ICFAI NATIONAL COLLEGE, MEHDIPATNAM,

HYDERABAD.
(2008-10)

Live Project Report

in
“Accounting for Managers”

on

“A Study on Accounting Policies followed by

Chemical, Industrial & Pharmaceutical
Laboratories.(CIPLA)”

Submitted To-
Prof. Mohd. Nazeer Ahmed

Submitted By-
Rakesh Patel
8NBHM122
 ACKNOWLEDGEMENT
As a part of the curriculum of ICFAI, the live project
enables me to enhance my academic skills and expand my
knowledge by revising various theories, concepts and prepare
me to face the extreme competitive world in the future. It gives
me great satisfaction in presenting the live project report on-

“A Study on Accounting Policies followed by Chemical,

Industrial & Pharmaceutical Laboratories.(CIPLA)”

I take this opportunity to express my gratitude & heartfelt

thanks to all those who have directly or indirectly helped me in
the matters related to this project.

I would like to express my sincere thanks to Nazeer Sir

for their support, guidance & encouragement given to me
throughout the project period, without which project would
remain incomplete. Last but not the least I would also like to
express my sincere thanks to our centre head Prof. P. Trinath.
 CONTENTS

• TITLE PAGE

• ACKNOWLEDGEMENT

• CONTENTS

• ABSTRACT

• INTRODUCTION

• ABBREVIATIONS

• IMPORTANCE OF ACCOUNTING STANDARDS

• COMPANY’S PROFILE

• PROFIT AND LOSS ACCOUNT , BALANCE SHEET

• FINDINGS

• DISCUSSION

• CONCLUSION

• BIBLIOGRAPHY
 ABSTRACT
The objective of this study is to understand the various
accounting policies used by Chemical, Industrial &
Pharmaceutical Laboratories.(CIPLA). for the preparation of its
financial reports. The data regarding the same is collected from
secondary sources.

The Accounting Standards are very much important to

understand since these are used to narrow the alternatives
available to collect & present the financial reports. To formulate
the accounting standards a committee at the international level
called “International Accounting Standards Committee (IASC)”
has been established in the year 1973. All the accounting bodies
all over the world are member of this committee. They
formulate the accounting standards & these are mandatory for
the company’s to be followed while preparing their financial
reports.
 INTRODUCTION

Objective -:
To study the accounting policies followed by Chemical,
Industrial & Pharmaceutical Laboratories.(CIPLA).. to prepare
its financial statements.

Methodology of the study -:

The data of Chemical, Industrial & Pharmaceutical
Laboratories.(CIPLA)., used in this study have been taken from
secondary sources i.e. from the internet.

Limitations of the study -:

1) the data used in the study is the secondary data collected from
internet, it is not possible to collect primary data from company
office.
2) The time constraint & cost involved in the collection of the
data is another limitation in the study.
3) The company usually does not disclose their financial data to
the outsider parties.
 ABBREVIATIONS
1) AS  Accounting Standards
2) AS  Accounting Standards Board
3) ASI  Accounting Standards Interpretations
4) GAAP  Generally Accepted Accounting Principles
5) GC  General Clarifications
6) IASC  International Accounting Standards
Committee
7) ICAI  Institute of Chartered Accountants of India

Importance of the Accounting Standards -:

Accounting Standards are used as one of the main compulsory
regulatory mechanisms for the preparation of general purpose
financial reports & subsequent audit of the same, in almost all
countries of the world. Accounting Standards are concerned
with the system of measurement & disclosure rules for the
preparation & presentation of financial statements. They appear
with a set of authoritative statements of how particular types of
transactions, events & other costs should be recognized &
reported in the financial statements. Accounting Standards are
revised to furnish useful information to different users of
financial statements such as shareholders, creditors, lenders,
management, investors, suppliers, competitors, researchers,
regulatory bodies & society at large & so on. In fact, such
 statements are designed & prescribed so as to improve &
benchmark the quality of financial reporting.

The rapid growth of international trades & internationalization

of firms, the developments of new communication technologies,
the emergence of international competitive forces is perturbing
the financial environment to a great extent. Under this global
business scenario, the residents of the business community are
in badly need of common accounting language that should be
spoken by all of them across the globe. A financial reporting
system of global standard is pre-requisite for attracting foreign
as well as present & prospective investors at home alike that
should be achieved through harmonization of accounting
standards.

Accounting Standards are the policy documents (authoritative

statements of best accounting practice) issued by recognized
expert accountancy bodies relating to various aspects of
measurement, treatment & disclosure of accounting transactions
& events, as relate to the codification of Generally Accepted
Accounting Principles (GAAP). These are stated to be norms of
accounting policies & practices by way of codes or guidelines to
direct as to how the items, which go to make up the financial
statements should be dealt with in accounts & presented in the
annual accounts.

Accounting bodies all over the world have tried to achieve some
uniformity in the accounting policies by prescribing certain
accounting standards in order to narrow the range of alternatives
available to an organization in respect of collection &
presentation of accounting information.

To formulate the accounting standards a committee at the

international level called “International Accounting Standards
Committee (IASC)” has been established in the year 1973.
Accounting bodies of most of the countries are members of this
body. The role of mandatory Accounting Standards in presenting
 clear-cut accounts on a uniform basis cannot be
overemphasized. The standards represents the ideal practice of
accounting & ensure comparability of accounts because of
uniformity in their presentation. Hence, such accounts are bound
to show the clear position of the state of affairs.

Realizing the importance of Accounting Standards, the

Companies Amendment Act 2000, provides that a statement of
all significant accounting policies adopted in the preparation of
the Balance Sheet & profit & loss account shall be disclosed in
the company’s balance sheet & that where any of the accounting
policies differ with the accounting standards & such departures
are material, the particulars of the departure should be disclosed
along with the reasons thereof & its financial effect. This in
effect means that the company should maintain accounts based
on policies in conformity with the standards & any non-
compliance with the standards in this respect has to be disclosed
with the reasons thereof & its impact. In case the company does
not conform to any of the mandatory accounting standards, the
auditor will have to qualify his report justifying his deviation.
If there is conflict between the International Accounting
Standards & the local standards or the local laws & regulations,
the local standards, laws & regulations will prevail.

Recognizing the need to harmonize the diverse accounting

policies & practices in India, the Institute of Chartered
Accountants of India constituted an Accounting Standards
Board (ASB) in the year 1977. The main function of ASB is to
frame accounting standards which would be formally issued
under the authority of the Council of the Institute of Chartered
Accountants. The accounting Standards Board (ASB) of the
Institute of Chartered Accountants of India (ICAI), has in line
with the International Standards, issued twenty nine standards to
be followed by its members while auditing the accounts of the
companies. These are as follows-

AS-1) Disclosure of Accounting Policies

 AS-2) Valuation of Inventories
AS-3) Cash Flow Statement
AS-4) Contingencies & events occurring after the
AS-5) Net profit or loss for the period, prior period items &
changes in accounting policies
AS-6) Depreciation
AS-7) Construction Concept
AS-8) Accounting for Research & Development
AS-9) Revenue Recognition
AS-10) Accounting for Fixed Assets
AS-11) Effect of Changes in Foreign Exchange
AS-12) Accounting for Government Grants
AS-13) Accounting for Investments
AS-14) Accounting for Amalgamation
AS-15) Employees Benefits
AS-16) Borrowing Costs
AS-17) Segment Reporting
AS-18) Related Party Disclosure
AS-19) Leases
AS-20) Earnings per Share
AS-21) Consolidated Financial Statements
AS-22) Accounting for Taxes on Income
AS-23) Accounting for investments in Associates in
Consolidated Financial Statements.
AS-24) Discontinuing Operations
AS-25) Interim Financial Reporting
AS-26) Intangible Assets
AS-27) Financial Reporting of Interests in Joint
AS-28) Impairment of Assets
AS-29) Provisions, Contingent Liabilities & Contingent Assets

In addition to these standards, the Institute of Chartered

Accountants of India has issued statements, guidance notes,
opinions, Accounting Standard Interpretation (ASI), General
Clarifications (GC) & background material for seminars which
seek to bring about uniformity in the corporate accounting
 practices.

COMPANY PROFILE

Cipla is 2nd largest pharmaceutical company in India in terms of

retail sales. Cipla manufactures an extensive range of
pharmaceutical & personal care products and has presence in
over 170 countries across the world. Cipla's product range
includes Pharmaceuticals, Animal Health Care Products, OTC,
Bulk Drugs, Flavours & Fragrances, and Agrochemicals. Cipla
also provides a host of consulting services such as preparation of
product and material specifications, evaluation of existing
production facilities to meet GMP, definition of appropriate
plant size and technologies etc.

The origins of Cipla can be traced back to 1935, when Dr

Khwaja Abdul Hamied set up "The Chemical, Industrial and
Pharmaceutical Laboratories Ltd", popularly known by the
acronym Cipla, in a rented bungalow, at Bombay Central. Cipla
was registered as a public limited company on August 17, 1935.
Cipla's first product was launched into the market in 1937. In
1940, during the Second World War when the drug supplies
were cut off, Cipla started producing fine chemicals. In 1944,
Cipla bought the premises at Bombay Central to build a modern
pharmaceutical laboratory. In 1946, Cipla's product for
hypertension, Serpinoid, was exported to the American Roland
Corporation. In 1952, Cipla set up first research division for
attaining self-sufficiency in technological development. In 1960,
Cipla started operations at second plant at Vikhroli, Mumbai. In
1968, Cipla manufactured ampicillin for the first time in India.
In 1976, Cipla launched medicinal aerosols for asthma. In 1982,
Cipla's fourth factory became operational at Patalganga,
Maharashtra. In 1984, Cipla developed anti-cancer drugs,
vinblastine and vincristine in collaboration with the National
Chemical Laboratory, Pune. In 1991, Cipla pioneered the
manufacture of the antiretroviral drug, zidovudine. In 1994,
Cipla's fifth factory began commercial production at Kurkumbh,
Maharashtra. In 1997, Cipla launched transparent Rotahaler, the
world's first such dry powder inhaler device. In 2000, Cipla
became the first company, outside the USA and Europe to
launch CFC-free inhalers. In 2002, Cipla set up four state-of-
the-art manufacturing facilities set up in Goa. In 2003, Cipla
launched TIOVA (Tiotropium bromide), a novel inhaled, long-
acting anticholinergic bronchodilator. In 2005, Cipla set up a
state-of-the-art facility for manufacture of formulations at
Baddi, Himachal Pradesh.

Cipla's Products include:

Pharmaceuticals: Cipla manufactures anabolic steroids,
analgesics/antipyretics, antacids, anthelmintics, anti-arthritis,
anti-inflammatory drugs, anti-TB drugs, antiallergic drugs,
anticancer drugs, antifungal, antimalarials, antispasmodics,
antiulcerants, immunosuppressants etc,

Animal Health Care Products: These include: aqua products,

equine products, poultry products, products for companion
animals, and products for livestock animals.

OTC: These include: child care products, eye care products,

food supplements, health drinks, life style products,
nutraceuticals & tonics, skin care products, and oral hygiene
products.

Flavour & Fragrance: Cipla manufactures a wide range of

flavours, which are used in foods and beverages, fruit juices,
baked goods, and oral hygiene products. Cipla fragrances have
wide ranging applications such as in personal care products,
laundry detergents and room fresheners.

Major Achievements of Cipla:

• Manufactured ampicillin for the first time in India
• Lauched etoposide, a breakthrough in cancer
chemotherapy, in association with Indian Institute of
Chemical Technology
• Launches transparent Rotahaler, the world's first such dry
powder inhaler device
• Launches transparent Rotahaler, the world's first such dry
powder inhaler device
• Became the first company, outside the USA and Europe to
launch CFC-free inhalers
Following pages reveals the Balance Sheet & Profit
& Loss Account of Chemical, Industrial &
Pharmaceutical Laboratories.
(CIPLA)
Profit & Loss in Rs.
account Cr.
Mar '04 Mar '05 Mar '06 Mar '07 Mar '08

Income
Sales 2,055.4 2,400.8 3,103.6 3,656.9 4,293.9
Turnover 2 9 2 2 5

Excise Duty 132.39 146.37 122.27 94.93 90.66

1,923.0 2,254.5 2,981.3 3,561.9 4,203.2
Net Sales 3 2 5 9 9
Other Income 25.92 76.03 112.20 100.68 134.92
Stock
Adjustments -20.61 66.87 94.35 -30.73 41.37
1,928.3 2,397.4 3,187.9 3,631.9 4,379.5
Total Income 4 2 0 4 8
Expenditure
1,199.7 1,754.8 2,162.4
Raw Materials 993.05 6 1,564.11 9 8
Power & Fuel
Cost 28.58 37.29 63.08 86.71 96.90
Employee
Cost 95.25 116.58 150.76 184.59 255.45
Other
Manufacturing
Expenses 124.24 138.72 170.63 186.47 233.90
Selling and
Admin
Expenses 212.03 277.98 354.33 418.34 547.10
Miscellaneous
Expenses 26.89 45.77 78.90 78.43 96.66
Preoperative
Exp
Capitalised 0.00 0.00 0.00 0.00 0.00
Total 1,480.0 1,816.1 2,381.8 2,709.4 3,392.4
Expenses 4 0 1 3 9
Operating
Profit 422.38 505.29 693.89 821.83 852.17
PBDIT 448.3 581.32 806.09 922.51 987.09
Interest 13.48 11.67 16.07 11.16 18.05
PBDT 434.82 569.65 790.02 911.35 969.04
Depreciation 40.28 55.05 80.18 103.37 130.68
Other
Written Off 0.1 0 0 0 0
Profit
Before Tax 394.44 514.6 709.84 807.98 838.36
Extra-
ordinary
items -11.1 0 0 0 0
PBT (Post
Extra-ord
Items) 383.34 514.6 709.84 807.98 838.36
Tax 87.75 105 102.2 139.95 136.93
Reported
Net Profit 306.69 409.61 607.64 668.03 701.43
Total Value
Addition 486.99 616.33 817.7 954.54 1,230.01
Preference
Dividend 0 0 0 0 0
Equity
Dividend 89.96 104.96 155.46 155.46 155.46
Corporate
Dividend
Tax 11.53 14.95 21.8 26.42 26.42

Shares in
issue (lakhs) 599.72 2,998.70 2,998.70 7,772.91 7,772.91
Earning Per
Share (Rs) 51.14 13.66 20.26 8.59 9.02
Equity
Dividend
(%) 150 175 100 100 100
Book Value
(Rs) 209.07 51.47 65.83 41.52 48.2
Balance in Rs.
Sheet Cr.
 Mar
'04 Mar '05 Mar '06 Mar '07 Mar '08

Sources Of Funds
Total Share
Capital 59.97 59.97 59.97 155.46 155.46
Equity Share
Capital 59.97 59.97 59.97 155.46 155.46
Share
Application
Money 0.00 0.00 0.00 0.00 0.00
Preference
Share Capital 0.00 0.00 0.00 0.00 0.00
1,193.9 1,483.6 1,913.9 3,071.8
Reserves 0 0 8 4 3,591.39
Revaluation
Reserves 10.18 10.06 9.32 8.97 8.97
1,264.0 1,553.6 1,983.2 3,236.2
Networth 5 3 7 7 3,755.82
Secured Loans 30.60 40.37 51.27 7.25 16.98
Unsecured
Loans 179.99 154.67 417.64 116.31 563.55
Total Debt 210.59 195.04 468.91 123.56 580.53
Total 1,474.6 1,748.6 2,452.1 3,359.8
Liabilities 4 7 8 3 4,336.35
Mar '04 Mar '05 Mar '06 Mar '07 Mar '08

Application Of Funds
1,366.6 1,799.7
Gross Block 740.79 986.67 7 1 2,201.79
Less: Accum.
Depreciation 193.23 247.76 310.06 411.64 540.43
1,056.6 1,388.0
Net Block 547.56 738.91 1 7 1,661.36
Capital Work
in Progress 56.01 105.96 87.01 73.19 233.12
Investments 180.37 18.30 22.43 117.80 94.75
 1,120.4
Inventories 568.94 745.68 957 978.6 9
Sundry 1,028.7 1,393.9
Debtors 498.23 587.32 875.96 8 1
Cash and
Bank Balance 5 15.37 44.45 56.33 79.12
Total Current 1,072.1 1,348.3 1,877.4 2,063.7 2,593.5
Assets 7 7 1 1 2
Loans and 1,150.3
Advances 362.82 404.51 414.84 695.81 0
Fixed
Deposits 1.25 0.01 0.03 75.16 0.16
Total CA,
Loans & 1,436.2 1,752.8 2,292.2 2,834.6 3,743.9
Advances 4 9 8 8 8
Deffered
Credit 0 0 0 0 0
Current
Liabilities 441.3 583.4 733.84 643.78 980.05
Provisions 304.24 283.99 272.31 410.13 416.81
Total CL & 1,006.1 1,053.9 1,396.8
Provisions 745.54 867.39 5 1 6
Net Current 1,286.1 1,780.7 2,347.1
Assets 690.7 885.5 3 7 2
Miscellaneous
Expenses 0 0 0 0 0
1,474.6 1,748.6 2,452.1 3,359.8 4,336.3
Total Assets 4 7 8 3 5

Contingent 1,600.7 1,586.6 1,664.5

Liabilities 448.57 503.88 5 4 8
Book Value
(Rs) 209.07 51.47 65.83 41.52 48.2
FINDINGS:

. Basis of Accounting

The financial statements are prepared under the historical cost

convention in accordance with the applicable mandatory
accounting
standards and relevant provisions of the Companies Act, 1956.

ii. Fixed Assets

Fixed Assets are stated at cost of acquisition (net of recoverable

taxes & Government grants wherever availed) or construction
or other
amounts substituted for historical costs on revaluation less
accumulated depreciation.

iii. Depreciation

a. Depreciation on fixed assets is provided on the Straight Line

Method at the rates and in the manner prescribed under
Schedule XIV to
the Companies Act, 1956.

b. All individual items of fixed assets, where the actual cost

does
not exceed Rs. 5,000 each have been written off entirely in the
year of
acquisition.

c. Cost of leasehold land including premium is written off over

the
period of lease.

iv. Inventories

Raw materials are valued at lower of cost and net realisable

value.
However, these items are considered to be realisable at cost if
the
finished products, in which they will be used, are expected to be
sold
at or above cost.

Work-in-process and finished goods are valued at lower of cost

and net
realisable value. Finished goods and work-in-process include
costs of
conversion and other costs incurred in bringing the inventories
to
their present location and condition.

Cost of inventories is computed on weighted average basis.

v. Foreign Exchange Transactions

Transactions in foreign currencies are recorded at the exchange

rates
prevailing on the date of the transaction. Foreign currency
monetary
assets & liabilities and forward contracts are restated at year
end
exchange rates. Exchange differences arising on the settlement
of
foreign currency monetary items or on reporting Company’s
foreign
 currency monetary items at rates different from those at which
they
were initially recorded during the year or reported in the
previous
financial statements, are recognised as income or expense in the
year
in which they arise.

In respect of forward contracts, the premium or discount on

these
contracts is recognised as income or expenditure over the
period of the
contract. Any profit or loss arising on cancellation or renewal of
such
contracts is recognised as income or expense for the year.

vi. Retirement Benefits

a. The Company contributes to a Gratuity Fund, which has

taken up
group policies with insurance companies for future payments of
gratuities to employees. The contributions are based on
actuarial
valuation.

b. The Company provides for Leave Encashment Benefit on

the basis of
actuarial valuation.

vii. Research and Development

Revenue expenditure on Research and Development is charged

against
profit of the year in which it is incurred. Capital expenditure on
Research and Development is shown as addition to Fixed
Assets.
viii. Expenditure on Regulatory Approvals

Expenditure incurred for obtaining regulatory approvals and

registration of products for overseas markets is charged to
revenue.

ix. Investments

Long term investments are stated at cost, less any provision for
permanent diminution in value. Current investments are stated
at lower
of cost and fair value.

x. Revenue Recognition

The Company recognises sales at the point of despatch of goods

to the
customers. Royalty, technical know-how/fees and licensing
income are
recognised as revenue, when earned, in accordance with the
terms of the
relevant agreements.

xi. Income Tax

Provision for tax for the year comprises current income tax
determined
to be payable in respect of taxable income and deferred tax,
being the
tax effect of timing difference, representing the difference
between
taxable income and accounting income that originate in one
period and
are capable of reversal in one or more subsequent period(s).

In cases where the tax assessments have been completed but the
appeals
 are pending at various appeal for a, the tax payments have been
set-off
against the provisions in the Balance Sheet. Appropriate
disclosures
have been made towards contingent liabilities, if any.

xii. Impairment of Assets

At each Balance Sheet date, the Company assesses whether

there is any
indication that any asset may be impaired. If any such
indication
exists, the carrying value of such assets is reduced to its
estimated
recoverable amount and the amount of such impairment loss is
charged to
Profit and Loss Account. If, at the Balance Sheet date there is
an
indication that a previously assessed impairment loss no longer
exists,
the recoverable amount is reassessed and the asset is reflected
at the
recoverable amount subject to a maximum of depreciated
historical cost.
DISCUSSIONS
From the above study, I can say that the company may or
may not follow all of the Accounting Standards, but it depends
upon the types of the operations & financial transactions of the
company. In Chemical, Industrial & Pharmaceutical
Laboratories.
(CIPLA)

. I found that out of 29 Accounting Standards, the standards they

follow are AS1, AS2, AS6,AS8, AS9, AS10, AS11, AS13,AS15,
AS19, AS20, AS22, AS26, AS28, etc.

As given above these different accounting standards deals

with different issues. For eg. AS1 deals with Disclosure of
Accounting Policies, As2 deals with Valuation of Inventories
etc.

Now a days, Accounting Standards are used as

compulsory regulatory mechanisms for the preparation of
general-purpose financial reports & subsequent audit of the
same, in almost all countries of the world. So that, by using
these accounting standards the uniformity in the accounting
policies can be achieved.
CONCLUSION

Through this study of accounting policies, I understood

the importance of Accounting Standards in the business
enterprise. Further, I can say that, the aim of setting standards is
to bring about uniformity in financial reporting & to ensure
consistency & comparability in the data published by the
enterprises.

BIBLIOGRAPHY

• www.google.com
• www.moneycontrol.com
• www.wikipedia.com
• Books & Journals – ICFAI Library