2.2 Summary of material accounting policies
a) Current vs non-current classification:
The Company presents assets and liabilities in the
standalone 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
• Held primarily for the purpose of trading
• Expected 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
All other liabilities are classified 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.
b) Foreign currency transactions and balances
The Company's standalone financial statements
are presented in Indian Rupees (I), which is also its
functional currency.
Transactions in foreign currency are initially recorded at
exchange rates prevailing on the date of transactions.
Monetary items denominated in foreign currencies
(such as cash, receivables, payables etc.) outstanding
at the end of reporting period, are translated at the
functional currency spot rate of exchange at the
reporting date. Exchange differences arising on
settlement or translation of monetary items are
recognised in the standalone statement of profit and
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 profit or loss are also recognised
in OCI or profit or loss, respectively).
Any gains or losses arising due to differences in
exchange rates at the time of translation or settlement
are accounted for in the standalone statement of
profit and loss either under the head foreign exchange
fluctuation or interest cost, as the case may be, except
those relating to long-term foreign currency monetary
items.
c) Revenue recognition
Revenue is recognized on satisfaction of performance
obligation upon transfer of control of promised
services to the customers in an amount that reflects
the consideration the Company expects to receive
in exchange for those services (“transaction price”).
When there exists uncertainty as to collectability,
revenue recognition is postponed until such uncertainty
is resolved.
Revenue is measured on the basis of transaction
price, after deduction of any discounts and any taxes
or duties collected on behalf of the Government such
as goods and services tax, etc. Revenue is only
recognised to the extent that it is highly probable a
significant reversal will not occur.
Sale of services
Arrangements with customers for software related
services are either on a time-and-material or a fixed-
price basis. Revenue on time-and-material contracts
are recognized as and when the related services are
performed.
In case of Fixed-price contracts where a number of
indefinite number of repetitive acts are performed over
a specified period the revenue is recognized ratably on
a straight-line basis. For other fixed price contracts,
where the performance obligations are satisfied over
time, revenue is recognized as per the percentage-
of-completion method. Use of the percentage-
of-completion method requires the Company to
determine the actual efforts or costs expended to
date as a proportion of the estimated total efforts or
costs to be incurred. The estimation of total efforts or
costs involves judgement and is assessed throughout
the period of the contract to reflect any changes
based on the latest available information. Wherever
there is uncertainty as to measurement or ultimate
collectability, revenue recognition is postponed until
such uncertainty is resolved.
The Company does not expect to have any contracts
where the period between the transfer of the promised
services to the customer and payment by the customer
exceeds one year. As a consequence, it does not
adjust any of the transaction prices for the time value
of money. Refer note 19 for details. The Company's
trade receivables are rights to consideration that are
unconditional. Unbilled revenues comprising revenues
in excess of invoicing are classified as financial asset
when the right to consideration is unconditional and
is due only after a passage of time. The company has
applied practical expedient under paragraph para 121
under IND AS 115 and accordingly disclosure towards
aggregated amounts of transaction prices relate to the
performance obligations from existing contracts that
are unsatisfied or partially unsatisfied as at year end is
not provided.
Interest Income
For all debt instruments measured either at amortised
cost or at fair value through other comprehensive
income, interest income is recorded using the effective
interest rate (EIR). EIR is the rate that exactly discounts
the estimated future cash receipts over the expected
life of the financial instrument or a shorter period,
where appropriate, to the gross carrying amount of the
financial asset. When calculating the effective interest
rate, the Company estimates the expected cash flows
by considering all the contractual terms of the financial
instrument (for example, prepayment, extension,
call and similar options) but does not consider the
expected credit losses. Interest income is included
under other income in the standalone statement of
profit and loss.
Dividend income
Dividend income is recognized when the Company's
right to receive dividend is established.
d) 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.
Current income tax is recognised in the standalone
statement of profit and loss except to the extent that it
relates to items recognised directly in equity, in which
case it is recognised 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 provisions where appropriate.
Deferred tax
Deferred tax is provided using the Balance Sheet
approach 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.
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 utilised, 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.
Deferred tax assets and liabilities are measured at the
tax rates that are expected to apply in the year 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.
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 utilised. 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 is recognised in the standalone statement
of profit and loss, except to the extent that it relates to
items recognised in other comprehensive income or
directly in equity. In this case, the deferred tax is also
recognised in other comprehensive income or directly
in equity, respectively.
e) Property, plant and equipment
Property, plant and equipment are stated at cost
net of accumulated depreciation and accumulated
impairment losses, if any. The cost comprises
purchase price, borrowing costs if capitalization
criteria are met and any attributable cost of bringing
the asset to its working condition and location for
the intended use. All other repair and maintenance
costs are recognised in the standalone statement of
profit and loss as incurred. Subsequent expenditure
on property, plant and equipment after its purchase
/ completion is capitalised only if such expenditure
results in an increase in the future benefits from such
asset beyond its previously assessed standard of
performance.
Depreciation is provided on the basis of straight¬
line method at the useful life and in the manner
prescribed in Schedule II of the Companies Act, 2013.
Management believes that these estimated useful
lives are realistic and reflect fair approximation of the
period over which the assets are likely to be used.
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. Gains or losses
arising from de-recognition of a tangible asset are
measured as the difference between the net disposal
proceeds and the carrying amount of the asset and
are recognised in the standalone statement of profit
and loss when the asset is derecognised.
f) Leases
The Company as a lessee
The Company's lease asset classes primarily consist
of leases for office premises. The Company assesses
whether a contract contains a lease, at inception of
a 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.
At the date of commencement of the lease, the
Company recognizes a right-of-use (ROU) asset and a
corresponding lease liability for all lease arrangements
in which it is a lessee, except for leases with a term of
12 months or less (short-term leases) and low value
leases. For these short-term and low-value leases,
the Company recognizes the lease payments as an
operating expense on a straight-line basis over the
term of the lease.
Certain lease arrangements include the options to
extend or terminate the lease before the end of the
lease term. ROU assets and lease liabilities includes
these options when it is reasonably certain that they will
be exercised. The ROU assets are initially recognized
at cost, which comprises the initial amount of the
lease liability adjusted for any lease payments made at
or prior to the commencement date of the lease plus
any initial direct costs less any lease incentives. They
are subsequently measured at cost less accumulated
depreciation and impairment losses. ROU assets
are depreciated from the commencement date on a
straight-line basis over the shorter of the lease term
and useful life of the underlying asset.
The Company measures the lease liability at the
present value of the lease payments that are not paid
at the commencement date of the lease. The lease
payments are discounted using the interest rate implicit
in the lease, if that rate can be readily determined. If
that rate cannot be readily determined, the Company
uses incremental borrowing 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 due
to modification as an adjustment to the Right-of-use
asset and Statement of Profit and Loss depending
upon the nature of modification. 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
Statement of Profit and Loss.
g) Employee benefits
Short term 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.
Defined contribution plans
The Company's contributions to defined contribution
plans are charged to the statement of profit and
loss as and when the services are received from the
employees.
Defined benefit plans
The liability in respect of defined benefit plans and
other post-employment benefits is calculated using
the projected unit credit method consistent with
the advice of qualified actuaries. The present value
of the defined benefit obligation is determined by
discounting the estimated future cash outflows using
interest rates of government bonds that have terms
to maturity approximating to the terms of the related
defined benefit obligation. The current service cost of
the defined benefit plan, recognised in the statement
of profit and loss in employee benefit expense, reflects
the increase in the defined benefit obligation resulting
from employee service in the current year, benefit
changes, curtailments and settlements. Past service
costs are recognised immediately in the statement
of profit and loss. 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. Actuarial
gains and losses arising from experience adjustments
and changes in actuarial assumptions for defined
benefit obligation and plan assets are recognised in
OCI in the period in which they arise. The Company
recognises gains or losses on the settlement of a
defined benefit plan obligation when the settlement
occurs.
Compensated absences
The Company operates a long-term leave encashment
plan in India. Accrued liability for leave encashment
including sick leave is determined on actuarial valuation
basis using Projected Unit Credit (PUC) Method at the
end of the year and provided completely in profit and
loss account as per Ind AS - 19 "Employee Benefits".
The Company presents the entire leave as a current
liability in the Standalone Balance Sheet, since it does
not have an unconditional right to defer its settlement
for 12 months after the reporting date.
h) Financial instruments
A financial instrument is any contract that gives rise to
a financial asset of one entity and a financial liability or
equity instrument of another entity.
Financial assets
Initial recognition and measurement
All financial assets are recognised initially at fair value,
plus in the case of financial assets not recorded at fair
value through profit or loss (FVTPL), transaction costs
that are attributable to the acquisition of the financial
asset. However, trade receivables that do not contain
a significant financing component are measured at
transaction price.
Subsequent measurement
All financial assets are subsequently measured at
amortized cost.
Debt instruments at amortised cost
A ‘debt instrument' is measured at the amortised cost
if both the following conditions are met:
a) The asset is held within a business model,
whose objective is to hold assets for
collecting contractual cash flows, and
b) Contractual terms of the asset give rise on
specified dates to cash flows that are solely
payments of principal and interest (SPPI) on
the principal amount outstanding.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies
expected credit loss (ECL) model for measurement
and recognition of impairment loss on the following
financial assets and credit risk exposure:
• Financial assets that are debt instruments, and
are measured at amortised cost e.g., loans, debt
securities, deposits, trade receivables and bank
balances.
The Company follows ‘simplified approach' for
recognition of impairment loss allowance on trade
receivables that do not contain a significant financing
component.
The application of simplified approach does not require
the Company to track changes in credit risk. Rather,
it recognises impairment loss allowance based on
lifetime ECLs at each reporting date, right from its initial
recognition.
For recognition of impairment loss on other financial
assets and risk exposure, the company determines
that whether there has been a significant increase
in the credit risk since initial recognition. If credit risk
has not increased significantly, 12-month ECL is used
to provide for impairment loss. However, if credit risk
has increased significantly, lifetime ECL is used. If, in
a subsequent period, credit quality of the instrument
improves such that there is no longer a significant
increase in credit risk since initial recognition, then the
entity reverts to recognising impairment loss allowance
based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting
from all possible default events over the expected life of
a financial instrument. The 12-month ECL is a portion of
the lifetime ECL which results from default events that
are possible within 12 months after the reporting date.
ECL is the difference between all contractual cash flows
that are due to the Company in accordance with the
contract and all the cash flows that the entity expects
to receive (i.e., all cash shortfalls), discounted at the
original EIR. When estimating the cash flows, an entity
is required to consider:
• All contractual terms of the financial instrument
(including prepayment, extension, call and similar
options) over the expected life of the financial
instrument. However, in rare cases when the
expected life of the financial instrument cannot
be estimated reliably, then the entity is required to
use the remaining contractual term of the financial
instrument; and
• Cash flows from the sale of collateral held or
other credit enhancements that are integral to the
contractual terms.
ECL impairment loss allowance (or reversal) recognized
during the period is recognized as income/ expense
in the standalone statement of profit and loss. This
amount is reflected under the head ‘other expenses'
in the standalone statement of profit and loss. The
standalone balance sheet presentation for various
financial instruments is described below:
• Financial assets measured at amortised cost: ECL
is presented as an allowance, i.e., as an integral
part of the measurement of those assets in the
standalone balance sheet. The allowance reduces
the net carrying amount. Until the asset meets
write-off criteria, the company does not reduce
impairment allowance from the gross carrying
amount.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition,
as financial liabilities at fair value through profit or loss,
loans and borrowings or payables, as appropriate.
All financial liabilities are recognised initially at fair
value and, in the case of loans and borrowings and
payables, net of directly attributable transaction costs.
The Company's financial liabilities include trade and
other payables, loans and borrowings including
derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on
their classification, as described below:
Financial liabilities at fair value through profit or
loss
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair
value through profit or loss. Financial liabilities are
classified as held for trading if they are incurred for
the purpose of repurchasing in the near term. This
category also includes derivative financial instruments
entered into by the company that are not designated as
hedging instruments in hedge relationships as defined
by Ind AS 109. Separated embedded derivatives
are also classified as held for trading unless they are
designated as effective hedging instruments.
Gains or losses on liabilities held for trading are
recognised in the standalone statement of profit and
loss.
Financial liabilities designated upon initial recognition at
fair value through profit or loss are designated as such
at the initial date of recognition, and only if the criteria
in Ind AS 109 are satisfied. For liabilities designated as
FVTPL, fair value gains/ losses attributable to changes
in own credit risk are recognized in OCI. These
gains/ losses are not subsequently transferred to the
standalone statement of profit and loss. However, the
company may transfer the cumulative gain or loss
within equity. All other changes in fair value of such
liability are recognised in the standalone statement of
profit and loss. The company has not designated any
financial liability as at fair value through profit and loss.
Loans and borrowings
After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortised
cost using the EIR method. Gains and losses are
recognised in the standalone statement of profit and
loss when the liabilities are derecognized as well as
through the EIR amortization process.
Amortised cost is calculated by taking into account
any discount or premium on acquisition and fees
or costs that are an integral part of the EIR. The
EIR amortisation is included as finance costs in the
standalone statement of profit and loss.
This category generally applies to borrowings from
banks.
Trade and other payables
These amounts represent liabilities for goods and
services provided to the Company prior to the end
of financial year which are unpaid. The amounts are
unsecured and are usually paid as per agreed terms.
Trade and other payables are presented as current
liabilities unless payment is not due within 12 months
after the reporting period. They are recognised initially
at their fair value and subsequently measured at
amortised cost using the effective interest method.
De-recognition
A financial liability is derecognised when the obligation
under the liability is discharged or cancelled or
expires. When an existing financial liability is replaced
by another from the same lender on substantially
different terms, or the terms of an existing liability
are substantially modified, such an exchange or
modification is treated as the de-recognition of the
original liability and the recognition of a new liability.
The difference in the respective carrying amounts is
recognised in the standalone statement of profit and
loss.
i) Earnings per share
Basic earnings per share are calculated by dividing the
net profit or loss for the period attributable to equity
shareholders (after deducting preference dividends, if
any, and attributable taxes) by the weighted average
number of equity shares outstanding during the
period.
For the purpose of calculating diluted earnings per
share, the net profit or loss for the period attributable
to equity shareholders and the weighted average
number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity
shares.
j) Cash flow statement
The standalone cash flow statement is prepared in
accordance with the Indirect method. Standalone cash
flow statement presents the cash flows by operating,
financing and investing activities of the Company.
Operating cash flows are arrived by adjusting profit
or loss before tax for the effects of transactions of a
non-cash nature, any deferrals or accruals of past or
future operating cash receipts or payments, and items
of income or expense associated with investing or
financing cash flows.
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