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Ranbaxy Laboratories
BSE: 500359|NSE: RANBAXY|ISIN: INE015A01028|SECTOR: Pharmaceuticals
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Dec 11
Accounting Policy Year : Dec '12
The accounting policies set out below have been applied consistently to
 the periods presented in these fnancial statements.

a. Basis of preparation of fnancial statements

These fnancial statements have been prepared and presented on the accrual basis of accounting and comply with the Accounting Standards prescribed in the Companies (Accounting Standards) Rules, 2006 issued by the Central Government, the relevant provisions of the Companies Act, 1956, pronouncements of the Institute of Chartered Accountants of India, guidelines issued by the Securities and Exchange Board of India (SEBI) and other accounting principles generally accepted in India, to the extent applicable. The fnancial statements are presented in Indian rupees rounded off to the nearest million.

This is the frst year of application of the revised Schedule VI to the Companies Act, 1956 for the preparation of the fnancial statements of the Company. The revised Schedule VI introduces some signifcant conceptual changes as well as new disclosures. These include classifcation of all assets and liabilities into current and non-current. The previous year fgures have also undergone signifcant reclassifcation to comply with the requirements of the revised Schedule VI.

b. Use of estimates

The preparation of fnancial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses and disclosure of contingent liabilities on the date of the fnancial statements. Examples of such estimates include transfer pricing related adjustments, provision against litigations, provisions of future obligation under employee beneft plans, useful lives of fxed assets, provision for sales return, provision for customer claims, provision for expiry of drugs 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-non-current classifcation

All assets and liabilities have been classifed 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.

Assets

An asset is classifed as current when it satisfes 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 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 classifed as current when it satisfes 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 12 months after the reporting date; or

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 equity instruments do not affect its classifcation.

Current assets/ liabilities include the current portion of non-current fnancial assets/ liabilities respectively. All other assets/ liabilities are classifed as non-current.

Operating cycle

Operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents.

d. Fixed assets

Tangible fxed assets and depreciation

Tangible fxed assets are stated at the cost of acquisition or construction, less accumulated depreciation and impairment losses, if any. The cost of an item of tangible fxed asset comprises its purchase price, including import duties and other non-refundable taxes or levies and any attributable costs of bringing the asset to its working condition for its intended use. Any trade discount and rebates are deducted in arriving at the purchase price. Advances paid towards acquisition of tangible fxed assets outstanding at each Balance Sheet date, are shown under long-term loans and advances and cost of assets not ready for intended use before the year end, are shown as capital work-in-progress.

Subsequent expenditure related to an item of tangible fxed asset are added to its book value only if they increase the future benefts from the existing asset beyond its previously assessed standard of performance.

Borrowing costs are interest and other costs (including exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs) incurred by the Company in connection with the borrowing of funds. Borrowing costs directly attributable to acquisition or construction of those tangible fxed assets which necessarily take a substantial period of time to get ready for their intended use are capitalised. Other borrowing costs are recognised as an expense in the period in which they are incurred.

Depreciation on tangible fxed assets, except leasehold improvements (included in furniture and fxture), is provided on a pro-rata basis, using the straight-line method and at the rates specifed in Schedule - XIV to the Companies Act, 1956. Leasehold improvements (included in furniture and fxture) are depreciated over their estimated useful life, or the remaining period of lease from the date of capitalization, whichever is shorter. While in the opinion of the management, these rates are currently refective of the estimated useful lives of the fxed assets, however in the context of the proposed implementation of Companies Bill, 2012 (not yet effective since awaiting legislative approval) which indicates useful lives different from currently being used for certain categories of tangible fxed assets, and also considering the technological changes, a comprehensive exercise for review of useful lives has been taken up. Consequential adjustment, if any, will be recognized on prospective basis upon completion of the exercise.

Depreciation on additions is provided on a pro-rata basis from the date of acquisition/ installation. Depreciation on sale/ deduction from tangible fxed assets is provided for upto the date of sale/ adjustment, as the case may be. Modifcation or extension to an existing asset, which is of capital nature and which becomes an integral part thereof is depreciated prospectively over the remaining useful life of that asset.

A tangible fxed asset is eliminated from the fnancial statements on disposal or when no further beneft is expected from its use and disposal. Assets retired from active use and held for disposal are stated at the lower of their net book value and net realisable value and are shown under 'Other current assets'.

Losses arising from retirement or gains or losses arising from disposal of tangible fxed assets which are carried at cost are recognized in the Statement of Proft and Loss.

Assets costing individually Rs. 5,000 (in absolute amount) or less are fully depreciated in the year of purchase.

Intangible fxed assets and amortisation

Intangible fxed assets comprise brands, trademarks and computer software are stated at cost less accumulated amortization and impairment losses, if any. The cost of an item of intangible fxed asset comprises its purchase price, including import duties and other non-refundable taxes or levies and any attributable costs of bringing the asset to its working condition for its intended use. Any trade discount and rebates are deducted in arriving at the purchase price. Advances paid towards acquisition of intangible fxed assets outstanding at each Balance Sheet date, are shown under long-term loans and advances and cost of assets not ready for intended use before the year end, are shown as intangible fxed assets under development.

Subsequent expenditure is capitalised only when it increases the future economic benefts from the specifc asset to which it relates.

Intangible assets are amortised in the Statement of Proft and Loss over their estimated useful lives, from the date that they are available for use based on the expected pattern of consumption of economic benefts of the asset. Accordingly, at present, these are being amortised on straight line basis.

The amortisation rates for Brands and trade marks and Computer software are 20% and 16.67% per annum respectively.

An intangible asset is derecognised on disposal or when no future economic benefts are expected from its use and disposal. Losses arising from retirement and gains or losses arising from disposal of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Statement of Proft and Loss.

e. Impairment of assets

Fixed assets are reviewed at each reporting date to determine if there is any indication of impairment. For assets in respect of which any such indication exists and for intangible assets mandatorily tested annually for impairment, the asset's recoverable amount is estimated. For assets that are not yet available for use, the recoverable amount is estimated at each reporting date. An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets (Cash Generating Unit or CGU) that generates cash infows from continuing use that are largely independent of the cash infows 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. In assessing value in use, the estimated future cash fows are discounted to their present value using a pre-tax discount rate that refects current market assessments of the time value of money and the risks specifc to the asset or CGU. Impairment losses are recognised in the Statement of Proft and Loss.

f. Revenue recognition

Revenue from sale of goods in the course of ordinary activities is recognised when the property in the goods, or all signifcant risks and rewards of their ownership are transferred to the customer and no signifcant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods as well as regarding its collection. Revenue includes excise duty and is net of sales tax, value added tax and applicable discounts and allowances. Allowances for sales returns are estimated and provided for in the year of sales.

Income from royalty, milestone payments, technical know-how arrangements, exclusivity and patents settlement and licensing arrangements is recognised on an accrual basis in accordance with the terms of the relevant agreement. Any non-compete fee is recognised over the term of the agreement on a straight line basis.

Export incentive entitlements are recognised as income 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 uncertainty regarding the ultimate collection of the relevant export proceeds.

Proft on sale of investments is recognised as income in the period in which the investment is sold/ disposed off. Dividend income is recognised when the right to receive the income is established. Interest income is recognised on a time proportion basis taking into account the amount outstanding and the interest rate applicable. Discount or premium on debt securities held is accrued over the period to maturity.

g. Investments

Investments that are readily realisable and intended to be held for not more than a year from the date of acquisition are classifed as current investments. All other investments are classifed as long-term investments. However, that part of long term investments which is expected to be realised within 12 months after the reporting date is presented under 'current assets' in consonance with the current/ non-current classifcation scheme of revised Schedule VI. Long-term investments (including current portion thereof) are carried at cost less any other-than-temporary diminution in value, determined separately for each individual investment. 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 investments i.e., equity shares, preference shares etc.

Any reductions in the carrying amount and any reversals of such reductions are charged or credited to the Statement of Proft and Loss. Proft or loss on sale of investments is determined on the basis of weighted average carrying amount of investments disposed off.

h. Inventories

Inventories which comprise raw materials, work-in-progress, fnished goods, stock-in-trade, stores and spares, and loose tools are carried at the lower of cost and net realisable value. Cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Work in progress also includes Active pharmaceutical ingredients ('API') and Drug intermediates lying at plants for captive consumption.

In determining the cost, weighted average cost method is used. In the case of manufactured inventories and work- in-progress, fxed production overheads are allocated on the basis of normal capacity of production facilities. Excise duty liability is included in the valuation of closing inventory of fnished goods.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

The net realisable value of work-in-progress is determined with reference to the selling prices of related fnished products. Raw materials and other supplies held for use in the production of fnished products are not written down below cost except in cases where material prices have declined and it is estimated that the cost of the fnished products will exceed their net realisable value. The comparison of cost and net realisable value is made on an item- by-item basis.

i. Cash and cash equivalents

Cash and cash equivalents comprise cash balances on hand, cash balance with bank, and highly liquid investments with original maturities, at the date of purchase/ investment, of three months or less.

j. Research and development costs

Revenue expenditure on research and development is expensed off under the respective heads of account in the year in which it is incurred.

Expenditure on development activities, whereby research fndings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised, if the cost can be reliably measured, the product or process is technically and commercially feasible and the Company has suffcient resources to complete the development and to use and sell the asset. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads that are directly attributable to preparing the asset for its intended use. Other development expenditure is recognised in the Statement of Proft and Loss as an expense as incurred.

Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Fixed assets used for research and development are depreciated in accordance with the Company's policy as stated above.

Materials identifed for use in research and development process are carried as inventories and charged to the Statement of Proft and Loss on issuance of such materials for research and development activities.

k. Employee stock option based compensation

The Company follows Securities and Exchange Board of India (SEBI) guidelines for accounting of employee stock options. The cost is calculated based on the intrinsic value method i.e. the excess of market price of underlying equity shares as of the date of the grant of options over the exercise price of such options is regarded as employee compensation and in respect of the number of options that are expected to ultimately vest, such cost is recognised on a straight line basis over the period over which the employees would become unconditionally entitled to apply for the shares. The cost recognised at any date at least equals the intrinsic value of the vested portion of the option at that date. Adjustment, if any, for difference in initial estimate for number of options that are expected to ultimately vest and related actual experience is recognised in the Statement of Proft and Loss of that period. In respect of vested options expire unexercised, the cost is reversed in the Statement of Proft and Loss of that period.

l. Foreign currency transaction, derivatives and hedging

Transactions in foreign currency are recorded at the exchange rate prevailing at the date of the transaction. Exchange differences arising on foreign currency transactions settled during the year are recognised in the Statement of Proft and Loss.

Monetary assets and liabilities denominated in foreign currencies as at the Balance Sheet date are translated at year end rates. The resultant exchange differences are recognised in the Statement of Proft and Loss. Non-monetary assets are recorded at the rates prevailing on the date of the transaction.

Representative offces located outside India are classifed as integral foreign operation as those carry on their operations as if they were an extension of Company's operation. The fnancial statements of an integral foreign operation are translated into Indian rupees as if the transactions of the foreign operation were those of Company itself. Monetary assets and liabilities denominated in foreign currencies as at the Balance Sheet date are translated at year end rates. The resultant exchange differences are recognised in the Statement of Proft and Loss. Non-monetary assets are recorded at the rates prevailing on the date of the transaction.

The Company uses various forms of derivative instruments such as foreign exchange forward contracts, options, currency swaps, currency cum interest rate swaps and interest rate swaps to hedge its exposure on account of movements in foreign exchange and interest rates. These derivatives are generally entered with banks and not used for trading or speculation purposes. These derivative instruments are accounted as follows:

- For forward contracts (including instruments which are in substance forward contracts) which are entered into to hedge the foreign currency risk of the underlying existing assets on the date of entering into that forward contract, the premium or discount on such contracts is amortised as income or expense over the life of the contract. Any proft or loss arising on the cancellation or renewal of forward contracts is recognised as an income or expense for the period in the Statement of Proft and Loss. The exchange difference on such a forward exchange contract is calculated as the difference between:

a) the foreign currency amount of the contract translated at the exchange rate at the Balance Sheet date, or the settlement date where the transaction is settled during the reporting period; and

b) the same foreign currency amount translated at the later of the date of inception of the forward exchange contract and the last reporting date. Such exchange differences are recognised in the Statement of Proft and Loss in the reporting period in which the exchange rates change.

- Other derivatives such as forward contracts to hedge highly probable forecasted transactions, option contracts, currency swaps, currency cum interest rate swap and interest rate swaps etc which are outside the scope of Accounting standard (AS) 11, The Effects of Changes in foreign exchange rates, are fair valued at each Balance Sheet date. The resultant gain or loss (except relating to the effective portion of cash fow hedges) from these transactions are recognised in the Statement of Proft and Loss. The gain or loss on effective portion of cash fow hedges is recorded in the Hedging Reserve (reported under the head Reserves and Surplus) which is transferred to the Statement of Proft and Loss in the same period in which the hedged item affects the Statement of Proft and Loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in hedging reserve is reclassifed in the Statement of Proft and Loss. To designate a derivative instrument as an effective cash fow hedge, the management objectively evaluates and evidences with appropriate supporting documents at the inception of each contract and throughout the period of hedge relationship whether the contract is effective in achieving offsetting cash fows attributable to the hedged risk. The gain or loss on ineffective portion of cash fow hedge is recognised in the Statement of Proft and Loss.

m. Employee benefts

Short-term employee benefts

All employee benefts payable wholly within twelve months of receiving employee services are classifed as short-term employee benefts. These benefts include salaries and wages, bonus and ex-gratia. The undiscounted amount of short-term employee benefts to be paid in exchange for employee services is recognised as an expense as the related service is rendered by employees.

Post-employment benefts

Defned contribution plans

A defned contribution plan is a post-employment beneft plan under which an entity pays specifed contributions to a separate entity and has no obligation to pay any further amounts. The Company makes specifed monthly contributions towards superannuation fund scheme and employee state insurance scheme ('ESI') which are defned contribution plans. The Company's contribution is recognised as an expense in the Statement of Proft and Loss during the period in which the employee renders the related service.

Defned beneft plans

Defned beneft plans of the Company comprise gratuity, provident fund and pension plans.

Gratuity:

The Company has an obligation towards gratuity, a defned beneft retirement plan covering eligible employees. The plan provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount based on the respective employee's salary and the tenure of employment. Vesting occurs upon completion of fve years of service. The Company makes annual contributions to gratuity fund established as a trust. In respect of gratuity, the Company fully contributes all ascertained liabilities in the respective employee trusts. Trustees administer contributions made to the Trusts and contributions are invested in specifc instruments, as permitted by the law.

Provident fund

In respect of employees, the Company makes specifed monthly contribution towards the employees' provident fund to the provident fund trust administered by the Company. The minimum interest payable by the provident fund trust to the benefciaries every year is notifed by the Government. The Company has an obligation to make good the shortfall, if any, between the return on respective investments of the trust and the notifed interest rate.

Pension

The Company has an obligation towards pension, a defned beneft retirement plan covering eligible employees. The plan provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount based on the respective employee's salary and the tenure of employment. Vesting occurs after completion of a specifed number of years of service with the Company.

Actuarial valuation

The contributions made to provident fund trust are charged to the Statement of Proft and Loss as and when these become payable. In addition, the Company recognizes liability for shortfall in the plan assets vis--vis the fund obligation, if any. The Guidance on implementing AS 15, Employee Benefts (revised 2005) issued by Accounting Standard Board states that benefts involving employer established provident funds, which require interest shortfalls to be recompensed are to be considered as defned beneft plans. During the previous year, the guidance note has been issued by the Actuarial Society of India. Pursuant to the same, liability in respect of provident fund schemes (as a defned beneft plan) has been determined on the basis of actuarial valuation.

The liability in respect of all defned beneft plans is accrued in the books of account on the basis of actuarial valuation carried out by an independent actuary using the Projected Unit Credit Method, which recognizes each year of service as giving rise to additional unit of employee beneft entitlement and measure each unit separately to build up the fnal obligation. The obligation is measured at the present value of estimated future cash fows. The discount rates used for determining the present value of obligation under defned beneft plans, is based on the market yields on Government securities as at the Balance Sheet date, having maturity periods approximating to the terms of related obligations. Actuarial gains and losses are recognised immediately in the Statement of Proft and Loss. Gains or losses on the curtailment or settlement of any defned beneft plan are recognised when the curtailment or settlement occurs.

Past service cost

Past service cost is recognised as an expense in the Statement of Proft and Loss on a straight-line basis over the average period until the benefts become vested. To the extent that the benefts are already vested immediately following the introduction of, or changes to, a defned beneft plan, the past service cost is recognised immediately in the Statement of Proft and Loss. Past service cost may be either positive (where benefts are introduced or improved) or negative (where existing benefts are reduced).

Other long term employee benefts

Compensated absences

As per the Company's policy, eligible leaves can be accumulated by the employees and carried forward to future periods to either be utilised during the service, or encashed. Encashment can be made during service, on early retirement, on withdrawal of scheme, at resignation and upon death of the employee. The value of benefts is determined based on the seniority and the employee's salary.

Long service award

As per the Company's policy, employees of the Company are eligible for an award after completion of a specifed number of years of service with the Company.

Actuarial valuation

The Company records an obligation for such compensated absences and long service award in the period in which the employee renders the services that increase the entitlements. The obligation is measured on the basis of independent actuarial valuation using the projected unit credit method.

Termination benefts

Termination benefts are recognised as an expense when, as a result of a past event, the Company has a present obligation that can be estimated reliably, and it is probable that an outfow of economic benefts will be required to settle the obligation.

n. Income taxes

Income-tax expense comprises current tax (i.e. amount of tax for the period determined in accordance with the income-tax law) and deferred tax charge or credit (refecting the tax effects of timing differences between accounting income and taxable income for the period). Income-tax expense is recognised in the Statement of Proft and Loss except that tax expense related to items recognised directly in reserves is also recognised in those reserves.

Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws. Deferred tax is recognised in respect of timing differences between taxable income and accounting income i.e. differences that originate in one period and are capable of reversal in one or more subsequent periods. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates and tax laws that have been enacted or substantively 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 carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence that suffcient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are reviewed as at each balance sheet date and written down or written-up to refect the amount that is reasonably/ virtually certain (as the case may be) to be realised. Deferred tax consequences of timing differences that originate in the tax holiday period and reverse after the tax holiday period are recognised in the period in which the timing differences originate. Timing differences that originate and reverse with in the tax holiday period are not considered for deferred tax purposes.

Minimum Alternate Tax ('MAT') under the provisions of the Income-tax Act, 1961 is recognised as current tax in the Statement of Proft and Loss. The credit available under the Act in respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognised as an asset is reviewed at each Balance Sheet date and written down to the extent the aforesaid convincing evidence no longer exists.

o. Provisions

A provision is recognised if, as a result of a past event, the Company has a present obligation that can be estimated reliably, and it is probable that an outfow of economic benefts will be required to settle the obligation. Provisions are recognised at the best estimate of the expenditure required to settle the present obligation at the Balance Sheet date. Provisions are measured on an undiscounted basis.

Sales return

The Company as a trade practice accepts returns from market which are primarily in the nature of expired or near expiry products. Provisions for such returns are estimated on the basis of historical experience, market conditions and specifc contractual terms and are provided for.

Onerous contracts

A contract is considered as onerous when the expected economic benefts to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.

Contingencies

Provisions in respect of loss contingencies relating to claims, litigation, assessment, fnes, penalties, etc. are recognised when it is probable that a liability has been incurred, and the amount can be estimated reliably.

p. Contingent liabilities and contingent assets

A contingent liability exists when there is a possible but not a probable obligation, or a present obligation that may, but probably will not, require an outfow of resources, or a present obligation whose amount cannot be estimated reliably. Contingent liabilities do not warrant provisions, but are disclosed unless the possibility of outfow of resources is remote. Contingent assets are neither recognised nor disclosed in the fnancial statements. However, contingent assets are assessed continually and if it is virtually certain that an infow of economic benefts will arise, the asset and related income are recognised in the period in which the change occurs.

q. Operating leases

Assets acquired under leases other than fnance leases are classifed as operating leases. The total lease rentals (including scheduled rental increases) in respect of an asset taken on operating lease are charged to the Statement of Proft and Loss on a straight line basis over the lease term.

Assets given by the Company under operating lease are included in fxed assets. Lease income from operating leases is recognised in the Statement of Proft and Loss on a straight line basis over the lease term. Costs, including depreciation, incurred in earning the lease income are recognised as expenses.

r. Earnings per share

Basic earnings/ (loss) per share are calculated by dividing the net proft/ (loss) for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the period is adjusted for events of bonus issue and share split. For the purpose of calculating diluted earnings/ (loss) per share, the net proft or loss for the period attributable to equity shareholders 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.

Source : Dion Global Solutions Limited
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