Glenmark Pharmaceuticals Ltd. (31-3-2011)
Notes to Consolidated Financial Statements
As permitted by Securities Exchange Board of India (‘SEBI’) Circular CIR/CFD/DIL/1/2010, dated 5th April, 2010 (hereinafter referred to as ‘SEBI Circular’), the Group has voluntarily chosen to present its consolidated financial statements in accordance with International Financial Reporting Standards after taking benefit of the additional exemptions provided vide the SEBI Circular (hereinafter referred to as ‘IFRS’). Accordingly, the Group has :
prepared and presented the financial statements for the year ended 31st March, 2011 in accordance with IFRS instead of the accounting standards specified in section 211(3C) of the Companies Act, 1956 (‘Indian GAAP’);
elected to provide the figures for the comparative period as per Indian GAAP as permitted by the SEBI Circular and not as per IFRS as required by International Financial Reporting Standard 1, ‘First-time adoption of International Financial Reporting Standards’ and International Accounting Standard 1, ‘Presentation of Financial Statements’. However, as the classification of the individual line items is not consistent and comparable between the two periods, the figures for the comparative period are not presented alongside that of the current year. Accordingly, these consolidated financial statements should be read along with the consolidated financial statements for the year ended 31st March 2010 presented in the Annual Report for the year ended 31st March 2010;
not presented reconciliations between the equity and comprehensive income as per IFRS and Indian GAAP for the comparative period, as the Group has not prepared financial information in accordance with IFRS for the comparative period as indicated above; and
not presented a reconciliation of significant differences between the figures as disclosed as per IFRS for the year ended 31st March 2011 and the figures as they would have been if Indian GAAP was adopted for the year ended 31st March 2011 as required by the SEBI Circular as the Group has not prepared consolidated financial statements in accordance with Indian GAAP for this period.
These are the Group’s first financial statements prepared in accordance with IFRS (see Note EE for explanation of the transition to IFRS).
Note EE — Transition to International Financial Reporting Standards
The transition from Indian GAAP to IFRS has been made in accordance with the principles laid down in IFRS 1, First-time Adoption of International Financial Reporting Standards. As elaborated in Note A-2.2, the Group has voluntarily elected to use IFRS as permitted by the SEBI Circular along with the additional exemptions provided therein. Accordingly, the Group has transitioned to IFRS with 1st April 2010 being the date of transition.
1. First-time adoption exemptions applied
Upon transition, IFRS 1 permits certain exemptions from full retrospective application. The Group has applied the mandatory exceptions and certain optional exemptions, as set out below.
Mandatory exceptions adopted by the Group
(i) Financial assets and liabilities that had been de-recognised before 1st April 2010 under Indian GAAP have not been recognised under IFRS.
(ii) The Group has used estimates under IFRS that are consistent with those applied under Indian GAAP (with adjustment for accounting policy differences), unless there is objective evidence those estimates were in error.
Optional exemptions applied by the Group
(i) The Group has elected not to apply IFRS 3R Business Combinations retrospectively to business combinations that occurred before the date of transition 1st April 2010.
(ii) The Group has elected to use fair value as deemed cost at the date of transition for some items of property, plant and equipment (see Note H).
(iii) The Group has elected to use facts and circumstances existing at the date of transition to determine whether an arrangement contain a lease. No such assessment was done under Indian GAAP.
(iv) The Group has elected to designate some financial assets as available for sale at the date of transition. The Group has not taken the exemption to designate some financial instruments at fair value through profit or loss.
(v) The Group has elected to recognise all cumulative actuarial gains and losses for its defined benefit plans at the date of transition. Further, the Group has elected to use the exemption not to disclose defined benefit plan surplus/deficit and experience adjustment before the date of transition.
The following reconciliation and explanatory notes thereto describe the effect of the transition on the IFRS opening statement of financial position as at 1st April 2010. All explanations should be read in conjunction with the IFRS accounting policies of Glenmark Group as disclosed in Note A-3.
The reconciliation of the Group’s equity reported under Indian GAAP to its equity under IFRS as at 1st April 2010 may be summarised as follows:
Notes to the reconciliation
2. Foreign currency convertible bonds (FCCBs)
The Company had outstanding ‘zero coupon’ FCCBs as on 1st April 2010. Under Indian GAAP, the Company had chosen to adjust these premium payable on redemption to the additional paid-in capital. As per IAS 32, FCCBs issued by the Company are treated as a liability with an embedded derivative for the call option for conversion to equity shares. Finance costs for the period and the related liability has been computed using the effective interest rate method. The liability is re-measured at amortised cost at each reporting period. Further, the embedded derivative is fair value at the date of transition. Accordingly, the adjustments have been made to retained earnings.
3. Share-based compensation
According to IFRS 2 — Share-based Payments, the Group has recognised share-based payments on fair value and has made an adjustment in the opening statement of financial position by charging such cost to retained earnings.
Under Indian GAAP the Group had an option to account for these options at intrinsic value and therefore no such cost was required to be recognised in the Income statement.
4. Fixed Assets (Including Intangible assets)
(a) Intangible assets
Derecognition of intangible assets
On transition to IFRS, the Group undertook a detailed evaluation of its portfolio of product development assets and intangibles under development, which were previously classifieds intangibles and capital work-in-progress under Indian GAAP. Based on such evaluation, the Group determined that certain products/projects had been de- prioritised and that no future economic benefits were expected to flow to the Group from these products or products being developed under such projects. Accordingly such products/projects did not qualify to be carried forward as intangible assets and accordingly have been derecognised. The Group also determined that the de-prioritisation and the conditions considered for this evaluation excited prior to the date of opening statement of financial position and accordingly, theses intangible assets have been derecognised in the preparation of the opening statement of financial position with a corresponding adjustment to retained earnings as this adjustment relates to earlier periods. (Also refer note 1 on Intangible Assets.)
Reclassification of intangible assets
On transition to IFRS, the Group has reclassified certain assets into intangible assets. These assets were previously classified as fixed tangible assets and their classification has been rectified on preparation of the opening statement of financial position. (Also refer Note H on ‘Property, Plan and Equipment’.)
(b) Property, plant and equipment
Election to use of fair value as deemed cost
At the date of transition, the Group elected to measure some items of assets within property, plant and equipment at fair value as deemed cost. The items of assets fair valued include freehold land, factory and other buildings, plant and machinery and equipments. Depreciation under IFRS is based on this deemed cost. (Also refer Note H on ‘Property, Plant and Equipment’.)
Depreciation
Further, depreciation under Indian GAAP was computed by assigning a life to each item of property, plant and equipment. However, under IFRS, the Group has identified the cost/deemed cost of each significant part item of property, plant and equipment and assigned an estimate of useful life to each such significant part. Accordingly, the depreciation has been recomputed.
5. Non-controlling interest
Under Indian GAAP, financial statements are prepared as per the requirements of Schedule VI of The Companies Act, 1956. Under Schedule VI, non-controlling interest is not included in the total stockholders’ equity and is disclosed separately on the face of the statement of financial position.
On transition to IFRS, the Group has included the non-controlling interest in the statement of equity under the total stockholders’ equity. Further, the non-controlling interest under IFRS has been calculated using the minority’s share of the net assets of the subsidiary.
6. Proposed dividend
In preparation of the financial statements in accordance with Indian GAAP, the Company provided for proposed dividend and tax thereon to comply with the Schedule VI requirements of the Companies Act, 1956. On transition to IFRS, proposed dividend is recognised based on the recognition principles of IAS 37 — ‘Provisions, Contingent Liabilities and Contingent Assets. Considering that the dividend has been proposed after the date of statement of financial position and becomes payable only after approval by the shareholders, there is no present obligation to pay this dividend as at the date of statement of financial position. Accordingly, the liability for proposed dividend and tax thereon has been reversed.
7. Deferred tax
Deferred tax assets and liabilities under Indian GAAP were recorded only on timing differences. However, on transition to IFRS, deferred tax assets and liabilities are recorded on temporary differences. Further, on transition to IFRS, the carrying values of assets and liabilities have undergone a change as a result of the adjustments indicated above, and accordingly, the deferred tax position has been recomputed after considering the new carrying amounts.
8. Presentation differences
In the preparation of these IFRS financial statements, the Group has made several presentation differences between Indian GAAP and IFRS. These differences have no impact on reported profit or total equity. Accordingly, some assets and liabilities have been re-classified into another line item under IFRS at the date of transition. Further, in these financial statements, some line items are described differently (renamed) under IFRS compares to Indian GAAP, although the assets and liabilities included in these line items are unaffected.
From Auditors’ Report on International Financial Reporting Standards
3. We report that the consolidated financial statements have been prepared by Glenmark Group’s management in accordance with the requirements of International Accounting Standard 27, ‘Consolidated and Separate Financial Statements’ forming part of International Financial Reporting Standards (‘IFRS’) as permitted by SEBI Circular CIR/ CFD/DIL/1/2010, dated 5th April 2010 (‘SEBI Circular’).
4. As described in Note A-2.2 to the consolidated financial statements, in the preparation of its first financial statements in accordance with International Financial Reporting Standards, Glenmark Group has not presented any financial information for the comparative period as required by SEBI Circular.
5. As described in Note A-2.2 to the consolidated financial statements, Glenmark Group has not presented a reconciliation of significant differences between the figures as disclosed as per IFRS and the figures as they would have been if the notified Indian Accounting Standards were adopted, as required by SEBI Circular.
6. Based on our audit and consideration of report of other auditors on financial statements and on the other financial information of the components, and to the best of our information and according to the explanations given to us, we are of the opinion that, subject to the omission of the disclosures described in paragraphs 4 and 5 above, subject to the omission of the disclosers described in para 4 and 5 above, the attached consolidated financial statements give a true and fair view in conformity with International Financial Reporting Standards as permitted vide SEBI circular:
