Notes to the financial statements 1. Significant accounting policies The accounting policies set out below have been applied consistently to the periods brsented in these financial statements. 1.1. Background AstraZeneca Pharma India Limited ("the Company") is a public company domiciled in India having its registered office in Bangalore. Its shares are listed in National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited (BSE). The Company is engaged in the business of manufacture, distribution and marketing of pharmaceutical products. 1.2. Basis of brparation of financial statements The financial statements have been brpared and brsented under the historical cost convention on the accrual basis of accounting and comply with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014, other pronouncements of the Institute of Chartered Accountants of India ("ICAI"), and the provisions of the Companies Act, 2013 ("the Act"). The financial statements are brsented in Indian Rupees (Rs.) unless otherwise stated. 1.3. Use of estimates The brparation of financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses and the disclosure of contingent liabilities on the date of the financial statements. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting estimates is recognised prospectively in current and future years. All assets and liabilities have been classified as current or non-current as per the Company's normal operating cycle and other criteria set out in the Schedule III of the Act. 1.4. Revenue recognition Revenue from sale of goods (including sale of scrap) is recognised on transfer of all significant risks and rewards of ownership to the buyer. The amount recognised as sale is exclusive of sales tax and net of trade discounts and sales returns. Sales are brsented both gross and net of excise duty. Interest on deployment of surplus funds is recognised using the time proportion method, based on underlying interest rates. The Company derives its service income from services for clinical trials provided to its group companies. The income from clinical trials is based on a 'cost plus' model as agreed with the group companies. As per the agreement, costs incurred internally are charged with a mark-up and those incurred externally are charged at actual. Revenue from such services is recognised when the service is performed in accordance with the agreement entered into with group companies. Income from distribution includes the income to realise an arm's length return on revenues received from distribution of saleable products. The appropriate transfer pricing adjustment(s) to provide an arm's length return adequate to compensate the Company (distributor) for the functions performed, assets employed and risks assumed is recognised as Income from distribution. Costs incurred by the Company in connection with marketing and promotion of the newly launched products by the Company is reimbursed by the supplier group companies and is adjusted against the relevant expenses. The Company enters into certain marketing and supply agreements relating to various products. Revenue from such agreements is recognised upon completion of performance obligations or on a proportional performance basis over the period the Company performs its obligations, based on the terms of the agreements. Proportionate performance is measured based upon the efforts / costs incurred to date in relation to the total estimated efforts / costs to complete the contract. The Company monitors estimates of the total contract revenue and cost on a routine basis throughout the contract period. The cumulative impact of any change in estimates of the contract revenue or costs is reflected in the period in which the changes become known. In the event that the loss is anticipated on a particular contract, provision is made for the estimated loss. Revenue which have not been billed, but have been accrued as per the terms of the contract with the customers are debited as unbilled revenue. Revenue which have been billed, but have not been accrued as per the terms of the contract with the customers are credited as deferred revenue. The Company derives its rental income from group companies for the assets leased. Income is accrued based upon the agreement entered. 1.5. Fixed assets and capital work-in-progress Tangible fixed assets are carried at cost of acquisition or construction less accumulated debrciation. The cost includes cost of subsequent improvements thereto including freight, duties, taxes and other incidental expenses related to the acquisition or installation of the assets concerned. Intangible assets are recognised only if it is probable that future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably. Intangible assets are recorded at their acquisition cost. The amortisation period and method used for intangible assets are reviewed at each period end. Advances paid towards acquisition of fixed assets, outstanding at each balance sheet date are shown under capital advances. The cost of fixed assets not ready for its intended use on such date is disclosed as Capital work-in-progress. The cost mainly comprises of material cost and other incidental and ancillary charges necessary for the asset to be ready to use. Till the date the asset is ready to use, no debrciation is computed on the amount classified as Capital work-in-progress. 1.6. Debrciation Debrciation on fixed assets is provided on the Straight Line Method ("SLM"), based on useful lives of assets as estimated by the Management. Debrciation for assets purchased / sold during a period is proportionately charged. Management's estimate of the useful lives of fixed assets is as follows: Class of asset Useful life in years Buildings* 6 to 20 Roads and culverts* 10 Plant and machinery* 5 to 10 Vehicles* 5 Furniture and fixtures 10 Office equipment* 2 to 10 *For these classes of assets, based on the internal technical assessment, the Management believes that the useful lives as given above best rebrsent the period over which Management expects to use these assets. Hence the useful lives of these assets are different from the useful lives as brscribed under Part C of Schedule II of the Companies Act, 2013. License for use and application of know-how and trademark are being amortised on straight-line method over its useful life of 60 months as specified in the contract, from the date it was available for use. Pro-rata debrciation is provided on all assets purchased and sold during the year. Assets costing individually Rs. 5,000 or less are debrciated fully in the year of purchase. 1.7. Impairment of assets The Company periodically assesses whether there is any indication that an asset or a group of assets comprising a cash generating unit may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. For an asset or group of assets that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. 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 if a brviously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of debrciable historical cost. An impairment loss is reversed only to the extent that the carrying amount of asset does not exceed the net book value that would have been determined, if no impairment loss had been recognised. 1.8. Foreign exchange transactions Foreign exchange transactions are recorded in Indian rupees using the exchange rates brvailing on the dates of the respective transactions. Exchange differences arising on foreign exchange transactions settled during the year are recognised in the statement of profit and loss for the year. Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date are translated at the closing exchange rate on that date, the resultant exchange differences are recognised in the Statement of Profit and Loss. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction. 1.9. Employee benefits Defined contribution plans Employees of the Company receive benefits from a provident fund, which is a defined contribution plan. Both the employee and the Company make monthly contributions to the provident fund equal to a specified percentage of the employee's salary. The Company contributes a part of the contributions to the AstraZeneca Pharma India Limited Management Staff Provident Fund Trust. The remaining portion is contributed to the government administrated pension fund. The rate at which the annual interest is payable to the beneficiaries by the trust is being administered by the government. The Company has an obligation to make shortfall, if any, between the returns from the investments of the trust and the notified interest rate. The Company has an arrangement with ICICI Prudential Life Insurance to administer its superannuation scheme, which is a defined contribution scheme. The contributions to the said scheme are charged to the statement of profit and loss on an accrual basis. Defined benefit plans Liability for gratuity, which is a defined benefit, is provided based on an actuarial valuation at the balance sheet date, carried out by an independent actuary using projected unit credit method and charged to the statement of profit and loss. The Company makes contributions towards gratuity into the approved gratuity fund administered by ICICI Prudential Life Insurance. The Company recognises all actuarial gains and losses arising from defined benefit plans immediately in the statement of profit and loss. All expenses related to defined benefit plans are recognised in employee benefits expenses in the statement of profit and loss. When the benefits of a plan are improved, the portion of the increased benefits related to past service by employees is recognised in statement of profit and loss on a straight-line basis over the average period until the benefits become vested. The Company recognises gains and losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. Compensated absences Compensated absences are accrued based on an actuarial valuation as at the balance sheet date, carried out by an independent actuary using the projected unit cost method. The Company accrues for the expected cost of short term compensated absences in the period in which the employee renders service. Other short-term benefits Expense in respect of other short-term benefits including performance bonus is recognised on the basis of amount paid or payable for the period during which the employee renders service. 1.10. Employee stock option schemes Cost incurred towards reimbursement of employee stock option schemes issued by the holding company to the employees of the Company is accounted as employee benefit cost. 1.11. Investments Long-term investments are stated at cost less any other-than-temporary diminution in value, determined separately for each individual investment. 1.12. Other current assets Stock of samples have been valued at cost, as in the ordinary course of business they have a realisable value at least equal to cost before being distributed as free samples. 1.13. Inventories Inventories are valued at lower of cost and net realisable value. Cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing inventories to their brsent location and condition. The comparison of cost and net realisable value is made on an item-by-item basis. The net realisable value of work-in-progress is determined with reference to the selling prices of related finished goods. Raw materials, packing materials and other supplies held for use in production of inventories are not written down below cost except in cases where material prices have declined, and it is estimated that the cost of the finished products will exceed their net realisable value. The provision for inventory obsolescence is assessed regularly based on estimated usage and shelf life of products. 1.14. Provisions and contingent liabilities A provision is recognised if, as a result of a past event, the Company has a brsent obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recognised at the best estimate of the expenditure required to settle the brsent obligation as at the balance sheet date. The provisions are measured on an undiscounted basis. Contingencies The disclosure of contingent liability is made when, as a result of obligating events, there is a possible obligation or a brsent obligation that may, but probably will not, require outflow of resources. Provision in respect of loss contingencies relating to claims, litigation, assessment, fines, penalties, etc. are recognised when it is probable that a liability has been incurred, and the amount can be estimated reliably. No provision or disclosure is made when, as a result of obligating events, there is a possible obligation or a brsent obligation where the likelihood of outflow of resources is remote. The methods of determination of cost of various categories of inventories are as follows (i) Raw materials and packing materials Monthly moving weighted average cost (ii) Work-in-process and finished goods (Manufactured) Weighted average cost of production. Fixed production overheads are allocated on the basis of normal capacity of production facilities (iii) Traded goods Weighted average cost (iv) Goods in transit Actual cost Onerous contracts A contract is considered as onerous when the expected economic benefits 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. 1.15. Income taxes Income-tax expense comprises current tax (i.e. amount of tax for the year determined in accordance with the income-tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the year). The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates 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 debrciation or carried forward business loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty of realisation of such assets. Deferred tax assets/ liabilities are reviewed as at each balance sheet date and written down or written-up to reflect the amount that is reasonably/ virtually certain (as the case may be) to be realised. The Company offsets, on a year on year basis, the current tax assets and liabilities, where it has a legally enforceable right and where it intends to settle such assets and liabilities on a net basis. Minimum Alternate Tax ('MAT') under the provisions of sections 115 JAA of the Income-tax Act, 1961 is recognised as current tax in the statement of profit and loss. The Company is allowed to avail credit equal to the excess of MAT over normal income tax for the assessment year for which MAT is paid. 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 so determined can be carried forward for set-off for ten succeeding assessment years from the year in which such credit becomes allowable. 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. 1.16. Earnings per share In determining the basic and diluted earnings per share, the Company considers the net profit after tax and includes the post-tax effect of any extraordinary item. The number of equity shares used in computing basic and diluted earnings per share is the weighted average number of equity shares outstanding during the year. The Company does not have any potentially dilutive shares. 1.17. Operating leases Leases where the lessor effectively retains substantially all the risks and rewards of ownership of the leased asset are classified as operating lease. Operating lease payments are recognised as an expense in the statement of profit and loss on a straight line basis over the lease term. The lease term is the non-cancellable period for which the lessee has agreed to take the asset on lease together with any additional periods for which the lessee has the option to continue the lease, only in case this option is reasonably expected to be exercised at the time of inception of the lease, with or without any further payment. 1.18. Cash flow statement Cash flows are reported using indirect method, whereby net profits before tax are adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from regular revenue generating, investing and financing activities of the Company are segregated. 1.19 Cash and cash equivalents Cash and cash equivalents comprise cash and cash deposit with banks and financial institutions. The Company considers all highly liquid investments with a remaining maturity at the date of purchase of three months or less and that are readily convertible to known amounts of cash to be cash equivalents. 2.40 Management believes that the Company has established a combrhensive system of maintenance of information and documents as required by the transfer pricing legislation under sections 92-92F of the Income Tax Act, 1961. Management is of the opinion that its international transactions are at arm's length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expenses and that of provision for taxation. 2.41 In 2013-2014, the Promoter Company (AstraZeneca Pharmaceuticals AB, Sweden), vide its letter dated 1 March 2014 had proposed voluntary delisting (the delisting proposal) offer to the public shareholders of the Company in accordance with the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 (Delisting Regulations), with a view to delist the equity shares of the Company from the BSE Ltd. (BSE) and the National Stock Exchange of India Ltd. (NSE) where the equity shares of the Company are listed. The Board of Directors of the Company, in their meeting dated 15 March 2014 approved the delisting proposal submitted by the Promoter Company. Further, the Delisting Proposal was approved by the requisite majority of shareholders of the Company as required under Regulation 8 of SEBI (Delisting of Equity Shares) Regulations, 2009.The Company received in-principle approval of National Stock Exchange and Bombay Stock Exchange for voluntary delisting of equity shares from the said exchanges. A writ petition has been filed by two shareholders of the Company before the Honourable High Court of Judicature at Bombay (''the Court''), seeking inter-alia an order from the Court, restraining the Company and AstraZeneca Pharmaceuticals AB, Sweden ("AZPAB") from implementing the delisting proposal of AZPAB. The Court which heard the petition on 8 October 2014 has disposed the same, with the directions that the Petitioners as well as the Company and AZPAB are at liberty to brfer appeal against Securities Exchange Board of India (SEBI) Order dated 24 June 2014, to the Securities Appellate Tribunal, within six weeks; until the SAT hears and disposes of the Petitioners' appeal, the Company and AZPAB, shall not take any further steps in the process of delisting of equity shares of the Company; and the SAT to hear and decide the appeals as expeditiously as possible and brferably by 28 February 2015. Further, an appeal has also been filed by two shareholders of the Company before the Securities Appellate Tribunal (SAT), Mumbai, against part of SEBI's Order dated 24 June 2014, in relation to delisting proposal of AZPAB. At the hearing held on 5 May 2015, the SAT posted the matter to be heard on 9 July 2015 which was subsequently rescheduled for hearing on 11 August 2015. In the final hearing held on 11 September 2015, the SAT has disposed off the appeal directing SEBI to complete the investigation within a period of six months from date of its order and pass appropriate order on merits. The SAT has further directed the Company and the Promoter not to proceed with the delisting of equity shares till the completion of investigation and passing of the above mentioned order on merits by SEBI. Also the SAT has directed the Company and the Promoters that if the order passed by SEBI on merits is adverse to the appellants, then the said order shall not be given effect to from the date of passing the said order till it is communicated to the appellants and four weeks thereafter. As per our report of even date attached for B S R & Co. LLP Chartered Accountants Firm registration number: 101248W / W-100022 Subret Sachdev Partner Membership number: 205385 for and on behalf of the Board of Directors of AstraZeneca Pharma India Limited D E Udwadia Chairman Sanjay Murdeshwar Managing Director Anantha Murthy N Company Secretary Rajesh Marwaha Chief Financial Officer Place: Bangalore Date: May 25, 2016 |