Outstanding

2. Basis of Presentation and Significant Accounting Policies [cont’d]
Financial instruments
All financial assets and liabilities are classified based on their inherent characteristics, management’s intended use, or the choice
of category in certain circumstances. When they are initially recognized, all financial assets are classified as held for trading, heldto-maturity,
available-for-sale or loans and receivables, while financial liabilities are classified as held for trading or other financial
liabilities. Upon initial recognition, all financial assets and liabilities, including derivative financial instruments, are recorded at fair
value in the consolidated balance sheet. In subsequent periods, they are measured at fair value, except for financial assets held-tomaturity,
loans and receivables and financial liabilities not held for trading purposes which are measured at cost or amortized cost
calculated using the effective interest method.
The Company generally designates portfolio investments in securities as available-for-sale. These securities are initially recorded
at their fair value on the date of acquisition, plus additional related transaction costs. Investments in publicly-traded securities are
adjusted to fair value at each balance sheet date using quoted active market prices for such securities. The corresponding unrealized
gains and losses are recorded in the consolidated statement of comprehensive income and are reclassified in the consolidated
statement of income when realized or when management assesses a decline in fair value to be other than temporary. Investments
in privately-held securities are recorded at cost as their fair value cannot be measured reliably.
The Company also has financial assets designated as loans and receivables, and derivatives. The derivatives are initially recorded
at their fair value on the date of acquisition, plus additional related transaction costs. The changes in value are recorded to the
consolidated statement of income for the relevant year.
The loans and receivables are recorded at cost, which upon their initial measurement is equal to their fair value. Subsequent
measurements are recorded at amortized cost using the effective interest method.
All financial liabilities are classified as other financial liabilities. They are initially measured at their fair value. Subsequent measurements
are recorded at amortized cost using the effective interest rate method.
The Company categorizes its financial assets and liabilities measured at fair value into one of three different levels depending on the
observability of the inputs used in their measurement:
• Level 1: This level includes assets and liabilities measured at fair value based on unadjusted quoted prices
for identical assets and liabilities in active markets that are accessible at the measurement date.
• Level 2: This level includes valuations determined using directly or indirectly observable inputs other than
quoted prices included within Level 1. The instruments in this category are valued using models or other
industry standard valuation techniques derived from observable market inputs.
• Level 3: This level includes valuations based on inputs which are less observable, unavailable or where the
observable data does not support a significant portion of the instruments’ fair value.
Revenue recognition
Revenue is recognized when the product is shipped to the Company’s customers, provided the Company has not retained any
significant risks of ownership or future obligations with respect to the product. Revenue from product sales is recognized net of
sales discounts, credits and allowances. Revenue related to service arrangements, where the Company earns a distribution fee on
net sales or earns co-promotion revenue, is recognized when the service is provided and is recorded on a net basis. Revenue related
to royalty arrangements with partners, where the Company earns a royalty fee based on certain pre-determined terms relating to
the net sales of products, is recognized as such terms are met alongside the recording of partner product revenues. In certain
circumstances, returns or exchange of products are allowed under the Company’s policy and provisions are maintained accordingly.
Sales are recorded net of these provisions. In certain situations, such as initial product launches for which the Company has limited
comparable information or where the market or client acceptance has not been clearly established, the Company may determine that
it has not met the requirements for recognition of revenue, such as the ability to reasonably determine provisions for product returns,
as a result the Company will defer the recognition of revenue for these product sales until such criteria are met.
Government assistance
Amounts received or receivable resulting from government assistance programs, including grants and investment tax credits for
research and development, are reflected as reductions to the cost of the assets or expenses to which they relate at the time the
eligible expenditures are incurred, provided that it is more likely than not that benefits will be realized.
Notes to Consolidated Financial Statements —41