NOTES TO THE FINANCIAL STATEMENTS for the year ended March 31,2016 1. COMPANY INFORMATION Abbott India Limited ('The Company') is a public limited company incorporated in India under the provisions of the Companies Act, 1913 and is listed and traded on the Bombay Stock Exchange and also traded on the National Stock Exchange. The Company is one of the leading multinational pharmaceutical companies in India and operates with an owned manufacturing facility in Goa and various independent contract/third party manufacturers based across the country. The Company sells its products through independent distributors primarily within India. 2. SIGNIFICANT ACCOUNTING POLICIES a) Basis of Accounting and Preparation of Financial Statements The financial statements of the Company have been brpared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014. The financial statements have been brpared on accrual basis and under the historical cost convention. The accounting policies adopted in the brparation of financial statements are consistent with those of brvious year. b) Use of Estimates The brparation of the financial statements in conformity with Indian GAAP requires the management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities on the date of the financial statements and reported amounts of revenues and expenses for the year. Although these estimates are based on the management's best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes different from the 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) Revenue Recognition Sales are recognised when the significant risk and reward of ownership is passed on to the customers. Sales are disclosed net of excise duty, sales tax, Value Added Tax (VAT), sales returns, trade discounts and provision for anticipated returns on expiry, made on the basis of management expectation taking into account past experience. The Company collects sales tax and Value Added Tax (VAT) on behalf of the government and, therefore, these are not economic benefits flowing to the Company. Hence, they are excluded from revenue. Interest income is recognised on a time proportion basis. Service income is recognised as per the terms of the contracts/arrangements when related services are performed and is stated net of service tax. d) Fixed Assets and Debrciation/Amortisation i) Tangible Fixed Assets All Fixed Assets are stated at cost of acquisition less accumulated debrciation and impairment in value, if any. Cost comprises the purchase price and any other attributable cost of bringing the asset to its working condition for its intended use. Subsequent expenditures related to an item of tangible asset are added to its gross book value only if it increases the future benefits from the existing asset beyond its brviously assessed standard of performance. The Company identifies and determines cost of each component/part of the asset separately, if the component/ part has a cost which is significant to the total cost of the asset and has useful life that is materially different from that of the remaining asset. Fixed 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 disclosed separately under "Other Current Assets". Gains or losses arising from derecognition of Tangible fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Statement of Profit and Loss when the asset is derecognised. ii) Intangible Assets Intangible assets are stated at cost of acquisition less accumulated amortisation and impairment losses, if any. Intangible assets are amortised over their estimated useful economic life as under: Method of Amortisation: Straight Line Type of Assets Useful Life in Years Software 3 to 5 years Trade Marks 5 years Gains or losses arising from derecognition of Intangible assets are measured as the difference between the net disposal proceeds and carrying amount of the asset and are recognised in Statement of Profit and Loss when the asset is derecognised. iii) Debrciation on Tangible Fixed Assets Debrciation is provided, pro-rata for the period of use, on the straight line method, based on the respective estimate of useful lives as given below. Estimated useful lives of assets are determined based on technical parameters/assesments. The management believes that useful lives currently used, which is as brscribed under Schedule II to the Companies Act, 2013, fairly reflect its estimate of the useful lives and residual values of fixed assets, though these lives in certain cases are different from lives brscribed under Schedule II. Method of Debrciation: Straight Line Type of Assets Useful Life in Years Leasehold Land Over Lease Period i.e. 95 years Leasehold Improvements Over Primary Lease Period i.e. 3 to 13 years Buildings Factory Building * 29 years 11 months Residential Buildings 50 years Plant and Equipment Anaesthetic Equipment* 5 years Others * 9 to 10 years Office Equipments Computers 3 years Others 5 years Furniture and Fixtures 10 years Vehicles * 5 years * In respect of these assets, the management estimate of useful lives, based on technical assesment is lower than the useful life brscribed under Part C of Schedule II to the Companies Act, 2013. e) 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 exists, 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 Statement of Profit and Loss. If at the Balance Sheet date there is an indication that a brviously assessed impairment loss no longer exists, the recoverable amount is reassessed and the impairment amount is appropriately reversed. The recoverable amount is the greater of the asset's net selling price and value in use. In assessing the value in use, the estimated future cash flows are discounted to their brsent value using a br-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. f) Foreign Currency Transactions i) Initial recognition Transactions in foreign currencies entered into by the Company are accounted at the exchange rates brvailing on the date of the transaction. ii) Measurement of foreign currency items at the Balance Sheet date Foreign currency monetary items of the Company are restated at the closing exchange rates. Exchange differences arising out of these translations are recognised in the Statement of Profit and Loss. Non-monetary items are recorded at the exchange rate brvailing on the date of the transaction. iii) Forward exchange contracts The Company enters into forward exchange contracts to hedge against its foreign currency exposures relating to the underlying transactions and firm commitments. The Company does not enter into any derivative instruments for trading or speculative purposes. The brmium or discount arising at the inception of forward exchange contract is amortised and recognised as an expense/income over the life of the contract. Exchange differences on such contracts are recognised in the Statement of Profit and Loss in the period in which the exchange rates change. Any Profit or Loss arising on cancellation or renewal of such forward exchange contract is also recognised as income or expense for the period. g) Inventories Inventories consists of Raw Materials and Packing Materials, Work-in-Progress, Stock-in-Trade and Finished Goods. Inventories are valued at lower of cost and net realisable value. Cost is determined on First-In-First-Outbasis. Cost of Work-in-Progress and Finished Goods includes direct materials, labour and proportion of manufacturing overheads, wherever applicable. Cost of Stock-in-Trade includes cost of purchase. Cost of Finished Goods includes Excise Duty. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be used are expected to be sold at or above cost. h) Physician Samples Physician samples are valued at actual cost and charged to Statement of Profit and Loss when distributed. Sample Inventory lying with the Company at year end is shown under "Other Current Assets". i) Research and Development Revenue expenditure pertaining to research is charged to the Statement of Profit and Loss. Development costs of products are also charged to the Statement of Profit and Loss unless a product's technical feasibility has been established, in which case such expenditure is capitalised. The amount capitalised comprises expenditure that can be directly attributed or allocated on a reasonable and consistent basis to creating, producing and making the asset ready for its intended use. Fixed assets utilised for research and development are capitalised and debrciated in accordance with the policies stated for Fixed Assets and Debrciation/Amortisation. j) Cash and Cash equivalents Cash and Cash equivalents for the purpose of Cash Flow Statement comprise cash and cheques on hand, cash at bank and term deposits with banks with an original maturity of three months or less. k) Employee Benefits i) Short-Term Employee Benefits Short-Term employee benefits are recognised as an expense at the undiscounted amount in the Statement of Profit and Loss of the year in which the related service is rendered. ii) Defined Contribution Plans Contributions to defined contribution schemes such as State governed Provident Fund and Employee Pension Scheme, Employees' State Insurance Scheme, Superannuation, Employees' Deposit Linked Insurance and Group Life Insurance are charged as an expense based on the amount of contribution required to be made as and when services are rendered by the employees. The above benefits are classified as Defined Contribution Schemes and the Company has no further defined obligations beyond the contributions. iii) Defined Benefit Plans The Company has Defined Benefit Plans in the form of Gratuity, Compensated Absences, Long Service Benefits and Post Retirement Medical Benefits as per Company Policy. The Company's Liability towards such defined benefit plans is determined based on actuarial valuation, as at the Balance Sheet date, made by independent actuaries using the projected unit credit method. Actuarial gains and losses in respect of defined benefit plans are recognised in the Statement of Profit and Loss in the year in which they arise. The classification of the Company's net obligation into current and non-current is as per the actuarial valuation report. Accumulated leave, which is expected to be utilised within the next 12 months, is treated as short-term employee benefit. The company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date. The Company brsents the entire compensated absences as a short-term provision, since employee has an unconditional right to avail the leave at any time during the year. 1) Leases Lease where the lessor effectively retains substantially all the risks and benefits of ownership of the leased items, are classified as operating leases. The Company is a lessee under such arrangements. Operating lease payments are recognised as an expense in the Statement of Profit and Loss on a straight line basis over the lease term. m) Income Taxes Tax expense comprises of current and deferred tax and includes any adjustments related to past periods in current and/or deferred tax adjustments that may become necessary due to certain developments or reviews during the relevant period. The provision for current tax is made at the rate of tax as applicable for the income of the brvious year as defined under the Income-tax Act, 1961. Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set-off the recognised amounts and there is an intention to settle the asset and the liability on a net basis. Deferred income taxes reflect the impact of current year's timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax resulting from timing differences between book and tax profits is accounted for at the current rate of tax or substantively enacted tax rates, as applicable, to the extent that the timing differences are expected to crystalise. The carrying amount of deferred tax assets are reviewed at each Balance Sheet date. The Company writes down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain that sufficient future taxable income will be available against which deferred tax asset can be realised. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities. n) Provisions, Contingent Liabilities and Contingent Assets A provision is recognised when the Company has a brsent obligation as a result of a past event and, it is probable that an outflow of resources would be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Provisions are not discounted to their brsent value and are determined based on best estimate required to settle the obligation at each Balance Sheet date. Provisions are reviewed at each Balance Sheet date and are adjusted to reflect the current best estimation. A contingent liability is possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Company or a brsent obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is liability that cannot be recognised because it cannot be measured reliably. The Company does not recognise contingent liability but disclose its existence in the financial statements. Contingent assets are not recognised in the financial statements. o) Provision for Sales return and Date Expiry The Company as per 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 specific contractual terms and are provided for. p) Classification of Current/Non-current Assets and Liabilities All assets and liabilities are brsented 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, the Company has ascertained its operating cycle as 12 months for the purpose of Current/Non-current classification of assets and liabilities. q) Earnings Per Share The Basic and Diluted Earnings Per Share (EPS) is computed by dividing the net profit after tax for the year by weighted average number of equity shares outstanding during the year. r) Proposed Dividend Dividend recommended by the Board of Directors is provided for in the accounts, pending approval at the ensuing- Annual General Meeting. 3. SEGMENT REPORTING In accordance with the principles given in Accounting Standard 17 (AS-17) on Segment Reporting notified under Section 133 of the Companies Act, 2013, read together with para 7 of the Companies (Accounts) Rules, 2014. The Company has only one reportable business segment i.e. “Pharmaceuticals”. Further, significant business of the Company is within India and hence there is no Geographical segment. 4. The Company has Bank Overdraft arrangement secured by hypothecation of all stocks and book debts, against which there are no borrowings. 5. Previous year’s figures have been regrouped/reclassified to conform to the current year’s classification.As per our report of even date For S R B C & CO LLP Chartered Accountants CAI Firm Registration No.324982E/E300003 per RAVI BANSAL Partner Membership No.49365 For and on behalf of the Board of Directors MUNIR SHAIKH Chairman DIN : 00096273 RANJAN KAPURI Director DIN : 00035113 RAJIV SONALKER Chief Financial Officer KRUPA ANANDPARA Company Secretary Membership No.ACS 16536 Place : Mumbai Date : May 25, 2016 |