Election 2014
Moneycontrol.com India | Accounting Policy > Pharmaceuticals > Accounting Policy followed by Dr Reddys Laboratories - BSE: 500124, NSE: DRREDDY
Dr Reddys Laboratories
BSE: 500124|NSE: DRREDDY|ISIN: INE089A01023|SECTOR: Pharmaceuticals
Apr 17, 17:00
16.65 (0.66%)
VOLUME 15,558
Apr 17, 17:00
15.45 (0.61%)
VOLUME 289,332
Mar 12
Accounting Policy Year : Mar '13
a) Basis of preparation
 The financial statements of Dr. Reddy''s Laboratories Limited (DRL or
 the Company) have been prepared and presented in accordance with
 Indian Generally Accepted Accounting Principles (IGAAP). IGAAP
 comprises accounting standards notified by the Central Government of
 India under Section 211 (3C) of the Companies Act, 1956, other
 pronouncements of Institute of Chartered Accountants of India, the
 relevant provisions of Companies Act, 1956 and guidelines issued by
 Securities and Exchange Board of India (SEBI). The financial statements
 are presented in Indian rupees rounded off to the nearest million.
 b) Use of estimates
 The preparation of the financial statements in conformity with IGAAP
 requires management to make 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. Examples of such
 estimates include estimation of useful life of tangible and intangible
 assets, assessment of recoverable amounts of deferred tax assets,
 provision for obligations relating to employees, provisions against
 litigations and impairment of assets. Actual results could differ from
 these 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) Current and non current classification
 All the 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 Revised Schedule VI to the Companies Act, 1956.
 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.
 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
 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;
 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
 Current assets / liabilities include the current portion of non current
 financial assets / liabilities respectively. All other assets /
 liabilities are classified as non current.
 d) Tangible fixed assets and depreciation
 Fixed assets are carried at the cost of acquisition or construction
 less accumulated depreciation. The cost of fixed assets includes non
 refundable taxes, duties, freight and other incidental expenses related
 to the acquisition and installation of the respective assets.
 Borrowing costs directly attributable to acquisition or construction of
 those fixed assets which necessarily take a substantial period of time
 to get ready for their intended use are capitalised. Borrowing costs
 are interest and other costs incurred by the Company in connection with
 the borrowing of funds.
 Subsequent expenditure related to an item of tangible fixed asset is
 capitalised only if it increases the future benefits from the existing
 assets beyond its previously assessed standards of performance.
 Advances paid towards acquisition of tangible fixed assets outstanding
 at each balance sheet date are shown under long term loans and
 advances. Cost of assets not ready for intended use, as on the balance
 sheet date, is shown as capital work-in-progress.
 Depreciation on tangible fixed assets is provided using the
 straight-line method at the rates specified in Schedule XIV to the
 Companies Act, 1956 or based on the useful life of the assets as
 estimated by Management, whichever is higher. Depreciation is
 calculated on a pro-rata basis from the date of installation till the
 date the assets are sold or disposed. Individual assets costing less
 than Rs. 5,000/- are depreciated in full in the year of acquisition.
 Assets acquired on finance leases are depreciated over the period of
 the lease agreement or the useful life whichever is shorter. Leasehold
 improvements are depreciated over their estimated useful life, or the
 remaining period of lease, whichever is shorter.
 Gains or losses from disposal of tangible fixed assets are recognised
 in the statement of profit and loss.
 e) Intangible assets and amortisation
 Intangible assets are recorded at the consideration paid for
 acquisition including any import duties and other taxes (other than
 those subsequently recoverable by the enterprise from the taxing
 authorities), and any directly attributable expenditure in making the
 asset ready for its intended use.
 Intangible assets are amortised on a systematic basis over the best
 estimate of their useful lives, commencing from the date the asset is
 available to the Company for its use.
 The Management estimates the useful lives for the various intangible
 assets as follows:
 An intangible asset is derecognised on disposal or when no future
 economic benefits are expected from its use and disposal. Gains or
 losses arising from the disposal of intangible assets are recognised in
 the statement of profit and loss.
 f) Investments
 Investments that are readily realisable and intended to be held for not
 more than 12 months from the date of acquisition are classified as
 current investments. All other investments are classified as non
 current investments.
 Current investments are carried at the lower of cost and fair value.
 The comparison of cost and fair value is done separately in respect of
 each category of investment.
 Non current investments are carried at cost less any
 other-than-temporary diminution in value, determined separately for
 each individual investment. The reduction in the carrying amount is
 reversed when there is a rise in the value of the investment or if the
 reasons for the reduction no longer exist. Any reduction in the
 carrying amount and any reversal in such reductions are charged or
 credited to the statement of profit and loss.
 g) Inventories
 Inventories are valued at the lower of cost and net realisable value.
 Net realisable 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 present location and
 condition. The cost of all categories of inventory is determined using
 weighted average cost method.
 h) Research and development
 Expenditure on research activities undertaken with the prospect of
 gaining new scientific or technical knowledge and understanding is
 recognized as expense in the statement of profit and loss when
 Development activities involve a plan or design for the production of
 new or substantially improved products and processes. Development
 expenditure is capitalized only if:
 - development costs can be measured reliably;
 - the product or process is technically and commercially feasible;
 - future economic benefits are probable; and
 - the Company intends to and has sufficient resources to complete
 development and has the ability to use or sell the asset.
 Expenditure incurred on fixed assets used for research and development
 is capitalised and depreciated in accordance with the depreciation
 policy of the Company.
 i) Employee benefits Defined benefit plans
 The liability in respect of defined benefit plans and other
 post-employment benefits is calculated using the projected unit credit
 method and spread over the period during which the benefit is expected
 to be derived from employees'' services, consistent with the advice of
 qualified actuaries. The long term obligations are measured at present
 value of estimated future cash flows discounted at rates reflecting the
 yields on risk free government bonds that have maturity dates
 approximating the terms of the Company''s obligations. Short-term
 employee benefit obligations are measured on an undiscounted basis and
 are expensed as the related service is provided.
 All actuarial gains and losses arising during the year are recognized
 in the statement of profit and loss.
 Defined contribution plans
 The Company''s contributions to defined contribution plans are charged
 to profit or loss as and when the services are received from the
 Compensated leave of absence
 The Company provides for accumulation of compensated absences by
 certain categories of its employees. These employees can carry forward
 a portion of the unutilized compensated absences and utilize it in
 future periods or receive cash in lieu thereof as per Company policy.
 The Company records an obligation for compensated absences in the
 period in which the employee renders the services that increases this
 entitlement. The measurement of such obligation is based on actuarial
 valuation as at the balance sheet date carried out by a qualified
 Employee stock option schemes
 In accordance with the SEBI guidelines, the cost is calculated based on
 intrinsic value method i.e. the excess of the market price of shares,
 at the date prior to the day of grant of options under the Employee
 stock option schemes, over the exercise price is treated as employee
 compensation and amortised over the vesting period.
 j) Foreign currency transactions and balances
 Foreign currency transactions are recorded using the exchange rates
 prevailing on the dates of the respective transactions. Exchange
 differences arising on foreign currency transactions settled during the
 year are recognised in the statement of profit and loss.
 Monetary assets and liabilities denominated in foreign currencies as at
 the balance sheet date are translated using the foreign exchange rates
 as at the balance sheet date.  The resultant exchange differences are
 recognised in the statement of profit and loss. Non monetary assets and
 liabilities are carried at the rates prevailing on the date of
 Exchange differences arising on a monetary item that, in substance,
 forms part of the Company''s net investment in a non integral foreign
 operation are accumulated in a foreign currency translation reserve in
 the Company''s financial statements. Such exchange differences are
 recognized in the statement of profit and loss in the event of disposal
 of the net investment.
 k) Derivative instruments and hedge accounting
 The Company uses foreign exchange forward contracts, option contracts
 and swap contracts (derivatives) to mitigate its risk of changes in
 foreign currency exchange rates and does not use them for trading or
 speculative purposes.
 The premium or discount on foreign exchange forward contracts is
 amortized as income or expense over the life of the contract. The
 exchange difference is calculated and recorded in accordance with AS-11
 (revised) in the statement of profit and loss. The changes in the fair
 value of foreign currency option and swap contracts are recognised in
 the statement of profit and loss as they arise. Fair value of such
 option and swap contracts is determined based on the appropriate
 valuation techniques considering the terms of the contract.
 Pursuant to ICAI Announcement Accounting for Derivatives on the early
 adoption of Accounting Standard AS-30 Financial Instruments:
 Recognition and Measurement, the Company has adopted the Standard, to
 the extent that the adoption does not conflict with existing mandatory
 accounting standards and other authoritative pronouncements, Company
 law and other regulatory requirements.
 Cash flow hedges
 The Company classifies its derivative contracts that hedge foreign
 currency risk associated with highly probable forecasted transactions
 as cash flow hedges and measures them at fair value. The effective
 portion of such cash flow hedges is recorded as part of reserves and
 surplus within the Company''s hedging reserve, and re-classified into
 the statement of profit and loss as revenue in the period corresponding
 to the occurrence of the forecasted transactions. The ineffective
 portion is immediately recorded in the statement of profit and loss.
 The Company also designates certain non derivative financial
 liabilities, such as foreign currency borrowings from banks, as hedging
 instruments for the hedge of foreign currency risk associated with
 highly probable forecasted transactions and, accordingly, applies cash
 flow hedge accounting for such relationships. Re-measurement gain/loss
 on such non derivative financial liabilities is recorded as part of
 reserves and surplus within the Company''s hedging reserve, and
 re-classified in the statement of profit and loss as revenue in the
 period corresponding to the occurrence of the forecasted transactions.
 If the hedging instrument no longer meets the criteria for hedge
 accounting, gets expired or is sold, terminated or exercised before the
 occurrence of the forecasted transaction, the hedge accounting on such
 transaction is discontinued prospectively. The cumulative gain or loss
 previously recognized in hedging reserve continues to remain there
 until the forecasted transaction occurs. If the forecasted transaction
 is no longer expected to occur, the balance in hedging reserve is
 recognized immediately in the statement of profit and loss.
 l) Revenue recognition Sale of goods
 Revenue from sale of goods is recognised when significant risks and
 rewards in respect of ownership of products are transferred to
 customers. Revenue from domestic sales of active pharmaceutical
 ingredients and intermediates is recognized on delivery of products to
 customers from the factories of the Company. Revenue from domestic
 sales of formulation products is recognized upon delivery of products
 to stockists by clearing and forwarding agents of the Company. Revenue
 from export sales is recognized when the significant risks and rewards
 of ownership of products are transferred to the customers, which is
 based upon the terms of the applicable contract.
 Revenue from product sales is net of returns, sales tax and applicable
 trade discounts and allowances.
 Service Income
 Service income is recognised as per the terms of contracts with
 customers when the related services are performed, or the agreed
 milestones are achieved.
 License fee
 The Company enters into certain dossier sales, licensing and supply
 arrangements with various parties. Some of these arrangements include
 certain performance obligations by the Company. Revenue from such
 arrangements is recognized in the period in which the Company completes
 all its performance obligations.
 Dividend and interest income
 Dividend income is recognised when the unconditional right to receive
 the income is established. Income from interest on deposits, loans and
 interest bearing securities is recognised on the time proportionate
 Export entitlements
 Export entitlements are recognised as reduction from cost of material
 consumed when the right to receive credit as per the terms of the
 scheme is established in respect of the exports made and where there is
 no significant uncertainty regarding the ultimate collection of the
 relevant export proceeds.
 m) Income tax expense
 Income tax expense comprises current tax and deferred tax charge or
 Current tax
 The current charge for income taxes is calculated in accordance with
 the relevant tax regulations applicable to the Company.
 Deferred tax
 Deferred tax charge or credit reflects the tax effects of timing
 differences between accounting income and taxable income for the
 period. 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 substantially enacted by the balance sheet
 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 depreciation or carry forward of
 losses, deferred tax assets are recognised only if there is a virtual
 certainty of realisation of such assets. Deferred tax consequences of
 timing differences that originate in the tax holiday period and reverse
 after the tax holiday period are recognised in the period in which the
 timing differences originate. Timing differences that originate and
 reverse within the tax holiday period are not considered for deferred
 tax purposes.
 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 realised.
 Deferred tax assets and liabilities are offset where the Company has a
 legally enforceable right to set-off assets against liabilities
 representing current tax.
 n) 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).
 o) provisions and contingent liabilities
 A provision is recognised when the Company has a present 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 recognised at the best estimate of the expenditure
 required to settle the present obligation at the balance sheet date.
 Provisions are measured on an undiscounted basis.
 Sales returns
 The Company accounts for sales returns by recording an allowance for
 sales returns concurrent with the recognition of revenue at the time of
 a product sale. This allowance is based on the Company''s estimate of
 expected sales returns. The estimate of sales returns is determined
 primarily by the Company''s historical experience in the markets in
 which the Company operates.
 A disclosure for a contingent liability is made when there is a
 possible obligation or a present obligation that may, but probably will
 not, require an outflow of resources.  Where there is a possible
 obligation or a present 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.
 p) 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.
 For the purpose of impairment testing, assets are grouped together into
 the smallest group of assets (Cash Generating Unit or CGU) that
 generates cash inflows from continuing use that are largely independent
 of the cash inflows of other assets or CGUs.
 The recoverable amount of an asset or CGU is the greater of its value
 in use and its net selling price.
 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 previously 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
 amortised historical cost.
 q) Leases
 The lease arrangement is classified as either a finance lease or an
 operating lease, at the inception of the lease, based on the substance
 of the lease arrangement.
 Finance leases
 A finance lease is a lease that transfers substantially all the risks
 and rewards incident to ownership of an asset. A finance lease is
 recognized as an asset and a liability at the commencement of the
 lease, at the lower of the fair value of the asset and the present
 value of the minimum lease payments. Initial direct costs, if any, are
 also capitalized and, subsequent to initial recognition, the asset is
 accounted for in accordance with the accounting policy applicable to
 that asset. Minimum lease payments made under finance leases are
 apportioned between the finance expense and the reduction of the
 outstanding liability. The finance expense is allocated to each period
 during the lease term so as to produce a constant periodic rate of
 interest on the remaining balance of the liability.
 Operating leases
 Other leases are operating leases, and the leased assets are not
 recognized on the Company''s balance sheet. Payments made under
 operating leases are recognized in the statement of profit and loss on
 a straight-line basis over the term of the lease.
Source : Dion Global Solutions Limited
Quick Links for drreddyslaboratories
Explore Moneycontrol
Stocks     A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z | Others
Mutual Funds     A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.