2. Material Accounting Policies
2.1 Basis of preparation and presentation
These financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) notified under
the Companies (Indian Accounting Standards) Rules, 2015 & relevant amendment rules issued thereafter and guidelines
issued by the Securities and Exchange Board of India (SEBI) under the historical cost convention on the accrual basis
except for certain financial instruments which are measured at fair values at the end of each reporting period as explained
in the accounting policies below.
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; regardless of whether that price is directly observable or estimated
using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account
the characteristics of the asset or liability if market participants would take those characteristics into account when
pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these
financial statements is determined on such a basis, except for share-bases payment transactions that are within the
scope of lnd AS 102, leasing transactions that are within the scope of Ind AS 116, and measurements that have some
similarities to fair value but are not fair value, such as net realisable value in Ind AS 2 or value in use in Ind AS 36.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1,2 or 3 based on the
degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair
value measurement in its entirety, which are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access at the measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or
liability, either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
The principal accounting policies are set out below:
2.2 Revenue recognition
Revenue is recognised net of Goods and Services Tax (GST) to the extent that it is probable that economic benefit will
flow to the Company and that revenue can be reliably measured. Revenue is recognised upon transfer of control of
promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange
for those products or services. Arrangements with customers for software related services are either on a fixed-price or
on a time-and-material basis. Revenue towards satisfaction of a performance obligation is measured at the amount of
transaction price allocated to that performance obligation.
(i) Revenue on time-and-material contracts are recognised as the related services are performed and revenue from
the end of the last invoicing to the reporting date is recognised as unbilled revenue. Revenue from fixed-price
where the performance obligations are satisfied over time and where there is no uncertainty as to measurement or
collectability of consideration, is recognised as per the percentage-of-completion method. When there is uncertainty
as to measurement or ultimate collectability, revenue recognition is postponed until such uncertainty is resolved.
Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship
between input and productivity. Maintenance revenue is recognised ratably over the term of the underlying
maintenance arrangement.
(ii) In arrangements for software development and related services and maintenance services, the Company has
applied the guidance in Ind AS 115, Revenue from contract with customer, by applying the revenue recognition
criteria for each distinct performance obligation. The arrangements with customers generally meet the criteria for
considering software development and related services as distinct performance obligations. For allocating the
transaction price, the Company has measured the revenue in respect of each performance obligation of a contract
at its relative standalone selling price. 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 uses the expected cost plus margin approach in estimating the standalone selling price.
For software development and related services, the performance obligations are satisfied as and when the services
are rendered since the customer generally obtains control of the work as it progresses.
(iii) Contract modifications are accounted for when additions, deletions or changes are approved either to the contract
scope or contract price. The accounting for modifications of contracts involves assessing whether the services
added to an existing contract are distinct and whether the pricing is at the standalone selling price. Services added
that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct are accounted for
prospectively, either as a separate contract, if the additional services are priced at the standalone selling price, or
as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price.
(iv) Revenue from licenses where the customer obtains a “right to use” the licenses is recognised at the time the
license is made available to the customer. Revenue from licenses where the customer obtains a “right to access” is
recognised over the access period. Arrangements to deliver software products generally have three elements:
license, implementation and Annual Maintenance Contracts (AMC). The company has applied the principles under
Ind AS 115 to account for revenues from these performance obligations.
When implementation services are provided in conjunction with the licensing arrangement and the license and
implementation have been identified as two separate performance obligations, the transaction price for such contracts
are allocated to each performance obligation of the contract based on their relative standalone selling prices. In the
absence of standalone selling price for implementation, the performance obligation is estimated using the expected
cost plus margin approach. Where the license is required to be substantially customized as part of the implementation
service the entire arrangement fee for license and implementation is considered to be a single performance obligation
and the revenue is recognised using the percentage-of-completion method as the implementation is performed.
Revenue from support and other services arising due to the sale of software products is recognised as the
performance obligations are satisfied. AMC revenue is recognised ratably over the period in which the services are
rendered.
(v) Provision for estimated losses, if any, on incomplete contracts are recorded in the period in which such losses
become probable based on the current contract estimates.
(vi) Deferred and unearned revenues represent the estimated unearned portion of fees derived from certain fixed-rate
service agreements. Unearned revenues for fixed fee contracts are recognised on a pro-rata basis over the term of
the underlying service contracts, which are generally one year.
(vii) Unbilled revenue represents costs and earnings in excess of billings as at the balance sheet date.
2.3 Other Income
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the
Company and the amount of income can be measured reliably. Interest income is accounted on accrual basis and
recognised at effective interest rate wherever applicable. Dividend income is accounted for when the right to receive it is
established.
2.4 Leases
As a lessee:
The Company’s lease asset classes primarily consist of leases for buildings. The Company assesses whether a contract
contains a lease, at inception of a contract. A contract is, or contains, a lease if the contract conveys the right to control
the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys
the right to control the use of an identified asset, the Company assesses whether: (i) the contract involves the use of an
identified asset (ii) the Company has substantially all of the economic benefits from use of the asset through the period
of the lease and (iii) the Company has the right to direct the use of the asset.
At the date of commencement of the lease, the Company recognizes a right-of-use 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 includes 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 cash flows that are largely independent of those from other
assets. In such cases, the recoverable amount is determined for the Cash Generating Unit (CGU) to which the asset
belongs.
The lease liability is initially measured at amortized cost 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 these 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.
2.5 Foreign currencies
(i) Functional and presentation currency
The functional currency of the Company is the Indian rupee.
(ii) Initial recognition:
On initial recognition, all foreign currency transactions are recorded by applying to the foreign currency amount the
exchange rate between the reporting currency and the foreign currency at the date of the transaction.
(iii) Subsequent recognition:
As at the reporting date, non-monetary items which are carried in terms of historical cost denominated in a foreign
currency are reported using the exchange rate at the date of the transaction. All non-monetary items which are
carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange
rates that existed when the values were determined.
All monetary assets and liabilities in foreign currency are restated at the end of accounting period other than those
monetary assets which are provided for being doubtful of recovery.
Exchange differences on restatement of all monetary items are recognised in the Statement of Profit and Loss.
2.6 Employee benefits
2.6.1 Retirement benefit costs and termination benefits
Payments to defined contribution retirement benefit plans are recognised as an expense when employees
have rendered service entitling them to the contributions.
For defined benefit retirement benefit plans, the cost of providing benefits is determined using the projected
unit credit method, with actuarial valuations being carried out at the end of each annual reporting period.
Remeasurement, comprising actuarial gains and losses is reflected immediately in the balance sheet with a
charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement
recognised in other comprehensive income is reflected immediately in retained earnings and is not reclassified
to profit or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. Net interest
is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or
asset. Defined benefit costs are categorised as follows:
• service cost (including current service cost, past service cost, as well as gains and losses on curtailments
and settlements);
• net interest expense or income; and
• remeasurement
The gratuity fund is recognised by the income tax authorities and is administered through trust set up by the
Company. The provision for gratuity recognised in the balance sheet represents the present value of the
defined benefit obligations reduced by the fair value of scheme assets.
The Company presents the first two components of defined benefit costs in profit or loss in the line item
‘Employee benefits expense’. Curtailment gains and losses are accounted for as past service costs.
The retirement benefit obligation recognised in the balance sheet represents the actual deficit or surplus in
the Company’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value
of any economic benefits available in the form of refunds from the plans or reductions in future contributions to
the plans.
A liability for a termination benefit is recognised at the earlier of when the entity can no longer withdraw the
offer of the termination benefit and when the entity recognises any related restructuring costs.
2.6.2 Short-term and other long-term employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries and annual leave
in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in
exchange for that service.
Liabilities recognised in respect of short-term employee benefits. are measured at the undiscounted amount
of the benefits expected to be paid in exchange for that service.
Liabilities recognised in respect of other long-term employee benefits are measured at the present value of
the estimated future cash outflows expected to be made by the Company in respect of services provided by
employees up to the reporting date.
The Company has a policy on compensated absences which are accumulating in nature. The expected cost
of accumulating compensated absences is determined by actuarial valuation performed by an independent
actuary at each Balance Sheet date using projected unit credit method on the additional amount expected to
be paid/availed as a result of the unused entitlement that has accumulated at the Balance Sheet date.
2.7 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
2.7.1 Current tax
Income tax expense or credit for the period is the tax payable on the current period’s taxable income using the
tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. The
Company 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 on the basis of amounts
expected to be paid to the tax authorities.
2.7.2 Deferred tax
Deferred income tax assets and liabilities are recognized for all temporary difference arising between the tax
bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax
benefit will be realised.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted
or substantively enacted by the Balance Sheet date and are expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled.
The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or
expense in the period that includes the enactment or the substantive enactment date. A deferred tax asset is
recognized to the extent that it is probable that future taxable profit will be available against which the deductible
temporary differences and tax losses can be utilised.
Deferred taxes and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets
and liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on
a net basis, or to realise the asset and settle the liability simultaneously.
2.7.3 Current tax and deferred tax for the year
Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized
in other comprehensive income or directly in equity, in which case, the tax is also recognized in other
comprehensive income or directly in equity, respectively.
2.8 Property, plant and equipment and depreciation
(i) Property, plant and equipment are stated at cost of acquisition less accumulated depreciation and impairment
losses. Cost comprises the purchase price and any directly attributable costs of bringing the assets to their working
condition for their intended use.
(ii) Depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less its estimated
residual value. Depreciation on Property, plant & equipment has been provided on the straight-line method as per
the useful life prescribed in Schedule II to the Companies Act, 2013 except in respect of the following categories of
assets, in whose case the life of the assets has been assessed as under based on technical advice, taking into
(iii) Losses arising from the retirement of, and gains or losses arising from disposal of fixed assets which are carried at
cost are recognised in the Statement of Profit and Loss.
(iv) Leasehold improvements are amortised over the period of lease or five years (useful life), whichever is lower.
(v) Assets individually costing up to Rupees five thousand are fully depreciated in the year of purchase.
2.9 Intangible Assets and Amortisation
Intangible assets with finite useful lives are stated at cost of acquisition less accumulated amortisation and impairment
losses.
Intangible assets are recognised only if it is probable that future economic benefits that are attributable to the asset will
flow to the enterprise and the cost of the asset can be measured reliably. An intangible asset is derecognised on
disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from the
retirement or disposal of an intangible asset are determined as the difference between the net disposal proceeds and the
carrying amount of the asset and recognised as income or expense in the Statement of Profit and Loss. Intangible assets
comprise of computer software which is amortised on straight-line basis over an estimated useful life of upto seven
years.
The estimated useful life of the intangible assets and the amortisation period are reviewed at the end of each financial
year and the amortisation period is revised to reflect the changed pattern, if any.
2.10 Impairment of tangible and intangible assets
The carrying values of tangible and intangible assets at each balance sheet date are reviewed for impairment if any
indication of impairment exists. The following intangible assets are tested for impairment each financial year even if there
is no indication that the asset is impaired:
(a) an intangible asset that is not yet available for use; and (b) an intangible asset with indefinate useful life.
If the carrying amount of the assets exceed the estimated recoverable amount, an impairment is recognised for such
excess amount. The impairment loss is recognised as an expense in the Statement of Profit and Loss, unless the asset
is carried at revalued amount, in which case any impairment loss of the revalued asset is treated as a revaluation
decrease to the extent a revaluation reserve is available for that asset.
The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived at by
discounting the future cash flows to their present value based on an appropriate discount factor.
When there is indication that an impairment loss recognised for an asset (other than a revalued asset) in earlier accounting
periods no longer exists or may have decreased, such reversal of impairment loss is recognised in the Statement of
Profit and Loss, to the extent the amount was previously charged to the Statement of Profit and Loss. In case of revalued
assets such reversal is not recognised.
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