SIGNIFICANT ACCOUNTING POLICIES & NOTES TO FINANCIAL STATEMENTS Corporate information Granules India Limited (the company) is a public domiciled in India and incorporated under the Companies Act, 1956. Its shares are listed on two Stock exchanges in India. The company is engaged in the manufacturing and selling of Active Pharmaceutical Ingredients (APIs) and Pharmaceutical Formulation intermediates (PFIs) and Finished Dosages (FDs). The company caters to both domestic and international markets. 1. Significant accounting policies 1.1 Basis of brparation 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 with paragraph 7 of the Companies (Accounts) Rules 2014. The financial statements have been brpared on accrual basis under the historical cost convention. The accounting policies adopted in the brparation of the financial statements are consistent with those followed in the brvious year. 1.2 Use of estimates The brparation of the financial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. The Management believes that the estimates used in brparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates. Difference between the actual results and the estimates are recognized in the periods in which the results are known / materialize. 1.3 Tangible Fixed Assets: a. Tangible fixed assets are stated at cost less accumulated debrciation and impairment losses, if any. The cost of fixed asset comprises of its purchase price, non-refundable taxes and levies, freight and other incidental expenses related to the acquisition and installation of the respective assets. Borrowing costs attributable to acquisition or construction of qualifying fixed assets is capitalized to respective assets when the time taken to put the assets to use is substantial. Exchange differences arising on restatement / settlement of long-term foreign currency borrowings relating to acquisition of debrciable fixed assets are adjusted to the cost of the respective assets and debrciated. Subsequent expenditure relating to fixed assets is capitalized only if such expenditure results in an increase in the future benefits from such asset beyond its brviously assessed standard of performance. b. Pre-operative expenditure comprising of revenue expenses incurred in connection with project implementation during the period up to commencement of commercial production are treated as part of project costs and are capitalized. Such expenses are capitalized only if the project to which they relate, involve substantial expansion of capacity or upgradation. 1.4 Debrciation on tangible fixed assets: Debrciation on fixed assets is provided on a straight-line method based on the useful lives estimated by the management which are in accordance with Schedule II to the Companies Act, 2013. The management believes that debrciation rates currently used fairly reflect its estimate of the useful lives and residual values of fixed assets. 1.5 Capital Work-in-progress: Projects under which assets are not ready for their intended use and other capital work-in-progress are carried at cost, comprising direct cost, related incidental expenses and attributable interest. 1.6 Intangible assets: Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in an amalgamation in the nature of purchase is their fair value as at the date of amalgamation. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and the expenditure is reflected in the statement of profit and loss in the year in which the expenditure is incurred. Software costs are capitalized and recognized as intangible assets based on materiality, accounting prudence and significant economic benefits expected to flow there from for a period longer than one year. Intangible assets are amortized on a straight line basis over the estimated useful lives. The company uses a rebuttable brsumption that the useful life of an intangible asset will not exceed ten years from the date when the asset is available for use. All intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method are reviewed periodically. If the expected useful life of the asset is significantly different from brvious estimates, the amortization period is changed accordingly. If there has been a significant change in the expected pattern of economic benefits from the asset, the amortization method is changed to reflect the changed pattern. Gains or losses arising from de recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized. 1.7 Investments: Long-term investments and investments in subsidiary companies are carried at cost less provision for other than temporary diminution in the carrying value of each investment. Current investments are carried at lower of cost and fair value. Diminution in value is charged to the statement of profit and loss. 1.8 Valuation of Inventories: Inventories are valued at the lower of cost and net realizable value. Net realizable value (NRV) is the estimated selling price in the ordinary course of the business, less the estimated costs of completion and the estimated costs necessary to make the sale. Cost of inventories comprises all cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their brsent location and condition. The cost of all categories of inventory is determined using weighted average cost method. a) Inventories of raw material, packing material, consumables and stores and spares are valued at cost as per weighted average method. Cost does not include duties and taxes that are subsequently recoverable. b) Cost for the purpose of finished goods and material in process is computed on the basis of cost of material, labour and other related overheads. c) Goods in transit are stated at costs accrued up to the date of Balance Sheet. d) Stocks with consignment agents are stated at costs accrued up to the date of the Balance sheet. 1.9 Government grants: Grants received by way of investment subsidy scheme in relation to total investment are credited to capital reserve. 1.10 Foreign currency transactions and balances: (i) Initial recognition Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. (ii) Conversion Foreign currency monetary items are retranslated using the exchange rate brvailing at the reporting date. Nonmonetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. (iii) Exchange differences The Company accounts for exchange differences arising on translation / settlement of foreign currency monetary items as below: a) Exchange differences arising on long-term foreign currency monetary items related to acquisition of a fixed asset are capitalized and debrciated over the remaining useful life of the asset. b) All other exchange differences are recognized as income or as expenses in the period in which they arise. 1.11 Revenue Recognition: a. Revenue from sales is recognized when significant risk and rewards in respect of ownership of the products are transferred, recovery of the consideration in reasonably certain. b. Revenue from sale of goods include excise duty, sales tax and is net of sales returns. c. Export entitlements are recognized as income when right to receive credit as per the terms of the scheme is established in respect of the exports made. d. Dividend income is recognized when the unconditional right to receive dividend is established. e. Interest income is recognized using the time proportionate method, based on rates implicit in the transaction. f. Revenue in respect of other income is recognized when a reasonable certainty as to its realization exists. 1.12 Research and development expenses: a. Research costs not resulting in any tangible property/equipment are charged to revenue as and when incurred. b. Know-how / product development costs incurred on an individual project are carried forward when its future recoverability can reasonably be regarded as assured. Any expenditure carried forward is amortized over the period of expected future benefits from the related project, not exceeding ten years. c. The carrying value of know-how / product development costs are reviewed for impairment annually when the asset is not yet in use and otherwise when events or changes in circumstances indicate that the carrying value may not be recoverable. 1.13 Employee Retirement Benefits: a. Defined Contributions Plan: Contributions paid/payable to the defined contribution plan of Provident Fund for certain employees covered under the scheme are recognized in the Profit and Loss account each year. b. The Company makes contributions to a State operated contribution scheme for certain employees at a specified percentage of the employees' salary. The Company has an obligation only to the extent of the defined contribution. c. Defined Benefit Plan: Gratuity for employees is covered under a scheme of Life Insurance Corporation of India (LIC). The cost of providing the benefits under this plan is determined on the basis of actuarial valuation at each year-end. Actuarial gains and losses for defined benefits plan is recognized in full in the period in which they occur in the statement of profit and loss. d. Other long term employee benefits: Other long term employee benefits comprise of leave encashment which is provided on the basis of actuarial valuation carried out in accordance with revised Accounting Standard 15 as at the end of the year/period. 1.14 Borrowing costs: Borrowing costs incurred in relation to the acquisition and constructions of assets are capitalized as part of the cost of such assets up to the date when such assets are ready for intended use. Other borrowing costs are charged as an expense in the year in which they are incurred. 1.15 Income tax expense: a. Current Tax The Current charge for income tax is calculated in accordance with the relevant tax regulations applicable to the Company. b. Deferred Tax Deferred tax charge or credit reflects the tax effects of timing difference between accounting income and taxable income for the period. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainly that the assets can be realized in future, however, where there is unabsorbed debrciation or carry forward of losses, deferred tax assets are recognized only if there is a virtual certainly of realization of such assets. Deferred tax assets are reviewed at each balance sheet date and are written-down or written-up to reflect the amount that is reasonably/virtually certain (as the case may be) to be realized. 1.16 EBITDA The company brsents earnings before interest, tax, debrciation and amortization (EBITDA) as a separate line item on the face of the statement of profit and loss. The company measures EBITDA on the basis of profit/ (loss) from continuing operations. In its measurement, the company does not include debrciation and amortization expense, finance costs and tax expense. 1.17 Earnings per share The basic earnings per share (EPS) is computed by dividing the profit after tax for the year by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, 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. The dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e., the average market value of the outstanding shares). 1.18 Provisions and contingent liabilities and contingent assets Provisions A provision is recognised when the Company has a brsent obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Provisions are measured at the best estimate of the expenditure required to settle the brsent obligation at the balance sheet date. Contingent liabilities and contingent assets 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 in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Contingent assets are not recognised in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs. 1.19 Impairment The Company assesses at each reporting date whether there is an indication that an asset/cash generating unit may be impaired. If any indication exists the Company estimates the recoverable amount of such assets and if carrying amount exceeds the recoverable amount, impairment is recognised. The recoverable amount is the higher of the net selling price and its value in use. In assessing value in use, the estimated future cash flows are discounted to their brsent value using an appropriate discount factor. When there is indication that brviously recognised impairment loss no longer exists or may have decreased such reversal of impairment loss is recognised in the Statement of Profit and Loss. 1.20 Leases The Company's significant leasing arrangements are in respect of operating leases for brmises that are cancellable in nature. The lease rentals under such agreements are recognised in the Statement of Profit and Loss as per the terms of the lease. 1.21 CENVAT Credit CENVAT (Central Value added tax) credit in respect of excise, customs and service tax is accounted on accrual basis on purchase of eligible inputs, capital goods and services. The balance of CENVAT credit is reviewed at the end of each year and amount estimated to be un utilizable is charged to the statement of profit and loss for the year. 1.22 Cash and Cash equivalents Cash and cash equivalents consist of cash on hand, demand deposits and short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. For this purpose, short term means investments having maturity of three months or less from the date of investment .41 Previous year's figures have been regrouped/reclassified wherever necessary to confirm to current year's classification. 2.42 Figures in Balance Sheet, Statement of Profit and Loss and Notes to audited financial statements have been rounded off to the nearest thousand and have been exbrssed in terms of decimals of thousands. As per our report of even date for Kumar & Giri Chartered Accountants FRN 001584S Sd/- J.Bhadra Kumar Partner Membership No.025480 For and on behalf of the Board of Directors Sd/- Krishna Prasad Chigurupati Chairman and Managing Director DIN: 00020180 Sd/- V.V.S.Murthy Chief Financial Officer Sd/- Chaitanya Tummala Company Secretary Place: Hyderabad Date: April 28, 2016 |