1 SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF ACCOUNTING
The financial statements are prepared under the historical cost convention, on going concern basis and in terms of the Accounting Standards as per Companies (Accounting Standard) Rules 2006 and referred to Sections 129 & 133 of the Companies Act 2013. The Company follows the mercantile system of accounting and recognizes income and expenditure on accrual basis to the extent measurable and where there is certainty of ultimate realization in respect of incomes. Accounting policies not specifically referred to otherwise are consistent and in consonance with the generally accepted accounting principles in India.
The financial statements are prepared on going concern basis as management is confident based on the Company’s global business plans which indicate that in future positive cash flows will be generated and the Company will be able to meet its liabilities as they fall due. The growth will be achieved, inter-alia, through increased market penetration of existing products as well as development of new products and is supported by a strong and growing pipeline.
b) USE OF ESTIMATES
The presentation of financial statements requires estimates and assumptions to be made that affect the reported amount of assets and liabilities on the date of financial statements and the reported amount of revenue and expenses during the reported period. Difference between the actual results and estimates are recognized in the period in which results are known / materialized.
c) REVENUE RECOGNITION
i) Revenue from fixed price service contracts is recognized in proportion to the degree of completion of service by reference to and based on milestones/acts performed as specified in the contracts and in case of time and material service contracts, it is recognized on the basis of hours completed and material used.
ii) Revenue from the sale of user licenses for software applications is recognized on transfer of the title.
iii) Subscription revenue from data base products is recognized proportionately over the period of subscription.
iv) Revenue from annual maintenance contracts is recognized proportionately over the period in which services are rendered.
v) Revenue from Software Consultancy and Support Services is recognized based on proportionate completion method as per specific agreements with the customers.
vi) Dividend Income is accounted for as income when the right to receive dividend is established.
vii) Interest and other dues are accounted on accrual basis.
viii) Revenue excludes Value added tax/sales tax and service tax.
ix) Revenue in excess of billings on service contracts is recorded as unbilled receivables and is included in trade receivable. Billings in excess of revenue that is recognized on service contracts are recorded as deferred revenue until the above revenue recognition criteria are met and are included in current liabilities.
d) TANGIBLE ASSETS
Tangible assets are stated at cost less accumulated depreciation. Cost includes duties, taxes and other expenses incidental to development / acquisition and installation.
e) INTANGIBLE ASSETS
Intangible assets are recognized only if it is probable that the future economic benefits that are attributable to assets will flow to the enterprise and the cost of the assets can be measured reliably. The intangible assets are recorded at their acquisition cost. In respect of internally developed software, costs include development costs directly attributable to the design and development of software.
Computer software which is not an integral part of the related hardware is classified as an intangible asset and is being amortized over the estimated useful life.
f) IMPAIRMENT OF ASSETS
At each Balance Sheet date, the Company assesses whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized in the Statement of Profit and Loss to the extent the carrying amount exceeds the recoverable amount. If at the Balance Sheet date there is an indication that if a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount.
g) BORROWING COSTS
Borrowing costs incurred for the acquisition of qualifying assets are recognized as part of cost of such assets when it is considered probable that they will result in future economic benefits to the Company. Other ancillary costs incurred in obtaining the borrowings which are not eligible for capitalization are amortized over the tenure of Borrowings.
h) DEPRECIATION / AMORTIZATION
Depreciation has been provided based on life assigned to each asset in accordance with Schedule II of the Companies Act, 2013. Depreciation on fixed assets (other than Intangible assets) is provided based on the following useful life of the assets:-
Leasehold improvements are amortized over the lease period or 6 years whichever is earlier. In respect of assets acquired / sold during the year, depreciation is charged on pro-rata basis.
Intangible assets are amortized over a period of three to six years on a straight-line basis, commencing from the date the asset is available to the Company for its use.
Consequent to application of Part C of Schedule II of the Companies Act 2013, the management, based on an internal assessment and evaluation, has adopted the useful life prescribed in Schedule II, wherever appropriate.
i) FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions are recorded at the rate of exchange prevailing on the date of the transaction. At the year end, all the monetary assets and liabilities denominated in foreign currency are restated at the closing exchange rate. Exchange differences resulting from the settlement of such transactions and from the restatement of such monetary assets and liabilities are recognized in the Statement of Profit and Loss.
j) INVESTMENTS
Long-term investments are valued at cost. Cost includes incidental charges incurred towards acquisition of such investments. Provision for diminution, if any, in the value of investments is made to recognize a decline, other than temporary in nature. Current investments are valued at lower of cost and fair value.
k) CASH & CASH EQUIVALENTS
Cash comprises cash at bank. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of change in value.
l) STOCK BASED COMPENSATION
The Stock Options granted by the Company are accounted for as per the accounting treatment prescribed by Securities & Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and the guidance note on Accounting for Stock Options issued by the Institute of Chartered Accountants of India, whereby the intrinsic value of the Options are recognized as deferred employee compensation. The deferred employee compensation is charged to Statement of Profit and Loss on a straight line basis over the vesting period of Options.
m) EMPLOYEE BENEFITS
i) Provident fund is a defined contribution scheme and the contributions as required by the statute are charged to the Statement of Profit and Loss as incurred.
ii) Gratuity liability is a defined obligation and is wholly unfunded. The Company accounts for liability for future gratuity benefits based on an actuarial valuation.
iii) The employees of the Company are entitled to compensated absences and leave encashment as per the policy of the Company, the liability in respect of which is provided, based on an actuarial valuation
iv) Actuarial gains and losses comprise experience adjustments and the effects of changes in the actuarial assumptions and are recognized immediately in the Statement of Profit and Loss as income or expenses.
v) The undiscounted amount of short term employee benefits expected to be paid in exchange for services rendered by an employee is recognized during the period when the employee renders the services.
n) TAXES ON INCOME
Current tax is determined on the basis of the Income Tax Act, 1961.
Deferred tax is recognized on timing differences between the accounting income and the taxable income for the year and quantified using the tax rates and laws enacted or substantively enacted as on the Balance Sheet date.
Deferred tax assets are recognized 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 asset can be realized, except for unabsorbed depreciation and carry forward of losses under the tax laws where deferred tax assets are recognized only to the extent that there is virtual certainty, supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realized.
o) PROVISIONS AND CONTINGENT LIABILITIES
A provision is recognized when the Company has a present obligation as a result of past events, for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are determined based on management estimate required to settle the obligation at the balance sheet date.
Provisions are reviewed regularly and are adjusted where necessary to reflect the current best estimates of the obligation.
Liabilities which are material and whose future outcome cannot be ascertained with reasonable certainty is treated as contingent and to the extent not provided for are disclosed by way of notes to the accounts.
p) ACCOUNTING FOR LEASES
Assets acquired under leases where the Company has substantially all the risks and rewards of ownership are classified as finance lease. Such leases are capitalized at the inception of the lease at lower of the fair value or the present value of the 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.
Assets acquired under leases where a significant portion of the risk and rewards of ownership are retained by the lessor are classified as operating leases. Lease rentals are charged to the Statement of Profit and Loss on accrual basis.
q) OPERATING CYCLE
All assets and liabilities have been classified as current or non-current as per the Company’s normal operating cycle and other criteria set out in the Schedule III to the Companies Act,2013. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current/non current classification of assets and liabilities.
r) DERIVATIVE TRANSACTIONS
The Company uses derivative financial instruments such as currency swaps to hedge its risks associated with foreign currency fluctuation relating to the underlying transactions, highly probable forecast transactions and firm commitments. The derivative contracts outstanding at the Balance Sheet date are marked to market and resulting loss, if any is provided for in the financial statements. Any profit or losses arising on cancellation of derivative instruments are recognized as income or expense for the period.
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