2. Material accounting policies
a. Basis of preparation
The standalone financial statements of the Company
have been prepared in accordance with Indian Accounting
Standards (Ind AS) notified under the Companies (Indian
Accounting Standards) Rules, 2015 (as amended from time
to time) and presentation requirements of Division II of
Schedule III to the Companies Act, 2013, (Ind AS compliant
Schedule III), as applicable to the standalone financial
statements.
The standalone financial statements have been prepared
on a historical cost basis, except for certain financial
instruments which are measured at fair value at the end
of each reporting period, as explained further in the
accounting policies below.
The Company has prepared the standalone financial
statements on the basis that it will continue to operate as
a going concern.
The Standalone financial statements provide comparative
information in respect of the previous period.
The standalone financial statements comprise the financial
statements of the Company and its controlled employee
benefit trust.
Subex Limited is the sponsoring entity of Employee Stock
Option Plan (“ESOP”) trust. Management of the Company
can appoint and remove the trustees and provide funding
to the trust for buying the shares. Basis assessment by the
management, it believes that the ESOP trust is controlled
by the Company and accordingly Subex Employee Welfare
and ESOP Benefit Trust is consolidated [refer note 2(o) and
note 34].
The standalone financial statements are presented in INR
(“'”) and all the values are rounded off to the nearest Lakhs
(INR 00,000) except when otherwise indicated.
b. Significant accounting estimates, assumptions and
judgements
The preparation of the Company’s standalone financial
statements in conformity with Ind AS requires management
to make estimates, judgements and assumptions that affect
the reported amounts of revenues, expenses, assets and
liabilities, the disclosure of contingent assets and liabilities
on the date of the standalone financial statements and
other accompanying disclosures. Uncertainty about these
assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of
assets or liabilities affected in future periods. Revisions to
accounting estimates are recognised in the year in which
the estimates are revised and future periods are affected.
Significant judgements and estimates relating to carrying
values of assets and liabilities include revenue recognition,
impairment of non-financial assets including investments
and intangible assets, impairment of financial assets,
fair value measurement of financial instruments, defined
benefit plans (gratuity benefits), share-based payments,
provision for expected credit losses of trade receivables
and contract assets, taxes, contingencies, leases -
determining the lease term of contracts with renewal and
termination options.
Key source of estimation of uncertainty as at the date
of standalone financial statements, which may cause a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year, is in respect of the
following:
Revenue recognition
The Company uses the percentage-of-completion
method in accounting for its fixed-price contracts. Use
of the percentage-of-completion method requires the
Company to estimate the efforts or costs expended to
date as a proportion of the total efforts or costs to be
expended. Efforts or costs expended have been used to
measure progress towards completion as there is a direct
relationship between input and productivity. Provisions
for estimated losses, if any, on uncompleted contracts
are recorded in the period in which such losses become
probable based on the expected contract estimates at the
reporting date.
Further, the percentage-of-completion method places
considerable importance on accurate estimates to the
extent of progress towards completion and may involve
estimates on the scope of deliveries and services required
for fulfilling the contractually defined obligations. These
significant estimates include total contract costs, total
contract revenues, contract risks, including technical,
political and regulatory risks, and other judgments. This
requires the Company to estimate various costs to capture
such risks, including liquidated damages and warranties.
The Company re-assesses these estimates on periodic
basis and makes appropriate revisions accordingly.
Impairment of non-financial assets
Impairment exists when the carrying value of an asset
or cash generating unit (“CGU”) exceeds its recoverable
amount, which is the higher of its fair value less costs of
disposal and its value in use. The fair value less costs of
disposal calculation is based on available data from binding
sales transactions, conducted at arm’s length, for similar
assets or observable market prices less incremental costs
for disposing of the asset. The value in use calculation is
based on a discounted cash flow (“DCF”) model. The cash
flows are derived from the budget for future years and
do not include restructuring activities that the Company
is not yet committed to or significant future investments
that will enhance the asset’s performance of the CGU being
tested. The recoverable amount is sensitive to the discount
rate used for the DCF model as well as the expected future
cash-inflows and the growth rate used for extrapolation
purposes. Also, refer note 2(h).
Impairment of financial assets
In accordance with Ind AS 109, the Company assesses
impairment of financial assets (‘Financial instruments’) and
recognises expected credit losses, which are measured
through a loss allowance.
The Company provides for impairment of investment in
subsidiaries. Impairment exists when there is a diminution
in value of the investment and the recoverable value of
such investment is lower than the carrying value of such
investment.
The Company provides for impairment of trade receivables
and contract asset based on assumptions about risk of
default and expected timing of collection. The Company
uses judgement in making these assumptions and
selecting inputs to the impairment calculation, based on
the Company’s past history, customer’s creditworthiness,
existing market conditions as well as forward looking
estimates at the end of each reporting period. Also, refer
note 2(h).
Fair value measurement of financial instruments
When the fair values of financial assets and financial
liabilities recorded in the balance sheet cannot be
measured based on quoted prices in active markets, their
fair value is measured using valuation techniques including
the DCF model. The inputs to these models are taken from
observable markets where possible, but where this is not
feasible, a degree of judgement is required in establishing
fair values. Judgements include considerations of inputs
such as liquidity risk, credit risk and volatility. Changes in
assumptions about these factors could affect the reported
fair value of financial instruments. See Note 36 and 37 for
further disclosures.
Defined benefit plans
The cost of the defined benefit gratuity plan and other
post-employment benefits and the present value of the
gratuity obligation is determined using actuarial valuation.
An actuarial valuation involves making various assumptions
that may differ from actual developments in the future.
These include the determination of the discount rate,
future salary increases and mortality rates. Due to the
complexities involved in the valuation and its long-term
nature, a defined benefit obligation is highly sensitive
to changes in these assumptions. All assumptions are
reviewed at each reporting date (refer note 35).
The parameter most subject to change is the discount
rate. In determining the appropriate discount rate for plans
operated in India, the management considers the interest
rates of government bonds in currencies consistent with
the currencies of the post-employment benefit obligation.
The mortality rate is based on publicly available mortality
tables. These mortality tables tend to change only at
interval in response to demographic changes. Future salary
increases and gratuity increases are based on expected
future inflation rates.
Share-based payments
Estimating fair value for share-based payment transactions
requires determination of the most appropriate valuation
model, which is dependent on the terms and conditions
of the grant. This estimate also requires determination
of the most appropriate inputs to the valuation model
including the expected life of the share option, volatility
and dividend yield and making assumptions about them.
For the measurement of the fair value of equity-settled
transactions with employees at the grant date, the
Company uses a Black-Scholes model.
The assumptions and models used for estimating fair value
for share-based payment transactions are disclosed in
note 34.
Provision for expected credit losses of trade receivables
and contract assets
The Company uses a provision matrix to calculate ECLs for
trade receivables and contract assets. The provision rates
are based on days past due for various customer segments
that have similar loss patterns (i.e., by geography, product
type, customer type and rating, and coverage by letters of
credit and other forms of credit insurance).
The provision matrix is initially based on the Company’s
historical observed default rates. The Company will calibrate
the matrix to adjust the historical credit loss experience
with forward-looking information. At every reporting date,
the historical observed default rates are updated and
changes in the forward-looking estimates are analysed.
The assessment of the correlation between historical
observed default rates, forecast economic conditions
and ECLs is a significant estimate. The amount of ECLs is
sensitive to changes in circumstances and of forecast
economic conditions. The Company’s historical credit loss
experience and forecast of economic conditions may also
not be representative of customer’s actual default in the
future. The information about the ECLs on the Company’s
trade receivables and contract assets is disclosed in
Note 37.
Taxes
The Company uses estimates and judgements based on the
relevant rulings in the areas of allocation of revenue, costs,
allowances and disallowances which is exercised while
determining the provision for income tax. Uncertainties
exist with respect to the interpretation of tax regulations,
changes in tax laws, and the amount and timing of
future taxable income. Given the wide range of business
relationships differences arising between the actual results
and the assumptions made, or future changes to such
assumptions, could necessitate future adjustments to
tax income and expense already recorded. The Company
establishes provisions, based on reasonable estimates. The
amount of such provisions is based on various factors, such
as experience of previous assessments and interpretations
of tax regulations by the Company.
Contingencies
Contingent liabilities may arise from the ordinary course of
business in relation to claims against the Company, including
legal and contractual claims. By their nature, contingencies
will be resolved only when one or more uncertain future
events occur or fail to occur. The assessment of the
existence, and potential quantum, of contingencies
inherently involves the exercise of significant judgement
and the use of estimates regarding the outcome of future
events. Refer note 33 for further disclosures.
Leases
Ind AS 116 requires lessees to determine the lease term
as the non-cancellable period of a lease adjusted with
any option to extend or terminate the lease, if the use of
such option is reasonably certain. The Company makes an
assessment on the expected lease term on a lease-by¬
lease basis and thereby assesses whether it is reasonably
certain that any options to extend or terminate the contract
will be exercised. In evaluating the lease term, the Company
considers factors such as any significant leasehold
improvements undertaken over the lease term, costs
relating to the termination of the lease and the importance
of the underlying asset to Company’s operations taking
into account the location of the underlying asset and the
availability of suitable alternatives. The lease term in future
periods is reassessed to ensure that the lease term reflects
the current economic circumstances. [Refer to note 2(j)].
c. Current/ non-current classification
The Company presents assets and liabilities in the 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
• It is held primarily for the purpose of trading
• It is 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
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non¬
current assets and liabilities, respectively.
Advance tax paid is classified as non-current assets.
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.
d. Revenue from contracts with customer
Revenue from contracts with customers is recognised
when control of the goods or services are transferred to
the customer at an amount that reflects the consideration
to which the Company expects to be entitled in
exchange for those goods or services. The Company has
generally concluded that it is the principal in its revenue
arrangements, except for the agency services below,
because it typically controls the goods or services before
transferring them to the customer.
The Company derives its revenues from sale and
implementation of its proprietary software license and
managed/ support services.
The following specific recognition criteria must also be met
before revenue is recognized:
Revenue from subcontracting services to group entities/
related parties - Subcontracting services income is
recognized as services are rendered, on the basis of an
agreed percentage of contract price, in accordance with
the agreement entered into with group entities.
Revenue from support services to group entities/related
parties- Support service income is recognized as services
are rendered, on the basis of an agreed mark up on costs
incurred, in accordance with the agreement entered into
with group entities.
Revenues from licensing arrangements is recognized at a
point in time on transfer of the title in user licenses, except
those contracts where transfer of title is dependent upon
rendering of significant implementation and other services
by the Company, in which case revenue is recognized over
the implementation period in accordance with the specific
terms of the contracts with clients.
Revenue from implementation and customisation services
is recognised using the percentage of completion
method. Percentage of completion is determined based
on completed efforts against the total estimated efforts,
which represent the transaction price of services rendered.
Revenue from managed/ support services is recognized
when the services are rendered in accordance with the
terms of contracts over the period of the contracts.
Revenue from sale of hardware under reseller arrangements
is recognized when control of the goods is transferred
to the buyer, usually on delivery of goods to customers.
In case of multiple element arrangements for sale of
software license, related implementation and maintenance
services, the Company has applied the guidance in Ind
AS 115, by applying the revenue recognition criteria for
each distinct performance obligation. The arrangements
generally meet the criteria for considering the sale of
software license, related implementation and maintenance
services as distinct performance obligation. For allocating
the consideration, the Company has measured the revenue
in respect of each distinct performance obligation of a
transaction at its standalone selling price, in accordance
with principles given in Ind AS 115. The price that is regularly
charged for an item when sold separately is the best
evidence of its standalone selling price. In cases where
the Company is unable to determine the standalone selling
price, the Company has used a residual method to allocate
the arrangement consideration. In these cases, the balance
of the consideration, after allocating the standalone selling
price of undelivered components of a transaction has been
allocated to the delivered components for which specific
standalone selling price do not exist.
The Company collects Goods and Services tax and other
taxes as applicable in the respective tax jurisdictions
where the Company operates, on behalf of the government
and therefore it is not an economic benefit flowing to the
Company. Hence it is excluded from revenue.
Provisions for estimated losses on contracts are recorded
in the period in which such losses become probable based
on the current contract estimates.
Contract balances
Contract assets: A contract asset is initially recognised for
revenue from implementation and customisation services
because the receipt of consideration is conditional on
successful completion of the installation. Upon completion
of the installation and acceptance by the customer, the
amount recognised as contract assets is reclassified
to trade receivables. Contract assets are subject to
impairment assessment. Refer to accounting policies on
impairment of financial assets in section h.
Trade receivables: A trade receivable is recognised if an
amount of consideration that is unconditional (i.e., only
the passage of time is required before payment of the
consideration is due). Refer to accounting policies on
impairment of financial assets in section h.
Contract liabilities: A contract liability is recognised if
a payment is received or a payment is due (whichever is
earlier) from a customer before the Company transfers
the related goods or services. Contract liabilities are
recognised as revenue when the Company performs under
the contract (i.e., transfers control of the related goods or
services to the customer).
Performance obligations and remaining performance
obligations
The remaining performance obligation disclosure provides
the aggregate amount of the transaction price yet to be
recognised as at the end of the reporting period and an
explanation as to when the Company expects to recognize
these amounts in revenue.
Applying the practical expedient as given in Ind AS 115, the
Company has not disclosed the remaining performance
obligation related disclosures for contracts where the
revenue recognised corresponds directly with the value
to the customer of the entity’s performance completed to
date, typically those contracts where invoicing is on time
and material basis.
Remaining performance obligation estimates are subject
to change and are affected by several factors, including
terminations, changes in the scope of contracts, periodic
revalidations, adjustment for revenue that has not
materialized and adjustments for currency.
Interest
Interest income is recognised as it accrues in the standalone
statement of profit and loss using effective interest rate
method.
e. Property, plant and equipment
Property, plant and equipment is 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, directly attributable
cost of bringing the plant and equipment to its working
condition for the intended use and cost of replacing part
of the plant and equipment. 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. 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 the standalone statement of profit and
loss as incurred. The present value of the expected cost for
the decommissioning of an asset after its use is included in
the cost of the respective asset if the recognition criteria
for a provision are met.
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. Any gain or loss arising on derecognition
of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset)
is included in the standalone statement of profit and loss
when the asset is derecognised.
f. Intangible assets
Intangible assets acquired separately are measured on
initial recognition at cost. Following initial recognition,
intangible assets are carried at cost less any accumulated
amortization and accumulated impairment losses. Internally
generated intangibles, excluding capitalised development
costs, are not capitalised and the related expenditure is
reflected in the standalone statement of profit and loss in
the period in which the expenditure is incurred.
Intangible assets with finite lives are amortized over the
useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be
impaired. The amortization period and the amortization
method for an intangible asset with a finite useful life
are reviewed at least at the end of each reporting period.
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. The amortization expense on
intangible assets with finite lives is recognised in the
statement of profit and loss unless such expenditure forms
part of carrying value of another asset.
An intangible asset is derecognised upon disposal (i.e., at
the date the recipient obtains control) or when no future
economic benefits are expected from its use or disposal.
Any gains or losses arising from derecognition of an
intangible 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.
g. Depreciation and amortization
Depreciation of property, plant and equipment and
amortization of intangible assets with finite useful lives is
calculated on a straight-line basis over the useful lives of
the assets estimated by the management, basis technical
assessment:
The Company has used the following useful lives to provide
depreciation on plant and equipment and amortization of
intangible assets:
The residual values, useful lives and methods of depreciation
of property, plant and equipment and amortization of
intangibles are reviewed at each financial year end and
adjusted prospectively, if appropriate.
h. Impairment
Impairment of financial assets
Loss allowance for expected credit losses is recognised for
financial assets measured at amortised cost and fair value
through the statement of profit and loss. The Company
recognises impairment loss on trade receivables using
expected credit loss model, which involves use of provision
matrix constructed on the basis of historical credit loss
experience as permitted under Ind AS 109 - Financial
Instruments.
For financial assets whose credit risk has not significantly
increased since initial recognition, loss allowance equal to
twelve months expected credit losses is recognised. Loss
allowance equal to the lifetime expected credit losses is
recognised if the credit risk on the financial instruments
has significantly increased since initial recognition.
Impairment of non-financial assets
The Company assesses, at each reporting date, whether
there is an indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for
an asset is required, the Company estimates the asset’s
recoverable amount. An asset’s recoverable amount is
the higher of an asset’s or cash-generating unit’s (CGU)
fair value less costs of disposal and its value in use. The
recoverable amount is determined for an individual asset,
unless the asset does not generate cash inflows that are
largely independent of those from other assets or group of
assets.
When the carrying amount of an asset (or CGU) exceeds its
recoverable amount, the asset is considered impaired and
is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset.
In determining fair value less costs of disposal, recent
market transactions are taken into account. If no such
transactions can be identified, an appropriate valuation
model is used. These calculations are corroborated by
valuation multiples, quoted share prices for publicly traded
companies or other available fair value indicators.
The Company bases its impairment calculation on detailed
budgets and forecast calculations, which are prepared
separately for each of the Company’s CGUs to which the
individual assets are allocated. To estimate cash flow
projections beyond periods covered by the most recent
budgets/forecasts, the Company extrapolates cash flow
projections in the budget using a steady or declining
growth rate for subsequent years, unless an increasing
rate can be justified. In any case, this growth rate does not
exceed the long-term average growth rate for the products,
industries, or country in which the Company operates, or
for the market in which the asset is used.
When an impairment loss subsequently reverses, the
carrying amount of the asset (or cash generating unit)
is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been
determined had no impairment loss is recognised.
i. Equity investments in subsidiaries
A subsidiary is an entity that is controlled by another
entity.
The Company’s investments in its subsidiaries are classified
as non-current investments and accounted at cost less
impairment.
Impairment of investments:- The Company reviews its
carrying value of investments carried at cost annually, or
more frequently when there is indication for impairment. If
the recoverable amount is less than its carrying amount, the
impairment loss is recorded in the standalone statement of
Profit and Loss.
When an impairment loss subsequently reverses, the
carrying amount of the Investment is increased to the
revised estimate of its recoverable amount, so that the
increased carrying amount does not exceed the cost of the
Investment. A reversal of an impairment loss is recognised
immediately in standalone statement of profit and loss.
On disposal of an investment, the difference between its
carrying amount and net disposal proceeds is charged or
credited to the standalone statement of profit and loss.
Investment in Limited Liability Partnership (“LLP”) firms
is carried at cost in the separate financial statements.
The share in profit/loss in LLPs is recognised as income/
expense in the standalone statement of profit and loss and
is recorded under other current financial asset/liabilities
as the right to share the profit/loss is established as per
the LLP’s agreement. The Company has presented share
of profit and share of loss from LLP on net basis as the
management considers the net income/expense to be its
return on investment in LLP.
j. Leases
The Company assesses at contract inception whether
a contract is/ contains a lease. That is, 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:
The Company applies a single recognition and measurement
approach for all leases, except for short-term leases and
leases of low-value assets. The Company recognises lease
liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets.
i) Right-of-use assets
The Company recognises right-of-use assets at the
commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use assets
are measured at cost, less any accumulated depreciation
and impairment losses, and adjusted for any remeasurement
of lease liabilities. The cost of right-of-use assets includes
the amount of lease liabilities recognised, initial direct
costs incurred, and lease payments made at or before the
commencement date less any lease incentives received.
Right-of-use assets are depreciated on a straight-line
basis over the lease term.
If ownership of the leased asset transfers to the Company
at the end of the lease term or the cost reflects the
exercise of a purchase option, depreciation is calculated
using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment.
Refer note 2(h) Impairment of non-financial assets.
ii) Lease Liabilities
At the commencement date of the lease, the Company
recognises lease liabilities measured at the present
value of lease payments to be made over the lease term.
The lease payments include fixed payments (including
in substance fixed payments) less any lease incentives
receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under
residual value guarantees. The lease payments also
include the exercise price of a purchase option reasonably
certain to be exercised by the Company and payments
of penalties for terminating the lease, if the lease term
reflects the Company exercising the option to terminate.
Variable lease payments that do not depend on an index or
a rate are recognised as expenses (unless they are incurred
to produce inventories) in the period in which the event or
condition that triggers the payment occurs.
In calculating the present value of lease payments, the
Company uses its incremental borrowing rate at the
lease commencement date because the interest rate
implicit in the lease is not readily determinable. After the
commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced
for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the
lease payments (e.g., changes to future payments resulting
from a change in an index or rate used to determine such
lease payments) or a change in the assessment of an
option to purchase the underlying asset.
iii) Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition
exemption to its short-term leased assets (i.e., those
leases that have a lease term of 12 months or less from
the commencement date and do not contain a purchase
option). It also applies the lease of low-value assets
recognition exemption to leased assets that are considered
to be low value. Lease payments on short-term leases and
leases of low-value assets are recognised as expense on a
straight-line basis over the lease term.
k. 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 and financial liabilities are recognised when
the Company becomes a party to the contract that gives
rise to financial assets and liabilities. All financial assets
and financial liabilities contracts are initially measured
at transaction cost and where such values are different
from the fair value, 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. The
transaction costs directly attributable to the acquisition of
financial assets and financial liabilites at fair value through
profit or loss are immediately recognised in standalone
statement of profit and loss.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as
subsequently measured at amortised cost and fair value
through profit or loss. The classification of financial assets
at initial recognition depends on the financial asset’s
contractual cash flow characteristics and the Company’s
business model for managing them. With the exception
of trade receivables that do not contain a significant
financing component or for which the Company has
applied the practical expedient, the Company initially
measures a financial asset at its fair value plus, in the case
of a financial asset not at fair value through profit or loss,
transaction costs. Trade receivables that do not contain a
significant financing component or for which the Company
has applied the practical expedient are measured at the
transaction price as disclosed in section 2.3.(d) Revenue
recognition.
In order for a financial asset to be classified and measured
at amortised cost, it needs to give rise to cash flows that
are ‘solely payments of principal and interest (SPPI)’ on the
principal amount outstanding. This assessment is referred
to as the SPPI test and is performed at an instrument
level. Financial assets with cash flows that are not SPPI are
classified and measured at fair value through profit or loss,
irrespective of the business model.
Investment in equity instruments issued by subsidiaries,
associates are measured at cost less impairment.
Subsequent measurement
Financial assets at amortized cost
Financial assets are subsequently measured at amortized
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.
Financial assets at fair value through other comprehensive
income
Financial assets are measured at fair value through other
comprehensive income 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. Gains and losses on these financial assets are
never recycled to profit or loss. Dividends are recognised
as other income in the statement of profit and loss when
the right of payment has been established, except when
the Company benefits from such proceeds as a recovery of
part of the cost of the financial asset, in which case, such
gains are recorded in OCI. Equity instruments designated
at fair value through OCI are not subject to impairment
assessment.
Financial assets at fair value through profit or loss
Financial assets are measured at fair value through profit or
loss unless it is measured at amortized cost or at fair value
through other comprehensive income on initial recognition.
De-recognition of financial assets
The Company de-recognises a financial asset only when
the contractual rights to the cash flows from the financial
asset expire, or it transfers the financial asset and the
transfer qualifies for de-recognition under Ind AS 109.
If the Company neither transfers nor retains substantially
all the risks and rewards of ownership and continues to
control the transferred asset, the Company recognises its
retained interest in the assets and an associated liability
for amounts it may have to pay.
If the Company retains substantially all the risks and
rewards of ownership of a transferred financial asset,
the Company continues to recognise the financial asset
and also recognises a collateralised borrowing for the
proceeds received. On de-recognition of a financial
asset in its entirety, the difference between the carrying
amount measured at the date of de-recognition and the
consideration received is recognised in statement of profit
or loss.
Financial liabilities
Measurement
Financial liabilities are initially measured at fair value, net
of transaction costs, and are subsequently measured at
amortised cost, using the effective interest rate method
where the time value of money is significant. Interest
bearing bank loans, overdrafts and issued debt are initially
measured at fair value and are subsequently measured at
amortised cost using the effective interest rate method.
Any difference between the proceeds (net of transaction
costs) and the settlement or redemption of borrowings
is recognised over the term of the borrowings in the
statement of profit and loss. 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.
De-recognition of financial liabilities
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
derecognition of the original liability and the recognition
of a new liability. The difference in the respective carrying
amounts is recognised in the statement of profit and loss.
Reclassification of financial assets
The Company determines classification of financial assets
and liabilities on initial recognition. After initial recognition,
no reclassification is made for financial assets which are
equity instruments and financial liabilities. For financial
assets which are debt instruments, a reclassification is
made only if there is a change in the business model for
managing those assets. Changes to the business model
are expected to be infrequent. The Company’s senior
management determines change in the business model as
a result of external or internal changes which are significant
to the Company’s operations. Such changes are evident to
external parties. A change in the business model occurs
when the Company either begins or ceases to perform an
activity that is significant to its operations. If the Company
reclassifies financial assets, it applies the reclassification
prospectively from the reclassification date which is the
first day of the immediately next reporting period following
the change in business model. The Company does not
restate any previously recognised gains, losses (including
impairment gains or losses) or interest.
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the
net amount is reported in the standalone balance sheet
if there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on
a net basis, to realise the assets and settle the liabilities
simultaneously.
Fair value of financial instruments
The Company measures financial instruments, such as,
derivatives at fair value at each balance sheet date. 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. The fair
value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes
place either:
• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most
advantageous market for the asset or liability
The principal or the most advantageous market must be
accessible by the Company.
The fair value of an asset or a liability is measured using
the assumptions that market participants would use
when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes
into account a market participant’s ability to generate
economic benefits by using the asset in its highest and
best use or by selling it to another market participant that
would use the asset in its highest and best use.
The Company uses valuation techniques that are
appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximising the use
of relevant observable inputs and minimising the use of
unobservable inputs.
Fair value hierarchy
All assets and liabilities for which fair value is measured
or disclosed in the standalone 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 — Quoted (unadjusted) market prices in active
markets for identical assets or liabilities.
Level 2 — Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
directly or indirectly observable.
Level 3 — Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are recognised in the
standalone 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.
For the purpose of fair value disclosures, the Company has
determined classes of assets and liabilities on the basis of
the nature, characteristics and risks of the asset or liability
and the level of the fair value hierarchy as explained above.
This note summarises accounting policy for fair value. Other
fair value related disclosures are given in the relevant notes.
i) Disclosures for valuation methods, significant
estimates and assumptions
ii) Quantitative disclosures of fair value measurement
hierarchy
iii) Investment in unquoted equity shares
iv) Financial instruments (including those carried at
amortised cost)
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily
takes a substantial period of time to get ready for its
intended use or sale are capitalised as part of the cost of
the asset. All other borrowing costs are expensed in the
period in which they occur. Borrowing costs consist of
interest and other costs that an entity 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.
i. Standalone statement of cash flows
Cash flows are reported using the indirect method, whereby
profit/ (loss) for the period is adjusted for the effects
of transactions of a non-cash nature or any deferrals
or accruals of past or future operating cash receipts or
payments and item of income or expenses associated
with investing or financing cash flows. The cash flows
from operating, investing and financing activities of the
Company are segregated.
n. Employee share based payments
The Company measures compensation cost relating to
employee stock options plans 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 straight-line basis. The
cost of equity-settled transactions is determined by the
fair value at the date when the grant is made using an
appropriate valuation model (Black-Scholes valuation
model). Further details are given in Note 34.
That cost is recognised, together with a corresponding
increase in employee stock options reserves in other equity,
over the period in which the performance and/or service
conditions are fulfilled in employee benefits expense.
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. The expense or credit
in the statement of profit and loss for a period represents
the movement in cumulative expense recognised as at
the beginning and end of that period and is recognised in
employee benefits expense.
Service and non-market performance conditions are not
taken into account when determining the grant date fair
value of awards, but the likelihood of the conditions being
met is assessed as part of the Company’s best estimate
of the number of equity instruments that will ultimately
vest. Market performance conditions are reflected within
the grant date fair value. Any other conditions attached to
an award, but without an associated service requirement,
are considered to be non-vesting conditions. Non-vesting
conditions are reflected in the fair value of an award and
lead to an immediate expensing of an award unless there
are also service and/or performance conditions.
No expense is recognised for awards that do not ultimately
vest because non-market performance and/or service
conditions have not been met. Where awards include a
market or non-vesting condition, the transactions are
treated as vested irrespective of whether the market or
non-vesting condition is satisfied, provided that all other
performance and/or service conditions are satisfied.
The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of diluted
earnings per share.
o. Treasury shares
The Company has formed Subex Employee Welfare and
ESOP Benefit Trust (“ESOP Trust”) for providing share-based
payment to its employees. The Company treats ESOP Trust
as its extension and shares held by ESOP Trust are treated
as treasury shares.
Own equity instruments that are purchased (treasury
shares) are recognised at cost and deducted from equity.
No gain or loss is recognised in profit or loss on the
purchase, sale, issue or cancellation of the Company’s own
equity instruments. Any difference between the carrying
amount and the consideration, if reissued, is recognised
in Securities premium. Share options exercised during the
reporting period are adjusted with treasury shares.
p. Employee benefits
Employee benefits include provident fund, gratuity and
compensated absences.
Defined contribution plans
Retirement benefit in the form of provident fund and
pension fund are defined contribution scheme. The
Company has no obligation, other than the contribution
payable. The Company recognizes contribution payable to
provident fund and pension fund as expenditure, when an
employee renders the related service. If the contribution
payable to the scheme for service received before the
balance sheet date exceeds the contribution already
paid, the deficit payable to the scheme is recognized as
a liability after deducting the contribution already paid.
If the contribution already paid exceeds the contribution
due for services received before the balance sheet date,
then excess is recognized as an asset to the extent that
the pre-payment will lead to, for example, a reduction in
future payment or a cash refund.
Defined benefit plans
The cost of providing benefits under the defined benefit
plans i.e. gratuity, is determined using the projected unit
credit method using actuarial valuation to be carried out at
each balance sheet date.
Re-measurements, comprising of actuarial gains and losses,
the effect of the asset ceiling, excluding amounts included
in net interest on the net defined benefit liability and the
return on plan assets (excluding amounts included in net
interest on the net defined benefit liability), are recognised
immediately in the standalone Ind AS balance sheet with a
corresponding debit or credit to retained earnings through
OCI in the period in which they occur. Re-measurements are
not reclassified to profit or loss in subsequent periods.
Past service costs are recognised in profit or loss on the
earlier of:
a) The date of the plan amendment or curtailment, and
b) The date that the Company recognises related
restructuring costs
Net interest is calculated by applying the discount rate
to the net defined benefit liability or asset. The Company
recognises the following changes in the net defined
benefit obligation as an expense in the statement of profit
and loss:
a) Service costs comprising current service costs, past-
service costs, gains and losses on curtailments and
non-routine settlements; and
b) Net interest expense or income.
Short-term employee benefits
Accumulated leave, which is expected to be utilized within
the next twelve months, is treated as short-term employee
benefit. The Company measures the expected cost of such
absences as the additional amount that it expects to pay
as a result of the unused entitlement that has accumulated
at the reporting date. The Company recognizes expected
cost of short-term employee benefit as an expense, when
an employee renders the related service.
Long-term employee benefits
The Company treats accumulated leave expected to be
carried forward beyond twelve months, as long-term
employee benefit for measurement purposes. Such long¬
term compensated absences are provided for based on
the actuarial valuation using the projected unit credit
method at the reporting date. Actuarial gains/losses are
immediately taken to the statement of profit and loss and
are not deferred. The obligations are presented as current
liabilities in the balance sheet if the entity does not have
an unconditional right to defer the settlement for at least
twelve months after the reporting date.
The Company presents the leave as a current liability in
the standalone Ind AS balance sheet, to the extent it does
not have an unconditional right to defer its settlement for
twelve months after the reporting date.
. Foreign currencies
The Company’s standalone financial statements are
presented in INR ( ' ). The Company determines the
functional currency as INR on the basis of primary economic
environment in which the entity operates.
Transactions in foreign currencies are initially recorded by
the Company at functional currency spot rates at the date
the transaction first qualifies for recognition. However, for
practical reasons, the Company uses average rate if the
average approximates the actual rate at the date of the
transaction. Monetary assets and liabilities denominated
in foreign currencies are translated at the functional
currency spot rates of exchange at the reporting date.
Exchange differences arising on settlement or translation
of monetary items are recognised in profit or 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).
r. Taxes on income
Current income tax
Tax expense for the year comprises current and deferred
tax. The tax currently payable is based on taxable profit for
the year.
Taxable profit differs from net profit as reported in the
statement of profit and loss because it excludes items of
income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable
or deductible. Current income tax assets and liabilities are
measured at the amount expected to be recovered from or
paid to the taxation authorities. The Company’s liability for
current tax is calculated using the tax rates and tax laws
that have been enacted or substantively enacted by the
end of the reporting period.
Current income tax relating to items recognised outside
profit or loss is recognised outside profit or loss (either in
other comprehensive income or in equity). Current tax items
are recognised in correlation to the underlying transaction
either in OCI or directly 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 considers whether it is probable that
a taxation authority will accept an uncertain tax treatment.
The Company shall reflect the effect of uncertainty for
each uncertain tax treatment by using either most likely
method or expected value method, depending on which
method predicts better resolution of the treatment.
Deferred tax
Deferred tax is the tax expected to be payable or
recoverable on differences between the carrying values of
assets and liabilities in the Ind AS financial statements and
the corresponding tax bases used in the computation of the
taxable profit and is accounted for using the balance sheet
liability model. Deferred tax liabilities are generally recognised
for all the taxable temporary differences. In contrast, deferred
tax assets are only recognised to the extent that is probable
that future taxable profits will be available against which the
temporary differences can be utilised.
Deferred 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 against which the deductible
temporary differences, and the carry forward of unused
tax credits and unused tax losses can be utilized.
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 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 year 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 balance sheet date.
Deferred tax relating to items recognised outside profit
or loss is recognised outside profit or loss (either in other
comprehensive income or in equity). Deferred tax items
are recognised in correlation to the underlying transaction
either in OCI or directly in equity.
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 and the same taxation
authority.
Minimum alternate tax (MAT) paid in a year is charged to
the standalone statement of profit and loss as current tax
for the year. The deferred tax asset is recognised for MAT
credit available only to the extent that it is probable that the
Company will pay normal income tax during the specified
period, i.e., the period for which MAT credit is allowed to
be carried forward. In the year in which the Company
recognizes MAT credit as an asset, it is created by way of
credit to the standalone statement of profit and loss and
shown as part of deferred tax asset. The Company reviews
the “MAT credit entitlement” asset at each reporting date
and writes down the asset to the extent that it is no longer
probable that it will pay normal tax during the specified
period.
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