neither recognized nor disclosed
in the financial statements.
1.21 Hedge Accounting
The Company uses foreign currency forward contracts to hedge its risks
associated with foreign currency fluctuations relating to highly
probable forecast transactions. The Company designates such forward
contracts in a cash flow hedging relationship by applying the hedge
accounting principles set out in Accounting Standard 30 Financial
Instruments: Recognition and Measurement. These forward contracts are
stated at fair value at each reporting date. Changes in the fair value
of these forward contracts that are designated and effective as hedges
of future cash flows are recognized directly in Hedging reserve
account under Reserves and surplus, net of applicable deferred income
taxes and the ineffective portion is recognized immediately in the
Statement of Profit and Loss. Amounts accumulated in the Hedging
reserve account are reclassified to the Statement of Profit and Loss
in the same periods during which the forecasted transaction affects
profit and loss. Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated, or exercised, or no longer
qualifies for hedge accounting. For forecasted transactions, any
cumulative gain or loss on the hedging instrument recognized in
Hedging reserve account is retained until the forecasted transaction
occurs. If the forecasted transaction is no longer expected to occur,
the net cumulative gain or loss recognized in Hedging reserve account
is immediately transferred to the Statement of Profit and Loss.
1.22 Derivative contracts
The Company enters into derivative contracts in the nature of foreign
currency swaps, currency options, forward contracts with an intention
to hedge its existing assets and liabilities, firm commitments and
highly probable transactions. Derivative contracts which are closely
linked to the existing assets and liabilities are accounted as per the
policy stated for Foreign Currency Transactions and Translations.
Derivative contracts designated as a hedging instrument for highly
probable forecast transactions are accounted as per the policy stated
for Hedge Accounting.
All other derivative contracts are marked-to-market and losses are
recognized in the Statement of Profit and Loss. Gains arising on the
same are not recognized, until realized, on grounds of prudence.