1.2 Summary of significant accounting policies
a. Revenue recognition:
The Company earns revenue primarily from software development, maintenance of
software/hardware and related services, and sale of software licenses.
The Company's contracts with customers include promises to transfer multiple
products and services to a customer. Revenues from customer contracts are considered
for recognition and measurement when the contract has been approved, in writing, by
the parties to the contract, the parties to the contract are committed to perform their
respective obligations under the contract, and the contract is legally enforceable. At the
inception of every contract, transaction price and performance obligations are
determined. Transaction price reflect amount of consideration expected to be received
in exchange for transferring goods and services plus estimate of variable consideration
i.e. discounts, price concession, rebates etc. Transaction price is allocated to identifiable
performance obligations in a manner that depicts exchange for transferring of
promised goods and services. Volume discounts are recorded as a reduction of
revenue. When the amount of discount varies with the levels of revenue, volume
discount is recorded based on estimate of future revenue from the customer.
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 is
billings in excess of revenues.
The Company applies judgement to determine whether each product or services
promised to a customer are capable of being distinct, and are distinct in the context of
the contract, if not, the promised product or services are combined and accounted as a
single performance obligation. The Company allocates the transaction price to
separately identifiable performance obligations based on their relative stand-alone
selling price. In cases where the Company is unable to determine the stand-alone
selling price the company uses expected cost-plus margin approach in estimating the
stand-alone selling price.
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.
i) Time and material contracts: Revenues and costs relating to time and materials
contracts are recognized as the related services are rendered.
ii) Fixed- price contracts: Revenue for fixed-price contracts where performance
obligations are satisfied over time is recognised using percentage-ofcompletion
method. In respect of such fixed price contracts, revenue is recognised using
percentage-of-completion method ('POC method') of accounting with contract costs/
efforts incurred determining the degree of completion of the performance obligation.
iii) Sale of licenses: Revenue from licenses where the customer obtains a "right to use
"the licenses is recognized at the time the license is made available to the customer.
Revenue from licenses where the customer obtains a "right to access" is recognized
over the access period.
b. Income Taxes
Income tax expense is comprised of current and deferred taxes. Current and deferred
tax is recognized in net income except to the extent that it relates to a business
combination, or items recognized directly in equity or in other comprehensive income.
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 the period. The tax rates and tax laws used
to compute the current tax amount are those that are enacted or substantively enacted
as at the reporting date and applicable for the period.
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 liability simultaneously.
Deferred Tax: Deferred tax is recognized using the balance sheet approach. Deferred
tax assets and liabilities are recognized for deductible and taxable temporary
differences arising between the tax base of assets and liabilities and their carrying
amount in financial statements, 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 profits or loss at the
time of the transaction.
Deferred tax assets are recognized to the extent 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 utilized.
Deferred tax liabilities are recognized for all taxable temporary differences except in
respect of taxable temporary differences associated with investments in subsidiaries
and foreign branches where the timing of the reversal of the temporary difference can
be controlled and it is probable that the temporary difference will not reverse in the
foreseeable future.
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 utilized. Deferred tax assets
and liabilities are measured at the tax rates that are expected to apply in the period
when the asset is realized or the liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted at the reporting date.
The Company offsets deferred tax assets and liabilities, where it has a legally
enforceable right to offset current tax assets against current tax liabilities, and they
relate to taxes levied by the same taxation authority on either the same taxable entity,
or on different taxable entities where there is an intention to settle the current tax
liabilities and assets on a net basis or their tax assets and liabilities will be realized
simultaneously.
Deferred Tax includes MAT credit, if any and it is recognized as an asset only when
and to the extent there is convincing evidence that the Company will pay income tax
higher than that computed under MAT, during the period that MAT is permitted to be
set off under the Income Tax Act, 1961 for a specified period. Credit on account of
MAT is recognized as an asset based on the management's estimate of its
recoverability in the future.
c. Leases
The Company assesses whether a contract is or 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
Company as a lessee:
At the date of commencement of the lease, the company recognizes a right-of-use asset
("ROU") and a corresponding lease liability for all lease arrangements in which it is a
lessee, except for leases with a term of twelve 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 right-of-use 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.
Right-of-use 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. Right of
use assets are evaluated for recoverability whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable. For the
purpose of impairment testing, the recoverable amount (i.e. the 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 cashflows 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.
The lease liability is initially measured at the present value of the future lease
payments. The lease payments are discounted using the interest rate implicit in the
lease or, if not readily determinable, using the incremental borrowing rates in the
country of domicile of the leases. Lease liabilities are remeasured with a corresponding
adjustment to the related right of use asset if the company changes its assessment if
whether it will exercise an extension or a termination option.
Lease liability and ROU asset have been separately presented in the Balance Sheet and
lease payments have been classified as financing cash flows.
Company as a lessor:
At the inception of the lease the Company classifies each of its leases as either an
operating lease or a finance 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.
Whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee, the contract is classified as a finance lease.
If an arrangement contains lease and non-lease components, the Company applies Ind
AS 115 "Revenue from Contracts with Customers" to allocate the consideration in the
contract.
d. Impairment of assets:
Goodwill and intangible assets that have an indefinite useful life are not subject to
amortization and are tested annually for impairment, or more frequently if events or
changes in circumstances indicate that they might be impaired. Other assets are tested
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognized for the
amount by which the asset's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset's fair value less costs of disposal and
value in use. For the purpose of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash inflows which are largely
independent of the cash inflows from other assets or group of assets (cash-generating
units).
Non-financial assets other than goodwill that suffered an impairment are reviewed for
possible reversal of the impairment at the end of each reporting period.
e. Cash and Cash equivalents
For the purposes of presentation in the statement of cash flows, cash and cash
equivalents include cash on hand, in banks and demand deposits with original
maturities of three months or less that are readily convertible to known amounts of
cash and cash equivalents which are subject to insignificant risk of changes in value
and net of outstanding bank overdraft. Cash and cash equivalents consist of balances
with banks which are unrestricted for withdrawal and usage.
f. Financial Instruments:
i. Classification:
Financial assets and liabilities are recognised when the Company becomes a party to
the contractual provisions of the instrument. Financial assets 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.
Financial liabilities are measured at amortised cost using the effective interest method.
The Company derecognises a financial asset only when the contractual rights to the
cash flows from the asset expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another entity. The
Company derecognises financial liabilities when, and only when, the Company's
obligations are discharged, cancelled or have expired.
ii. Initial recognition:
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, transaction costs that are
attributable to the acquisition of the financial asset.
iii. Measurement:
Financial assets carried at amortized cost:
A financial asset is subsequently measured at amortized cost if it is held within a
business model whose objective is to hold the asset 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.
Financial assets at fair value through other comprehensive income (FVTOCI):
A financial asset is subsequently measured at fair value through other
comprehensive income if it is held within a business model 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. Further, in cases where the Company has made an irrevocable election
based on its business model, for its investments which are classified as equity
instruments, the subsequent changes in fair value are recognized in other
comprehensive income. Financial assets at fair value through profit or loss (FVTPL):
A financial asset which is not classified in any of the above categories are
subsequently fair valued through profit or loss.
iv. Impairment of financial assets (other than at fair value):
The Company assesses at each reporting date whether a financial asset or a group of
financial assets and contract assets (unbilled revenue) is impaired. The Company
recognizes loss allowances, in accordance with IND AS 109, using the expected credit
loss (ECL) model for the financial assets which are not fair valued through profit or
loss. Loss allowance for trade receivables and unbilled revenue with no significant
financing component is measured at an amount equal to lifetime ECL. For all other
financial assets, expected credit losses are measured at an amount equal to the 12-
month ECL, unless there has been a significant increase in credit risk from initial
recognition in which case those are measured at lifetime ECL. The amount of
expected credit losses (or reversal) that is required to adjust the loss allowance at the
reporting date is recognized as an impairment gain or loss in the statement of profit
or loss.
v. Offsetting financial instruments:
Financial assets and liabilities are offset and the net amount is reported in the
balance sheet where there is a legally enforceable right to offset the recognized
amounts and there is an intention to settle on a net basis or realize the asset on a net
basis or realize the asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future events and must be enforceable in
the normal course of business and in the event of default, insolvency or bankruptcy
of the Company or the counterparty.
g. Investments
Interest and Dividend income: Dividend income is recorded when the right to
receive payment is established. Interest income is recognised using the effective
interest method.
Investments in subsidiaries: The Company accounts for its investment in
subsidiaries at cost, less impairment losses if any.
h. Derivatives and hedging activities:
The Company designates certain foreign exchange forward, currency options and
futures contracts as hedge instruments in respect of foreign exchange risks. These
hedges are accounted for as cash flow hedges/fair value hedges, as applicable.
The Company uses hedging instruments that are governed by the policies of the
Company which are approved by their respective Board of Directors. The policies
provide written principles on the use of such financial derivatives consistent with the
risk management strategy of the Company. The Company enters into derivative
financial instruments where the counterparty is primarily a bank.
The hedge instruments are designated and documented as hedges at the inception of
the contract. The Company determines the existence of an economic relationship
between the hedging instrument and hedged item based on the currency, amount
and timing of their respective cash flows. The effectiveness of hedge instruments to
reduce the risk associated with the exposure being hedged is assessed and measured
at inception and on an ongoing basis. If the hedged future cash flows are no longer
expected to occur, then the amounts that have been accumulated in other equity are
immediately reclassified in net foreign exchange gains/loss in the statement of profit
and loss.
For the purpose of hedge accounting, hedges are classified as:
- Fair value hedges when hedging the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment.
- Cash flow hedges when hedging the exposure to variability in cash flows that is
either attributable to a particular risk associated with a recognized asset or liability
or a highly probable forecast transaction or the foreign currency risk in an
unrecognized firm commitment
- Hedges of a net investment in a foreign operation
Subsequent to initial recognition, derivative financial instruments are measured as
described below:
Cash flow hedges:
Changes in the fair value of the derivative hedging instrument designated as a cash
flow hedge are recognized in other comprehensive income and held in cash flow
hedging reserve, net of taxes, a component of equity, to the extent that the hedge is
effective. To the extent that the hedge is ineffective, changes in fair value are
recognized in the statement of profit and loss and reported within foreign exchange
gains/ (losses), net within results from operating activities. 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 statement of profit and loss upon the occurrence of the related
forecasted transaction.
The Company enters into the contracts that are effective as hedges from an economic
perspective but may not qualify for hedge accounting. The change in the fair value of
such instrument is recognised in the statement of profit and loss.
i. Property, Plant and Equipment
a) Recognition and measurement:
Property, plant and equipment are measured at cost less accumulated depreciation
and impairment losses, if any. Cost includes expenditures directly attributable to the
acquisition of the asset. General and specific borrowing costs directly attributable to
the construction of a qualifying asset are capitalized as part of the cost. Freehold land
is carried at historical cost.
When parts of an item of property, plant and equipment have different useful lives,
they are accounted for as separate items (major components) of property, plant and
equipment. 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.
The carrying amount of any component accounted for as a separate asset is
derecognized when replaced.
All other repairs and maintenance costs are charged to profit and loss in the reporting
period in which they occur.
An item of Property, Plant & Equipment is derecognised upon disposal or when no
future economic benefits are expected to arise from the continued use of the asset. Any
gain or loss arising on the disposal or retirement of an item of Property, Plant &
Equipment are determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in the statement of profit or loss.
The cost of property, plant and equipment not available for use before year end date
are disclosed under capital work- in-progress and not depreciated.
An asset's carrying amount is written down immediately to its recoverable amount if
the assets or CGU as applicable, carrying amount is greater than its estimated
recoverable amount. An impairment loss is recognised in the statement of profit and
loss.
b) Depreciation:
The Company depreciates property, plant and equipment on a straight-line basis as
per the estimated useful lives prescribed in Schedule II of the Companies Act 2013, in
respect of the following assets:
Assets acquired under leasehold improvements are amortized over the shorter of
estimated useful life of the asset or the related lease term.
The assets residual values, useful lives and methods of depreciation are reviewed at
each financial year end and adjusted prospectively, if appropriate.
j. Business combinations, Goodwill and Intangible Assets:
(i) Business combinations:
Acquisitions of businesses are accounted for using the acquisition method. The
consideration transferred in a business combination is measured at fair value, which is
calculated as the sum of acquisition date fair values of the assets transferred by the
Company, liabilities incurred by the Company to the former owners of the acquiree
and the equity interests issued by the Company in exchange for control of the
acquiree. Acquisition related costs are generally recognized in profit or loss as
incurred.
Intangible assets acquired in business combination are measured at fair value as of the
date of acquisition less accumulated amortization and accumulated impairment, if
any.
When the consideration transferred by the Company in a business combination
includes assets or liabilities resulting from a contingent arrangement, the contingent
consideration is measured at its acquisition date fair value and included as part of the
consideration transferred in a business combination. Contingent consideration that is
classified as an asset or liability is remeasured at subsequent reporting dates in
accordance with Ind AS 109 Financial Instruments or Ind AS 37 Provisions, Contingent
Liabilities and Contingent Assets, with the corresponding gain or loss being
recognized in profit or loss.
Business combinations arising from transfers of interests in entities that are under
common control are accounted at book value. The difference between any
consideration given and the aggregate carrying amounts of assets and liabilities of the
acquired entity is recorded in shareholders' equity.
(ii) Goodwill:
Goodwill represents the cost of acquired business as established at the date of
acquisition of the business in excess of the acquirer's interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities less accumulated impairment
losses, if any. Goodwill is tested for impairment annually or when events or
circumstances indicate that the implied fair value of goodwill is less than its carrying
amount.
(iii) Intangible Assets:
Intangible assets other than acquired in a business combination are measured at cost at
the date of acquisition. Following initial recognition, intangible assets are carried at
cost less any accumulated amortization and accumulated impairment losses, if any.
Research costs are expensed as incurred. Internally generated intangible asset arising
from development activity is recognized at cost on demonstration of its technical
feasibility, the intention and ability of the company to complete, use or sell it, only if, it
is probable that the asset would generate future economic benefit and the expenditure
attributable to the said assets during its development can be measured reliably.
An item of Intangible assets is derecognised upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain
or loss arising on the disposal or retirement of an item of Intangible assets are
determined as the difference between the sales proceeds and the carrying amount of
the asset and is recognised in the profit or loss.
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