Note 1A: Company information and Material accounting policies
a. Background
Megasoft Limited, a public limited company domiciled in India and incorporated under the provisions of
the Companies Act, 1956, on 29 June 1999 and is registered office in Chennai. The company’s shares are
listed on BSE and NSE, in India.
b. Basis of Preparation
These Financial Statements have been prepared on accrual basis of accounting in accordance with Indian
Accounting Standards (IND AS) as per the Companies (Indian Accounting Standards) Rules, 2015, as
amended, notified under Section 133 of Companies Act, 2013, (the ‘Act’) and other relevant provisions of
the Act.
Disclosures under IND AS are made only in respect of material items and in respect of the items that will be
useful to the users of Financial Statements in making economic decisions.
c. Basis of Measurement
The Financial Statements have been prepared in Going concern basis and on an accrual method of accounting.
Historical cost is used in preparation of Financial Statements except for the following items which are
measured at Fair value:
i) Certain Financial assets and liabilities
ii) Net Defined benefit (Asset)/ Liability
d. Functional and Presentation currency
The Financial Statements are presented in Indian Rupees (INR), which is the Company’s functional currency.
All financial information presented in INR has been rounded to the nearest Lakhs, except as stated otherwise.
e. Use of estimates and management judgement
The preparation of Financial Statements in conformity with the accounting policies requires the management
to make estimates and assumption considered in the reported amounts of assets and liabilities (including
contingent liabilities) and the reported income and expenses during the year. The Management believes
that the estimates used in preparation of the Financial Statements are prudent and reasonable. Future results
could differ due to these estimates and the differences between the actual results and the estimates are
recognised in the periods in which the results are known/materialize.
Note 1B: Material accounting policies
A Summary of significant accounting policies applied in the preparation of Financial Statements is given
below. These accounting policies have been applied consistently to all the periods presented in the Financial
Statements.
a. Revenue Recognition
Revenue from software development on time and material basis is recognized based on software developed
and billed to clients as per the terms of specific contracts. In the case of fixed-price contracts, revenue is
recognized based on the milestones achieved as specified in the contracts or on the percentage of completion
basis. Provision for estimated losses on incomplete contract is recorded in the period in which such losses
become probable based on the current estimates. Revenue from product licenses and related revenue are
recognized as follows:
• License fees, on delivery and subsequent milestone schedule as per the terms of the contract with the
end use
• Product maintenance revenues, over the period of the maintenance contract
b. Property, Plant and Equipment
i) Initial and Subsequent Recognition:
All items of Property, Plant and equipment (PPE) are measured at Historical cost, which includes capitalised
borrowing cost less accumulated depreciation and impairment loss, if any.
Items of spare parts, standby equipment and servicing equipment which meet the definition of property, plant
and equipment are capitalised. Other spare parts are carried as inventory and recognised in the Statement of
Profit and Loss on consumption.
Where the cost of depreciable assets has undergone a change during the year due to increase/ decrease
in long term liabilities on account of exchange fluctuation price adjustment, change in duties or similar
factors, and the unamortized balance of such asset is charged off prospectively over the remaining useful life
determined following the applicable accounting policies relating to depreciation/ amortization.
On transition to IND AS, the company has elected to adopt the cost model i.e., cost less accumulated
depreciation for all of its Property, Plant and Equipment as at 1st April, 2016. Except for land which has
been revalued to reflect the fair value.
The Property, Plant and equipment of the Company are physically verified in a phased manner to cover all
the items of PPE over a period of three years, which in the Management’s opinion, is reasonable having
regard to the size of the Company and the nature of its assets. Property, Plant and Equipment are capitalized
when the assets are ready for their intended use and when occupancy certificate is received in respect of
immovable properties.
ii) Depreciation
Depreciation is recognised in Statement of Profit and Loss on a straight - line basis over the estimated useful
lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter
of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership
by the end of the lease term.
Depreciation on additions to/ deductions from property, plant and equipment during the year is charged on
pro - rata basis from/ up to the month in which the asset is available for use/ disposed.
iii) Goodwill and Other Intangible Assets:
On transition to IND AS, the Company has elected to continue with the carrying value of all its intangible
assets recognised as at 1st April, 2016, measured at previous GAAP, and use that carrying value as the
deemed cost of such intangible assets.
Software which is not an integral part of related hardware, is treated as intangible asset and amortised over
a period five years or its license period, whichever is less.
On Transition to IND AS the company has elected to continue with the carrying value of all intangible assets
recognised as at 1st April, 2016 measured as per the previous GAAP and use the carrying value as deemed
cost.
iv) Capital work - in - progress:
The cost of self-constructed assets include the cost of materials and direct labour, and any other costs
directly attributable to bringing the assets to the location and condition necessary for it to be capable of
operating in the manner intended by management and borrowing costs.
Expenses directly attributable to construction of property, plant and equipment incurred till they are ready
for their intended use are identified and allocated on a systematic basis of the cost of related assets.
Unsettled liabilities for price variation/exchange rate variation in case of contracts are accounted for on
estimated basis as per terms of the contracts.
v) Leases:
The company’s lease assets primarily comprise of buildings. The company assesses whether a contract
contains a lease at the inception of the contract. A contract is, or contains a lease, if the contract conveys the
right to control the use of an identified asset for a period of time in exchange for consideration. To assess
whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:
i) the contract involves the use of an identified asset
ii) the Company has substantially all of the economic benefits from use of the asset through the
period of the lease and
iii) the Company has the right to direct the use of the asset.
Transition
Effective April 1, 2019, the Company adopted Ind AS 116 “Leases” and applied the standard to all lease
contracts existing on April 1, 2019 are accounted for as per the provisions of the standard. Consequently, the
Company recorded the lease liability at the present value of the lease payments discounted at the incremental
borrowing rate. Right of Use (ROU) assets have been recognized by the Company at an amount equal to the
lease liability, adjusted for previously recognized prepaid or accrued lease payments.
c. Cash Flow Statement
Cash flow statement is prepared in accordance with the indirect method prescribed in IND AS 7 “Cash Flow
Statement”.
d. Prior Period Errors
Material prior period errors are corrected retrospectively by restating the comparative amounts for the prior
periods presented in which the error occurred. If the error occurred before the earliest period presented, the
opening balances of assets, liabilities, and equity for the earliest period presented, are restated.
e. Income Tax
Income tax expense comprises Current and Deferred tax. Current Tax expense is recognised in Statement
of Profit and Loss except to the extent that it relates to items recognised directly in Other Comprehensive
Income (OCI) or Equity, in which case it is recognised in OCI or Equity.
Current tax is the amount of tax payable on the taxable income for the year as determined in accordance
with the applicable tax rates and the provisions of the Income Tax Act, 1961 and other applicable tax laws.
Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the
reporting date. Deferred tax liabilities are recognized for all timing differences.
Deferred tax assets are recognized for all temporary differences and unused tax losses only if it is probable
that future taxable amounts will be available to utilize those temporary differences and losses. Deferred tax
assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws
and the Company has a legally enforceable right for such set off. Deferred tax assets are reviewed at each
balance sheet date for their reliability.
Deferred Tax expense is recognised in Statement of Profit and Loss except to the extent that it relates to
items recognised directly in Other Comprehensive Income (OCI) or Equity, in which case it is recognised
in OCI or Equity.
f. Employee Benefits
Defined contribution plans: Contributions to defined contribution plans are recognized as expenses when
employees have rendered services entitling them to such benefits.
Defined benefit plans: For defined benefit plans, the cost of providing benefits using the projected Unit Credit
Method, with actuarial valuations being carried out at each Balance sheet date. Actuarial gains and losses
are recognised in full in the other Comprehensive income for the period in which they occur. Past service
cost both vested and unvested is recognised as expenses at the earlier of (a) when the plan amendment or
curtailment occurs: and (b) when the entity recognises related restructuring costs or termination benefits.
The retirement benefit obligations recognised in the Balance Sheet represents the present value of the defined
benefit obligations reduced by the fair value of scheme assets. Any assets resulting from this calculation is
limited to the present value of available refunds and reductions in future contributions to the scheme.
g. Foreign currency translation
Transactions in foreign currencies entered into by the Company are accounted at the exchange rates
prevailing on the date of the transaction or at rates that are closely approximate to the rate at the date of the
transaction. Foreign currency monetary items of the Company, outstanding at the balance sheet date are
restated at the year-end rates. Exchange differences arising on settlement / restatement of foreign currency
monetary assets and liabilities of the Company are recognized as income or expense in the Statement of
Profit and Loss except in cases of exchange differences on account of depreciable assets are adjusted in cost
of depreciable asset and would be depreciated over the balance life of asset.
h. Borrowing Cost
Borrowing costs, allocated to and utilized for qualifying assets, pertaining to the period from commencement
of activities relating to construction/development of the qualifying asset up to the date of capitalization of
such asset is added to the cost of the assets. Borrowing costs include interest, amortization of ancillary costs
incurred. Costs in connection with the borrowing of funds to the extent not directly related to the acquisition
of qualifying assets are charged to the Statement of Profit and Loss over the tenure of the loan. Capitalization
of borrowing costs is suspended and charged to the Statement of Profit and Loss during extended periods
when active development activity on the qualifying assets is interrupted.
i. Impairment of Non-Financial Assets
The carrying amount of Company’s Non - financial Assets are reviewed at each reported date to determine
whether there is an indication of impairment ‘considering the provisions of IND AS 36 “Intangible Assets”.
Impairment loss is recognised if the carrying amount of the assets or its Cash Generating Units (CGU)
exceeds its estimated recoverable amount. Impairment losses are recognised in Profit and Loss. Impairment
losses recognised in respect of CGUs are reduced from the carrying amounts of the assets of the CGU.
Non-Financial assets that suffered impairment are reviewed for possible reversal of the impairment at the
end of each reporting period.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the
loss has decreased or no longer exists.
An Impairment loss is reversed if there has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed
the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment
loss had been recognised.
j. Earnings per share
Basic earnings per share are computed by dividing the net profit/loss after tax attributable to the equity
shareholders of the company by the weighted average number of equity shares outstanding during the year.
Diluted earnings per share is computed by dividing the net profit/loss after tax attributable to the equity
shareholders of the company as adjusted for dividend, interest and other charges to expense or income
relating to the dilutive potential equity shares, by the weighted average number of equity shares considered
for deriving basic earnings per share and the weighted average number of equity shares which could have
been issued on the conversion of all dilutive potential equity shares.
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