a. Basis of Preparation of Financial Statements
The financial statements of Rolta India Limited ("the Company” or "Rolta”) have been prepared to comply in all material respects with the accounting standards notified by the Companies (Accounting Standards) Rules, read with Rule 7 to the Companies (Accounts) Rules, 2014, in respect of Section 133 to the Companies Act, 2013. The financial statements, except for free hold and leasehold land which are revalued, are prepared under the historical cost convention, on an accrual basis of accounting. The accounting policies applied are consistent with those used in the previous year. The Company early adopted Accounting Standard (AS) 30 - Financial Instruments: Recognition and Measurement, to the extent the adoption is not in conflict with the existing accounting standards notified by the Companies (Accounting Standards) Rules, read with Rule 7 to the Companies (Accounts) Rules 2014 in respect of Section 133 to the Companies Act, 2013.
The abridged standalone financial statements have been prepared in accordance with first proviso to sub-section (1) of section 136 of the Companies Act 2013 read with Rule 10 of Companies (Accounts) Rules, 2014 from the audited standalone financial statements of the Company for the year ended 31, March 2016, prepared in accordance with Accounting Standards specified under Section133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 and accounting principles generally accepted in India and which is approved by the Board of Directors at the meeting held on May 30, 2016
b. Use of Estimates
The preparation of the financial statements in conformity with GAAP requires the management to make estimates and assumptions that affect the reported balances of assets and liabilities and disclosures relating to contingent assets and liabilities as at the date of the financial statements and reported amounts of income and expenses during the period. Examples of such estimates include provision for permanent diminution in long term investments, provisions for doubtful debts, future obligations under employee retirement benefit plans, income taxes, post-sales customer support and the useful lives of tangible assets and intangible assets. Actual results could differ from these estimates. The difference between the actual results and estimates are recognized in the period in which the results are known/materialized.
c. Revenue Recognition
i. Revenue from providing of solutions and services is recognized in accordance with the customer contract and when there are no unfulfilled company obligations or any obligations that are inconsequential or perfunctory and will not affect the customer''''s final acceptance of the arrangement.
ii. Revenue from customer-related long-term contracts is recognized by reference to the percentage of completion of the contract at the balance sheet date. The Company''''s long term contracts specify a fixed price for the sale of license and installation of software solutions & services and the related revenue is determined using the percentage of completion method. The percentage of completion is based on efforts expended as a proportion to total estimated efforts on the contract. If the contract is considered profitable, it is valued at cost plus attributable profits by reference to the percentage of completion. Any expected loss on individual contracts is recognized immediately as an expense in the Statement of Profit & Loss. Unbilled revenues included under Other Current Assets represents revenue recognized in respect of work completed but not billed as on the Balance Sheet date.
iii. Income from maintenance contracts is recognized proportionately over the period of the contract.
iv. Dividend on investments held by the Company is accounted for as and when it is declared.
v. Interest income is recognized on a time proportion basis taking into account the amount outstanding and the rate applicable.
d. Tangible Assets, Intangibles Assets, Depreciation, Amortization and Capital Work in Progress (CWIP)
All fixed assets, except for free hold and leasehold land which are revalued, are stated at cost of acquisition or construction, less accumulated depreciation and impairment loss, if any. Where the acquisition of fixed assets is financed through long term foreign currency loans, the exchange difference on such loans are added to or subtracted from the cost of such fixed assets. Capital Work-in-Progress is stated at cost comprising of direct cost and related incidental expenditure.
Depreciation on fixed assets is provided on the straight-line method over the useful lives of assets estimated by the management. The estimated useful lives of assets are as follows:
Type of Asset Estimated useful life of asset
Leasehold Land & Building Lease Period
Building 60 Years
Computer Systems 2 to 6 Years
Other Equipment 10 Years
Furniture & Fixture 10 Years
Vehicles 5 Years
Intangibles / Intellectual Property (Third party acquired IP) 10 Years
Assets acquired for specific projects Over the period of the project
e. Impairment of Assets
The Fixed assets are reviewed for impairment at each balance sheet date. In case of any such indication, the recoverable amount of these assets is determined, and if such recoverable amount of the asset or cash-generating unit to which the asset belongs is less than its carrying amount, the impairment loss is recognized by writing down such assets to their recoverable amount. An impairment loss is reversed if there is a change in the recoverable amount and such loss either no longer exists, or has decreased.
Investments are classified into Current Investments and Long Term Investments. Current Investments are carried at the lower of cost and fair value. Long Term Investments are carried at cost. Provision for diminution is made only if, in the opinion of the management, the diminution is other than temporary.
g. Foreign Currency Transactions
i. Foreign currency transactions are recorded at the exchange rate prevailing on the date of transaction.
ii. All monetary foreign currency assets/liabilities are translated at the rates prevailing as at the balance sheet date.
iii. The exchange difference arising on account of the difference between the rates prevailing on the date of transaction and on the date of settlement, as also on translation of monetary items at the end of the year, other than those relating to long term foreign currency monetary items, is recognized as income or expense, as the case may be.
iv. Exchange differences relating to long term foreign currency monetary items, to the extent they are used for financing the acquisition of fixed assets, are added to or subtracted from the cost of such fixed assets, and the balance is accumulated in ''''Foreign Currency Monetary Item Translation Difference Account'''' under Reserves & Surplus and amortized over the balance term of the long term monetary item.
h. Derivative financial instruments
The Company has adopted the principles of AS 30 “Financial Instruments: Recognition and Measurement” in respect of its derivative financial instruments, that are not covered by AS 11 “Accounting for the Effects of Changes in Foreign Exchange Rates” and that relate to a firm commitment or a highly probable forecast transaction. In accordance with AS 30, such derivative financial instruments, which qualify for cash flow hedge accounting and where the Company has met all the conditions of AS 30, are fair valued at the balance sheet date and the resultant gain/loss is credited/debited to the hedging reserve included in the Reserves and Surplus. This gain/loss is recorded in the Statement of Profit and Loss when the underlying transactions affect earnings.
Forward contracts, other than those entered into for hedging foreign currency risk on unexecuted firm commitments or highly probable forecast transactions, are treated as foreign currency transactions and accounted accordingly as per Accounting Standard (AS) 11 ''''The Effects of Changes in Foreign Exchange Rates''''. Exchange differences arising on such contracts are recognized in the period in which they arise and the premium paid/received is recognised as expenses/income over the period of the contract.
i. Employee Benefits
i. Short Term Employee Benefits
Short Term Employees Benefits are recognized as an expense at the undiscounted amount in the Statement of Profit and Loss of the year in which the related services is rendered.
ii. Post Employment Benefits
The Company contributes monthly at a determined rate. These contributions are remitted to the Employee Provident Fund Commissioner office and are charged to Statement of Profit and Loss on accrual basis.
The Company provides for gratuity (a defined benefit retirement plan) to all the eligible employees. The benefit is in the form of lump sum payments to vested employees on retirement, on death while in employment, or termination of employment for an equivalent to 15 days'''' salary payable for each completed year of service, subject to a maximum of Rs. 10 lacs. Vesting occurs on completion of five years of service. Liability in respect of gratuity is determined using the Projected Unit Credit Method with actuarial valuations as on the balance sheet date and gains/losses are recognized immediately in the Statement of Profit and Loss.
Liability in respect of leave encashment is determined using the Projected Unit Credit Method with actuarial valuations as on the balance sheet date and gains/losses are recognized immediately in the Statement of Profit and Loss.
iii. Employee Stock Options
The Company measures compensation cost relating to employee stock options using the Intrinsic Value Method (i.e. excess of market value of shares over the exercise price of the option at the date of grant). Compensation expense is amortized over the vesting period of the option on a straight line basis.
j. Borrowing Cost
Borrowing costs that are directly attributable to the acquisition or construction of qualifying assets are capitalized as part of the cost of those assets. A qualifying asset is one that necessarily takes a substantial period of time to get ready for intended use. All other borrowing costs are recognized as an expense in the period in which they are incurred.
k. Earnings Per Share
In accordance with the Accounting Standard 20 ( AS — 20) “Earnings Per Share” issued by the Institute of Chartered Accountants of India, basic / diluted earnings per share is computed using the weighted average number of shares outstanding during the period.
l. Income Tax
Income tax comprises of current tax, and deferred tax. Deferred tax assets other than unabsorbed depreciation and carry forward loss are recognized if there is reasonable certainty that they will be realized in the future. Deferred tax assets in respect on unabsorbed depreciation and carry forward losses are recognized only if there is virtual certainty that the same can be realized against the future taxable profits. Deferred tax assets are reviewed at each balance sheet date for the appropriateness of their respective carrying values.
Minimum Alternative Tax (MAT) paid in accordance with the tax laws in India, which gives rise to future economic benefits in the form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax during the specified period. Accordingly, MAT entitlement is recognized as an asset in the balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with it will fructify. Such asset is reviewed at each Balance Sheet date and the carrying amount of MAT Credit asset is written down to the extent there is no longer a convincing evidence for the effect that the company will pay normal income tax during the specified period.
m. Warranty Cost
The Company accrues the estimated cost of warranties at the time when the revenue is recognized. The accruals are based on the Company''''s historical experience of material usage and service delivery cost.
n. Provisions & Contingent Liabilities
The company creates a provision when there is a present obligation as a result of an obligating event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
Operating leases: Rentals in respect of all operating leases are charged to Statement of Profit and Loss.
p. Cash and Cash Equivalents
In the Cash Flow Statement, cash and cash equivalents include cash in hand, demand deposits with bank, other short term highly liquid investments with original maturities of 3 months or less.