Good Health Can’t Wait.

Good Health Can’t Wait.
Dr. Reddy’s Laboratories Limited
NOTES TO FINANCIAL STATEMENTS
(All amounts in Indian Rupees millions, except share data and where otherwise stated)
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. Income from licensing arrangements is
generally recognised over the term of the contract. 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 a time proportion basis.
Export incentives
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.
n) Income tax expense
Income tax expense comprises current tax and deferred tax charge or credit.
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 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 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 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.
Minimum Alternate Tax
Minimum Alternate Tax (“MAT”) credit is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay
normal income tax during the specified period. Such asset is reviewed at each balance sheet date and the carrying amount of the MAT credit asset
is written down to the extent there is no longer convincing evidence to the effect that the Company will pay normal income tax during the specified
period.
o) 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).
p) Provisions, contingent liabilities and contingent assets
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 measured at the best estimate of the expenditure required to
settle the present obligation at the balance sheet date.
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.
122