2. Material accounting policies
2.1 Basis of preparation
The Standalone Financial Statements of the
Company have been prepared in accordance
with Indian Accounting Standards (‘Ind AS')
notified under the Companies (Indian Accounting
Standards) Rules, 2015 (as amended from time to
time) and presentation requirements of Division
II of Schedule III to the Companies Act, 2013, (Ind
AS compliant Schedule III), as applicable to the
Standalone Financial Statements.
The Standalone Financial Statements have been
prepared on a historical cost basis, except for the
following assets and liabilities which have been
measured at fair value:
• Certain financial assets and liabilities
measured at fair value (refer accounting
policy regarding financial instruments)
• Contingent consideration
The Standalone Financial Statements are
presented in INR and all values are rounded to the
nearest lakhs, except when otherwise indicated.
2.2 Summary of material accounting policies
(a) Use of estimates and judgements
The preparation of Standalone Financial
Statements in conformity with Ind AS requires
the management to make judgments,
estimates and assumptions that affect the
reported amounts of revenues, expenses,
assets and liabilities and the disclosure of
contingent liabilities, at the end of the reporting
year. Although these estimates are based on
the management's best knowledge of current
events and actions, uncertainty about these
assumptions and estimates could result in the
outcomes requiring a material adjustment to
the carrying amounts of assets or liabilities in
future periods.
The key assumptions concerning the future and
other key sources of estimation uncertainty
at the reporting date, that have a significant
risk of causing a material adjustment to the
carrying amounts of assets and liabilities
within the next financial year. The Company
based its assumptions and estimates on
parameters available when the Standalone
Financial Statements were prepared. Existing
circumstances and assumptions about future
developments, however, may change due to
market changes or circumstances arising that
are beyond the control of the Company. Such
changes are reflected in the assumptions
when they occur.
(b) Current versus non-current classification
The Company presents assets and liabilities
in the 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 primarily for the purpose of
trading;
• 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 Company classifies all other liabilities as
non-current.
Deferred tax assets and liabilities are classified
as non-current assets and liabilities.
The operating cycle is the time between the
acquisition of assets for processing and their
realisation in cash and cash equivalents. The
Company has identified twelve months as its
operating cycle.
(c) Foreign currencies
The Company's Standalone Financial
Statements are presented in INR, which is the
functional currency of the Company.
Transactions and balances
Transactions in foreign currencies are initially
recorded by the Company at its functional
currency spot rates at the date the transaction
first qualifies for recognition.
Monetary assets and liabilities denominated
in foreign currencies are translated at the
functional currency spot rates of exchange at
the reporting date.
Exchange differences arising on settlement or
translation of monetary items are recognised
in profit or loss.
Non-monetary items that are measured in
terms of historical cost in a foreign currency
are translated using the exchange rates at
the dates of the initial transactions. Non¬
monetary items measured at fair value in
a foreign currency are translated using the
exchange rates at the date when the fair
value is determined. The gain or loss arising on
translation of non-monetary items measured
at fair value is treated in line with the recognition
of the gain or loss on the change in fair value of
the item (i.e., translation differences on items
whose fair value gain or loss is recognised
in OCI or statement of profit or loss are also
recognised in OCI or statement of profit or loss,
respectively).
In determining the spot exchange rate to use on
initial recognition of the related asset, expense
or income (or part of it) on the derecognition
of a non-monetary asset or non-monetary
liability relating to advance consideration, the
date of the transaction is the date on which
the Company initially recognises the non¬
monetary asset or non-monetary liability
arising from the advance consideration. If there
are multiple payments or receipts in advance,
the Company determines the transaction
date for each payment or receipt of advance
consideration.
(d) Fair value measurement
The Company measures financial instruments,
such as, derivatives 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; and
• 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.
(e) Revenue from contracts with customer
The Company derives revenue primarily from
Digital Assurance and Engineering (Software
testing) Services. Revenue from contracts with
customers is recognised when control of the
services are transferred to the customer at
an amount that reflects the consideration to
which the Company expects to be entitled in
exchange for those services. The Company has
concluded that it is the principal in its revenue
arrangements since it is the primary obligor
in all the revenue arrangements as it has
pricing latitude and is also exposed to credit
risks. Revenue is net of volume discounts/price
incentives which are estimated and accounted
for based on the terms of contract.
Rendering of services
Revenue from Digital Assurance and
Engineering (Software testing) Services
rendered to its subsidiary companies is
recognised on accrual basis for services
rendered and billed as per the terms of specific
contract.
The method for recognizing revenues and costs
depends on the nature of services rendered to
others as mentioned below:
• Time and material: Revenue from time and
material contracts are recognised as the
related services are performed, which is
pursued based on the efforts spent and
agreed rate with the customer. Revenue
from the end of the last invoicing to the
reporting date is recognised as unbilled
revenue.
• Fixed price contracts: Revenue from fixed-
price contracts is recognised as per the
‘percentage- of-completion' method,
where the performance obligations are
satisfied over time and when there is
no uncertainty as to measurement or
collectability of consideration. When there
is uncertainty as to measurement or
ultimate collectability, revenue recognition
is postponed until such uncertainty is
resolved. Percentage of completion is
determined based on the project costs
incurred to date as a percentage of
total estimated project costs required
to complete the project. The input
method has been used to measure the
progress towards completion as there
is direct relationship between input and
productivity.
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.
Revenue in excess of invoicing are classified as
unbilled revenue (contract assets).
Trade receivables
A receivable represents the Company's
right to 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 financial instruments - initial
recognition and subsequent measurement.
Contract liabilities
A contract liability is the obligation to transfer
services to a customer for which the Company
has received consideration (or an amount
of consideration is due) from the customer.
If a customer pays consideration before the
Company transfers services to the customer,
a contract liability is recognised when the
payment is made or the payment is due
(whichever is earlier). Contract liabilities are
recognised as revenue when the Company
performs under the contract.
Other income
• Income from Government incentive:
Income from Services Exports from
India Scheme (‘SEIS') incentives under
Government's Foreign Trade Policy 2015¬
20 is recognised on expected realisable
value based on effective rate of incentive
under the scheme, provided no significant
uncertainty exists for the measurability,
realisation and utilisation of the credit under
the scheme. The receivables related to
SEIS scrips are classified as ‘Other financial
assets' as “Export incentive receivable”
• Interest income is recognised on a time
proportion basis taking into account the
amount outstanding and rate applicable
in the transaction.
• Earnings and losses from investments is
recognised based on changes in fair value
of investments during the year and are
reported on net basis.
• Foreign currency gains and losses are
reported on net basis.
(f) Taxes
Current income tax
Current income tax assets and liabilities
are measured at the amount expected to
be recovered from or paid to the taxation
authorities. The tax rates and tax laws used
to compute the amount are those that are
enacted or substantively enacted, at the
reporting date in the countries where the
Company operates and generates taxable
income.
Current income tax relating to items
recognised outside profit or loss is recognised
outside profit or loss (either in OCI 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 establishes provision where appropriate.
Deferred tax
Deferred tax is provided using the liability
method on temporary differences between
the tax bases of assets and liabilities and
their carrying amounts for financial reporting
purposes at the reporting date.
Deferred tax liabilities are recognised for all
taxable temporary differences, except:
• When the deferred tax liability arises from
the initial recognition of goodwill or an
asset or liability in a transaction that is
not a business combination and, at the
time of the transaction, affects neither the
accounting profit nor taxable profit or loss
and does not give rise to equal taxable
and deductible temporary differences.
• In respect of taxable temporary
differences associated with investments
in subsidiaries, when the timing of the
reversal of the temporary differences can
be controlled and it is probable that the
temporary differences will not reverse in
the foreseeable future
Deferred tax assets are recognised for all
deductible temporary differences, the carry
forward of unused tax credits and any unused
tax losses. Deferred tax assets are recognised 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, except:
• When the deferred tax asset relating to
the deductible temporary difference
arises from the initial recognition of an
asset or liability in a transaction that is
not a business combination and, at the
time of the transaction, affects neither the
accounting profit nor taxable profit or loss
and does not give rise to equal taxable
and deductible temporary differences.
• In respect of deductible temporary
differences associated with investments
in subsidiaries, deferred tax assets are
recognised only to the extent that it is
probable that the temporary differences
will reverse in the foreseeable future and
taxable profit will be available against
which the temporary differences can be
utilised
The carrying amount of deferred tax assets is
reviewed at each reporting 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 period when the asset is realised or the
liability is settled, based on tax rates and tax
laws that have been enacted or substantively
enacted at the reporting date.
Deferred tax relating to items recognised
outside profit or loss is recognised outside
profit or loss (either in OCI 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.
GST paid on acquisition of assets or on
incurring expenses
Expenses and assets are recognised net of the
amount of GST paid, except:
• When the tax incurred on purchase of
assets or services is not recoverable from
the taxation authority, in which case, the
tax paid is recognised as part of the cost
of acquisition of the asset or as part of the
expense item, as applicable
• When receivables and payables are stated
with the amount of tax included.
The net amount of tax recoverable from, or
payable to, the taxation authority is included as
part of receivables or payables in the balance
sheet.
(g) Property, plant and equipment
Capital work in progress is stated at cost, net of
accumulated impairment loss, if any. Property,
plant and equipment is stated at cost, net of
accumulated depreciation and accumulated
impairment losses, if any. Property, plant
and equipment under installation or under
construction as at balance sheet are shown
as capital work-in-progress, and the related
advances are shown as loans and advances.
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 statement of profit and loss
when the asset is derecognised.
Depreciation
Depreciation on property, plant and
equipment is calculated on a straight-line
basis using the rates arrived at based on the
useful lives estimated by the management.
The management has made technical
assessment of the useful lives of the following
classes of assets which coincides with the lives
prescribed under Schedule II of the Companies
Act, 2013:
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.
(h) 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.
The useful lives of intangible assets are
assessed as either finite or indefinite.
Intangible assets with finite lives are amortized
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. The amortisation
expense on intangible assets with finite lives is
recognised in the statement of profit and loss.
A summary of the policies applied to the
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Intangible assets with indefinite useful lives are
not amortized, but are tested for impairment
annually, either individually or at the cash¬
generating unit level. The assessment of
indefinite life is reviewed annually to determine
whether the indefinite life continues to be
supportable. If not, the change in useful life from
indefinite to finite is made on a prospective
basis.
Gains or losses arising from derecognition
of an intangible asset are measured as the
difference between the net disposal proceeds
and the carrying amount of the asset and are
recognised in the statement of profit or loss
when the asset is derecognised.
(i) Leases
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 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.
i) 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 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, as
follows:
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 in section Impairment of non¬
financial assets.
ii) 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.
iii) Short-term leases and leases of low-
value assets
The Company applies the short-term lease
recognition exemption to its short-term
leases of machinery /and equipment (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.
(j) Impairment of non-financial assets
The Company assesses, at each reporting
date, whether there is an indication that an
asset may be impaired. If any indication exists,
or when annual impairment testing for an asset
is required, the Company estimates the asset's
recoverable amount. An asset's recoverable
amount is the higher of an asset's or Cash¬
Generating Unit's (CGU) fair value less costs
of disposal and its value in use. Recoverable
amount is determined for an individual asset,
unless the asset does not generate cash
inflows that are largely independent of those
from other assets or Company of assets.
When the carrying amount of an asset or CGU
exceeds its recoverable amount, the asset is
considered impaired and is written down 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.
Impairment losses of continuing operations
are recognised in the statement of profit and
loss.
The Company bases its impairment calculation
on detailed budgets and forecast calculations,
which are prepared separately for the
Company's CGU. These budgets and forecast
calculations generally cover a period of five
years. For longer periods, a long-term growth
rate is calculated and applied to project future
cash flows after the fifth year. 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 or countries in which the
Company operates, or for the market in which
the asset is used.
An assessment is made at each reporting date
to determine whether there is an indication
that previously recognised impairment losses
no longer exist or have decreased. If such
indication exists, the Company estimates
the asset's or CGU's recoverable amount.
A previously recognised impairment loss is
reversed only if there has been a change
in the assumptions used to determine the
asset's recoverable amount since the last
impairment loss was recognised. The reversal
is limited so that the carrying amount of the
asset does not exceed its recoverable amount,
nor exceed the carrying amount that would
have been determined, net of depreciation,
had no impairment loss been recognised
for the asset in prior years. Such reversal is
recognised in the statement of profit or loss.
After impairment, amortisation is provided on
the revised carrying amount of the asset over
its remaining useful life.
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