NOTES TO FINANCIAL STATEMENTS INOTEI I SIGNIFICANT ACCOUNTING POLICIES i) Basis of Preparation The financial statements of Glenmark Pharmaceuticals Limited ("the Company") are brpared in accordance with Indian Generally Accepted Accounting Principles (GAAP) under the historical cost convention on accrual basis except for certain financial instruments which are measured at fair values. GAAP comprises mandatory accounting standards as brscribed under Section 133 of the Companies Act, 2013 ('the Act') read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the Act (to the extent notified) and guidelines issued by the Securities and Exchange Board of India (SEBI). Accounting policies have been consistently applied except where a newly-issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use. (ii) Amalgamation The amalgamation had been accounted for under the "Pooling of Interests method" as brscribed under Accounting Standard -14 "Accounting for Amalgamations" and has been effected in the financial statements. Pursuant to the scheme, the difference between the net assets acquired and cost of investments of the Company together with the shares to be issued to the public shareholders of GGL has been adjusted in the general reserves. iii) Use of estimates The brparation of financial statements in conformity with the principles generally accepted in India 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of such estimates include transfer pricing related adjustments, provision against litigations, provisions of future obligation under employee benefit plans, useful lives of fixed assets, provision for expiry of drugs and impairment of assets. Although these estimates are based upon management's knowledge of current events and actions, actual results could differ from those estimates and revisions, if any, are recognised in the current and future periods. iv) Fixed assets (Tangible and Intangibles), Debrciation and Amortisation Fixed assets are stated at cost less accumulated debrciation and amortisation. The Company capitalises all costs relating to the acquisition and installation of fixed assets. Expenditure directly related to bringing the asset ready for use are also capitalised. Debrciation is provided using the straight line method, pro-rata to the period of use of assets, based on the useful lives of fixed assets as estimated by management based on a technical evaluation. Brands/Intellectual property rights are amortised from the month of products launch/commercial production, over the estimated economic life not exceeding 10 years. The Company has estimated the useful life of its assets as follows: Category Estimated useful life (in years) Tangible Factory and other building 30 - 55 Plant and equipment 8 - 21 Vehicles 5 - 6 Office equipments, furniture and fixture 4 - 21 Intangible Computer software 1 - 5 Brands 5 - 10 Product marketing rights 5 - 10 Product Knowhow and development 5 – 10 Leasehold land and improvements are debrciated over the estimated useful life, or the remaining period of lease from the date of capitalisation, whichever is shorter. v) Borrowing costs Borrowing costs that are attributable to the acquisition and construction of a qualifying asset are capitalised as a part of the cost of the asset. Other borrowing costs are recognised as an expense in the year in which they are incurred. vi) Impairment of assets The Company assesses at each Balance Sheet date whether there is any indication that assets may be impaired. If any such indication exists, the Company estimates the recoverable amount of the cash generating unit to which the assets belong. If the recoverable amount of the cash generating unit to which the assets belong is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The recoverable amount is higher of the value in use and realisable value. 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 asset is reflected at the recoverable amount. vii) Foreign currency transactions a) Foreign currency transactions are recorded at the exchange rates brvailing at the date of such transactions. Monetary assets and liabilities as at the Balance Sheet date are translated at the rates of exchange brvailing at the date of the Balance Sheet. Gain/Loss arising on account of differences in foreign exchange rates on settlement/translation of monetary assets and liabilities are recognised in the Statement of Profit and Loss, unless they are considered as an adjustment to borrowing costs, in which case they are capitalised along with the borrowing cost. b) Forward contracts entered into by the Company to hedge the risk of existing assets or liabilities are accounted for as per guidance contained in AS 11 'The Effects of Changes in Exchange Rates (revised 2003)'. The brmium or discount arising at the inception of forward exchange contracts is amortised as expense or income over the life of the contract. Exchange difference on such contracts are recognised in the Statement of Profit and Loss in the year in which the exchange rates change. Any profit or loss arising on cancellation or renewal of forward exchange contract is recognised as income or as expense for the year. Forward exchange contracts outstanding as at the year end on account of firm commitment or highly probable transactions are marked to market. The losses, if any are recognised in the Statement of Profit and Loss, and gains are ignored in accordance with the Announcement of the Institute of Chartered Accountants of India on 'Accounting for Derivatives' issued in March 2008. viii) Investments Non-current investments are stated at cost. These investments are assessed at each Balance Sheet date for conditions of diminution that are other than temporary in nature. Where such conditions exist and concluded to be other than temporary in nature, a provision is created to reduce the carrying value of investments suitably. ix) Inventories Inventories of finished goods, raw materials, packing materials, consumable store and spares are valued at cost or net realisable value, whichever is lower. Cost of raw materials and packing materials is ascertained on the basis of specific identification method. Cost of work-in-process and finished goods include the cost of materials consumed, labour and manufacturing overheads. Excise and customs duty accrued on production or import of goods, as applicable, is included in the valuation of inventories. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The Company considers several factors in determining the allowance for slow moving, obsolete and other non-saleable inventory including estimated shelf life, planned product discontinuances, price changes, ageing of inventory and introduction of competitive new products, to the extent each of these factors impact the Company's business and markets. x) Employee benefits Defined contribution plans Provident Fund Provident fund benefit is a defined contribution plan under which the Company pays fixed contribution into funds established under Employees Provident Fund and Miscellaneous Provisions Act, 1952. The Company has no legal or constructive obligation to pay further contributions after payment of the fixed contribution. The contributions recognised in respect of defined contribution plan are expensed in the Statement of Profit and Loss. Liabilities and assets may be recognised if underpayment or brpayment has occurred and are included in current liabilities or current assets, respectively as they are normally of a short-term nature. Defined benefit plans Gratuity Benefits payable to eligible employees of the Company with respect to gratuity, a defined benefit plan is accounted for on the basis of an actuarial valuation as at the balance sheet date. In accordance with the Payment of Gratuity Act, 1972, the plan provides for lump sum payments to vested employees upon retirement, death while in service or upon termination of employment in an amount equivalent to 15 days basic salary for each completed year of service. Vesting occurs upon completion of five years of service. The Company contributes brmium towards gratuity liability arrived by actuarial valuation performed by an independent actuary. Compensated absence Liability in respect of compensated absences becoming due or expected to be availed within one year from the balance sheet date is recognised on the basis of undiscounted value of estimated amount required to be paid or estimated value of benefit expected to be availed by the employees. Liability in respect of compensated absences becoming due or expected to be availed more than one year after the balance sheet date is estimated on the basis of an actuarial valuation performed by an independent actuary. Actuarial valuation The actuarial valuation method used for measuring the liability either Gratuity or Compensated absence is the Projected Unit Credit method. The estimate of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors. The expected rate of return on plan assets is the Company's expectation of the average long-term rate of return expected on investments of the fund during the estimated term of the obligations. Actuarial gain/losses are recognised in the Statement of Profit and Loss in the year they are determined." xi) Revenue recognition Sale of goods Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably. Revenue from the sale of goods includes excise duty and is net of sales tax and is measured at the fair value of the consideration received or receivable, net of returns and applicable trade discounts and allowances. Services Revenue from services rendered is recognised in Statement of Profit and Loss as the underlying services are performed. Export entitlements Export entitlements from Government authorities are recognised in Statement of Profit and Loss when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds. Dividend, Interest income and Guarantee commission Dividend income is recognised when the unconditional right to receive the income is established. Interest income is recognised on the time basis determined by the amount outstanding and the rate applicable and where no significant uncertainty as to measurability or collectability exists. Guarantee commission is recognised in the Statement of Profit and Loss based on contractual terms. xii) Research and Development expenditure Capital expenditure on Research and Development (R & D) is capitalised as fixed assets. Development cost relating to the new and improved product and/or process development is recognised as an intangible asset to the extent that it is expected that such asset will generate future economic benefits. Other research and development costs are recognised as expense in the Statement of Profit and Loss as incurred. xiii) Taxation Current tax Current tax is determined as the amount of tax payable under the provision of Income Tax Act,1961, in respect of taxable income for the year. Deferred tax Deferred income taxes reflect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In respect of carry forward losses and unabsorbed debrciation, deferred tax assets are recognised only to the extent there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such losses can be set off. Minimum Alternate Tax (MAT) paid in accordance with tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is a reasonable certainty that the entity will pay normal income tax in future years. MAT credit recognised as an asset is reviewed at each Balance Sheet date and written down to the extent the aforesaid reasonable certainty no longer exists. xiv) Leases Finance leases Assets acquired under finance lease are recognised as assets with corresponding liabilities in the Balance Sheet at the inception of the lease at amounts equal to lower of the fair value of the leased asset or at the brsent value of the minimum lease payments. These leased assets are debrciated in line with the Company's policy on debrciation of fixed assets. The interest is allocated to periods during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Operating leases Lease rent in respect of assets taken on operating lease are charged to the Statement of Profit and Loss as per the terms of lease agreements. xv) Employee stock option schemes (ESOS) The Company accounts for compensation expense under the Employee Stock Option Schemes using the intrinsic value method as permitted by the Guidance Note on "Accounting for Employee Share-based Payments" issued by the Institute of Chartered Accountants of India. The difference between the market price and the exercise price as at the date of the grant is treated as compensation expense and charged over the vesting period. xvi) 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. xvii) Segment reporting The Company has only one business segment - Pharmaceuticals. The analysis of geographical segments is based on the geographical areas in which the Company operates. xviii) Cash and cash equivalents Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. 2 OUTSTANDING DUES TO MICRO, SMALL AND MEDIUM SCALE ENTERPRISES Based on the information available with the Company, no creditors have been identified as “supplier” within the meaning of “Micro, Small and Medium Enterprises Development (MSMED) Act, 2006”. Accordingly, no disclosure under the MSMED Act is required to be given 3 Taxation Provision for current taxation for the Company of Rs. 3,746.14 rebrsents Minimum Alternate Tax pursuant to the provisions of Section 115JB of the Income Tax Act, 1961 of India. The Finance Act, 2005 inserted sub-section (1A) to Section 115JAA to grant tax credit in respect of MAT paid under Section 115JB of the Act with effect from Assessment Year 2006-07 and carry forward the credit for a period of 10 years. In accordance with the Guidance Note issued on “Accounting for credit available in respect of Minimum Alternative Tax (MAT) under the Income Tax Act 1961” by the Institute of the Chartered Accountants of India, the Company has recognised MAT Credit which is expected to be set-off against the tax liability, other than MAT in future years. Accordingly, an amount of Rs. 1,430.99 for the current year has been recognized as MAT Credit Entitlement. 4 Research and development expenditure During the year, the Company expensed Rs. 4,349.70 (2015 - Rs. 2,773.14) towards research and development costs. 5 PRIOR YEAR COMPARATIVES Previous year figures have been re-grouped/re-classified wherever necessary to confirm to current year’s classification. For Walker Chandiok & Co LLP Chartered Accountants Firm Registration Number: 001076N/N500013 per Ashish Gupta Partner Membership Number: 504662 For and on behalf of the Board of Directors Glenn Saldanha Chairman & Managing Director Cherylann Pinto Executive Director Rajesh Desai Executive Director Sanjay Kumar ChowdharyCompany Secretary & Compliance officer Place: Mumbai Date: 12 May 2016 |