2.2 Summary of material accounting policies
a) Revenue from contracts with customers
The Company has following streams of revenue:
• Revenue from telecom and information technology (IT)
networks / systems integration contracts
• Revenue from operations and maintenance services
contract
The Company accounts for a contract when it has approval
and commitment from parties involved, the rights of the
parties are identified, payment terms are identified, the
contract has commercial substance and collectability of
consideration is probable.
The Company identifies distinct performance obligations
in each contract For most of the telecom and information
technology (IT) networks / systems integration contracts,
the customer contracts with the Company to provide a
significant service of integrating a complex set of tasks
and components into a single project or capability. Hence,
the entire contract is accounted for as one performance
obligation.
However, the Company may promise to provide distinct
goods or services within a contract, for example when
a contract covers multiple promises (e.g.. design and
construction of network with its maintenance and support),
in which case the Company separates the contract into more
than one performance obligation, if a contract is separated
into more than one performance obligation, the Company
allocates the total transaction price to each performance
obligation based on the relative standalone selling price
of each distinct 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. In
case of cost to obtain a contract the same is determined as
per the terms of contract with the customer and is amortised
on a systematic basis that is consistent with the transfer to
the customer of the goods and services.
The Company assesses for the timing of revenue recognition
in case of each distinct performance obligation. The Company
first assesses whether the revenue can be recognized over
time as it performs if any of the following criteria is met:
• The customer simultaneously consumes the benefits as
the Company performs, or
• The customer controls the work-in-progress, or
• The Company's performance does not create an asset
with alternative use to the Company and the Company
has right to payment for performance completed till
date.
If none of the criteria above are met. the Company recognizes
revenue at a point-in-time. The point-in-time is determined
when the control of the goods or services is transferred which
is generally determined based on when the significant risks
and rewards of ownership are transferred to the customer.
Apart from this, the Company also considers its present
right to payment, the legal title to the goods, the physical
possession and the customer acceptance in determining the
point in time where control has been transferred.
The Company uses input method to measure the progress
for contracts because it best depicts the transfer of control
to the customer which occurs as it incurs costs on contracts.
Under the input method measure of progress, the extent
of progress towards completion is measured based on
the ratio of costs incurred to date to the total estimated
costs at completion of the performance obligation.
Revenues, including estimated fees or profits, are recorded
proportionally as costs are incurred. Revenue in respect of
operation and maintenance contracts is recognized on a
time proportion basis.
Due to the nature of the work required to be performed on
performance obligations, the estimation of total revenue
and cost at completion is complex, subject to many
variables and requires significant judgment. It is common for
network integration project contracts to contain liquidated
damages on delay in completion/performance. bonus
on early completion, or other provisions that can either
increase or decrease the transaction price. These variable
amounts generally are awarded upon achievement of certain
performance metrics, program milestones or cost targets
and may be based upon customer discretion.
The Company estimates variable consideration using the
most likely amount to which it expects to be entitled. The
Company includes estimated amounts in the transaction
price to the extent it is probable that a significant reversal
of cumulative revenue recognized will not occur when the
uncertainty associated with the variable consideration is
resolved. The customer disputes or disagreement on scope,
quality of work and deductions for delays are factored in
the estimate of variable consideration and updated as and
when new information arises. The estimates of variable
consideration and determination of whether to include
estimated amounts in the transaction price are based
largely on an assessment of the anticipated performance
and all information (historical, current and forecasted) that
is reasonably available.
Contracts are modified to account for changes in contract
specifications and requirements. The Company considers
contract modifications to exist when the modification either
creates new or changes the existing enforceable rights and
obligations. Most of the contract modifications are for goods
or services that are not distinct from the existing contract due
to the significant integration service provided in the context
of the contract and are accounted for as if they were part of
that existing contract. The effect of a contract modification
on the transaction price and measure of progress for the
performance obligation to which it relates, is recognized
as an adjustment to revenue (either as an increase in or a
reduction of revenue) on a cumulative catch-up basis.
When estimates of total costs to be incurred exceed total
estimates of revenue to be earned on a performance
obligation related to a contract, a provision for the entire loss
on the performance obligation is recognized in the period.
For fixed price contracts, the customer pays the fixed
amount based on the payment schedule. If the services
rendered by the Company exceed the payment, a contract
asset is recognized. If the payment exceeds the services
rendered, a contract liability is recognised.
All the qualitative and quantitative information related to
significant changes in contract asset and contract liability
balances such as impairment of contract asset, changes in
the timeframe for a performance obligation to be satisfied
are disclosed by the Company at every reporting period.
Financing components: The Company assesses each
contract with customers to determine whether a significant
financing component exists in the transaction price. If the
timing of payments agreed upon provides the customer
with a significant benefit of financing, the transaction
price is adjusted to reflect the time value of money using
an appropriate discount rate at contract inception. Interest
income arising from such adjustments is recognized
separately from revenue over the financing period using
the effective interest method. As a practical expedient, the
company does not adjust the transaction price for financing
components where the period between the transfer of goods
or services and payment is expected to be one year or less.
For contracts where performance obligation(s) are not
satisfied over time, revenue is recognized at a point in time
when control is transferred to the customer - based on
right to payment, alternative use of goods, delivery terms,
payment terms, customer acceptance and other indicators
of control as mentioned above.
b) Property, plant and equipment
Property, plant and equipment are stated at historical cost,
net of accumulated depreciation and impairment losses, if
any. Cost includes expenditure that is directly attributable
to the acquisition of the asset and bringing it to the location
and condition necessary for it to be capable of operating in
the manner intended by management Subsequent costs are
capitalized only when it is probable that future economic
benefits associated with the item will flow to the company
and the cost of the item can be measured reliably. All
other repair and maintenance costs are recognized in the
statement of profit and loss as incurred.
Depreciation is charged on a straight-line basis over the
estimated useful lives of the assets, as determined based
on management's assessment and in accordance with
applicable regulations. The 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. Table below provide the details of the useful
lives which are different from useful lives prescribed under
Schedule II of the Companies Act. 2013:
c) Leases
As a Lessee:
The Company leases office premises. Rental contracts are
typically made for fixed periods of more than 5 year to 9
years but may have extension options as described below.
Lease terms are negotiated on an individual basis and
contain a wide range of different terms and conditions. The
lease agreements do not impose any covenants, but leased
assets may not be used as security for borrowing purposes.
Leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset
is available for use by the company. Each lease payment is
allocated between the principal (liability) and finance cost.
The finance cost is charged to profit or loss over the lease
period to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The right-
of-use asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis. If the
Company is reasonably certain to exercise a purchase option,
the right-of-use asset is depreciated over the underlying
asset's useful life.
Lease terms are negotiated on an individual basis and
contain a wide range of different terms and conditions. The
lease agreements do not impose any covenants other than
the security interests in the leased assets that are held by
the lessor. Leased assets might not be used as security for
borrowing purposes.
For the leases term determination, the following factors are
normally the most relevant:
• If there are significant penalty payments to terminate
(or not extend), the Company is typically reasonably
certain to extend (or not terminate). If any leasehold
improvements are expected to have a significant
remaining value, the Company is typically reasonably
certain to extend (or not terminate).
• Otherwise, the Company considers the other factors
including historical lease duration and the costs and
business disruption required to replace the leased asset.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include
the net present value of the fixed payments (including
in-substance fixed payments), less any lease incentives
receivable.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less.
Extension and termination options are included in property
and equipment leases across the company. These terms
are used to maximise operational flexibility in terms of
managing contracts Most of the extension and termination
options held are exercisable only by the Company and not
by the respective lessor.
Refer note (c) under 23 for the other relevant accounting
policies.
d) Impairment of non-flnanclal assets
Non-financial assets are tested for impairment whenever
events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment
loss is recognised 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 purposes
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 groups of assets (cash-generating units). Non-
financial assets that suffered an impairment are reviewed
for possible reversal of the impairment at the end of each
reporting period.
e) Other Income
= Interest income
Interest income is accrued on a time basis, by reference to
the principal outstanding and at the effective interest rate
applicable. Interest income is included in finance income in
the statement of profit and loss.
f) Investments and Other Financial assets
c Classification & Recognition:
The Company classifies its financial assets in the following
measurement categories:
• Those to be measured subsequently at fair value (either
through other comprehensive income, or through profit
or loss).
• Those measured at amortised cost
The classification depends on the entity's business model
for managing the financial assets and the contractual
terms of the cash flows. For assets measured at fair value,
gains and losses will either be recorded in profit or loss
or other comprehensive income. For investments in debt
instruments, this will depend on the business model in
which the investment is held. For investments in equity
instruments, this will depend on whether the Company has
made an irrevocable election at the time of initial recognition
to account for the equity investment at fair value through
other comprehensive income.
The Company reclassifies debt investments when and only
when its business model for managing those assets changes.
g Measurement:
At initial recognition, the Company measures a financial
asset (excluding trade receivables which do not contain a
significant financing component) at its fair value plus, in
the case of a financial asset not at fair value through profit
or loss, transaction costs that are directly attributable to
the acquisition of the financial asset. Transaction costs of
financial assets carried at fair value through profit or loss are
expensed in profit or loss.
Financial assets with embedded derivatives are considered
in their entirety when determining whether their cash flows
are solely payment of principal and interest.
= Equity instruments:
Equity investment in subsidiaries is carried at historical
cost as per the accounting policy choice given by Ind AS
27 Investments in subsidiaries are tested for impairment
in accordance with Ind AS 36 Impairment of Assets. The
carrying amount of the investment is tested for impairment
by comparing its recoverable amount with its carrying
amount, any impairment loss recognised reduces the
carrying amount of the investment.
= 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, deposits and
bank balance.
• Trade receivables or any contractual right to receive
cash or another financial asset that result from
transactions that are within the scope of Ind AS 115.
The Company follows ‘simplified approach' for recognition of
impairment loss allowance on trade receivables or contract
revenue receivables.
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 Hnancial instrument cannot be estimated
reliably, then the entity is required to use the remaining
contractual term of the financial instrument
• Cash flows from the sale of collateral hold or other
credit enhancements that are integral to the contractual
terms.
• ECL impairment loss allowance (or reversal), if any.
recognized during the period is recognized as income/
expense in the statement of profit and loss. This
amount is reflected under the “net impairment losses
on financial assets" in the statement of profit and loss.
The balance sheet presentation for various financial
instruments is described below:
• Financial assets measured as at amortised cost,
contractual revenue receivables: ECL is presented as an
allowance, i.e.. as an integral part of the measurement
of those assets in the 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.
• For assessing increase in credit risk and impairment
loss, the Company combines financial instruments
based on shared credit risk characteristics with the
objective of facilitating an analysis that is designed to
enable significant increases in credit risk to be identified
on a timely basis.
The Company does not have any purchased or originated
credit-impaired (POCI) financial assets, i.e.. financial assets
which are credit impaired on purchase/ origination.
Refer note (g) under 2.3 for the other relevant accounting
policies.
g) Business combinations - common control
transactions
Business combinations involving entities that are controlled
by the group are accounted for using the pooling of interests
method as follows:
• The assets and liabilities of the combining entities are
reflected at their carrying amounts.
• No adjustments are made to reflect fair values or
recognise any new assets or liabilities. Adjustments are
only made to harmonise accounting policies.
• The financial information in the financial statements in
respect of prior periods is restated as if the business
combination had occurred from the beginning of
the preceding period in the financial statements,
irrespective of the actual date of the combination.
However, where the business combination had occurred
after that date, the prior period information is restated
only from that date.
• The balance of the retained earnings appearing in the
financial statements of the transferor is aggregated
with the corresponding balance appearing in the
financial statements of the transferee or is adjusted
against general reserve.
• The identity of the reserves is preserved and the
reserves of the transferor become the reserves of the
transferee
• The difference, if any. between the amounts recorded as
share capital issued plus any additional consideration
in the form of cash or other assets and the amount of
share capital of the transferor is transferred to capital
reserve and is presented separately from other capital
reserves.
h) Financial Guarantee Contracts
Financial guarantee contracts are recognised as a financial
liability at the time the guarantee is issued. The liability
is initially measured at fair value and subsequently at the
higher of (i) the amount determined in accordance with
the expected credit loss model as per Ind AS 109 and (ii)
the amount initially recognised less, where appropriate,
cumulative amount of income recognised in accordance
with the principles of Ind AS 115.
The fair value of financial guarantees is determined based on
the present value of the difference between the cash flows
between the contractual payments required under the debt
instrument and the payments that would be without the
guarantee, or the estimated amount that would be payable
to the third party for assuming the obligations.
Where the guarantees in relation to the loans or other
payables of associates are provided for no compensation.
the fair values are accounted for as contributions and
recognised as part of the cost of the investment
I) Income Taxes
c Current income tax
The income tax expense or credit for the period is the tax
payable on the current period's taxable income based on
the applicable income tax rate adjusted by changes in
deferred tax assets and liabilities attributable to temporary
differences.
The current income tax charge is calculated on the basis of
the tax laws enacted or substantively enacted at the end
of the reporting period. Management periodically evaluates
positions taken in tax returns with respect to situations in
which applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate based on amounts
expected to be paid to the tax authorities.
r Deferred tax
Deferred tax is provided in full, using the liability method,
on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the
financial statements 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.
• In respect of taxable temporary differences between
the carrying amount and tax bases of investments in
subsidiaries and interests in joint ventures, when the
timing of the reversal of the temporary differences
can be controlled by the Company, and it is probable
that the temporary differences 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 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 income tax is determined using tax rates (and tax
laws) that have been enacted or substantively enacted at
the reporting date and are expected to apply in the year
when the asset is realised or the liability is settled.
Current and Deferred tax is recognised in profit or loss,
except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this
case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
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 income taxes levied by same taxation authorities
on either same taxable entity or different taxable entities
which intend either to settle the current tax assets and tax
liabilities on a net basis or to realise the asset and settle the
liability simultaneously.
)) Financial Liabilities
c Borrowings
Borrowings are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption
amount is recognised in profit or loss over the period of the
borrowings using the effective interest method. Fees paid
on the establishment of loan facilities are recognised as
transaction costs of the loan to the extent that it is probable
that some or all of the facility will be drawn down In this
case, the fee is deferred until the draw down occurs. To the
extent there is no evidence that it is probable that some or
all of the facility will be drawn down, the fee is capitalised as
a prepayment for liquidity services and amortised over the
period of the facility to which it relates.
Borrowings are removed from the balance sheet when the
obligation specified in the contract is discharged, cancelled
or expired. The difference between the carrying amount of a
financial liability that has been extinguished or transferred to
another party and the consideration paid, including any non¬
cash assets transferred or liabilities assumed, is recognised
in profit or loss as other gains/Oosses).
Where the terms of a financial liability are renegotiated
and the entity issues equity instruments to a creditor to
extinguish all or part of the liability (debt for equity swap), a
gain or loss is recognised in profit or loss, which is measured
as the difference between the carrying amount of the
financial liability and the fair value of the equity instruments
issued.
Borrowings are classified as current liabilities unless the
Company has an unconditional right to defer settlement
of the liability for at least 12 months after the reporting
period. Where there is a breach of a material provision of
a long-term loan arrangement on or before the end of the
reporting period with the effect that the liability becomes
payable on demand on the reporting date, the entity does
not classify the liability as current, if the lender agreed,
after the reporting period and before the approval of the
financial statements for issue, not to demand payment as a
consequence of the breach.
k) Borrowing Costs
General and specific borrowing costs are directly expensed
in the period in which they occur. Borrowing costs consist
of interest and other costs that the Company incurs in
connection with the borrowing of funds. Borrowing cost also
includes exchange differences to the extent regarded as an
adjustment to the borrowing costs.
l) Presentation of EBITDA
The Company presents Earnings before interest, tax.
depreciation and amortisation ('EBITDA') in the statement
of profit or loss; this is not specifically required by Ind AS
1. The term EBITDA is not defined in Ind AS. Schedule III
allows companies to present line items, sub-line items and
sub-totals to be presented as an addition or substitution on
the face of the financial statements when such presentation
is relevant to an understanding of the company's financial
position or performance.
Accordingly, the Company has elected to present EBITDA
as a separate line item on the face of the statement of profit
and loss. In the measurement of EBITDA, the Company does
not include depreciation and amortization expense, finance
costs and tax expense.
2.3 Summary of other accounting policies
a) Property, plant and equipment
Historical cost includes expenditure that is directly
attributable to the acquisition of the items of property, plant
and equipment. Such historical cost also includes the cost
of replacing part of the property, plant and equipment and
borrowing costs if the recognition criteria are met
Subsequent costs are included in the asset’s carrying
amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits
associated with the item will flow to the Company and the
cost of the item can be measured reliably. The carrying
amount of any component accounted for as a separate
asset is derecognised when replaced. All other repairs
and maintenance are charged to profit or loss during the
reporting period in which they are incurred.
When significant parts of the property, plant and equipment
are required to be replaced at intervals, the Company
depreciates them separately based on their specific useful
lives. Likewise, when a major inspection is performed,
its cost is recognised in the carrying amount of the plant
and equipment as a replacement if the recognition criteria
are satisfied. All other repair and maintenance costs are
recognised in statement of profit or loss as incurred. No
decommissioning liabilities are expected or be incurred on
the assets of plant and equipment.
The leasehold improvements and property, plant and
equipment acquired under leases is depreciated over the
asset's useful life or over the shorter of the asset's useful
life and the lease term, unless the entity expects to use the
assets beyond the lease term.
An asset's carrying amount is written down immediately
to its recoverable amount if the asset's carrying amount is
greater than its estimated recoverable amount
The assets residual values and useful lives are reviewed and
adjusted if appropriate, at the end of each reporting period.
b) Employee Share-based payments
The fair value of options granted to employees under
the Employee Stock Option Plan of the Group Company
is recognised as an employee benefits expense with a
corresponding increase in other equity as contribution by
parent. The total amount to be expensed is determined by
reference to the fair value of the options granted:
• Including any market performance conditions (e.g.. the
entity's share price)
• Excluding the impact of any service and non-market
performance vesting conditions (e.g. profitability, sales
growth targets and remaining an employee of the entity
over a specified time period), and
• Including the impact of any non-vesting conditions
(e.g. the requirement for employees to save or holdings
shares for a specific period of time).
The total expense is recognised over the vesting period,
which is the period over which all of the specified vesting
conditions are to be satisfied. At the end of each period,
the entity revises its estimates of the number of options
that are expected to vest based on the non-market vesting
and service conditions. It recognises the impact of the
revision to original estimates, if any. in profit or loss, with a
corresponding adjustment to other equity as contribution
by parent.
c) Leases
Lease payments to be made under reasonably certain
extension options are also included in the measurement
of the liability. The lease payments are discounted using
the interest rate implicit in the lease. If that rate cannot be
readily determined, the lessee's incremental borrowing rate
is used, being the rate that the lessee would have to pay
to borrow the funds necessary to obtain an asset of similar
value in a similar economic environment with similar terms,
security and conditions.
Right-of-use assets are measured at cost comprising the
following:
• The amount of the initial measurement of lease liability
• Any lease payments made at or before the
commencement date less any lease incentives received
• ny initial direct costs, and restoration costs.
d) Inventories
Inventories comprise components and bought outs
Inventories are valued at the lower of cost and net realisable
value. Costs are assigned to individual items of inventory
based on weighted average basis. Management estimates
and writes down value of slow-moving inventory, considering
the future usage and marketability of the product.
Inventories comprise components and bought outs
procured specifically for contracts. Cost includes all direct
purchase costs, duties, taxes (excluding those recoverable),
and other expenditures incurred in bringing the inventory
to its present location and condition. As the materials are
project-specific and not held for general resale, they are
identified and allocated to individual projects at the time of
procurement.
Any obsolete or slow-moving project inventory is assessed
periodically, and provisions are made where necessary.
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