Good Health Can’t Wait.

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)
Milestone payments and out licensing arrangements
Revenues include amounts derived from product out-licensing agreements. These arrangements typically consist of an initial up-front payment
on inception of the license and subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the
agreement. Non-refundable up-front license fees received in connection with product out-licensing agreements are deferred and recognized over
the period in which the Company has continuing performance obligations. Milestone payments which are contingent on achieving certain clinical
milestones are recognized as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period
the Company has continuing performance obligations, if the milestones are not considered substantive. If milestone payments are creditable against
future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid.
Service Income
Revenue from services rendered, which primarily relate to contract research, is recognized in the statement of profit and loss as the underlying
services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognised as revenue over the
expected period over which the related services are expected to be performed.
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 incentives 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.
o) Income tax expense
Income tax expense comprises current tax and deferred tax charge or credit. Total tax expense is the aggregate of the amounts of tax expense
appearing in the separate financial statements of the parent company and its subsidiaries. Accordingly, tax expense is not adjusted for consolidation
adjustments such as elimination of unrealized intra-group profits.
Current tax
The current charge for income taxes is calculated in accordance with the relevant tax regulations applicable to the entities in 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.
Offsetting
Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the recognised amounts and there is an
intention to settle the asset and the liability on a net basis. Deferred tax assets and liabilities are offset where the Company has a legally enforceable
right to set-off assets against liabilities representing current tax, and where such deferred tax assets and liabilities relate to taxes on income levied by
the same governing taxation laws.
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