MARKSANS PHARMA Notes to Accounts

1 Borrowing costs


Borrowing costs are interest, amortization of ancillary cost incurred and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs incurred by the Company in connection with the borrowing of funds. Borrowing costs are recognized in the Statement of Profit and Loss in the period in which it is incurred, except where the cost is incurred for acquisition, construction, production or development of an asset that takes a substantial period of time to get ready for its intended use in which case it is capitalized up to the date the assets are ready for their intended use. Ancillary costs incurred in connection with the arrangement of borrowings are amortized over the period of such borrowings.


2. Segment Reporting as per AS 17


a. Business Segments


The Company is primarily engaged in a single business segment of manufacturing and marketing of Pharmaceutical Formulations and is managed as one entity for its various activities and is governed by a similar set of risks and returns.


b. Geographical Segments


In view of the management, the Indian and export markets represent geographical segments.


3. Leases Finance Leases


Assets leased by the Company in its capacity as lessee where substantially all the risks and rewards of ownership vest in the Company are classified as the finance leases.


Assets acquired under finance lease are recognized as assets with corresponding liabilities in the Balance Sheet at the inception of the lease at amounts equal to lower of the fair value of the leased asset or at the present value of the minimum lease payments. These leased assets are depreciated in line with the Company''''s policy on depreciation of fixed assets. The interest is allocated to periods during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.


Operating Leases


Lease arrangements where the risks and rewards incidental to ownership of an asset substantially vest with the less or are recognized as operating leases. Lease payments under operating leases are recognized in the Statement of Profit and Loss on a straight line basis over the lease term unless another systematic basis is more representative of the time pattern of the benefit.


4. Taxes on Income


Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net profit or loss for the period.


Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961 and other applicable tax laws.


Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognized as an asset in the Balance Sheet when it is highly probable that future economic benefit associated with it will flow to the Company.


Deferred tax is recognized on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent period. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognized for all timing differences. Deferred tax assets are recognized for timing differences of items other than unabsorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realized. Deferred tax assets are not recognized on unabsorbed depreciation and carry forward of losses unless there is virtual certainty that sufficient future taxable income will be available against which deferred tax assets can be realized. However, if there are unabsorbed depreciation and carry forward of losses and items relating to capital losses, deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realize the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their reliability.


Current and deferred tax relating to items directly recognizable in reserves are recognized in reserves and not in the Statement of Profit and Loss.


5. Current-non-current classification


All assets and liabilities have been classified as current or non-current as per the Company''''s normal operating cycle and other criteria in accordance with Schedule III to the Companies Act, 2013 as set out below:


Assets


An asset is classified as current when it satisfies any of the following criteria:


a) it is expected to be realized in, or is intended for sale or consumption in the Company''''s normal operating cycle;


b) it is held primarily for the purpose of being traded;


c) it is expected to be realized within 12 months after the reporting date; or


d) it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.


Current assets include the current portion of non-current financial assets.


All other assets are classified as non-current.


Liabilities


A liability is classified as current when it satisfies any of the following criteria:


a) it is expected to be settled in the Company''''s normal operating cycle;


b) it is held primarily for the purpose of being traded;


c) it is due to be settled within 12 months after the reporting date; or


d) the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.


Current liabilities include current portion of non-current financial liabilities.


All other liabilities are classified as non-current.


Operating Cycle


Operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company ascertains its operating cycle as 12 months for the purpose of current-non-current classification of assets and liabilities.


6. Tangible and Intangible fixed assets


a) Tangible fixed assets


Tangible fixed assets are stated at cost net of tax/duty credits availed, if any, less accumulated depreciation/ amortization/impairment losses. The cost of an item of tangible fixed asset comprises its purchase price, including import duties and other non-refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price.


Exchange differences (favorable as well as unfavorable) arising in respect of translation/ settlement of long term foreign currency borrowings attributable to the acquisition of a depreciable asset are also included in the


2 Significant Accounting Policies used in preparation of the Financial Statements of the Company (contd.) cost of the asset.


In case of fixed assets acquired at the time of amalgamation of certain entities with the Company, the same are recognized at book value in case of amalgamation in the nature of merger and at book value/ fair value in case of amalgamation in the nature of purchase in line with Accounting Standard (AS) 14 -"Accounting for Amalgamations".


Expenditure incurred on start up and commissioning of the project and/or substantial expansion, including the expenditure incurred on trial runs (net of trial run receipts, if any) up to the date of commencement of commercial production are capitalized. Subsequent expenditures related to an item of fixed asset are capitalized to its book value only if they increase the future benefits from the existing asset beyond its previously assessed standard of performance. Losses arising from the retirement of, and gains or losses arising from disposal of fixed assets are recognized in the Statement of Profit and Loss.


Tangible fixed assets under construction are disclosed as capital work-in-progress.


Insurance spares/ standby equipments are capitalized as part of the mother asset and are depreciated at applicable rates over the remaining useful life of the mother assets.


b) Intangible fixed assets Acquired intangible assets


Intangible assets that are acquired are measured initially at cost. After initial recognition, an intangible asset is carried at its cost less any accumulated amortization and any accumulated impairment loss.


Subsequent expenditure is capitalized only when it increases the future economic benefits from the specific asset to which it relates.


Expenditure for acquisition and implementation of software systems is recognized as part of the intangible assets.


Internally generated intangible assets


Internally generated goodwill is not recognized as an asset. With regard to other internally generated intangible assets:


- Expenditure on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding is recognized in the Statement of Profit and Loss as incurred.


- Development activities involve a plan or design for the production of new or substantially improved products or processes. Development expenditure including regulatory cost and legal expenses leading to product registration/ market authorization relating to the new and/or improved product and/or process development capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use the asset. The expenditure capitalized includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and directly attributable borrowing costs (in the same manner as in the case of tangible fixed assets). Other development expenditure is recognized in the Statement of Profit and Loss as incurred.


7. Impairment of Assets


The carrying values of assets/ cash generating units at each Balance Sheet date are reviewed for impairment if any indication of impairment exits.


The following intangible assets are tested for impairment each financial year even if there is no indication that the asset is impaired.: (a) an intangible asset that is not yet available for use; and (b) an intangible asset that is amortized over a period exceeding ten years from the date when the asset is available for use.


8. Significant Accounting Policies used in preparation of the Financial Statements of the Company (contd.)


If the carrying amount of the assets exceed the estimated recoverable amount, an impairment is recognized for such excess amount. The impairment loss is recognized as an expense in the Statement of Profit and Loss, unless the asset is carried at revalued amount, in which case any impairment loss of the revalued asset is treated as a revaluation decrease to the extent a revaluation reserve is available for that asset.


The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived at by discounting the future cash flows to their present value based on an appropriate discount factor.


When there is indication that an impairment loss recognized for an asset (other than a revalued asset) in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognized in the Statement of Profit and Loss, to the extent the amount was previously charged to the Statement of Profit and Loss. In case of revalued assets, such reversal is not recognized.


9. The Company has not received any information from "Suppliers" regarding their status under Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to the amounts as at year end together with interest paid/payable as required under the said Act have not been given.


10 Service tax input credit


Service tax input credit is accounted for in the books in the period in which the underlying service received is accounted and when there is no uncertainty in availing/ utilizing the credits.


11. Deferred Revenue Expenditure


The Company operates in an environment which requires the manufacturing facilities to be approved by industry regulators in certain territories prior to manufacture and sale of products in such territories . If the interval between the date the facility is ready to commence commercial production and the date at which commercial production is expected to commence is prolonged, all expenses incurred during this period are treated as deferred revenue expenditure and amortized over a period not exceeding 3 years from the date of receipt of approvals.


12. Exceptional items


The Company classifies the following as exceptional items in the Statement of Profit and Loss:


a) Exchange gain/loss arising on account of restatement and settlement of (i) long term foreign currency loans and advances, (ii) intra-group loans and advances;


b) Profit/loss on disposal of non-current investments and/ or dividends received from proceeds of such disposal and provision for/ reversals of provision for diminution in non- current investment, goodwill and other assets;


c) Profit/loss arising on account of discontinuance of products/ development activities;


d) Restructuring cost.


13. Customs / Excise Duty


Excise Duty on finished goods and Custom Duty on imported materials are accounted on production of packed finished goods /receipt of material in custom bonded warehouses. All the closing stock of finished goods lying at Goa factory is for export, hence provision for excise duty is not made.


14. Nature and extent of risks arising from financial instruments


The main financial risks faced by the Company relate to fluctuations in interest and foreign exchange rates, the risk of default by counterparties to financial transactions, and the availability of funds to meet business needs. The Balance Sheet as at March 31, 2017 is representative of the position through the year.


Credit Risk


Credit risk arises from Cash and Cash equivalents, financial instruments and deposits with banks and financial institutions. Credit risk also arises from trade receivables and other financial assets.


The credit risk arising from receivables is subject to concentration risk in that the receivables are predominantly 2 Significant Accounting Policies used in preparation of the Financial Statements of the Company (contd.) denominated in USD & GBP and any appreciation in the INR will affect the credit risk. The Company is not significantly exposed to geographical distribution risk as the counterparties operate across various countries across the Globe.


Foreign exchange risk


The Company is exposed to foreign exchange risk principally via:-


i. Debt availed in foreign currencies.


ii. Net investments in subsidiaries that are in foreign currencies.


iii. Exposure arising from transaction relating to purchases, revenues, expenses etc, to be settled in currencies other than the functional currency of the Company.


Liquidity Risk


Liquidity risk is managed using short term and long term Cash Flow forecasts.


Risk Management is carried out by the Risk Management Committee as per the Risk Management Policy adopted by the Company.


15Research and development expenditure


Revenue expenditure pertaining to research is charged to the Statement of Profit and Loss. Development costs of products are also charged to the Statement of Profit and Loss. Fixed assets utilized for research and development are capitalized and depreciated in accordance with the policies stated for Fixed Assets.


16. Related Party Disclosures


(a) List of Related Parties Subsidiaries


Marksans Pharma (UK) Limited Marksans Holdings Limited Bell, Sons and Co. (Druggists) Limited Relonchem Limited Marksans Pharma Inc.


Time-Cap Laboratories Inc.


Custom Coatings Inc.


Marksans Realty LLC


Nova Pharmaceuticals Australasia Pty Ltd.


Key Management Personnel (KMP)


Mr. Mark Saldanha - Managing Director Mrs. Sandra Saldanha - Whole-time Director Dr. Vinay Gopal Nayak - Whole-time Director Mr. Jitendra Sharma - Chief Financial Officer Mr. Harshavardhan Panigrahi - Company Secretary


Relatives of KMP


Mrs. Sandra Saldanha is spouse of Mr. Mark Saldanha (Managing Director) Mr. Mark Saldanha is spouse of Mrs. Sandra Saldanha (Whole-time Director)


Companies in which KMP is interested


Marksans Pharma (UK) Limited Marksans Holdings Limited Bell, Sons and Co. (Druggists) Limited Relonchem Limited Marksans Pharma Inc.


Time-Cap Laboratories Inc.


Custom Coatings Inc.


Marksans Realty LLC


Nova Pharmaceuticals Australasia Pty Ltd.


Note: Mr. Mark Saldanha/ Mrs. Sandra Saldanha/ Mr. Jitendra Sharma is/are Director in the above subsidiary(ies) as representative of Marksans Pharma Limited and have no personal interest as director of those subsidiary(ies). They do not own any shares in the subsidiary(ies) in which they are Director.


(b) As required by Accounting Standard 18 "Related Parties Disclosure" issued by The Institute of Chartered Accountants of India, list of parties with whom transactions have taken place during the year are as follows:


Rent paid to Mr. Mark Saldanha of Rs. 102.93 Lakh during the year.


Related parties where control exists and transactions have taken place during the year Subsidiary Companies


Marksans Pharma (UK) Limited Time-Cap Laboratories Inc.


Nova Pharmaceuticals Australasia Pty Ltd.


Related party relationships where transactions have taken place during the year


Marksans Pharma (UK) Limited - Subsidiary Company


Time-Cap Laboratories Inc. - Subsidiary Company


Nova Pharmaceuticals Australasia Pty Ltd. - Subsidiary Company


17 Provisions, Contingent Liabilities & Contingent Assets


The Company recognizes a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. 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 possible obligation or a present obligation that the liklihood of outflow of resources is remote, no provision or disclosure is made. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. Contingent liabilities are disclosed in the Notes. Contingent assets are not recognized in the financial statements.


18. Figures of the previous year have been regrouped and re-arranged wherever necessary, so as to make them comparable with the current year''''s figures.


b. Terms/rights attached to Equity Shares


The Company has only one class of Equity Shares having a par value of H1/- per share. All the Equity Shares rank pari passu in all respect. Each holder of Equity Shares is entitled to one vote per share. The equity share holders are entitled to dividend, if declared by the shareholders in an Annual General Meeting, in proportion to the number of Equity Shares held by the shareholders.


In the event of liquidation of the Company, the holders of Equity Shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of Equity Shares held by the shareholders.


c. Terms/rights attached to Preference Shares


The company has on 31st March, 2017 redeemed 150,000 7% Redeemable Cumulative Preference Shares of H100/-each (The Preference Shares) at par. Consequently, the Issued, Subscribed and Paid-up Preference Share Capital of the Company has reduced from H125,000,000 (Rupees twelve crores fifty lakh) divided into 1,250,000 Preference Shares of H100/- each to H1,10,000,000 (Rupees eleven crore) divided into 1,100,000 Preference Shares of H100/- each with effect from 31st March, 2017. The preference shares carry dividend at the rate of 7% per annum subject to approval of the shareholders at an Annual General Meeting. The holder of the preference shares is entitled to one vote per share only on resolutions placed before the Company which directly affect the rights attached to the preference shares. In the event of liquidation of the Company before redemption of the Preference Shares, the holder of the preference Shares will have priority over equity shares in the payment of dividend and repayment of capital.


d. The Company has not issued bonus shares and shares for consideration other than cash nor the Company has bought back any shares during the period of five years immediately preceding the reporting date except redemption of 100,000 Preference Shares at par on 07.02.2015 and 150,000 Preference Shares at par on 31.03.2017.


(Information provided in Brackets pertain to Previous year)


Note No.19


During the FY.2016-17, the Company has invested H19,552,500(USD 300,000) in Marksans Pharma Inc. and H8,978,986(GBP 104,376) in Marksans Pharma (UK) Ltd.


Note No. 20


During the year ended 31st March, 2017, the remuneration paid to Dr. Vinay Gopal Nayak, Whole-time Director has exceeded the permissible limit as prescribed under Section 197 read with Schedule V of the Companies Act, 2013 by Rs. 79,52,068.00 (Previous Year Rs. Nil). The Company is in the process of complying with the statutory requirements prescribed to regularise such excess payment including seeking approval from Members and the Central Government, as necessary. Pending such approvals, no adjustments have been made in the accounts for the year ended 31st March, 2017, and the excess amount is held by the Whole-time Director in trust for the Company.

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