2.3 Summary of Material accounting policies
a. Current versus non-current classification
The Company presents assets and liabilities
in the Standalone Balance Sheet based on
current/ non-current classification. An asset is
treated as current when it is:
• Expected to be realised or intended
to be sold or consumed in normal
operating cycle
• Held primarily for the purpose of trading
• Expected to be realised within twelve
months after the reporting period; or
• Cash or cash equivalent unless restricted
from being exchanged or used to settle
a liability for at least twelve months after
the reporting period
All other assets are classified as non-current
A liability is current when:
• It is expected to be settled in normal
operating cycle
• It is held primarilyfor the purpose oftrading
• It is due to be settled within twelve
months after the reporting period; or
• There is no unconditional right to defer
the settlement of the liability for at least
twelve months after the reporting period
The terms of the liability that could, at the option
of the counterparty, result in its settlement by
the issue of equity instruments do not affect its
classification.
All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as
non-current assets and liabilities.
Advance tax paid is classified as non-current assets.
The operating cycle is the time between the
acquisition of assets for processing and their
realisation in cash and cash equivalents. Based on
the nature of operations and the time between
the acquisition of assets for processing and their
realisation in cash and cash equivalents, the
Company has ascertained its operating cycle
being a period of 12 months for the purpose of
classification of assets and liabilities as Current
and non- current.
b. Fair value measurement
The Company measures financial instruments
at fair value at each Balance Sheet date.
Fair value is the price that would be received
to sell an asset or paid to transfer a liability
in an orderly transaction between market
participants at the measurement date. The
fair value measurement is based on the
presumption that the transaction to sell the
asset or transfer the liability takes place either:
• In the principal market for the asset
or liability, or
• In the absence of a principal market, in
the most advantageous market for the
asset or liability.
The principal or the most advantageous
market must be accessible by the Company.
The fair value of an asset or a liability is
measured using the assumptions that market
participants would use when pricing the asset
or liability, assuming that market participants
act in their economic best interest.
A fair value measurement of a non-financial
asset takes into account a market participant’s
ability to generate economic benefits by using
the asset in its highest and best use or by
selling it to another market participant that
would use the asset in its highest and best use.
The Company uses valuation techniques that
are appropriate in the circumstances and for
which sufficient data are available to measure
fair value, maximising the use of relevant
observable inputs and minimising the use of
unobservable inputs.
All assets and liabilities for which fair value
is measured or disclosed in the Standalone
Financial Statements are categorised within
the fair value hierarchy, described as follows,
based on the lowest level input that is significant
to the fair value measurement as a whole:
• Level 1 — Quoted (unadjusted) market
prices in active markets for identical
assets or liabilities
• Level 2 — Valuation techniques for which
the lowest level input that is significant to
the fair value measurement is directly or
indirectly observable
• Level 3 — Valuation techniques for
which the lowest level input that is
significant to the fair value measurement
is unobservable
For assets and liabilities that are recognised
in the Standalone Financial Statements on
a recurring basis, the Company determines
whether transfers have occurred between
levels in the hierarchy by re-assessing
categorisation (based on the lowest level
input that is significant to the fair value
measurement as a whole) at the end of each
reporting period.
For the purpose of fair value disclosures, the
Company has determined classes of assets
and liabilities on the basis of the nature,
characteristics and risks of the asset or liability
and the level of the fair value hierarchy as
explained above.
This note summarises accounting policy for
fair value. Other fair value related disclosures
are given in the relevant notes.
• Disclosures for valuation methods,
significant estimates and assumptions
• Quantitative disclosures of fair value
measurement hierarchy
• Financial instruments (including those
carried at amortised cost)
c. Revenue recognition
Revenue from operations is recognised when
control of the services are transferred to the
customer at a transaction price that reflects
the consideration to which the Company
expects to be entitled in exchange for those
services.. To determine when to recognise
revenue, the Company follows the following
5-step process:
• Identifying the contract with a customer
• Identifying the underlying
performance obligations
• Determining the transaction price
• Allocating the transaction price to the
performance obligations
• Recognising revenue when/as
performance obligation(s) are satisfied.
The transaction price of services rendered is net
of variable consideration. The transaction price
for a contract excludes any amounts collected
on behalf of third parties. The Company has
generally concluded that it is the principal
in its revenue arrangements, except for the
agency services below, because it typically
controls the services before transferring them
to the customer.
Revenue is recognised when the Company
satisfies a performance obligation by
transferring a promised service to the
customer, which is when the customer obtains
control of the service. A performance obligation
may be satisfied at a point in time or over
time. The amount of revenue recognised is
the transaction price allocated to the satisfied
performance obligation
The specific recognition criteria described below
must be met before revenue is recognised:
Income from services
(i) Retainership services
The Company is engaged in the business of
providing cloud based intelligent customer
engagement software solutions. Revenue is
recognized over the specified subscription
period or on the basis of underlying services
performed, as the case may be, in accordance
with the arrangement with the customers.
The Company recognises revenue for a sales-
based or usage-based royalty promised in the
contract only when (or as) the subsequent sale
or usage occurs.
(ii) Campaign services
The Company provides SMS campaign services
that are bundled together with the retainer
services. The Company recognises revenue
based on the usage of messaging services
i.e., when the Company’s services are used
based on the specific terms of the contract
with customers.
The Company recognises revenue either on a
gross or net basis depending on the nature of
its role in the transaction, in accordance with
Ind AS 115. Revenue is recorded on a gross
basis when the Company acts as a principal
in the transaction, meaning it has control
over the services before they are transferred
to the customer.
Revenue is recorded on a net basis when
the Company acts as an agent, facilitating
a transaction between a supplier and the
customer. In this case, the revenue is recorded
as the net amount retained after deducting
the cost of services provided by the supplier.
The determination of whether revenue is
recognised on a gross or net basis is assessed
on a transaction-by-transaction basis,
considering specific terms and conditions of
each arrangement
(iii) Installation services
The Company provides a one-time installation
services that are bundled together with the
retainership services. The Company recognises
revenue from installation services over
time because the customer simultaneously
receives and consumes the benefits provided
to them. The Company uses an input method
in measuring progress of the installation
services because there is a direct relationship
between the Company’s effort and the transfer
of service to the customer. The Company
recognises revenue on the basis of the
milestone achieved which correlates with
efforts expended relative to the total expected
efforts to complete the service.
In contracts with customers where the
retainership, campaign services and
installation services are bundled together, the
Company has applied the guidance in Ind AS
115 by applying the revenue recognition criteria
for each distinct performance obligation. For
allocating the transaction price, the Company
has measured the revenue in respect of each
performance obligation of a contract and its
relative standalone selling price. The price that
is regularly charged for an item when sold
separately is the best evidence of its standalone
selling price. In cases where the Company is
unable to determine the standalone selling
price, the Company uses the expected cost
plus margin approach in estimating the
standalone selling price.
The Company has assessed its revenue
arrangements based on the substance of
the transaction and business model against
specific criteria to determine if it is acting as
principal or agent.
(iv) Service income from Group Companies
The Company has appointed subsidiaries as
Limited Risk Distributor to sell, use and offer
to sale, display and market the platform in
their territories. The Company has agreed to
maintain an agreed upon profitability in the
subsidiaries for the revenue derived from the
Capillary Loyalty Platform.
Other income
(i) Interest income
For all financial instruments measured either
at amortised cost or at fair value through
other comprehensive income, interest income
is recorded using the effective interest rate
(EIR). EIR is the rate that exactly discounts the
estimated future cash payments or receipts over
the expected life of the financial instrument
or a shorter period, where appropriate, to the
gross carrying amount of the financial asset
or to the amortised cost of a financial liability.
When calculating the effective interest rate, the
Company estimates the expected cash flows
by considering all the contractual terms of the
financial instrument but does not consider
the expected credit losses. Interest income is
included in other income in the Standalone
Statement of Profit and Loss.
(ii) Dividend income
Dividend income is recognized when the
right to receive payment is established, which
is generally when shareholders approve the
dividend, provided it is probable that the
economic benefits associated with the dividend
will flow to the Company, and the amount of
the dividend can be measured reliably.
Contract balances
Contract assets
A contract asset is the right to consideration
in exchange for services transferred to the
customer. If the Company performs by
transferring services to a customer before
the customer pays consideration or before
payment is due, a contract asset is recognised
for the earned consideration that is conditional.
Contract assets are transferred to receivables
when the rights become unconditional and
contract liabilities are recognized as and when
the performance obligation is satisfied.
Contract assets are subject to impairment
assessment. Refer to accounting policies on
impairment of financial assets in section (l)
Financial instruments - initial recognition and
subsequent measurement below
Trade receivables
A receivable is recognised if an amount of
consideration that is unconditional (i.e., only the
passage of time is required before payment of
the consideration is due). Refer to accounting
policies of financial assets in section (l)
Financial instruments - initial recognition and
subsequent measurement below
Deferred contract costs
Deferred contract costs are incremental costs
that are associated with acquiring customer
contracts and consists primarily of sales
commissions to employees and certain referral
fees paid to third-party resellers. Incremental
costs of obtaining a contract are capitalised
if these costs are recoverable. Costs to fulfil
a contract are capitalised if the costs relate
directly to the contract, generate or enhance
resources used in satisfying the contract and
are expected to be recovered. Other contract
costs are expensed as incurred.
Capitalised contract costs are subsequently
amortised on a systematic basis as the Company
recognises the related revenue. An impairment
loss is recognised in Standalone Statement of
Profit and Loss to the extent that the carrying
amount of the capitalised contract costs exceeds
the remaining amount of consideration that the
Company expects to receive in exchange for
the services to which the contract costs relates
less the costs that relate directly to providing
the services and that have not been recognised
as expenses. The maximum period over which
the Company expects to derive benefit from
contracts entered into with customers is 3 years.
The Company has elected to apply the practical
expedient to recognise the incremental costs
of obtaining a contract as an expense when
incurred where the amortisation period of the
asset that would otherwise be recognised is
over a year or less.
Contract liabilities
A contract liability is recognised if a payment
is received or a payment is due (whichever is
earlier) from a customer before the Company
transfers the related services. Contract
liabilities are recognised as revenue when
the Company performs under the contract
(i.e., transfers control of the related services
to the customer).
d. Taxes on income
Current income tax
Tax expense for the period comprises current
and deferred tax. The tax currently payable is
based on taxable profit for the year. Taxable
profit differs from net profit as reported in
the Standalone Statement of Profit and Loss
because it excludes items of income or expense
that are taxable or deductible in other years and
it further excludes items that are never taxable
or deductible. Current income tax assets and
liabilities are measured at the amount expected
to be recovered from or paid to the taxation
authorities. The Company’s liability for current
tax is calculated using the tax rates and tax
laws that have been enacted or substantively
enacted by the end of the reporting period.
Current income tax relating to items
recognised outside profit or loss is recognised
outside Standalone Statement of Profit and
Loss (either in other comprehensive income
or in equity). Current tax items are recognised
in correlation to the underlying transaction
either in OCI or directly in equity. Management
periodically evaluates positions taken in
the tax returns with respect to situations in
which applicable tax regulations are subject
to interpretation and considers whether it is
probable that a taxation authority will accept
an uncertain tax treatment. The Company
shall reflect the effect of uncertainty for each
uncertain tax treatment by using either most
likely method or expected value method,
depending on which method predicts better
resolution of the treatment.
Deferred tax
Deferred tax is the tax expected to be payable
or recoverable on differences between the
carrying values of assets and liabilities in
the Standalone Financial Statements and
the corresponding tax bases used in the
computation of the taxable profit and is
accounted for using the liability model. Deferred
tax liabilities are generally recognised for all
the taxable temporary differences. In contrast,
deferred tax assets are only recognised to the
extent that is probable that future taxable
profits will be available against which the
temporary differences can be utilised.
Deferred tax assets are recognized for all
deductible temporary differences, carry
forward of unused tax credits and unused tax
losses, to the extent that it is probable that
taxable profit will be available against which
the deductible temporary differences, and
the carry forward of unused tax credits and
unused tax losses can be utilized.
The carrying amount of deferred tax assets
is reviewed at each Balance Sheet date and
reduced to the extent that it is no longer
probable that sufficient taxable profit will be
available to allow all or part of the deferred tax
asset to be utilized. Unrecognised deferred tax
assets are re-assessed at each reporting date
and are recognised to the extent that it has
become probable that future taxable profits
will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply
in the year when the asset is realized or the
liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively
enacted at the Balance Sheet date.
Deferred tax relating to items recognised
outside Standalone Statement of Profit
and Loss is recognised outside profit or loss
(either in other comprehensive income or in
equity). Deferred tax items are recognised
in correlation to the underlying transaction
either in OCI or directly in equity.
Deferred tax assets and deferred tax liabilities
are offset if a legally enforceable right exists
to set off current tax assets against current
tax liabilities and the deferred taxes relate
to the same taxable entity and the same
taxation authority.
e. Property, plant and equipment
Property, plant and equipment are stated
at cost, net of accumulated depreciation
and accumulated impairment losses, if any.
Such cost includes the cost of replacing part
of the property, plant and equipment and
borrowing costs for long-term construction
projects if the recognition criteria are met.
When significant parts of property, plant
and equipment are required to be replaced
at intervals, the Company depreciates them
separately based on their specific useful lives.
All other repair and maintenance costs are
recognised in Standalone Statement of Profit
and Loss as incurred.
Subsequent costs are included in the asset’s
carrying amount or recognised as a separate
asset, as appropriate, only when it is probable
that future economic benefits associated with
the item will flow to the Company and the
cost of the item can be measured reliably. The
carrying amount of any component accounted
for as a separate asset are derecognised when
replaced. All other repairs and maintenance
are charged to Standalone Statement of Profit
and Loss during the reporting period in which
they are incurred.
The Company identifies and determines cost of
each component/ part of the asset separately,
if the component/ part has a cost which is
significant to the total cost of the asset having
useful life that is materially different from that
of the remaining asset. These components
are depreciated over their useful lives; the
remaining asset is depreciated over the life of
the principal asset.
Depreciation is calculated on a written down
value over the estimated useful lives of the
assets as follows which is as per Schedule II of
Companies Act, 2013.
Leasehold improvements are depreciated over
the period of lease or estimated useful life,
whichever is lower, on straight line basis.
The management believes that these
estimated useful lives are realistic and reflect
fair approximation of the period over which
the assets are likely to be used.
The residual values, useful lives and methods of
depreciation of property, plant and equipment
are reviewed at each financial year end and
adjusted prospectively, if appropriate.
An item of property, plant and equipment
and any significant part initially recognised
is derecognised upon disposal or when no
future economic benefits are expected from
its use or disposal. Any gain or loss arising on
derecognition of the asset (calculated as the
difference between the net disposal proceeds
and the carrying amount of the asset) is
included in the Standalone Statement of Profit
and Loss when the asset is derecognised.
Intangible assets
Intangible assets acquired separately are
measured on initial recognition at cost.
Following initial recognition, intangible
assets are carried at cost less any
accumulated amortisation and accumulated
impairment losses.
Intangible assets with finite lives are amortised
over the useful economic life and assessed for
impairment whenever there is an indication
that the intangible asset may be impaired.
The amortisation period and the amortisation
method for an intangible asset with a finite
useful life are reviewed at least at the end of
each reporting period with the effect of any
change in the estimate being accounted
for on a prospective basis. The amortisation
expense on intangible assets is recognised in
the Standalone Statement of Profit and Loss
unless such expenditure forms part of carrying
value of another asset.
An intangible asset is derecognised upon
disposal (i.e., at the date the recipient obtains
control) or when no future economic benefits
are expected from its use or disposal. Any gain
or loss arising upon derecognition of the asset
(calculated as the difference between the net
disposal proceeds and the carrying amount
of the asset) is included in the Standalone
Statement of Profit and Loss, when the asset
is derecognised.
Internally generated intangible assets
Internally generated intangible assets,
excluding capitalised development costs, are
not capitalised and expenditure is reflected in
the Standalone Statement of Profit and Loss in
the year in which the expenditure is incurred.
Software product development is expensed
as incurred unless technical and commercial
feasibility of the project is demonstrated,
future economic benefits are probable, the
Company has an intention and ability to
complete and use or sell the software and
the cost can be measured reliably. The costs
which can be capitalised including the cost
of employees and overhead costs that are
directly attributable to preparing the asset for
its intended use.
The Company has identified certain intangibles
which are being internally generated. In
the research phase of an internal project, an
entity cannot demonstrate that an intangible
asset exists that will generate probable future
economic benefits. Therefore, this expenditure
is recognised as an expense when it is incurred.
An intangible asset arising from development
(or from the development phase of an internal
project) shall be recognised if, and only if, an
entity can demonstrate all of the following:
(a) the technical feasibility of completing the
intangible asset so that it will be available
for use or sale.
(b) its intention to complete the intangible
asset and use or sell it.
(c) its ability to use or sell the intangible asset.
(d) how the intangible asset will generate
probable future economic benefits.
Among other things, the entity can
demonstrate the existence of a market
for the output of the intangible asset
or the intangible asset itself or, if it is to
be used internally, the usefulness of the
intangible asset.
(e) the availability of adequate technical,
financial and other resources to complete
the development and to use or sell the
intangible asset.
(f) its ability to measure reliably the
expenditure attributable to the intangible
asset during its development.
The Company had completed the research and
acceptance phase and the projects are in the
development phase. The Company has done
evaluation of the internally generated software
and concluded on being treated as intangible
assets. Refer note 4 for further disclosure.
Amortisation of the asset begins when
development is complete, and the asset is
available for use. It is amortised over the
period of three years. Amortisation expense
is recognised in the Standalone Statement of
Profit and Loss unless such expenditure forms
part of carrying value of another asset.
Amortisation is calculated on a straight line
basis over the estimated useful lives of the
assets as follows:
Patent
Patents and licenses are measured on initial
recognition at professional charges incurred on
registration of such patents in connection with
the Company customer servicing methodology
and if the registration of the patent is under
progress, the same is recognised as Intangible
assets under development.
g. Borrowing costs
Borrowing costs directly attributable to the
acquisition, construction or production of
an asset that necessarily takes a substantial
period of time to get ready for its intended
use or sale are capitalised as part of the cost
of the asset until such time as the assets are
substantially ready for the intended use or
sale. All other borrowing costs are expensed
in the period in which they occur. Borrowing
costs consist of interest and other costs that an
entity incurs in connection with the borrowing
of funds. Borrowing cost also includes
exchange differences to the extent regarded
as an adjustment to the borrowing costs
h. Leases
The Company has lease contracts for office
spaces. The Company assesses at contract
inception whether a contract is, or contains, a
lease. That is, if the contract conveys the right
to control the use of an identified asset for a
period of time in exchange for consideration.
Company as a lessee
The Company applies a single recognition
and measurement approach for all leases,
except for short-term leases and leases of low-
value assets. The Company recognises lease
liabilities to make lease payments and right-
of-use assets representing the right to use the
underlying assets.
Right-of-use assets
The Company recognises right-of-use assets
at the commencement date of the lease (i.e.,
the date the underlying asset is available for
use). Right-of-use assets are measured at
cost, less any accumulated depreciation and
accumulated impairment losses, and adjusted
for any remeasurement of lease liabilities. The
cost of right-of-use assets includes the amount
of lease liabilities recognised, initial direct
costs incurred, and lease payments made at or
before the commencement date less any lease
incentives received. Right-of-use assets are
depreciated on a straight-line basis over the
shorter of the lease term and the estimated
useful lives of the assets.
If ownership of the leased asset transfers to the
Company at the end of the lease term or the
cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated
useful life of the asset.
The right-of-use assets are also subject
to impairment. Refer to the accounting
policies stated under ‘Impairment of non¬
financial assets’.
Lease liabilities
At the commencement date of the lease,
the Company recognises lease liabilities
measured at the present value of lease
payments to be made over the lease term.
The lease payments include fixed payments
(including in substance fixed payments) less
any lease incentives receivable, variable lease
payments that depend on an index or a rate,
and amounts expected to be paid under
residual value guarantees. The lease payments
also include the exercise price of a purchase
option reasonably certain to be exercised
by the Company and payments of penalties
for terminating the lease, if the lease term
reflects the Company exercising the option to
terminate. Variable lease payments that do not
depend on an index or a rate are recognised as
expenses (unless they are incurred to produce
inventories) in the period in which the event or
condition that triggers the payment occurs.
In calculating the present value of lease
payments, the Company uses its incremental
borrowing rate at the lease commencement
date because the interest rate implicit in the
lease is not readily determinable. After the
commencement date, the amount of lease
liabilities is increased to reflect the accretion
of interest and reduced for the lease payments
made. In addition, the carrying amount of
lease liabilities is remeasured if there is a
modification, a change in the lease term, a
change in the lease payments (e.g., changes
to future payments resulting from a change in
an index or rate used to determine such lease
payments) or a change in the assessment of
an option to purchase the underlying asset.
Short term leases and leases of low-value
assets
The Company applies the short-term lease
recognition exemption to its short-term leases
(i.e., those leases that have a lease term of 12
months or less from the commencement
date and do not contain a purchase option).
It also applies the lease of low-value assets
recognition exemption to leases of office
equipment that are considered to be low
value. Lease payments on short-term leases
and leases of low-value assets are recognised
as expense on a straight-line basis over
the lease term.
i. Impairment of non-financial assets
As at the end of each accounting year, the
Company reviews the carrying amounts
of its property plant and equipment and
intangible assets determine whether there is
any indication that those assets have suffered
an impairment loss. If such indication exists,
the said assets are tested for impairment so
as to determine the impairment loss, if any.
Intangible assets with indefinite life are tested
for impairment each year.
Impairment loss is recognised when the
carrying amount of an asset exceeds
its recoverable amount. Recoverable
amount is determined:
(i) in the case of an individual asset, at
the higher of the fair value less costs of
disposal and the value in use; and
(ii) n the case of a cash generating unit
(CGU) (a group of assets that generates
identified, independent cash flows), at
the higher of the cash generating unit’s
net fair value less costs of disposal and
the value in use.
The amount of value in use is determined as
the present value of estimated future cash
flows from the continuing use of an asset and
from its disposal at the end of its useful life.
For this purpose, the discount rate (pre-tax) is
determined based on the weighted average
cost of capital of the Company suitably
adjusted for risks specified to the estimated
cash flows of the asset.
For this purpose, a cash generating unit is
ascertained as the smallest identifiable group
of assets that generates cash inflows that are
largely independent of the cash inflows from
other assets or groups of assets.
If recoverable amount of an asset (or cash
generating unit) is estimated to be less
than its carrying amount, such deficit is
recognised immediately in the Standalone
Statement of Profit and Loss as impairment
loss and the carrying amount of the asset
(or cash generating unit) is reduced to its
recoverable amount.
In assessing value in use, the estimated future
cash flows are discounted to their present
value using a pre-tax discount rate that
reflects current market assessments of the
time value of money and the risks specific to
the asset. In determining fair value less costs
of disposal, recent market transactions are
taken into account. If no such transactions can
be identified, an appropriate valuation model
is used. These calculations are corroborated
by valuation multiples other available fair
value indicators.
The Company bases its impairment calculation
on detailed budgets and forecast calculations,
which are prepared separately for each of
the Company’s CGUs to which the individual
assets are allocated. To estimate cash flow
projections beyond periods covered by the
most recent budgets/forecasts, the Company
extrapolates cash flow projections in the
budget using a steady or declining growth
rate for subsequent years, unless an increasing
rate can be justified. In any case, this growth
rate does not exceed the long-term average
growth rate for the products, industries, or
country in which the Company operates, or for
the market in which the asset is used.
Impairment losses are recognised in the
Standalone Statement of Profit and Loss.
When an impairment loss subsequently
reverses, the carrying amount of the asset
(or cash generating unit) is increased to the
revised estimate of its recoverable amount, but
so that the increased carrying amount does
not exceed the carrying amount that would
have been determined had no impairment
loss is recognised for the asset (or cash
generating unit) in prior years. A reversal of an
impairment loss is recognised immediately in
the Standalone Statement of Profit and Loss.
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