RANBAXY PHARMACEUTICALS (PTY) LTD (Registration Number 1993/003111/07) Audited Consolidated and Separate Annual Financial Statements for the year

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1 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March

2 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Index The reports and statements set out below comprise the consolidated annual financial statements presented to the shareholder: General Information 2 Independent Auditor's Report 3-5 Report of the Compiler 6 Directors' Responsibilities and Approval 7 Directors' Report 8-9 Statement of Financial Position 10 Statement of Comprehensive Income 11 Equity 12 Equity 13 Statement of Cash Flows Accounting Policies Notes to the Consolidated Annual Financial Statements

3 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March General Information Country of Incorporation and Domicile South Africa Nature of Business and Principal Activities Import, marketing, manufacturing and trade of pharmaceutical goods and services Directors DW Brothers M Kaszas A Ajoodha (Appointed 1 December ) DMV Sewnarian (Appointed 1 December ) M Sudan (Resigned 21 December ) Ultimate Holding Sun Pharmaceutical Industries Limited incorporated in India Holding Ranbaxy Netherlands BV incorporated in Netherlands Registration Number 1993/003111/07 Registered Office 14 Lautre Road Stormill Ext 1 Roodepoort Gauteng 1724 Postal Address P O Box Industria 2042 Independent Compilers Moollas Financial Solutions Independent Auditors Deloitte & Touche Secretary Grant Thornton 2

4 To the Shareholder of Ranbaxy Pharmaceuticals (Pty) Ltd Opinion We have audited the consolidated and separate financial statements of Ranbaxy Pharmaceuticals (Pty) Ltd and its subsidiaries (the group) set out on pages 10 to 54, which comprise the consolidated and separate statement of financial position as at 31 March, and the consolidated and separate statement of comprehensive income, the consolidated and separate statements of changes in equity and the consolidated and separate statement of cash flows for the year then ended, and notes to the consolidated and separate financial statements, including a summary of significant accounting policies. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the financial statements section of our report. We are independent of the group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of consolidated and separate financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter - Going Concern We draw attention to Note 30 in the financial statements, which indicates that the is in a net liability position as at 31 March to the amount of R and had incurred accumulated loss of R during the year ended 31 March and, as of that date, the s total liabilities exceeded its total assets by R As stated in Note 30, these events or conditions, along with other matters as set forth in Note 30, indicate that a material uncertainty exists that may cast significant doubt on the s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Other Information The directors are responsible for the other information. The other information comprises the Directors' Report as required by the Companies Act of South Africa. Other information does not include the consolidated and separate financial statements and our auditor's report thereon. Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Consolidated and Separate Financial Statements The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. 3

5 In preparing the consolidated and separate financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Consolidated and Separate Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group and company's internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors' use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated and separate financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 4

6 Report on Other Legal and Regulatory Requirements In accordance with our responsibilities in terms of sections 44(2) and 44(3) of the Auditing Profession Act, we report that we have identified a reportable irregularity in terms of the Auditing Profession Act. We have reported such matter to the Independent Regulatory Board for Auditors. The matter pertaining to the reportable irregularity has been described in note 31 to the consolidated and separate financial statements. Deloitte & Touche 18 September Director / Partner Registered Auditor 5

7 Report of the Compiler To the Shareholder of Ranbaxy Pharmaceuticals (Pty) Ltd We have compiled the accompanying consolidated and separate annual financial statements of Ranbaxy Pharmaceuticals (Pty) Ltd based on information you have provided. These consolidated and separate annual financial statements comprise the statement of financial position of Ranbaxy Pharmaceuticals (Pty) Ltd as at 31 March, the statement of comprehensive income, the statements of changes in equity and the statement of cash flows for the year then ended, a summary of significant accounting policies and other explanatory information. We performed this compilation engagement in accordance with International Standard on Related Services 4410 (Revised), Compilation Engagements. We have applied our expertise in accounting and financial reporting to assist you in the preparation and presentation of these consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. We have complied with relevant ethical requirements, including principles of integrity, objectivity, professional competence and due care. These consolidated and separate financial statements and the accuracy and completeness of the information used to compile them are your responsibility. Since a compilation engagement is not an assurance engagement, we are not required to verify the accuracy or completeness of the information you provided to us to compile these consolidated and separate financial statements. Accordingly, we do not express an audit opinion or a review conclusion on whether these consolidated and separate financial statements are prepared in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. Moollas Financial Solutions 18 September 8 Khandan Crescent Roshnee Muhammad Moolla Vereeniging Chartered Accountant (SA)

8 Consolidated and Separate Annual Financial Statements for the year ended 31 March Directors' Responsibilities and Approval The directors are required by the South African Companies Act to maintain adequate accounting records and are responsible for the content and integrity of the consolidated and separate annual financial statements and related financial information included in this report. It is their responsibility to ensure that the consolidated and separate annual financial statements satisfy the financial reporting standards as to form and content and present fairly the consolidated and separate statement of financial position, results of operations and business of the, and explain the transactions and financial position of the business of the at the end of the financial year. The consolidated and separate annual financial statements are based upon appropriate accounting policies consistently applied throughout the and supported by reasonable and prudent judgements and estimates. The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board sets standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the and all employees are required to maintain the highest ethical standards in ensuring the 's business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the is on identifying, assessing, managing and monitoring all known forms of risk across the. While operating risk cannot be fully eliminated, the endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints. The consolidated and separate annual financial statements have been audited by the independent auditing firm, Deloitte & Touche, who have been given unrestricted access to all financial records and related data, including minutes of all meetings of the shareholder the board of directors and committees of the board. The directors believe that all representations made to the independent auditor during the audit were valid and appropriate. The external auditors' unqualified audit report is presented on pages 3 to The consolidated and separate annual financial statements as set out on pages 10 to 54 were approved by the board on 18 September and were signed on their behalf by: DW Brothers A. Ajoodha 7

9 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Directors' Report The directors present their report for the year ended 31 March. 1. Review of activities Main business and operations The principal activity of the is import, marketing, manufacturing and trade of pharmaceutical goods and services and there were no major changes herein during the year. The operating results and consolidated statement of financial position of the are fully set out in the attached financial statements and do not in our opinion require any further comment. 2. Going concern The group and company incurred a net profit for the year ended 31 March of R 48,88,101 and R 48,856,777 respectively ( net losses of: R 287,438,823 and R 287,431,313) and, as at that dates its total liabilities exceeded its total assets by R 219,674,663 and R 217,735,517 respectively. These conditions give rise to a material uncertainty which may cast significant doubt about the company s ability to continue as a going concern and, therefore that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The immediate holding company, Ranbaxy Netherlands B.V., has provided a letter of continued financial support so as to allow the company to meet its obligations as and when they fall due, until the earlier of 31 March, or until such time as the company s assets, fairly valued, exceed its liabilities. In light of this, the directors are satisfied that the group and company have access to adequate resources to continue in operational existence for the foreseeable future, and therefore that the continued use of the going concern assumption is appropriate. 3. Events after reporting date The directors are not aware of any matter or circumstance arising since the end of the financial year to the date of this report that could have a material effect on the financial position of the company. 4. Directors' interest in contracts To our knowledge none of the directors had any interest in contracts entered into during the year under review. 5. Authorised and issued share capital No changes were approved or made to the authorised or issued share capital of the company during the year under review. 6. Borrowing limitations In terms of the Memorandum of Incorporation of the company, the directors may exercise all the powers of the company to borrow money, as they consider appropriate. 8

10 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Directors' Report 7. Dividends Given the current state of the global economic environment, the board believes that it would be more appropriate for the group to conserve cash and maintain adequate debt headroom to ensure that the group is best placed to withstand any prolonged adverse economic conditions. The company has not declared a dividend. 8. Directors The directors of the company during the year and to the date of this report are as follows: DW Brothers M Kaszas A Ajoodha (Appointed 1 December ) DMV Sewnarian (Appointed 1 December ) M Sudan (Resigned 21 December ) 9. Secretary The 's designated secretary is Grant Thornton. 10. Independent Auditors Deloitte & Touche were the independent auditors for the year under review. 9

11 1. RANBAXY PHARMACEUTICALS (PTY) LTD Audited Consolidated and Separate Annual Financial Statements as at 31 March Statements of Financial Position Figures in R Assets Notes Property, plant and equipment 5 43,785,856 33,836,447 43,785,856 33,836,447 Intangible assets 6 415, , , ,461 Investments - - 2,516,253 2,516,223 Current Assets 44,201,317 34,251,908 46,717,570 36,768,131 Inventories 7 593,025, ,809, ,949, ,809,540 Trade and other receivables 8 646,109, ,081, ,111, ,081,509 Cash and cash equivalents 9 51,214,355 26,797,321 50,228,677 26,013,021 1,290,349, ,688,370 1,348,290, ,904,070 Total Assets 1,334,550, ,940,278 1,395,007, ,672, Equity and Liabilities Equity Issued capital ,000, ,000, ,000, ,000,200 Reserves 11 (3,304,567) (3,304,567) (2,248,383) (2,248,383) Accumulated loss (416,370,296) (465,253,397) (418,487,334) (467,344,111) (219,674,663) (268,557,764) (220,735,517) (269,592,294) Current Liabilities Trade and other payables 16 1,339,287, ,160,187 1,401,170, ,158,163 Loan from group companies ,937, ,337, ,531, ,106,332 1,554,225, ,498,042 1,618,702, ,264,495 Total Equity and Liabilities 1,334,550, ,940,278 1,397,966, ,672,201 10

12 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Statements of Profit or Loss and Comprehensive Income Figures in R Notes Revenue 17 1,115,100, ,645,436 1,115,100, ,645,436 Cost of sales 18 (868,302,199) (192,424,577) (868,302,000) (192,424,577) Gross profit 246,797, ,220, ,798, ,220,859 Other income 19 11,318,827 5,147,971 11,318,828 5,079,271 Operating costs (175,308,637) (188,656,781) (175,335,161) (188,445,438) Impairment of Property, Plant - (222,250,129) - (222,250,129) and Equipment Operating profit/(loss) 82,808,185 (257,538,080) 82,781,861 (257,395,437) Finance income 21 35,217 19,660 35,217 19,660 Finance costs 22 (33,960,301) (30,055,536) (33,960,301) (30,055,536) Profit/(loss) before 48,883,101 (287,573,956) 48,856,777 (287,431,313) taxation Taxation expense , Profit/(loss) for the year 48,883,101 (287,438,823) 48,856,777 (287,431,313) Other comprehensive income Other comprehensive income Total comprehensive income/(loss) for the year 48,883,101 (287,438,823) 48,856,777 (287,431,313) Total comprehensive income attributable to: Owners of the parent 48,883,101-48,856,777-48,883,101-48,856,777-11

13 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Statements of Changes in Equity Figures in R Stated Capital Common Control Reserve Accumulated loss Balance at 1 April ,000,200 (3,304,567) (177,814,574) 18,881,059 Total comprehensive income for the year Loss for the year (287,438,823) (287,438,823) Total comprehensive income for the year - - (287,438,823) (287,438,823) Total Balance at 31 March 200,000,200 (3,304,567) (465,253,397) (268,557,764) Balance at 1 April 200,000,200 (3,304,567) (465,253,397) (268,557,764) Total comprehensive income for the year Profit for the year 48,883,101 48,883,101 Total comprehensive income for the year ,883,101 48,883,101 Balance at 31 March 200,000,200 (3,304,567) (416,370,296) (219,674,663) Notes

14 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Statements of Changes in Equity Figures in R Share capital Common control reserve Accumulated loss Balance at 1 April ,000,200 (2,248,383) (179,912,798) 17,839,019 Total comprehensive income for the year Loss for the year (287,431,313) (287,431,313) Total comprehensive income for the year - - (287,431,313) (287,431,313) Total Balance at 31 March 200,000,200 (2,248,383) (467,344,111) (269,592,294) Balance at 1 April 200,000,200 (2,248,383) (467,344,111) (269,592,294) Total comprehensive income for the year Profit for the year 48,856,777 48,856,777 Total comprehensive income for the year ,856,777 48,856,777 Balance at 31 March 200,000,200 (2,248,383) (418,487,334) (220,735,517) Notes

15 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Statements of Cash Flows Figures in R Cash flows from operating activities Profit/(Loss) before Tax 48,883,101 (287,573,956) 48,856,777 (287,431,313) Adjustments for: Finance costs 33,960,301 30,055,536 33,960,301 30,055,536 Amortisation of Intangible assets - 55,869-55,869 Depreciation of Property, plant and equipment 531,205 6,604, ,205 6,604,124 Impairment of Property, plant and equipment - 222,250, ,250,129 Investment income (35,217) (19,660) (35,217) (19,660) Assets Scrapped - 734, ,447 Non-Cash VAT receivable written off - (206,805) - - Operating cash flow before working capital changes 83,339,390 (28,100,316) 83,313,066 (27,750,868) Working capital changes Increase in inventories (477,877,777) (107,131,785) (477,877,777) (107,131,785) Increase in trade and other receivables (461,028,330) (109,161,039) (461,030,400) (109,427,051) Increase in trade and other payables 910,789, ,426, ,791, ,286,775 Cash generated by operating activities 55,222,732 31,033,764 55,196,152 30,977,071 Investment income 35,217 19,660 35,217 19,660 Finance costs (33,960,301) (30,055,536) (33,960,301) (30,055,536) Income tax paid - (282,042) - - Net cash from operating activities 21,297, ,846 21,271, ,195 Cash flows from investing activities Property, plant and equipment acquired Proceeds on disposals of property, plant and equipment Net cash utilised in investing activities Cash flows from financing activities Increase in loans from group companies Net cash utilised in financing activities (10,480,614) (2,233,461) (10,480,614) (2,233,461) - 61,564-61,564 (10,480,614) (2,171,897) (10,480,614) (2,171,897) 13,600,000 13,637,260 13,425,202 13,195,393 13,600,000 13,637,260 13,425,202 13,195,393 14

16 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Statements of Cash Flows Figures in R Increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 9 24,417,034 12,181,209 24,215,656 11,964,691 26,797,321 14,616,112 26,013,021 14,048,330 51,214,355 26,797,321 50,228,677 26,013,021 15

17 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Accounting Policies 1. Basis of preparation The consolidated and separate annual financial statements of the have been prepared in accordance with all applicable International Financial Reporting Standards (IFRSs) and the Companies Act 71 of The consolidated and separate annual financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings, available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated and separate annual financial statements are disclosed in note Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated and separate annual financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Business combinations Subsidiaries are all entities (including structured entities) over which the has control. The controls an entity when the is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the. They are deconsolidated from the date that control ceases. The applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest s proportionate share of the recognised amounts of acquiree s identifiable net assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, noncontrolling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income. Acquisition-related costs are expensed as incurred 16

18 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Accounting Policies Basis of Consolidation The consolidated group annual financial statements incorporate the financial statements of the and entities (including special purpose entities) controlled by the (its subsidiaries). Control is achieved when the company: - has power over the investee; - is exposed, or has rights, to variable returns from its involvement with the investee; and - has the ability to use its power to affect its returns. The reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The considers all relevant facts and circumstances in assessing whether or not the 's voting rights in an investee are sufficient to give it power, including: The size of the 's holding of voting relative to the size and dispersion of holdings of other vote holders; - the potential voting rights held by the, other vote holders or other parties; - rights arising from other contractual arrangements; and - any additional facts and circumstances that indicate that the has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings. Consolidation of a subsidiary begins when the obtains control over the subsidiary and ceases when the loses control over the subsidiary. Income and expenses of subsidiaries acquired or disposed off during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the and to non-controlling interest even if this results in the non-controlling interest having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the All intra-group transactions, balances, income and expenses are eliminated on consolidation Changes in ownership interests in subsidiaries without change of control Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. Investment in subsidiaries In the company's separate consolidated and separate annual financial statements, investment in subsidiaries are carried at cost less any accumulated impairment. 17

19 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Accounting Policies The cost of an investment in a subsidiary is the aggregate of: - the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the company; plus - any costs directly attributable to the purchase of the subsidiary. An adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably Investment in Associates An associate is an entity over which the has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the 's share of the profit or loss and other comprehensive income of the associate. When the 's share of losses of an associate exceeds the 's interest in that associate (which includes any long-term interests that, in substance, form part of the 's net investment in the associate), the discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the has incurred legal or constructive obligations or made payments on behalf of the associate. 2.2 Property, Plant and Equipment Property, plant and equipment are tangible assets which the group holds for its own use or for rental to others and which are expected to be used for more than one year. An item of property, plant and equipment is recognised as an asset when it is probable that future economic benefits associated with the item will flow to the company, and the cost of the item can be measured reliably. Property, plant and equipment is initially measured at cost. Cost includes all of the expenditure which is directly attributable to the acquisition or construction of the asset, including the capitalisation of borrowing costs on qualifying assets and adjustments in respect of hedge accounting, where appropriate. Property, plant and equipment is subsequently stated at cost less accumulated depreciation and any accumulated impairment losses, except for land which is stated at cost less any accumulated impairment losses. Depreciation of an asset commences when the asset is available for use as intended by management. Depreciation is charged to write off the asset's carrying amount over its estimated useful life to its estimated residual value, using a method that best reflects the pattern in which the asset's economic benefits are consumed by the group. Leased assets are depreciated in a consistent manner over the shorter of their expected useful lives and the lease term. Depreciation is not charged to an asset if its estimated residual value exceeds or is equal to its carrying amount. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale or derecognised. 18

20 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Accounting Policies The major categories of property, plant and equipment are depreciated at the following rates: Buildings Motor vehicles Plant and Machinery Computer equipment Office equipment Furniture and fittings 30 years 5 years 5-25 years 3 years 6 years 6 years During the prior year end, the subsidiary impaired its property, plant and equipment down to residual value. The revised carrying amounts are tabulated in note 5 The carrying values of these assets were reviewed and revised in the prior year, as the directors determined that the manufacturing plant where these items of property, plant and equipment are deployed would not obtain future economic benefits in excess of their residual values. The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting year. If the expectations differ from previous estimates, the change is accounted for prospectively as a change in accounting estimate. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. The depreciation charge for each year is recognised in profit or loss unless it is included in the carrying amount of another asset. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its continued use or disposal. Any gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. Any gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. Plant and machinery that is in the course of construction for production are carried at cost, less and recognised impairment loss. Costs include the cost of the assets and associated professional fees. Such assets are classified to the appropriate categories of property plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property plant and equipment, commences when the assets are ready for intended use. 2.3 Intangible Assets An intangible asset is recognised when: it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and the cost of the asset can be measured reliably. Intangible assets are initially recognised at cost. 19

21 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Accounting Policies An intangible asset arising from development (or from the development phase of an internal project) is recognised when: it is technically feasible to complete the asset so that it will be available for use or sale. there is an intention to complete and use or sell it. there is an ability to use or sell it. it will generate probable future economic benefits. there are available technical, financial and other resources to complete the development and to use or sell the asset. the expenditure attributable to the asset during its development can be measured reliably. Intangible assets are carried at cost less any accumulated amortisation and any impairment losses. An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. Amortisation is not provided for these intangible assets, but they are tested for impairment annually and whenever there is an indication that the asset may be impaired. For all other intangible assets amortisation is provided on a straight line basis over their useful life. The amortisation period and the amortisation method for intangible assets are reviewed every period-end. Reassessing the useful life of an intangible asset with a finite useful life after it was classified as indefinite is an indicator that the asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised over its useful life. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognised as intangible assets. Intangible assets are amortised at the following rates: Computer Software 2 years Patents, trademarks and other rights 5 years Computer software Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the are recognised as intangible assets when the following criteria are met: it is technically feasible to complete the software product so that it will be available for use; management intends to complete the software product and use or sell it; there is an ability to use or sell the software product; it can be demonstrated how the software product will generate probable future economic benefits; adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and the expenditure attributable to the software product during its development can be reliably measured. Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. 20

22 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Accounting Policies Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed three years. 2.4 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. Operating leases lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease liability. This liability is not discounted. Any contingent rents are expensed in the period they are incurred. Operating leases Lease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term. The payments made on acquiring land held under an operating lease are recognised in the statement of financial position as lease premium for land. Contingent rents are charged as an expense in the periods in which they are incurred. 2.5 Inventories Inventories are measured at the lower of cost, on the weighted average cost basis or net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The cost of inventories is assigned using the weighted average cost formula. The same cost formula is used for all inventories having a similar nature and use to the entity. 2.6 Financial assets Classification The group classifies financial assets and financial liabilities into the following categories: Loans and receivables Financial liabilities measured at amortised cost Classification depends on the purpose for which the financial instruments were obtained / incurred and takes place at initial recognition. Financial assets classified as at fair value through profit or loss which are no longer held for the purposes of selling or repurchasing in the near term may be reclassified out of that category: in rare circumstances if the asset met the definition of loans and receivables and the entity has the intention and ability to hold the asset for the foreseeable future or until maturity. 21

23 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Accounting Policies Derecognition Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Impairment of Financial Assets The group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For loans and receivables category, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated statement of profit and loss and other comprehensive income. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the group may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated statement of profit and loss and other comprehensive income. Loans to (from) group companies These include loans to and from holding companies, fellow subsidiaries, subsidiaries, joint ventures and associates and are recognised initially at fair value plus direct transaction costs. Loan to group companies are classified as loans and receivables. Loan from group companies are classified as financial liabilities measured at amortised cost. Fair value measurement categories For financial reporting purposes, fair value measurements are categorised into level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety which are described as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are inputs, other than quoted prices included within level 1, that are observable for the asset or liability, either directly or indirectly; and 22

24 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Accounting Policies Level 3 inputs are unobservable inputs for the asset or liability. The entity's assets and liabilities are comprised of level 3. Trade and other receivables Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss within operating expenses. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in profit or loss. Trade and other receivables are classified as loans and receivables. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments with original maturities of 3 months or less and bank overdrafts that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value. Financial liabilities Trade and other payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. If collection is expected in one year or less (or in normal operating cycle of business if longer), they are classified as current liabilities. If not, they are presented as non-current liabilities. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest rate method. Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. 23

25 Audited Consolidated and Separate Annual Financial Statements for the year ended 31 March Accounting Policies 2.7 Post-employment benefits and short-term employee benefits Post-employment benefit plans The provides post-employment benefits through various defined contribution and defined benefit plans. Defined contribution plans The pays fixed contributions into independent entities in relation to several state plans and insurance for individual employees. The has no legal or constructive obligations to pay contributions in addition to its fixed contributions, which are recognised as an expense in the period that relevant employee services are received Short-term employee benefits The cost of all short-term employee benefits is recognised during the period in which the employee renders the related service on an undiscounted basis. Accruals for employee entitlement to annual leave represents the present obligation, which the has to pay as a result of employees services, provided to the reporting date. The accruals have been calculated at undiscounted amounts based on current salary rates. A liability is recognised for the amount expected to be paid under short term bonuses in the as the has a present legal constructive obligation to pay the amount as a result of past service provided by the employee, and the obligation can be estimated reliably. 2.8 Interest-bearing borrowings Interest-bearing borrowings, mainly bank loans and overdrafts, are measured initially at fair value less transaction costs and, after initial recognition, at amortised cost, plus or minus the cumulative amortisation using the effective interest rate method of any difference between that initial amount and the maturity amount. 2.9 Income taxation Income taxation for the year includes current taxation and deferred taxation. Current taxation and deferred taxation are recognised in profit or loss, except to the extent that the taxation arises from a transaction or event which is recognised directly in equity. In the case if the taxation relates to items that are recognised directly to equity, current taxation and deferred taxation are also recognised directly to equity. Current taxation liabilities and assets are measured at the amount expected to be paid to or recovered from the taxation authorities, using the taxation rates and taxation laws that have been enacted or substantively enacted by the balance sheet date. Current taxation is the amount of income taxation payable or recoverable in respect of the taxable profit or loss for a period. Deferred taxation assets and liabilities arise from deductible and taxable temporary differences respectively. Temporary differences are the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their taxation bases. Deferred taxation assets also arise from unused taxation losses and unused taxation credits. 24