DRIVIN G ROWTH - Dr. Reddy's

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schedule to the consolidated balance sheet and profit and loss account
4. CHANGES IN ACCOUNTING POLICIES
The Group has changed the accounting policy on treatment of expenditure incurred on product development, market
development etc. collectively referred as “development expenditure”. Such development expenditure, hitherto written-off over
the estimated period over which the benefit was expected to accrue, is now written-off fully in the year it is incurred. The
management believes that the change in the accounting policy would result in a more appropriate presentation of the results of
the Group. Accordingly, a sum of Rs. 931,354 thousand, being the expenditure not written-off as at April 1, 2001 has been
written-off during the year. Further, development expenditure incurred during the year amounting to Rs. 662,665 thousand has
also been expended as incurred.
Had the Group continued to follow the old accounting policy on treatment of the development expenditure, the profit for the
year and the accumulated reserves as at March 31, 2002 would have been higher by Rs. 1,194,961 thousand.
5. ACQUISITIONS
Reddy Kunshan
During the current year the Company acquired an additional 4.9% of the equity share capital in Reddy Kunshan in four
instalments. On August 15, 2001, 1.8 % of the equity share capital was acquired, thereby resulting in the Company owning more
than one-half of the voting power (51.0%) of Reddy Kunshan. Between September 2000 and March 2001, the Company had
acquired 46.1% of the equity share capital of Reddy Kunshan. Reddy Kunshan is engaged in manufacturing and marketing of
active pharmaceutical ingredients and intermediates and formulations in China. Consequent to this acquisition resulting in control
of voting power on August 15, 2001, Reddy Kunshan has been consolidated with the Company in the current year.
The total consideration paid for the 51% equity share capital of Reddy Kunshan aggregates Rs. 256,737 thousand. The Company
has accounted for this transaction under the purchase method of accounting. The financial statements as of and for the period
ended July 31, 2001 of Reddy Kunshan have been considered for the purpose of accounting for this acquisition and determination
of goodwill.
The purchase cost of Rs. 256,737 thousand has been allocated as follows:
CONSOLIDATED FINANCIALS | FINANCIALS | ANNUAL REPORT 2001-2002
(Rs. thousand)
Fixed assets (including capital work-in-progress Rs 3,054 thousand) 75,704
Current assets, loans and advances 49,546
Goodwill 132,254
Other assets 23,930
Total assets 281,434
Loan funds (10,349)
Current liabilities and provisions (14,348)
Purchase cost 256,737
Dr. Reddy’s Laboratories Inc.
In March 2000, DRLI, a consolidated subsidiary, acquired 25% of its common stock held by a minority shareholder, for a cash
consideration of Rs. 1,072 thousand. This acquisition has been accounted for by the purchase method. The acquisition resulted
in goodwill of Rs. 1,072 thousand, which is being amortised over a period of 10 years. The terms of the purchase also provide for
contingent consideration not exceeding US$ 14,000 thousand over the next ten years based on achievement of specified revenue
targets. DRLI will record contingent payments as goodwill in the periods in which the contingency is resolved.
As certain specified targets have been met in the current year, DRLI has made a payment amounting to Rs. 126,007 thousand
(US$ 2,599 thousand) to the minority shareholder in accordance with the terms of the purchase. DRLI has accordingly accounted
for the payment as goodwill in the current year.
6. MINORITY INTEREST
Minority interest of Rs. 96,937 thousand as at March 31, 2002 represents the equity interest of the minority shareholders of
Reddy Kunshan.
Accumulated losses attributable to the minority shareholders of RBL and Reddy US over and above their capital contribution has
been absorbed by the Group.