(aa) Recent accounting pronouncements Standards issued but not yet effective
The Ministry of Corporate Affairs has issued the Companies (Indian Accounting Standards) (Amendment) Rules, 2017 (the ‘Amendment Rules'''') on March 17, 2017 notifying amendments to Ind AS 7, ‘Statement of Cash Flows'''' and Ind AS 102, ‘Share-based payment'''' effective for annual periods beginning on or after April 1, 2017.
Amendment to Ind AS 7:
The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of Standalone Financial Statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the Balance Sheet for liabilities arising from financing activities, to meet the disclosure requirement.
Amendment to Ind AS 102:
The amendment to Ind AS 102 provides specific guidance for measurement of cash-settled awards, modification of cash-settled awards and awards that include a net settlement feature in respect of withholding taxes. It clarifies that the fair value of cash-settled awards is determined on a basis consistent with that used for equity-settled awards. Also, the amendment clarifies that if the terms and conditions of a cash-settled share-based payment transaction are modified with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as such from the date of the modification. Further, the amendment requires the award that include a net settlement feature in respect of withholding taxes to be treated as equity-settled in its entirety. The cash payment to the tax authority is treated as if it was part of an equity settlement.
The Company does not expect a significant impact on its Standalone Financial Statements on initial application of these ‘Amendment Rules''''.
(ab) Rounding of amounts
All amounts disclosed in the Standalone Financial Statements and notes have been rounded off to the nearest lakhs as per the requirement of Schedule III, unless otherwise stated.
1 CRITICAL ESTIMATES AND JUDGEMENTS
The preparation of Standalone Financial Statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgment in applying the Company’s accounting policies. This note provides an overview of the areas that involved a higher degree of judgment or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed.
a Recognition and measurement of defined benefit obligations
The obligation arising from defined benefit plan is determined on the basis of actuarial assumptions. Key actuarial assumptions include discount rate, trends in salary escalation and vested future benefits and life expectancy. The discount rate is determined by reference to market yields at the end of the reporting period on government bonds. The period to maturity of the underlying bonds correspond to the probable maturity of the post-employment benefit obligations
b Estimation of useful life
Useful lives of tangible assets and intangible assets are based on the estimate by the management. The useful lives as estimated are same as prescribed in Schedule II of the Companies Act, 2013. In cases, where the useful lives are different from that prescribed in Schedule II, they are based on management estimate, taking into account the nature of the asset, the estimated usage of the asset, the operating conditions of the asset, past history of replacement, anticipated technological changes, manufacturers'''' warranties and maintenance support. Assumptions also need to be made, when the Company assesses, whether an asset may be capitalized and which components of the cost of the asset may be capitalized.
The useful lives and residual values of Company''''s assets are determined by management at the time the asset is acquired and reviewed annually for appropriateness. The lives are based on historical experience with similar assets as well as anticipation of future events which may impact their life such as changes in technology.
c Provisions and contingent liabilities
The Company exercises judgment in measuring and recognizing provisions and the exposures to contingent liabilities related to pending litigation or other outstanding claims subject to negotiated settlement, mediation, arbitration or government regulation, as well as other contingent liabilities. Judgment is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the possible range of the financial settlement. Because of the inherent uncertainty in this evaluation process, actual losses may be different from the originally estimated provision.
(ii) Premises given on operating lease
The Company has an apartment given on operating lease on cancellable terms. The lease arrangement is for the period of 3 years and is renewable for a further period on mutually agreeable terms. Rental income of Rs, 68.40 lakhs is disclosed under Other Income.
(iii) Estimation of fair value
The Company has four properties that have been considered as investment properties. These include three vacant land sites that are not in operational use at present and an apartment that is leased at commercial rates.
In view of management, the fair market value of the land sites is not reliably measurable as there are very few recent transactions of comparable composition of these properties in the market. Further, the fair market value will be subject to numerous municipal deductions dependent upon the current use and intended use of the property. Based on the above, it is not possible to ascertain and disclose the range of fair market value. The estimated Ready Reckoner value at year end, based on latest published data and on current stated use, totals Rs,1700,00.00 lakhs. Ready Reckoner rates are the prices of the residential property, land or commercial property for a given area that is published and regulated by the respective State Governments as a guide towards payment of stamp duty at the time of transaction. The Ready Reckoner value is regarded as a gross value and does not represent the underlying fair market value of the properties. The company will further detail the fair value of its investment properties upon entering a committed agreement with a third party, unless an alternative reliable estimate of the fair value is attainable.
The fair value of the leased apartment is estimated at Rs, 24,00.00 lakhs (As at March 31, 2016 : Rs, 25,00.00 lakhs and April 1, 2015 Rs, 26,00.00 lakhs). The fair valuation is based on the recent deal, concluded by the Company, of a comparable property in the same location during the current year. Fair valuation for the comparative years is based on the current deal price of the concluded sale adjusted for the historical property price trend of past two years in the same location. The fair value measurement is categorized in level 3 fair value hierarchy.
Terms of repayment
Interest free Sales Tax Loan from SICOM Limited as at March 31, 2017 of Rs, 1,59.50 lakhs (March 31, 2016 of Rs, 2,37.30 lakhs and April 1, 2015 Rs, 3,11.55 lakhs) availed under the 1993 Sales Tax deferment Scheme repayable in thirteen installments (March 31, 2016 - seventeen installments, April 1, 2015 - twenty one installments) closing on April 30, 2021. The current maturity amount as at March 31, 2017 is Rs, 60.60 lakhs (March 31, 2016 of Rs, 77.80 lakhs and April 1, 2015 Rs, 48.95 lakhs) of the loan has been disclosed under Note 24 - Current financial liabilities - others.
(i) Rationalization relating to a manufacturing site: This represents an estimated amount of cost required to be incurred to rationalize closed manufacturing sites of the Company. The Company utilizes the same as and when actual costs are incurred. It is expected to be utilized within 12 months from the end of the year.
(ii) Pricing matters, Divestment/ Restructuring and other matters: Provision for pricing matters, Divestment/ Restructuring and other matters made for probable liabilities/ claims arising out of pending dispute, litigations/ commercial transactions with statutory authorities/ third parties. The outflow with regard to the said matters depends on the exhaustion of remedies available to the Company under the law and hence the Company is not able to reasonably ascertain the timing of the outflow. Also refer notes 43, 44 and 45
(iii) Long term incentive plan: Refer note 60.
(iv) Provision for expected sales return: This represents provision made for expected sales return. Revenue is adjusted for the expected value of return. It is expected to be utilized within 1 to 2 years from the end of the year.
2 The recurring expenditure on research and development charged off to revenue amounts to Rs, 1,89.62 lakhs (Previous year - Rs, 1,99.57 lakhs)
3 Miscellaneous expenses in Note 34 includes loss on foreign currency transactions (net) Rs, Nil (Previous year - Rs, 8,82.11 lakhs)
4 Reimbursement of expenses (net) in Note 34 are amounts recovered from subsidiary company Rs, 1,60.06 lakhs (Previous year -Rs, 2,26.13 lakhs), from Stiefel India Private Limited Rs, Nil (Previous year - Rs, 19.85 lakhs), from GlaxoSmithKline Pte Limited Rs, Nil (Previous year - Rs, 8.18 lakhs), from GlaxoSmithKline Service Unlimited Rs, 17.81 lakhs (Previous year - Rs, 71.33 lakhs), GlaxoSmithKline Brasil Ltd Rs, 25.96 lakhs (Previous year - Rs, 40.34 lakhs), from GlaxoSmithKline Research & Development Limited Rs, 15.96 lakhs (Previous year - Rs, 98.19 lakhs), from Chiron Behring Vaccines Private Limited Rs, 56.18 lakhs (Previous year - Rs, Nil), from GlaxoSmithKline Inc USA Rs, 86.85 lakhs (Previous year -Rs, Nil), from GlaxoSmithKline Latin America S.A. Rs, 23.91 lakhs (Previous year - Rs, Nil), from GlaxoSmithKline Pharma Nigeria Limited Rs, 50.17 lakhs (Previous year - Rs, Nil ) and paid to GlaxoSmithKline Consumer Healthcare Limited Rs, 25,08.76 lakhs (Previous year -Rs, 23,09.5 lakhs) and GlaxoSmithKline Asia Private Limited Rs, 1,60.17 lakhs (Previous year - Rs, 1,13.07 lakhs) towards the value of costs apportioned, in accordance with the agreements on allocation of expenses with the companies.
Note: Includes profit on sale of a property sold vide a binding agreement for sale on March 31, 2017, pending adjudication by the transferee. Subsequently, in April 2017, all the formalities relating to stamping and registration were concluded. As at March 31, 2017, the proceeds for this disposal is held as cheques on hand.
5 EMPLOYEE BENEFIT OBLIGATIONS
The Company obtained actuarial reports as required by Ind AS 19 (Employee Benefits) based on which disclosures have been made in the financial statement for the year ended March 31, 2017. The disclosures as required by the Ind AS 19 are as below.
(i) Defined Contribution Plan
The Company''''s defined contribution plans are superannuation and employees'''' pension scheme (under the provisions of the Employees'''' Provident Funds and Miscellaneous Provisions Act, 1952). The obligation of the Company is limited to the amount contributed and it has no further contractual nor any constructive obligation.
(ii) Defined Benefit Plan Gratuity
The Company makes annual contributions to an income tax approved irrevocable trust gratuity fund to finance the plan liability, a funded defined benefit plan for qualifying employees. The scheme provides for payment as under:
i) On normal retirement / early retirement / withdrawal / resignation: As per the provisions of the Payment of Gratuity Act, 1972 with vesting period of 5 years of service.
ii) On death in service: As per the provisions of the Payment of Gratuity Act, 1972 without any vesting period.
Post-Retirement medical benefit
The Company earmarks liability towards unfunded Post - Retirement medical benefit and provides for payment to vested employees. The benefits under the plan are in form of a medical benefit paid to employees post their employment with the Company.
The liability of the Company on the exempt Provident Fund managed by the trustees is restricted to the interest shortfall if any.
Leave Encashment and compensated absences
The liability for leave encashment and compensated absences as at year end is Rs, 31,62.20 lakhs. (March 31, 2016 - Rs, 43,94.04 lakhs, April 1, 2015 - Rs, 43,01.90 lakhs).
Based on the actuarial valuation obtained, the following table sets out the status of the gratuity plan, post retirement medical benefits and provident fund and the amounts recognized in the Company''''s Standalone Financial Statements as at balance sheet date:
6 The demand of Rs, 71,79 lakhs made by the Central Government on the Company in respect of Betamethasone bulk drugs and formulations made there from during the period May 1981 to August 1987 has been under litigation for a period spanning nearly 30 years. Pursuant to the special leave petition of the Central Government in the Supreme Court of India against the Delhi High Court''''s Judgment and Order dated October 19, 2001 which was held in favour of the Company, the Supreme Court has, vide its judgment and order dated March 31, 2011, upheld the demand. The Company had accrued a liability of Rs, 18,68 lakhs in earlier years and a further provision of Rs, 53,11 lakhs was accrued in 2011. Based on a legal advice, the Company has filed an application in the Supreme Court seeking, inter alia, clarifications on some aspects of the judgment and directions for recompilation of the demand. Simultaneously, the Company without prejudice to and subject to the outcome of the application filed in the Supreme Court, has tendered as a further deposit, an amount of Rs, 63,60 lakhs, which together with the amount of Rs, 8,19 lakhs previously deposited with the Government, aggregates to the demand of Rs, 71,79 lakhs made by the Government in November 1990. The Company filed a review petition in the Supreme Court which was rejected in March 2012.
In October 1996, the Government had claimed interest of Rs, 117,66 lakhs for the period May 12, 1981 to October 17, 1996, for which no provision was made in earlier years. The Government has vide letter dated May 4, 2011 called upon the Company to discharge the entire liability, including upto date interest calculated at 15% p.a., and has vide letter dated October 10, 2011, raised a demand on the Company for the interest amount amounting to Rs, 247,44 lakhs .Without prejudice to the position that interest is not payable, the Company has recognized a provision of Rs, 247,44 lakhs in respect of the Government''''s claim for interest in 2011. The Company has filed a writ petition at Delhi High Court against the above demand which has been admitted. The Company also filed stay applications which have been dismissed and has filed a Special Leave Petition (SLP) before the Supreme Court for stay of the interest demand until final determination of the writ petition filed in the Delhi High Court. The Supreme Court on hearing the above SLP, passed an order on April 3, 2012. The said order stayed the demand notice dated October 10, 2011 during the pendency of the writ petition at the Delhi High Court subject to the Company depositing Rs, 136,82 lakhs in three equal installments within six month''''s time from the date of order. All three installments have been deposited with the Government as of date. The Supreme Court, vide its order dated October 5, 2012, directed the Delhi High Court to dispose of the writ petition as expeditiously as possible. The Delhi High Court has listed the writ petition for hearing on October 27, 2017.
7 MATTERS IN RESPECT OF ERSTWHILE BURROUGHS WELLCOME (INDIA) LIMITED (BWIL):
(i) The Government of India, Ministry of Chemicals and Fertilisers, New Delhi, passed a final order on July 21, 1993, directing erstwhile BWIL to pay an amount of Rs, 1,91.15 lakhs along with interest due thereon from the date of default into the Drugs Prices Equalisation Account (DPEA) in respect of a bulk drug procured by erstwhile BWIL during the period April 1981 to April 1983.
Erstwhile BWIL filed a writ petition in August 1993 which was admitted by the Bombay High Court. After hearing both the parties, the High Court granted an interim injunction restraining the Government of India from taking any action in furtherance of and/or implementation of the order dated July 21, 1993 or from in any manner seeking to compel erstwhile BWIL to deposit any amount into the DPEA, pending the hearing and final disposal of the petition on the condition that erstwhile BWIL furnishes a bank guarantee for Rs, 2,00 lakhs from a nationalized bank and undertakes to pay the amount demanded with interest at the rate of 20% per annum in case the petition fails.
Erstwhile BWIL had accordingly furnished the required bank guarantee. If calculated on the basis of correct data, taking into account set offs claimable for earlier years for which data has been provided by erstwhile BWIL, no amount will be payable by the Company and accordingly no provision in that respect is considered necessary. The Company''''s stand that the demand is not sustainable has been confirmed by an eminent counsel. The Government of India''''s application in the Supreme Court praying that the writ petition be transferred to the Supreme Court from the Bombay High Court was not allowed and the Company''''s writ petition will now be heard by the Bombay High Court.
(ii) Erstwhile BWIL had made an application to the Government of India for approval under Section 198(4) of the Companies Act, 1956, in respect of payment of the Managing Director and three whole time Directors amounting to Rs, 10.93 lakhs for the year ended August 31, 1986, which was in accordance with the minimum remuneration provided in the agreement entered into with them prior to erstwhile BWIL becoming public, which required such Government of India''''s sanction. The approval is still awaited.
(iii) Remittances in transit represent monies deposited by customers in favour of erstwhile BWIL with banks in Zambia - Rs, 0.31 lakhs and in Tanzania - Rs, 5.61 lakhs, the remittance of which is pending clearance of the authorities in those countries.
8 MATTERS IN RESPECT OF ERSTWHILE SMITHKLINE BEECHAM PHARMACEUTICALS (INDIA) LIMITED:
(i) Rs, 1,44.44 lakhs received from Beckman Instruments International S.A. on account of disputed alleged additional commission has been included under non-current provisions and Income tax paid thereon aggregating to Rs, 64.77 lakhs has been included under other non-current assets. The Company is contesting the matter with the concerned authorities.
(ii) Refund of surtax Rs, 96.81 lakhs, and interest thereon amounting to Rs, 48.52 lakhs, received during 1994, have not been adjusted against the provision for tax in the books of account and recognized as income respectively, since the Income tax department had filed a reference application against the income tax tribunal''''s order which was pending before the High Court of Karnataka. The Company has received an order dated April 18, 2007 from the High Court of Karnataka which is partially in the Company''''s favour. On the basis of the aforesaid order, Income Tax Appellate Tribunal (ITAT), Bangalore will pass an order giving directions. On receipt of the ITAT order, the Company will take appropriate steps in the matter.
(ii) The details of cancellable operating leases are as follows:
The Company has taken various residential, office and go down premises under operating lease arrangements. These are cancellable and range between 11 months and 3 years under leave and licence, or longer for other leases and are renewable by mutual consent on mutually agreeable terms. The Company has given refundable interest free security deposits under certain agreements. The lease rentals of Rs, 20,68.92 lakhs (Previous year Rs, 19,65.17 lakhs) have been included under the head Rent under Note 34 in the Statement of Profit and Loss.
9 In April 2014, GlaxoSmithKline Plc (GSK), London, UK, entered into an inter-conditional agreement with Novartis AG (Novartis), Basel, Switzerland where GSK (i) will acquire the Novartis''''s Vaccines Business and manufacturing capabilities and facilities from Novartis, and (ii) will sell the rights to its Marketed Oncology Portfolio, related R&D activities and AKT Inhibitors currently in development to Novartis. Globally, this transaction with Novartis was completed on March 2, 2015.
In connection to the above transactions, GLAXOSMITHKLINE PHARMACEUTICALS LIMITED (“Company”), concluded the transaction on an Asset Sale basis with Novartis Healthcare Private Limited (“NHPL”), a private unlisted Company incorporated under the Companies Act 1956 on September 30, 2015. The Company terminated its distribution rights with GSK Group for the oncology portfolio in return for accessing the distribution rights of the acquired vaccines portfolio. The Company entered into interim transitional arrangements with NHPL to continue to sell the Oncology portfolio relating to this transaction to meet patient demand and up until the marketing authorizations transferred to NHPL. The transitional arrangement and the transfer of marketing authorizations concluded during the year.
10 (a) Current tax liabilities is net of advance tax and tax deducted at source amounting to Rs, 160,85.90 lakhs (As on March 31, 2016 Rs, 204,42.17 lakhs, As on April 1, 2015 Rs, 251,92.00 lakhs).
(b) Current tax assets (net) represents payment in excess of provisions of Rs, 3455,48.82 lakhs (As on March 31, 2016 Rs, 3247,99.75 lakhs, As on April 1, 2015 Rs, 2980,21.26 lakhs) and includes a net tax refund with interest of Rs, 110,35 lakhs (As on March 31, 2016 and April 1, 2015: Rs, 110,35 lakhs) which has been held as provision pending the final outcome of a litigation.
11 Other non-current assets are net of allowances for doubtful loans and advances aggregating Rs, 29,96.83 lakhs (As at March 31, 2016 and April 1, 2015: Rs, 29,96.83 lakhs).
12 Capital work-in-progress and estimated amount of contracts (net of advances) remaining to be executed on capital account and not provided for as at March 31, 2017, March 31, 2016 and April 1, 2015 mainly comprises of the ongoing investments in the new Greenfield manufacturing factory being constructed at Bengaluru.
13 Pursuant to the Board approval, an amount of Rs, 68.71 lakhs and Rs, 102.98 lakhs have been paid in current year to Dr. Hasit Joshipura, the earlier Managing Director of the Company as performance bonus and performance share plan of 2015.
B. Fair Value Hierarchy
This section explains the judgments and estimates made in determining the fair values of the financial instruments that are (a) recognized and measured at fair value and (b) measured at amortized cost and for which fair values are disclosed in the Standalone Financial Statements.
(a) Financial instruments that are recognized and measured at fair value
To provide an indication about the reliability of the inputs used in determining fair value, the company has classified its financial instruments into the three levels prescribed under the accounting standard.
Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices.
Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
The impact of fair valuation of Equity investment is considered as insignificant and hence carrying value and fair value is considered as same.
The amount of fair value of the above Financial assets and liabilities is considered to be insignificant in value and hence carrying value and the fair value is considered to be same.
The carrying amounts of cash and cash equivalents, other bank balance, current account balances with group companies, advances recoverable, trade receivables, unclaimed dividends, trade payables, dues to subsidiary company, creditors for capital goods and other payables are considered to be the same as their fair values due to their short term nature.
C. Financial risk management
The Company has exposure to the following risks arising from financial instruments:
- Credit risk ;
- Liquidity risk ; and
- Market risk
Risk management framework
The Company''''s board of directors has overall responsibility for the establishment and oversight of the Company''''s risk management framework. The board of directors has established the Risk Management Committee, which is responsible for developing and monitoring the Company''''s risk management policies. The committee reports regularly to the board of directors on its activities The Company''''s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company''''s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.
The audit committee oversees how management monitors compliance with the company''''s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The audit committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company''''s receivables from customers.
Trade and other receivables
The Company''''s trade receivables are largely from sales made to wholesale customers and direct sales to hospital with a smaller proportion of sales to Indian Government Institutions. The Company''''s exposure to credit risk is influenced mainly by the individual characteristics of each customer, demographics of the customer and the default risk of the industry.
The company manages credit risk through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.
Exposures to customers outstanding at the end of each reporting period are reviewed to determine incurred and expected credit losses and the Company establishes an allowance for doubtful debts and impairment that represents its estimate of expected losses in respect of trade receivables. Historical trends of impairment of trade receivables do not reflect any significant credit losses. Given that the macroeconomic indicators affecting customers of the Company have not undergone any substantial change, the Company expects the historical trend of minimal credit losses to continue. The impairment loss at March 31, 2017 related to customers that have defaulted on their payments to the Company and are not expected to be able to pay their outstanding balances, mainly due to economic circumstances.
In case of receivables from wholesale customers and hospitals, the Company has followed a provision approach consistent with expected credit loss approach as per Ind AS 109.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Company''''s reputation.
The Company''''s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company has no outstanding bank borrowings. The Company believes that the working capital is sufficient to meet its current requirements. Any short-term surplus cash generated, over and above the amount required for working capital management and other operational requirements, are retained as cash and investment in short term deposits with banks. The said investments are made in instruments with appropriate maturities and sufficient liquidity.
As of March 31, 2017, the Company had working capital of Rs, 932,38.61 lakhs, including cash and cash equivalents of Rs, 139,28.80 lakhs, investments in term deposits (i.e., bank certificates of deposit having original maturities of more than 3 months) of Rs, 750,73.15 lakhs.
As of March 31, 2016, the Company had working capital of Rs, 1572,93.64 lakhs, including cash and cash equivalents of Rs, 113,68.03 lakhs, investments in term deposits (i.e., bank certificates of deposit having original maturities of more than 3 months) of Rs, 1239,04.64 lakhs.
As of April 1, 2015 the Company had working capital of Rs, 2067,75.15 lakhs, including cash and cash equivalents of Rs, 114,65.92 lakhs, investments in term deposits (i.e., bank certificates of deposit having original maturities of more than 3 months) of Rs, 1827,90.93 lakhs.
Exposure to liquidity risk
The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments and exclude the impact of netting agreements.
The fluctuation in foreign currency exchange rates may have potential impact on the profit and loss account, where any transaction references more than one currency or where assets/liabilities are denominated in a currency other than the functional currency of the entity. The Company is exposed to currency risk on account of its receivables and payables in foreign currency. The functional currency of the Company is Indian Rupee. The Company has exposure to GBP, USD, EURO and other currencies. The Company has not hedged this foreign currency exposure and strives to achieve asset liability offset of foreign currency exposure.
A reasonably possible strenghtening / weakening of the respective foreign currencies with respect to functional currency of Company would result in increase or decrease in profit or loss and equity as shown in table below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. The following analysis has been worked out based on the exposures as of the date of statements of financial position.
14 CAPITAL MANAGEMENT
(a) Risk Management
The Company''''s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital as well as the level of dividends to ordinary shareholders.
The Company has adequate cash and bank balances and no interest bearing liabilities. The Company has Interest free Sales Tax Loan from SICOM Limited availed under the 1993 Sales Tax deferment Schemes. The Company monitors its capital by a careful scrutiny of the cash and bank balances, and a regular assessment of any debt requirements. In the absence of any interest bearing debt, the maintenance of debt equity ratio etc. may not be of any relevance to the Company.
Information about major customers
The Company did not have any external revenue from a particular customer which exceeded 10% of total revenue.
15 RELATED PARTY DISCLOSURES
Related party disclosures, as required by Ind AS 24, “Related Party Disclosures”, notified under Section 133 of the Companies Act, 2013 are given below:
1. Relationships (during the year):
(i) Shareholders (the GlaxoSmithKline (GSK) Group shareholding) in the Company Glaxo Group Limited, U.K.
GlaxoSmithKline Pte Limited, Singapore Eskaylab Limited, U.K.
Burroughs Wellcome International Limited, U.K.
Castleton Investment Limited, Mauritius (Upto March 30, 2017)
Holding company / ultimate holding company of the above shareholders GlaxoSmithKline plc, U.K. *
GlaxoSmithKline Finance plc, U.K.*
Setfirst Ltd, U.K. *
SmithKline Beecham Limited, U.K.*
Wellcome Limited, U.K.*
The Wellcome Foundation Limited, U.K.*
Wellcome Consumer Healthcare Limited, U.K.*
* no transactions during the year
(ii) Subsidiary of the Company
Biddle Sawyer Limited, a wholly owned subsidiary of the Company
(iii) Other related parties in the GlaxoSmithKline (GSK) Group where common control exists and with whom the Company had transactions during the year:
GlaxoSmithKline Asia Private Limited, India GlaxoSmithkline Philippines Inc., Philippines
GlaxoSmithKline Brasil Ltda, Brazil GlaxoSmithKline Australia Pty Limited, Australia
GlaxoSmithKline Consumer Healthcare Limited, India GlaxoSmithKline Trading Services Limited, Ireland
GlaxoSmithKline Biologicals S.A., Belgium GlaxoSmithKline Limited, Hong Kong
GlaxoSmithKline Services Unlimited, U.K. GlaxoSmithKline South Africa (Pty) Ltd, South Africa
Glaxo Operations UK Limited, U.K GlaxoSmithKline LLC, U.S.A
GlaxoSmithKline Export Limited, U.K. Stiefel India Private Limited, India
GlaxoSmithKline Latin America S.A Glaxo Wellcome Ceylon Ltd., Sri Lanka
GlaxoSmithKline Pakistan Limited, Pakistan US GMS Financial Services, U.S.A.
GlaxoSmithKline Research & Development Ltd, U.K Chiron Behring Vaccines Private Ltd, India (w.e.f. March 31, 2016) GlaxoSmithKline Pte Limited, Singapore
(iv) Directors and members of GSK India Management Team and their relatives:
Directors: GSK India Management Team:
Mr. A. Vaidheesh (w.e.f August 3, 2015) # Mr. A. Nadkarni (w.e.f. April 17, 2017)
Mr. A. Aristidou # Mr. B. Akshikar (up to December 31, 2016)
Mr. R. C. Sequeira (up to February 11, 2017) Mr. H. Buch (up to June 15, 2015)
Mr. R. Krishnaswamy # Mr. K. Hazari
Dr. H. B. Joshipura (up to July 31, 2015) Mr. Ransom D''''souza (w.e.f. April 17, 2017)
Mr. N. Kaviratne Mr. R. Bartaria
Mr. P. Bhide Mr. R. C. Sequeira
Mr. P. V. Nayak (up to October 31, 2015) Mr. S. Khanna (up to November 30, 2016)
Ms. A. Bansal Mr. S. Dheri
Mr. A. N. Roy Mr. S. Venkatesh (up to December 31, 2016)
Mr. D. S. Parekh Ms. S. Choudhary (w.e.f. January 18, 2017)
Mr. D. Sundaram Mr. S. Webb (w.e.f. April 17, 2017)
Mr. R. R. Bajaaj Ms. V. Desai
Mr. R. Simard (up to February 11, 2017) * Mr. V. Balakrishnan (w.e.f. March 20, 2017)
Mr. S. Harford (up to May 18, 2015) *
Mr. V. Thyagarajan (up to October 31, 2015)
Mr. S. Williams (w.e.f. April 7, 2017)
Mr. M. Jones (w.e.f. April 7, 2017)
# Also a member of GSK India Management Team
* No transactions during the year
16. The following transactions were carried out with the related parties in the ordinary course of business.
(i) Dividend paid to parties referred to in item 1(i) above:
60 SHARE-BASED PAYMENT ARRANGEMENTS Restricted Share Awards (RSAs)
Certain employees of the Company are entitled to receive cash settled stock based awards (‘awards'''') pursuant to employee share schemes (‘scheme'''') administered by GlaxoSmithKline Plc. (‘Plc'''').
Under this plan, certain employees are granted cash settled RSAs at no cost, which entitle them to receive cash equivalent to the stock price of the Plc''''s shares listed at London stock exchange after two and a half to three year vesting period during which the employee has to remain in continuous employment with the Company. These RSA''''s do not give any voting rights or the right to accrue dividends.
The fair value of these awards is determined based on the closing share price on the day of grant, after deducting the expected future dividend yield of 4.5% (2015 - 5.7%; 2014 - 5.2%) over the duration of the award.
17 FIRST-TIME ADOPTION OF IND AS
These are the company''''s first financial statements prepared in accordance with Indian Accounting Standards.
The accounting policies set out in note 1 have been applied in preparing Standalone Financial Statements for the year ended March 31, 2017, the comparative information presented in the standalone financial statements for the year ended March 31, 2016 and in the preparation of an opening Ind AS Balance Sheet as at April 1, 2015 (the company''''s date of transition).
In preparing its opening Ind AS Balance Sheet, the company has adjusted the amounts reported previously in Standalone Financial statements prepared in accordance with Accounting Standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP/Indian GAAP).
An explanation of how the transition from previous GAAP to Ind AS has affected the company''''s position and the financial performance is set out in the following tables and notes :
(1) Exemptions and exceptions availed:
(i) Exemptions from retrospective applications
Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions:
(a) Business combination
Ind AS 101 provides the option to apply Ind AS 103 prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date. The company elected to apply Ind AS 103 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date have not been restated.
(b) Deemed cost for Property, plant and equipment (PPE) and Intangible assets
Ind AS 101 permits a first time adopter to continue with the carrying value for all its property, plant and equipment as recognized in the Standalone Financial Statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition. This exemption can also be used for Investment property covered by Ind AS 40 Investment Properties.
Accordingly, the company has elected to measure all of its PPE and Investment property at their previous GAAP carrying value.
(c) Deemed cost for investment in subsidiary
The Company has elected to use the previous GAAP carrying amount of its investment in subsidiary on the date of transition as its deemed cost on that date, in its separate Financial Statements.
The remaining voluntary exemptions as per Ind AS 101 - First time adoption either do not apply or are not relevant to the Company.
(ii) Exceptions from full retrospective application
Sales tax deferral loan
By applying the exception available as per Ind AS 101, the company has used previous GAAP carrying amount of the loan at the date of transition to Ind AS as the carrying amount of the loan in the opening Ind AS Balance Sheet.
The remaining mandatory exceptions either do not apply or are not relevant to the Company.
(18) Notes to first time adoption of Ind AS
A. Proposed dividend
Under the previous GAAP, dividends proposed by the board of directors after the balance sheet date but before the approval of Financial Statements were considered as adjusting events. Accordingly, provision for proposed divided was recognized as liability. Under Ind AS, such dividend are recognized when the same is approved by the shareholders in the general meeting. Accordingly, the liability for proposed dividend of Rs, 509,73.42 lakhs as at March 31, 2016 (April 1, 2015 - Rs, 637,16.78 lakhs) included under provisions has been reversed with corresponding adjustment to retained earnings. Consequently, the total equity increased by an equivalent amount.
B. Provision for expected sales return
The company has recognized Rs, 30,95.37 lakhs (April 1, 2015 Rs, 30,35.25 lakhs) for the year ended March 31, 2016 for the amount of expected non saleable return.
C. Depreciation on investment property reclassified from asset held for sale
The Company has recognized Rs, 9,44.56 lakhs as investment property which ceased to be classified as asset held for sale on the date of transition. The Company has charged depreciation Rs, 3,31.32 lakhs on the above investment property from the date it was held for sale to date of transition, resulting in the recognition of investment property of Rs, 6,13.24 lakhs after depreciation. The Company has provided for depreciation on the above investment property Rs, 17.33 lakhs during the year ended March 31, 2016.
D. Deferred tax
The Company has recognized deferred tax asset Rs, 12,20.09 lakhs as at March 31, 2016 (April 1, 2015 Rs, 11,91.48 lakhs) on the above Ind AS adjustments.
E. Actuarial gains passed through OCI
Under Ind AS, remeasurements i.e. actuarial gains and losses and the return on plan assets, excluding amounts included in the net interest expense on the net defined liability are recognized in other comprehensive income instead of profit or loss. Under the previous GAAP, these measurements were forming part of the profit or loss for the year. As a result of this change, the profit for the year ended March 31, 2016 decreased by Rs, 30.26 lakhs. There is no impact on the total equity as at March 31, 2016.
F. Notes to reclassification between Indian GAAP and Ind AS:
Excise duty of Rs, 86,29.43 lakhs has been reclassified from revenue to other expenses. This has resulted in increase of revenue and other expenses by Rs, 86,29.43 lakhs.
Trade Discounts of Rs, 29,30.49 lakhs to customers has been reclassified from other expenses to revenue. This has resulted in decrease of revenue and other expenses by Rs, 29,30.49 lakhs.
Provision for non saleable return of Rs, 31,38.33 lakhs has been reclassified from other expenses to revenue. This has resulted in decrease of revenue and other expenses by Rs, 31,38.33 lakhs
Expenses relating to service income of Rs, 44,74.00 lakhs has been reclassified from other operating revenue to other expenses. This has resulted in increase of other operating revenue and other expenses by Rs, 44,74.00 lakhs.
Free samples of Rs, 4,79.66 lakhs to customers has been reclassified from cost of materials consumed to other expenses. This has resulted in decrease of cost of materials consumed and increase of other expenses by Rs, 4,79.66 lakhs.
Penalties of Rs, 48.96 lakhs paid to customers has been reclassified from other expenses to revenue. This has resulted in decrease of revenue and other expenses by Rs, 48.96 lakhs.
19 EVENT OCCURRING AFTER BALANCE SHEET DATE
The Board of Directors has recommended Equity dividend of Rs, 30.00 per share for the year ended March 31, 2017 (March 31, 2016 : Rs, 50.00 per share) (Refer Note 57)