Good Health Can’t Wait.

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Good Health Can’t Wait. Dr. Reddy’s Laboratories Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in Indian Rupees millions, except share data and where otherwise stated) Defined contribution plan The Company’s contributions to defined contribution plans are recognized in the statement of profit and loss as and when the services are received from the employees. Termination benefits Termination benefits are recognized as an expense when the Company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Company has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. 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 actuary. Employee stock option schemes In accordance with the SEBI guidelines, the cost 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. l) Foreign currency transactions, balances and translation of financial statements of foreign operations Foreign currency transactions 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 reported 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 transaction. Exchange differences arising on a monetary item that, in substance, forms part of 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. Foreign operations The financial statements of the foreign integral subsidiaries, representative offices and branches collectively referred to as the ‘foreign integral operations’ are translated into Indian rupees as follows: • Items of income and expenditure are translated at the respective monthly average rates; • Monetary items are translated using the closing rate; • Non-monetary items are translated using the monthly average rate which is expected to approximate the actual rate on the date of transaction; and • The net exchange difference resulting from the translation of items in the financial statements of foreign integral operations is recognised in the statement of profit and loss as foreign exchange gain/loss. In the circumstances where there are several exchange rates available within a country, or where the closing exchange rate does not reflect the amount that is likely to be realized, then the relevant monetary items are translated using a rate that best represents the amount which is likely to be realized from, or required to disburse, such item at the balance sheet date. The financial statements of non-integral foreign operations are translated into Indian rupees as follows: • All assets and liabilities, both monetary and non-monetary, are translated using the closing rate; • Items of income and expenditure are translated at the respective monthly average rates; and • The resulting net exchange difference are recognized in foreign currency translation reserve account forming part of Company’s reserves and surplus. 176
Consolidated Financial Statements Annual Report 2014 - 15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in Indian Rupees millions, except share data and where otherwise stated) m) Derivative instruments and hedge accounting The Company uses forward contracts, option contracts and swap contracts (derivatives) to mitigate its risk of changes in foreign currency exchange rates and interest rates. The Company does not use derivatives 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 AS11 (revised), “The Effect of Changes in Foreign Exchange Rates” in the statement of profit and loss. The changes in the fair value of foreign currency option contracts and swap contracts are recognised in the statement of profit and loss as they arise. Fair value of such option contracts and swap contracts is determined based on the appropriate valuation techniques considering the terms of the contract. Pursuant to the ICAI Announcement “Accounting for Derivatives” on the early adoption of 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, the Companies Act, 2013 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. n) Revenue recognition Sale of goods Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is reasonably certain, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Revenue from the sale of goods includes excise duty and is net of returns, sales tax and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer. Provision for chargeback, rebates and discounts Accrual for chargeback, rebates, discounts and medicaid payments are estimated and provided for in the year of sales and recorded as reduction of revenue. A chargeback claim is a claim made by the wholesaler for the difference between the price at which the product is initially invoiced to the wholesaler and the net price at which it is agreed to be procured from the Company. Accrual for such chargeback is made considering the factors such as historical average chargeback rate actually claimed over a period of time, current contract prices with wholesalers / other customers and estimated inventory holding by the wholesaler. 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. Profit share revenues From time to time the Company enters into various marketing arrangements with its business partners for the sale of its products. Under such arrangements, the Company sells its products to the business partners at a price agreed upon in the arrangement and is also entitled to a profit share which is over and above the agreed price. Revenue in an amount equal to the agreed price is recognized on these transactions upon delivery of products to the business partners. The additional amount representing the profit share component is recognized as revenue in the period which corresponds to the ultimate sales made by business partners only when the collectability of the profit share becomes probable and a reliable measure of the profit share is available. 177
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ANNUAL REPORT 2014-15 Good Health C
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E-Voting Annual Report 2014 - 15 IN
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Dr. Reddy’s Laboratories Limited
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The future belongs, not to those wh
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