Page 43 - GlaxoSmithKline Pharmaceuticals AR 2012

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(h) Revenue Recognition
Sales are recognised upon delivery of products and are recorded inclusive of excise duty but are net of trade discounts and
sales tax.
Interest on investments is recognised on a time proportion basis taking into account the amounts invested and the rate of interest.
Dividend income on investments is recognised for when the right to receive the payment is established.
(i) Foreign Currency Transactions
Foreign currency transactions are accounted at the exchange rates prevailing at the date of the transaction. Gains and losses
resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign
currencies, are recognised in the Statement of Profit and Loss.
(j) Proposed Dividend
Dividend proposed by the Board of Directors is provided for in the books of account pending approval at the Annual General
Meeting.
(k) Research and Development
Revenue expenditure on research and development is recognised as expense in the year in which it is incurred and the expenditure
on capital assets is depreciated over the useful lives of the assets.
(l) Excise Duty
The excise duty in respect of closing inventory of finished goods is included as part of inventory. The amount of Central Value
Added Tax (CENVAT) credits in respect of materials consumed for sales is deducted from cost of materials consumed.
(m) Long-term Incentive
In terms of a long-term incentive plan, the eligible members of the senior management are entitled to receive an incentive payment
at the end of a three year ‘restricted period’, provided they remain in continuous employment with the Company for the aforesaid
period. The value of such incentive is based on the price of shares of GlaxoSmithKline plc, U.K. An amount equal to one-third of
the aggregate approximate value of the incentive is recognised as expense each year based on the fair value of such shares.
(n) Taxes on Income
Current tax is determined as the amount of tax payable in respect of taxable income for the period. Deferred tax is recognised,
subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the difference between
taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent
periods. Deferred tax assets and deferred tax liabilities are measured using the tax rates and tax laws that have been enacted or
substantively enacted by the Balance Sheet date. Current tax assets and current tax liabilities are offset when there is a legally
enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis.
Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off assets against liabilities
representing current tax and where the deferred tax assets and deferred tax liabilities relate to taxes on income levied by the same
governing taxation laws.
(o) Employee Benefits
(i) Long-term Employee Benefits
In case of Defined Contribution plans, the Company's contributions to these plans are charged to the Statement of Profit and
Loss as incurred.
Liability for Defined Benefit plans is provided on the basis of valuations, as at the Balance Sheet date, carried out by an
independent actuary. The actuarial valuation method used for measuring the liability for Gratuity and Post Retirement Medical
is Projected Unit Credit method. The obligations for Gratuity and Post Retirement Medical are measured as the present value
of estimated future cash flows discounted at rates reflecting the prevailing market yields of Indian Government securities as
at the Balance Sheet date for the estimated term of the obligations. The estimate of future salary increases considered takes
into account the inflation, seniority, promotion and other relevant factors. The expected rate of return of plan assets is the
Company's expectation of the average long term rate of return expected on investments of the fund during the estimated term
of the obligations. Plan assets are measured at fair value as at the Balance Sheet date.
Provident Fund contributions are made to a Trust administered by the Company. The actuarial valuation method, carried out
by an independent actuary, used for measuring the liability for Providend Fund is Projected Accrued Benefit method. This
approach determines the present value of the interest rate guarantee under three interest rate scenarios: base case scenario,
rising interest rate scenario and falling interest rate scenario. The Defined Benefit Obligation of the interest rate guarantee is
set equal to the average of the present values determined under these scenarios in respect of accumulated provident fund
contributions as at the valuation date.
The liability for leave encashment and compensated absences is provided on the basis of valuation, as at Balance Sheet date,
carried out by an independent actuary.
(ii) The expenditure on voluntary retirement schemes is charged to the Statement of Profit and Loss in the year in which it is
incurred.
(iii) Actuarial gains and losses comprise experience adjustments and the effects of changes in actuarial assumptions and are
recognised in the Statement of Profit and Loss in the year in which they arise.
(p) Earnings Per Share
Basic earnings per share is calculated by dividing the net profit for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period.
The weighted average number of equity shares outstanding during the period and for all periods presented is adjusted for events,
such as bonus shares, other than the conversion of potential equity shares, that have changed the number of equity shares
outstanding, without a corresponding change in resources. For the purpose of calculating diluted earnings per share, the net profit
for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period is
adjusted for the effects of all dilutive potential equity shares.
Notes to the Financial Statements for the year ended 31st December, 2012 — continued