SMS PHARMA Accounting Policy

1. Corporate Information

SMS Pharmaceuticals Limited is a multi location, multi-product Company
manufacturing Active Pharma Ingredients and their intermediates. SMS
Pharmaceuticals Limited has manufacturing facilities at IDA Kazipally,
Bachupally, IDAJeedimetla, and Bolaram apart from R&D center at
Gagillpur in and around Hyderabad city and also at Kandivalasa in
Vizianagaram Dist and having registred office at Plot No. 19-111, Road
No. 71, Jublie Hills, Hyderabad.

2. Basis of Accounting

The Financial statements have been prepared to comply in all material
respects with the accounting standards specified under section 133 of
the companies Act, 2013 read with Rule 7 of the companies (Accounts)
Rules, 2014 and the relevant provisions of the Act, and in accordance
with the generally accepted accounting principles in India under the
historical cost convention and on accrual basis, except in case of
assets in which provision for impairment is made and revaluation are
carried out. The Accounting policies are consistent with those used in
the previous year.

a. Use of Estimates

The preparation of Financial statements are in conformity with
generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the
date of the financial statements and the results of operations during
the reporting period. The difference between the actual results and
estimates are recognized in the period in which the results are known /

b. Fixed Assets:

i. Fixed Assets are stated at cost of acquisition as reduced by
accumulated depreciation. All costs including financial costs up to the
date of commissioning and attributable to the fixed assets are
capitalized apart from taxes, freight and other incidental expenses
related to the acquisition and installation of the respective assets as
reduced by taxes to the extent of recoverable.

ii. Assets acquired on Hire Purchase arrangements, if any, are
accounted for as assets in accordance with AS-19 issued by the
Institute of Chartered Accountants of India.

c. Capital Work In progress:

Assets under installation or under construction and which are not ready
for put to use as on the date of balance sheet are shown as Capital
work in progress. Advances given towards acquisition of assets were
shown under long term loans and advances.

d. Depreciation:

Depreciation on Fixed Assets is provided on Straight Line based on use
full life of respective assets as prescribed In Schedule- II of the
Companies Act, 2013.

The carrying amount of the assets as on 01.04.2014 are depreciated over
the remaining life of the assets, as per schedule-ll of the companies
Act, 2013.

In case of useful life of an asset is nil the book value of respective
assets, after retaining the residual value, was recognized in the
opening balance of retained earnings and simultaneously affected in
Depreciation Fund A/c

Depreciation on addition to/deletion from fixed assets made during the
year is provided on pro- rata basis from/up to the date of such
addition/deletion as the case may be. In case of assets costing less
than Rs, 5,000/- purchased during the year also depreciation has been
provided at normal rates on pro-rata basis from the date of purchase.

The amount incurred towards improvements and other relating expenses on
leased premises duly charged to Statement of Profit and Loss during the
primary lease period.

Depreciation on landscape is being provided @I0% under straight line

e. Investments:

Long term Investments are carried at cost. Provision for diminution in
the value of long-term investments is made if such diminution is other
than temporary in nature in the opinion of the management.

f. Inventories:

Inventories are valued at lower of cost or net realizable value. Cost
of inventories comprises cost of purchase, cost of conversion and other
costs incurred in bringing the inventories to their present location
and condition.

The methods of determining cost of various categories of inventories
are as follows:

Raw Materials - (Valued at cost on weighted average basis)

Stores and spares - (Valued at cost on weighted average basis)

Stock-in- Process - At cost and an appropriate share of overheads

Finished Goods - At cost or net realizable value, whichever is lower
including Cenvat as


g. Sales:

Sales include value of goods, Excise Duty, Export Benefits and Sales
Tax where ever applicable. However Excise Duty and Sales Tax to the
extent of recoverable from customers are disclosed as reduction from

h. Research & Development Expenses:

i. Revenue expenditure on research and development activities is
expensed as and when incurred.

ii. The expenditure on capital assets having alternative use either in
R & D activity or otherwise are capitalized and amortized according to
the useful life of the respective assets as specified in schedule II of
the Companies Act, 2013.

i. Patents:

Expenditure incurred for filing of patents and related expenditure
being capitalized and showing under the head Intangible Assets and
depreciation is provided @25% on straight line method.

j. Operating Leases:

Assets taken on lease under which all risks and rewards of ownership
are effectively retained by the less or are classified as operating
lease. Lease payments under operating leases are recognized as expenses
on accrual basis in accordance with the respective lease agreement.

k. Retirement Benefits:

i. Defined Contribution Plans:

Provident Fund:

Contribution to Provident Fund is made at the prescribed rates to the
Employees Provident Fund Scheme by the Central Government and is
charged to statement of profit and loss.

ii. Defined Benefit Plans:

(1) Gratuity: Accounting liability towards gratuity is provided on the
basis of actuarial valuation made by an independent actuary. The
actuarial valuation is done as per projected unit credit method.
Actuarial gain/loss immediately taken to statement of profit and loss.

(2) Liability towards gratuity was funded through a policy with Life
Insurance Corporation of India. The difference between actuarial
valuation of independent value and that of the amount contributed
through LIC policy being charged to statement of profit and loss. The
said difference amount was unfunded.

(3) Leave encashment benefit: The Company records its un availed leave
liability based on actuarial valuation using projected unit credit
method. This liability was unfunded.

iii. State Plans:

Employers'''' contribution to employee''''s state insurance is charged to
statement of profit and loss.

I. Excise Duty / Sales Tax:

Excise Duty and Sales Tax are accounted for at the time of dispatch /
sale. These taxes are included in sales. However the amounts to the
extent of realizable from customers are disclosed as reduction from
gross sales in statement of profit and loss and the remaining amounts
were shown as expenditure under the head other expenses as Central
Excise Duty and Sales Tax respectively.

m. Service Tax:

Income derived from rendering of services being considered as net off
Service Tax and the amount of Service Tax liability in respect of
services rendered by the Company was not charged to the statement of
Profit and Loss to the extent recoverable form customers.

n. Cenvat / VAT / Service Tax Credit:

Cenvat / VAT credit claimed on capital goods (Plant and Machinery) is
credited to relevant Plant and Machinery Account, except the assets
being used in R&D centers. Cenvat / Vat credit on purchase of raw
materials, packing materials, consumables, spares and components are
deducted from the cost of respective materials.

Service Tax credit availed as service receiver is deducted from the
relevant expenditure.

Un utilized Cenvat/VAT/Service Tax is accounted as asset and carried in
the balance sheet under the head Other Current Assets.

o. Revenue Recognition:

i. Revenue from sale of goods is recognized when significant risks and
rewards in respect of ownership of the products are transferred to the
customer. Export Benefits are recognized on accrual basis.

ii. Interest is recognized on a time proportion basis taking into
account the amount outstanding and the rate of interest applicable.

iii. Service income is recognized as per the terms of the contracts
with customers when the related services are performed or agreed
milestones are achieved.

p. Foreign Currency Transactions:

i. Transactions denominated in foreign currency are normally recorded
at the exchange rate prevailing at the time of the transaction

ii. Any income or expense on account of exchange differences on foreign
currency transactions are recognized in the statement of profit and

iii. Financial Derivative Contracts are accounted on the date of their
settlement and realized gain / loss in respect of settled contracts are
recognized in the statement of profit and loss along with underlined

q. Taxation:

Tax expense or saving is the aggregate of current year tax and Deferred
Tax charged or credited as the case may be to the statement of profit
and loss for the year. It also includes adjustment relating to excess
or short provision made for earlier years.

i. Current year charge:

The provision for taxation is made based on an estimate of assessable
income determined by the Company under the Income Tax Act, 1961.

ii. Deferred Tax:

Deferred Income Tax is recognized for the future tax consequences
attributable to timing differences between the financial statements
determination of income and their recognition for tax purposes. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income using the tax rate that have been enacted by
the balance sheet date. Deferred tax assets are recognized and carried
forward only to the extent that there is a virtual certainty that
sufficient future taxable income will be available against which such
deferred tax assets can be realized. MAT credit is recognized, as an
asset only when and to the extent that there is convincing evidence
that the Company will pay normal Income Tax during the specified year.

r. Borrowing Costs:

i. Borrowing costs that are attributable to the acquisition of Fixed
Assets are capitalized as part of the cost of the asset till the date
the asset is ready for commercial use.

ii. Other borrowing costs are treated as expenses in the period, in
which they are incurred, except bank charges for processing / renewal
of working capital.

iii. The bank charges for processing of working capital application are
charged to expenses as and when incurred.

s. Provisions and Contingent Liabilities:

Provisions are recognized only when there is a present obligation as
result of past events and when a reliable estimate of the amount of
obligation can be made. Contingent Liabilities are generally not
provided for and are disclosed by way of Notes on Accounts.

t. Impairment of Assets:

The carrying amounts of assets are reviewed at each balance sheet date.
If there is any indication of impairment based on internal / external
factors, an asset is impaired when the carrying amount of asset exceeds
the recoverable amount. An impairment loss is charged to the profit and
loss account in the year in which an asset is identified as impaired.
An impairment loss recognized in prior accounting periods is reversed
if there has been change in the estimate of the recoverable amount.

u. Export Benefits:

All export benefits on exports are recognized on accrual basis.

31. Capital work-in-progress includes an amount of Rs, 556.79 Lakhs
(Previous year Rs, 556.79 Lakhs) paid for acquiring land to the extent
of Ac. 42 in Jawaharlal Nehru Pharma City Parawada in Visakhapatnam

During the year 2007-08 M/s Ramkey Pharma City (India) Ltd, the
developer, has sent a communication to cancel the allotment to the
extent of Ac. 23 and proposed to sell the said land to others.
Aggrieved by this, the Company filed a Writ Petition with Hon''''ble High
Court of A P in the year 2010 and obtained orders restraining the
alienation of the said land till the pending of further orders. The
case is pending before the High Court of Judicature at Hyderabad (for
the State of Telangana and for Andhra Pradesh). The Company has not
accepted for registration of balance Ac. 19 due to the above said legal
dispute. The management is confident to get the clear title for the
total land.

CIN: U67190WB2003PTC096617. Trading in Commodities is done through our Group Company Dynamic Commodities Pvt. Ltd. The company is also engaged in Proprietory Trading apart from Client Business.

Disclaimer: There is no guarantee of profits or no exceptions from losses. The investment advice provided are solely the personal views of the research team. You are advised to rely on your own judgment while making investment / Trading decisions. Past performance is not an indicator of future returns. Investment is subject to market risks. You should read and understand the Risk Disclosure Documents before trading/Investing.

Disclosure: We, Dynamic Equities Private Limited are also engaged in Proprietory Trading apart from Client Business. In case of any complaints/grievances, clients may write to us at

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