i) Basis of Accounting
The Financial Statements are prepared to comply in all material aspects
with the accounting principles generally accepted in India, including
the applicable Accounting Standards notified under section 211(3C) of
the Companies Act,1956 and the relevant provisions of the Companies
ii) Fixed Assets (including Intangibles), Depreciation and Amortisation
Fixed assets are stated at cost less accumulated depreciation and
amortisation. The Company capitalises all costs relating to the
acquisition and installation of fixed assets. Expenditure directly
related to the setting up of new projects, is capitalised as an
indirect cost towards construction of the fixed assets.
Depreciation is provided using the straight line method, pro-rata to
the period of use of assets, based on the useful lives of fixed assets
as estimated by management, or at the rates specified in Schedule XIV
of the Companies Act, 1956, whichever is higher. Brands/Intellectual
property rights are amortised from the month of products
launch/commercial production, over the estimated economic life not
exceeding 10 years.
Fixed assets having aggregate cost of Rs 5,000 or less are depreciated
fully in the year of acquisition.
The Company has estimated the useful life of its assets as follows:
Category Estimated useful life (in years)
Factory and Other Building 30 - 55
Plant and Machinery 8 - 20
Vehicles 5 - 6
Equipments and Air conditioners 4 - 20
Furniture and Fixtures 10
Computer Software 5
Brands 5 - 10
Leasehold land and improvement is amortised over the period of lease.
iii) Borrowing Costs
Borrowing costs that are attributable to the acquisition and
construction of a qualifying asset are capitalised as a part of the
cost of the asset. Other borrowing costs are recognised as an expense
in the year in which they are incurred.
iv) 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 exist,
the Company estimates the recoverable amount of the asset. If such
recoverable amount of the asset or the recoverable amount of the cash
generating unit 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
Profit and Loss Account. If, at the Balance Sheet date, there is an
indication that if a previously assessed impairment loss no longer
exist, the recoverable amount is reassessed and the asset is reflected
at the recoverable amount.
v) Foreign Currency Transactions
a) Foreign currency transactions are recorded at the exchange rates
prevailing on the date of such transactions. Monetary assets and
liabilities as at the Balance Sheet date are translated at the rates of
exchange prevailing at the date of the Balance Sheet. Gain/Loss arising
on account of differences in foreign exchange rates on
settlement/translation of monetary assets and liabilities are
recognised in the Profit and Loss Account, unless they are considered
as an adjustment to borrowing costs.
b) Gain/Loss on account of foreign exchange fluctuation in respect of
liabilities in foreign currencies specific to acquisition of fixed
assets are recognised in the Profit and Loss Account.
Long-term investments are stated at cost. Provision, where necessary,
is made to recognise a decline, other than temporary, in the value of
Inventories of finished goods, consumable store and spares are valued
at cost or net realisable value, whichever is lower. Cost of raw
materials and packing materials is ascertained on a weighted average
cost basis. Cost of work-in- process and finished goods include the
cost of materials consumed, labour and manufacturing overheads. Excise
and customs duty accrued on production or import of goods, as
applicable, is included in the valuation of inventories. Net
realisable value is the estimated selling price in the ordinary course
of business, less the estimated costs of completion and selling
The Company considers several factors in determining the allowance for
slow moving, obsolete and other non-saleable inventory including
estimated shelf life, planned product discontinuances, price changes,
ageing of inventory and introduction of competitive new products, to
the extent each of these factors impact the Companys business and
markets. The Company adjusts the inventory provision to reflect its
actual experience on a periodic basis.
viii) Employee Benefits
Long-term Employee Benefits
In case of Defined Contribution plans, the Companys contributions to
these plans are charged to the Profit and Loss Account as incurred.
Liability for Defined Benefit plans is provided on the basis of
valuations, as at the Balance Sheet date, carried out by an independent
actuary. The actuarial valuation method used for measuring the
liability is the Projected Unit Credit method. The estimate of future
salary increases considered takes into account the inflation,
seniority, promotion and other relevant factors. The expected rate of
return on plan assets is the Companys expectation of the average
long-term rate of return expected on investments of the fund during the
estimated term of the obligations. Plan assets are measured at fair
value as at the Balance Sheet date.
ix) Revenue Recognition
Sale of goods
Revenue is recognised when the significant risks and rewards of
ownership have been transferred to the buyer, recovery of the
consideration is probable, the associated costs and possible return of
goods can be estimated reliably. Revenue from the sale of goods
includes excise duty and sales tax and is measured at the fair value of
the consideration received or receivable, net of returns and applicable
trade discounts and allowances.
Revenue from contract research is recognised in profit and loss account
when right to receive a non-refundable payment from out-licensing
partner has been established.
The Company accounts for sales returns by recording a provision based
on the Companys estimate of expected sales returns. The Company deals
in various products and operates in various markets. Accordingly, the
Companys estimate of sales returns is determined primarily by its
experience in these markets. In respect of established products, the
Company determines an estimate of sales returns provision primarily
based on its historical experience with such sales returns.
Additionally, other factors that the Company considers in determining
the estimate include levels of inventory in the distribution channel,
estimated shelf life, product discontinuances, price changes of
competitive products and introduction of competitive new products, to
the extent each of these factors impact the Companys business and
markets. The Company considers all these factors and adjusts the sales
return provision to reflect its actual experience. With respect to new
products introduced by the Company, those have historically been either
extensions of an existing line of products where the Company has
historical experience or in therapeutic categories where established
products exist and are sold either by the Company or its competitors.
Revenue from services rendered is recognised in profit and loss account
as the underlying services are performed.
Export entitlements from government authorities are recognised in
profit and loss account when the right to receive credit as per the
terms of the scheme is established in respect of the exports made by
the Company, and where there is no significant uncertainty regarding
the ultimate collection of the relevant export proceeds.
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 the time proportionate
x) Research and Development Expenditure
Capital expenditure on Research and Development (R & D) is capitalised
as fixed assets. Development cost relating to the new and improved
product and/or process development is recognised as an intangible asset
to the extent that it is expected that such asset will generate future
economic benefits. Other research and development costs are expensed as
Current tax is determined as the amount of tax payable in respect of
taxable income for the year.
Deferred tax is recognised, subject to the consideration of prudence,
on timing differences being the difference between taxable income and
accounting income that originate in one period and are capable of
reversal in one or more subsequent period. Deferred tax assets are not
recognised on unabsorbed depreciation and carry forward of losses
unless there is virtual certainty that sufficient future taxable income
will be available against which such deferred tax assets can be
Deferred tax assets/liabilities recognised as above is after excluding
the amounts, which are getting reversed during the tax holiday period.
Assets acquired under finance lease are recognised as assets with
corresponding liabilities in the Balance Sheet at the inception of the
lease at amounts equal to lower of the fair value of the leased asset
or at the present value of the minimum lease payments. These leased
assets are depreciated in line with the Companys policy on
depreciation of fixed assets. The interest is allocated to periods
during the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each period.
Lease rent in respect of assets taken on operating lease are charged to
the Profit and Loss Account as per the terms of lease agreements.
xiii) Employee Stock Option Schemes (ESOS)
The Company accounts for compensation expense under the Employee Stock
Option Schemes using the intrinsic value method as permitted by the
Guidance Note on Accounting for Employee Share-based Payments issued
by the Institute of Chartered Accountants of India. The difference
between the market price and the exercise price as at the date of the
grant is treated as compensation expense and charged over the vesting
xiv) Provisions and Contingent Liabilities
The Company recognises a provision when there is a present obligation
as a result of a past event that probably requires an outflow of
resources and a reliable estimate can be made of the amount of the
obligation. 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 that the likelihood of outflow of
resources is remote, no provision or disclosure is made.