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ZIM Laboratories Limited

BSE: 541400|ISIN: INE518E01015|SECTOR: Pharmaceuticals
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ZIM Laboratories Limited is not listed on NSE
Notes to Accounts Year End : Mar '18

1.Fair value measurements

Financial instruments by category:

All financial assets and financial liabilities, except derivative instruments and investment in equity shares (not made in subsidiary) of the Company are under the amortized cost measurement category at each of the reporting date.

Fair value hierarchy

The fair values of the financial assets and liabilities are included at the amount that would be received on selling of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are

(a) recognized and measured at fair value and (b) measured at amortized cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Company uses the following hierarchy for determining and disclosing the fair value of the financial instruments by valuation technique.

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

Financial assets and liabilities measured at fair value at each reporting date

Derivative instruments are measured at fair value through profit or loss at each reporting date. Since the valuation involves maximum use of observable inputs, valuation of forward contract derivatives is categorised as level 2.

Investment in equity shares (other than subsidiary) are measured at fair value through profit and loss at each reporting date. Since the valuation involves use of observable input, valuation is considered as Level 2.

During the periods mentioned above, there have been no transfers amongst the levels of hierarchy.

The carrying amounts of security deposits, current loans, other financial assets, fixed deposits with banks, current borrowings, trade payables and other current financial liabilities are considered to be approximately equal to their fair value.

The fair values computed above for assets measured at amortized cost are based on discounted cash flows using a current market interest rate. They are classified as level 2 fair values in the fair value hierarchy due to the use of observable inputs.

Valuation processes

The Company evaluates the fair value of financial assets and financial liabilities on periodic basis using the best and most relevant data available. The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date.

2. Financial risk management

The Company''s financial risk management is an integral part of how to plan and execute its business strategies. The Company''s financial risk management policy is set by the Managing Board.

The Company is exposed to market risk, credit risk and liquidity risk. A Market risk

Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including deposits , foreign currency receivables, payables and loans and borrowings.

The Company manages market risk through a treasury department, which evaluates and exercises independent control over the entire process of market risk management. The treasury department recommend risk management objectives and policies, which are approved by Chief financial officer. The activities of this department include management of cash resources, implementing hedging strategies for foreign currency exposures like foreign exchange forward contracts, borrowing strategies and ensuring compliance with market risk limits and policies.

Market risk - interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of the financial instruments will fluctuate because of changes in market interest rates. In order to optimize the Company''s position with regards to interest income and interest expenses and to manage the interest rate risk, treasury performs a comprehensive corporate interest rate risk management by balancing the proportion of fixed rate and floating rate financial instruments in its total portfolio.

According to the Company, interest rate risk exposure is only for floating rate borrowings. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management''s assessment of the reasonably possible change in interest rates.

Market risk - Foreign currency risk management

The Company operates internationally wherein portion of the business is transacted in several currencies and consequently the Company is exposed to foreign exchange risk through its sales in overseas and purchases from overseas suppliers in various foreign currencies and borrowings dominated in foreign currency. Foreign currency exchange rate exposure is partly balanced by purchasing of goods, commodities and services in the respective currencies.

B Credit risk

The Company considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis through each reporting period. To assess whether there is a significant increase in credit risk the Company compares the risk of default occurring on asset as at the reporting date with the risk of default as at the date of initial recognition. It considers reasonable and supportive forwarding-looking information such as:

i) Actual or expected significant adverse changes in business,

ii) Actual or expected significant changes in the operating results of the counterparty,

iii) Financial or economic conditions that are expected to cause a significant change to the counterparty''s ability to meet its obligations,

iv) Significant increase in credit risk on other financial instruments of the same counterparty,

v) Significant changes in the value of the collateral supporting the obligation or in the quality of the third-party guarantees or credit enhancements .

Financial assets are written off when there is no reasonable expectations of recovery, such as a debtor failing to engage in a repayment plan with the Company. Where loans or receivables have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognized as income in the statement of profit and loss.

Credit risk management

To manage credit risk, the Company periodically assesses the financial reliability of customers and other counterparties, taking into account the financial condition, current economic trends, analysis of historical bad debts and ageing of accounts receivable. Individual risk limits are set accordingly. There is no significant concentration of credit risk.

Bank balances are held with only high rated banks and majority of security deposits are placed majorly with government agencies. Trade receivables are generally recovered within the credit period. The Company measures the expected credit loss of trade receivables and loan from individual customers based on historical trend, industry practices and the business environment in which the entity operates. Loss rates are based on actual credit loss experience and past trends. Based on the historical data, loss on collection of receivable is not material hence no additional provision considered.

C Liquidity risk

Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at a reasonable price. For the Company, liquidity risk arises from obligations on account of financial liabilities - borrowings, trade payables and other financial liabilities.

Liquidity risk management

The Company''s corporate treasury department is responsible for liquidity and funding as well as settlement management. The processes and policies related to such risks are overseen by Chief financial officer. Management monitors the Company''s net liquidity position through rolling forecasts on the basis of expected cash flows.

3. Related party disclosures

As per Ind AS 24 “Related party Disclosures”, disclosure of transactions with the related parties as defined in the Indian Accounting Standard are given below:

List of related parties and relationship

(i) Subsidiary

Zim Laboratories FZE,UAE

(ii) Key Managerial Personnel:

Mr. Anwar S. Daud Managing Director

Mr. Zulfiquar Kamal Director & CFO

Mr. Riaz A. Kamal Executive Director

Mr. Niraj Dhadiwal Executive Director

Mr. Prakash Sapkal Executive Director

Mr.Naresh Gaikwad Independent Director

Mr. V.V. Parashar Independent Director

Mr. Suprakash. Chakravarty Independent Director

Mr. Padmakar Joshi (w.e.f. 21 September 2017) Independent Director

Mrs. Kavita Loya (w.e.f 21 September 2017) Independent Director

Mr. Piyush Nikhade (w.e.f 1 September 2017) Company Secretary

Mr. R.A. Parasuraman (upto 31 August 2017) Company Secretary

Indian rupee loans, foreign currency loan and short term borrowings from banks are guaranteed by the personal guarantee of the managing director of the Company (refer notes 20 and 22).

(b) Defined Benefits Plan :

Gratuity

Under the gratuity plan, every employee is entitled to the benefit equivalent to fifteen days salary (as per last drawn salary) for each completed year of service or part thereof in excess of six months depending on the date of joining and eligibility terms, in terms of provisions of the Payment of Gratuity Act,1972. The same is payable on termination of service or retirement, whichever is earlier. The benefit vests after five years of continuous service. Liabilities for such benefits are provided on the basis of valuation, as at the balance sheet date, carried out by an independent actuary. The actuarial valuation method used by an independent actuary for measuring the liability is the Projected Unit Credit method. The scheme is funded with an insurance company in the form of qualifying insurance policy.

(c) Compensated absences

The obligation for compensated absences is recognized in the same manner as gratuity and net charge to the Statement of Profit and Loss for the year is Rs, 37.22 lacs (Previous Year: Rs, 31.99 lacs).

4. Segment reporting

The Company is primarily engaged in the business of pharmaceuticals. The Company has entrusted decision making authority to the Managing Director (highest authority) who is the Chief Operating Decision Maker (CODM) who has complete control over the operating decisions and is responsible for the information presented to the Board of Directors. Managing Director reviews the Company''s performance based on the analysis of the Profit Before Tax ( PBT) at an overall entity level and therefore there is no other seperate reportable segment for the Company as defined by Ind AS 108 “Operating Segment”.

The accounting policies of the reportable segments are the same as the Company''s accounting policies described in note 2.1

5. Employees Stock Option Scheme

The Company has implemented Employee Stock Option Scheme for the key employees of the Company. All the options issued by the Company are equity share based options which have to be settled in equity shares only. The shares to be allotted to employees under the “ZIM LABORATORIES LIMITED” Employee Stock Option Scheme (the ‘ESOP scheme'') will be met through fresh issue of equity shares by the Company. The Board at its meeting held on 19 March 2015 approved 1,22,449 shares for subsequent issue to eligible employees under the ESOP scheme.

I. The position of the Employee Stock Option Scheme (ESOS) of the Company as at 31 March 2018 is as under: S.No. Particulars ESOS

1 Details of approval Resolution passed by Nomination & Remuneration committee at its meeting dated 16

May 2015 and the shareholders, in the Extra ordinary General Meeting held on 27 May

2015 had approved the grant of 1,22,449 employee stock options in accordance with the ESOP Scheme, equivalent to 1.53% of the issued and paid up share capital of the Company as at 31 March 2015.

2 Total number of stock options 1,22,449 approved

3 Vesting schedule 25% of granted options to each of the employees shall vest on 1 June 2016, 1 June 2017, 1 June 2018 and 1 June 2019 respectively.

4 Maximum term of Options 5 granted (years)

5 Source of shares (Primary, Primary Secondary or combination)

6 Variation in terms of options NA

6. First time adoption of Ind AS

First Ind AS Financial statements

These are the Company''s first financial statements prepared in accordance with Ind AS.

The accounting policies set out in Note 2 have been applied in preparing the financial statements for the year ended 31 March 2018, the comparative information presented in these financial statements for the year ended 31 March 2017 and in the preparation of an opening Ind AS balance sheet as at 1 April 2016 (the date of transition). In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with accounting standards notified under Companies (Accounting Standards) Rules, 2006, as amended and the relevant provisions of the Act (Indian GAAP/Previous GAAP). Consequently, in preparing these Ind AS financial statements, the Company has availed certain exemptions and complied with the mandatory exceptions provided in Ind AS 101, as explained below. The resulting difference in the carrying values of the assets and liabilities as at the transition date between the Ind AS and Previous GAAP have been recognized directly in equity (retained earnings or another appropriate category of equity).

An explanation of how the transition from Previous GAAP to Ind AS has affected the Company''s financial position and financial performance is set out in the below notes:”

A Exemptions and exceptions availed

(i) Ind AS optional exemption 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 recognized 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 decommissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38, Intangible Assets and investment property covered by Ind AS 40 Investment Properties.

Accordingly, the Company has elected to measure all of its property, plant and equipment and intangible assets at their previous GAAP carrying value on the date of transition.

Investments in subsidiaries, joint ventures and associates

The Company has opted to continue with the carrying values measured (at cost) under the previous GAAP and use that carrying value as the deemed cost for the investment in subsidiaries on the date of transition to Ind AS.

Share-based payment

The Company has availed exemption available under Ind AS 101 on application of Ind AS 102, “Share Based Payment”, for equity instruments that vested before the date of transition to Ind AS and accordingly the unvested options as on the transition date have been measured at fair value as against instrinsic value previously recognized under Previous GAAP.

Asset held for sale

The Company has opted for transitional relief under Ind AS 101 (paragraph D35AA) while applying Ind AS 105 - Noncurrent Assets Held for Sale and Discontinued Operations. Paragraph D35AA provides the Company to use the transitional date circumstances to measure such assets or operations at the lower of carrying value and fair value less cost to sell.

ii Ind AS mandatory exception Estimates

An entity''s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent 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.

The estimates as at 1 April 2016 and 31 March 2017 are consistent with those made for the same dates in accordance with previous GAAP (after adjustment to reflect differences if any, in accounting policies) apart from the below item where the application of previous GAAP did not require estimation:

- Impairment of financial assets based on the expected credit loss model

The estimates used by the Company to present the amounts in accordance with Ind AS reflect conditions that existed at the date of transition to Ind AS.

De-recognition of financial assets and liabilities

Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a first-time adopter to apply the de-recognition requirements in Ind AS 109 retrospectively from a date of the entity''s choosing, provided that the information required to apply Ind AS 109 to financial assets and financial liabilities derecognized as a result of past transactions was obtained at the time of initial accounting for those transactions.

The Company has applied the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS. Classification and measurement of financial assets

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

Explanations to reconciliations B.1 Impact on account of reversal of proposed dividend (including tax)

Previous GAAP - Proposed dividends upto 31 March 2016, were recognized as a liability, basis adjusting event occurring after the balance sheet date.

Ind AS - Dividends are non-adjusting events post balance sheet date and hence recognized as and when approved by the shareholders. Consequent to the change, dividends proposed (incl. tax thereon) as at 31 March 2016 of '' 96.27 have been reversed in equity.

B.2 Impact of recognizing prepaid expenses on transaction costs incurred towards origination of borrowings Indian GAAP - these transaction costs were charged to the profit and loss as and when incurred.

Ind AS - These costs are recognized in the profit and loss over the tenure of the borrowing as interest expense, corresponding effect being in Prepaid expenses Rs, 36.62 lacs (1 April 2016 - Rs, 51.48 lacs) since variable in nature.

B.3 Impact of recognizing actuarial gains / losses on defined benefit obligations in other comprehensive income

Indian GAAP - Actuarial gains / losses on defined benefit obligations is recognized in statement of profit and loss.

Ind AS - Actuarial gains / losses on defined benefit obligations is recognized in other comprehensive income (OCI). Consequently, actuarial gains of Rs, 32.58 lacs has been recognized in OCI

B.4 Impact of remeasurement of Employee stock option expense

Indian GAAP - The cost of equity-settled employee share-based plan were recognized using the intrinsic value method.

Ind AS - The cost of equity-settled employee share-based plan is recognized based on the fair value of the options as at the grant date. Consequently, the amount recognized in the share option outstanding account increased by Rs, 0.34 lacs.

B.5 Impact on account of deferred taxes

The impact of transition adjustments together with Ind AS mandate of using balance sheet approach (against profit and loss approach in the previous GAAP) for computation of deferred tax has impacted the reserves on date of transition, with consequential impacts to the statement of profit and loss for the subsequent periods leading to increase in the deferred tax expense by Rs, 11.28 lacs.

Source : Dion Global Solutions Limited
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