2. MATERIAL ACCOUNTING POLICY INFORMATION
Basis of preparation
The standalone financial statements have been prepared on a historical cost convention and on an accrual basis of accounting, except for the
following assets and liabilities which have been measured at fair value.
> Derivative financial instruments.
> Investments classified as Fair Value Through Profit or Loss (‘FVTPL’) /Fair Value Through Other Comprehensive Income (‘FVTOCI’).
> Fair value of plan assets less present value of defined benefit obligations.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. 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.
All assets and liabilities have been classified as current and non-current as per the Companies’ normal operating cycle of 12 months. Current
assets do not include assets which are not expected to be realised within 12 months and current liabilities include only items where the
Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.
The standalone financial statements are presented in INR (‘?’) and all the values are rounded off to the nearest million (INR 000,000) except
when otherwise indicated.
The statement of cash flows have been prepared under the indirect method.
The Company has consistently applied the following accounting policies to all periods presented in these standalone financial statements.
Use of estimates, assumptions and judgements
The preparation of the standalone financial statements in conformity with Ind AS requires management to make estimates, judgements
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date
of the standalone financial statements and the reported amounts of revenues and expenses for the year. Actual results could differ from
those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Appropriate change in estimates are made as
management become aware of changes in circumstances surrounding the estimates. Revisions to accounting estimates are recognised in the
year in which the estimates are revised.
Application of accounting policies that require critical accounting estimates involving judgements and the use of assumptions in the
standalone financial statements have been disclosed below:
Judgements
• Revenue recognition (Note 2.1, 22)
Determination of transaction price; identification of performance obligations and allocation of transaction price; recognition of revenue
from performance obligations over time or at a point in time; revenue recognition relating to variable consideration arrangements;
recognition of contract fulfilment cost and contract acquisition cost.
• Leases (Note 2.4, 4)
Assessment of whether or not an arrangement contains a lease, whether the Company is reasonably certain to exercise extension
options.
Estimates and assumptions:
• Revenue recognition for fixed price contracts using percentage of completion method (Note 2.1, 22)
Estimate of balance to go cost of efforts.
• Property, plant, and equipment and other intangible assets (Note 2.3, 3,5)
Useful life of property, plant and equipment and other intangible assets.
• Leases (Note 2.4, 4)
Determination of applicable discount rate.
• Impairment of investment in subsidiaries (Note 2.6)
Recoverable amount.
• Fair value measurement of financial instruments (Note 2.7, 35)
Unobservable sources for inputs to determine the fair value.
• Defined benefit plans (Note 2.8, 34)
Key actuarial assumptions.
• Taxes (Note 2.11, 21)
Estimating the most likely outcome of uncertain tax positions; availability of future taxable income against which deductible temporary
differences can be utilized.
• Expected credit loss ('ECL’) on trade receivables (Note 10)
Key assumptions in determining the weighted-average loss rate.
• Provisions and contingent liabilities (Note 2.12, 17, 29)
Key assumptions about the likelihood and magnitude of an outflow of resources.
2.1 Revenue recognition
Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the transaction price
(net of variable consideration) allocated to a particular performance obligation.
The Company derives its revenues primarily from rendering application development and maintenance services, infrastructure outsourcing
services, call centre and business & knowledge process outsourcing operations and licensing arrangements.
• Revenue from rendering application development and maintenance services comprise income from time-and-material, fixed monthly
billings and milestone-based fixed price contracts. Revenues from call center, business & knowledge process outsourcing operations
and infrastructure outsourcing services arise from time-based, unit-priced, fixed monthly billings and milestone-based fixed priced
contracts.
• Revenue from time and material, unit-priced contracts is recognized on an output basis, measured by units delivered, efforts expended
etc.
• Revenue from fixed price contracts is recognized using the percentage-of-completion method, calculated as the proportion of the cost
of efforts incurred up to the reporting date to estimated cost of total efforts.
• Fixed Bid monthly milestone-based recognition - The practical expedient of revenue equals invoicing is applied as the amounts
invoiced directly correspond with the value transferred to the customer.
• Revenue from fixed price maintenance and support services contracts where the Company is standing ready to provide services is
recognized based on time elapsed mode and revenue is straight-lined over the period of performance.
• Revenue from license transactions where customers are given a right to use intellectual property are recognised upfront at the point in
time when the license is delivered to the customer, simultaneously with the transfer of control.
• Revenue from bundled contracts is recognized separately for each performance obligation based on their allocated transaction price
(net of variable consideration).
• In cases where implementation and / or customisation services rendered significantly modifies or customises the license, these
services and license are accounted for as a single performance obligation and revenue is recognised over time using the percentage-of-
completion method, calculated as the proportion of the cost of effort incurred up to the reporting date to estimated cost of total efforts.
The solutions offered by the Group may include supply of third-party equipment or software. In such cases, revenue for supply of such third-
party goods are recorded at gross either the Group obtains control of the specified goods or services before it is transferred to the customer
or based on a comprehensive evaluation of indicators such as primary obligor, inventory risk, credit risk and pricing latitude. In other cases,
revenue is recognised on a net basis.
Revenue from sale of services is measured based on the transaction price, which is the consideration, adjusted for discounts and pricing
incentives, if any, as specified in the contract with the customer. Sales tax / Value Added Tax (VAT) / Goods and Services Tax (‘GST’) is not
received by the Company on its own account. Rather, it is tax collected on value added to the commodity / service rendered by the seller on
behalf of the Government. Accordingly, it is excluded from revenues.
The Company recognises an onerous contract provision when it is probable that the incremental costs of fulfilling the obligation under the
contract and an allocation of other costs directly related to fulfilling the contract exceed the economic benefits to be received.
Contract assets are recognised when there is excess of revenue earned over billings on contracts. Contract assets are classified as unbilled
receivables (only act of invoicing is pending) when there is unconditional right to receive cash, and only passage of time is required, as
per contractual terms. Unearned and deferred revenue (“contract liability”) is recognised when there are billings in excess of revenues. The
billing schedules agreed with customers could include periodic performance-based payments and/or milestone-based progress payments.
Invoices are payable within contractually agreed credit period. Advances received for services are reported as liabilities until all conditions
for revenue recognition are met.
Contract modifications: Services added that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct
are accounted for prospectively, either as a separate contract if the additional services are priced at the standalone selling price, or as a
termination of the existing contract and creation of a new contract if not priced at the standalone selling price.
Use of significant judgements in revenue recognition
• The Company’s contracts with customers could include promises to transfer multiple goods and services to a customer. The Company
assesses the goods / services promised in a contract and identifies distinct performance obligations in the contract. Identification
of distinct performance obligation involves judgement to determine the deliverables and the ability of the customer to benefit
independently from such deliverables.
• Judgement is also required to determine the transaction price for the contract. The transaction price could be either a fixed amount
of consideration from the customer or variable consideration with elements such as volume discounts, performance bonuses, price
concessions and incentives. The transaction price is also adjusted for the effects of the time value of money if the contract includes a
significant financing component. The Company has applied the practical expedient provided by Ind AS 115, whereby the Company
does not adjust the transaction price for the effects of the time value of money where the period between when the control on goods
and services transferred to the customer and when payment thereof is due, is one year or less. Any consideration payable to the customer
is adjusted to the transaction price, unless it is a payment for a distinct good or service from the customer. The estimated amount of
variable consideration is adjusted in the transaction price only to the extent that it is highly probable that a significant reversal in the
amount of cumulative revenue recognised will not occur and is reassessed at the end of each reporting period. The Company allocates
the elements of variable considerations to all the performance obligations of the contract unless there is observable evidence that they
pertain to one or more distinct performance obligations.
• The Company uses judgement to determine an appropriate standalone selling price for a performance obligation. The Company
allocates the transaction price to each performance obligation on the basis of the relative standalone selling price of each distinct good
or service promised in the contract. Where standalone selling price is not observable, the Company uses the expected cost-plus margin
approach to allocate the transaction price to each distinct performance obligation.
• The Company exercises judgement in determining whether the performance obligation is satisfied at a point in time or over a period of
time. The Company considers indicators such as how a customer consumes benefits as services are rendered or who controls the asset
as it is being created or existence of enforceable right to payment for performance to date and alternate use of such good or service,
transfer of significant risks and rewards to the customer, acceptance of delivery by the customer, etc.
• Use of the percentage-of completion method in accounting for revenue from fixed-price contracts requires the Company to exercise
judgement in estimating the balance-to-go cost of efforts. Cost of efforts expended to date as a proportion of the total cost of efforts
to be expended is used as a measure to determine the percentage-of completion. Cost of efforts expended have been used to measure
progress towards completion as there is a direct relationship between input and productivity.
• Contract fulfilment costs are generally expensed as incurred except for certain costs which meet the criteria for capitalisation. The
assessment of this criteria requires the application of judgement, in particular, when considering if costs generate or enhance resources
to be used to satisfy future performance obligations and whether costs are expected to be recovered.
• Contract acquisition costs are generally expensed as incurred except for certain costs which meet the criteria for capitalization, in
particular if such costs are expected to be recovered. Contract acquisition costs are amortized over the contract term, consistent with
the pattern of transfer of goods or services to which the asset relates.
The Company disaggregates revenue from contracts with customers by segment, geography, services rendered, delivery location and project
type.
2.2 Other income
Interest income is recognized as it accrues in the standalone statement of profit and loss using effective interest rate method.
Dividend income is recognized when the right to receive the dividend is established.
2.3 Property, plant and equipment and intangible assets
Property, plant and equipment are stated at the cost of acquisition or construction less accumulated depreciation and write down for,
impairment if any. Direct costs are capitalised until the assets are ready to be put to use. Cost includes expenditure directly attributable
to the acquisition. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them
separately based on their specific useful lives. Subsequent expenditure relating to property, plant and equipment is capitalized only when
it is probable that future economic benefits associated with these will flow to the Company and the cost of the item can be measured
reliably. All other repairs and maintenance costs are recognised in the statement of profit and loss as incurred. Property, plant and equipment
purchased in foreign currency are recorded at cost, based on the exchange rate on the date of purchase.
The Company identifies and determines cost of each component / part of property, plant and equipment separately, if the component/ part
has a cost which is significant to the total cost of the property, plant and equipment and has useful life that is materially different from that
of the remaining asset.
Intangible assets purchased are measured at cost or fair value as of the date of acquisition, as applicable, less accumulated amortisation
and accumulated impairment, if any. The amortization period and the amortization method are reviewed at least at each financial year end.
Internally developed intangible assets are stated at cost that can be measured reliably during the development phase and capitalised when
it is probable that future economic benefits that are attributable to the assets will flow to the Company.
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets. Freehold land is not
depreciated.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date are disclosed under ‘other
assets’. The cost of property, plant and equipment not ready to use before the balance sheet date is disclosed under ‘Capital work in progress’.
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. Gains or losses arising from de-recognition of property, plant and equipment and intangible
assets are measured as the difference between the net disposal proceeds and the carrying amount of property, plant and equipment and are
recognized in the statement of profit and loss when the property, plant and equipment is derecognized.
Depreciation and amortization
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 management. Intangible assets are amortised on a straight-line basis over the estimated useful economic life. Depreciation /
amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted prospectively, if appropriate.
In respect of office equipment, plant and equipment, furniture and fixtures and vehicles, management, basis internal assessment of usage
pattern believes that the useful lives as mentioned above best represent the period over which management expects to use these assets.
Hence the useful lives in respect of these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies
Act 2013.
Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered
to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates.
2.4 Leases
Company as a lessee
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:
> the contract involves the use of an identified asset;
> the Company has the right to obtain substantially all the economic benefits from use of the asset throughout the period of use; and
> he Company has the right to direct the use of the asset.
At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to
each lease component on the basis of the relative stand-alone prices of the lease components and the aggregate stand-alone price of the
non-lease components.
The Company recognises right-of-use asset representing its right to use the underlying asset for the lease term at the lease commencement
date. The cost of the right-of-use asset measured at inception shall comprise of the amount of the initial measurement of the lease liability,
adjusted for any lease payments made at or before the commencement date, less any lease incentives received, plus any initial direct
costs incurred and an estimate of the costs to be incurred by the lessee in dismantling and removing the underlying asset or restoring the
underlying asset or site on which it is located.
The right-of-use asset is subsequently measured at cost less accumulated depreciation, accumulated impairment losses, if any and adjusted
for any remeasurement of the lease liability. The right-of-use assets is depreciated using the straight-line method from the commencement
date over the shorter of lease term or useful life of right-of-use asset. The estimated useful lives of right-of-use assets are determined on the
same basis as those of property, plant and equipment. Right-of-use assets are tested for impairment whenever there is any indication that
their carrying amounts may not be recoverable. Impairment loss, if any, is recognised in the standalone statement of profit and loss.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate applicable to the entity
within the Company for the nature of asset taken on lease. Generally, the Company uses its incremental borrowing rate as the discount rate.
For leases with reasonably similar characteristics, the Company, on a lease by lease basis, may adopt either the incremental borrowing rate
specific to the lease or the incremental borrowing rate for the portfolio as a whole. The lease payments shall include fixed payments, variable
lease payments, residual value guarantees, exercise price of a purchase option where the Company is reasonably certain to exercise that
option and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
The lease liability is subsequently remeasured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying
amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications or to
reflect revised in-substance fixed lease payments.
The Company recognises the amount of the re-measurement of lease liability as an adjustment to the right-of-use asset. Where the carrying
amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Company
recognises any remaining amount of the re-measurement in the standalone statement of profit and loss.
The Company has elected not to recognise right-of-use assets and lease liabilities for short-term leases of all assets that have a lease term of
12 months or less and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense
on a straight-line basis over the lease term.
Company as a lessor
When the Company acts as a lessor at the inception, it determines whether each lease is a finance lease or an operating lease.
The Company recognises lease payments received under operating leases as income on a straight-line basis over the lease term. In case of a
finance lease, finance income is recognised over the lease term based on a pattern reflecting a constant periodic rate of return on the lessor’s
net investment in the lease. When the Company is an intermediate lessor it accounts for its interests in the head lease and the sub-lease
separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with
reference to the underlying asset. If a head lease is a short -term lease to which the Company applies the exemption described above, then
it classifies the sub-lease as an operating lease.
If an arrangement contains a lease and non-lease components, the Company applies Ind AS 115-Revenue to allocate the consideration in
the contract.
2.5 Investments in subsidiaries
Investment in equity instruments of subsidiaries are measured at cost less impairment, if any.
2.6 Impairment
a. Financial assets (other than at fair value)
For financial assets measured at amortised cost, the Company assesses at each balance sheet date whether the asset is impaired. Ind
AS 109 (‘Financial instruments’) requires expected credit losses to be measured through a loss allowance. Expected credit loss is the
difference between the contractual cash flows and the cash flows that the entity expects to receive, discounted using the effective
interest rate. The Company recognises lifetime expected losses for all contract assets and/or all trade receivables. For all other financial
assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amount equal to the
lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. The Company
provides for impairment upon the occurrence of the triggering event.
b. Non-financial assets
• Tangible and intangible assets
Property, plant and equipment and intangible assets with finite life are evaluated for recoverability whenever there is any indication
that their carrying amounts may not be recoverable. If any such indication exists, the recoverable amount (i.e. higher of the fair
value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash
flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the cash
generating unit (‘CGU’) to which the asset belongs.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or
CGU) is reduced to its recoverable amount. An impairment loss is recognised in the standalone statement of profit and loss.
• Investment in subsidiaries
The Company assesses investments in subsidiaries for impairment whenever events or changes in circumstances indicate that the
carrying amount of the investment may not be recoverable. If any such indication exists, the Company estimates the recoverable
amount of the investment in subsidiary. The recoverable amount of such investment is the higher of its fair value less cost of
disposal ("FVLCD”) and its value-in-use (“VIU”). The VIU of the investment is calculated using projected future cash flows. If the
recoverable amount of the investment is less than its carrying amount, the carrying amount is reduced to its recoverable amount.
The reduction is treated as an impairment loss and is recognised in the standalone statement of profit and loss.
2.7 Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments consist of the following:
> financial assets, which include cash and cash equivalents, deposits with banks, trade receivables, investments in equity and debt
securities and eligible current and non-current assets;
> financial liabilities, which include loans and borrowings, finance lease liabilities, trade payables, eligible current and non-current
liabilities.
Non-derivative financial instruments are recognised when the Company becomes a party to the contract that gives rise to financial assets
and liabilities. Financial assets (excluding trade receivables) and liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities
at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial asset or financial
liability. Trade receivables that do not contain a significant financing component are measured at transaction price. Trade receivables that
contain a significant financing component are measured at their present value with interest thereon being accreted over the period to the
receivables becoming due for collection.
Financial assets - Business model assessment
The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this
best reflects the way the business is managed and information is provided to management. The information considered includes:
> the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether
management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the
duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through
the sale of the assets;
> how the performance of the portfolio is evaluated and reported to the Company’s management;
> the risks that affect the performance of the business model (and the financial assets held within that business model) and how
those risks are managed;
> how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets managed or
the contractual cash flows collected; and
> the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about
future sales activity.
Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.
Financial assets - Assessment whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as
consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period
of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Company considers the contractual terms
of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of
contractual cash flows such that it would not meet this condition. In making this assessment, the Company considers:
> contingent events that would change the amount or timing of cash flows;
> terms that may adjust the contractual coupon rate, including variable-rate features;
> prepayment and extension features; and
> terms that limit the Company’s claim to cash flows from specified assets (e.g. non-recourse features).
A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially
represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation
for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a
feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid)
contractual interest (which may also include reasonable compensation for early termination) is treated as consistent with this criterion if the
fair value of the prepayment feature is insignificant at initial recognition.
Subsequent to initial recognition, non-derivative financial instruments are measured as described below.
a. Cash and cash equivalents
The Company’s cash and cash equivalents consist of cash on hand and in banks and demand deposits with banks with an original
maturity of less than or up to three months. For the purposes of the cash flow statement, cash and cash equivalents include cash on
hand, in banks and demand deposits with banks, net of outstanding overdrafts that are repayable on demand and are considered part
of the Company’s cash management system.
b. Financial assets at amortised cost
Financial assets (except for debt instruments that are designated at fair value through Profit or Loss (FVTPL) and fair value through
Other Comprehensive income (FVTOCI) on initial recognition) are subsequently measured at amortised cost if these financial assets
are held within a business whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of
the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding.
c. Financial assets at fair value through other comprehensive income
Financial assets (except for debt instruments that are designated at fair value through Profit or Loss (FVTPL) on initial recognition) are
measured at fair value through other comprehensive income (‘FVTOCI’) if these financial assets are held within a business whose
objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial
asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Interest income is recognized in the standalone statement of profit or loss for FVTOCI debt instruments. Other changes in fair value of
FVTOCI financial assets are recognized in other comprehensive income. When the investment is disposed of, the cumulative gain or loss
previously accumulated in reserves is transferred to the standalone statement of profit and loss.
d. Financial assets at fair value through profit or loss
Financial assets are measured at FVTPL unless it is measured at amortised cost or at FVTOCI on initial recognition. The transaction costs
directly attributable to the acquisition of financial assets at fair value through profit or loss are immediately recognised in standalone
statement of profit and loss. Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or
losses arising on re-measurement recognized in the standalone statement of profit and loss. The gain or loss on disposal is recognized
in the standalone statement of profit and loss.
Interest income is recognized in the standalone statement of profit and loss for FVTPL debt instruments. Dividend on financial assets at
FVTPL is recognized when the Company’s right to receive dividend is established.
e. Financial liabilities
Financial liabilities are subsequently carried at amortized cost using the effective interest rate method. For trade and other payables
maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these
instruments.
Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign currency assets and liabilities. The Company holds derivative financial
instruments such as foreign exchange forward contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The
counterparty for these contracts is a bank.
Derivatives are recognized and measured at fair value. Attributable transaction costs are recognized in standalone statement of profit and
loss as expenses.
Subsequent to initial recognition, derivative financial instruments are measured as described below.
a. Cash flow hedges
The Company designates certain foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange
exposure on highly probable cashflow forecast transactions. When a derivative is designated as a cash flow hedging instrument, the
effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the cash
flow hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the standalone
statement of profit and loss. If the hedging instrument no longer meets the criteria for hedge accounting, then hedge accounting is
discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the
hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging
reserve until the forecasted transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is
transferred to the net profit in the standalone statement of profit and loss upon the occurrence of the related forecasted transaction. If
the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified to
the standalone statement of profit and loss.
b. Others
Changes in fair value of foreign currency derivative instruments not designated as cash flow hedges are recognized in the standalone
statement of profit and loss and reported within foreign exchange gains, net.
Changes in fair value and gains/(losses) on settlement of foreign currency derivative instruments relating to borrowings, which have not
been designated as hedges are recorded as foreign exchange gains/ (losses).
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amounts are presented in the standalone balance sheet when, and only
when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or
to realize the asset and settle the liability simultaneously.
Fair value of financial instruments
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 in the principal or, in its absence, the most advantageous market to which the Company has
access at that date. The fair value of a liability reflects its non-performance risk. A number of the Company’s accounting policies and
disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When a quote is available,
the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is
regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information
on an ongoing basis. If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the
use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the
factors that market participants would take into account in pricing a transaction.
In determining the fair value of its financial instruments, the Company uses following hierarchy and assumptions that are based on
market conditions and risks existing at each reporting date.
Fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in the 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 —Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 — Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
Level 3 — Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
For assets and liabilities that are recognised in the 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.
De-recognition of financial instruments
The Company derecognises a financial asset when:
- the contractual rights to the cash flows from the financial asset expire; or
- it transfers the rights to receive the contractual cash flows in a transaction in which either:
• substantially all of the risks and rewards of ownership of the financial asset are transferred; or
• the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control
of the financial asset.
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. The Company also
derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in
which case a new financial liability based on the modified terms is recognised at fair value.
On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including
any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.
2.8 Employee benefits
a. Short-term employee benefits
AH employee benefits payable wholly within twelve months of rendering the service are classified as short-term employee benefits.
Benefits such as salaries, wages etc. and the expected cost of ex-gratia are recognised in the period in which the employee renders the
related service. A liability is recognised for the amount expected to be paid when there is 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.
b. Compensated absences
The Company has a policy on compensated absences that is both accumulating and non-accumulating in nature. Non-accumulating
compensated absences are measured on an undiscounted basis and are recognized in the period in which absences occur. The cost of
short term compensated absences are provided for based on estimates. The expected cost of accumulating compensated absences
is determined by actuarial valuation at each balance sheet date measured based on the amounts expected to be paid / availed as a
result of the unused entitlement that has accumulated at the balance sheet date. The Company treats accumulated leave expected to
be carried forward beyond twelve months, as long-term employee benefits for measurement purposes. Such long-term compensated
absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses
are immediately taken to the standalone statement of profit and loss. The Company presents the entire obligation for compensated
absences as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement beyond
12 months from the reporting date.
c. Defined contribution plans
Employee benefits are accrued in the period in which the associated services are rendered by employees of the Company. Contributions
to defined contribution schemes such as Provident Fund, Employee State Insurance Scheme, 401(k) and other social security schemes
are charged to the standalone statement of profit or loss on an accrual basis.
d. Provident fund
Mphasis Limited has established a Provident Fund Trust to which contributions towards provident fund are made on a monthly basis.
The Provident Fund Trust, based on the Government specified minimum rates of return guarantees a specified rate of return on such
contributions on a periodical basis. The contributions to the trust managed by the Company is accounted for as a defined benefit plan
as the Company is liable for any shortfall in the fund assets based on the Government specified minimum rates of return.
e. Gratuity
The Company has a defined benefit gratuity plan that provides a lump-sum payment to vested employees at retirement, death,
incapacitation or termination of employment in accordance with “The Payment of Gratuity Act, 1972”. The amount is based on the
respective employee’s last drawn salary and the tenure of employment with the Company.
Gratuity, which is a defined benefit plan, is determined based on an independent actuarial valuation, which is carried out based on
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. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling and the return on plan
assets (excluding interest), is reflected immediately in the balance sheet with a charge or credit recognised in other comprehensive
income in the period in which they occur. Past service cost, both vested and unvested, is recognised as an expense at the earlier of (a)
when the plan amendment or curtailment occurs; and (b) when the entity recognises related restructuring costs or termination benefits.
In accordance with Ind AS, re-measurement gains and losses on defined benefit plans recognised in OCI are not to be subsequently
reclassified to standalone statement of profit and loss. As required under Ind AS read with Schedule III to Companies Act, 2013, the
Company transfers it immediately to retained earnings. The discount rate is based on the yield of securities issued by the Government
of India.
2.9 Share based payments
The Company measures compensation cost relating to share-based payments using the fair valuation method in accordance with Ind
AS 102, Share-Based Payment. Compensation expense is amortized over the vesting period of the option on a graded basis. The units
generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period
of the respective tranches of such grants.
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using the Black-Scholes
valuation model. The expected term of an option is estimated based on the vesting term and contractual life of the option. Expected
volatility during the expected term of the option is based on the historical volatility of share price of the Company. Risk free interest rates
are based on the government securities yield in effect at the time of the grant.
The cost of equity settled transactions is recognised, together with a corresponding increase in share-based payment reserve in equity,
over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s
best estimate of the number of equity instruments that will ultimately vest. Debit or credit in standalone statement of profit and loss
for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in
employee benefits expense.
The dilutive effect of outstanding options is reflected in the computation of diluted earnings per share.
2.10 Foreign Currencies
Transactions and balances
Foreign currency transactions are recorded at exchange rates prevailing on the date of the transaction. Foreign currency denominated
monetary assets and liabilities are restated into the functional currency using exchange rates prevailing on the balance sheet date.
Gains and losses arising on restatement of foreign currency denominated monetary assets and liabilities are included in the standalone
statement of profit and loss. Non-monetary assets and liabilities denominated in a foreign currency and measured at historical cost are
translated at an exchange rate that approximates the rate prevalent on the date of the transaction.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the period in
which the transaction is settled. Revenue, expense and cash-flow items denominated in foreign currencies are translated into the relevant
functional currencies using the exchange rate in effect on the date of the transaction.
2.11 Income taxes
Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year. Current and
deferred tax are recognised in standalone statement of profit and loss, except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income
or directly in equity, respectively.
• Current income tax
Current income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation
authorities based on the taxable income for that period and reflects the uncertainty related to income tax, if any. The tax rates and tax
laws used to compute the amount are those that are enacted by the balance sheet date. The Company offsets current tax assets and
current tax liabilities, where it has a legally enforceable right to set off the recognized amounts and where it intends either to settle on a
net basis, or to realize the asset and settle the liability simultaneously.
• Deferred income tax
Deferred income tax assets and liabilities are recognised using the balance sheet approach. Deferred tax is recognized on temporary
differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes, except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction
that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. The carrying
amount of deferred income 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 in the future to allow all or part of the deferred income tax asset to be utilized.
Deferred income 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 to allow in the future against which the deductible temporary
differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted
by the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as an income or
expense in the period that includes the enactment or substantive enactment date.
Deferred income taxes are not provided on the undistributed earnings of subsidiaries where it is expected that the earnings of the
subsidiary will not be distributed in the foreseeable future.
For operations carried out in SEZ facilities, deferred tax assets or liabilities, if any, have been established for the tax consequences of
those temporary differences between the carrying values of assets and liabilities and their respective tax bases that do not reverse
during the tax holiday period(s).
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.
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