2. Significant accounting policies
a. Basis of accounting
Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use. Further the guidance notes or announcements issued by the Institute of Chartered Accountants of India (ICAI) are also considered wherever applicable.
Preparation of financial statements in conformity with Accounting Standards requires management of the Company to make estimates and assumptions that affect the income and expense reported for the period and assets, liabilities and disclosures reported as of the date of the financial statements. Examples of such estimates include useful lives of tangible and intangible assets, provision for doubtful debts, future obligations in respect of retirement benefit plans, etc. Actual results could vary from these estimates.
The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as prescribed under section 133 of the Companies Act, 2013, read with rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards Amendment) Rules 2016.
The Company has prepared its first Ind AS compliant financial statements as on 1 April 2015 (the date of transition). Refer note 48 ‘First-time adoption of Ind AS’ for an explanation of impact of transition from Generally Accepted Accounting Principles in India (iGAAP) to Ind AS on the Company’s financial statements.
b. presentation of financial statements
The statement of financial position and the statement of profit and loss are prepared and presented in the format prescribed in Schedule III to the Companies Act, 2013. The cash flow statement has been prepared and presented as per the requirements of Ind AS 7 ‘Cash Flow Statements’. The disclosure requirements with respect to items in the balance sheet and statement of profit and loss, as prescribed in Schedule III to the Act, are presented by way of notes forming part of accounts along with the other notes required to be disclosed under the notified Accounting Standards.
c. Revenue recognition
Revenue from contracts priced on time and material basis is recognized when services are rendered and related costs are incurred.
Revenue from services performed on fixed-price basis is recognized over the life of contract using the proportionate completion method.
Revenue from sale of products and licenses is recognized upon delivery when all risks and rewards are transferred.
Unbilled revenue represents value of services performed in accordance with the contract terms but not billed.
d. other income
I) Interest income is accrued at applicable interest rate.
II) Dividend income is accounted in the period in which the right to receive the same is established.
III) Other items of income are accounted as and when the right to receive arises.
e. Employee benefits
I) Short term employee benefits
All employee benefits falling due wholly within twelve months of rendering the service are classified as short term employee benefits. The benefits like salaries, wages, and short term compensated absences and performance incentives are recognized in the period in which the employee renders the related service.
II) Post-employment benefits
i) Defined contribution plan:
The Company’s superannuation fund and state governed provident fund scheme are classified as defined contribution plans. The contribution paid/payable under the schemes is recognized during the period in which the employee renders the related service.
ii) Defined benefit plans:
The provident fund scheme managed by trust, employees gratuity fund scheme managed by Life Insurance Corporation of India and postretirement medical benefit scheme are the Company’s defined benefit plans. Wherever applicable, the present value of the obligation under such defined benefit plans is determined based on actuarial valuation using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.
The obligation is measured at the present value of the estimated future cash-flows. The discount rates used for determining the present value of the obligation under defined benefit plans is based on the market yields on government bonds as at the balance sheet date, having maturity periods approximating to the terms of related obligations. Actuarial gains and losses through re-measurement of the defined benefit liability/(asset) are recognized in other comprehensive income. The actual return of portfolio of plan assets, in excess of yields computed by applying the discount rate used to measure the defined benefit obligation are recognized in other comprehensive income. The effect of any plan amendments are recognized in statement of profit and loss.
Gains or losses on the curtailment or settlement of any defined benefit plan are recognized when the curtailment or settlement occurs. Past service cost resulting from a plan amendment or curtailment are recognized immediately in the statement of profit and loss.
(iii) Long term employee benefits:
The obligation for long term employee benefits like long term compensation absences is recognized as determined by actuarial valuation performed by independent actuary at each balance sheet date using Projected Unit Credit Method on the additional amount expected to be paid or availed as a result of unused entitlement that has accumulated at balance sheet date. Actuarial gains and losses are recognized immediatly in other comprehensive income.
(iv) Social security plans
Employer’ contribution payable with respect to social security plans, which are defined contribution plans, is charged to the statement of profit and loss in the period in which employee renders the services.
f. property, plant and equipment
Property plant and equipment are stated at cost less accumulated depreciation and impairment losses if any. Cost includes expenditure directly attributable to the acquisition of the asset and cost incurred for bringing the asset to its present location and condition.
g. Intangible assets
Assets like customer relationship, computer software, and internally developed software are stated at cost, less accumulated depreciation, amortisation and impairment.
I) Impairment of trade receivable
The Company assesses at each date of statement of financial position whether a financial asset in form of trade receivable is impaired. In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss. As a practical expedient, the Company uses a provision matrix to determine impairment loss on portfolio of its trade receivable. The provision matrix is based on available external and internal credit risk factors such as credit default, credit rating from credit rating agencies and Company’s historically observed default rates over the expected life of trade receivable. Impairment loss allowance or reversal is recognised during the period as expense or income respectively in the statement of profit and loss.
II) Impairment of intangible assets
At the end of each reporting period, the Company reviews the carrying amount of its intangible assets to determine if there is any indication of loss suffered. If such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss.
I) Finance lease
Assets acquired under lease where the Company has substantially all the risks and rewards of ownership are classified as finance lease. Such assets are capitalised at the inception of the lease at the lower of the fair value and the present value of minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost, so as to obtain a constant periodic rate of interest on the outstanding liability for each period.
II) Operating lease
Assets acquired under lease where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating lease. Lease rentals are charged to the profit and loss account on accrual basis.
I) Tangible assets
Depreciation on assets have been provided as mentioned in below table except for the leasehold improvements which is depreciated over the lease period. Depreciation or amortisation on additions and disposals are calculated on pro-rata basis from and to the month of additions and disposals.
II) Intangible assets and amortisation
The estimated useful life of an identifiable intangible asset is based on number of factors including the effects of obsolescence, demand, competition and other economic factors and the level of maintenance expenditure required to obtain the expected future cash flows from the asset. The basis of amortization of intangible assets is as follows:
k. Employee stock ownership schemes
In respect of stock options granted pursuant to the Company’s stock options scheme, the excess of fair value of the share over the exercise price of the option is treated as discount and accounted as employee compensation cost over the vesting period. The amount recognised as expense each year is arrived based on the number of grants expected to vest. If options granted lapse after the vesting period, the cumulative discount recognized as expense in respect of such options is transferred to the general reserve.
l. Functional and presentation currency
The functional and presentation currency of the Company is the Indian Rupee as it is the currency of the primary economic environment in which the Company operates.
m. foreign currency transactions and balances
Foreign currency transactions are initially recorded at the rates prevailing on the date of the transaction. At the balance sheet date, foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried at historical cost denominated in foreign currency are reported using the exchange rate at the date of the transaction.
n. financial instruments
Financial assets and liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument.
I) Initial measurement
Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial asset or financial liability.
II) subsequent measurement
i) Non-derivative financial assets
A) financial assets at amortised cost
Financial assets are subsequently measured at amortised cost if:
a) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and
b) the contractual terms of financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at amortised cost are represented by trade receivables, cash and cash equivalents, employee and other advances and eligible current and non current assets.
B) Financial assets at fair value through other comprehensive income (FvtocI)
Financial assets are subsequently measured at fair value through other comprehensive income if the financial asset is held within a business model whose objective is achieved by both:
a) Collecting contractual cash flows and selling financial assets and
b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
c) Financial assets at fair value through profit and loss (FVTPL)
Fair value through profit and loss is a residual category for financial assets. Any financial asset which does not meet the criteria for categorisation as at amortised cost or as financial asset at fair value through other comprehensive income is classified as financial assets fair valued through profit and loss.
ii) Non-derivative financial liability
A) Financial liabilities at amortised cost
Financial liabilities at amortised cost represented by trade and other payables are initially recognized at fair value, and subsequently carried at amortised cost using the effective interest method.
B) Financial liabilities at fair value through other comprehensive income or debt instrument (FVTOCI)
A debt instrument shall be measured at fair value through other comprehensive income if both of the following conditions are met:
a) the objective of the business model is achieved by collecting contractual cash flows and selling financial asset and
b) the asset’s contractual cash flow represent solely payments of principal and interest. The Company has not recognised any liabilities under this category.
c) Financial liabilities at fair value through profit and loss (FVTPL)
Fair value through profit and loss is a residual category for financial liabilities. Any financial liability which does not meet the criteria for categorisation as at amortised cost or as fair value through other comprehensive income, is classified as fair value through profit and loss.
iii) Derivative financial instrument
The Company holds derivative financial instrument such as foreign exchange forward contracts to mitigate the risk of changes in exchange rates on foreign currency exposures.
A) cash flow hedges
Changes in the fair value of the derivative hedging instruments designated as cash flow hedges are recognised in other comprehensive income and presented within equity as hedging reserve. The cumulative gain and loss previously recognised in the cash flow hedging reserve is transferred to the statement of profit and loss upon the occurance of the related forecasted transactions. Changes in fair value of foreign currency derivative instruments not designated as cash flow hedges and ineffective portion of cash flow hedges are recognised in statement of profit and loss and reported in foreign exchange gains or losses.
B) Fair value hedges
Changes in the fair value of the derivative instuments designated as fair value hedges are recognised in statement of profit and loss.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial assets expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109. A financial liability is derecognised from the Company’s balance sheet where the obligation specified in the contract is discharged or cancelled or expired.
o. Taxes on income
Income tax expense comprises current and deferred income tax. Tax on income for Indian companies for the current period is determined on the basis of taxable income and tax credits computed in accordance with the provisions of the Indian Income tax Act, 1961. Foreign branches recognize current tax and deferred tax liabilities and assets in accordance with the applicable local laws.
Income tax and deferred tax expense is recognized in the statement of profit and loss except to the extent that it relates to items recognised directly in other comprehensive income, in which case income tax expense is recognised in other comprehensive income. Current income tax for current and prior periods is recognised at the amount expected to be paid to or recovered from the tax authorities (Refer note 7 for applicable tax rates in various jurisdiction).
The Company offsets current tax assets and current tax liabilities, where it has a legally enforceable right to set off the recognised amounts and where it intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are recognised for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. Other deferred tax assets are recognised and carried forward to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted as on the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income taxes are not provided on the undistributed earnings of branches where it is expected that the earnings of the branch will not be distributed in the foreseeable future.
p. Borrowing costs
Borrowing costs include interest, commitment charges and finance charges in respect of assets acquired on finance lease and exchange differences arising from foreign currency borrowings, to the extent they are regarded as an adjustment to interest costs.
q. provisions, contingent liabilities and contingent assets
Provisions are recognized for liabilities that can be measured only by using a substantial degree of estimation, if
I) the Company has a present obligation as a result of a past event;
II) a probable outflow of resources is expected to settle the obligation; and
III) the amount of the obligation can be reliably estimated
Reimbursement expected in respect of expenditure required to settle a provision is recognized only when it is virtually certain that the reimbursement will be received.
Contingent liability is disclosed in case of,
I) a present obligation arising from a past event when it is not probable that an outflow of resources will be required to settle the obligation; or
II) a possible obligation unless the probability of outflow of resources is remote.
Contingent assets are neither recognised nor disclosed.
Provisions, contingent liabilities and contingent assets are reviewed at each balance sheet date.
r. Segment accounting
Operating segments are defined as components of an enterprise for which discrete financial information is used regularly by the Company’s Chief Operating Decision Maker in deciding how to allocate resources and assessing performance.
I) Segment revenue is the revenue directly identifiable with or allocable to the segment.
II) Expenses that are directly identifiable with or allocable to segments are considered for determining the segment result. Expenses which relate to the Company as a whole and not identifiable with or allocable to segments are included under ‘unallocable expenses’
III) Other income which relates to the Company as a whole and not identifiable with or allocable to segments is included in ‘unallocable income’.
IV) Assets and liabilities used in the Company’s business are not identified to any of the reportable segment as these are used interchangeably.
s. cash flow statement
Cash flow statement is prepared segregating the cash flows from operating, investing and financing activities. Cash flow is reported using indirect method as per the requirements of Ind AS 7 (‘Cash flow statements’).