MATERIAL ACCOUNTING POLICIES
a) Revenue Recognition:
Revenue is recognized upon transfer of
control of promised services to customers in
an amount that reflects the consideration the
Company expects to receive in exchange for
those products or services.
The significant accounting policies related to
revenue recognition are as under:
Software service income:
The Company has applied the guidance
in Ind AS 115 “Revenue from Contracts
with Customers” by applying the revenue
recognition criteria for each distinct
performance obligation. The arrangements
with customers generally meet the criteria
for considering software testing services
as distinct performance obligations. The
transaction price as allocated to each distinct
performance obligation is defined in the
contract with the customer. In case of fixed
bid contracts, the performance obligations
are satisfied as and when the services are
rendered since the customer generally
obtains control of the work as it progresses
and the entity’s performance creates an asset
with no alternative use to the entity and the
entity has an enforceable right to payment for
performance completed to date.
The amount of revenue recognised depends
on whether the Company acts as an agent
or principal. The Company acts as a principal
when the Company controls the specified
good or service prior to transfer. Where the
Company acts as a principal, the revenue
recorded is the gross amount billed. Where
the Company acts as an agent as the Company
does not control the relevant good or service
before it is transferred to customers, the
revenue recorded is the net amount retained.
A summary of the revenue recognition criteria
are given below:
i. The Company derives revenue from
software services which involve primarily
delivering software validation and
verification services to the banking,
financial services and insurance industry
worldwide. Arrangements with customers
are on a fixed-bid or a time -and- material
basis.
ii. Revenue in respect of time -and- material
contracts is recognized based on time/
efforts spent and/ or billed to clients as per
the terms of specific contracts as there is
a direct relationship between input and
productivity.
iii. Revenue from fixed-bid contract, where
the performance obligations are satisfied
over time and where there is no uncertainty
as to measurement or collectability of
consideration, is recognized as per the
percentage-of-completion method. When
there is uncertainty as to measurement or
ultimate collectability, revenue recognition
is postponed until such uncertainty is
resolved. Efforts or costs expended have
been used to measure progress towards
completion as there is a direct relationship
between input and productivity.
Revenues in excess of invoicing are
classified as contract assets (which the
Company refers to as Unbilled Revenue)
while invoicing in excess of revenues are
classified as contract liabilities (which the
Company refers to as Unearned Revenue).
The billing schedules agreed with
customers include periodic performance
based payments and / or milestone based
progress payments. Invoices are payable
within contractually agreed credit period.
iv. The Company accounts for volume
discounts and pricing incentives to
customers as a reduction of revenue based
on the relatable allocation of the discounts/
incentives to each of the underlying
performance obligation that corresponds
to the progress by the customer towards
earning the discount/ incentive. Also,
when the level of discount varies with
increases in levels of revenue transactions,
the company recognizes the liability
based on its estimate of the customer’s
future purchases. If it is probable that
the criteria for the discount will not be
met, or if the amount thereof cannot be
estimated reliably, then discount is not
recognized until the payment is probable
and the amount can be estimated reliably.
The Company recognizes changes in
the estimated amount of obligations
for discounts in the period in which the
change occurs.
v. Contracts with customers who provide
a minimum assured mark up to costs
incurred, the Company records a true up
adjustment at the year end for the eligible
revenue based on such contracts after
reducing the amount already invoiced/
recognized as revenue up to the year end
reporting date.
vi. Revenue includes reimbursement of
expenses, wherever billed, as per the terms
of the contracts.
vii. Deferred contract costs are incremental
costs of obtaining a contract which are
recognized as assets and amortized over
the term of the contract.
viii. The Company presents revenues excluding
indirect taxes in its Statement of Profit and
Loss.
ix. Provision for estimated losses, if any, on
uncompleted contracts are recorded in
the period in which such losses become
probable based on the current contract
estimates.
b) Property, Plant and Equipment:
Freehold land is carried at historical cost.
Property, plant and equipment are stated
at cost less accumulated depreciation and
impairment losses, if any. Cost comprises the
purchase price and any attributable cost of
bringing the asset to its working condition
for its intended use. Borrowing Costs relating
to acquisition of qualifying assets which takes
substantial period of time to get ready for its
intended use are also included to the extent
they relate to the period till such assets are
ready to be put to use.
Depreciation on assets is provided on the
straight line method on the basis of useful life
which is equal to or lower than the useful life
prescribed in Schedule II of the Companies
Act, 2013 for all the assets. The useful life is
determined on the management’s technical
evaluation.
In the view of the management, property,
plant and equipment individually costing Rs.
5,000/- or less are depreciated in full in the year
of acquisition.
Depreciation methods, useful lives and residual
values are reviewed periodically, including at
each financial year end.
Advances paid towards the acquisition of
property, plant and equipment outstanding at
each Balance Sheet date is classified as capital
advances under other non-current assets and
the cost of assets not put to use before such date
are disclosed under ‘Capital work-in-progress’.
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 is derecognized when
replaced. All other repairs and maintenance are
charged to profit or loss during the reporting
period in which they are incurred.
The cost and related accumulated depreciation
are eliminated from the financial statements
upon sale or retirement of the asset and the
resultant gains or losses are recognized in
the Statement of Profit and Loss. Assets to be
disposed off are reported at the lower of the
carrying value or the fair value less cost to sell.
c) Intangible Assets:
Intangible Assets are stated at costs less
accumulated amortization and impairment
losses if any. Intangible Assets are amortized
over their respective individual estimated useful
lives on a straight line basis, from the date they
are available for use. The estimated useful life
of an identifiable intangible asset is based
on a number of factors including the effects
of obsolescence, demand, competition and
other economic factors (such as stability of the
industry, and known technological advances),
and the level of maintenance expenditures
required to obtain the expected future cash
flows from the asset. Amortization methods and
useful lives are reviewed periodically including
at each financial year end. If the estimated
useful life of the asset is significantly different
from previous estimates, the amortization
period is changed accordingly. The costs which
can be capitalized include the cost of material,
direct labour, overhead costs that are directly
attributable to preparing the asset for its
intended use.
Gain 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
recognized in the Statement of Profit and Loss,
when the asset is derecognized.
Amortization rates currently applied are as
follows:
In the view of the management, intangible
assets individually costing Rs. 5,000/- or less
have a useful life of one year and are hence
fully amortized in the year of acquisition.
Intangible assets not ready for the intended use
on the date of the Balance Sheet are disclosed
as “Intangible assets under development”.
d) Employee Benefits:
i) Short term employee benefits:
Short term employee benefits are expensed
as the related service is provided. A liability
is recognised for the amount expected to be
paid if the Company has a present legal or
constructive obligation to pay this amount as a
result of past service provided by the employee
and the obligation can be estimated reliably.
Compensated Absences:
The Company pays leave encashment on short
term basis for Onsite employees for the period
of leave they are entitled to during their onsite
stay.
ii) Post Employment obligations:
(a) Defined contribution plan:
Employee benefits in the form of Provident
Fund/ Social Security payments are defined
contribution schemes and contributions
made are charged to the Statement of
Profit and Loss for the year. The Company
has no further obligations under these
plans beyond it’s periodic contributions.
Obligations for contributions to defined
contribution plans are expensed as the
related service is provided.
The Company pays provident fund
contributions to provident funds as per
local regulations. The Company has
no further payment obligations once
the contributions have been paid. The
contributions are accounted for as defined
contribution plans and the contributions
are recognised as employee benefit
expense when they are due. Prepaid
contributions are recognised as an asset to
the extent that a cash refund or a reduction
in the future payments is available.
(b) Defined benefit plan:
Gratuity:
The Company provides for gratuity, a
defined benefit retirement plan (‘the
Gratuity Plan’) covering all its eligible
employees. The Gratuity Plan provides a
lump-sum payment to vested employees
at retirement, death, incapacitation or
termination of employment, of an amount
based on the respective employee’s salary
and the tenure of employment with the
Company.
Liability with regard to the gratuity plan
are determined by actuarial valuation,
performed by an independent actuary,
at each Balance Sheet date using the
projected unit credit method. The
Company recognizes the net obligation of
a defined benefit plan in its Balance Sheet
as an asset or liability.
The net interest cost is calculated by
applying the discount rate to the net
balance of the defined benefit obligation
and the fair value of plan assets. This cost
is included in employee benefit expense in
the statement of profit and loss.
Re-measurement of the net defined
benefit liability, which comprise
actuarial gains and losses are recognised
immediately in other comprehensive
income. Net interest expense/(income)
on the net defined liability/(assets) is
computed by applying the discount rate,
used to measure the net defined liability/
(asset). Net interest expense and other
expenses related to defined benefit plans
are recognised in the Statement of Profit
and Loss. Changes in the present value of
the defined benefit obligation resulting
from plan amendments or curtailments
are recognised immediately in profit or
loss as past service cost.
iii) Long Term Employee Benefits:
The Company’s net obligation in respect of
long term employee benefits for offshore
employees, being long term compensated
absences, is the amount of future benefits
that employee have earned in return
for the service in the current and prior
periods. The liability is determined by an
independent actuary, using Projected Unit
Credit Method. Actuarial gains and losses
are recognised immediately as income or
expense in the Statement of Profit and
Loss. Obligation is measured at the present
value of estimated future cash flows
using a discount rate that is determined
by reference to the market yields at the
Balance Sheet date on Government Bonds
where the currency and terms of the
Government Bonds are consistent with
the currency and estimated terms of the
defined benefit obligation.
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