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Procter & Gamble Health

BSE: 500126|NSE: PGHL|ISIN: INE199A01012|SECTOR: Pharmaceuticals
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Notes to Accounts Year End : Dec '17

1. Background of the Company

Merck Limited (‘the Company’) is a public company domiciled and headquartered in India. It is incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The Company is in the business of manufacturing and marketing of pharmaceuticals and chemicals.

2. Basis of preparation

(a) Statement of compliance with Ind AS

The financial statements of the Company comply with all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the Act) [Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act.

The financial statements up to year ended 31 December 2016 were prepared in accordance with the accounting standards notified under Companies (Accounting Standard) Rules, 2006 (as amended) and other relevant provisions of the Act.

Accordingly, the transition to Ind AS has been carried out from the accounting principles generally accepted in India (“Indian GAAP”) which is considered as the “Previous GAAP” for purposes of Ind AS 101. An explanation of how the transition to Ind AS has affected the Company’s equity and its net profit or loss is provided in note 51. These financial statements are the first financial statements of the Company under Ind AS.

All assets and liabilities are classified as current or non-current as per the company’s normal operating cycle and other criteria set out in Schedule III to the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the company has ascertained its operating cycle as 12 months for the purpose of current/non-current classification of assets and liabilities.

(b) Historical cost convention

The financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities including defined benefit plans - plan assets measured at fair value.

(c) Use of estimates and judgements

The preparation of the financial statements in conformity with Ind AS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

The areas involving critical estimates and judgements are:

(i) Estimation of useful life of property, plant and equipment

(ii) Estimation of defined benefit obligation

(iii) Provision for inventories

(iv) Impairment of trade receivables

(b) Terms/ rights attached to equity shares

The Company has a single class of equity shares. Accordingly, all equity shares rank equally with regard to dividends and share in the Company’s residual assets. The equity shares are entitled to receive dividend as declared from time to time. The voting rights of an equity shareholder on a poll (not on show of hands) are in proportion to its share of the paid-up equity capital of the Company. Voting rights cannot be exercised in respect of shares on which any call or other sums presently payable have not been paid. Failure to pay any amount called up on shares may lead to forfeiture of the shares. On winding up of the Company, the holders of equity shares will be entitled to receive the residual assets of the Company, remaining after distribution of all preferential amounts in proportion to the number of equity shares held.

Financial instruments - Fair values

A. Accounting classification and fair values

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities if the carrying amount is a reasonable approximation of fair value.

Financial instruments - Risk management Risk management framework

The Company’s activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Company’s primary risk management focus is to minimize potential adverse effects of market risk on its financial performance. The Company’s risk management assessment, policies and processes are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Board of Directors and the Audit Committee is responsible for overseeing the Company’s risk assessment and management policies and processes.

Financial risk management

The Company has exposure to the following risks arising from financial instruments:

- Credit risk;

- Liquidity risk and

- Market risk

i. Credit Risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments.

Trade and other receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.

Expected credit loss assessment

Exposures to customers outstanding at the end of each reporting period are reviewed by the Company to determine incurred and expected credit losses. Historical trends of impairment of trade receivables do not reflect any significant credit losses. Given that the macro economic indicators affecting customers of the Company have not undergone any substantial change, the Company expects the historical trend of minimal credit losses to continue. Further, management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk. The impairment loss at 31 December 2017 related to several customers that have defaulted on their payments to the Company and are not expected to be able to pay their outstanding balances, mainly due to economic circumstances.

Cash and cash equivalents

The Company held cash and cash equivalents and other bank balances with credit worthy banks and financial institutions of Rs. 2,781.8 million (31 December 2016: Rs. 2,792.7 million, 01 January 2016: Rs. 1,884.2 million). The credit worthiness of such banks and financial institutions is evaluated by the management on an ongoing basis and is considered to be good.

Other financial assets

Other financial assets are neither past due nor impaired.

ii. Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Company’s reputation.

As of 31 December 2017 the Company has working capital of Rs. 5,270.7 million (31 December 2016: Rs. 4,496.8 million, 01 Janaury 2016: Rs. 4,139.7 million) including cash and cash equivalents and other bank balances of INR 2,781.8 million (31 December 2016: Rs. 2,792.7 million, 01 January 2016: Rs. 1,884.2 million). Working capital is calculated as current assets less current liabilities.

Note - 3

Financial instruments - Risk management Exposure to liquidity risk

The table below analyses the Company’s financial liabilities into relevant maturity groupings based on their contractual maturities for:

iii. Market risk

Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short term and long-term debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Company’s exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies.

(a) Currency risk

The fluctuation in foreign currency exchange rates may have potential impact on the profit and loss account, where any transaction references more than one currency or where assets/liabilities are denominated in a currency other than the functional currency of the entity.

Considering the countries and economic environment in which the Company operates, its operations are subject to risks arising from fluctuations in exchange rates in those countries. The risks primarily relate to fluctuations in EURO and USD against the respective functional currency of the Company.

The Company does not use any derivative financial instruments to hedge foreign exchange and interest rate exposure.

Exposure to currency risk

The currency profile of financial assets and financial liabilities in respect of major currencies is as follows:

Sensitivity analysis

A 10% strenghtening / weakening of the respective foreign currencies with respect to functional currency of Company would result in increase or decrease in profit or loss and equity as shown in table below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. The following analysis has been worked out based on the exposures as of the date of statements of financial position.

(b) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Exposure to interest rate risk

The interest rate profile of the Company’s interest-bearing financial instruments is as follows.

Interest rate sensitivity - fixed rate instruments

The Company does not account for any fixed-rate financial assets or financial liabilities at fair value through profit and loss, and the Company does not have any designated derivatives. Therefore, a change in interest rates at the reporting date would not affect profit and loss for any of these fixed interest bearing financial instruments.

Capital Management

The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

The Company is a debt free Company and its funding requirements based on business plans are met through a mixture of equity and free reserves. Note - 37

Related party relationships, transactions and balances

The table provides the information about the Group’s structure including the details of the subsidiaries and the holding company. The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year:

Related parties and nature of relationship where control exists

Ultimate Holding Company:

Merck KGaA, Germany through its subsidiary listed below as investing associate holds 51.8% (31 December 2016: 51.8%; 01 January 2016: 51.8%) of equity share capital as at 31 December 2017.

Investing Associates:

Chemitra GmbH, Germany

Emedia Export Company GmbH, Germany

Merck International Beteiligungen GmbH, Germany

Other related parties with whom transactions have taken place during the year:

Fellow Subsidiaries:

Ares Trading S.A., Switzerland EMD Millipore Corporaton, USA Merck & Cie., Switzerland

Merck (Pvt.) Limited, Pakistan (ceased to be a fellow subsidiary w.e.f. December 2016)

Merck Chemicals (Shanghai) Company Ltd., China Merck Inc., Philippines Merck Limited, Japan

Merck Performance Materials Manufacturing G.K., Japan

Merck KGaA & Co. Werk Spittal, Austria

Merck Limited, Taiwan

Merck Limited, Thailand

Merck Pte Ltd, Singapore

Merck spol. s.r.o, Czech Republic

Merck SA, Brazil

Merck Sdn Bhd, Malaysia

Merck Selbstmedikation GmbH, Germany

Merck Serono Co., Limited, Japan

Merck Serono Middle East FZE-LLC

Merck Serono SA, Switzerland

Merck S. L. U., Spain

Merck Specialities Private Limited, India

Merck Life Science Private Limited (formerly known as Millipore (India) Private Limited, India)

P.T. Merck Chemicals and Lifesciences, Indonesia

P.T. Merck Tbk., Indonesia

Seven Seas Limited, United Kingdom

Suzhou Taizhu Technology Development Co. Ltd., China

Merck (Pty) Limited, South Africa

Heipha Dr. Muller GmbH, Germany

EMD Performance Materials Corporation, USA

Ares Trading Uruguay S.A., Uruguay

Merck Serono (Beijing) Pharmaceutical R&D Co., Ltd, China

Merck Performance Materials Private Limited, India, (Previously known as Chemtreat Composites Private Limited, India)

Merck Accounting Solutions & Services Europe GmbH

Merck Business Solutions Asia Inc., Philippines

Merck Ltd., South Korea

Merck (Pty) Ltd., South Africa

Merck Pharmaceutical (HK) Ltd, Hongkong

Sigma Aldrich India Private Limited, India

Merck Performance Materials Ltd., South Korea

Merck Pharmaceuticals Manufacturing (Jiangsu) Co., Ltd, China

Merck Pty. Ltd., Australia

Merck Sdn Bhd, Malaysia

Merck Serono Australia Pty. Ltd., Australia

Merck Vietnam Ltd, Vietnam

Sigma-Aldrich Pte. Ltd., Singapore

Sigma-Aldrich Pty. Ltd., Australia

Post Employment Benefit Plan Merck Provident Fund Trust, India Key Managerial Personnel:

Mr. Anand Nambiar (Managing Director)

Mr. Brijesh Kapil (Executive Director) (Resigned w.e.f. 04 October 2016)

Mr. Ali Sleiman (Executive Director) (Resigned w.e.f. 04 October 2016)

Mr. N Krishnan (Director)

Mr. S N Talwar (Chairman)

Mr. H.C.H Bhabha (Independent Director)

Mrs. Rani A. Jadhav (Independent Director)

Mrs. Zoe Tang (Nominee Director) (appointed w.e.f. 23 December 2016)

Mr. Bradley Simpson (Nominee Director) (resigned w.e.f. 04 October 2016)

Note - 4 Employee benefit Defined Benefit Plans

The Company operates two post employment defined benefit plans that provide Gratuity and Provident fund benefits. The gratuity plan entitles an employee, who has rendered at least five years of continuous service, to receive one-half month’s salary for each year of completed service at the time of retirement/exit. The Company also makes specified monthly contributions towards employee provident fund to the Merck Employees Provident Fund Trust. The interest rate payable by the trust to the beneficiaries every year is being notified by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the interest payable at the notified rate.

Note - 5

Employee benefit (continued)

Contribution to Provident and Superannuation fund

Amount of Rs. 80.9 million (2016: Rs 59.7 million) is recognised as an expense and included in “Employee costs” (refer note 31) in the Statement of Profit and Loss.

In respect of provident fund set up by employer which requires interest shortfall to be met by the employer, it needs to be treated as defined benefit plan.

The Institute of Actuaries of India has issued guidance for measurement of provident fund liabilities on actuarial basis. Based on this guidance note, the actuary has provided an actuarial valuation of the provident fund liability of the Company as at 31 December 2017.

As per the report of the independent actuary, there is no shortfall as at 31 December 2017 (31 December 2016: Rs. Nil; 01 January 2016: Rs. Nil) that needs to be recorded by the Company.

Other long term employee benefits

Compensated absences are recognized when the employees render service that increase their entitlement to future compensated absence. Employees can carry forward and avail/ encash leave as per the policy of the Company. Compensated absences have been provided for, based on outstanding leave balance and the employees’ gross pay.

The undiscounted amount of short term employee benefits of Rs. 9.4 million (2016: Rs. 6.0 million) is expected to be paid in the exchange for the services rendered by employees and is recognised as an expense during the year.

Note - 6

Segment Reporting

A. General Information

The Company’s chief operating decision maker (CODM) examines the Company’s performance based on its business units ‘Pharmaceuticals’ and ‘Chemicals’. Segment revenue, results, assets and liabilities have been accounted for on the basis of their relationship to the operating activities of the segment and amounts allocated on reasonable basis as determined by the management.

Pharmaceutical business comprises of products used in the treatment of Cardiovascular and Metabolic diseases, Consumer Healthcare products and Vitamins-based formulations.

Chemicals business comprises Bulk drugs and Pigments. Segment Revenue relating to the Chemicals business segment includes income from services provided to customers of this segment.

Note - 7 Operating leases

The Company has entered into cancellable/ non-cancellable operating lease agreements for vehicles and office premises/godowns. The lease charges of Rs. 6.9 million (2016: Rs. 17.4 million) and Rs. 117.3 million (2016: Rs. 120.6 million) for vehicles and office premises/godowns respectively have been included under the sub-head Travelling, Conveyance and Vehicle Expenses and Rent respectively under the head “Other expenses” in the Statement of Profit and Loss. There are no subleases.

Operating Lease as Lessor:

The Company had leased out its flat. The lease term was twenty-four months. There was no escalation or renewal clause in the lease agreement and sub-letting was not permitted. The lease has been terminated on 29 February 2016 and the asset has been sold on 30 December 2017. The carrying amount of flat given on operating lease and depreciation thereon for the period are:

Contingent liabilities and commitments

a) Contingent liabilities

Summary of disputed statutory demands not accepted by the Company are given below:

Management considers that the Excise duty/Value added tax/Sales tax/Income tax demands received from tax authorities are not tenable against the Company and hence no provision has been made.

b) Commitments

Estimated amount of contracts remaining to be executed on Capital Account (net of capital advances Rs. 33.2 million; 31 December 2016: Rs. 18.0 million) and not provided for Rs.138.0 million (31 December 2016: Rs. 48.9 million).

Note - 8

a) In June 2016, National Pharmaceutical Pricing Authority (NPPA) served a demand notice on the Company alleging that during the period from January 2006 to June 2009 the Company sold Polybion 100ml syrup at a price higher than the ceiling price fixed by it on 05 June 2008. Pursuant to orders passed by Kolkata High Court, NPPA gave another opportunity of hearing to the Company. NPPA did not accede to any of the Company’s contention and issued a fresh demand notice dated 13 December 2016 demanding a sum of Rs. 292.2 million (Rs. 116.8 million on account of overcharge during the said period and Rs. 175.4 million for interest thereon) for sales made by the Company during the period May 2006 to June 2009. The Company has challenged the said demand by way of writ petition, which is pending before Hon’ble Delhi High Court. In a separate proceedings filed by the manufacturer of the said drug, Cradel Pharmaceutical Private Limited, Hon’ble Kolkata High Court stayed the demand provided it deposits a sum of Rs. 22.5 million with the NPPA. The Company has been legally advised that the Company has a defendable case before Delhi High Court. Accordingly, no provision has been created in the books.

b) During the year 2014, the Company had made a provision of Rs. 69.9 million towards a possible liability which may accrue to the Company due to a judgment passed by the Supreme Court in the year 2014 impacting the Pharmaceutical industry in India including the Company.

c) National Pharmaceutical Pricing Authority (NPPA) issued the price fixation orders for about 350 drugs on 21 June 2013 including Metformin, a formulation used by the Company in Company’s product Carbophage 500 SR. The orders did not clarify whether the prices so fixed are applicable only for plain tablet or innovative dosages as well. The Company sought clarification from NPPA, however, no clear response has been received. Pending this clarification NPPA had sent a notice dated June 06, 2014, claiming the differential pricing charged by the Company for Carbophage 500 SR over the prices notified. On the basis of a recent judgement passed by the High Court of Bombay, the Company has made a provision of Rs. 32.0 million towards a possible liability on some pharma products which may accrue to the Company.

d) During the year 2014, Central Excise issued a show cause cum demand notice on the Company covering a period of five years for alleged wrong classification of the products, Vitamin E Acetate min.92% for Poultry/ Cattle/Pig-feed, Vitamin E Liquid for Animal Nutrition (for Pig/Cattle/ Poultry) and Vitamin E Dry Powder 50% for Animal Nutrition. The value of total demand was Rs. 188.7 million including penalty and interest.

The Central Excise had issued show cause cum demand on similar matter in the past as well. The value of such demand was Rs.18 million. This was contested by the Company before the lower authorities. On the representation made by the Company the demand was dropped after considering various decisions pronounced by judicial and quasi-judicial authorities at the relevant time.

The Company based on legal opinion believes that it has a good case on merits as well as on limitations. Accordingly, no provision has been created in the books of accounts. If the Company succeeds on merits the entire duty demand including penalty and interest would be dropped. However, if the Company does not succeed on merits the Company has still chances of succeeding on limitations as the matter was known to the authorities and there was no suppression or misdeclaration of facts by the Company. In such an eventuality the duty demand would be restricted to one year and interest and the penalty would be dropped.

Dues to micro and small enterprises:

Under the Micro Small and Medium Enterprises Development Act, 2006, (MSMED) which came into force from October 2, 2006 certain disclosures are required to be made relating to with Micro Small and Medium enterprises. On the basis of the information and records available with the Management, the following disclosures are made for the amounts due to the Micro Small and Medium enterprises, who have registered with the competent authorities:

Note - 9

Disclosure relating to provisions Personnel and other related provision

The Company has made provisions for performance-based incentives.

Provisions in respect of sales tax matters

The Company has made provisions for various sales tax / value added tax related matters, which will be settled on completion of the respective assessments.

Other provisions

The Company has also made provisions for matters related to National Pharmaceutical Pricing Authority (NPPA).

Summary of the movement in the provisions is given below:

The power plant in Goa faced continued cost pressures over last few years owing to which the cost of electricity generated from captive power plant is higher than cost of Government power and this is expected to continue to remain high in future also. Accordingly, it has been decided to shut down the captive power generation plant and switch to government power. Consequently, during the current year, the Company has made provision for impairment of Rs.172.3 million on its Power Plant assets used for captive consumption. This has been considered in the results of pharmaceuticals and chemicals segments.

Note - 10

Exceptional items comprise of profit from the sale of Office premises and residential flat located at Mumbai which were held for sale.

Note - 11 Transfer pricing

Transactions with related parties are governed by transfer pricing regulations of the Indian Income-tax Act, 1961. The Company’s transactions with related parties are at arm’s length as per the independent accountants report for the year ended 31 March 2017. Management believes that the Company’s transactions with related parties post March 2017 continue to be at arm’s length and that the transfer pricing legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

Note - 12

Corporate social responsibility

As per Section 135 of the Companies Act, 2013, the Company has constituted a Corporate Social Responsibility (CSR) Committee. During the year, the Company has spent on eradicating hunger, poverty, malnutrition, promoting education/education including skill development, preventive healthcare and sanitation and making available safe drinking water. The total amount spent by the Company towards CSR activities during the year is Rs. 16.2 million (31 December 2016: Rs. 16.3 million)

(a) Gross amount required to be spent by Company during the year is Rs. 17.9 million (2016: Rs. 16.3 million)

(b) Amount spent during the year on: (Paid in Cash)

Disclosure on specified bank notes

As defined in the MCA notification G.S.R. 308(E) dated 31 March, 2017, the details of specified bank notes held and transacted during the period from 08 November, 2016 to 30 December, 2016, as per the notification is given below:

* For the purpose of this clause ‘specified bank notes’ shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated the 08 November 2016.

Note - 13

Transition to Ind AS:

For the purposes of reporting as set out in Note 2, we have transitioned our basis of accounting from Indian generally accepted accounting principles (“IGAAP”) to Ind AS. The accounting policies set out in note 2 have been applied in preparing the financial statements for the year ended 31 December 2017, the comparative information presented in these financial statements for the year ended 31 December 2016 and in the preparation of an opening Ind AS balance sheet at 01 January 2016 (the “transition date”).

In preparing our opening Ind AS balance sheet, we have adjusted amounts reported in financial statements prepared in accordance with IGAAP. An explanation of how the transition from IGAAP to Ind AS has affected our financial performance and financial position is set out in the following tables and the notes that accompany the tables. On transition, we did not revise estimates previously made under IGAAP except where required by Ind AS.

A. Exemptions and exceptions availed

Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from IGAAP to Ind AS: Ind AS optional exemptions

(a) Deemed Cost

Ind AS 101 permits a first time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets. Accordingly, the Company has elected to measure all of its property, plant and equipment and intangible assets at their previous GAAP carrying value.

(b) Business Combination

Ind AS 101 Provides the option to apply Ind AS 103 “Business combinations” prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date. Business combinations occurring prior to the transition date have not been restated.”

Ind AS mandatory exceptions

1) Estimates

An entity’s estimates in accordance with Ind ASs at the date of transition to Ind AS shall be consitent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind AS estimates as at 01 January 2016 are consitent with the estimates as at the same date made in conformity with previous GAAP.

2) Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification and measurement of financial assets (investment in debt instruments) on the basis of the facts and circumstances that exist at the date of transition to Ind AS.

B. Reconciliations between previous GAAP and Ind AS

Ind AS 101 requires an enity to reconcile equity and total comprehensive income for prior periods. The following tables represent the reconciliations from previous GAAP to Ind AS.

1 Derecognition of physician samples from inventory:

Under Ind AS, inventory manufactured and identified for distribution as physician’s samples is to be recognized as an expense in the period in which such inventory is manufactured.

2 Proposed dividend:

Under Indian GAAP, proposed dividends are recognised as a liability in the period to which they relate, irrespective of when they are declared. Under Ind-AS, a proposed dividend is recognised as a liability in the period in which it is declared by the Company (usually when approved by shareholders in a general meeting) or paid.

3 Trade receivable:

Under previous GAAP, the Company has created allowance for doubtful debts based on its estimation. Under Ind AS, the allowance for credit loss has been made based on Expected Credit Loss (ECL) provision matrix.

4 (a) Security deposit:

Under Indian GAAP, interest free security free lease security deposits (that are refundable in cash) are recorded at their transaction value. Under Ind AS, all financial instruments are required to be measured at their fair value on initial recognition. Accordingly, security deposits have been fair valued under Ind AS. Difference between transaction value and fair value has been recognised as prepaid rent. Prepaid rent is amortised over the lease term and notional interest income is recognised on unwinding of security deposits.

(b) Tax Adjustments:

Tax adjustments include the tax effects of certain pre-tax previous GAAP to Ind AS adjustments described above.

Note - 14

These financial statements are the Company’s first Ind AS financial statements and accordingly previous year figures have been regrouped where necessary to conform to current year’s classification.

Source : Dion Global Solutions Limited
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