Mar 31, 2023
ORGANIZATION AND NATURE OF OPERATIONS
HCL Technologies Limited (hereinafter referred to as âthe Companyâ) is primarily engaged in providing a range of IT and business services, engineering and R&D services and modernized software products and IP-led offerings. The Company was incorporated under the provisions of the Companies Act applicable in India in November 1991, having its registered office at 806, Siddharth, 96, Nehru Place, New Delhi-110019. The Company leverages its global technology workforce and intellectual properties to deliver solutions across following verticals -Financial Services, Manufacturing, Life Sciences & Healthcare, Public Services, Retail & CPG, Technology & Services and Telecom, Media, Publishing and Entertainment.
The standalone financial statements for the year ended 31 March 2023 were approved and authorized for issue by the Board of Directors on 20 April 2023.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These standalone financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) prescribed under section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules as amended from time to time and presentation requirements of Schedule III (Division II) to the Companies Act, 2013, as applicable to the standalone financial statements.
These standalone financial statements have been prepared under the historical cost convention on an accrual and going concern basis except for the following assets and liabilities which have been measured at fair value:
(a) Derivative financial instruments,
(b) Certain financial assets and liabilities (refer accounting policy regarding financial instruments),
(c) Defined benefit plans.
The accounting policies adopted in the preparation of these standalone financial statements are consistent with those of the previous year except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy.
All assets and liabilities have been classified as current and non-current as per the Company''s normal operating cycle of 12 months. The statement of cash flows has been prepared under indirect method.
The Company uses the Indian rupee (T) as its reporting currency. All amounts are presented in crores of R rounded to whole number and amounts less than R 0.50 crores are presented as â-â.
(b) Use of estimates and judgements
The preparation of standalone financial statements in conformity with Ind AS requires the management to make estimates and judgements that affect the reported amounts of assets, liabilities, revenue, expenses and other comprehensive income (OCI) that are reported and disclosed in the financial statements and accompanying notes. These estimates are based on the management''s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected in the standalone financial statements in the year in which the changes are made.
Significant estimates and assumptions are used for, but not limited to,
(i) Accounting for costs expected to be incurred to complete performance under fixed price projects and determination of stand-alone selling prices for each distinct performance obligation in contracts involving multiple performance obligations, refer note 1(f).
(ii) Allowance for uncollectible trade receivables, refer note 1(s)(i).
(iii) Fair value of the consideration transferred (including contingent consideration) and fair value of the assets acquired and liabilities assumed, measured on a provisional basis in case of business combination, refer note 1(c).
(iv) Recognition of income and deferred taxes, refer note 1(h) and note 2.27.
(v) Key actuarial assumptions for measurement of future obligations under employee benefit plans, refer note 1(q) and note 2.32.
(vi) Estimated forfeitures in share-based compensation expenses, refer note 1(r).
(vii) Useful lives of property, plant and equipment, refer note 1(i).
(viii) Lives of intangible assets, refer note 1(j).
(ix) Identification of leases and measurement of lease liabilities and right of use assets, refer note 1(m).
(x) Key assumptions used for impairment of goodwill, refer note 1(o) and note 2.3.
(xi) Provisions and contingent liabilities, refer note 1(p) and note 2.35.
(c) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is the aggregate of the consideration transferred measured at fair value at the acquisition date. Acquisition related costs are expensed as incurred.
Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration classified as financial liability is measured at fair value with changes in fair value recognized in the statement of profit and loss.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the excess is recognized as capital reserve after reassessing the fair values of the net assets.
(d) Foreign currency and translation
The financial statements are presented in Indian Rupee (R), which is also the Company''s functional currency. For each foreign operation, the Company determines the functional currency which is its respective local currency.
Transactions in foreign currencies are initially recorded by the Company at their respective functional currency spot rates at the date of the transaction. Foreign-currency denominated monetary assets and liabilities are translated to the relevant functional currency at exchange rates in effect at the balance sheet date. Exchange differences arising on settlement or translation of monetary items are recognized in the statement of profit and loss. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of initial transaction. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at fair value are translated at the exchange rate prevalent at the date when the fair value was determined.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the year. Revenue, expenses and cash-flow items denominated in foreign currencies are translated into the relevant functional currencies using the exchange rate in effect on the date of the transaction.
The translation of foreign operations from respective functional currency into INR (the reporting currency) for assets and liabilities is performed using the exchange rates in effect at the balance sheet date, and for revenue, expenses and cash flows is performed using an appropriate daily weighted average exchange rate for the respective years. The exchange differences arising on translation are reported as a component of âother comprehensive income (loss)''. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognized in the statement of profit and loss.
(e) Fair value measurement
The Company records certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair values based on the price it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability.
The Company holds certain fixed income securities, equity securities and derivatives, which must be measured using the guidance for fair value hierarchy and related valuation methodologies. The guidance specifies a hierarchy of valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company''s assumptions about current market conditions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1 - Quoted inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are directly or indirectly observable in active markets.
Level 3 - Valuations derived from valuation techniques, in which one or more significant inputs are unobservable inputs which are supported by little or no market activity.
In accordance with Ind AS 113, assets and liabilities at fair value are measured based on the following valuation techniques:
(a) Market approach - Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
(b) Income approach - Converting the future amounts based on market expectations to its present value using the discounting method.
(c) Cost approach - Replacement cost method.
Certain assets are measured at fair value on a non-recurring basis. These assets consist primarily of non-financial assets such as goodwill and intangible assets. Goodwill and intangible assets recognized in business combinations are measured at fair value initially and subsequently when there is an indicator of impairment, the impairment is recognized.
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 who would use the asset in its highest and best use.
Contracts involving provision of services and material
Revenue is recognized when, or as, control of a promised service or good transfers to a customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. To recognize revenues, the following five step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenues when a performance obligation is satisfied. A contract is accounted when it is legally enforceable through executory contracts, approval and commitment from all parties, the rights of the parties are identified, payment terms are defined, the contract has commercial substance and collectability of consideration is probable.
Time-and-material / Volume based / Transaction based contracts
Revenue with respect to time-and-material, volume based and transaction based contracts is recognized as the related services are performed through efforts expended, volume serviced transactions are processed etc. that correspond with value transferred to customer till date which is related to the right to invoice for services performed.
Fixed Price contracts
Revenue related to fixed price contracts where performance obligations and control are satisfied over a period of time like technology integration, complex network building contracts, system implementations and application development are recognized based on progress towards completion of the performance obligation using a cost-to-cost measure of progress (i.e., percentage-of-completion (POC) method of accounting). Revenue is recognized based on the costs incurred to date as a percentage of the total estimated costs to fulfill the contract. Any revision in cost to complete would result in increase or decrease in revenue and such changes are recorded in the period in which they are identified.
Revenue related to other fixed price contracts providing maintenance and support services, are recognized based on the right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered. If invoicing is not consistent with value delivered, revenues are recognized as the service is performed based on the cost to cost method described above.
In arrangements involving sharing of customer revenues, revenue is recognized when the right to receive is established.
Revenue from product sales are shown net of applicable taxes, discounts and allowances. Revenue related to product with installation services that are critical to the product is recognized when installation of product at customer site is completed and accepted by the customer. If the revenue for a delivered item is not recognized for non-receipt of acceptance from the customer, the cost of the delivered item continues to be in inventory.
Proprietary Software Products
Revenue from distinct proprietary perpetual and term license software is recognized at a point in time at the inception of the arrangement when control transfers to the client. Revenue from proprietary term license software is recognized at a point in time for the committed term of the contract. In case of renewals of proprietary term licenses with existing customers, revenue from term license is recognized at a point in time when the renewal is agreed on signing of contracts. Revenue from support and
subscription (S&S) is recognized over the contract term on a straight-line basis as the Company is providing a service of standing ready to provide support, when-and-if needed, and is providing unspecified software upgrades on a when-and-if available basis over the contract term. In case software are bundled with support and subscription either for perpetual or term based license, such support and subscription contracts are generally priced as a percentage of the net fees paid by the customer to purchase the license and are generally recognized as revenues ratably over the contractual period that the support services are provided. Revenue from these proprietary software products is classified under sale of services.
Multiple performance obligation
When a sales arrangement contains multiple performance obligation, such as services, hardware and licensed IPs (software) or combinations of each of them revenue for each element is based on a five step approach as defined above. To the extent a contract includes multiple promised deliverables, judgment is applied to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations or series of distinct performance obligations, consideration is allocated among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which Company would sell a promised good or service separately to the customer. When not directly observable, we estimate standalone selling price by using the expected cost plus a margin approach. We establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change. If the arrangement contains obligations related to License of Intellectual property (Software) or Lease deliverable, the arrangement consideration allocated to the Software deliverables, lease deliverable as a group is then allocated to each software obligation and lease deliverable.
Revenue recognition for delivered elements is limited to the amount that is not contingent on the future delivery of products or services, future performance obligations or subject to customer-specified return or refund privileges.
Revenue from certain activities in transition services in outsourcing arrangements are not capable of being distinct or represent separate performance obligation. Revenues relating to such transition activities are classified as Contract liabilities and subsequently recognized over the period of the arrangement. Direct and incremental costs in relation to such transition activities which are expected to be recoverable under the contract and generate or enhance resources of the Company that will be used in satisfying the performance obligation in the future are considered as contract fulfillment costs classified as Deferred contract cost and recognized over the period of arrangement. Certain upfront non-recurring incremental contract acquisition costs and other upfront fee paid to customer are deferred and classified as Deferred contract cost and amortized to revenue or cost, usually on a straight line basis, over the term of the contract unless revenues are earned and obligations are fulfilled in a different pattern. The undiscounted future cash flows from the arrangement are periodically estimated and compared with the unamortized costs. If the unamortized costs exceed the undiscounted cash flow, a loss is recognized.
In instances when revenue is derived from sales of third-party vendor services, material or licenses, revenue is recorded on a gross basis when the Company is a principal to the transaction and net of costs when the Company is acting as an agent between the customer and the vendor. Several factors are considered to determine whether the Company is a principal or an agent, most notably being company controls the goods or service before it is transferred to customer, latitude in deciding the price being charged to customer. Revenue is recognized net of discounts and allowances, value-added and service taxes, and includes reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket expenses included in cost of revenues.
Volume discounts, or any other form of variable consideration is estimated using either the sum of probability weighted amounts in a range of possible consideration amounts (expected value), or the single most likely amount in a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of consideration realizable. Transaction price includes variable consideration only to the extent it is probable that a significant reversal of revenues recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price may involve judgment and are based largely on an assessment of our anticipated performance and all information that is reasonably available to us.
The Company recognizes an onerous contract provision when the expected unavoidable costs of meeting the future obligations exceed the expected economic benefits to be received under a contract. Such provision, if any, is recorded in the period in which such losses become probable and is included in cost of revenues.
Revenue recognized but not billed to customers is classified either as contract assets or unbilled receivables in the standalone balance sheet. Contract assets primarily relate to unbilled amounts on those contracts utilizing the cost to cost method of revenue recognition and right to consideration is not unconditional. Contract assets are recognized where there is excess of revenue over the billings. Unbilled receivables represent contracts where right to consideration is unconditional (i.e. only the passage of time is required before the payment is due). A contract liability arises when there is excess billing over the revenue recognized.
Revenue from sales-type leases is recognized when risk of loss has been transferred to the client and there are no unfulfilled obligations that affect the final acceptance of the arrangement by the client.
Interest attributable to sales-type leases and direct financing leases included therein is recognized on an accrual basis using the effective interest method and is recognized as other income.
Other income mainly comprises interest income on debt securities, bank and other deposits, other interest income recognized using the effective interest method, profit on sale of property, plant and equipments, debt securities and mutual fund and exchange differences. Dividend income is recognized when the right to receive payment is established.
Income tax expense comprises current and deferred income tax.
Income tax expense is recognized in the statement of profit and loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Provision for income tax includes the impact of provisions established for uncertain income tax positions.
Deferred income tax assets and liabilities recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets and liabilities are recognized for those temporary differences which originate during the tax holiday period and are reversed after the tax holiday period. For this purpose, reversal of timing differences is determined using first in first out method.
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 realized. 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.
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.
The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the year that includes the enactment or the substantive enactment date. A deferred income 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 utilized. Deferred income taxes are not provided on the undistributed earnings of branches where it is expected that the earnings of the branch will not be distributed in the foreseeable future.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in the statement of profit and loss.
(i) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses if any. Cost comprises the purchase price and directly attributable cost of bringing the asset to its working condition for its intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. The Company identifies and determines separate useful lives for each major component of the property, plant and equipment, if they have a useful life that is materially different from that of the asset as a whole.
Expenses on existing property, plant and equipment, including day-to-day repairs, maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the year during which such expenses are incurred.
Gains or losses arising from derecognition of assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
Property, plant and equipment under construction and cost of assets not ready for use at the year-end are disclosed as capital work-in-progress.
Depreciation on property, plant and equipment is provided on the straight-line method over their estimated useful lives, as determined by the management. Depreciation is charged on a pro-rata basis for assets purchased/sold during the year.
The management''s estimates of the useful lives of various assets for computing depreciation are as follows: |
|
Asset description |
Asset life (in years) |
Buildings |
20 |
Plant and equipment (including air conditioners, electrical installations) |
10 |
Office equipment |
5 |
Computers and networking equipment |
4-5 |
Furniture and fixtures |
7 |
Vehicles |
5 |
The useful lives as given above best represent the period over which the management expects to use these assets, based on technical assessment. The estimated useful lives for these assets are therefore different from the useful lives prescribed under Part C of Schedule II of the Companies Act 2013.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year-end and adjusted prospectively, if appropriate.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is measured at their fair value at the date of acquisition. Subsequently, following initial recognition, intangible assets are carried at cost less any accumulated amortization and impairment losses.
Intangible assets are amortized over the useful 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 year. 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 recognized in the statement of profit and loss.
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 recognized in the statement of profit and loss when the asset is derecognized.
The intangible assets are amortized over the estimated useful life of the assets as mentioned below except certain Licensed IPRs which include the right to modify, enhance or exploit are amortized in proportion to the expected benefits over the useful life which could range up to 15 years:
Asset description |
Asset life (in years) |
Software |
3 |
Licensed IPRs |
5 to 15 |
Customer relationships |
1 to 8 |
Customer contracts |
1 to 3 |
Technology |
1 to 8 |
Others (Includes intellectual property rights and non-compete agreements) |
4 to 6 |
(k) Research and development costs
Research costs are expensed as incurred. Development expenditure, on an individual project, is recognized as an intangible asset when the Company can demonstrate:
⢠The technical feasibility of completing the intangible asset so that it will be available for use or sale
⢠Its intention to complete and its ability and intention to use or sell the asset
⢠How the asset will generate future economic benefits
⢠The availability of resources to complete the asset
⢠The ability to measure reliably the expenditure during development
Subsequently, following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. Amortization expense is recognized in the statement of profit and loss. During the period of development, the asset is tested for impairment annually.
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 are capitalized 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.
A lease is a contract that contains right to control the use of an identified asset for a period of time in exchange for consideration. Company as a lessee
Company is lessee in case of leasehold land, office space, accommodation for its employees & IT equipment. These leases are evaluated to determine whether it contains lease based on principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors as defined in Ind AS 116.
Right-of-use asset represents the Company''s right to control the underlying assets under lease and the lease liability is the obligation to make the lease payments related to the underlying asset under lease. Right-of-use asset is measured initially based on the lease liability adjusted for any initial direct costs, prepaid rent, and lease incentives. Right-of-use asset is depreciated based on straight line method over the lease term or useful life of right-of-use asset, whichever is less. Subsequently, right-of-use asset is measured at cost less any accumulated depreciation, accumulated impairment losses, if any and adjusted for any remeasurement of lease liability.
The lease liability is measured at the lease commencement date and determined using the present value of the minimum lease payments not yet paid and the Company''s incremental borrowing rate, which approximates the rate at which the Company would borrow, in the country where the lease was executed. The Company has used a single discount rate for a portfolio of leases with reasonably similar characteristics. The lease payment comprises fixed payment less any lease incentives, variable lease payment that depends on an index or a rate, exercise price of a purchase option if the Company is reasonably certain to exercise the option and payment of penalties for terminating the lease, if the lease term reflects the Company exercising an option to terminate the lease. Lease liability is subsequently measured by increase the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payment made and remeasuring the carrying amount to reflect any reassessment or modification, if any.
The Company has elected to not recognize leases with a lease term of 12 months or less in the balance sheet, including those acquired in a business combination, and lease costs for those short-term leases are recognized on a straight-line basis over the lease term in the statement of profit and loss. For all asset classes, the Company has elected the lessee practical expedient to combine lease and non-lease components and account for the combined unit as a single lease component in case there is no separate payment defined under the contract.
Company as a lessor
Leases in which the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the year in which they are earned or contingency is resolved.
Leases in which the Company transfers substantially all the risk and benefits of ownership of the asset are classified as finance leases. Assets given under finance lease are recognized as a receivables at an amount equal to the present value of lease receivables. After initial recognition, the Company apportions lease rentals between the principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance leases. The interest income is recognized in the statement of profit and loss. Initial direct costs such as legal cost, brokerage cost etc. are recognized immediately in the statement of profit and loss.
When arrangements include multiple performance obligations, the Company allocates the consideration in the contract between the lease components and the non-lease components on a relative standalone selling price basis.
Stock-in-trade, stores and spares are valued at the lower of the cost or net realizable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
Cost of stock-in-trade procured for specific projects is assigned by identifying individual costs of each item. Cost of stock in trade, that are interchangeable and not specific to any project and cost of stores and spare parts are determined using the weighted average cost formula.
(o) Impairment of non-financial assets
Goodwill
Goodwill is tested annually on March 31, for impairment, or sooner whenever there is an indication that goodwill may be impaired, relying on a number of factors including operating results, business plans and future cash flows. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the Company''s cash generating units (CGU) expected to benefit from the synergies arising from the business combination. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Impairment occurs when the carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. Value-in-use is the present value of future cash flows expected to be derived from the CGU. Total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU, pro-rata on the basis of the carrying amount of each asset in the CGU.
An impairment loss on goodwill recognized in the statement of profit and loss is not reversed in the subsequent period. Intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment 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 CGU to which the asset belongs. If such assets are considered to be impaired, the impairment recognized under the head âDepreciation and amortization expense" in the statement of profit and loss is measured by the amount by which the carrying value of the asset exceeds the estimated recoverable amount of the asset.
(p) Provisions and contingent liabilities
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows.
The Company uses significant judgement to disclose contingent liabilities. Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount cannot be made. Contingent assets are neither recognized nor disclosed in the financial statements.
(q) Retirement and other employee benefits
(i) Provident fund: Employees of the Company receive benefits under the provident fund, a defined benefit plan. The employee and employer each make monthly contributions to the plan. A portion of the contribution is made to the provident fund trust managed by the Company or Government administered provident fund; while the balance contribution is made to the Government administered pension fund, a define contribution plan. For the contribution made by the Company to the provident fund trust managed by the Company, the Company has an obligation to fund any shortfall on the yield of the Trust''s investments over the administered interest rates. The liability is actuarially determined (using the projected unit credit method) at the end of the year. The funds contributed to the Trust are invested in specific securities as mandated by law and generally consist of federal and state government bonds, debt instruments of government-owned corporations and, equity other eligible market securities.
(ii) In respect of superannuation, a defined contribution plan for applicable employees, the Company contributes to a scheme administered on its behalf by appointed fund managers and such contributions for each year of service rendered by the employees are charged to the statement of profit and loss. The Company has no further obligations to the superannuation plan beyond its contributions.
(iii) Gratuity liability: The Company provide for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee''s base salary and the tenure of employment (subject to a maximum of R 20 lacs per employee). The liability is actuarially determined (using the projected unit credit method) at the end of each year. Actuarial gains/losses are recognized immediately in the balance sheet with a corresponding debit or credit to other comprehensive income in the year in which they occur.
In respect to certain employees in India, the Company contributes towards gratuity liabilities to the Gratuity Fund Trust. Trustees of the Company administer contributions made to the Trust and contributions are invested in a scheme with Life Insurance Corporation of India as permitted by law.
(iv) Compensated absences: The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The employees can carry forward up to the specified portion of the unutilized accumulated compensated absences and utilize it in future periods or receive cash at retirement or termination of employment. The expected cost of accumulating compensated absences is determined by actuarial valuation (using the projected unit credit method) based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. The expense on non-accumulating compensated absences is recognized in the statement of profit and loss in the year in which the absences occur. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred.
(v) Contributions to other defined contribution plans in branches outside India are recognized as expense when employees have rendered services entitling them to such benefits.
(r) Equity settled share based compensation
Share-based compensation represents the cost related to share-based awards granted to employees. The Company measures share-based compensation cost at grant date, based on the estimated fair value of the award and recognizes the cost on a straight line basis (net of estimated forfeitures) over the employee''s requisite service period for an award with only service condition and for an award with both service and performance condition on a straight line basis over the requisite service period for each separately vesting portion of the award, as if award was in substance, multiple awards. On modification of an equity settled award, the Company re-estimates the fair value of stock option as on the date of modification and any incremental expense is expensed over the period from the modification date till the vesting date.
The Company estimates the fair value of stock options using option pricing model. The cost is recorded under the head employee benefit expense in the consolidated statement of profit or loss with corresponding increase in âShare Based Payment Reserveâ.
(s) Financial Instruments
A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
i. Financial assets
All financial assets are recognized initially at fair value. Transaction costs that are directly attributable to the acquisition of financial assets (other than financial assets at fair value through profit or loss) are added to the fair value measured on initial recognition of financial asset. Purchase and sale of financial assets are accounted for at trade date. However, trade receivables that do not contain a significant financing component are measured at transaction price.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash in banks and short-term deposits and investments with an original maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purposes of the cash flow statement, cash and cash equivalents are considered net of outstanding bank overdrafts that are repayable on demand and are considered part of the Company''s cash management system. In the standalone balance sheet, bank overdrafts are presented under borrowings within current liabilities.
Financial assets at amortized cost
A financial asset is measured at the amortized cost if both the following conditions are met:
(a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
(b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in other income in the statement of profit and loss. The losses arising from impairment are recognized in the statement of profit and loss. This category includes cash and bank balances, loans, unbilled receivables, trade and other receivables.
Financial assets at Fair Value through Other Comprehensive Income (OCI)
A financial asset is classified and measured at fair value through OCI if both of the following criteria are met:
(a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
(b) The asset''s contractual cash flows represent solely payments of principal and interest.
Financial asset included within the OCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in OCI. Interest income is recognized in statement of profit and loss for debt instruments. On derecognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified from OCI to statement of profit and loss.
Financial assets at Fair Value through Profit and Loss
Any financial asset, which does not meet the criteria for categorization at amortized cost or at fair value through other comprehensive income, is classified at fair value through profit and loss. Financial assets included at the fair value through profit and loss category are measured at fair value with all changes recognized in the statement of profit and loss.
Equity investments
Equity investments in subsidiaries are measured at cost less impairment if any.
Derecognition of financial assets
A financial asset is primarily derecognized when the rights to receive cash flows from the asset have expired, or the Company has transferred its rights to receive cash flows from the asset.
Impairment of financial assets
The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets which are not fair valued through profit and loss. Lifetime ECL allowance is recognized for trade receivables with no significant financing component. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case they are measured at lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date is recognized in statement of profit and loss.
ii. Financial liabilities
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The subsequent measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. Changes in fair value of such liability are recognized in the statement of profit or loss.
Financial liabilities at amortized cost
The Company''s financial liabilities at amortized cost are initially recognized at net of transaction costs and includes trade payables, borrowings including bank overdrafts and other payables.
After initial recognition, financial liabilities are subsequently measured at amortized cost using the effective interest rate (EIR) method except for deferred consideration recognized in a business combination which is subsequently measured at fair value through profit and loss. Gains and losses are recognized in the statement of profit and loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
iii. Derivative financial instruments and hedge accounting
Foreign exchange forward contracts and options are purchased to mitigate the risk of changes in foreign exchange rates associated with forecast transactions denominated in certain foreign currencies.
The Company recognizes all derivatives as assets or liabilities measured at their fair value. Changes in fair value for derivatives not designated in a hedge accounting relationship are marked to market at each reporting date and the related gains (losses) are recognized in the statement of profit and loss as âforeign exchange gains (losses)''.
The foreign exchange forward contracts and options in respect of forecasted transactions which meet the hedging criteria are designated as cash flow hedges. Changes in the fair value of derivatives (net of tax) that are designated as effective cash flow hedges are deferred and recorded in the hedging reserve account as a component of accumulated âother comprehensive income (loss)'' until the hedged transaction occurs and are then recognized in the statement of profit and loss. The ineffective portion of hedging derivatives is immediately recognized in other income in the statement of profit and loss.
In respect of derivatives designated as hedges, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also formally assesses both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. The Company determines the existence of an economic relationship between the hedging instrument and hedged item based on the currency, amount and timing of their respective cash flow.
Hedge accounting is discontinued prospectively from the last testing date when (1) it is determined that the derivative financial instrument is no longer effective in offsetting changes in the fair value or cash flows of the underlying exposure being hedged; (2) the derivative financial instrument matures or is sold, terminated or exercised; or (3) it is determined that designating the derivative financial instrument as a hedge is no longer appropriate. When hedge accounting is discontinued the deferred gains or losses on the cash flow hedge remain in âother comprehensive income (loss)'' until the forecast transaction occurs. Any further change in the fair value of the derivative financial instrument is recognized in current year earnings.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis to realize the assets and settle the liabilities simultaneously.
Final dividend proposed by the Board of Directors is recognized upon approval by the shareholders who have the right to decrease but not increase the amount of dividend recommended by the Board of Directors. Interim dividends are recognized on declaration by the Board of Directors. Final and interim dividend excludes dividend on treasury shares.
Basic EPS amounts are computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares outstanding during the year adjusted for treasury shares held.
Diluted EPS amounts are computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares considered for deriving basic earnings per share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. The diluted potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares). Performance based stock unit awards are included in dilutive potential shares when they become contingently issuable and have a dilutive impact and are excluded when they are not contingently issuable. Dilutive potential equity shares are deemed converted as at the beginning of the year, unless issued at a later date. Dilutive potential equity shares are determined independently for each year presented.
The number of shares and potentially dilutive equity shares are adjusted retrospectively for all periods presented for bonus shares.
(v) Nature and purpose of reserves Remeasurement of defined benefit plans
The Company recognizes actuarial gains/losses on defined benefit plans in the balance sheet with a corresponding debit or credit to other comprehensive income in the period in which they occur.
Treasury share reserve
The Company''s equity shares held by a trust, which is consolidated as a part of the Company, are classified as Treasury shares. Treasury shares are carried at acquisition cost and presented as a deduction from total equity as âTreasury share reserveâ. As and when treasury shares are transferred to employees on exercise after satisfaction of the vesting conditions, the balance lying in âTreasury share reserveâ is transferred to âRetained earningsâ.
Securities premium
Securities premium is used to record the premium on issue of shares. The reserve can be utilized only for limited purposes such as issuance of bonus shares and buyback of shares in accordance with the provisions of the Companies Act, 2013 in India.
Capital redemption reserve
The Company recognizes cancellation of the Company''s own equity instruments to capital redemption reserve.
Share based payment reserve
The share-based payment reserve is recognised over the vesting period at the grant date fair value of units issued to employees of the Company and its subsidiaries under the Company''s restricted stock unit plan.
Special economic zone re-investment reserve
The Company has created special economic zone (SEZ) re-investment reserve out of profits of the eligible SEZ Units in terms of the specific provisions of Section 10AA(1) of the Income Tax Act, 1961 (âthe Actâ). The said reserve needs to be utilized by the Company for acquiring plant and machinery for the purposes of its business in the terms of Section 10AA (2) of the Act for availing tax benefit. Further, during the year ended 31 March 2022, utilization also includes additional acquisition of plant and machinery in the business of the Company which was not considered as utilization earlier due to an uncertain tax position which has been settled.
Foreign currency translation reserve
Exchange differences arising on translation of the foreign operations are recognized in other comprehensive income as described in the accounting policy and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed-off.
Cash flow hedging reserve
For hedging foreign currency risk, the Company uses foreign currency forward and option contracts. To the extent these hedges are effective, the change in fair value of the hedging instrument is recognized in the cash flow hedging reserve. Amounts recognized in the cash flow hedging reserve is reclassified to the statement of profit or loss when the hedged item affects profit or loss.
Debt instruments through other comprehensive income
The Company recognizes changes in the fair value of debt instrumen
Mar 31, 2022
ORGANIZATION AND NATURE OF OPERATIONS
HCL Technologies Limited (hereinafter referred to as âthe Companyâ) is primarily engaged in providing a range of IT and business services, engineering and R&D services and products & platforms. The Company was incorporated under the provisions of the Companies Act applicable in India in November 1991, having its registered office at 806, Siddharth, 96, Nehru Place, New Delhi- 110019. The Company leverages its global technology workforce and intellectual properties to deliver solutions across following verticals - Financial Services, Manufacturing, Life Sciences & Healthcare, Public Services, Retail & CPG, Technology & Services and Telecom, Media, Publishing and Entertainment.
The standalone financial statements for the year ended 31 March 2022 were approved and authorized for issue by the Board of Directors on 21 April 2022.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These standalone financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) prescribed under section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules as amended from time to time and presentation requirements of Schedule III (Division II) to the Companies Act, 2013, as applicable to the standalone financial statements.
These standalone financial statements have been prepared under the historical cost convention on an accrual and going concern basis except for the following assets and liabilities which have been measured at fair value:
(a) Derivative financial instruments,
(b) Certain financial assets and liabilities (refer accounting policy regarding financial instruments),
(c) Defined benefit plans
The accounting policies adopted in the preparation of these standalone financial statements are consistent with those of the previous year except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy.
During the previous year, The Hon''ble National Company Law Tribunal of New Delhi and Bengaluru had approved the Scheme of Amalgamation providing for the merger of four direct /step-down wholly-owned subsidiaries engaged in providing IT and IT related services viz. HCL Eagle Limited, HCL Comnet Limited, HCL Technologies Solutions Limited and Concept2Silicon Systems Private Limited (the âTransferor companiesâ) with and into HCL Technologies Limited (the âTransferee Companyâ) with effect from 01 April 2019, the appointed date. The scheme was effective on 13 July 2020 on filling of the certified true copy of the Orders of the Delhi and the Bengaluru NCLT with the Registrar of Companies on 13 March 2020 and 13 July 2020 respectively.
The impact of the scheme was accounted for and is not material on the standalone financial statement of the Company.
All assets and liabilities have been classified as current and non-current as per the Company''s normal operating cycle of 12 months. The statement of cash flows has been prepared under indirect method.
The Company uses the Indian rupee (â?â) as its reporting currency.
(b) Use of estimates and judgements
The preparation of standalone financial statements in conformity with Ind AS requires the management to make estimates and judgements that affect the reported amounts of assets, liabilities, revenue, expenses and other comprehensive income (OCI) that are reported and disclosed in the financial statements and accompanying notes. These estimates are based on the managementâs best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected in the standalone financial statements in the year in which the changes are made.
Significant estimates and assumptions are used for, but not limited to,
(i) Accounting for costs expected to be incurred to complete performance under fixed price projects and determination of stand-alone selling prices for each distinct performance obligation in contracts involving multiple performance obligations, refer note 1(f).
(ii) Allowance for uncollectible accounts receivables, refer note 1(r)(i).
(iii) Fair value of the consideration transferred (including contingent consideration) and fair value of the assets acquired and liabilities assumed, measured on a provisional basis in case of business combination, refer note 1(c)
(iv) Recognition of income and deferred taxes, refer note 1(g) and note 3.27
(v) Key actuarial assumptions for measurement of future obligations under employee benefit plans, refer note 1(p) and note 3.32
(vi) Estimated forfeitures in share-based compensation expenses, refer note 1(q)
(vii) Useful lives of property, plant and equipment, refer note 1(h)
(viii) Lives of intangible assets, refer note 1(i)
(ix) Key assumptions used for impairment of goodwill, refer note 1(n) and note 3.3
(x) Identification of leases and measurement of lease liabilities and right of use assets, refer note 1(l)
(xi) Provisions and contingent liabilities, refer note 1(o) and note 3.35
In view of pandemic relating to COVID -19, the Company has considered and taken into account internal and external information and has performed sensitivity analysis based on current estimates in assessing the recoverability of receivables, goodwill, intangible assets, other assets, impact on revenues and costs, impact on leases and effectiveness of its hedging relationships, including but not limited to the assessment of liquidity and going concern assumption and believes that the impact of COVID-19 is not material to these standalone financial statements. However, the actual impact of COVID-19 on the Company''s standalone financial statements may differ from that estimated and the Company will continue to closely monitor any material changes to future economic conditions.
(c) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is the aggregate of the consideration transferred measured at fair value at the acquisition date. Acquisition related costs are expensed as incurred.
Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration classified as financial liability is measured at fair value with changes in fair value recognized in the statement of profit and loss.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the excess is recognized as capital reserve after reassessing the fair values of the net assets.
(d) Foreign currency and translation
The financial statements are presented in Indian Rupee (''), which is also the Company''s functional currency. For each foreign operation, the Company determines the functional currency which is its respective local currency.
Transactions in foreign currencies are initially recorded by the Company at their respective functional currency spot rates at the date of the transaction. Foreign-currency denominated monetary assets and liabilities are translated to the relevant functional currency at exchange rates in effect at the balance sheet date. Exchange differences arising on settlement or translation of monetary items are recognized in the statement of profit and loss. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of initial transaction. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at fair value are translated at the exchange rate prevalent at the date when the fair value was determined.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the year. Revenue, expenses and cash-flow items denominated in foreign currencies are translated into the relevant functional currencies using the exchange rate in effect on the date of the transaction.
The translation of foreign operations from respective functional currency into INR (the reporting currency) for assets and liabilities is performed using the exchange rates in effect at the balance sheet date, and for revenue, expenses and cash flows is performed using an appropriate daily weighted average exchange rate for the respective years. The exchange differences arising on translation are reported as a component of âother comprehensive income (loss)''. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognized in the statement of profit and loss.
The Company records certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair values based on the price it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability.
The Company holds certain fixed income securities, equity securities and derivatives, which must be measured using the guidance for fair value hierarchy and related valuation methodologies. The guidance specifies a hierarchy of valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company''s assumptions about current market conditions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1 - Quoted inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are directly or indirectly observable in active markets.
Level 3 - Valuations derived from valuation techniques, in which one or more significant inputs are unobservable inputs which are supported by little or no market activity.
In accordance with Ind AS 113, assets and liabilities at fair value are measured based on the following valuation techniques:
(a) Market approach - Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
(b) Income approach - Converting the future amounts based on market expectations to its present value using the discounting method.
(c) Cost approach - Replacement cost method.
Certain assets are measured at fair value on a non-recurring basis. These assets consist primarily of non-financial assets such as goodwill and intangible assets. Goodwill and intangible assets recognized in business combinations are measured at fair value initially and subsequently when there is an indicator of impairment, the impairment is recognized.
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 who would use the asset in its highest and best use.
Contracts involving provision of services and material
Revenue is recognized when, or as, control of a promised service or good transfers to a customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. To recognize revenues, the following five step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenues when a performance obligation is satisfied. A contract is accounted when it is legally enforceable through executory contracts, approval and commitment from all parties, the rights of the parties are identified, payment terms are defined, the contract has commercial substance and collectability of consideration is probable.
Time-and-material/Volume based/Transaction based contracts
Revenue with respect to time-and-material, volume based and transaction based contracts is recognized as the related services are performed through efforts expended, volume serviced transactions are processed etc. that correspond with value transferred to customer till date which is related to the right to invoice for services performed.
Fixed Price contracts
Revenue related to fixed price contracts where performance obligations and control are satisfied over a period of time like technology integration, complex network building contracts, system implementations and application development are recognized based on progress towards completion of the performance obligation using a cost-to-cost measure of progress (i.e., percentage-of-completion (POC) method of accounting). Revenue is recognized based on the costs incurred to date as a percentage of the total estimated costs to fulfill the contract. Any revision in cost to complete would result in increase or decrease in revenue and such changes are recorded in the period in which they are identified. Provisions for estimated losses, if any, on contracts-in-
progress are recorded in the period in which such losses become probable based on the current contract estimates. Contract losses are determined to be the amount by which the estimated incremental cost to complete exceeds the estimated future revenues that will be generated by the contract and are included in cost of revenues.
Revenue related to other fixed price contracts providing maintenance and support services, are recognized based on the right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered. If invoicing is not consistent with value delivered, revenues are recognized as the service is performed based on the cost to cost method described above.
In arrangements involving sharing of customer revenues, revenue is recognized when the right to receive is established.
Revenue from product sales are shown net of applicable taxes, discounts and allowances. Revenue related to product with installation services that are critical to the product is recognized when installation of product at customer site is completed and accepted by the customer. If the revenue for a delivered item is not recognized for non-receipt of acceptance from the customer, the cost of the delivered item continues to be in inventory.
Proprietary Software Products
Revenue from distinct proprietary perpetual license software is recognized at a point in time at the inception of the arrangement when control transfers to the client. Revenue from proprietary term license software is recognized at a point in time for the committed term of the contract. In case of renewals of proprietary term licenses with existing customers, revenue from term license is recognized at a point in time when the renewal is agreed on signing of contracts. Revenue from support and subscription (S&S) is recognized over the contract term on a straight-line basis as the Company is providing a service of standing ready to provide support, when-and-if needed, and is providing unspecified software upgrades on a when-and-if available basis over the contract term. In case software are bundled with support and subscription either for perpetual or term based license, such support and subscription contracts are generally priced as a percentage of the net fees paid by the customer to purchase the license and are generally recognized as revenues ratably over the contractual period that the support services are provided. Revenue from these proprietary software products is classified under sale of services.
Multiple performance obligation
When a sales arrangement contains multiple performance obligation, such as services, hardware and licensed IPs (software) or combinations of each of them revenue for each element is based on a five step approach as defined above. To the extent a contract includes multiple promised deliverables, judgment is applied to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations or series of distinct performance obligations, consideration is allocated among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which Company would sell a promised good or service separately to the customer. When not directly observable, we estimate standalone selling price by using the expected cost plus a margin approach. We establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change. If the arrangement contains obligations related to License of Intellectual property (Software) or Lease deliverable, the arrangement consideration allocated to the Software deliverables, lease deliverable as a group is then allocated to each software obligation and lease deliverable.
Revenue recognition for delivered elements is limited to the amount that is not contingent on the future delivery of products or services, future performance obligations or subject to customer-specified return or refund privileges.
Revenue from certain activities in transition services in outsourcing arrangements are not capable of being distinct or represent separate performance obligation. Revenues relating to such transition activities are classified as Contract liabilities and subsequently recognized over the period of the arrangement. Direct and incremental costs in relation to such transition activities which are expected to be recoverable under the contract and generate or enhance resources of the Company that will be used in satisfying the performance obligation in the future are considered as contract fulfillment costs classified as Deferred contract cost and recognized over the period of arrangement. Certain upfront non-recurring incremental contract acquisition costs and other upfront fee paid to customer are deferred and classified as Deferred contract cost and amortized to revenue or cost, usually on a straight line basis, over the term of the contract unless revenues are earned and obligations are fulfilled in a different pattern. The undiscounted future cash flows from the arrangement are periodically estimated and compared with the unamortized costs. If the unamortized costs exceed the undiscounted cash flow, a loss is recognized.
In instances when revenue is derived from sales of third-party vendor services, material or licenses, revenue is recorded on a gross basis when the Company is a principal to the transaction and net of costs when the Company is acting as an agent between the customer and the vendor. Several factors are considered to determine whether the Company is a principal or an agent, most notably being company controls the goods or service before it is transferred to customer, latitude in deciding the price being charged to customer. Revenue is recognized net of discounts and allowances, value-added and service taxes, and includes reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket expenses included in cost of revenues.
Volume discounts, or any other form of variable consideration is estimated using either the sum of probability weighted amounts in a range of possible consideration amounts (expected value), or the single most likely amount in a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of consideration realizable. Transaction price includes variable consideration only to the extent it is probable that a significant reversal of revenues recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price may involve judgment and are based largely on an assessment of our anticipated performance and all information that is reasonably available to us.
Revenue recognized but not billed to customers is classified either as contract assets or unbilled receivables in the standalone balance sheet. Contract assets primarily relate to unbilled amounts on those contracts utilizing the cost to cost method of revenue recognition and right to consideration is not unconditional. Contract assets are recognized where there is excess of revenue over the billings. Unbilled receivables represent contracts where right to consideration is unconditional (i.e. only the passage of time is required before the payment is due). A contract liability arises when there is excess billing over the revenue recognized.
Revenue from sales-type leases is recognized when risk of loss has been transferred to the client and there are no unfulfilled obligations that affect the final acceptance of the arrangement by the client. Interest attributable to sales-type leases and direct financing leases included therein is recognized on an accrual basis using the effective interest method and is recognized as other income.
Interest income
Interest income for all financial instruments measured at amortized cost is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortized cost of a financial liability. When calculating the EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but does not consider the expected credit losses. Interest income is included in other income in the statement of profit and loss.
Income tax expense comprises current and deferred income tax.
Income tax expense is recognized in the statement of profit and loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Provision for income tax includes the impact of provisions established for uncertain income tax positions.
Deferred income tax assets and liabilities recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets and liabilities are recognized for those temporary differences which originate during the tax holiday period and are reversed after the tax holiday period. For this purpose, reversal of timing differences is determined using first in first out method.
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 realized. 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.
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.
The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the year that includes the enactment or the substantive enactment date. A deferred income 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 utilized. Deferred income taxes are not provided on the undistributed earnings of branches where it is expected that the earnings of the branch will not be distributed in the foreseeable future.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in the statement of profit and loss.
(h) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses if any. Cost comprises the purchase price and directly attributable cost of bringing the asset to its working condition for its intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. The Company identifies and determines separate useful lives for each major component of the property, plant and equipment, if they have a useful life that is materially different from that of the asset as a whole.
Expenses on existing property, plant and equipment, including day-to-day repairs, maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the year during which such expenses are incurred.
Gains or losses arising from derecognition of assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
Property, plant and equipment under construction and cost of assets not ready for use at the year-end are disclosed as capital work- in- progress.
Depreciation on property, plant and equipment is provided on the straight-line method over their estimated useful lives, as determined by the management. Depreciation is charged on a pro-rata basis for assets purchased/sold during the year.
The management''s estimates of the useful lives of various assets for computing depreciation are as follows:
Asset description |
Asset life (in years) |
Buildings |
20 |
Plant and equipment (including air conditioners, electrical installations) |
10 |
Office equipment |
5 |
Computers and networking equipment |
4-5 |
Furniture and fixtures |
7 |
Vehicles |
5 |
The useful lives as given above best represent the period over which the management expects to use these assets, based on technical assessment. The estimated useful lives for these assets are therefore different from the useful lives prescribed under Part C of Schedule II of the Companies Act 2013.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is measured at their fair value at the date of acquisition. Subsequently, following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses.
Intangible assets are amortized over the useful 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 year. 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 recognized in the statement of profit and loss.
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 recognized in the statement of profit and loss when the asset is derecognized.
The intangible assets are amortized over the estimated useful life of the assets as mentioned below except certain Licensed IPRs which include the right to modify, enhance or exploit are amortized in proportion to the expected benefits over the useful life which could range up to 15 years:
Asset description |
Asset life (in years) |
Software |
3 |
Licensed IPRs |
5 to 15 |
Customer relationships |
1 to 8 |
Customer contracts |
1 to 3 |
Technology |
1 to 8 |
Others (Includes intellectual property rights and non-compete agreements) |
4 to 6 |
(j) Research and development costs
Research costs are expensed as incurred. Development expenditure, on an individual project, is recognized as an intangible asset when the Company can demonstrate:
⢠The technical feasibility of completing the intangible asset so that it will be available for use or sale
⢠Its intention to complete and its ability and intention to use or sell the asset
⢠How the asset will generate future economic benefits
⢠The availability of resources to complete the asset
⢠The ability to measure reliably the expenditure during development
Subsequently, following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. Amortization expense is recognized in the statement of profit and loss. During the period of development, the asset is tested for impairment annually.
(k) 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 are capitalized 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.
A lease is a contract that contains right to control the use of an identified asset for a period of time in exchange for consideration. Company as a lessee
Company is lessee in case of leasehold land, office space, accommodation for its employees & IT equipment. These leases are evaluated to determine whether it contains lease based on principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors as defined in Ind AS 116.
Right-of-use asset represents the Company''s right to control the underlying assets under lease and the lease liability is the obligation to make the lease payments related to the underlying asset under lease. Right-of-use asset is measured initially based on the lease liability adjusted for any initial direct costs, prepaid rent, and lease incentives. Right-of-use asset is depreciated based on straight line method over the lease term or useful life of right-of-use asset, whichever is less. Subsequently, right-of-use asset is measured at cost less any accumulated depreciation, accumulated impairment losses, if any and adjusted for any remeasurement of lease liability.
The lease liability is measured at the lease commencement date and determined using the present value of the minimum lease payments not yet paid and the Company''s incremental borrowing rate, which approximates the rate at which the Company would borrow, in the country where the lease was executed. The Company has used a single discount rate for a portfolio of leases with reasonably similar characteristics. The lease payment comprises fixed payment less any lease incentives, variable lease payment that depends on an index or a rate, exercise price of a purchase option if the Company is reasonably certain to exercise the option and payment of penalties for terminating the lease, if the lease term reflects the Company exercising an option to terminate the lease. Lease liability is subsequently measured by increase the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payment made and remeasuring the carrying amount to reflect any reassessment or modification, if any.
The Company has elected to not recognize leases with a lease term of 12 months or less in the balance sheet, including those acquired in a business combination, and lease costs for those short-term leases are recognized on a straight-line basis over the lease term in the statement of profit and loss. For all asset classes, the Company has elected the lessee practical expedient to combine lease and non-lease components and account for the combined unit as a single lease component in case there is no separate payment defined under the contract.
Company as a lessor
Leases in which the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the year in which they are earned or contingency is resolved.
Leases in which the Company transfers substantially all the risk and benefits of ownership of the asset are classified as finance leases. Assets given under finance lease are recognized as a receivables at an amount equal to the present value of lease receivables. After initial recognition, the Company apportions lease rentals between the principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance leases. The interest income is recognized in the statement of profit and loss. Initial direct costs such as legal cost, brokerage cost etc. are recognized immediately in the statement of profit and loss.
When arrangements include multiple performance obligations, the Company allocates the consideration in the contract between the lease components and the non-lease components on a relative standalone selling price basis.
Stock-in-trade, stores and spares are valued at the lower of the cost or net realizable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
Cost of stock-in-trade procured for specific projects is assigned by identifying individual costs of each item. Cost of stock in trade, that are interchangeable and not specific to any project and cost of stores and spare parts are determined using the weighted average cost formula.
(n) Impairment of non-financial assets
Goodwill
Goodwill is tested annually on March 31, for impairment, or sooner whenever there is an indication that goodwill may be impaired, relying on a number of factors including operating results, business plans and future cash flows. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the Company''s cash generating units (CGU) expected to benefit from the synergies arising from the business combination. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Impairment occurs when the carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. Value-in-use is the present value of future cash flows expected to be derived from the CGU. Total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU, pro-rata on the basis of the carrying amount of each asset in the CGU.
An impairment loss on goodwill recognized in the statement of profit and loss is not reversed in the subsequent period. Intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment 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 CGU to which the asset belongs. If such assets are considered to be impaired, the impairment to be recognized in the statement of profit and loss is measured by the amount by which the carrying value of the asset exceeds the estimated recoverable amount of the asset.
(o) Provisions and contingent liabilities
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows.
The Company uses significant judgement to disclose contingent liabilities. Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount cannot be made. Contingent assets are neither recognized nor disclosed in the financial statements.
(p) Retirement and other employee benefits
(i) Provident fund: Employees of the Company receive benefits under the provident fund, a defined benefit plan. The employee and employer each make monthly contributions to the plan. A portion of the contribution is made to the provident fund trust managed by the Company or Government administered provident fund; while the balance contribution is made to the Government administered pension fund, a define contribution plan. For the contribution made by the Company to the provident fund trust managed by the Company, the Company has an obligation to fund any shortfall on the yield of the Trust''s investments over the administered interest rates. The liability is actuarially determined (using the projected unit credit method) at the end of the year. The funds contributed to the Trust are invested in specific securities as mandated by law and generally consist of federal and state government bonds, debt instruments of government-owned corporations and, equity other eligible market securities.
(ii) In respect of superannuation, a defined contribution plan for applicable employees, the Company contributes to a scheme administered on its behalf by appointed fund managers and such contributions for each year of service rendered by the employees are charged to the statement of profit and loss. The Company has no further obligations to the superannuation plan beyond its contributions.
(iii) Gratuity liability: The Company provide for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee''s base salary and the tenure of employment (subject to a maximum of '' 20 lacs per employee). The liability is actuarially determined (using the projected unit credit method) at the end of each year. Actuarial gains/losses are recognized immediately in the balance sheet with a corresponding debit or credit to other comprehensive income in the year in which they occur.
In respect to certain employees in India, the Company contributes towards gratuity liabilities to the Gratuity Fund Trust. Trustees of the Company administer contributions made to the Trust and contributions are invested in a scheme with Life Insurance Corporation of India as permitted by law.
(iv) Compensated absences: The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The employees can carry forward up to the specified portion of the unutilized accumulated compensated absences and utilize it in future periods or receive cash at retirement or termination of employment. The expected cost of accumulating compensated absences is determined by actuarial valuation (using the projected unit credit method) based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. The expense on non-accumulating compensated absences is recognized in the statement of profit and loss in the year in which the absences occur. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred.
(v) State Plan: The contribution to State Plans in India, a defined contribution plan namely Employee State Insurance Fund is charged to the statement of profit and loss as and when employees render related services.
(vi) Contributions to other defined contribution plans in branches outside India are recognized as expense when employees have rendered services entitling them to such benefits.
(q) Equity settled share based compensation
Share-based compensation represents the cost related to share-based awards granted to employees. The Company measures share-based compensation cost at grant date, based on the estimated fair value of the award and recognizes the cost on a straight line basis (net of estimated forfeitures) over the employee''s requisite service period for an award with only service condition and for an award with both service and performance condition on a straight-line basis over the requisite service period for each separately vesting portion of the award, as if award was in substance, multiple awards. The Company estimates the fair value of stock options using option pricing model. The cost of share based payment awards granted to employees of the Company is recorded under the head employee benefit expense in the Standalone statement of profit or loss with corresponding increase in âShare Based Payment Reserveâ. The grant date fair value of share-based payment awards granted to employees of subsidiaries is recognised as receivable from subsidiaries, with a corresponding increase in âshare based payment reserveâ, as a separate component in equity over the vesting period that the employees become entitled to the awards.
(r) Financial Instruments
A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
i. Financial assets
All financial assets are recognized initially at fair value. Transaction costs that are directly attributable to the acquisition of financial assets (other than financial assets at fair value through profit or loss) are added to the fair value measured on initial recognition of financial asset. Purchase and sale of financial assets are accounted for at trade date.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash in banks and short-term deposits and investments with an original maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purposes of the cash flow statement, cash and cash equivalents are considered net of outstanding bank overdrafts that are repayable on demand and are considered part of the Company''s cash management system. In the standalone balance sheet, bank overdrafts are presented under borrowings within current liabilities.
Financial assets at amortized cost
A financial asset is measured at the amortized cost if both the following conditions are met:
(a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
(b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in other income in the statement of profit and loss. The losses arising from impairment are recognized in the statement of profit and loss. This category includes cash and bank balances, loans, unbilled receivables, trade and other receivables.
Financial assets at Fair Value through Other Comprehensive Income (OCI)
A financial asset is classified and measured at fair value through OCI if both of the following criteria are met:
(a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
(b) The asset''s contractual cash flows represent solely payments of principal and interest.
Financial asset included within the OCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in OCI. Interest income is recognized in statement of profit and loss for debt instruments. On derecognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified from OCI to statement of profit and loss.
Financial assets at Fair Value through Profit and Loss
Any financial asset, which does not meet the criteria for categorization at amortized cost or at fair value through other comprehensive income, is classified at fair value through profit and loss. Financial assets included at the fair value through profit and loss category are measured at fair value with all changes recognized in the statement of profit and loss.
Equity investments
Equity investments in subsidiaries are measured at cost less impairment if any.
Derecognition of financial assets
A financial asset is primarily derecognized when the rights to receive cash flows from the asset have expired, or the Company has transferred its rights to receive cash flows from the asset.
Impairment of financial assets
The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets which are not fair valued through profit and loss. Lifetime ECL allowance is recognized for trade receivables with no significant financing component. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case they are measured at lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date is recognized in statement of profit and loss.
ii. Financial liabilities
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The subsequent measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. Changes in fair value of such liability are recognized in the statement of profit or loss.
Financial liabilities at amortized cost
The Company''s financial liabilities at amortized cost are initially recognized at net of transaction costs and includes trade payables, borrowings including bank overdrafts and other payables.
After initial recognition, financial liabilities are subsequently measured at amortized cost using the effective interest rate (EIR) method except for deferred consideration recognized in a business combination which is subsequently measured at fair value through profit and loss. Gains and losses are recognized in the statement of profit and loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
iii. Derivative financial instruments and hedge accounting
Foreign exchange forward contracts and options are purchased to mitigate the risk of changes in foreign exchange rates associated with forecast transactions denominated in certain foreign currencies.
The Company recognizes all derivatives as assets or liabilities measured at their fair value. Changes in fair value for derivatives not designated in a hedge accounting relationship are marked to market at each reporting date and the related gains (losses) are recognized in the statement of profit and loss as âforeign exchange gains (losses)''.
The foreign exchange forward contracts and options in respect of forecasted transactions which meet the hedging criteria are designated as cash flow hedges. Changes in the fair value of derivatives (net of tax) that are designated as effective cash flow hedges are deferred and recorded in the hedging reserve account as a component of accumulated âother comprehensive income (loss)â until the hedged transaction occurs and are then recognized in the statement of profit and loss. The ineffective portion of hedging derivatives is immediately recognized in other income in the statement of profit and loss.
In respect of derivatives designated as hedges, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also formally assesses both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. The Company determines the existence of an economic relationship between the hedging instrument and hedged item based on the currency, amount and timing of their respective cash flows.
Hedge accounting is discontinued prospectively from the last testing date when (1) it is determined that the derivative financial instrument is no longer effective in offsetting changes in the fair value or cash flows of the underlying exposure being hedged; (2) the derivative financial instrument matures or is sold, terminated or exercised; or (3) it is determined that designating the derivative financial instrument as a hedge is no longer appropriate. When hedge accounting is discontinued the deferred gains or losses on the cash flow hedge remain in âother comprehensive income (loss)â until the forecast transaction occurs. Any further change in the fair value of the derivative financial instrument is recognized in current year earnings.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis to realize the assets and settle the liabilities simultaneously.
Final dividend proposed by the Board of Directors is recognized upon approval by the shareholders who have the right to decrease but not increase the amount of dividend recommended by the Board of Directors. Interim dividends are recognized on declaration by the Board of Directors. Final and interim dividend excludes dividend on treasury shares.
Basic EPS amounts are computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares outstanding during the year adjusted for treasury shares held.
Diluted EPS amounts are computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares considered for deriving basic earnings per share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. The diluted potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares). Performance based stock unit awards are included in dilutive potential shares when they become contingently issuable and have a dilutive impact and are excluded when they are not contingently issuable. Dilutive potential equity shares are deemed converted as at the beginning of the year, unless issued at a later date. Dilutive potential equity shares are determined independently for each year presented.
The number of shares and potentially dilutive equity shares are adjusted retrospectively for all periods presented for bonus shares.
(u) Nature and purpose of reserves Remeasurement of defined benefit plans
The Company recognizes actuarial gains/losses on defined benefit plans in the balance sheet with a corresponding debit or credit to other comprehensive income in the period in which they occur.
Treasury share reserve
The Company''s equity shares held by a trust, which is consolidated as a part of the Company, are classified as Treasury shares. Treasury shares are carried at acquisition cost and presented as a deduction from total equity as âTreasury share reserveâ. As and when treasury shares are transferred to employees on exercise after satisfaction of the vesting conditions, the amount received is recognized as an increase in equity, and the balance lying in âTreasury share reserveâ is transferred to âSecurities premiumâ.
Securities premium
Securities premium is used to record the premium on issue of shares. The reserve can be utilized only for limited purposes such as issuance of bonus shares and buyback of shares in accordance with the provisions of the Companies Act, 2013.
Capital redemption reserve
The Company recognizes cancellation of the Companyâs own equity instruments to capital redemp
Mar 31, 2021
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These standalone financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) prescribed under section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules as amended from time to time and presentation requirements of Schedule III (Division II) to the Companies Act, 2013, as applicable to the standalone financial statements.
These standalone financial statements have been prepared under the historical cost convention on an accrual and going concern basis except for the following assets and liabilities which have been measured at fair value:
(a) Derivative financial instruments,
(b) Certain financial assets and liabilities (refer accounting policy regarding financial instruments),
(c) Defined benefit plans
The accounting policies adopted in the preparation of these standalone financial statements are consistent with those of the previous year except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy.
The Hon''ble National Company Law Tribunal of New Delhi and Bengaluru have approved the Scheme of Amalgamation providing for the merger of four direct /step-down wholly-owned subsidiaries engaged in providing IT and IT related services viz. HCL Eagle Limited, HCL Comnet Limited, HCL Technologies Solutions Limited and Concept2Silicon Systems Private Limited (the âTransferor companiesâ) with and into HCL Technologies Limited (the âTransferee Companyâ) with effect from 01 April 2019, the appointed date. The scheme has become effective on 13 July 2020 on filling of the certified true copy of the Orders of the Delhi and the Bengaluru NCLT with the Registrar of Companies on 13 March 2020 and 13 July 2020 respectively.
Since the Transferor Companies are the wholly-owned subsidiaries of the Transferee Company, there will be no issue and allotment of shares as consideration. The difference amount of '' 14 crores between the amounts recorded as investments of the Company (Transferee Company) and the amount of share capital of the aforesaid amalgamating subsidiaries (Transferor Companies) has been adjusted in the Common Control Transaction Capital Reserve in accordance with the guidance under Appendix C of IND AS 103 âBusiness Combinationsâ using the pooling of interest method. For the acquired subsidiaries, carrying value of assets, liabilities and reserves appearing in the consolidated financial statements has been carried. Accordingly, the comparative numbers have been restated to give effect of the Scheme.
The impact of the scheme is not material on the standalone financial statement of the Company.
All assets and liabilities have been classified as current and non-current as per the Company''s normal operating cycle of 12 months. The statement of cash flows has been prepared under indirect method.
The Company uses the Indian rupee (T) as its reporting currency.
The preparation of standalone financial statements in conformity with Ind AS requires the management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and other comprehensive income (OCI) that are reported and disclosed in the financial statements and accompanying notes. These estimates are based on the management''s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected in the standalone financial statements in the year in which the changes are made.
Significant estimates and assumptions are used for, but not limited to,
(i) Accounting for costs expected to be incurred to complete performance under fixed price projects and determination of stand-alone selling prices for each distinct performance obligation in respect of proprietary software products, refer note 1(f)
(ii) Allowance for uncollectible accounts receivables, refer note 1(q)(i)
(iii) Fair value of the consideration transferred (including contingent consideration) and fair value of the assets acquired and liabilities assumed, measured on a provisional basis in case of business combination, refer note 1(c)
(iv) Recognition of income and deferred taxes, refer note 1(g) and note 3.25
(v) Key actuarial assumptions for measurement of future obligations under employee benefit plans, refer note 1(p) and note 3.30
(vi) Useful lives of property, plant and equipment, refer note 1(h)
(vii) Lives of intangible assets, refer note 1(i)
(viii) Key assumptions used for impairment of goodwill, refer note 1(n) and note 3.2
(ix) Identification of leases and measurement of lease liabilities and right of use assets, refer note 1(l)
(x) Provisions and contingent liabilities, refer note 1(o) and note 3.33
In view of pandemic relating to COVID-19, the Company has considered and taken into account internal and external information and has performed sensitivity analysis based on current estimates in assessing the recoverability of receivables, unbilled receivables, goodwill, intangible assets, other financial assets, impact on revenues and costs, impact on leases and effectiveness of its hedging relationships including but not limited to the assessment of liquidity and going concern assumption. However, the actual impact of COVID-19 on the Company''s financial statements may differ from that estimated and the Company will continue to closely monitor any material changes to future economic conditions.
Business combinations are accounted for using the acquisition method. The cost of an acquisition is the aggregate of the consideration transferred measured at fair value at the acquisition date. Acquisition related costs are expensed as incurred.
Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration classified as financial liability is measured at fair value with changes in fair value recognized in the statement of profit and loss.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the excess is recognized as capital reserve after reassessing the fair values of the net assets.
The financial statements are presented in Indian Rupee (''), which is also the Company''s functional currency. For each foreign operation, the Company determines the functional currency which is its respective local currency.
Transactions in foreign currencies are initially recorded by the Company at their respective functional currency spot rates at the date of the transaction. Foreign-currency denominated monetary assets and liabilities are translated to the relevant functional currency at exchange rates in effect at the balance sheet date. Exchange differences arising on settlement or translation of monetary items are recognized in the statement of profit and loss. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of initial transaction. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at fair value are translated at the exchange rate prevalent at the date when the fair value was determined.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the year. Revenue, expenses and cash-flow items denominated in foreign currencies are translated into the relevant functional currencies using the exchange rate in effect on the date of the transaction.
The translation of foreign operations from respective functional currency into INR (the reporting currency) for assets and liabilities is performed using the exchange rates in effect at the balance sheet date, and for revenue, expenses and cash flows is performed using an appropriate daily weighted average exchange rate for the respective years. The exchange differences arising on translation are reported as a component of âother comprehensive income (loss)''. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognized in the statement of profit and loss.
The Company records certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair values based on the price it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability.
The Company holds certain fixed income securities, equity securities and derivatives, which must be measured using the guidance for fair value hierarchy and related valuation methodologies. The guidance specifies a hierarchy of valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company''s assumptions about current market conditions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1 - Quoted inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are directly or indirectly observable in active markets.
Level 3 - Valuations derived from valuation techniques, in which one or more significant inputs are unobservable inputs which are supported by little or no market activity.
In accordance with Ind AS 113, assets and liabilities are to be measured based on the following valuation techniques:
(a) Market approach - Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
(b) Income approach - Converting the future amounts based on market expectations to its present value using the discounting method.
(c) Cost approach - Replacement cost method.
Certain assets are measured at fair value on a non-recurring basis. These assets consist primarily of non-financial assets such as goodwill and intangible assets. Goodwill and intangible assets recognized in business combinations are measured at fair value initially and subsequently when there is an indicator of impairment, the impairment is recognized.
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 who would use the asset in its highest and best use.
Contracts involving provision of services and material
Revenue is recognized when, or as, control of a promised service or good transfers to a customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. To recognize revenues, the following five step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenues when a performance obligation is satisfied. A contract is accounted when it is legally enforceable through executory contracts, approval and commitment from all parties, the rights of the parties are identified, payment terms are defined, the contract has commercial substance and collectability of consideration is probable.
Time-and-material / Volume based / Transaction based contracts
Revenue with respect to time-and-material, volume based and transaction based contracts is recognized as the related services are performed through efforts expended, volume serviced transactions are processed etc. that correspond with value transferred to customer till date which is related to our right to invoice for services performed.
Fixed Price contracts
Revenue related to fixed price contracts where performance obligations and control are satisfied over a period of time like technology integration, complex network building contracts, system implementations and application development are recognized based on progress towards completion of the performance obligation using a cost-to-cost measure of progress (i.e., percentage-of-completion (POC) method of accounting). Revenue is recognized based on the costs incurred to date as a percentage of the total estimated costs to fulfill the contract. Any revision in cost to complete would result in increase or decrease in revenue and such changes are recorded in the period in which they are identified. Provisions for estimated losses, if any, on contracts-in-progress are recorded in the period in which such losses become probable based on the current contract estimates. Contract losses are determined to be the amount by which the estimated incremental cost to complete exceeds the estimated future revenues that will be generated by the contract and are included in cost of revenues and recorded in other accrued liabilities.
Revenue related to other fixed price contracts providing maintenance and support services, are recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered. If our invoicing is not consistent with value delivered, revenues are recognized as the service is performed based on the cost to cost method described above.
In arrangements involving sharing of customer revenues, revenue is recognized when the right to receive is established.
Revenue from product sales are shown net of applicable taxes, discounts and allowances. Revenue related to product with installation services that are critical to the product is recognized when installation of product at customer site is completed and accepted by the customer. If the revenue for a delivered item is not recognized for non-receipt of acceptance from the customer, the cost of the delivered item continues to be in inventory.
Proprietary Software Products
Revenue from distinct proprietary perpetual license software is recognized at a point in time at the inception of the arrangement when control transfers to the client. Revenue from proprietary term license software is recognized at a point in time for the committed term of the contract. In case of renewals of proprietary term licenses with existing customers, revenue from term license is recognized at a point in time when the renewal is agreed on signing of contracts. Revenue from support and subscription (S&S) is recognized over the contract term on a straight-line basis as the Company is providing a service of standing ready to provide support, when-and-if needed, and is providing unspecified software upgrades on a when-and-if available basis over the contract term. In case software are bundled with one year of support and subscription either for perpetual or term based license, such support and subscription contracts are generally priced as a percentage of the net fees paid by the customer to purchase the license and are generally recognized as revenues ratably over the contractual period that the support services are provided. Revenue from these proprietary software products is classified under sale of services.
Multiple performance obligation
When a sales arrangement contains multiple performance, such as services, hardware and Licensed IPs (software) or combinations of each of them revenue for each element is based on a five step approach as defined above. To the extent a contract includes multiple promised deliverables, judgment is applied to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations or series of distinct performance obligations, consideration is allocated among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which the Company would sell a promised good or service separately to the customer. When not directly observable, we estimate standalone selling price by using the expected cost plus a margin approach. We establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change. If the arrangement contains obligations related to License of Intellectual property (Software) or Lease deliverable, the arrangement consideration allocated to the Software deliverables, lease deliverable as a group is then allocated to each software obligation and lease deliverable.
Revenue recognition for delivered elements is limited to the amount that is not contingent on the future delivery of products or services, future performance obligations or subject to customer-specified return or refund privileges.
Revenue from certain activities in transition services in outsourcing arrangements are not capable of being distinct or represent separate performance obligation. Revenues relating to such transition activities are classified as Contract liabilities and subsequently recognized over the period of the arrangement. Direct and incremental costs in relation to such transition activities which are expected to be recoverable under the contract and generate or enhance resources of the Company that will be used in satisfying the performance obligation in the future are considered as contract fulfillment costs classified as Deferred contract cost and recognized over the period of arrangement. Certain upfront non-recurring incremental contract acquisition costs and other upfront fee paid to customer are deferred and classified as Deferred contract cost and amortized to revenue or cost, usually on a straight line basis, over the term of the contract unless revenues are earned and obligations are fulfilled in a different pattern. The undiscounted future cash flows from the arrangement are periodically estimated and compared with the unamortized costs. If the unamortized costs exceed the undiscounted cash flow, a loss is recognized.
In instances when revenue is derived from sales of third-party vendor services, material or licenses, revenue is recorded on a gross basis when the Company is a principal to the transaction and net of costs when the Company is acting as an agent between the customer and the vendor. Several factors are considered to determine whether the Company is a principal or an agent, most notably being company control the goods or service before it is transferred to customer, latitude in deciding the price being charged to customer. Revenue is recognized net of discounts and allowances, value-added and service taxes, and includes reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket expenses included in cost of revenues.
Volume discounts, or any other form of variable consideration is estimated using either the sum of probability weighted amounts in a range of possible consideration amounts (expected value), or the single most likely amount in a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of consideration realizable. Transaction price includes variable consideration only to the extent it is probable that a significant reversal of revenues recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price may involve judgment and are based largely on an assessment of our anticipated performance and all information that is reasonably available to us.
Revenue recognized but not billed to customers is classified either as contract assets or unbilled receivable in our standalone balance sheet. Contract assets primarily relate to unbilled amounts on those contracts utilizing the cost to cost method of revenue recognition and right to consideration is not unconditional. Unbilled receivables represent contracts where right to consideration is unconditional (i.e. only the passage of time is required before the payment is due). A contract liability arises when there is excess billing over the revenue recognized.
Revenue from sales-type leases is recognized when risk of loss has been transferred to the client and there are no unfulfilled obligations that affect the final acceptance of the arrangement by the client. Interest attributable to sales-type leases and direct financing leases included therein is recognized on an accrual basis using the effective interest method and is recognized as other income.
Interest income
Interest income for all financial instruments measured at amortized cost is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortized cost of a financial liability. When calculating the EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but does not consider the expected credit losses. Interest income is included in other income in the statement of profit and loss.
Income tax expense comprises current and deferred income tax.
Income tax expense is recognized in the statement of profit and loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Provision for income tax includes the impact of provisions established for uncertain income tax positions.
Deferred income tax assets and liabilities recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets and liabilities are recognized for those temporary differences which originate during the tax holiday period are reversed after the tax holiday period. For this purpose, reversal of timing differences is determined using first in first out method.
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 realized. 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.
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.
The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the year that includes the enactment or the substantive enactment date. A deferred income 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 utilized. Deferred income taxes are not provided on the undistributed earnings of branches where it is expected that the earnings of the branch will not be distributed in the foreseeable future.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in the statement of profit and loss.
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses if any. Cost comprises the purchase price and directly attributable cost of bringing the asset to its working condition for its intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. The Company identifies and determines separate useful lives for each major component of the property, plant and equipment, if they have a useful life that is materially different from that of the asset as a whole.
Expenses on existing property, plant and equipment, including day-to-day repairs, maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the year during which such expenses are incurred.
Gains or losses arising from derecognition of assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
Property, plant and equipment under construction and cost of assets not ready for use at the year end are disclosed as capital-work-in-progress.
Depreciation on property, plant and equipment is provided on the straight-line method over their estimated useful lives, as determined by the management. Depreciation is charged on a pro-rata basis for assets purchased/sold during the year.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is measured at their fair value at the date of acquisition. Subsequently, following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses.
Intangible assets are amortized over the useful 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 year. 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 recognized in the statement of profit and loss.
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 recognized in the statement of profit and loss when the asset is derecognized.
The intangible assets are amortized over the estimated useful life of the assets as mentioned below except certain Licensed IPRs which include the right to modify, enhance or exploit are amortized in proportion to the expected benefits over the useful life which could range up to 15 years:
Research costs are expensed as incurred. Development expenditure, on an individual project, is recognized as an intangible asset when the Company can demonstrate:
⢠The technical feasibility of completing the intangible asset so that it will be available for use or sale
⢠Its intention to complete and its ability and intention to use or sell the asset
⢠How the asset will generate future economic benefits
⢠The availability of resources to complete the asset
⢠The ability to measure reliably the expenditure during development
Subsequently, following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. Amortization expense is recognized in the statement of profit and loss. During the period of development, the asset is tested for impairment annually.
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 are capitalized 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 costs also includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
A lease is a contract that contains right to control the use of an identified asset for a period of time in exchange for consideration. Company as a lessee
Company is lessee in case of leasehold land, office space, accommodation for its employees & IT equipment. These leases are evaluated to determine whether it contains lease based on principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors as defined in Ind AS 116 effective from 1 April 2019.
Right-of-use asset represents the Company''s right to control the underlying assets under lease and the lease liability is the obligation to make the lease payments related to the underlying asset under lease. Right-of-use asset is measured initially based on the lease liability adjusted for any initial direct costs, prepaid rent and lease incentives. Right-of-use asset is depreciated based on straight line method over the lease term or useful life of right-of-use asset, whichever is less. Subsequently, right-of-use asset is measured at cost less any accumulated depreciation, accumulated impairment losses, if any and adjusted for any remeasurement of lease liability.
The lease liability is measured at the lease commencement date and determined using the present value of the minimum lease payments not yet paid and the Company''s incremental borrowing rate, which approximates the rate at which the Company would borrow, in the country where the lease was executed. The Company has used a single discount rate for a portfolio of leases with reasonably similar characteristics. The lease payment comprises fixed payment less any lease incentives, variable lease payment that depends on an index or a rate, exercise price of a purchase option if the Company is reasonably certain to exercise the option and payment of penalties for terminating the lease, if the lease term reflects the Company exercising an option to terminate the lease. Lease liability is subsequently measured by increase the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payment made and remeasuring the carrying amount to reflect any reassessment or modification, if any.
The Company has elected to not recognize leases with a lease term of 12 months or less in the balance sheet, including those acquired in a business combination, and lease costs for those short-term leases are recognized on a straight-line basis over the lease term in the statement of profit and loss. For all asset classes, the Company has elected the lessee practical expedient to combine lease and non-lease components and account for the combined unit as a single lease component in case there is no separate payment defined under the contract.
Company as a lessor
Leases in which the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the year in which they are earned or contingency is resolved.
Leases in which the Company transfers substantially all the risk and benefits of ownership of the asset are classified as finance leases. Assets given under finance lease are recognized as a receivable at an amount equal to the present value of lease receivable. After initial recognition, the Company apportions lease rentals between the principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance leases. The interest income is recognized in the statement of profit and loss. Initial direct costs such as legal cost, brokerage cost etc. are recognized immediately in the statement of profit and loss.
When arrangements include multiple performance obligations, the Company allocates the consideration in the contract between the lease components and the non-lease components on a relative standalone selling price basis.
Stock-in-trade, stores and spares are valued at the lower of the cost or net realizable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
Cost of stock-in-trade procured for specific projects is assigned by identifying individual costs of each item. Cost of stock in trade, that are interchangeable and not specific to any project and cost of stores and spare parts are determined using the weighted average cost formula.
Goodwill
Goodwill is tested annually on March 31, for impairment, or sooner whenever there is an indication that goodwill may be impaired, relying on a number of factors including operating results, business plans and future cash flows. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the Company''s cash generating units (CGU) expected to benefit from the synergies arising from the business combination. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Impairment occurs when the carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. Value-in-use is the present value of future cash flows expected to be derived from the CGU. Total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU, pro-rata on the basis of the carrying amount of each asset in the CGU.
An impairment loss on goodwill recognized in the statement of profit and loss is not reversed in the subsequent period. Intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment 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 CGU to which the asset belongs. If such assets are considered to be impaired, the impairment to be recognized in the statement of profit and loss is measured by the amount by which the carrying value of the asset exceeds the estimated recoverable amount of the asset.
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows.
The Company uses significant judgement to disclose contingent liabilities. Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount cannot be made. Contingent assets are neither recognized nor disclosed in the financial statements.
(i) Provident fund: Employees of the Company receive benefits under the provident fund, a defined benefit plan. The employee and employer each make monthly contributions to the plan. A portion of the contribution is made to the provident fund trust managed by the Company or Government administered provident fund; while the balance contribution is made to the Government administered pension fund. For the contribution made by the Company to the provident fund trust managed by the Company, the Company has an obligation to fund any shortfall on the yield of the Trust''s investments over the administered interest rates. The liability is actuarially determined (using the projected unit credit method) at the end of the year. The funds contributed to the Trust are invested in specific securities as mandated by law and generally consist of federal and state government bonds, debt instruments of government-owned corporations and, equity other eligible market securities.
(ii) In respect of superannuation, a defined contribution plan for applicable employees, the Company contributes to a scheme administered on its behalf by appointed fund managers and such contributions for each year of service rendered by the employees are charged to the statement of profit and loss. The Company has no further obligations to the superannuation plan beyond its contributions.
(iii) Gratuity liability: The Company provide for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee''s base salary and the tenure of employment (subject to a maximum of '' 20 lacs per employee). The liability is actuarially determined (using the projected unit credit method) at the end of each year. Actuarial gains/losses are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through other comprehensive income in the year in which they occur.
In respect to certain employees in India, the Company contributes towards gratuity liabilities to the Gratuity Fund Trust. Trustees of the Company administer contributions made to the Trust and contributions are invested in a scheme with Life Insurance Corporation of India as permitted by law.
(iv) Compensated absences: The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The employees can carry forward up to the specified portion of the unutilized accumulated compensated absences and utilize it in future periods or receive cash at retirement or termination of employment. The expected cost of accumulating compensated absences is determined by actuarial valuation (using the projected unit credit method) based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. The expense on non-accumulating compensated absences is recognized in the statement of profit and loss in the year in which the absences occur. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred.
(v) State Plan: The contribution to State Plans in India, a defined contribution plan namely Employee State Insurance Fund is charged to the statement of profit and loss as and when employees render related services.
(vi) Contributions to other defined contribution plans in branches outside India are recognized as expense when employees have rendered services entitling them to such benefits.
A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
i. Financial assets
All financial assets are recognized initially at fair value. Transaction costs that are directly attributable to the acquisition of financial assets (other than financial assets at fair value through profit or loss) are added to the fair value measured on initial recognition of financial asset. Purchase and sale of financial assets are accounted for at trade date.
Cash and cash equivalents in the balance sheet comprise cash in banks and short-term deposits and investments with an original maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purposes of the cash flow statement, cash and cash equivalents are considered net of outstanding bank overdrafts that are repayable on demand and are considered part of the Company''s cash management system. In the statement of financial positions, bank overdrafts are presented under borrowings within current liabilities.
Mar 31, 2019
(a) Basis of preparation
The 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 Schedule III (Division II) to the Companies Act, 2013, as applicable to the financial statements.
These financial statements have been prepared under the historical cost convention on an accrual and going concern basis except for the following assets and liabilities which have been measured at fair value:
a) Derivative financial instruments,
b) Certain financial assets and liabilities (refer accounting policy regarding financial instruments),
The accounting policies adopted in the preparation of these financial statements are consistent with those of the previous year except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy.
The Company uses the Indian rupee (Rs.) as its reporting currency.
(b) Use of estimates
The preparation of financial statements in conformity with Ind AS requires the management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and other comprehensive income (OCI) that are reported and disclosed in the financial statements and accompanying notes. These estimates are based on the managementâs best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. Significant estimates and assumptions are used for, but not limited to, accounting for costs expected to be incurred to complete performance under fixed price projects, allowance for uncollectible accounts receivables, accrual of warranty costs, income taxes, valuation of share-based compensation, future obligations under employee benefit plans, the useful lives of property, plant and equipment, intangible assets, impairment of goodwill,and other contingencies and commitments. Changes in estimates are reflected in the financial statements in the year in which the changes are made. Actual results could differ from those estimates.
(c) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is the aggregate of the consideration transferred measured at fair value at the acquisition date. Acquisition related costs are expensed as incurred.
Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration classified as financial liability is measured at fair value with changes in fair value recognized in the statement of profit and loss.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the excess is recognized as capital reserve after reassessing the fair values of the net assets.
(d) Foreign currency and translation
The financial statements are presented in Indian Rupee (?) which is also the Companyâs functional currency. For each foreign operation, the Company determines the functional currency which is its respective local currency.
Transactions in foreign currencies are initially recorded by the Company at their respective functional currency spot rates at the date of the transaction. Foreign-currency denominated monetary assets and liabilities are translated to the relevant functional currency at exchange rates in effect at the balance sheet date. Exchange differences arising on settlement or translation of monetary items are recognized in the statement of profit and loss. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of initial transaction. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at fair value are translated at the exchange rate prevalent at the date when the fair value was determined.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the year. Revenue, expenses and cash-flow items denominated in foreign currencies are translated into the relevant functional currencies using the exchange rate in effect on the date of the transaction.
The translation of foreign operations from respective functional currency into INR (the reporting currency) for assets and liabilities is performed using the exchange rates in effect at the balance sheet date, and for revenue, expenses and cash flows is performed using an appropriate daily weighted average exchange rate for the respective years. The exchange differences arising on translation are reported as a component of âother comprehensive income (loss)â. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognized in the statement of profit and loss.
(e) Fair value measurement
The Company records certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair values based on the price it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability.
The Company holds certain fixed income securities, equity securities and derivatives, which must be measured using the guidance for fair value hierarchy and related valuation methodologies. The guidance specifies a hierarchy of valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Companyâs assumptions about current market conditions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1 - Quoted inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are directly or indirectly observable in active markets.
Level 3 - Valuations derived from valuation techniques, in which one or more significant inputs are unobservable inputs which are supported by little or no market activity.
In accordance with Ind AS 113, assets and liabilities are to be measured based on the following valuation techniques:
a) Market approach - Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
b) Income approach - Converting the future amounts based on market expectations to its present value using the discounting method.
c) Cost approach - Replacement cost method.
Certain assets are measured at fair value on a non-recurring basis. These assets consist primarily of non-financial assets such as goodwill and intangible assets. Goodwill and intangible assets recognized in business combinations are measured at fair value initially and subsequently when there is an indicator of impairment, the impairment is recognized.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant who would use the asset in its highest and best use.
(f) Revenue recognition
Adoption of new accounting principles
Effective 1 April 2018, the Company has adopted Ind AS 115 using the cumulative effect method. The standard is applied retrospectively only to contracts that are not completed as at the date of initial application and the comparative information is not restated in the financial statement. The adoption of the standard did not have any material impact to the financial statements of the Company.
Contracts involving provision of services and material
Revenue is recognized when, or as, control of a promised service or good transfers to a customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. To recognize revenues, the following five step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenues when a performance obligation is satisfied. Contract is accounted when it is legally enforceable through executory contracts, approval and commitment from all parties, the rights of the parties are identified, payment terms are defined, the contract has commercial substance and collectability of consideration is probable.
Time-and-material / Volume based / Transaction based contracts
Revenue with respect to time-and-material, volume based and transaction based contracts is recognized as the related services are performed through efforts expended, volume serviced transactions are processed etc. that correspond with value transferred to customer till date which is related to our right to invoice for services performed.
Fixed Price contracts
Revenue related to fixed price contracts where performance obligations and control are satisfied over a period of time like technology integration, complex network building contracts, ERP implementations and Application development are recognized based on progress towards completion of the performance obligation using a cost-to-cost measure of progress (i.e., percentage-of-completion (POC) method of accounting). Revenue is recognized based on the costs incurred to date as a percentage of the total estimated costs to fulfill the contract. Any revision in cost to complete would result in increase or decrease in revenue and such changes are recorded in the period in which they are identified. Provisions for estimated losses, if any, on contracts-in-progress are recorded in the period in which such losses become probable based on the current contract estimates. Contract losses are determined to be the amount by which the estimated incremental cost to complete exceeds the estimated future revenues that will be generated by the contract and are included in cost of revenues and recorded in other accrued liabilities.
Revenue related to other fixed price contracts providing maintenance and support services, are recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered. If our invoicing is not consistent with value delivered, revenues are recognized as the service is performed based on the cost to cost method described above.
In arrangements involving sharing of customer revenues, revenue is recognized when the right to receive is established.
Revenue from product sales are shown net of sales tax and applicable discounts and allowances. Revenue related to product with installation services that are critical to the product is recognized when installation of product at customer site is completed and accepted by the customer. If the revenue for a delivered item is not recognized for non-receipt of acceptance from the customer, the cost of the delivered item continues to be in inventory.
Multiple performance obligation
When a sales arrangement contains multiple performance, such as services, hardware and Licensed IPs (software) or combinations of each of them revenue for each element is based on a five step approach as defined above. To the extent a contract includes multiple promised deliverables, judgment is applied to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations or series of distinct performance obligations, consideration is allocated among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which group would sell a promised good or service separately to the customer. When not directly observable, we typically estimate standalone selling price by using the expected cost plus a margin approach. We typically establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change. If the arrangement contains obligations related to License of Intellectual property (Software) or Lease deliverable, the arrangement consideration allocated to the Software deliverables, lease deliverable as a group is then allocated to each software obligation and lease deliverable.
Revenue recognition for delivered elements is limited to the amount that is not contingent on the future delivery of products or services, future performance obligations or subject to customer-specified return or refund privileges.
Revenue from certain activities in transition services in outsourcing arrangements are not capable of being distinct or represent separate performance obligation. Revenues relating to such transition activities are classified as Contract liabilities and subsequently recognized over the period of the arrangement. Direct and incremental costs in relation to such transition activities which are expected to be recoverable under the contract are considered as contract fulfillment costs classified as Deferred contract cost and recognized over the period of arrangement. Certain upfront non-recurring incremental contract acquisition costs incurred in the initial phases of outsourcing contracts are deferred and recorded as Deferred contract cost and amortized, usually on a straight line basis, over the term of the contract unless revenues are earned and obligations are fulfilled in a different pattern. The undiscounted future cash flows from the arrangement are periodically estimated and compared with the unamortized costs. If the unamortized costs exceed the undiscounted cash flow, a loss is recognized.
In instances when revenue is derived from sales of third-party vendor services, material or licenses, revenue is recorded on a gross basis when the Company is a principal to the transaction and net of costs when the Company is acting as an agent between the customer and the vendor. Several factors are considered to determine whether the Company is a principal or an agent, most notably being company control the goods or service before it is transferred to customer, latitude in deciding the price being charged to customer. Revenue is recognized net of discounts and allowances, value-added and service taxes, and includes reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket expenses included in cost of revenues.
Volume discounts, or any other form of variable consideration is estimated using either the sum of probability weighted amounts in a range of possible consideration amounts (expected value), or the single most likely amount in a range of possible consideration amounts (most likely amount), depending on which method better predicts the amount of consideration realizable. Transaction price includes variable consideration only to the extent it is probable that a significant reversal of revenues recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price may involve judgment and are based largely on an assessment of our anticipated performance and all information that is reasonably available to us.
Revenue recognized but not billed to customers is classified either as contract assets or unbilled receivable in our statements of financial position, contract assets primarily relate to unbilled amounts on those contracts utilizing the cost to cost method of revenue recognition. Unbilled receivables represent contracts where right to consideration is unconditional (i.e. only the passage of time is required before the payment is due).
Revenue from sales-type leases is recognized when risk of loss has been transferred to the client and there are no unfulfilled obligations that affect the final acceptance of the arrangement by the client. Interest attributable to sales-type leases and direct financing leases included therein is recognized on an accrual basis using the effective interest method and is recognized as other income.
Interest income
Interest income for all financial instruments measured at amortized cost is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortized cost of a financial liability. When calculating the EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but does not consider the expected credit losses. Interest income is included in other income in the statement of profit and loss.
(g) Income taxes
Income tax expense comprises current and deferred income tax.
Income tax expense is recognized in the statement of profit and loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Provision for income tax includes the impact of provisions established for uncertain income tax positions.
Deferred income tax assets and liabilities recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets and liabilities are recognized for those temporary differences which originate during the tax holiday period are reversed after the tax holiday period. For this purpose, reversal of timing differences is determined using first in first out method.
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 realized. 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.
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.
The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the year that includes the enactment or the substantive enactment date. A deferred income 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 utilized. Deferred income taxes are not provided on the undistributed earnings of branches where it is expected that the earnings of the branch will not be distributed in the foreseeable future.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in the statement of profit and loss.
(h) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses if any. Cost comprises the purchase price and directly attributable cost of bringing the asset to its working condition for its intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. The Company identifies and determines separate useful lives for each major component of the property, plant and equipment, if they have a useful life that is materially different from that of the asset as a whole.
Expenses on existing property, plant and equipment, including day-to-day repairs, maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the year during which such expenses are incurred.
Gains or losses arising from derecognition of assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized
Property, plant and equipment under construction and cost of assets not ready for use at the year-end are disclosed as capital work- in- progress.
Depreciation on property, plant and equipment is provided on the straight-line method over their estimated useful lives, as determined by the management. Depreciation is charged on a pro-rata basis for assets purchased/sold during the year.
The managementâs estimates of the useful lives of various assets for computing depreciation are as follows:
The useful lives as given above best represent the period over which the management expects to use these assets, based on technical assessment. The estimated useful lives for these assets are therefore different from the useful lives prescribed under Part C of Schedule II of the Companies Act 2013.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year-end and adjusted prospectively, if appropriate.
(i) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses.
Intangible assets are amortized over the useful 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 year. 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 recognized in the statement of profit and loss.
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 recognized in the statement of profit and loss when the asset is derecognized.
The intangible assets are amortized over the estimated useful life of the assets as mentioned below except certain Licensed IPRs which include the right to modify, enhance or exploit are amortized in proportion to the expected benefits over the useful life which could range up to 15 years:
(j) Research and development costs
Research costs are expensed as incurred. Development expenditure, on an individual project, is recognized as an intangible asset when the Company can demonstrate:
- The technical feasibility of completing the intangible asset so that it will be available for use or sale
- Its intention to complete and its ability and intention to use or sell the asset
- How the asset will generate future economic benefits
- The availability of resources to complete the asset
- The ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. Amortization expense is recognized in the statement of profit and loss. During the period of development, the asset is tested for impairment annually.
(k) 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 are capitalized 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 costs also includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
(l) Leases
Company as a lessee
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Company is classified as a finance lease.
Finance leases are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the statement of profit and loss.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset or the lease term.
Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.
Company as a lessor
Leases in which the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the year in which they are earned.
Leases in which the Company transfers substantially all the risk and benefits of ownership of the asset are classified as finance leases. Assets given under finance lease are recognized as a receivable at an amount equal to the present value of lease receivable. After initial recognition, the Company apportions lease rentals between the principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance leases. The interest income is recognized in the statement of profit and loss. Initial direct costs such as legal cost, brokerage cost etc. are recognized immediately in the statement of profit and loss.
(m) Inventory
Stock-in-trade, stores and spares are valued at the lower of the cost or net realizable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
Cost of stock-in-trade procured for specific projects is assigned by identifying individual costs of each item. Cost of stock-in-trade, that are interchangeable and not specific to any project and cost of stores and spare parts are determined using the weighted average cost formula.
(n) Impairment of non-financial assets
Goodwill
Goodwill is tested annually on March 31, for impairment, or sooner whenever there is an indication that goodwill may be impaired, relying on a number of factors including operating results, business plans and future cash flows. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the Companyâs cash generating units (CGU) expected to benefit from the synergies arising from the business combination. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Impairment occurs when the carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. Value-in-use is the present value of future cash flows expected to be derived from the CGU. Total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU, pro-rata on the basis of the carrying amount of each asset in the CGU.
An impairment loss on goodwill recognized in the statement of profit and loss is not reversed in the subsequent period. Intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment 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 CGU to which the asset belongs. If such assets are considered to be impaired, the impairment to be recognized in the statement of profit and loss is measured by the amount by which the carrying value of the asset exceeds the estimated recoverable amount of the asset.
(o) Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows.
(p) Retirement and other employee benefits
i. Provident fund: Employees of the Company receive benefits under the provident fund, a defined benefit plan. The employee and employer each make monthly contributions to the plan. A portion of the contribution is made to the provident fund trust managed by the Company or Government administered provident fund; while the balance contribution is made to the Government administered pension fund. For the contribution made by the Company to the provident fund trust managed by the Company, the Company has an obligation to fund any shortfall on the yield of the Trustâs investments over the administered interest rates. The liability is actuarially determined (using the projected unit credit method) at the end of the year. The funds contributed to the Trust are invested in specific securities as mandated by law and generally consist of federal and state government bonds, debt instruments of government-owned corporations and other eligible market securities.
ii. In respect of superannuation, a defined contribution plan for applicable employees, the Company contributes to a scheme administered on its behalf by an insurance company and such contributions for each year of service rendered by the employees are charged to the statement of profit and loss. The Company has no further obligations to the superannuation plan beyond its contributions.
iii. Gratuity liability: The Company provide for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs base salary and the tenure of employment (subject to a maximum of Rs. 20 lacs per employee). The liability is actuarially determined (using the projected unit credit method) at the end of each year. Actuarial gains/losses are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through other comprehensive income in the year in which they occur.
In respect to certain employees in India, the Company contributes towards gratuity liabilities to the Gratuity Fund Trust. Trustees of the Company administer contributions made to the Trust and contributions are invested in a scheme with Life Insurance Corporation of India as permitted by law.
iv. Compensated absences: The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The employees can carry forward up to the specified portion of the unutilized accumulated compensated absences and utilize it in future periods or receive cash at retirement or termination of employment. The expected cost of accumulating compensated absences is determined by actuarial valuation (using the projected unit credit method) based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. The expense on non-accumulating compensated absences is recognized in the statement of profit and loss in the year in which the absences occur. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred.
v. State Plan: The contribution to State Plans in India, a defined contribution plan namely Employee State Insurance Fund is charged to the statement of profit and loss as and when employees render related services.
vi. Contributions to other foreign defined contribution plans are recognized as expense when employees have rendered services entitling them to such benefits.
(q) Equity settled stock based compensation
Stock-based compensation represents the cost related to stock-based awards granted to employees. The Company measures stock-based compensation cost at grant date, based on the estimated fair value of the award and recognizes the cost (net of estimated forfeitures) on a straight line basis over the requisite service period for each separately vesting portion of the award, as if award was in substance, multiple awards. The Company estimates the fair value of stock options using the Black-Scholes valuation model. The cost is recorded under the head employee benefit expense in the statement of profit and loss with corresponding increase in âShare Based Payment Reserveâ.
(r) Financial Instruments
A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
i. Financial assets
All financial assets are recognized initially at fair value. Transaction costs that are directly attributable to the acquisition of financial assets (other than financial assets at fair value through profit or loss) are added to the fair value measured on initial recognition of financial asset. Purchase and sale of financial assets are accounted for at trade date.
Cash and short-term deposits
Cash and short-term deposits in the balance sheet comprise cash in banks and short-term deposits and investments with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
Financial assets at amortized cost
A financial asset is measured at the amortized cost if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in other income in the statement of profit and loss. The losses arising from impairment are recognized in the statement of profit and loss. This category includes cash and bank balances, loans, unbilled receivables, trade and other receivables.
Financial asset at Fair Value through Other Comprehensive Income (OCI)
A financial asset is classified and measured at fair value through OCI if both of the following criteria are met:
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) The assetâs contractual cash flows represent solely payments of principal and interest.
Financial asset included within the OCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in OCI. Interest income is recognized in statement of profit and loss for debt instruments. On derecognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified from OCI to statement of profit and loss.
Financial assets at Fair Value through Profitand Loss
Any financial asset, which does not meet the criteria for categorization at amortized cost or at fair value through other comprehensive income, is classified at fair value through profit and loss. Financial assets included at the fair value through profit and loss category are measured at fair value with all changes recognized in the statement of profit and loss.
Equity investments
Equity investments in subsidiaries are measured at cost.
Derecognition of financial assets
A financial asset is primarily derecognized when the rights to receive cash flows from the asset have expired, or the Company has transferred its rights to receive cash flows from the asset.
Impairment of financial assets
The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets which are not fair valued through profit and loss. Lifetime ECL allowance is recognized for trade receivables with no significant financing component. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case they are measured at lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date is recognized in the statement of profit and loss.
ii. Financial liabilities
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The subsequent measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profitor loss
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. Changes in fair value of such liability are recognized in the statement of profit or loss.
Financial liabilities at amortized cost
The Companyâs financial liabilities at amortized cost includes trade payables, borrowings including bank overdrafts and other payables.
After initial recognition, financial liabilities are subsequently measured at amortized cost using the effective interest rate (EIR) method. Gains and losses are recognized in the statement of profit and loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
iii. Derivative financial instruments and hedge accounting
Foreign exchange forward contracts and options are purchased to mitigate the risk of changes in foreign exchange rates associated with forecast transactions denominated in certain foreign currencies.
The Company recognizes all derivatives as assets or liabilities measured at their fair value. Changes in fair value for derivatives not designated in a hedge accounting relationship are marked to market at each reporting date and the related gains (losses) are recognized in the statement of profit and loss as âforeign exchange gains (losses)â.
The foreign exchange forward contracts and options in respect of forecast transactions which meet the hedging criteria are designated as cash flow hedges. Changes in the derivative fair values (net of tax) that are designated as effective cash flow hedges are deferred and recorded in the hedging reserve account as a component of accumulated âother comprehensive income (loss)â until the hedged transaction occurs and are then recognized in the statement of profit and loss. The ineffective portion of hedging derivatives is immediately recognized in the statement of profit and loss.
In respect of derivatives designated as hedges, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also formally assesses both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item.
Hedge accounting is discontinued prospectively from the last testing date when (1) it is determined that the derivative financial instrument is no longer effective in offsetting changes in the fair value or cash flows of the underlying exposure being hedged; (2) the derivative financial instrument matures or is sold, terminated or exercised; or (3) it is determined that designating the derivative financial instrument as a hedge is no longer appropriate. When hedge accounting is discontinued the deferred gains or losses on the cash flow hedge remain in âother comprehensive income (loss)â until the forecast transaction occurs. Any further change in the fair value of the derivative financial instrument is recognized in current year earnings.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis to realize the assets and settle the liabilities simultaneously.
(s) Dividend
Final dividend proposed by the Board of Directors is recognized upon approval by the shareholders who have the right to decrease but not increase the amount of dividend recommended by the Board of Directors. Interim dividends are recognized on declaration by the Board of Directors.
(t) Earnings per share (EPS)
Basic EPS amounts are computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares outstanding during the year.
Diluted EPS amounts are computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares considered for deriving basic earnings per share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. The diluted potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares). Dilutive potential equity shares are deemed converted as at the beginning of the year, unless issued at a later date. Dilutive potential equity shares are determined independently for each year presented.
(u) Nature and purpose of reserves
Securities premium reserve
Securities premium reserve is used to record the premium on issue of shares. The reserve can be utilized only for limited purposes such as issuance of bonus shares and buyback of shares in accordance with the provisions of the Companies Act, 2013.
Special economic zone re-investment reserve
The Company has created Special economic zone reinvestment reserve out of profits of the eligible SEZ Units in terms of the specific provisions of Section 10AA(1) of the Income Tax Act, 1961 (âthe Actâ). The said reserve should be utilized by the Company for acquiring plant and machinery in terms of Section 10AA(2) of the Act.
Debt instruments through other comprehensive income
The Company recognizes changes in the fair value of debt instruments held with business objective of collect and sell in other comprehensive income. The Company transfers amounts from this reserve to the statement of profit and loss when the debt instrument is sold.
Cash flow hedging reserve
For hedging foreign currency risk, the Company uses foreign currency forward and option contracts. To the extent these hedges are effective, the change in fair value of the hedging instrument is recognized in the cash flow hedging reserve. Amounts recognized in the cash flow hedging reserve is reclassified to the statement of profit or loss when the hedged item affects profit or loss.
General reserve
Under the erstwhile Companies Act 1956, general reserve was created through an annual transfer of net income at a specified percentage in accordance with applicable regulations. Consequent to introduction of Companies Act 2013, the requirement to mandatorily transfer a specified percentage of the net profit to general reserve has been withdrawn.
Foreign currency translation reserve
Exchange differences arising on translation of the foreign operations are recognized in other comprehensive income as described in accounting policy and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed-off.
Share based payment reserve
The share options based payment reserve is used to recognize the grant date fair value of options issued to employees under Employee stock option plan.
Capital redemption reserve
The Company recognizes cancellation of the Companyâs own equity instruments to capital redemption reserve
(v) Recently issued accounting pronouncements Ind AS 116 - Leases
Ind AS 116 Leases was notified in October 2018 and it replaces Ind AS 17 Leases, including appendices thereto. Ind AS 116 is effective for annual periods beginning on or after 1 April 2019. Ind AS 116 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under Ind AS 17.
The Company is currently evaluating the impact that the adoption of this new standard will have on its financial statements. Appendix C to Ind AS 12 Uncertainty over Income Tax Treatment
The amendment to Appendix C of Ind AS 12 specifies that the amendment is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under Ind AS 12.
The Company is currently evaluating the impact that the adoption of this new standard will have on its financial statements.
Mar 31, 2018
ORGANIZATION AND NATURE OF OPERATIONS
HCL Technologies Limited (hereinafter referred to as âthe Companyâ) is primarily engaged in providing a range of software development services, business process outsourcing services and IT infrastructure services. The Company was incorporated under the provisions of the Companies Act applicable in India in November 1991, having its registered office at 806, Siddharth, 96, Nehru Place, New Delhi- 110019. The Company leverages its extensive infrastructure and professionals to deliver solutions across select verticals including financial services, manufacturing (automotive, aerospace, Hi-tech, semi-conductors), life sciences &Â healthcare, public services (oil and gas, energy and utility, travel, transport and logistics), retail and consumer products, telecom, media, publishing and entertainment.
The financial statements for the year ended 31 March 2018 were approved and authorized for issue by the Board of Directors on 2 May 2018.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Â Â Â Basis of preparation
The 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).
These financial statements have been prepared under the historical cost convention on an accrual and going concern basis except for the following assets and liabilities which have been measured at fair value:
a) Â Â Â Derivative financial instruments,
b) Â Â Â Certain financial assets and liabilities (refer accounting policy regarding financial instruments)
The accounting policies adopted in the preparation of these financial statements are consistent with those of the previous year.
The Company uses the Indian rupee (T) as its reporting currency.
(b) Â Â Â Use of estimates
The preparation of financial statements in conformity with Ind AS requires the management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and other comprehensive income (OCI) that are reported and disclosed in the financial statements and accompanying notes. These estimates are based on the management's best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. Significant estimates and assumptions are used for, but not limited to, accounting for costs expected to be incurred to complete performance under fixed price projects, allowance for uncollectible accounts receivables, accrual of warranty costs, income taxes, valuation of share-based compensation, future obligations under employee benefit plans, the useful lives of property, plant and equipment, intangible assets, impairment of goodwill, and other contingencies and commitments. Changes in estimates are reflected in the financial statements in the year in which the changes are made. Actual results could differ from those estimates.
(c) Â Â Â Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is the aggregate of the consideration transferred measured at fair value at the acquisition date. Acquisition related costs are expensed as incurred.
Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration classified as financial liability is measured at fair value with changes in fair value recognized in the statement of profit and loss.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the excess is recognized as capital reserve after reassessing the fair values of the net assets.
(d) Â Â Â Foreign currency and translation
The financial statements of the Company are presented in Indian Rupee (') which is also the Company's functional currency. For each foreign operation, the Company determines the functional currency which is its respective local currency.
Transactions in foreign currencies are initially recorded by the Company at their respective functional currency spot rates at the date of the transaction. Foreign-currency denominated monetary assets and liabilities are translated to the relevant functional currency at exchange rates in effect at the balance sheet date. Exchange differences arising on settlement or translation of monetary items are recognized in the statement of profit and loss. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of the initial transaction. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at fair value are translated at the exchange rate prevalent at the date when the fair value was determined.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the year. Revenue, expenses and cash-flow items denominated in foreign currencies are translated into the relevant functional currencies using the exchange rate in effect on the date of the transaction.
The translation of foreign operations from respective functional currency into INR (the reporting currency) for assets and liabilities is performed using the exchange rates in effect at the balance sheet date, and for revenue, expenses and cash flows is performed using an appropriate daily weighted average exchange rate for the respective years. The exchange differences arising on translation are reported as a component of 'other comprehensive income (loss)'. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognized in the statement of profit and loss.
(e) Â Â Â Fair value measurement
The Company records certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair values based on the price it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability.
The Company holds certain fixed income securities, equity securities and derivatives, which must be measured using the guidance for fair value hierarchy and related valuation methodologies. The guidance specifies a hierarchy of valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's assumptions about current market conditions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1 - Quoted inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are directly or indirectly observable in active markets.
Level 3 - Valuations derived from valuation techniques, in which one or more significant inputs are unobservable inputs which are supported by little or no market activity.
In accordance with Ind AS 113, assets and liabilities are to be measured based on the following valuation techniques:
a) Â Â Â Market approach - Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
b) Â Â Â Income approach - Converting the future amounts based on market expectations to its present value using the discounting method.
c) Â Â Â Cost approach - Replacement cost method.
Certain assets are measured at fair value on a non-recurring basis. These assets consist primarily of non-financial assets such as goodwill and intangible assets. Goodwill and intangible assets recognized in business combinations are measured at fair value initially and subsequently when there is an indicator of impairment, the impairment is recognized.
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 who would use the asset in its highest and best use.
(f) Revenue recognition
Contracts involving provision of services
Revenue is recognized when persuasive evidence of an arrangement exists, services have been rendered, the fee is determinable and collectability is reasonably assured. Contracts can be primarily categorized as time-and-material or fixed price contracts.
Time-and-material contracts
Revenue with respect to time-and-material contracts is recognized as the related services are performed.
Fixed Price contracts
Revenue related to contracts providing maintenance and support services, is recognized over the term of the contract where the company has continuing obligation.
Revenue from technology integration and complex network building contracts is recognized in accordance with the Percentage-Of-Completion (POC) method. Under the POC method, progress towards completion is measured based on either achievement of specified contract milestones, cost incurred as a proportion of estimated total cost or other measures of progress when available. If circumstances arise that change the original estimates of revenues, costs, or extent of progress towards completion, revisions are made to the estimates. These revisions may result in increase or decrease in estimated revenues or costs, and such revisions are reflected in income in the year in which the circumstances that gave rise to the revision become known to the management. Provisions for estimated losses, if any, on contracts in progress are recorded in the period in which such losses become probable based on the current cost estimates. Contract losses are determined to be the amount by which the estimated total cost to complete exceeds the estimated total revenue that will be generated by the contract and are included in Cost of services and classified in other accrued liabilities.
In arrangements involving sharing of customer revenues, revenue is recognized when the amounts are known and the right to receive is established. Incremental revenue from existing contracts arising on future sales to the customers is recognized when it is earned and collectability is reasonably assured.
Revenues from unit-priced contracts are recognized as transactions are processed, based on objective measures of output.
Revenue from product sales are shown net of sales tax and applicable discounts and allowances. Revenue related to product with installation services that are critical to the product is recognized when installation of product at customer site is completed and accepted by the customer. If the revenue for a delivered item is not recognized for non-receipt of acceptance from the customer, the cost of the delivered item continues to be in inventory.
Multiple-element arrangements
When a sales arrangement contains multiple elements, such as services, hardware and software products and licenses, revenue for each element is determined based on its fair value.
Revenue recognition for delivered elements is limited to the amount that is not contingent on the future delivery of products or services, future performance obligations or subject to customer-specified return or refund privileges.
Revenue from activities in transition services not having standalone value in outsourcing arrangements is deferred and recognized over the period of the arrangement. Direct and incremental costs in relation to such an arrangement are also deferred to the extent of revenue. Certain upfront non-recurring contract acquisition costs incurred in the initial phases of outsourcing contracts are deferred and amortized usually on a straight line basis, over the term of the contract unless revenues are earned and obligations are fulfilled in a different pattern. The undiscounted cash flows from the arrangement are periodically estimated and compared with the unamortized costs. If the unamortized costs exceed the undiscounted cash flow, a loss is recognized.
In instances when revenue is derived from sales of third-party vendor services, material or licenses, revenue is recorded on a gross basis when the Company is a principal to the transaction and net of costs when the Company is acting as an agent between the customer and the vendor. Several factors are considered to determine whether the Company is a principal or an agent, most notably whether the Company is the primary obligor to the customer, has established its own pricing, and has inventory and credit risks.
Revenue is recognized net of discounts and allowances, value-added tax and goods &Â service tax, and includes reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket expenses included in cost of revenues.
Revenue from financing leases is recognized when risk of loss has been transferred to the client and there are no unfulfilled obligations that affect the final acceptance of the arrangement by the client. Revenue from operating leases is accounted on a straight-line basis as service revenue over the rental period. Interest attributable to financing leases included therein is recognized on an accrual basis using the effective interest method.
Interest income
Interest income for all financial instruments measured at amortized cost is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortized cost of a financial liability. When calculating the EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but does not consider the expected credit losses. Interest income is included in other income in the statement of profit and loss.
(g) Income taxes
Income tax expense comprises current and deferred income tax.
Income tax expense is recognized in the statement of profit and loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Provision for income tax includes the impact of provisions established for uncertain income tax positions.
Deferred income tax assets and liabilities are recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets and liabilities recognized for those temporary differences which originate during the tax holiday period are reversed after the tax holiday period. For this purpose, reversal of timing differences is determined using first in first out method.
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 realized. 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.
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.
The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the year that includes the enactment or the substantive enactment date. A deferred income 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 utilized.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in the statement of profit and loss.
(h) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses if any. Cost comprises the purchase price and directly attributable cost of bringing the asset to its working condition for its intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. The Company identifies and determines separate useful lives for each major component of the property, plant and equipment, if they have a useful life that is materially different from that of the asset as a whole.
Expenses on existing property, plant and equipment, including day-to-day repairs, maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the year during which such expenses are incurred.
Gains or losses arising from derecognition of assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
Property, plant and equipment under construction and cost of assets not ready for use at the year-end are disclosed as capital work- in- progress.
Depreciation on property, plant and equipment is provided on the straight-line method over their estimated useful lives, as determined by the management. Depreciation is charged on a pro-rata basis for assets purchased / sold during the year.
The useful lives as given above best represent the period over which the management expects to use these assets, based on technical assessment. The estimated useful lives for these assets are therefore different from the useful lives prescribed under Part C of Schedule II of the Companies Act 2013.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year-end and adjusted prospectively, if appropriate.
(i) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses.
Intangible assets are amortized over the useful 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 year. 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 recognized in the statement of profit and loss.
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 recognized in the statement of profit and loss when the asset is derecognized.
The intangible assets are amortized over the estimated useful life of the assets as mentioned below except certain Licensed IPRs which include the right to modify, enhance or exploit are amortized in proportion to the expected benefits over the useful life which could range up to 15 years:
(j) Research and development costs
Research costs are expensed as incurred. Development expenditure, on an individual project, is recognized as an intangible asset when the Company can demonstrate:
- Â Â Â The technical feasibility of completing the intangible asset so that it will be available for use or sale
- Â Â Â Its intention to complete and its ability and intention to use or sell the asset
- Â Â Â How the asset will generate future economic benefits
- Â Â Â The availability of resources to complete the asset
- Â Â Â The ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. Amortization expense is recognized in the statement of profit and loss. During the period of development, the asset is tested for impairment annually.
(k) 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 are capitalized 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 costs also includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
(l) Leases
Company as a lessee
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Company is classified as a finance lease.
Finance leases are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the statement of profit and loss.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset or the lease term.
Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.
Company as a less or
Leases in which the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the year in which they are earned.
Leases in which the Company transfers substantially all the risk and benefits of ownership of the asset are classified as finance leases. Assets given under finance lease are recognized as a receivable at an amount equal to the present value of lease receivable. After initial recognition, the Company apportions lease rentals between the principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance leases. The interest income is recognized in the statement of profit and loss. Initial direct costs such as legal cost, brokerage cost etc. are recognized immediately in the statement of profit and loss.
(m) Inventory
Stock-in-trade, stores and spares are valued at the lower of the cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
Cost of stock-in-trade procured for specific projects is assigned by identifying individual costs of each item. Cost of stock in trade, that are interchangeable and not specific to any project and cost of stores and spare parts are determined using the weighted average cost formula.
(n) Impairment of non-financial assets
Goodwill
Goodwill is tested annually on March 31, for impairment, or sooner whenever there is an indication that goodwill may be impaired, relying on a number of factors including operating results, business plans and future cash flows. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the Company's cash generating units (CGU) expected to benefit from the synergies arising from the business combination. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Impairment occurs when the carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. Value-in-use is the present value of future cash flows expected to be derived from the CGU. Total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU, pro-rata on the basis of the carrying amount of each asset in the CGU.
An impairment loss on goodwill recognized in the statement of profit and loss is not reversed in the subsequent period. Intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment 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 CGU to which the asset belongs. If such assets are considered to be impaired, the impairment to be recognized in the statement of profit and loss is measured by the amount by which the carrying value of the asset exceeds the estimated recoverable amount of the asset.
(o) Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows.
(p) Retirement and other employee benefits
i. Â Â Â Provident fund: Employees of the Company receive benefits under the provident fund, a defined benefit plan. The employee and employer each make monthly contributions to the plan. A portion of the contribution is made to the provident fund trust managed by the Company or Government administered provident fund; while the balance contribution is made to the Government administered pension fund. For the contribution made by the Company to the provident fund trust managed by the Company, the Company has an obligation to fund any shortfall on the yield of the Trust's investments over the administered interest rates. The liability is actuarially determined (using the projected unit credit method) at the end of the year. The funds contributed to the Trust are invested in specific securities as mandated by law and generally consist of federal and state government bonds, debt instruments of government-owned corporations and other eligible market securities.
ii. Â Â Â In respect of superannuation, a defined contribution plan for applicable employees, the Company contributes to a scheme administered on its behalf by an insurance company and such contributions for each year of service rendered by the employees are charged to the statement of profit and loss. The Company has no further obligations to the superannuation plan beyond its contributions.
iii. Â Â Â Gratuity liability: The Company provides for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee's base salary and the tenure of employment (subject to a maximum of '20 lacs per employee). The liability is actuarially determined (using the projected unit credit method) at the end of each year. Actuarial gains / losses are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through other comprehensive income in the year in which they occur.
In respect to certain employees in India, the Company contributes towards gratuity liabilities to the Gratuity Fund Trust. Trustees of the Company administer contributions made to the Trust and contributions are invested in a scheme with Life Insurance Corporation of India as permitted by law.
iv. Â Â Â Compensated absences: The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The employees can carry forward up to the specified portion of the unutilized accumulated compensated absences and utilize it in future periods or receive cash at retirement or termination of employment. The expected cost of accumulating compensated absences is determined by actuarial valuation (using the projected unit credit method) based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. The expense on non-accumulating compensated absences is recognized in the statement of profit and loss in the year in which the absences occur. Actuarial gains / losses are immediately taken to the statement of profit and loss and are not deferred.
v. State Plan: The contribution to State Plans in India, a defined contribution plan namely Employee State Insurance Fund is charged to the statement of profit and loss as and when employees render related services.
(q) Equity settled stock based compensation
Stock-based compensation represents the cost related to stock-based awards granted to employees. The Company measures stock-based compensation cost at grant date, based on the estimated fair value of the award and recognizes the cost (net of estimated forfeitures) on a straight line basis over the requisite service period for each separately vesting portion of the award, as if award was in substance, multiple awards. The Company estimates the fair value of stock options using the Black-Scholes valuation model. The cost is recorded under the head employee benefit expense in the statement of profit and loss with corresponding increase in âShare Based Payment Reserveâ.
(r) Financial Instruments
A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
i. Financial assets
All financial assets are recognized initially at fair value. Transaction costs that are directly attributable to the acquisition of financial assets (other than financial assets at fair value through profit or loss) are added to the fair value measured on initial recognition of financial asset. Purchase and sale of financial assets are accounted for at trade date.
Cash and short-term deposits
Cash and short-term deposits in the balance sheet comprise cash in banks and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
Financial assets at amortized cost
A financial asset is measured at the amortized cost if both the following conditions are met:
a) Â Â Â The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b) Â Â Â Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in other income in the statement of profit and loss. The losses arising from impairment are recognized in the statement of profit and loss. This category includes cash and bank balances, loans, unbilled revenue, trade and other receivables.
Financial asset at Fair Value through Other Comprehensive Income (OCI)
A financial asset is classified and measured at fair value through OCI if both of the following criteria are met:
a) Â Â Â The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) Â Â Â The asset's contractual cash flows represent solely payments of principal and interest.
Financial asset included within the OCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in OCI. Interest income is recognized in statement of profit and loss for debt instruments. On derecognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified from OCI to statement of profit and loss.
Financial assets at Fair Value through Profit and Loss
Any financial asset, which does not meet the criteria for categorization at amortized cost or at fair value through other comprehensive income, is classified at fair value through profit and loss. Financial assets included at the fair value through profit and loss category are measured at fair value with all changes recognized in the statement of profit and loss.
Equity investments
Equity investments in subsidiaries are measured at cost.
Derecognition of financial assets
A financial asset is primarily derecognized when the rights to receive cash flows from the asset have expired, or the Company has transferred its rights to receive cash flows from the asset.
Impairment of financial assets
The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets which are not fair valued through profit and loss. Lifetime ECL allowance is recognized for trade receivables with no significant financing component. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case they are measured at lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date is recognized in the statement of profit and loss.
ii. Â Â Â Financial liabilities
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company's financial liabilities include trade payables, borrowings including bank overdrafts and other payables.
After initial recognition, financial liabilities are subsequently measured at amortized cost using the effective interest rate (EIR) method. Gains and losses are recognized in the statement of profit and loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
iii. Â Â Â Derivative financial instruments and hedge accounting
Foreign exchange forward contracts and options are purchased to mitigate the risk of changes in foreign exchange rates associated with forecast transactions denominated in certain foreign currencies.
The Company recognizes all derivatives as assets or liabilities measured at their fair value. Changes in fair value for derivatives not designated in a hedge accounting relationship are marked to market at each reporting date and the related gains (losses) are recognized in the statement of profit and loss as 'foreign exchange gains (losses)'.
The foreign exchange forward contracts and options in respect of forecast transactions which meet the hedging criteria are designated as cash flow hedges. Changes in the derivative fair values (net of tax) that are designated as effective cash flow hedges are deferred and recorded in the hedging reserve account as a component of accumulated 'other comprehensive income (loss)' until the hedged transaction occurs and are then recognized in the statement of profit and loss. The ineffective portion of hedging derivatives is immediately recognized in the statement of profit and loss.
In respect of derivatives designated as hedges, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also formally assesses both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item.
Hedge accounting is discontinued prospectively from the last testing date when (1) it is determined that the derivative financial instrument is no longer effective in offsetting changes in the fair value or cash flows of the underlying exposure being hedged; (2) the derivative financial instrument matures or is sold, terminated or exercised; or (3) it is determined that designating the derivative financial instrument as a hedge is no longer appropriate. When hedge accounting is discontinued the deferred gains or losses on the cash flow hedge remain in 'other comprehensive income (loss)' until the forecast transaction occurs. Any further change in the fair value of the derivative financial instrument is recognized in current year earnings.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis to realize the assets and settle the liabilities simultaneously.
(s) Dividend
Final dividend proposed by the Board of Directors is recognized upon approval by the shareholders who have the right to decrease but not increase the amount of dividend recommended by the Board of Directors. Interim dividends are recognized on declaration by the Board of Directors.
(t) Earnings per share (EPS)
Basic EPS amounts are computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares outstanding during the year.
Diluted EPS amounts are computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares considered for deriving basic earnings per share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. The diluted potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares). Dilutive potential equity shares are deemed converted as at the beginning of the year, unless issued at a later date. Dilutive potential equity shares are determined independently for each year presented.
(u) Recently issued accounting pronouncements
On 28 March 2018, the Ministry of Corporate Affairs (MCA), notified Companies (Indian Accounting Standards) (Amendments) Rules, 2018, amending the following standards:
Appendix B to Ind AS 21, âForeign Currency Transactions and Advance Consideration'
The amendment clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the advance consideration.
The Appendix is effective for annual periods beginning on or after 1 April 2018. However, since the Company's current practice is in line with the Interpretation, the Company does not expect any effect on its financial statements.
Ind AS 115, Revenue from Contract with Customers
Ind AS 115 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Ind AS 115 will supersede the current revenue recognition standard Ind AS 18 Revenue, Ind AS 11 Construction Contracts. The effective date for adoption of Ind AS 115 is financial periods beginning on or after April 1,
2018.
The core principle of Ind AS 115 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under Ind AS 115, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when 'control' of the goods or services underlying the particular performance obligation is transferred to the customer.
The standard permits two possible methods of transition:
o Retrospective approach-Under this approach the standard will be applied retrospectively to each prior reporting period presented in accordance with Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors o Retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application (Cumulative catch - up approach)
The Company is currently evaluating the impact that the adoption of this new standard will have on its financial statements.
2. Acquisition in the previous year Business of Geometric Limited
On 1 April 2016, the Company entered into a composite scheme of arrangement and amalgamation for acquisition of the IT enabled engineering services, PLM ('Product Lifecycle Management') services and engineering design productivity software tools business of Geometric Limited by way of demerger through a Court approved scheme of arrangement under Sections 391 to 394 and other relevant provisions of the Companies Act, 1956 (including those of the Companies Act, 2013). The acquisition will help the Company to create a unique portfolio of end-to-end engineering and R&D capabilities across the full product lifecycle - hardware, software, manufacturing engineering and PLM consulting.
The scheme came into effect from 2 March, 2017 post all regulatory approvals required for completion of the scheme and is accounted from 1 April 2016.
Â
Mar 31, 2017
1. Summary of significant accounting policies
(a) Basis of preparation
The 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).
The Company uses the Indian Rupee (âRs.â) as its reporting currency.
For years up to and including the year ended 31 March 2016, the Company prepared its financial statements in accordance with Indian GAAP (âPrevious GAAPâ), including accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014.
These financial statements, being the Companyâs first Ind AS financial statements, are covered by Ind AS 101, âFirst-time Adoption of Indian Accounting Standardsâ. An explanation of the effect of the transition from Previous GAAP to Ind AS on the Companyâs equity and profit is provided in Note 4.
These financial statements have been prepared under the historical cost convention on an accrual and going concern basis except for the following assets and liabilities which have been measured at fair value:
a) Derivative financial instruments,
b) Certain financial assets and liabilities measured at fair value (refer accounting policy regarding financial instruments),
The preparation of these financial statements has resulted in changes to the Companyâs accounting policies as compared to the most recent annual financial statements prepared under Previous GAAP. Accounting policies have been applied consistently to all years presented in the financial statements including the preparation of the (Ind AS) opening balance sheet as at 1 July, 2015 (âTransition dateâ) for the purpose of transition to (Ind AS) and as required by Ind AS 101.
Section 2(41) of the Companies Act, 2013 requires all companies to have their financial year ending on 31 March. The Company adopted this change from the previous financial year and accordingly, the previous financial year of the Company is for a nine months period from 1 July 2015 to 31 March 2016 (hereinafter referred as âYear ended 31 March, 2016â).
Since the transition date for Ind AS is 1 July 2015 and previous financial year is for nine months, the same is not comparable.
(b) Use of estimates
The preparation of financial statements in conformity with Ind AS requires the management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and other comprehensive income (OCI) that are reported and disclosed in the financial statements and accompanying notes. These estimates are based on the managementâs best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. Significant estimates and assumptions are used for, but not limited to, accounting for costs expected to be incurred to complete performance under fixed price projects, allowance for uncollectible accounts receivables, accrual of warranty costs, income taxes, valuation of share-based compensation, future obligations under employee benefit plans, the useful lives of property, plant and equipment, intangible assets, impairment of goodwill, and other contingencies and commitments. Changes in estimates are reflected in the financial statements in the year in which the changes are made. Actual results could differ from those estimates.
(c) Business combinations and goodwill
In accordance with the provisions of Ind AS 101 related to first time adoption, the Company has elected to apply Ind AS accounting for business combinations prospectively from the transition date. As such, Previous GAAP balances relating to business combinations entered into before that date, including goodwill, have been carried forward (please refer note 4 below).
Business combinations are accounted for using the acquisition method. The cost of an acquisition is the aggregate of the consideration transferred measured at fair value at the acquisition date. Acquisition related costs are expensed as incurred.
Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Contingent consideration classified as financial liability is measured at fair value with changes in fair value recognized in the statement of profit and loss.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the excess is recognized as capital reserve after reassessing the fair values of the net assets.
(d) Foreign currency and translation
The financial statements of the Company are presented in Indian Rupee (â) which is also the Companyâs functional currency. For each foreign operation, the Company determines the functional currency which is its respective local currency.
Transactions in foreign currencies are initially recorded by the Company at their respective functional currency spot rates at the date of the transaction. Foreign-currency denominated monetary assets and liabilities are translated to the relevant functional currency at exchange rates in effect at the balance sheet date. Exchange differences arising on settlement or translation of monetary items are recognized in the statement of profit and loss. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of the initial transaction. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at fair value are translated at the exchange rate prevalent at the date when the fair value was determined.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the year in which the transaction is settled. Revenue, expenses and cash-flow items denominated in foreign currencies are translated into the relevant functional currencies using the exchange rate in effect on the date of the transaction.
The translation of foreign operations from respective functional currency into INR (the reporting currency) for assets and liabilities is performed using the exchange rates in effect at the balance sheet date, and for revenue, expenses and cash flows is performed using an appropriate daily weighted average exchange rate for the respective years. The exchange differences arising on translation are reported as a component of âother comprehensive income (loss)â. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognized in the statement of profit and loss.
(e) Fair value measurement
The Company records certain financial assets and liabilities at fair value on a recurring basis. The Company determines fair value based on the price it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability.
The Company holds certain fixed income securities, equity securities and derivatives, which must be measured using the guidance for fair value hierarchy and related valuation methodologies. The guidance specifies a hierarchy of valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Companyâs assumptions about current market conditions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1 - Quoted inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are directly or indirectly observable in active markets.
Level 3 - Valuations derived from valuation techniques, in which one or more significant inputs are unobservable inputs which are supported by little or no market activity.
In accordance with Ind AS 113, assets and liabilities are to be measured based on the following valuation techniques:
a) Market approach - Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
b) Income approach - Converting the future amounts based on market expectations to its present value using the discounting method.
c) Cost approach - Replacement cost method.
Certain assets are measured at fair value on a non-recurring basis. The assets consist primarily of non-financial assets such as goodwill and intangible assets. Goodwill and intangible assets recognized in business combinations are measured at fair value initially and subsequently when there is an indicator of impairment, the impairment is recognized.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant who would use the asset in its highest and best use.
(f) Revenue recognition
Contracts involving provision of services
Revenue is recognized when persuasive evidence of an arrangement exists, services have been rendered, the fee is determinable and collectability is reasonably assured. Contracts can be primarily categorized as time-and-material or fixed price contracts.
Time-and-material contracts
Revenue with respect to time-and-material contracts is recognized as the related services are performed.
Fixed Price contracts
Revenue related to contracts providing maintenance and support services, is recognized over the term of the contract.
Revenue from technology integration and complex network building contracts is recognized in accordance with the Percentage-Of-Completion (POC) method. Under the POC method, progress towards completion is measured based on either achievement of specified contract milestones, cost incurred as a proportion of estimated total cost or other measures of progress when available. If circumstances arise that change the original estimates of revenues, costs, or extent of progress towards completion, revisions are made to the estimates. These revisions may result in increase or decrease in estimated revenues or costs, and such revisions are reflected in income in the year in which the circumstances that gave rise to the revision become known to the management. If at any time these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately.
Revenue related to other fixed price contracts is recognized in accordance with the Percentage of Completion method (POC). The cost incurred on the projects is used to measure progress towards completion. Costs are recorded as incurred over the contract period. Any revision in cost to complete would result in increase or decrease in revenue and income and such changes are recorded in the year in which they are identified Provisions for estimated losses, if any, on contracts-in-progress are recorded in the period in which such losses become probable based on the current cost estimates. Contract losses are determined to be the amount by which the estimated total cost to complete exceeds the estimated total revenues that will be generated by the contract and are included in Cost of services and classified in other accrued liabilities.
In arrangements involving sharing of customer revenues, revenue is recognized when the amounts are known and the right to receive is established. Incremental revenue from existing contracts arising on future sales to the customers is recognized when it is earned and collectability is reasonably assured.
Revenues from unit-priced contracts are recognized as transactions are processed, based on objective measures of output.
Revenue from product sales are shown net of sales tax and applicable discounts and allowances. Revenue related to product with installation services that are critical to the product is recognized when installation of product at customer site is completed and accepted by the customer. If the revenue for a delivered item is not recognized for non-receipt of acceptance from the customer, the cost of the delivered item is also deferred. Revenue from maintenance services is recognized ratably over the period of the contract.
Multiple-element arrangements
When a sales arrangement contains multiple elements, such as services, hardware and software products and licenses, revenue for each element is determined based on its fair value.
Revenue recognition for delivered elements is limited to the amount that is not contingent on the future delivery of products or services, future performance obligations or subject to customer-specified return or refund privileges.
Revenue from activities in transition services not having standalone value in outsourcing arrangements is deferred and recognized over the period of the arrangement. Direct and incremental costs in relation to such an arrangement are also deferred to the extent of revenue. Certain upfront nonrecurring contract acquisition costs incurred in the initial phases of outsourcing contracts are deferred and amortized usually on a straight line basis, over the term of the contract unless revenues are earned and obligations are fulfilled in a different pattern. The undiscounted cash flows from the arrangement are periodically estimated and compared with the unamortized costs. If the unamortized costs exceed the undiscounted cash flow, a loss is recognized.
In instances when revenue is derived from sales of third-party vendor services, material or licenses, revenue is recorded on a gross basis when the Company is a principal to the transaction and net of costs when the Company is acting as an agent between the customer and the vendor. Several factors are considered to determine whether the Company is a principal or an agent, most notably whether the Company is the primary obligor to the customer, has established its own pricing, and has inventory and credit risks.
Revenue is recognized net of discounts and allowances, value-added tax and service tax, and includes reimbursement of out-of-pocket expenses, with the corresponding out-of-pocket expenses included in cost of revenues.
Revenue from financing leases is recognized when risk of loss has been transferred to the client and there are no unfulfilled obligations that affect the final acceptance of the arrangement by the client. Revenue from operating leases is accounted on a straight-line basis as service revenue over the rental period. Interest attributable to financing leases included therein is recognized on an accrual basis using the effective interest method.
Interest income
Interest income for all financial instruments measured at amortized cost is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortized cost of a financial liability. When calculating the EIR, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument but does not consider the expected credit losses. Interest income is included in other income in the statement of profit and loss.
(g) Income taxes
Income tax expense comprises current and deferred income tax.
Income tax expense is recognized in the statement of profit and loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Provision for income tax includes the impact of provisions established for uncertain income tax positions, as well as the related interest and penalties.
Deferred income tax assets and liabilities are recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred taxes which originate during the tax holiday period are reversed after the tax holiday period. For this purpose, reversal of timing differences is determined using first in first out method.
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 realized. 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.
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.
The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the year that includes the enactment or the substantive enactment date. A deferred income 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 utilized.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in the statement of profit and loss
(h) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses if any. Cost comprises the purchase price and directly attributable cost of bringing the asset to its working condition for its intended use. Any trade discounts and rebates are deducted in arriving at the purchase price. The Company identifies and determines separate useful lives for each major component of the property, plant and equipment, if they have a useful life that is materially different from that of the asset as a whole.
Subsequent expenditure related to an item of property, plant and equipment is added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard or period of performance. All other expenses on existing property, plant and equipment, including day-to-day repairs, maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the year during which such expenses are incurred.
Gains or losses arising from derecognition of assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
Property, plant and equipment under construction and cost of assets not ready for use at the year-end are disclosed as capital work- in- progress.
Depreciation on property, plant and equipment is provided on the straight-line method over their estimated useful lives, as determined by the management. Depreciation is charged on a pro-rata basis for assets purchased / sold during the year.
The managementâs estimates of the useful lives of various assets for computing depreciation are as follows:
The useful lives as given above best represent the period over which the management expects to use these assets, based on technical assessment. The estimated useful lives for these assets are therefore different from the useful lives prescribed under Part C of Schedule II of the Companies Act 2013.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year-end and adjusted prospectively, if appropriate.
(i) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses.
Intangible assets are amortized over the useful 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 year. 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 recognized in the statement of profit and loss.
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 recognized in the statement of profit and loss when the asset is derecognized.
The intangible assets are amortized over the estimated useful life of the assets as mentioned below except certain Licensed IPRs which include the right to modify, enhance or exploit are amortized in proportion to the expected benefits over the useful life which could range up to 15 years:
(j) Research and development costs
Research costs are expensed as incurred. Development expenditure, on an individual project, is recognized as an intangible asset when the Company can demonstrate:
- The technical feasibility of completing the intangible asset so that it will be available for use or sale
- Its intention to complete and its ability and intention to use or sell the asset
- How the asset will generate future economic benefits
- The availability of resources to complete the asset
- The ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. Amortization expense is recognized in the statement of profit and loss. During the period of development, the asset is tested for impairment annually.
(k) 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 capitalized 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 costs also include exchange differences to the extent regarded as an adjustment to the borrowing costs.
(l) Leases
Company as a lessee
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Company is classified as a finance lease.
Finance leases are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the statement of profit and loss.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset or the lease term.
Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.
Company as a lessor
Leases in which the Company does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the year in which they are earned.
Leases in which the Company transfers substantially all the risk and benefits of ownership of the asset are classified as finance leases. Assets given under finance lease are recognized as a receivable at an amount equal to the net investment in the leased assets. After initial recognition, the Company apportions lease rentals between the principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance leases. The interest income is recognized in the statement of profit and loss. Initial direct costs such as legal cost, brokerage cost etc. are recognized immediately in the statement of profit and loss.
(m) Inventory
Stock-in-trade, stores and spares are valued at the lower of the cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
Cost of stock-in-trade procured for specific projects is assigned by identifying individual costs of each item. Cost of stock in trade, that are interchangeable and not specific to any project and cost of stores and spare parts are determined using the weighted average cost formula.
(n) Impairment of non-financial assets
Goodwill
Goodwill is tested for impairment on an annual basis and whenever there is an indication that goodwill may be impaired, relying on a number of factors including operating results, business plans and future cash flows. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the Companyâs cash generating units (CGU) expected to benefit from the synergies arising from the business combination. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. Impairment occurs when the carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. Value-in-use is the present value of future cash flows expected to be derived from the CGU. Total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU, pro-rata on the basis of the carrying amount of each asset in the CGU.
An impairment loss on goodwill recognized in the statement of profit and loss is not reversed in the subsequent period. Intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment 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 CGU to which the asset belongs. If such assets are considered to be impaired, the impairment to be recognized in the statement of profit and loss is measured by the amount by which the carrying value of the asset exceeds the estimated recoverable amount of the asset.
(o) Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows.
(p) Retirement and other employee benefits
i. Provident fund: Employees of the Company receive benefits under the provident fund, a defined benefit plan. The employee and employer each make monthly contributions to the plan. A portion of the contribution is made to the provident fund trust managed by the Company or Government administered provident fund; while the balance contribution is made to the Government administered pension fund. For the contribution made by the Company to the provident fund trust managed by the Company, the Company has an obligation to fund any shortfall on the yield of the Trustâs investments over the administered interest rates. The liability is actuarially determined (using the projected unit credit method) at the end of the year. The funds contributed to the Trust are invested in specific securities as mandated by law and generally consist of federal and state government bonds, debt instruments of government-owned corporations and other eligible market securities.
ii. In respect of superannuation, a defined contribution plan for applicable employees, the Company contributes to a scheme administered on its behalf by an insurance company and such contributions for each year of service rendered by the employees are charged to the statement of profit and loss. The Company has no further obligations to the superannuation plan beyond its contributions.
iii. Gratuity liability: The Company provides for gratuity, a defined benefit plan (the âGratuity Planâ) covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs base salary and the tenure of employment (subject to a maximum of Rs.10 lacs per employee). The liability is actuarially determined (using the projected unit credit method) at the end of each year. Actuarial gains / losses are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through other comprehensive income in the year in which they occur.
In respect to certain employees in India, the Company contributes towards gratuity liabilities to the Gratuity Fund Trust. Trustees of the Company administer contributions made to the Trust and contributions are invested in a scheme with Life Insurance Corporation of India as permitted by law.
iv. Compensated absences: The employees of the Company are entitled to compensated absences which are both accumulating and non-accumulating in nature. The employees can carry forward up to the specified portion of the unutilized accumulated compensated absences and utilize it in future periods or receive cash at retirement or termination of employment. The expected cost of accumulating compensated absences is determined by actuarial valuation (using the projected unit credit method) based on the additional amount expected to be paid as a result of the unused entitlement that has accumulated at the balance sheet date. The expense on non-accumulating compensated absences is recognized in the statement of profit and loss in the year in which the absences occur. Actuarial gains / losses are immediately taken to the statement of profit and loss and are not deferred.
v. State Plans: The contribution to State Plans, a defined contribution plan namely Employee State Insurance Fund and Employeesâ Pension Scheme for the Company are charged to the statement of profit and loss as and when employees render related services.
(q) Equity settled stock based compensation
Stock-based compensation represents the cost related to stock-based awards granted to employees. The Company measures stock-based compensation cost at grant date, based on the estimated fair value of the award and recognizes the cost (net of estimated forfeitures) on a straight line basis over the requisite service period for each separately vesting portion of the award, as if award was in substance, multiple awards. The Company estimates the fair value of stock options using the Black-Scholes valuation model. The cost is recorded under the head employee benefit expense in the statement of profit and loss with corresponding increase in âShare Based Payment Reserveâ.
(r) Financial Instruments
A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
i. Financial assets
All financial assets are recognized initially at fair value. Transaction costs that are directly attributable to the acquisition of financial assets (other than financial assets at fair value through profit or loss) are added to the fair value measured on initial recognition of financial asset. Purchase and sale of financial assets are accounted for at trade date.
Cash and short-term deposits
Cash and short-term deposits in the balance sheet comprise cash in banks and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
Financial instruments at amortized cost
A financial instrument is measured at the amortized cost if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in other income in the statement of profit and loss. The losses arising from impairment are recognized in the statement of profit and loss. This category includes cash and bank balances, loans, unbilled revenue, trade and other receivables.
Financial instrument at Fair Value through Other Comprehensive Income (OCI)
A financial instrument is classified and measured at fair value through OCI if both of the following criteria are met:
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) The assetâs contractual cash flows represent solely payments of principal and interest.
Financial instruments included within the OCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in OCI. On derecognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified from OCI to statement of profit and loss.
Financial instrument at Fair Value through Profit and Loss
Any financial instrument, which does not meet the criteria for categorization at amortized cost or at fair value through other comprehensive income, is classified at fair value through profit and loss. Financial instruments included in the fair value through profit and loss category are measured at fair value with all changes recognized in the statement of profit and loss.
Equity investments
Equity investments in subsidiaries are measured at cost.
Derecognition of financial assets
A financial asset is primarily derecognized when the rights to receive cash flows from the asset have expired, or the Company has transferred its rights to receive cash flows from the asset.
Impairment of financial assets
The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets which are not fair valued through profit and loss. Lifetime ECL allowance is recognized for trade receivables with no significant financing component. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case they are measured at lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date is recognized in the statement of profit and loss.
ii. Financial liabilities
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Companyâs financial liabilities include trade payables, borrowings including bank overdrafts and other payables.
After initial recognition, financial liabilities are subsequently measured at amortized cost using the effective interest rate (EIR) method. Gains and losses are recognized in the statement of profit and loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
iii. Derivative financial instruments and hedge accounting
Foreign exchange forward contracts and options are purchased to mitigate the risk of changes in foreign exchange rates associated with forecast transactions denominated in certain foreign currencies.
The Company recognizes all derivatives as assets or liabilities measured at their fair value. Changes in fair value for derivatives not designated in a hedge accounting relationship are marked to market at each reporting date and the related gains (losses) are recognized in the statement of profit and loss as âforeign exchange gains (losses)â.
The foreign exchange forward contracts and options in respect of forecast transactions which meet the hedging criteria are designated as cash flow hedges. Changes in the derivative fair values (net of tax) that are designated as effective cash flow hedges are deferred and recorded in the hedging reserve account as a component of accumulated âother comprehensive income (loss)â until the hedged transaction occurs and are then recognized in the statement of profit and loss. The ineffective portion of hedging derivatives is immediately recognized in the statement of profit and loss.
In respect of derivatives designated as hedges, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also formally assesses both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item.
Hedge accounting is discontinued prospectively from the last testing date when (1) it is determined that the derivative financial instrument is no longer effective in offsetting changes in the fair value or cash flows of the underlying exposure being hedged; (2) the derivative financial instrument matures or is sold, terminated or exercised; or (3) it is determined that designating the derivative financial instrument as a hedge is no longer appropriate. When hedge accounting is discontinued the deferred gains or losses on the cash flow hedge remain in âother comprehensive income (loss)â until the forecast transaction occurs. Any further change in the fair value of the derivative financial instrument is recognized in current year earnings.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis to realize the assets and settle the liabilities simultaneously.
(s) Dividend
Final dividend proposed by the Board of Directors is recognized upon approval by the shareholders who have the right to decrease but not increase the amount of dividend recommended by the Board of Directors. Interim dividends are recognized on declaration by the Board of Directors.
(t) Earnings per share (EPS)
Basic EPS amounts are computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares outstanding during the year.
Diluted EPS amounts are computed by dividing the net profit attributable to the equity holders of the Company by the weighted average number of equity shares considered for deriving basic earnings per share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. The diluted potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares). Dilutive potential equity shares are deemed converted as at the beginning of the year, unless issued at a later date. Dilutive potential equity shares are determined independently for each year presented.
(u) Recently issued accounting pronouncements
On 17 March 2017, the Ministry of Corporate Affairs (MCA), notified Companies (Indian Accounting Standards) (Amendments) Rules, 2017, making amendments to Ind AS 7, âStatement of cash flowsâ.
The amendment requires entities to disclose changes arising from non-cash transactions in addition to changes from financing cash flows arising from financial activities. The amendment also suggests providing of reconciliation between the opening and closing balances in the balance sheet for liabilities arising from financing activities, to meet the disclosure requirement.
The amendment is effective for the annual reporting period beginning on or after 1 April, 2017. The Company is currently evaluating the impact that the adoption of this amendment will have on its financial statements and the implementation approach to be used.
Jun 30, 2015
Company Overview
HCL Technologies Limited (hereinafter referred to as 'HCL' or the
'Company') is primarily engaged in providing a range of software
services, business process outsourcing services and IT infrastructure
services. The Company was incorporated in India in November 1991. The
Company leverages its extensive offshore infrastructure and global
network of offices and professionals located in various countries to
deliver solutions across select verticals including financial services,
manufacturing (automotive, aerospace, hi-tech and semi conductors),
telecom, retail and consumer packaged goods services , media,
publishing and entertainment, public services, energy and utility,
healthcare and travel, transport and logistics.
a) Basis of preparation
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in India
(Indian GAAP). These financial statements have been prepared to comply
in all material aspects with the applicable accounting standards
notified under section 133 of the Companies Act 2013, read together
with paragraph 7 of the Companies (Accounts) Rules 2014. The financial
statements have been prepared under the historical cost convention on
an accrual and going concern basis except for certain financial
instruments which are measured at fair value.
The accounting policies adopted in the preparation of the financial
statements are consistent with those of the previous year unless stated
specifically in the accounting policies below.
b) Use of estimates
The preparation of financial statements in conformity with Indian GAAP
requires the management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the
results of operations during the reporting period. Although these
estimates are based upon the management's best knowledge of current
events and actions, actual results could differ from these estimates.
c) Tangible fixed assets and capital work-in-progress
Fixed assets are stated at cost less accumulated depreciation and
impairment losses, if any. Cost comprises the purchase price and
directly attributable cost of bringing the asset to its working
condition for its intended use. Any trade discounts and rebates are
deducted in arriving at the purchase price.
Subsequent expenditure related to an item of fixed assets is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard or period of
performance. All other expenses on existing fixed assets, including
day-to-day repairs, maintenance expenditure and cost of replacing
parts, are charged to the statement of profit and loss for the period
during which such expenses are incurred.
Gains or losses arising from derecognition of fixed assets are measured
as the difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statement of profit and
loss when the asset is derecognized.
Fixed assets under construction and cost of assets not ready for use
before the year-end, are disclosed as capital work  in -progress.
The useful lives as given above best represent the period over which
the management expects to use these assets, based on technical
assessment. Hence, the useful lives for these assets are different from
the useful lives prescribed under Part C of Schedule II of the
Companies Act 2013.
Till year ended 30 June 2014, to comply with the requirements of
Schedule XIV to the Companies Act, 1956, the Company was charging 100%
depreciation on assets costing Rs. 5,000/- or less in the year of
purchase. However, to comply with the requirement of Schedule II to the
Companies Act, 2013, the Company has changed its accounting policy for
depreciation of assets costing Rs. 5,000/- or less. As per the revised
policy, the Company depreciates such assets over their useful lives as
assessed by the management. The management has decided to apply the
revised accounting policy prospectively from the accounting year
commencing on or after 01 July 2014.
The change in the accounting for depreciation of assets costing Rs.
5,000/- or less did not have any material impact on financial
statements of the Company for the current year.
e) Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in an
amalgamation in the nature of purchase is their fair value as at the
date of amalgamation. Following the initial recognition, intangible
assets are carried at cost less accumulated amortization and
accumulated impairment losses, if any. Internally generated intangible
assets, excluding capitalized development costs, are not capitalized
and expenditure is reflected in the statement of profit and loss in the
year in which the expenditure is incurred.
Intangible assets are amortized on a straight line basis over their
estimated useful economic life. The Company uses a rebuttable
presumption that the useful life of an intangible asset will not exceed
ten years from the date when the asset is available for use.
The amortization period and the amortization method are reviewed at
least at each financial year end. If the expected useful life of the
asset is significantly different from the previous estimate, the
amortization period is changed accordingly. If there has been a
significant change in the expected pattern of economic benefit from the
asset, the amortization method is changed to reflect the changed
pattern.
Gains or losses arising from derecognition of intangible assets are
measured as the difference between the net disposal proceeds and the
carrying amount of the assets and are recognized in the statement of
profit and loss when the asset is derecognized.
Goodwill arising out of amalgamation is amortized over 5 years unless a
longer period can be justified.
The management's estimates of the useful life of Software is 3 years.
f) Research and development costs
Research costs are expensed as incurred. Development expenditure
incurred on an individual project is recognized as an intangible asset
when the Company can demonstrate all the following:
(i) The technical feasibility of completing the intangible asset so
that it will be available for use or sale;
(ii) Its intention to complete the asset;
(iii) Its ability to use or sell the asset;
(iv) How the asset will generate future economic benefits;
(v) The availability of adequate resources to complete the development
and to use or sell the asset; and
(vi) The ability to measure reliably the expenditure attributable to
the intangible asset during development.
Any expenditure so capitalized is amortized over the period of expected
future sales from the related project.
The carrying value of development costs is reviewed annually for
impairment when the asset is not yet in use, and otherwise when events
or changes in circumstances indicate that the carrying value may not be
recoverable.
g) Leases
Where the Company is the lessee
Finance leases, which effectively transfer to the Company substantially
all the risks and benefits incidental to ownership of the leased item,
are capitalized at the inception of the lease term at the lower of the
fair value or present value of the minimum lease payments. Lease
payments are apportioned between the finance charges and reduction of
the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recognized as
finance cost in the statement of profit and loss. Lease management
fees, legal charges and other initial direct costs of the lease are
capitalized.
A leased asset is depreciated on a straight line basis over the useful
life of the asset. However, if there is no reasonable certainty that
the Company will obtain the ownership by the end of the lease term, the
capitalized asset is depreciated on a straight line basis over the
shorter of the estimated useful life of the asset or lease term.
Leases, where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased items, are classified as
operating leases. Operating lease payments are recognized as an expense
in the statement of profit and loss on a straight-line basis over the
lease term.
Where the Company is the lessor
Leases in which the Company transfers substantially all the risk and
benefits of ownership of the asset are classified as finance leases.
Assets given under a finance lease are recognized as a receivable at an
amount equal to the net investment in the leased assets. After initial
recognition, the Company apportions lease rentals between the principal
repayment and interest income so as to achieve a constant periodic rate
of return on the net investment outstanding in respect of the finance
leases. The interest income is recognized in the statement of profit
and loss. Initial direct costs such as legal cost, brokerage cost etc
are recognized immediately in the statement of profit and loss.
Leases in which the Company does not transfer substantially all the
risk and benefits of ownership of the assets, are classified as
operating leases. Assets subject to operating leases are included in
fixed assets. Lease income on an operating lease is recognized in the
statement of profit and loss on a straight line basis over the lease
term. Costs, including depreciation, are recognized as an expense in
the statement of profit and loss. Initial direct costs such as legal
cost, brokerage cost etc are recognized immediately in the statement of
profit and loss.
h) Borrowing cost
Borrowing costs include interest, amortization of ancillary costs
incurred in connection with the arrangement of borrowings and exchange
differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest cost.
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 capitalized as
part of the cost of the respective asset. All other borrowing costs
are expensed in the period they occur.
i) Impairment of tangible and intangible assets
An assessment is done at each balance sheet date as to whether there is
any indication that an asset (tangible or intangible) may be impaired.
For the purpose of assessing impairment, the smallest identifiable
group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows from other assets or groups
of assets, is considered as a cash generating unit. If any such
indication exists, an estimate of the recoverable amount of the
asset/cash generating unit is made. Assets whose carrying value exceeds
their recoverable amount are written down to the recoverable amount.
The recoverable amount is the higher of an asset's or cash generating
unit's net selling price or its value in use. Value in use is the
present value of estimated future cash flows expected to arise from the
continuing use of an asset and from its disposal at the end of its
useful life. 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
risks specific to the asset.
j) Investments
Investments, which are readily realizable and intended to be held for
not more than one year from the date on which such investments are
made, are classified as current investments. All other investments are
classified as long-term investments.
On initial recognition, all investments are measured at cost. The cost
comprises the purchase price and directly attributable acquisition
charges such as brokerage, fees and duties. If an investment is
acquired, or partly acquired by the issue of shares or other
securities, the acquisition cost is the fair value of securities
issued. If an investment is acquired in exchange for another asset, the
acquisition is determined by reference to the fair value of the asset
given up or by reference to the fair value of the investment acquired,
whichever is more clearly evident.
Current investments are carried at the lower of cost and fair value
determined on an individual investment basis. Long-term investments are
carried at cost. However, provision for diminution in value is made to
recognize a decline, other than temporary, in the value of the long
term investments.
On disposal of an investment, the difference between its carrying
amount and net disposal proceeds is charged or credited to the
statement of profit and loss.
k) Inventories
Stock in trade, stores and spares are valued at the lower of the cost
or net realizable value. Net realizable value is the estimated selling
price in the ordinary course of business, less estimated costs of
completion and estimated costs necessary to make the sale.
Cost of stock in trade procured for specific projects is assigned by
identification of individual costs of each item. Cost of stock in
trade, that are interchangeable and not specific to any project and
cost of stores and spare parts are determined using the weighted
average cost formula.
l) Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. Revenue from sale of goods and rendering of services
is recognized when risk and reward of ownership have been transferred
to the customer, the sale price is fixed or determinable and
collectability is reasonably assured.
The Company derives revenues primarily from:-
- Software services;
- IT Infrastructure services; and
- Business process outsourcing services.
i) Software services
Revenue from software services comprises income from time and material
and fixed price contracts. Revenue with respect to time and material
contracts is recognized as related services are performed. Revenue from
fixed price contracts is recognized in accordance with the percentage
completion method under which revenue is recognized on the basis of
cost incurred in respect of each contract as a proportion of total cost
expected to be incurred. The cumulative impact of any revision in
estimates of the percentage of work completed is reflected in the year
in which the change becomes known. Provision for estimated losses is
made during the year in which a loss becomes probable based on current
cost estimates. Revenue from sale of licenses for the use of software
applications is recognized on transfer of title in the user license.
Revenue from annual technical service contracts is recognized on a pro
rata basis over the period in which such services are rendered. Income
from revenue sharing agreements is recognized when the right to receive
is established.
ii) IT Infrastructure services
Revenue from sale of products is recognized when risk and reward of
ownership have been transferred to the customer, the sale price is
fixed or determinable and collectability is reasonably assured. Revenue
related to products with installation services that are critical to the
products is recognized when installation of networking equipment at
customer site is completed and accepted by the customer. Revenue from
bandwidth services is recognized upon actual usage of such services by
customers based on either the time for which these services are
provided or volume of data transferred or both and excludes service
tax. Revenue from maintenance services is recognized ratably over the
period of the contract. Revenue from IT infrastructure management
services comprises income from time and material, and fixed price
contracts. Revenue with respect to time-and-material contracts is
recognized as related services are performed. Revenue with respect to
fixed price contracts is recognized in accordance with the percentage
of completion method.
Unearned revenue arising in respect of bandwidth services and
maintenance services is calculated on the basis of the unutilized
period of service at the balance sheet date and represents revenue
which is expected to be earned in future periods in respect of these
services.
In case of multiple-deliverable contracts where revenue cannot be
allocated to various deliverables in a contract, the entire contract is
accounted for as one deliverable and accordingly the revenue is
recognized on a proportionate completion method following the
performance pattern of predominant services in the contract or is
deferred until the last deliverable is delivered.
iii) Business process outsourcing services
Revenue from business process outsourcing services is derived from both
time based and unit-price contracts. Revenue is recognized as the
related services are performed in accordance with the specific terms of
the contracts with the customers.
Earnings in excess of billing are classified as unbilled revenue, while
billing in excess of earnings are classified as unearned revenue.
Incremental revenue from existing contracts arising on future sales of
the customers' products will be recognized when it is earned. Revenue
and related direct costs from transition services in outsourcing
arrangements are deferred and recognized over the period of the
arrangement. Certain upfront non-recurring costs incurred in the
initial phases of outsourcing contracts and contract acquisition costs,
are deferred and amortized usually on a straight line basis over the
term of the contract. The Company periodically estimates the
undiscounted cash flows from the arrangement and compares it with the
unamortized costs. If the unamortized costs exceed the undiscounted
cash flow, a loss is recognized.
The Company gives volume discounts and pricing incentives to customers.
The discount terms in the Company's arrangements with customers
generally entitle the customer to discounts, if the customer completes
a specified level of revenue transactions. In some arrangements, the
level of discount varies with increases in the levels of revenue
transactions. The Company recognizes discount obligations as a
reduction of revenue based on the rateable allocation of the discount
to each of the underlying revenue transactions that result in progress
by the customer toward earning the discount.
Revenues are shown net of sales tax, value added tax, service tax and
applicable discounts and allowances.
Revenue from finance leases is recognized when risk of loss is
transferred to the customer and there are no unfulfilled obligations
that affect the client's final acceptance of the arrangement. Interest
attributable to finance leases is recognized on the accrual basis using
the effective interest method.
(iv) Others
Interest on the deployment of surplus funds is recognized using the
time-proportion method, based on interest rates implicit in the
transaction. Brokerage, commission and rent are recognized once the
same are earned and accrued to the Company and dividend income is
recognized when the right to receive the dividend is established.
m) Foreign currency translation
(i) Initial Recognition
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount, the exchange rate between
the reporting currency and the foreign currency, at the date of the
transaction.
(ii) Conversion
Foreign currency monetary items are reported using the closing rate.
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.
(iii) Exchange Differences
Exchange differences arising on the settlement of monetary items, or on
reporting such monetary items at rates different from those at which
they were initially recorded during the year, or reported in previous
financial statements, are recognized as income or expense in the
statement of profit and loss in the year in which they arise.
(iv) Hedging
(a) Cash flow hedging
The Company uses derivative financial instruments (foreign currency
forward and option contracts) to hedge its risks associated with
foreign currency fluctuations relating to certain highly probable
forecast transactions.
The use of foreign currency forward and options contracts is governed
by the Company's policies, which provide written principles on the use
of such financial derivatives, consistent with the Company's risk
management strategy. The Company does not use derivative financial
instruments for speculative purposes.
The derivative instruments are initially measured at fair value, and
are re-measured at subsequent reporting dates. In respect of
derivatives designated as hedges, the Company formally documents all
relationships between hedging instruments and hedged items, as well as
its risk management objective and strategy for undertaking various
hedge transactions. The Company also formally assesses, both at the
inception of the hedge and on an ongoing basis, whether each derivative
is highly effective in offsetting changes in fair values or cash flows
of the hedged item. Changes in the fair value of these derivatives
(net of tax) that are designated and effective as hedges of future cash
flows are recognized directly in the hedging reserve account under
shareholders' funds and the ineffective portion is recognized
immediately in the statement of profit and loss. Changes in the fair
value of derivative financial instruments that do not qualify for hedge
accounting are recognized in the statement of profit and loss as they
arise.
Hedge accounting is discontinued from the last testing date when the
hedging instrument expires or is sold, terminated, or exercised, or no
longer qualifies for hedge accounting. Cumulative gain or loss on such
hedging instrument recognized in shareholders' funds is retained until
the forecast transaction occurs. If a hedged transaction is no longer
expected to occur, the net cumulative gain or loss recognized in
shareholders' funds is transferred to the statement of profit and loss
for the year.
(b) Hedging of monetary assets and liabilities
Exchange differences on such contracts are recognized in the statement
of profit and loss in the period in which the exchange rates change.
Any profit or loss arising on cancellation or renewal of a forward
exchange contract is recognized as income or as an expense for the
year.
(v) Translation of integral and non-integral foreign operation
The financial statements of an integral foreign operation are
translated as if the transactions of the foreign operation had been
those of the Company itself.
In translating the financial statements of a non-integral foreign
operation for incorporation in the financial statements, the assets and
liabilities, both monetary and non-monetary, of the non-integral
foreign operation are translated at the closing rate; and income and
expense items of the non-integral foreign operation are translated at
weighted average rates, which approximate the actual exchange rates.
All resulting exchange differences are accumulated in a foreign
currency translation reserve until the disposal of the net investment.
On the disposal of a non-integral foreign operation, the cumulative
amount of the exchange differences which had been deferred and which
relate to that operation are recognized as income or as an expense in
the same period in which the gain or loss on disposal is recognized.
n) Retirement and other employee benefits
i. Contributions to provident fund, a defined benefit plan, are
deposited with Recognized Provident Fund Trusts, set up by the Company.
The Company's liability is actuarially determined at the end of the
year. Actuarial losses/ gains are recognized in the statement of profit
and loss in the year in which they arise. The minimum interest rate
payable by the Trust to the beneficiaries every year is notified by the
Government and the Company has an obligation to make good the
shortfall, if any, between the return from the investments of the Trust
and the notified interest rate.
ii. In respect of superannuation, a defined contribution plan for
applicable employees, the Company contributes to a scheme administered
on its behalf by an insurance company and such contributions for each
year of service rendered by the employees are charged to the statement
of profit and loss. The Company has no further obligations to the
superannuation plan beyond its contributions.
iii. Gratuity liability: The Company provides for gratuity, a defined
benefit plan (the "Gratuity Plan") covering eligible employees. The
Gratuity Plan provides a lump sum payment to vested employees at
retirement, death, incapacitation or termination of employment, of an
amount based on the respective employee's base salary and the tenure of
employment (subject to maximum of Rs. 10 Lacs per employee). The
Company's liability is actuarially determined (using the Projected Unit
Credit method) at the end of each year.
iv. Compensated absences: The employees of the Company are entitled to
compensated absences which are both accumulating and non-accumulating
in nature. The expected cost of accumulating compensated absences is
determined by actuarial valuation (using the Projected Unit Credit
method) based on the additional amount expected to be paid as a result
of the unused entitlement that has accumulated at the balance sheet
date. The expense on non-accumulating compensated absences is
recognized in the period in which the absences occur.
v. Actuarial gains/losses are immediately taken to the statement of
profit and loss and are not deferred.
vi. State Plans : The Company's contribution to State Plans , a defined
contribution plan namely Employee State Insurance Fund and Employees
Pension Scheme are charged to the statement of profit and loss.
o) Taxation
Tax expense comprises current and deferred tax. Current income tax
expense comprises taxes on income from operations in India and foreign
jurisdictions. Income tax payable in India is determined in accordance
with the provisions of the Income Tax Act, 1961 and tax expense
relating to overseas operations is determined in accordance with tax
laws applicable in countries where such operations are domiciled.
Deferred tax expense or benefit is recognized on timing differences
being the difference between taxable income and accounting income that
originate in one period and are capable of reversal in one or more
subsequent periods.
Deferred tax assets and liabilities are measured using the tax rates
and tax laws that have been enacted or substantively enacted by the
balance sheet date. Deferred income tax relating to items recognized
directly in equity is recognized in equity and not in the statement of
profit and loss. 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 tax assets and
deferred tax liabilities relate to the taxes on income levied by the
same governing taxation laws.
Jun 30, 2012
A) Basis of preparation
These financial statements have been prepared to comply in all material
aspect with the accounting standards notified under the Companies
(Accounting Standards) Rules, 2006 (as amended) and the other relevant
provisions of the Companies Act, 1956 and guidelines issued by the
Securities and Exchange Board of India (SEBI). The financial statements
are presented in the format prescribed by the revised Schedule VI to
the Companies Act, 1956 and have been prepared under the historical
cost convention on an accrual and going concern basis except for
certain financial instruments which are measured at fair value.
The accounting policies adopted in the preparation of the financial
statements are consistent with those of previous year.
b) Presentation and disclosure of financial statements
The revised Schedule VI notified by the Companies Act-1956, has become
applicable to the Company, for preparation and presentation of its
financial statements for the financial years commencing on or after 1
July 2011. The adoption of the revised schedule VI does not impact
recognition and measurement principles followed for preparation of
financial statements. However it has a significant impact on
presentation and disclosures made in the financial statements. The
Company has also reclassified the previous year figures in accordance
with the requirements applicable in the current year.
c) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period. Although these estimates are based upon management's best
knowledge of current events and actions, actual results could differ
from these estimates.
d) Tangible fixed assets and capital work-in-progress
Fixed assets are stated at cost less accumulated depreciation and
impairment losses if any. Cost comprises the purchase price and
directly attributable cost of bringing the asset to its working
condition for its intended use. Any trade discounts and rebates are
deducted in arriving at the purchase price.
Subsequent expenditure related to an item of fixed assets is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard of performance.
All other expenses on existing fixed assets, including day to day
repair and maintenance expenditure and cost of replacing parts, are
charged to the statement of profit and loss for the period during which
such expenses are incurred.
Gains or losses arising from derecognition of fixed assets are measured
as the difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statement of profit and
loss when the asset is derecognized.
Fixed assets under construction and cost of assets not ready for use
before the year-end, are disclosed as capital work in progress.
e) Depreciation on tangible fixed assets
Depreciation on fixed assets except leasehold land and leasehold
improvement is provided on the straight-line method over their
estimated useful lives, as determined by the management, at rate which
are equal to or higher than the rates prescribed under Schedule XIV of
the Companies Act, 1956. Depreciation is charged on a pro-rata basis
for assets purchased/sold during the year. Assets costing less than Rs.
5,000 are fully depreciated in the year of purchase.
The management's estimates of the useful lives of the various tangible
fixed assets for computing depreciation are as follows:
f) Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. Following initial recognition, intangible assets
are carried at cost less accumulated amortization and accumulated
impairment losses, if any. Internally generated intangible assets,
excluding capitalized development costs, are not capitalized and
expenditure is reflected in the statement of profit and loss in the
year in which the expenditure is incurred.
Intangible assets are amortized on a straight line basis over the
estimated useful economic life. The Company uses a rebuttable
presumption that the useful life of an intangible asset will not exceed
ten years from the date when the asset is available for use. If
persuasive evidence exists to the affect that useful life of an
intangible asset exceed ten years, the Company amortizes that
intangible asset over the best estimate of its useful life.
The amortization period and the amortization method are reviewed at
least at each financial year end. If the expected useful life of the
asset is significantly different from the previous estimate, the
amortization period is changed accordingly. If there has been a
significant change in the expected pattern of economic benefit from the
asset, the amortization method is changed to reflect the changed
pattern. Such changes are accounted for in accordance with AS-5 Net
Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies.
Gains or losses arising from derecognition of intangible assets are
measured as the difference between the net disposal proceeds and the
carrying amount of the assets and are recognized in the statement of
profit and loss when the asset is derecognized.
g) Research and development costs
Research costs are expensed as incurred. Development expenditure
incurred on an individual project is recognized as an intangible asset
when the Company can demonstrate all the following:
(i) The technical feasibility of completing the intangible asset so
that it will be available for use or sale;
(ii) Its intention to complete the asset;
(iii) its ability to use or sell the asset;
(iv) how the asset will generate future economic benefits;
(v) the availability of adequate resources to complete the development
and to use or sell the asset; and
(vi) the ability to measure reliably the expenditure attributable to
the intangible asset during development.
Any expenditure so capitalized is amortized over the period of expected
future sales from the related project.
The carrying value of development costs is reviewed for impairment
annually when the asset is not yet in use, and otherwise when events or
changes in circumstances indicate that the carrying value may not be
recoverable.
h) Leases
Where the Company is the lessee
Finance leases, which effectively transfer to the Company substantially
all the risks and benefits incidental to ownership of the leased item,
are capitalized at the inception of the lease term at the lower of the
fair value and present value of the minimum lease payments. Lease
payments are apportioned between the finance charges and reduction of
the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recognized as
finance cost in the statement of profit and loss. Lease management
fees, legal charges and other initial direct costs of the lease are
capitalized.
A leased asset is depreciated on a straight line basis over the useful
life of the asset or the useful life envisaged in Schedule XIV to the
Companies Act, 1956, whichever is lower. However, if there is no
reasonable certainty that the Company will obtain the ownership by the
end of lease term, the capitalized asset is depreciated on a straight
line basis over the shorter of the estimated useful life of the asset
or the lease term.
Leases, where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased items, are classified as
operating leases. Operating lease payments are recognized as an expense
in the statement of profit and loss on a straight-line basis over the
lease term.
i) Borrowing cost
Borrowing costs include interest, amortization of ancillary costs
incurred in connection with the arrangement of borrowings and exchange
differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest cost.
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 capitalized as
part of the cost of the respective asset. All other borrowing costs
are expensed in the period they occur.
j) Impairment of tangible and intangible assets
The carrying amounts of assets are reviewed at each balance sheet date
if there is any indication of impairment based on internal/external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset's net selling price and value in use. 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 risks
specific to the asset.
k) Investments
Investments, which are readily realizable and intended to be held for
not more than one year from the date on which such investments are
made, are classified as current investments. All other investments are
classified as long-term investments.
On initial recognition, all investments are measured at cost. The cost
comprises the purchase price and directly attributable acquisition
charges such as brokerage, fees and duties. If an investment is
acquired, or partly acquired by the issue of shares or the other
securities, the acquisition cost is the fair value of securities
issued. If an investment is acquired in exchange for another asset, the
acquisition is determined by reference to the fair value of the asset
given up or by reference to the fair value of the investment acquired,
whichever is more clearly evident.
Current investments are carried at the lower of cost and fair value
determined on an individual investment basis. Long- term investments
are carried at cost. However, provision for diminution in value is made
to recognize a decline other than temporary in the value of the long
term investments.
On disposal of an investment, the difference between its carrying
amount and net disposal proceeds is charged or credited to the
statement of profit and loss.
l) Inventories
Stock in trade, stores and spares are valued at the lower of the cost
or net realizable value. Net realizable value is the estimated selling
price in the ordinary course of business, less estimated costs of
completion and estimated costs necessary to make the sale.
Cost of stock in trade procured for specific projects is assigned by
specific identification of individual costs of each item. Costs of
stock in trade, that are interchangeable and not specific to any
project is determined using the weighted average cost formula. Cost of
stores and spare parts is determined using weighted average cost less
provision for obsolescence, if any.
m) Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. Revenue from sale of goods and rendering of services
is recognized when risk and reward of ownership have been transferred
to the customer, the sale price is fixed or determinable and
collectability is reasonably assured. The Company derives revenues
primarily from:-
- Software services;
- Infrastructure services; and
- Business process outsourcing services.
i) Software services
Revenue from software services comprises income from time and material
and fixed price contracts. Revenue with respect to time and material
contracts is recognized as related services are performed. Revenue from
fixed price contracts and fixed time frame contracts is recognized in
accordance with the percentage completion method under which the sales
value of performance, including earnings thereon, is recognized on the
basis of cost incurred in respect of each contract as a proportion of
total cost expected to be incurred. The cumulative impact of any
revision in estimates of the percentage of work completed is reflected
in the year in which the change becomes known. Provision for estimated
losses is made during the year in which a loss becomes probable based
on current contract estimates. Revenue from sale of licenses for the
use of software applications is recognized on transfer of title in the
user license. Revenue from annual technical service contracts is
recognized on a pro rata basis over the period in which such services
are rendered. Income from revenue sharing agreements is recognized when
the right to receive is established.
ii) Infrastructure services
Revenue from sale of products is recognized when risk and reward of
ownership have been transferred to the customer, the sales price is
fixed or determinable and collectability is reasonably assured. Revenue
from installation services is recognized when installation of
networking equipment at customer site is completed and accepted by the
customer. Revenue from bandwidth services is recognized upon actual
usage of such services by customers based on either the time for which
these service are provided or volume of data transferred or both and
excludes service tax. Revenue from maintenance services is recognized
ratably over the period of the contract. Revenue from infrastructure
management services comprise income from time-and-material, and fixed
price contracts. Revenue with respect to time-and-material contracts is
recognized as related services are performed. Revenue with respect to
fixed price contracts is recognized in accordance with the percentage
of completion method.
Warranty costs on sale of goods and services are accrued based on
management estimates and historical data at the time those related
revenues are recognized.
Unearned income arising in respect of bandwidth services and
maintenance services is calculated on the basis of unutilized period of
service at the balance sheet date and represents revenue, which is
expected to be earned in future periods in respect of these services.
In case of multi-deliverable contracts where revenue cannot be
allocated to various deliverables in a contract, the entire contract is
accounted for as one deliverable and accordingly the revenue is
recognized on a proportionate completion method following the
performance pattern of predominant services in the contract or is
deferred until the last deliverable is delivered.
iii) Business process outsourcing services
Revenue from business process outsourcing services is derived from both
time based and unit-price contracts. Revenue is recognized as the
related services are performed in accordance with the specific terms of
the contracts with the customers.
Costs and earnings in excess of billing are classified as unbilled
revenue, while billing in excess of costs and earnings are classified
as unearned revenue. Incremental revenue from existing contracts
arising on future sales of the customers' products will be recognized
when it is earned. Revenue and related direct costs from transition
services in outsourcing arrangements are deferred and recognized over
the period of the arrangement. Certain upfront non- recurring costs
incurred in the initial phases of outsourcing contracts and contract
acquisition costs, are deferred and amortized usually on a straight
line basis over the term of the contract. The Company periodically
estimates the undiscounted cash flows from the arrangement and compares
it with the unamortized costs. If the unamortized costs exceed the
undiscounted cash flow, a loss is recognized.
The Company gives volume discounts and pricing incentives to customers.
The discount terms in the Company's arrangements with customers
generally entitle the customer to discounts, if the customer completes
a specified level of revenue transactions. In some arrangements, the
level of discount varies with increases in the levels of revenue
transactions. The Company recognizes discount obligations as a
reduction of revenue based on the rateable allocation of the discount
to each of the underlying revenue transactions that result in progress
by the customer toward earning the discount.
Revenues are shown net of sales tax, value added tax, service tax and
applicable discounts and allowances. The revenue is recognized net of
discounts and allowances.
iv) Others
Interest on the deployment of surplus funds is recognized using the
time-proportion method, based on interest rates implicit in the
transaction. Brokerage, commission and rent are recognized once the
same are earned and accrued to the Company and dividend income is
recognized when the right to receive the dividend is established.
n) Foreign currency translation
(i) Initial Recognition
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
(ii) Conversion
Foreign currency monetary items are reported using the closing rate.
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.
(iii) Exchange Differences
Exchange differences arising on the settlement of monetary items, or on
reporting such monetary items of Company at rates different from those
at which they were initially recorded during the year, or reported in
previous financial statements, are recognized as income or as expenses
in the year in which they arise.
(iv) Hedging
(a) Cash flow hedging
The Company uses derivative financial instruments (foreign currency
forward and option contracts) to hedge its risks associated with
foreign currency fluctuations relating to certain highly probable
forecast transactions.
The use of foreign currency forward and options contracts is governed
by the Company's policies, which provide written principles on the use
of such financial derivatives consistent with the Company's risk
management strategy. The Company does not use derivative financial
instruments for speculative purposes.
The derivative instruments are initially measured at fair value, and
are remeasured at subsequent reporting dates.
In respect of derivatives designated as hedges, the Company formally
documents all relationships between hedging instruments and hedged
items, as well as its risk management objective and strategy for
undertaking various hedge transactions. The Company also formally
assesses both at the inception of the hedge and on an ongoing basis,
whether each derivative is highly effective in offsetting changes in
fair values or cash flows of the hedged item. Changes in the fair value
of these derivatives (net of tax) that are designated and effective as
hedges of future cash flows are recognized directly in the hedging
reserve account under shareholders' funds and the ineffective portion
is recognized immediately in the statement of profit and loss. Changes
in the fair value of derivative financial instruments that do not
qualify for hedge accounting are recognized in the statement of profit
and loss as they arise.
Hedge accounting is discontinued from the last testing date when the
hedging instrument expires or is sold, terminated, or exercised, or no
longer qualifies for hedge accounting. Cumulative gain or loss on such
hedging instrument recognized in shareholders' funds is retained there
until the forecast transaction occurs. If a hedged transaction is no
longer expected to occur, the net cumulative gain or loss recognized in
shareholders' funds is transferred to the statement of profit and loss
for the period.
(b) Hedging of monetary assets and liabilities
Exchange differences on such contracts are recognized in the statement
of profit and loss in the period in which the exchange rates change.
Any profit or loss arising on cancellation or renewal of a forward
exchange contract is recognized as income or as expense for the period.
(v) Translation of Integral and Non-integral foreign operation
The financial statements of an integral foreign operation are
translated as if the transactions of the foreign operation had been
those of the Company itself.
In translating the financial statements of a non-integral foreign
operation for incorporation in the financial statements, the assets and
liabilities, both monetary and non-monetary, of the non-integral
foreign operation are translated at the closing rate; income and
expense items of the non-integral foreign operation are translated at
monthly weighted average rates ,which approximate the actual exchange
rates; and all resulting exchange differences are accumulated in a
foreign currency translation reserve until the disposal of the net
investment.
On the disposal of a non-integral foreign operation, the cumulative
amount of the exchange differences which had been deferred and which
relate to that operation are recognized as income or as expenses in the
same period in which the gain or loss on disposal is recognized.
o) Retirement and other employee benefits
i. Contributions to provident fund, a defined benefit plan, are
deposited with a Recognized Provident Fund Trust, set up by the
Company. The contributions are charged to the statement of profit and
loss of the year when the contributions to the fund are due. The
interest rate payable by the trust to the beneficiaries every year is
notified by the government and the Company has an obligation to make
good the shortfall, if any, between the return from the investments of
the trust and the notified interest rate.
ii. The Company made contributions to a scheme administered by an
insurance company in respect of superannuation, a defined contribution
plan for applicable employees and such contributions are charged to the
statement of profit and loss. The Company has no further obligations to
the superannuation plan beyond its contributions.
iii. Gratuity liability: The Company provides for gratuity, a defined
benefit plan (the "Gratuity Plan") covering eligible employees. The
Gratuity Plan provides a lump sum payment to vested employees at
retirement, death, incapacitation or termination of employment, of an
amount based on the respective employee's salary and the tenure of
employment. The Company's liability is actuarially determined (using
the Projected Unit Credit method) at the end of each period.
iv. Compensated absences: The employees of the Company are entitled to
compensated absences which are both accumulating and non-accumulating
in nature. The expected cost of accumulating compensated absences is
determined by actuarial valuation based on the additional amount
expected to be paid as a result of the unused entitlement that has
accumulated at the Balance Sheet date. The expense on non-accumulating
compensated absences is recognized in the period in which the absences
occur.
v. Actuarial gains/losses are immediately taken to the statement of
profit and loss and are not deferred.
vi. State Plans : The Company's contribution to State Plans, a defined
contribution plan namely Employee State Insurance Fund and Employees
Pension Scheme are charged to the statement of profit and loss for
every period, when the contributions are due.
p) Taxation
Tax expense comprises current and deferred tax. Current income tax
expense comprises taxes on income from operations in India and in
foreign jurisdictions. Income tax payable in India is determined in
accordance with the provisions of the Income Tax Act, 1961 and tax
expense relating to overseas operations is determined in accordance
with tax laws applicable in countries where such operations are
domiciled.
Deferred tax expense or benefit is recognized on timing differences
being the difference between taxable income and accounting income that
originate in one period and are capable of reversal in one or more
subsequent periods.
Deferred tax assets and liabilities are measured using the tax rates
and tax laws that have been enacted or substantively enacted at the
balance sheet date. Deferred income tax relating to items recognized
directly in equity is recognized in equity and not in the statement of
profit and loss . 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 tax assets and
deferred tax liabilities relate to the taxes on income levied by the
same governing taxation laws.
Deferred tax liabilities are recognized for all taxable timing
differences. Deferred tax assets are recognized only to the extent that
there is reasonable certainty that sufficient future taxable income
will be available against which such deferred tax assets can be
realized. In situations where the Company has unabsorbed depreciation
or carry forward tax losses, all deferred tax assets are recognized
only if there is virtual certainty supported by convincing evidence
that they can be realized against future taxable profits.
At each balance sheet date the Company re-assesses recognized and
unrecognized deferred tax assets. The Company writes-down the carrying
amount of a deferred tax asset to the extent that it is no longer
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available against which the
deferred tax asset can be realized. Any such write-down is reversed to
the extent that it becomes reasonably certain or virtually certain, as
the case may be, that sufficient future taxable income will be
available. The Company recognizes unrecognized deferred tax assets to
the extent that it has become reasonably certain or virtually certain,
as the case may be, that sufficient future taxable income will be
available against which such deferred tax assets can be realized.
Minimum Alternative tax (MAT) credit is recognized as an asset only
when and to the extent there is convincing evidence that the Company
will pay normal income tax during the specified period. In the year in
which the MAT credit becomes eligible to be recognized as an asset in
accordance with the recommendations contained in guidance note issued
by the Institute of Chartered Accountants of India, the said asset is
created by way of a credit to the statement of profit and loss and
shown as MAT Credit Entitlement. The Company reviews the MAT Credit
Entitlement at each balance sheet date and writes down the carrying
amount of the MAT Credit Entitlement to the extent there is no longer
convincing evidence to the effect that Company will pay normal income
tax during the specified period.
q) Employee stock compensation cost
The Company calculates the compensation cost based on the intrinsic
value method where in the excess of market price of underlying equity
shares on the date of the grant of the options over the exercise price
of the options given to the employees under the employee stock option
schemes of the Company, is recognized as deferred stock compensation
cost and is amortized on a graded vesting basis over the vesting period
of the options.
r) Earnings per share
Basic earnings per share are calculated by dividing the net profit or
loss for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period are
adjusted for the effects of all dilutive potential equity shares.
s) Provisions
A provision is recognized when there exists a present obligation as a
result of past events and it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation,
and a reliable estimate can be made of the amount of the obligation.
Provisions are not discounted to present value and are determined based
on best estimates required to settle the obligation at the reporting
date. These estimates are reviewed at each reporting date and adjusted
to reflect the current best estimates.
t) Contingent liabilities
A contingent liability is a possible obligation that arises from past
events whose existence will be confirmed only by the occurrence or non
occurrence of one or more uncertain future events beyond the control of
the Company or a present obligation that is not recognized because it
is not probable that an outflow of resources will be required to settle
the obligation. A contingent liability also arises in extremely rare
cases where there is a liability that cannot be recognised because it
cannot be measured reliably, the Company does not recognize a
contingent liability but discloses its existence in the financial
statements.
u) Cash and cash equivalent
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short term deposits with banks
with an original maturity of three months or less.
Jun 30, 2011
A) Basis of preparation
The financial statements have been prepared to comply with the
Accounting Standards notified by Companies (Accounting Standards)
Rules, 2006, (as amended) the provisions of the Companies Act, 1956 and
guidelines issued by the Securities and Exchange Board of India (SEBI).
The financial statements have been prepared under the historical cost
convention on an accrual basis except for certain financial instruments
which are measured at fair values. The accounting policies have been
consistently applied by the Company and are consistent with those used
in the previous year.
b) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period. Although these estimates are based upon management's best
knowledge of current events and actions, actual results could differ
from these estimates.
c) Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. Revenue from sale of goods and rendering of services
is recognised when risk and reward of ownership has been transferred to
the customer, the sale price is fixed or determinable and
collectability is reasonably assured.
The Company derives revenues primarily from:-
- Software services;
- Infrastructure service; and
- Business process outsourcing services.
i) Software Services
Revenue from Software services comprises income from time and material
and fixed price contracts. Revenue with respect to time and material
contracts is recognized as related services are performed. Revenue from
fixed price contracts and fixed time frame contracts is recognized in
accordance with the percentage completion method under which the sales
value of performance, including earnings thereon, is recognized on the
basis of cost incurred in respect of each contract as a proportion of
total cost expected to be incurred. The cumulative impact of any
revision in estimates of the percentage of work completed is reflected
in the year in which the change becomes known. Provisions for
estimated losses are made during the year in which a loss becomes
probable based on current contract estimates. Revenue from sale of
licenses for the use of software applications is recognised on transfer
of title in the user license. Revenue from annual technical service
contracts is recognised on a pro rata basis over the period in which
such services are rendered. Income from revenue sharing agreements is
recognized when the right to receive is established.
ii) Infrastructure services
Revenue from infrastructure services is derived from both time based
and unit priced contracts. Revenue is recognized as the related
services are performed in accordance with specific terms of the
contract. In case of multi-deliverable contracts where revenue cannot
be allocated to various deliverables in a contract, the entire contract
is accounted for as one deliverable and accordingly the revenue is
recognized on a proportionate completion method following the
performance pattern of predominant services in the contract or is
deferred until the last deliverable is delivered.
iii) Business Process Outsourcing services
Revenue from Business Process Outsourcing services is derived from both
time based and unit-price contracts. Revenue is recognized as the
related services are performed in accordance with the specific terms of
the contracts with the customers.
Schedules forming part of the accounts
(All amounts in crores of Rs except share data and unless otherwise
stated)
Schedule 20: Notes to the accounts (Contd.)
Cost and earnings in excess of billing are classified as unbilled
revenue, while billing in excess of cost and earnings are classified as
unearned revenue. Incremental revenue from existing contracts arising
on future sales of the customers' products will be recognized when it
is earned. Revenue and related direct costs from transition services in
outsourcing arrangements are deferred and recognized over the period of
the arrangement. Certain upfront non-recurring costs incurred in the
initial phases of outsourcing contracts and contract acquisition costs,
are deferred and amortized usually on a straight line basis over the
term of the contract. The Company periodically estimates the
undiscounted cash flows from the arrangement and compares it with the
unamortized costs. If the unamortized costs exceed the undiscounted
cash flow, a loss is recognized.
The Company gives volume discounts and pricing incentives to customers.
The discount terms in the Company's arrangements with customers
generally entitle the customer to discounts, if the customer completes
a specified level of revenue transactions. In some arrangements, the
level of discount varies with increases in the levels of revenue
transactions. The Company recognizes discount obligations as a
reduction of revenue based on the rateable allocation of the discount
to each of the underlying revenue transactions that result in progress
by the customer toward earning the discount.
Revenues are shown net of sales tax, value added tax, service tax and
applicable discounts and allowances.
iv) Others
Profit on sale of Investments is recorded on transfer of title from the
Company and is determined as the difference between the sales price and
the then carrying value of the investment. Interest on the deployment
of surplus funds is recognised using the time-proportion method, based
on interest rates implicit in the transaction. Brokerage, commission
and rent are recognised once the same are earned and accrued to the
Company and dividend income is recognised when the right to receive the
same is established. Dividend from subsidiaries is recognised even if
same are declared after the balance sheet date but pertains to period
on or before the date of the balance sheet as per the requirements of
schedule VI of the Companies Act, 1956.
d) Fixed assets
Fixed assets are stated at the cost less accumulated depreciation and
impairment losses if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Fixed assets under construction, advances paid
towards acquisition of fixed assets and cost of assets not ready for
use before the year- end, are disclosed as capital work in progress.
e) Depreciation and amortization
Depreciation on fixed assets except leasehold land and leasehold
improvements is provided on the straight-line method over their
estimated useful lives, as determined by the management, at the rates
which are equal to or higher than the rates prescribed under Schedule
XIV of the Companies Act, 1956. Leasehold land is amortised over the
period of lease. Leasehold improvements are amortised over a period of
four years or the remaining period of the lease, whichever is shorter.
Depreciation is charged on a pro-rata basis for assets purchased/sold
during the year. Assets costing less than Rs 5,000 are fully depreciated
in the year of purchase.
Intangible assets are amortized over their respective individual
estimated useful life or on a straight line basis.
(f) Impairment of assets:
The carrying amounts of assets are reviewed at each balance sheet date
if there is any indication of impairment based on internal/external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset's net selling price and value in use. 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 risks
specific to the asset.
g) Leases
Where the Company is the lessee
Finance leases, which effectively transfer to the Company substantially
all the risks and benefits incidental to ownership of the leased item,
are capitalized at the lower of the fair value and present value of the
minimum lease payments at the inception of the lease term and disclosed
as leased assets. Lease payments are apportioned between the finance
charges and reduction of the lease liability based on the implicit rate
of return. Finance charges are charged directly against income.
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased item, are classified as
operating leases. Operating lease payments are recognized as an expense
in the Profit and Loss account on a straight-line basis over the lease
term.
h) Investments
Trade investments are the investments made to enhance the Company's
business interests. Investments that are readily realisable and
intended to be held for not more than a year are classified as current
investments. All other investments are classified as long-term
investments. Current investments are carried at lower of cost and fair
value determined on an individual investment basis. Long-term
investments are carried at cost. However, provision for diminution in
value is made to recognise a decline other than temporary in the value
of the investments.
i) Foreign exchange transactions
(i) Initial Recognition
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
(ii) Conversion
Foreign currency monetary items are reported using the closing rate.
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.
(iii) Exchange Differences
Exchange differences arising on the settlement of monetary items, or on
reporting such monetary items of Company at rates different from those
at which they were initially recorded during the year, or reported in
previous financial statements, are recognized as income or as expenses
in the year in which they arise.
(iv) Hedging
a) Cash flow hedging
The Company uses derivative financial instruments (foreign currency
forward and option contracts) to hedge its risks associated with
foreign currency fluctuations relating to certain forecasted
transactions.
The use of foreign currency forward contracts and options are governed
by the Company's policies, which provide written principles on the use
of such financial derivatives consistent with the Company's risk
management strategy. The Company does not use derivative financial
instruments for speculative purposes.
The derivative instruments are initially measured at fair value, and
are remeasured at subsequent reporting dates.
In respect of derivatives designated as hedges, the Company formally
documents all relationships between hedging instruments and hedged
items, as well as its risk management objective and strategy for
undertaking various hedge transactions. The Company also formally
assesses both at the inception of the hedge and on an ongoing basis,
whether each derivative is highly effective in offsetting changes in
fair values or cash flows of the hedged item. Changes in the fair value
of these derivatives (net of tax) that are designated and effective as
hedges of future cash flows are recognised directly in Hedging Reserve
Account under shareholders' funds and the ineffective portion is
recognized immediately in profit and loss account. Changes in the fair
value of derivative financial instruments that do not qualify for hedge
accounting are recognized in profit and loss account as they arise.
Hedge accounting is discontinued from the last testing date when the
hedging instrument expires or is sold, terminated, or exercised, or no
longer qualifies for hedge accounting. Cumulative gain or loss on such
hedging instrument recognised in shareholder's funds is retained there
until the forecasted transaction occurs. If a hedged transaction is no
longer expected to occur, the net cumulative gain or loss recognised in
shareholders' funds is transferred to profit and loss account for the
year.
b) Hedging of monetary assets and liabilities
The premium or discount arising at the inception of forward exchange
contracts and option is amortised as expense or income over the life of
the contract. Exchange differences on such contracts are recognised in
the statement of profit and loss in the year in which the exchange
rates change. Any profit or loss arising on cancellation or renewal of
forward exchange contract is recognised as income or as expense for the
year.
(v) Translation of Integral and Non-integral foreign operation
The financial statements of an integral foreign operation are
translated as if the transactions of the foreign operation have been
those of the Company itself.
In translating the financial statements of a non-integral foreign
operation for incorporation in financial statements, the assets and
liabilities, both monetary and non-monetary, of the non-integral
foreign operation are translated at the closing rate; income and
expense items of the non-integral foreign operation are translated at
monthly weighted average rates ,which approximate the actual exchange
rates; and all resulting exchange differences are accumulated in a
foreign currency translation reserve until the disposal of the net
investment.
On the disposal of a non-integral foreign operation, the cumulative
amount of the exchange differences which have been deferred and which
relate to that operation are recognised as income or as expenses in the
same period in which the gain or loss on disposal is recognised.
j) Inventories
Finished goods are valued at lower of cost and net realisable value.
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale. Cost of goods that are procured for
specific projects is assigned by specific identification of their
individual costs. Cost of goods that are interchangeable and not
specific to any project is determined using weighted average cost
formula. Stores and spare parts are carried at cost, less provision for
obsolescence.
k) Employee stock compensation cost
The Company calculates the compensation cost based on the intrinsic
value method wherein the excess of market price of underlying equity
shares on the date of the grant of options over the exercise price of
the options given to employees under the employee stock option schemes
of the Company, is recognised as deferred stock compensation cost and
is amortised on a graded vesting basis over the vesting period of the
options.
l) Taxation
Tax expense comprises current and deferred tax. Current income tax
expense comprises taxes on income from operations in India and in
foreign jurisdictions. Income tax payable in India is determined in
accordance with the provisions of the Income Tax Act, 1961 and tax
expense relating to overseas operations is determined in accordance
with tax laws applicable in countries where such operations are
domiciled.
Deferred tax expense or benefit is recognised on timing differences
being the difference between taxable income and accounting income that
originate in one period and are capable of reversal in one or more
subsequent periods.
Deferred tax assets and liabilities are measured using the tax rates
and tax laws that have been enacted or substantively enacted by the
balance sheet date. 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 tax assets
and deferred tax liabilities relate to the taxes on income levied by
the same governing taxation laws.
Deferred tax assets are recognised only to the extent that there is
reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realised. In
situations where the Company has unabsorbed depreciation or carry
forward tax losses, all deferred tax assets are recognised only if
there is virtual certainty supported by convincing evidence that they
can be realised against future taxable profits.
At each balance sheet date the Company re-assesses recognized and
unrecognised deferred tax assets. The Company writes-down the carrying
amount of a deferred tax asset to the extent that it is no longer
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available against which the
deferred tax asset can be realised. Any such write-down is reversed to
the extent that it becomes reasonably certain or virtually certain, as
the case may be, that sufficient future taxable income will be
available. The Company recognizes unrecognized deferred tax assets to
the extent that it has become reasonably certain or virtually certain,
as the case may be, that sufficient future taxable income will be
available against which such deferred tax assets can be realised.
Minimum Alternative tax (MAT) credit is recognised as an asset only
when and to the extent there is convincing evidence that the Company
will pay normal income tax during the specified period. In the year in
which the MAT credit becomes eligible to be recognized as an asset in
accordance with the recommendations contained in guidance note issued
by the Institute of Chartered Accountants of India, the said asset is
created by way of a credit to the profit and loss account and shown as
MAT Credit Entitlement. The Company reviews the same at each balance
sheet date and writes down the carrying amount of MAT Credit
Entitlement to the extent there is no longer convincing evidence to the
effect that Company will pay normal income tax during the specified
period.
m) Employee benefits
i) Contributions to provident fund, a defined benefit plan, are
deposited with a Recognised Provident Fund Trust, set up by the
Company. The contributions are charged to the profit and loss account
of the year when the contributions to the fund are due. The interest
rate payable by the trust to the beneficiaries every year is notified
by the government and the Company has an obligation to make good the
shortfall, if any, between the return from the investments of the trust
and the notified interest rate.
ii) The Company makes contributions to a scheme administered by an
insurance company in respect of superannuation for applicable employees
and such contributions are charged to profit and loss account. The
Company has no further obligations to the superannuation plan beyond
its contributions.
iii) Gratuity liability is a defined benefit obligation and is provided
for on the basis of an actuarial valuation on projected unit credit
method made at the end of each financial year
iv) Short term compensated absences are provided for based on
estimates. Long term compensated absences are provided for based on
actuarial valuation at the year end. The actuarial valuation is done as
per projected unit credit method.
v) Actuarial gains/losses are immediately taken to profit and loss
account and are not deferred.
vi) The Company's contribution to State Plans namely Employee State
Insurance Fund and Employees Pension Scheme are charged to profit and
loss account when the contributions are due.
n) Research and Development
Research costs are expensed as incurred. Development expenditure
incurred on an individual project is recognized as an intangible asset
when the Company can demonstrate:
(i) The technical feasibility of completing the intangible asset so
that it will be available for use or sale;
(ii) Its intention to complete the asset and use or sell it;
(iii) its ability to use or sell the asset;
(iv) how the asset will generate probable future economic benefits;
(v) the availability of adequate resources to complete the development
and to use or sell the asset; and
(vi) the ability to measure reliably the expenditure attributable to
the intangible asset during development.
Any expenditure so capitalized is amortised over the period of expected
future sales from the related project.
The carrying value of development costs is reviewed for impairment
annually when the asset is not yet in use, and otherwise when events or
changes in circumstances indicate that the carrying value may not be
recoverable.
o) Earnings per share
Basic earnings per share are calculated by dividing the net profit or
loss for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period. For the
purpose of calculating diluted earnings per share, the net profit or
loss for the period attributable to equity shareholders and the
weighted average number of shares outstanding during the period are
adjusted for the effects of all dilutive potential equity shares.
p) Borrowing cost
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 capitalized as
part of the cost of the respective asset. All other borrowing costs
are expensed in the period they occur. Borrowing costs consist of
interest and other costs that the Company incurs in connection with the
borrowing of funds.
q) Provisions
A provision is recognised when there exists a present obligation as a
result of past events and it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to present
value and are determined based on best estimate required to settle the
obligation at the balance sheet date. These are reviewed at each
balance sheet date and adjusted to reflect the current best estimates.
r) Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and deposit with banks with an
original maturity of three months or less.
Each option granted under the above plans entitles the holder to four
equity shares of the Company at an exercise price, which is approved by
the Compensation Committee.
The expected volatility was determined based on historical volatility
data.
Movement in Stock options Year ended Year ended
Jun 30, 2010
A) Basis of preparation
The financial statements have been prepared to comply with the
Accounting Standards notified by Companies (Accounting Standards)
Rules, 2006, (as amended) and the relevant provisions of the Companies
Act, 1956. The financial statements have been prepared under the
historical cost convention on an accrual basis. The accounting policies
have been consistently applied by the Company and are consistent with
those used in the previous year.
b) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period. Although these estimates are based upon managements best
knowledge of current events and actions, actual results could differ
from these estimates.
c) Revenue recognition
i) Software Services
Revenue from Software services comprises income from time and material
and fixed price contracts. Revenue with respect to time and material
contracts is recognized as related services are performed. Revenue from
fixed price contracts and fixed time frame contracts is recognized in
accordance with the percentage completion method under which the sales
value of performance, including earnings thereon, is recognized on the
basis of cost incurred in respect of each contract as a proportion of
total cost expected to be incurred. The cumulative impact of any
revision in estimates of the percentage of work completed is reflected
in the year in which the change becomes known. Provisions for estimated
losses are made during the year in which a loss becomes probable based
on current contract estimates. Revenue from sale of licenses for the
use of software applications is recognised on transfer of title in the
user license. Revenue from annual technical service contracts is
recognised on a pro rata basis over the period in which such services
are rendered. Income from revenue sharing agreements is recognized
when the right to receive is established.
ii) Infrastructure Services
Revenue from infrastructure services is derived from both time based
and unit priced contracts. Revenue is recognized as the related
services are performed in accordance with specific terms of the
contract. In case of multi-deliverable contracts where revenue cannot
be allocated to various deliverables in a contract, the entire contract
is accounted for as one deliverable and accordingly the revenue is
recognized on a proportionate completion method following the
performance pattern of predominant services in the contract or is
deferred until the last deliverable is delivered.
iii) Business Process Outsourcing services
Revenue from Business Process Outsourcing services is derived from both
time based and unit-price contracts. Revenue is recognized as the
related services are performed in accordance with the specific terms of
the contracts with the customer.
Cost and earnings in excess of billing are classified as unbilled
revenue, while billing in excess of cost and earnings are classified as
unearned revenue. Incremental revenue from existing contracts arising
on future sales of the customers products will be recognized when it
is earned. Revenue and related direct costs from transition services in
outsourcing arrangements are deferred and recognized over the period of
the arrangement. Certain upfront non-recurring costs incurred in the
initial phases of outsourcing contracts and contract acquisition costs,
are deferred and amortized usually on a straight line basis over the
term of the contract. The Company periodically estimates the
undiscounted cash flows from the arrangement and compares it with the
unamortized costs. If the unamortized costs exceed the undiscounted
cash flow, a loss is recognized.
The Company accounts for volume discounts and pricing incentives to
customers. The discount terms in the Companys arrangements with
customers generally entitle the customer to discounts, if the customer
completes a specified level of revenue transactions. In some
arrangements, the level of discount varies with increases in the levels
of revenue transactions. The Company recognizes discount obligations
as a reduction of revenue based on the ratable allocation of the
discount to each of the underlying revenue transactions that result in
progress by the customer toward earning the discount.
Revenues are shown net of sales tax, value added tax, service tax and
applicable discounts and allowances.
iv) Others
Profit on sale of Investments is recorded on transfer of title from the
Company and is determined as the difference between the sales price and
the then carrying value of the investment. Interest on the deployment
of surplus funds is recognised using the time-proportion method, based
on interest rates implicit in the transaction. Dividend income,
brokerage, commission and rent are recognised when the right to receive
the same is established. Dividend from subsidiaries is recognised even
if same are declared after the balance sheet date but pertains to
period on or before the date of balance sheet as per the requirement of
schedule VI of the Companies Act, 1956.
d) Fixed assets
Fixed assets are stated at the cost less accumulated depreciation and
impairment losses if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Fixed assets under construction, advances paid
towards acquisition of fixed assets and cost of assets not ready for
use before the year-end, are disclosed as capital work in progress.
e) Depreciation and amortization
Depreciation on fixed assets except leasehold land and leasehold
improvements is provided on the straight-line method over their
estimated useful lives, as determined by the management, at the rates
which are equal to or higher than the rates prescribed under Schedule
XIV of the Companies Act, 1956. Leasehold land is amortised over the
period of lease. Leasehold improvements are amortised over a period of
four years or the remaining period of the lease, whichever is shorter.
Depreciation is charged on a pro-rata basis for assets purchased/sold
during the year. Assets costing less than Rs. 5,000 are fully
depreciated in the year of purchase.
Intangible assets are amortized over their respective individual
estimated useful life or straight line basis.
f) Impairment of assets:
(i) The carrying amounts of assets are reviewed at each balance sheet
date if there is any indication of impairment based on
internal/external factors. An impairment loss is recognized wherever
the carrying amount of an asset exceeds its recoverable amount. The
recoverable amount is the greater of the assets net selling price and
value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value at the weighted average
cost of capital.
g) Leases
Where the Company is the lessee
Finance leases, which effectively transfer to the Company substantially
all the risks and benefits incidental to ownership of the leased item,
are capitalized at the lower of the fair value and present value of the
minimum lease payments at the inception of the lease term and disclosed
as leased assets. Lease payments are apportioned between the finance
charges and reduction of the lease liability based on the implicit rate
of return. Finance charges are charged directly against income.
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased item, are classified as
operating leases. Operating lease payments are recognized as an expense
in the Profit and Loss account on a straight-line basis over the lease
term.
h) Investments
Trade investments are the investments made to enhance the Companys
business interests. Investments that are readily realisable and
intended to be held for not more than a year are classified as current
investments. All other investments are classified as long-term
investments. Current investments are carried at lower of cost and fair
value determined on an individual investment basis. Long-term
investments are carried at cost. However, provision for diminution in
value is made to recognise a decline other than temporary in the value
of the investments.
i) Foreign exchange transactions
i) Initial Recognition
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
ii) Conversion
Foreign currency monetary items are reported using the closing rate.
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.
iii) Exchange Differences
Exchange differences arising on the settlement of monetary items, or on
reporting such monetary items of company at rates different from those
at which they were initially recorded during the year, or reported in
previous financial statements, are recognized as income or as expenses
in the year in which they arise.
iv) Forward Exchange Contracts and options not intended for trading or
speculation purposes
The Company uses derivative financial instruments (foreign currency
forward and option contracts) to hedge its risks associated with
foreign currency fluctuations relating to certain forecasted
transactions.
The use of foreign currency forward contracts is governed by the
Companys policies, which provide written principles on the use of such
financial derivatives consistent with the Companys risk management
strategy. The Company does not use derivative financial instruments for
speculative purposes.
Foreign currency forward contract derivative instruments are initially
measured at fair value, and are remeasured at subsequent reporting
dates.
In respect of derivatives designated as hedges, the Company formally
documents all relationships between hedging instruments and hedged
items, as well as its risk management objective and strategy for
undertaking various hedge transactions. The Company also formally
assesses both at the inception of the hedge and on an ongoing basis,
whether each derivative is highly effective in offsetting changes in
fair values or cash flows of the hedged item. Changes in the fair value
of these derivatives (net of tax) that are designated and effective as
hedges of future cash flows are recognised directly in Hedging Reserve
Account under shareholders funds and the ineffective portion is
recognized immediately in profit and loss account. Changes in the fair
value of derivative financial instruments that do not qualify for hedge
accounting are recognized in profit and loss account as they arise.
Hedge accounting is discontinued from the last testing date when the
hedging instrument expires or is sold, terminated, or exercised, or no
longer qualifies for hedge accounting. Cumulative gain or loss on such
hedging instrument recognised in shareholders funds is retained there
until the forecasted transaction occurs. If a hedged transaction is no
longer expected to occur, the net cumulative gain or loss recognised in
shareholders funds is transferred to profit and loss account for the
year.
The premium or discount arising at the inception of forward exchange
contracts is amortised as expense or income over the life of the
contract. Exchange differences on such contracts are recognised in the
statement of profit and loss in the year in which the exchange rates
change. Any profit or loss arising on cancellation or renewal of
forward exchange contract is recognised as income or as expense for the
year.
v) Translation of Integral and Non-integral foreign operation
The financial statements of an integral foreign operation are
translated as if the transactions of the foreign operation have been
those of the company itself.
In translating the financial statements of a non-integral foreign
operation for incorporation in financial statements, the assets and
liabilities, both monetary and non-monetary, of the non-integral
foreign operation are translated at the closing rate; income and
expense items of the non-integral foreign operation are translated at
monthly weighted average rates; and all resulting exchange differences
are accumulated in a foreign currency translation reserve until the
disposal of the net investment.
On the disposal of a non-integral foreign operation, the cumulative
amount of the exchange differences which have been deferred and which
relate to that operation are recognised as income or as expenses in the
same period in which the gain or loss on disposal is recognised.
j) Inventories
Finished goods are valued at lower of cost and net realisable value.
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale. Cost of goods that are procured for
specific projects is assigned by specific identification of their
individual costs. Cost of goods that are interchangeable and not
specific to any project is determined using weighted average cost
formula.
k) Employee stock compensation cost
The Company calculates the compensation cost based on the intrinsic
value method wherein the excess of market price of underlying equity
shares on the date of the grant of options over the exercise price of
the options given to employees under the employee stock option schemes
of the Company, is recognised as deferred stock compensation cost and
is amortised on a graded vesting basis over the vesting period of the
options.
l) Taxation
Tax expense comprises of current, deferred and fringe benefit tax.
Current income tax and fringe benefit tax is measured at the amount
expected to be paid to the tax authorities in accordance with the
Income-tax Act, 1961 enacted in India. Deferred income taxes reflects
the impact of current year timing differences between taxable income
and accounting income for the year and reversal of timing differences
of earlier years.
Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the balance sheet date. 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 tax assets and deferred tax
liabilities relate to the taxes on income levied by same governing
taxation laws. Deferred tax assets are recognised only to the extent
that there is reasonable certainty that sufficient future taxable
income will be available against which such deferred tax assets can be
realised. In situations where the company has unabsorbed depreciation
or carry forward tax losses, all deferred tax assets are recognised
only if there is virtual certainty supported by convincing evidence
that they can be realised against future taxable profits.
At each balance sheet date the Company re-assesses unrecognised
deferred tax assets. It recognises unrecognised deferred tax assets to
the extent that it has become reasonably certain or virtually certain,
as the case may be that sufficient future taxable income will be
available against which such deferred tax assets can be realised.
The carrying amount of deferred tax assets are reviewed at each balance
sheet date. The company writes-down the carrying amount of a deferred
tax asset to the extent that it is no longer reasonably certain or
virtually certain, as the case may be, that sufficient future taxable
income will be available against which deferred tax asset can be
realised. Any such write-down is reversed to the extent that it becomes
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available
MAT credit is recognised as an asset only when and to the extent there
is convincing evidence that the company will pay normal income tax
during the specified period. In the year in which the Minimum
Alternative tax (MAT) credit becomes eligible to be recognized as an
asset in accordance with the recommendations contained in guidance Note
issued by the Institute of Chartered Accountants of India, the said
asset is created by way of a credit to the profit and loss account and
shown as MAT Credit Entitlement. The Company reviews the same at each
balance sheet date and writes down the carrying amount of MAT Credit
Entitlement to the extent there is no longer convincing evidence to the
effect that Company will pay normal Income Tax during the specified
period.
m) Employee benefits
i) Contributions to provident fund, a defined benefit plan are
deposited with a recognised provident fund trust, set up by the
Company. The interest rate payable by the trust to the beneficiaries
every year is notified by the government and the Company has an
obligation to make good the shortfall, if any, between the return from
the investments of the trust and the notified interest rate.
ii) The Company makes contributions to a scheme administered by an
insurance company in respect of superannuation for applicable employees
and such contribution are charged to Profit and loss account. The
Company has no further obligations to the superannuation plan beyond
its monthly contributions.
iii) Gratuity liability is defined benefit obligations and is provided
for on the basis of an actuarial valuation on projected unit credit
method made at the end of each financial year.
iv) Short term compensated absences are provided for based on
estimates. Long term compensated absences are provided for based on
actuarial valuation at the year end. The actuarial valuation is done as
per projected unit credit method.
v) Actuarial gains/losses are immediately taken to profit and loss
account and are not deferred.
vi) The Companys contribution to State Plans namely Employee State
Insurance Fund and Employees Pension Scheme are charged to Profit and
loss account.
n) Research and Development
Revenue expenditure on research and development is expensed as
incurred. Capital expenditure incurred on equipment and facilities
acquired or constructed for research and development activities and
having alternative future uses, are capitalised and included in fixed
assets.
o) Earnings per share
Basic earnings per share are calculated by dividing the net profit or
loss for the period attributable to equity shareholders the weighted
average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period are
adjusted for the effects of all dilutive potential equity shares.
p) Borrowing cost
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 capitalized as
part of the cost of the respective asset. All other borrowing costs
are expensed in the period they occur. Borrowing costs consist of
interest and other costs that an entity incurs in connection with the
borrowing of funds.
q) Provisions
A provision is recognised when an enterprise has a present obligation
as a result of past event; it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on best estimate required to
settle the obligation at the balance sheet date. These are reviewed at
each balance sheet date and adjusted to reflect the current best
estimates.
r) Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and deposit with banks with an
original maturity of three months or less.
Disclaimer: This is 3rd Party content/feed, viewers are requested to use their discretion and conduct proper diligence before investing, GoodReturns does not take any liability on the genuineness and correctness of the information in this article