Notes forming part of the Accounts 1. Significant accounting policies 1.1 Company overview Zenotech Laboratories Limited is a public limited company listed on BSE. Zenotech Laboratories Limited was incorporated on June 15, 1989 as a Private Limited company by the name of MAA Shakti Mills Private Limited under the Companies Act, 1956. On April 1, 1992, its name was changed to Sunline Tubes Private Limited and August 25, 1993 it was converted into a Public Limited Company. Subsequently, on December 6, 2000 its name was changed to Sunline Technologies Limited. In 2004, the said Company entered into a scheme of amalgamation with Zenotech Laboratories Private Limited. The Hon'ble High Court of Andhra Pradesh sanctioned the scheme of amalgamation by its order dated July 1, 2004 with effect from November 1, 2003 pursuant which, its name was changed to its brsent form, Zenotech Laboratories Limited with effect from August 10, 2004. The Company is a pharmaceutical specialty generic injectables company engaged in the area of manufacturing biotechnology products. The Company's injectables product portfolio primarily serves niche therapy areas like oncology and anesthesiology. 1.2 Basis of brparation of financial statements The financial statements of the Company have been brpared and brsented in accordance with Indian Generally Accepted Accounting Principles (GAAP) under the historical cost convention on the accrual basis. GAAP comprises accounting standards notified by the Central Government of India under Section 133 of the Companies Act, 2013, other pronouncements of Institute of Chartered Accountants of India and the relevant provisions of Companies Act, 2013. 1.3 Going concern The Company has accumulated losses and its net worth has been completely eroded, the Company has incurred a net cash loss during the current and brvious years and, the Company's current liabilities exceeded its current assets as at the balance sheet date. The financial statements have been brpared on a going concern basis, notwithstanding the above conditions as one of the significant shareholder (Ranbaxy Laboratories Limited, now merged with Sun Pharmaceutical Industries Limited pursuant to a merger scheme) had undertaken to provide such financial support as necessary, to enable the Company to continue its operations and to meet its liabilities as and when they fall due. Accordingly these financial statements do not include any adjustments relating to the recoverability and classification of carrying amount of assets or the amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern. Based on the information available with the Company, the said undertaking provided has not been withdrawn and continues to be valid. 1.4 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 and the disclosure of contingent liabilities on the date of the financial statements. Actual results could differ from those estimates. Any revision to accounting estimates is recognised prospectively in current and future periods. Refer note 2.25 certain key factors impacting the management estimates. 1.5 Current-non-current classification All assets and liabilities are classified into current and non-current. Assets An asset is classified as current when it satisfies any of the following criteria: a. it is expected to be realised in, or is intended for sale or consumption in, the Company's normal operating cycle; b. it is held primarily for the purpose of being traded; c. it is expected to be realised within 12 months after the reporting date; or d. it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date. Current assets include the current portion of non-current financial assets. All other assets are classified as non-current. Liabilities A liability is classified as current when it satisfies any of the following criteria: a. it is expected to be settled in the Company's normal operating cycle; b. it is held primarily for the purpose of being traded; c. it is due to be settled within 12 months after the reporting date; or d. the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as non-current. Operating cycle Operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. 1.6 Fixed assets and Debrciation Fixed assets are accounted for at cost of acquisition or construction inclusive of inward freight, duties, taxes and directly attributable costs of bringing the asset to its working condition for its intended use. Advances paid towards the acquisition of fixed assets outstanding at each Balance Sheet date are shown as Capital Advances under Long-term loans and advances and assets under installation or under construction as at the Balance Sheet date are shown as Capital Work-in-Progress under Fixed assets. Debrciation on tangible assets is provided on the straight-line method over the useful lives of assets estimated by the Management which coincide with the useful lives as brscribed under the Schedule II of the Companies Act, 2013. Debrciation for assets purchased/sold during a period is proportionately charged. The Management estimates the useful lives for the other fixed assets as follows: Nature of Assets Useful Life Factory buildings 30 Years Plant and machinery 10 to 20 Years Furniture and fi ttings 10 Years Motor vehicles 8 Years Offi ce equipment 5 Years EDP equipment 3 Years Debrciation and amortization methods, useful lives and residual values are reviewed periodically, including at each financial year end. Debrciation is charged on a proportionate basis for all assets purchased and sold during the year. The cost of fixed assets not ready for their intended use before such date, are disclosed as capital work-in-progress. 1.7 Research and development expenditure: Revenue expenditure incurred on research and development is expensed as incurred and capital expenditure incurred is capitalized as fixed assets and debrciated in accordance with debrciation policy of the Company. 1.8 Foreign currency translations: Foreign currency transactions are recorded at the rates of exchange brvailing on the dates of the respective transaction. Exchange differences arising on foreign exchange transactions settled during the year are recognised in the profit and loss account of the year. Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date are translated at the closing exchange rates on that date, the resultant exchange differences are recognised in the statement of profit and loss. 1.9 Investments: Long term investments are stated at cost of acquisition less provision for permanent diminution in value of such investments. 1.10 Inventories: Inventories are valued at the lower of cost and net realisable value. Cost of inventories comprises cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their brsent location and condition. The method of determining cost of various categories of inventories is as below: i) Raw materials, Packing materials, Stores and spares-First-in-First Out method. ii) Finished goods and Work-in-process-Weighted average method, which comprises direct material costs and appropriate overheads. Inventories are stated net of write downs or allowances on account of obsolete, damaged or slow moving inventories. 1.11 Employee Retirement benefits: Liability for employee benefits, both short-term and long-term, for brsent and past services which are due as per terms of employment are recorded in accordance with Accounting Standard (AS) 15 " Employee Benefits".. i) Gratuity: Liability on account of Gratuity is determined and charged to the statement of profit and loss on the basis of valuation by an independent Actuary. The liability is unfunded. ii) Provident Fund: Contribution to Provident Fund (a defined contribution plan) is recognized and expensed on accrual basis. iii) Compensated Absences: Liability in respect of compensated absence is determined and charged to the statement of profit and loss on the basis of valuation by an independent actuary. All actuarial gains and losses arising during the year are recognized in the statement of profit and loss. 1.12 Revenue recognition: Sale of goods is recognized on dispatch and upon transfer of significant risk and rewards of ownership to the customer. Sales include amount recovered towards excise duty but excludes sales tax and is net of sales returns. Service income is recognized as per the terms of the contract with customers when the related services are performed. Interest on deposits is recognized on the time proportion method using the underlying interest rates. 1.13 Taxation: 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 loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty of realisation of such assets. Deferred tax assets 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, the current (on a year on year basis) and deferred 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. 1.14 Leases Assets taken on lease where the company acquires substantially the entire risks and rewards incidental to ownership are classified as finance leases. The amount recorded is the lesser of the brsent value of minimum lease rental and other incidental expenses during the lease term or the fair value of the assets taken on lease. The rental obligations, net of interest charges, are reflected as secured loans. Leases that do not transfer substantially all the risks and rewards of ownership are classified as operating leases and recorded as expense on a straight line basis. 1.15 Impairment of assets The Company assesses at each balance sheet date 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. 1.16 Provisions and contingent liabilities The Company recognises a provision when there is a brsent obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a brsent obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a brsent obligation that the likelihood of outflow of resources is remote, no provision or disclosure is made. Provisions for onerous contracts, i.e. contracts where the expected unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it, are recognised when it is probable that an outflow of resources embodying economic benefits will be required to settle a brsent obligation as a result of an obligating event, based on a reliable estimate of such obligation. 1.17 Earnings per share Basic earnings per share ("EPS") is computed by dividing the net profit after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit after tax for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the year, unless they have been issued at a later date. 2. Notes on accounts 2.1 Managerial Remuneration a. The Company had filed an application under the Companies Act, 1956 to the Ministry of Corporate Affairs (MCA), Government of India for approval of managerial remuneration of Rs. 3,000 thousands payable to Late B. K. Raizada, erstwhile co-Managing Director for the period from 19 March 2011 to 18 March 2013. This application pending approval. b. The current Management had filed a case in the Court of the Hon'ble Chief Judge City Civil Court at Hyderabad for recovery of managerial remuneration aggregating to Rs. 7,980 thousands (excluding interests) paid to erstwhile Co-Managing Director during the period from October 1, 2007 to March 31, 2011, in contravention of the provisions of the Companies Act, 1956. 2.2 Deferred Taxation: The Company has significant amount of outstanding business loss and unabsorbed debrciation. In the absence of virtual certainty of realisation, the Company has not recorded the cumulative deferred tax asset as on 31 March 2015 and for the year arising on account of timing differences, as stipulated in Accounting Standard (AS) 22 -Accounting for taxes on income. 2.3 Employee Stock Option Scheme a) Under the Zenotech Employee Stock Option Scheme 2005, the company granted 17,000 options (net of options lapsed) of which 4,250 vested options have been exercised during year 2009-10, issued 2,500 shares and balance is pending for allotment. Accordingly Rs. 1.22 lakhs received on exercise of options has been shown under “Share Application Money pending allotment”. b) The Company uses the fair value method for accounting employee share based payments. c) The company has not disclosed the impact on the net results and earnings per share (both basic and diluted) for the year using the fair value method as required in terms of the Guidance Note on Accounting for Employee Share-based Payment issued by the Institute of Chartered Accountants of India. 2.4 During the year, the Company has accrued certain amounts aggregating to Rs. 129,058 towards expenses relating to fees for US FDA for 2013 and 2014 and unfulfilled export obligation under the Export Promotion Capital Goods scheme. The Company has accrued these amounts based on the best estimates of the potential obligation based on the information available with it currently. 2.5 Pursuant to the Companies Act 2013 (the 'Act'), being effective from 1st April 2014, the Company has reassessed useful life of its fixed assets which coincide with the useful life specified in Part 'C' of Schedule II of the Act. As a result of this change, the debrciation charge for the year ended 31 March 2015 is higher by Rs. 5,094. In respect of those assets whose useful life is already exhausted as on 1 April 2014, debrciation of Rs. 924 has been adjusted in Reserve and Surplus in accordance with the requirements of Schedule II of the Act. 2.6 Segment information The Company is engaged in a business of manufacture and trading of Pharmaceutical products and is governed by a similar set of risks and returns. The operations of the Company substantially are confined to in India. Hence, in the view of the management the entity operates in only one business segment, 'Pharmaceutical' and in one geographical segment, 'In India'. Consequently, no information under the requirements of the Accounting Standard 17 on segment reporting has been provided. 2.7 The Company has reclassified the brvious year figures to confirm to current year's classification. As per our Report of even date attached for B S R & Associates LLP Chartered Accountants Firm Registration Number: 116231W/W-100024 Sriram Mahalingam Partner Membership No.: 049642 for and on behalf of the Board of Directors of Zenotech Laboratories Limited CIN: L27100AP1989PLC010122 Vijay G. Agarwal Chairman DIN:00058548 Poly K.V. Chief Financial Officer R.S. Bakshi Director DIN:06381483 Dinesh Kapoor Chief Executive Officer Chinmoy Patnaik Company Secretary Place : Hyderabad Date : 26 May 2015 |