Mar 31, 2023
1. CORPORATE INFORMATION
Mphasis Limited (âthe Companyâ) is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. The shares of the Company are listed on two recognised stock exchanges in India. The registered office of the Company is in Bengaluru, India.
Mphasis Limited, a global Information Technology (IT) solutions provider specializing in providing cloud and cognitive services, applies next-generation technology to help enterprises transform businesses globally. Customer centricity is foundational to Mphasis and is reflected in the Mphasisâ Front2Back⢠Transformation approach. Front2Back⢠uses the exponential power of cloud and cognitive to provide hyper-personalized digital experience to clients and their end customers.
The standalone financial statements for the year ended 31 March 2023 have been approved by the Board of Directors on 27 April 2023.
The standalone financial statements comprise the financial statements of the Company and its controlled employee benefit trusts.
Mphasis Limited is the sponsoring entity of Employee Stock Option Plan (âESOPâ) trusts. Management of the Company can appoint and remove the trustees and provide funding to the trust for buying the shares. Basis assessment by the management, it believes that the ESOP trusts are designed to be controlled by the Company as an extension arm of the Company and are hence included in these standalone financial statements.
> Mphasis Employees Benefit Trust.
> Mphasis Employees Equity Reward Trust.
The standalone financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) specified under Section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules as amended from time to time.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The standalone financial statements have been prepared on a historical cost convention and on an accrual basis of accounting, except for the following assets and liabilities which have been measured at fair value.
> Derivative financial instruments.
> Investments classified as Fair Value Through Profit or Loss (âFVTPLâ) /Fair Value Through Other Comprehensive Income (âFVTOCIâ).
> Fair value of plan assets less present value of defined benefit obligations.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
All assets and liabilities have been classified as current and non-current as per the Companiesâ normal operating cycle of 12 months. Current assets do not include assets which are not expected to be realised within 12 months and current liabilities include only items where the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.
The standalone financial statements are presented in INR (â? â) and all the values are rounded off to the nearest million (INR 000,000) except when otherwise indicated.
The statement of cash flows have been prepared under the indirect method.
The Company has consistently applied the following accounting policies to all periods presented in these standalone financial statements. Use of estimates, assumptions, and judgements
The preparation of the standalone financial statements in conformity with Ind AS requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the standalone financial statements and the reported amounts of revenues and expenses for the year. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Appropriate change in estimates are made as management become aware of changes in circumstances surrounding the estimates. Revisions to accounting estimates are recognised in the year in which the estimates are revised.
Application of accounting policies that require critical accounting estimates involving judgements and the use of assumptions in the standalone financial statements have been disclosed below :
The Companyâs major tax jurisdictions is in India. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income of the Companyâs operations in India. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates and reflects uncertainties relating to income taxes, if any. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective companyâs domicile. A tax assessment could involve complex issues, which can only be resolved over extended time periods.
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that future taxable profit will be available against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits.
The cost of the defined benefit gratuity plan, compensated absences and the present value of the defined benefit obligation are determined based on an actuarial valuation carried out by an independent actuary using the projected unit credit method. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, future attrition rates and mortality rates. Due to the complexities involved in the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
The parameter most subject to change is the discount rate. In determining the appropriate discount rate, management considers the interest rates of Government bonds in currencies consistent with the currencies of the post-employment benefit obligation.
The mortality rate is based on publicly available mortality tables. These mortality tables tend to change only at intervals in response to demographic changes. Future salary increases are based on expected future inflation rates.
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, the fair value is measured using appropriate valuation techniques. The inputs to these models are taken from observable sources where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
The Company reviews the useful life of property, plant and equipment at the end of each reporting period. This reassessment may result in change in depreciation expense in future periods.
Use of the percentage-of completion method in accounting for revenue from fixed-price contracts requires the Company to exercise judgement in estimating the balance-to-go efforts or costs. Efforts or costs expended to date as a proportion of the total efforts or costs to be expended is used as a measure to determine the percentage-of completion. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity.
The impairment provisions are based on an evaluation of the risk of default over the expected life of the receivables and expected timing of collection. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Companyâs past history of collections, customerâs credit-worthiness, existing market conditions as well as forward looking estimates at the end of each reporting period.
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. Judgements include estimating the probability of the cash outflows for the present obligations and accordingly provisions are determined and reviewed at the end of each reporting period and are adjusted to reflect current best estimates.
The Company uses significant judgement to identify and measure 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 nonoccurrence 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 liabilities in relation to assessment/litigations can involve complex issues, which can only be resolved over extended time periods.
The Company evaluates if an arrangement qualifies to be a lease based on the requirements of the relevant standard. Identification of a lease requires significant management judgement. Computation of the lease liabilities and right-to-use assets requires management to estimate the lease term (including anticipated renewals), and the applicable discount rate. Management estimates the lease term based on the non-cancellable lease-term, options for future renewals if the Company is reasonably certain to exercise and options to terminate the lease if the Company is reasonably certain not to exercise. In performing this assessment, the discount rate is generally based on the incremental borrowing rate specific to the lease being evaluated or for a portfolio of leases with similar characteristics.
Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the transaction price (net of variable consideration) allocated to a particular performance obligation.
The Company derives its revenues primarily from rendering application development and maintenance services, infrastructure outsourcing services, call centre and business & knowledge process outsourcing operations and licensing arrangements.
⢠Revenue from rendering application development and maintenance services comprise income from time-and-material, fixed monthly billings and milestone-based fixed price contracts. Revenues from call center, business & knowledge process outsourcing operations and infrastructure outsourcing services arise from time-based, unit-priced, fixed monthly billings and milestone-based fixed priced contracts.
⢠Revenue from time and material, unit-priced contracts is recognized on an output basis, measured by units delivered, efforts expended etc.
⢠Revenue from fixed price contracts is recognized using the percentage-of-completion method, calculated as the proportion of the cost of efforts incurred up to the reporting date to estimated cost of total efforts.
⢠Fixed Bid monthly milestone-based recognition - The practical expedient of revenue equals invoicing is applied as the amounts invoiced directly correspond with the value transferred to the customer.
⢠Revenue from fixed price maintenance and support services contracts where the Company is standing ready to provide services is recognized based on time elapsed mode and revenue is straight-lined over the period of performance.
⢠Revenue from license transactions where customers are given a right to use intellectual property are recognised upfront at the point in time when the license is delivered to the customer, simultaneously with the transfer of control.
⢠Revenue from bundled contracts is recognized separately for each performance obligation based on their allocated transaction price (net of variable consideration).
⢠In cases where implementation and / or customisation services rendered significantly modifies or customises the license, these services and license are accounted for as a single performance obligation and revenue is recognised over time using the percentage-of-completion method, calculated as the proportion of the cost of effort incurred up to the reporting date to estimated cost of total efforts.
⢠Revenue from the sale of distinct third-party hardware is recognised at the point in time when control is transferred to the customer. The solutions offered by the Company may include supply of third-party equipment or software. In such cases, revenue for supply of such third-party goods are recorded at gross or net basis depending on whether the Company obtains control of the specified goods or services before it is transferred to the customer.
Revenue from sale of services is measured based on the transaction price, which is the consideration, adjusted for discounts and pricing incentives, if any, as specified in the contract with the customer. Sales tax / Value Added Tax (VAT) / Goods and Services Tax (âGSTâ) is not received by the Company on its own account. Rather, it is tax collected on value added to the commodity / service rendered by the seller on behalf of the Government. Accordingly, it is excluded from revenues.
The Company recognises an onerous contract provision when it is probable that the incremental costs of fulfilling the obligation under the contract and an allocation of other costs directly related to fulfilling the contract exceed the economic benefits to be received.
Contract assets are recognised when there is excess of revenue earned over billings on contracts. Contract assets are classified as unbilled receivables (only act of invoicing is pending) when there is unconditional right to receive cash, and only passage of time is required, as per contractual terms. Unearned and deferred revenue (âcontract liabilityâ) is recognised when there are billings in excess
of revenues. The billing schedules agreed with customers could include periodic performance-based payments and/or milestone-based progress payments. Invoices are payable within contractually agreed credit period. Advances received for services are reported as liabilities until all conditions for revenue recognition are met.
Contract modifications: Services added that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct are accounted for prospectively, either as a separate contract if the additional services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price.
Use of significant judgements in revenue recognition.
⢠The Companyâs contracts with customers could include promises to transfer multiple goods and services to a customer. The Company assesses the goods / services promised in a contract and identifies distinct performance obligations in the contract. Identification of distinct performance obligation involves judgement to determine the deliverables and the ability of the customer to benefit independently from such deliverables.
⢠Judgement is also required to determine the transaction price for the contract. The transaction price could be either a fixed amount of consideration from the customer or variable consideration with elements such as volume discounts, performance bonuses, price concessions and incentives. The transaction price is also adjusted for the effects of the time value of money if the contract includes a significant financing component. The Company has applied the practical expedient provided by Ind AS 115, whereby the Company does not adjust the transaction price for the effects of the time value of money where the period between when the control on goods and services transferred to the customer and when payment thereof is due, is one year or less. Any consideration payable to the customer is adjusted to the transaction price, unless it is a payment for a distinct goods or services from the customer. The estimated amount of variable consideration is adjusted in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur and is reassessed at the end of each reporting period. The Company allocates the elements of variable considerations to all the performance obligations of the contract unless there is observable evidence that they pertain to one or more distinct performance obligations.
⢠The Company uses judgement to determine an appropriate standalone selling price for a performance obligation. The Company allocates the transaction price to each performance obligation on the basis of the relative standalone selling price of each distinct good or service promised in the contract. Where standalone selling price is not observable, the Company uses the expected cost-plus margin approach to allocate the transaction price to each distinct performance obligation.
⢠The Company exercises judgement in determining whether the performance obligation is satisfied at a point in time or over a period of time. The Company considers indicators such as how a customer consumes benefits as services are rendered or who controls the asset as it is being created or existence of enforceable right to payment for performance to date and alternate use of such goods or services, transfer of significant risks and rewards to the customer, acceptance of delivery by the customer, etc.
⢠Use of the percentage-of completion method in accounting for revenue from fixed-price contracts requires the Company to exercise judgement in estimating the balance-to-go efforts or costs. Efforts or costs expended to date as a proportion of the total efforts or costs to be expended is used as a measure to determine the percentage-of completion. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity.
⢠Contract fulfilment costs are generally expensed as incurred except for certain costs which meet the criteria for capitalisation. The assessment of this criteria requires the application of judgement, in particular, when considering if costs generate or enhance resources to be used to satisfy future performance obligations and whether costs are expected to be recovered.
⢠Contract acquisition costs are generally expensed as incurred except for certain costs which meet the criteria for capitalization, in particular if such costs are expected to be recovered. Contract acquisition costs are amortized over the contract term, consistent with the pattern of transfer of goods or services to which the asset relates.
Interest income is recognized as it accrues in the standalone statement of profit and loss using effective interest rate method.
Dividend income is recognized when the right to receive the dividend is established.
The Company disaggregates revenue from contracts with customers by segment, geography, services rendered, delivery location and project type.
Property, plant and equipment are stated at the cost of acquisition or construction less accumulated depreciation and write down for, impairment if any. Direct costs are capitalised until the assets are ready to be put to use. Cost includes expenditure directly attributable to the acquisition. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Subsequent expenditure relating to property, plant and equipment is capitalized
only when it is probable that future economic benefits associated with these will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are recognised in the statement of profit and loss as incurred. Property, plant and equipment purchased in foreign currency are recorded at cost, based on the exchange rate on the date of purchase.
The Company identifies and determines cost of each component / part of property, plant and equipment separately, if the component/ part has a cost which is significant to the total cost of the property, plant and equipment and has useful life that is materially different from that of the remaining asset.
Intangible assets purchased are measured at cost or fair value as of the date of acquisition, as applicable, less accumulated amortisation and accumulated impairment, if any. The amortization period and the amortization method are reviewed at least at each financial year end. Internally developed intangible assets are stated at cost that can be measured reliably during the development phase and capitalised when it is probable that future economic benefits that are attributable to the assets will flow to the Company.
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets. Freehold land is not depreciated.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date are disclosed under âother assetsâ. The cost of property, plant and equipment not ready to use before the balance sheet date is disclosed under âCapital work in progressâ.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use. Gains or losses arising from de-recognition of property, plant and equipment and intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of property, plant and equipment and are recognized in the statement of profit and loss when the property, plant and equipment is derecognized.
Depreciation on property, plant and equipment is calculated on a straight-line basis using the rates arrived at, based on the useful lives estimated by management. Intangible assets are amortised on a straight-line basis over the estimated useful economic life. Depreciation / amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted prospectively, if appropriate. The useful lives estimated by management are given below :
(In years) |
||
Asset |
Useful life as per Companies Act, 2013 |
Useful life estimated by management |
Computer equipment |
3 |
3 |
Furniture and fixtures |
10 |
5 |
Buildings |
20 |
20 or remaining lease term whichever is less |
Lease hold improvements |
Not Applicable |
10 or remaining lease term whichever is less |
Office equipment |
5 |
5 |
Plant and equipment |
15 |
4 to 7 |
Server and networks |
6 |
6 |
Vehicles |
8 |
5 |
Computer Software |
As per Ind AS 38 |
3 to 7 |
In respect of plant and equipment, furniture and fixtures and vehicles, management, basis internal assessment of usage pattern believes that the useful lives as mentioned above best represent the period over which management expects to use these assets. Hence the useful lives in respect of these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
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.
Project specific assets are depreciated over the period of contract or useful life of the asset, whichever is lower.
Company as a lessee
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:
> the contract involves the use of an identified asset;
> the Company has the right to obtain substantially all the economic benefits from use of the asset throughout the period of use; and
> the Company has the right to direct the use of the asset.
At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of the relative stand-alone prices of the lease components and the aggregate stand-alone price of the non-lease components.
The Company recognises right-of-use asset representing its right to use the underlying asset for the lease term at the lease commencement date. The cost of the right-of-use asset measured at inception shall comprise of the amount of the initial measurement of the lease liability, adjusted for any lease payments made at or before the commencement date, less any lease incentives received, plus any initial direct costs incurred and an estimate of the costs to be incurred by the lessee in dismantling and removing the underlying asset or restoring the underlying asset or site on which it is located.
The right-of-use asset is subsequently measured at cost less accumulated depreciation, accumulated impairment losses, if any and adjusted for any remeasurement of the lease liability. The right-of-use assets is depreciated using the straight-line method from the commencement date over the shorter of lease term or useful life of right-of-use asset. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. Right-of-use assets are tested for impairment whenever there is any indication that their carrying amounts may not be recoverable. Impairment loss, if any, is recognised in the standalone statement of profit and loss.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate applicable to the entity within the Company for the nature of asset taken on lease. Generally, the Company uses its incremental borrowing rate as the discount rate. For leases with reasonably similar characteristics, the Company, on a lease by lease basis, may adopt either the incremental borrowing rate specific to the lease or the incremental borrowing rate for the portfolio as a whole. The lease payments shall include fixed payments, variable lease payments, residual value guarantees, exercise price of a purchase option where the Company is reasonably certain to exercise that option and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
The lease liability is subsequently remeasured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.
The Company recognises the amount of the re-measurement of lease liability as an adjustment to the right-of-use asset. Where the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Company recognises any remaining amount of the re-measurement in the standalone statement of profit and loss.
The Company has elected not to recognise right-of-use assets and lease liabilities for short-term leases of all assets that have a lease term of 12 months or less and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
When the Company acts as a lessor at the inception, it determines whether each lease is a finance lease or an operating lease.
The Company recognises lease payments received under operating leases as income on a straight-line basis over the lease term. In case of a finance lease, finance income is recognised over the lease term based on a pattern reflecting a constant periodic rate of return on the lessorâs net investment in the lease. When the Company is an intermediate lessor it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short -term lease to which the Company applies the exemption described above, then it classifies the sub-lease as an operating lease.
If an arrangement contains a lease and non-lease components, the Company applies Ind AS 115-Revenue to allocate the consideration in the contract.
Investment in equity instruments of subsidiaries are measured at cost less impairment, if any.
Borrowing cost includes 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 year they occur.
Impairment
a. Financial assets (other than at fair value)
For financial assets measured at amortised cost, the Company assesses at each balance sheet date whether the asset is impaired. Ind AS 109 (âFinancial instrumentsâ) requires expected credit losses to be measured through a loss allowance. Expected credit loss is the difference between the contractual cash flows and the cash flows that the entity expects to receive, discounted using the effective interest rate. The Company recognises lifetime expected losses for all contract assets and/or all trade receivables. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. The Company provides for impairment upon the occurrence of the triggering event.
⢠Tangible and intangible assets
Property, plant and equipment and intangible assets with finite life are evaluated for recoverability whenever there is any indication that their carrying amounts may not be recoverable. If any such indication exists, the recoverable amount (i.e. higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the cash generating unit (âCGUâ) to which the asset belongs.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised in the standalone statement of profit and loss.
The Company assesses investments in subsidiaries for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If any such indication exists, the Company estimates the recoverable amount of the investment in subsidiary. The recoverable amount of such investment is the higher of its fair value less cost of disposal (âFVLCDâ) and its value-in-use (âVIUâ). The VIU of the investment is calculated using projected future cash flows. If the recoverable amount of the investment is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the standalone statement of profit and loss. Financial instruments Non-derivative financial instruments Non-derivative financial instruments consist of the following:
> financial assets, which include cash and cash equivalents, deposits with banks, trade receivables, investments in equity and debt securities and eligible current and non-current assets;
> financial liabilities, which include loans and borrowings, finance lease liabilities, trade payables, eligible current and non-current liabilities.
Non-derivative financial instruments are recognised when the Company becomes a party to the contract that gives rise to financial assets and liabilities. Financial assets (excluding trade receivables) and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial asset or financial liability. Trade receivables that do not contain a significant financing component are measured at transaction price. Subsequent to initial recognition, non-derivative financial instruments are measured as described below.
a. Cash and cash equivalents
The Companyâs cash and cash equivalents consist of cash on hand and in banks and demand deposits with banks with an original maturity of less than or up to three months. For the purposes of the cash flow statement, cash and cash equivalents include cash on hand, in banks and demand deposits with banks, net of outstanding overdrafts that are repayable on demand and are considered part of the Companyâs cash management system.
Financial assets (except for debt instruments that are designated at fair value through Profit or Loss (FVTPL) on initial recognition) are subsequently measured at amortised cost if these financial assets are held within a business whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets (except for debt instruments that are designated at fair value through Profit or Loss (FVTPL) on initial recognition) are measured at fair value through other comprehensive income (âFVTOCIâ) if these financial assets are held within a business whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Interest income is recognized in the standalone statement of profit or loss for FVTOCI debt instruments. Other changes in fair value of FVTOCI financial assets are recognized in other comprehensive income. When the investment is disposed of, the cumulative gain or loss previously accumulated in reserves is transferred to the standalone statement of profit and loss.
Financial assets are measured at FVTPL unless it is measured at amortised cost or at FVTOCI on initial recognition. The transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are immediately recognised in standalone statement of profit and loss. Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognized in the standalone statement of profit and loss. The gain or loss on disposal is recognized in the standalone statement of profit and loss.
Interest income is recognized in the standalone statement of profit and loss for FVTPL debt instruments. Dividend on financial assets at FVTPL is recognized when the Companyâs right to receive dividend is established.
Financial liabilities are subsequently carried at amortized cost using the effective interest rate method. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
The Company is exposed to foreign currency fluctuations on foreign currency assets and liabilities. The Company holds derivative financial instruments such as foreign exchange forward contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is a bank.
Derivatives are recognized and measured at fair value. Attributable transaction costs are recognized in standalone statement of profit and loss as expenses.
Subsequent to initial recognition, derivative financial instruments are measured as described below.
The Company designates certain foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable cashflow forecast transactions. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the cash flow hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the standalone statement of profit and loss. If the hedging instrument no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging reserve until the forecasted transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the net profit in the standalone statement of profit and loss upon the occurrence of the related forecasted transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified to the standalone statement of profit and loss.
Changes in fair value of foreign currency derivative instruments not designated as cash flow hedges are recognized in the standalone statement of profit and loss and reported within foreign exchange gains, net.
Changes in fair value and gains/(losses) on settlement of foreign currency derivative instruments relating to borrowings, which have not been designated as hedges are recorded as foreign exchange gains/ (losses).
Financial assets are derecognized when substantial risks and rewards of ownership of the financial asset have been transferred. In cases where substantial risks and rewards of ownership of the financial assets are neither transferred nor retained, financial assets are derecognized only when the Company has not retained control over the financial asset. A financial liability (or a part of a financial liability) is derecognized when the obligation specified in the contract is discharged or cancelled or expires. Trade receivables which are subject to non-recourse factoring arrangements are derecognized in accordance with Ind AS 109 and are offset in accordance with Ind AS 32.
Financial assets and financial liabilities are offset and the net amounts are presented in the standalone balance sheet when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.
A number of the Companyâs accounting policies and disclosures require the measurement of fair values, for both financial and nonfinancial assets and liabilities.
When a quote is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as âactiveâ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.
In determining the fair value of its financial instruments, the Company uses following hierarchy and assumptions that are based on market conditions and risks existing at each reporting date.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 â Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 â Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 â Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
a. Short-term employee benefits
All employee benefits payable wholly within twelve months of rendering the service are classified as short-term employee benefits. Benefits such as salaries, wages etc. and the expected cost of ex-gratia are recognised in the period in which the employee renders the related service. A liability is recognised for the amount expected to be paid when there is a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
The Company has a policy on compensated absences that is both accumulating and non-accumulating in nature. Non-accumulating compensated absences are measured on an undiscounted basis and are recognized in the period in which absences occur. The cost of short term compensated absences are provided for based on estimates. The expected cost of accumulating compensated absences is determined by actuarial valuation at each balance sheet date measured based on the amounts expected to be paid / availed as a result of the unused entitlement that has accumulated at the balance sheet date. The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefits for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the standalone statement of profit and loss. The Company presents the entire obligation for compensated absences as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement beyond 12 months from the reporting date.
Employee benefits are accrued in the period in which the associated services are rendered by employees of the Company. Contributions to defined contribution schemes such as Provident Fund, Employee State Insurance Scheme, 401(k) and other social security schemes are charged to the standalone statement of profit or loss on an accrual basis.
Mphasis Limited has established a Provident Fund Trust to which contributions towards provident fund are made on a monthly basis. The Provident Fund Trust, based on the Government specified minimum rates of return guarantees a specified rate of return on such contributions on a periodical basis. The contributions to the trust managed by the Company is accounted for as a defined benefit plan as the Company is liable for any shortfall in the fund assets based on the Government specified minimum rates of return.
The Company has a defined benefit gratuity plan that provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment in accordance with âThe Payment of Gratuity Act, 1972â. The amount is based on the respective employeeâs last drawn salary and the tenure of employment with the Company.
Gratuity, which is a defined benefit plan, is determined based on an independent actuarial valuation, which is carried out based on the projected unit credit method. The Company recognizes the net obligation of a defined benefit plan in its balance sheet as an asset or liability. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling and the return on plan assets (excluding interest), is reflected immediately in the balance sheet with a charge or credit recognised in other comprehensive income in the period in which they occur. Past service cost, both vested and unvested, is recognised as an expense at the earlier of (a) when the plan amendment or curtailment occurs; and (b) when the entity recognises related restructuring costs or termination benefits. In accordance with Ind AS, re-measurement gains and losses on defined benefit plans recognised in OCI are not to be subsequently reclassified to standalone statement of profit and loss. As required under Ind AS read with Schedule III to Companies Act, 2013, the Company transfers it immediately to retained earnings. The discount rate is based on the yield of securities issued by the Government of India.
The Company measures compensation cost relating to share-based payments using the fair valuation method in accordance with Ind AS 102, Share-Based Payment. Compensation expense is amortized over the vesting period of the option on a graded basis. The units generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period of the respective tranches of such grants.
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using the Black-Scholes valuation model. The expected term of an option is estimated based on the vesting term and contractual life of the option. Expected volatility during the expected term of the option is based on the historical volatility of share price of the Company. Risk free interest rates are based on the government securities yield in effect at the time of the grant.
The cost of equity settled transactions is recognised, together with a corresponding increase in share-based payment reserve in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Companyâs best estimate of the number of equity instruments that will ultimately vest. Debit or credit in standalone statement of profit and loss for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in employee benefits expense.
The dilutive effect of outstanding options is reflected in the computation of diluted earnings per share.
Foreign currency transactions are recorded at exchange rates prevailing on the date of the transaction. Foreign currency denominated monetary assets and liabilities are restated into the functional currency using exchange rates prevailing on the balance sheet date.
Gains and losses arising on restatement of foreign currency denominated monetary assets and liabilities are included in the standalone statement of profit and loss. Non-monetary assets and liabilities denominated in a foreign currency and measured at historical cost are translated at an exchange rate that approximates the rate prevalent on the date of the transaction.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the period in which the transaction is settled. Revenue, expense 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.
Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year. Current and deferred tax are recognised in standalone statement of profit and loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively.
Current income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the taxable income for that period and reflects the uncertainty related to income tax, if any. The tax rates and tax laws used to compute the amount are those that are enacted by the balance sheet date. The Company offsets current tax assets and current tax liabilities, where it has a legally enforceable right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred income tax assets and liabilities are recognised using the balance sheet approach. Deferred tax is recognized on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available in the future to allow all or part of the deferred income tax asset to be utilized.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available to allow in the future against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as an income or expense in the period that includes the enactment or substantive enactment date.
Deferred income taxes are not provided on the undistributed earnings of subsidiaries where it is expected that the earnings of the subsidiary will not be distributed in the foreseeable future.
For operations carried out in SEZ facilities, deferred tax assets or liabilities, if any, have been established for the tax consequences of those temporary differences between the carrying values of assets and liabilities and their respective tax bases that do not reverse during the tax holiday period(s).
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.
A provision is recognized when an enterprise has a present obligation (legal or constructive) as result of past event and it is probable that an outflow embodying economic benefits of resources will be required to settle the obligation. Provisions are determined based on best estimates required to settle each obligation at the balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Company from a contract are lower than the expected net cost of continuing with the contract, which is determined based on the incremental costs of fulfilling the obligation under the contract and an allocation of other costs directly related to fulfilling the contract. Before a provision is established, the C
Mar 31, 2022
1. CORPORATE INFORMATION
Mphasis Limited (âthe Companyâ) is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. The shares of the Company are listed on two recognised stock exchanges in India. The registered office of the Company is in Bengaluru, India.
Mphasis Limited, a global Information Technology (IT) solutions provider specializing in providing cloud and cognitive services, applies next-generation technology to help enterprises transform businesses globally. Customer centricity is foundational to Mphasis and is reflected in the Mphasisâ Front2Back⢠Transformation approach. Front2Back⢠uses the exponential power of cloud and cognitive to provide hyper-personalized digital experience to clients and their end customers.
The standalone financial statements for the year ended 31 March 2022 have been approved by the Board of Directors on 28 April 2022.
The standalone financial statements comprise the financial statements of the Company and its controlled employee benefit trusts.
Mphasis Limited is the sponsoring entity of Employee Stock Option Plan (âESOPâ) trusts. Management of the Company can appoint and remove the trustees and provide funding to the trust for buying the shares. Basis assessment by the management, it believes that the ESOP trusts are designed to be controlled by the Company as an extension arm of the Company and are hence included in these standalone financial statements.
> Mphasis Employees Benefit Trust.
> Mphasis Employees Equity Reward Trust.
The standalone financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) specified under Section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules as amended from time to time.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The standalone financial statements have been prepared on a historical cost convention and on an accrual basis of accounting, except for the following assets and liabilities which have been measured at fair value.
> Derivative financial instruments.
> Investments classified as Fair Value Through Profit or Loss (âFVTPLâ).
> Fair value of plan assets less present value of defined benefit obligations.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
All assets and liabilities have been classified as current and non-current as per the Companyâs normal operating cycle of 12 months. Current Assets do not include elements which are not expected to be realised within 12 months and Current Liabilities do not include items where the Company does not have an unconditional right to defer settlement beyond a period of 12 months, the period of 12 months being reckoned from the reporting date.
The standalone financial statements are presented in INR (â? â) and all the values are rounded off to the nearest million (INR 000,000) except when otherwise indicated.
The statement of cash flows have been prepared under the indirect method.
The Company has consistently applied the following accounting policies to all periods presented in these standalone financial statements. Impact of the Global Pandemic (âCovid-19â)
The Company has taken into account the possible impacts of Covid-19 in preparation of the standalone financial statements, including but not limited to its assessment of liquidity and going concern assumption, impairment triggers for non-current assets, recoverable values of its financial and non-financial assets, impact on revenues and on cost budgets in respect of fixed price contracts, impact on measurement of deferred tax assets / liabilities, impact on leases and impact on effectiveness of its hedging relationships. The Company has considered available sources of information, both internal and external, upto the date of approval of the standalone financial statements and expects to recover the carrying amount of its assets. The impact of Covid-19 on the standalone financial statements may differ from that estimated as at the date of approval of these standalone financial statements.
The preparation of the standalone financial statements in conformity with Ind AS requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the standalone financial statements and the reported amounts of revenues and expenses for the year. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Appropriate change in estimates are made as management become aware of changes in circumstances surrounding the estimates. Revisions to accounting estimates are recognised in the year in which the estimates are revised.
Application of accounting policies that require critical accounting estimates involving judgments and the use of assumptions in the standalone financial statements have been disclosed below:
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The value in use calculation is based on a discounted cash flow (âDCFâ) model. The cash flows are derived from the internal forecast for future years. These do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the assetâs performance or the CGU being tested for impairment. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the long-term growth rates.
The Companyâs major tax jurisdictions is in India. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income of the Companyâs operations in India. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates and reflects uncertainties relating to income taxes, if any. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective companyâs domicile. A tax assessment could involve complex issues, which can only be resolved over extended time periods.
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that future taxable profit will be available against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits.
The cost of the defined benefit gratuity plan, compensated absences and the present value of the defined benefit obligation are determined based on an actuarial valuation carried out by an independent actuary using the projected unit credit method. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, future attrition rates and mortality rates. Due to the complexities involved in the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, management considers the interest rates of Government bonds in currencies consistent with the currencies of the post-employment benefit obligation.
The mortality rate is based on publicly available mortality tables. These mortality tables tend to change only at intervals in response to demographic changes. Future salary increases are based on expected future inflation rates.
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, the fair value is measured using appropriate valuation techniques. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
The Company reviews the useful life of property, plant and equipment at the end of each reporting period. This reassessment may result in change in depreciation expense in future periods.
Use of the percentage-of completion method in accounting for fixed-price contracts requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity.
The impairment provisions are based on an evaluation of the risk of default over the expected life of the receivables and expected timing of collection. The Company uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Companyâs past history of collections, customerâs credit-worthiness, existing market conditions as well as forward looking estimates at the end of each reporting period.
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. Judgements include estimating the probability of the cash outflows for the present obligations and accordingly provisions are determined and reviewed at the end of each reporting period and are adjusted to reflect current best estimates.
The Company uses significant judgement to identify and measure 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 nonoccurrence 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 liabilities in relation to assessment/litigations can involve complex issues, which can only be resolved over extended time periods.
The Company evaluates if an arrangement qualifies to be a lease based on the requirements of the relevant standard. Identification of a lease requires significant management judgment. Computation of the lease liabilities and right-to-use assets requires management to estimate the lease term (including anticipated renewals), and the applicable discount rate. Management estimates the lease term based on the non-cancellable lease-term, options for future renewals if the Company is reasonably certain to exercise and options to terminate the lease if the Company is reasonably certain not to exercise. In performing this assessment, the discount rate is generally based on the incremental borrowing rate specific to the lease being evaluated or for a portfolio of leases with similar characteristics.
Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration
the Company expects to receive in exchange for those goods or services.
The Company derives its revenues primarily from rendering application development and maintenance services, infrastructure outsourcing
services, call centre and business & knowledge process outsourcing operations and licensing arrangements.
⢠Revenue from rendering application development and maintenance services comprise income from time-and-material and fixed price contracts. Revenues from call center and business & knowledge process outsourcing operations arise from time-based, unit-priced and fixed price contracts. Revenues from infrastructure outsourcing services arise from time-based, unit-priced and fixed price contracts.
⢠Revenue from time and material, unit-priced contracts is recognized on an output basis, measured by units delivered, efforts expended etc.
⢠Revenue from fixed price contracts is recognized using the percentage-of-completion method, calculated as the proportion of the cost of effort incurred up to the reporting date to estimated cost of total effort.
⢠Fixed Bid monthly milestone-based recognition - The practical expedient of revenue equals invoicing is applied as the amounts invoiced directly correspond with the value transferred to the customer.
⢠Revenue from fixed price maintenance and support services contracts where the Company is standing ready to provide services is recognized based on time elapsed mode and revenue is straight-lined over the period of performance.
⢠Revenue from license transactions where customers are given a right to use intellectual property are recognised upfront at the point in time when the license is delivered to the customer, simultaneously with the transfer of control.
⢠Revenue from bundled contracts is recognized separately for each performance obligation based on their allocated transaction price.
⢠In cases where implementation and / or customisation services rendered significantly modifies or customises the license, these services and license are accounted for as a single performance obligation and revenue is recognised over time using the percentage-of-completion method, calculated as the proportion of the cost of effort incurred up to the reporting date to estimated cost of total effort.
⢠Revenue from the sale of distinct third-party hardware is recognised at the point in time when control is transferred to the customer.
The solutions offered by the Company may include supply of third-party equipment or software. In such cases, revenue for supply of such third-party goods are recorded at gross or net basis depending on whether the Company is acting as the principal or as an agent of the customer. The Company recognises revenue in the gross amount of consideration when it is acting as a principal and at net amount of consideration when it is acting as an agent.
Revenue from sale of services is measured based on the transaction price, which is the consideration, adjusted for discounts and pricing incentives, if any, as specified in the contract with the customer. Sales tax / Value Added Tax (VAT) / Goods and Services Tax (âGSTâ) is not received by the Company on its own account. Rather, it is tax collected on value added to the commodity / service rendered by the seller on behalf of the Government. Accordingly, it is excluded from revenues.
The Company recognises an onerous contract provision when it is probable that the unavoidable costs of meeting the obligations under a contract exceed the economic benefits to be received.
Contract assets are recognised when there is excess of revenue earned over billings on contracts. Contract assets are classified as unbilled receivables (only act of invoicing is pending) when there is unconditional right to receive cash, and only passage of time is required, as per contractual terms. Unearned and deferred revenue (âcontract liabilityâ) is recognised when there are billings in excess of revenues. The billing schedules agreed with customers could include periodic performance-based payments and/or milestone-based progress payments. Invoices are payable within contractually agreed credit period. Advances received for services are reported as liabilities until all conditions for revenue recognition are met.
Contract modifications: Services added that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct are accounted for prospectively, either as a separate contract if the additional services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price.
Use of significant judgements in revenue recognition.
⢠The Companyâs contracts with customers could include promises to transfer multiple goods and services to a customer. The Company assesses the goods / services promised in a contract and identifies distinct performance obligations in the contract. Identification of distinct performance obligation involves judgement to determine the deliverables and the ability of the customer to benefit independently from such deliverables.
⢠Judgement is also required to determine the transaction price for the contract. The transaction price could be either a fixed amount of customer consideration or variable consideration with elements such as volume discounts, performance bonuses, price concessions and incentives. The transaction price is also adjusted for the effects of the time value of money if the contract includes a significant financing component. The Company has applied the practical expedient provided by Ind AS 115, whereby the Company does not adjust the transaction price for the effects of the time value of money where the period between when the control on goods and services transferred to the customer and when payment thereof is due, is one year or less. Any consideration payable to the customer is adjusted to the transaction price, unless it is a payment for a distinct good or service from the customer. The estimated amount of variable consideration is adjusted in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur and is reassessed at the end of each reporting period. The Company allocates the elements of variable considerations to all the performance obligations of the contract unless there is observable evidence that they pertain to one or more distinct performance obligations.
⢠The Company uses judgement to determine an appropriate standalone selling price for a performance obligation. The Company allocates the transaction price to each performance obligation on the basis of the relative standalone selling price of each distinct good or service promised in the contract. Where standalone selling price is not observable, the Company uses the expected cost-plus margin approach to allocate the transaction price to each distinct performance obligation.
⢠The Company exercises judgement in determining whether the performance obligation is satisfied at a point in time or over a period of time. The Company considers indicators such as how a customer consumes benefits as services are rendered or who controls the asset as it is being created or existence of enforceable right to payment for performance to date and alternate use of such good or service, transfer of significant risks and rewards to the customer, acceptance of delivery by the customer, etc.
⢠Use of the percentage-of completion method in accounting for fixed-price contracts requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity.
⢠Contract fulfilment costs are generally expensed as incurred except for certain costs which meet the criteria for capitalisation. The assessment of this criteria requires the application of judgement, in particular, when considering if costs generate or enhance resources to be used to satisfy future performance obligations and whether costs are expected to be recovered.
⢠Contract acquisition costs are generally expensed as incurred except for certain costs which meet the criteria for capitalization, in particular if such costs are expected to be recovered. Contract acquisition costs are amortized over the contract term, consistent with the pattern of transfer of goods or services to which the asset relates.
Interest income is recognized as it accrues in the standalone statement of profit and loss using effective interest rate method.
Dividend income is recognized when the right to receive the dividend is established.
The Company disaggregates revenue from contracts with customers by segment, geography, services rendered, delivery location and project type.
Property, plant and equipment are stated at the cost of acquisition or construction less accumulated depreciation and write down for, impairment if any. Direct costs are capitalised until the assets are ready to be put to use. Cost includes expenditure directly attributable to the acquisition. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Subsequent expenditure relating to property, plant and equipment is capitalized only when it is probable that future economic benefits associated with these will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are recognised in the statement of profit and loss as incurred. Property, plant and equipment purchased in foreign currency are recorded at cost, based on the exchange rate on the date of purchase.
The Company identifies and determines cost of each component / part of property, plant and equipment separately, if the component/ part has a cost which is significant to the total cost of the property, plant and equipment and has useful life that is materially different from that of the remaining asset.
Intangible assets purchased are measured at cost or fair value as of the date of acquisition, as applicable, less accumulated amortisation and accumulated impairment, if any. The amortization period and the amortization method are reviewed at least at each financial year end. Internally developed intangible assets are stated at cost that can be measured reliably during the development phase and capitalised when it is probable that future economic benefits that are attributable to the assets will flow to the Company.
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets. Leasehold land is amortised over the lease term. Freehold land is not depreciated.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date are disclosed under âother assetsâ. The cost of property, plant and equipment not ready to use before the balance sheet date is disclosed under âCapital work in progressâ.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use. Gains or losses arising from de-recognition of property, plant and equipment and intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of property, plant and equipment and are recognized in the statement of profit and loss when the property, plant and equipment is derecognized.
Depreciation on property, plant and equipment is calculated on a straight-line basis using the rates arrived at, based on the useful lives estimated by management. Intangible assets are amortised on a straight-line basis over the estimated useful economic life. Depreciation / amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted prospectively, if appropriate. The useful lives estimated by management are given below:
(In years) |
||
Asset |
Useful life as per Companies Act, 2013 |
Useful life estimated by management |
Computer equipment |
3 |
3 |
Furniture and fixtures |
10 |
5 |
Building |
20 |
20 or remaining lease term whichever is less |
Lease hold improvements |
Not Applicable |
10 or remaining lease term whichever is less |
Office equipment |
5 |
5 |
Plant and equipment |
15 |
4 to 7 |
Server and networks |
6 |
6 |
Vehicles |
8 |
5 |
Computer Software |
As per Ind AS 38 |
3 |
In respect of plant and equipment, furniture and fixtures and vehicles, management, basis internal assessment of usage pattern believes that the useful lives as mentioned above best represent the period over which management expects to use these assets. Hence the useful lives in respect of these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
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.
Project specific assets are depreciated over the period of contract or useful life of the asset, whichever is lower.
Company as a lessee
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:
> the contract involves the use of an identified asset;
> the Company has the right to obtain substantially all the economic benefits from use of the asset throughout the period of use; and
> the Company has the right to direct the use of the asset.
At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of the relative stand-alone prices of the lease components and the aggregate stand-alone price of the non-lease components.
The Company recognises right-of-use asset representing its right to use the underlying asset for the lease term at the lease commencement date. The cost of the right-of-use asset measured at inception shall comprise of the amount of the initial measurement of the lease liability, adjusted for any lease payments made at or before the commencement date, less any lease incentives received, plus any initial direct costs incurred and an estimate of the costs to be incurred by the lessee in dismantling and removing the underlying asset or restoring the underlying asset or site on which it is located.
The right-of-use asset is subsequently measured at cost less accumulated depreciation, accumulated impairment losses, if any and adjusted for any remeasurement of the lease liability. The right-of-use assets is depreciated using the straight-line method from the commencement date over the shorter of lease term or useful life of right-of-use asset. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. Right-of-use assets are tested for impairment whenever there is any indication that their carrying amounts may not be recoverable. Impairment loss, if any, is recognised in the standalone statement of profit and loss.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate applicable to the entity within the Company for the nature of asset taken on lease. Generally, the Company uses its incremental borrowing rate as the discount rate. For leases with reasonably similar characteristics, the Company, on a lease by lease basis, may adopt either the incremental borrowing rate specific to the lease or the incremental borrowing rate for the portfolio as a whole. The lease payments shall include fixed payments, variable lease payments, residual value guarantees, exercise price of a purchase option where the Company is reasonably certain to exercise that option and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
The lease liability is subsequently remeasured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.
The Company recognises the amount of the re-measurement of lease liability as an adjustment to the right-of-use asset. Where the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Company recognises any remaining amount of the re-measurement in the standalone statement of profit and loss.
The Company has elected not to recognise right-of-use assets and lease liabilities for short-term leases of all assets that have a lease term of 12 months or less and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
When the Company acts as a lessor at the inception, it determines whether each lease is a finance lease or an operating lease.
The Company recognises lease payments received under operating leases as income on a straight-line basis over the lease term. In case of a finance lease, finance income is recognised over the lease term based on a pattern reflecting a constant periodic rate of return on the lessorâs net investment in the lease. When the Company is an intermediate lessor it accounts for its interests in the head lease
and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short -term lease to which the Company applies the exemption described above, then it classifies the sub-lease as an operating lease.
If an arrangement contains a lease and non-lease components, the Company applies Ind AS 115-Revenue to allocate the consideration in the contract.
Borrowing cost includes 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 year they occur.
a. Financial assets (other than at fair value)
For financial assets measured at amortised cost, debt instruments at fair value through other comprehensive income, trade receivables, contract assets and other financial assets, the Company assesses at each date of balance sheet whether the asset is impaired. Ind AS 109 (âFinancial instrumentsâ) requires expected credit losses to be measured through a loss allowance. Expected credit loss is the difference between the contractual cash flows and the cash flows that the entity expects to receive, discounted using the effective interest rate. The Company recognises lifetime expected losses for all contract assets and/or all trade receivables. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. The Company provides for impairment upon the occurrence of the triggering event.
⢠Tangible and intangible assets
Property, plant and equipment and intangible assets with finite life are evaluated for recoverability whenever there is any indication that their carrying amounts may not be recoverable. If any such indication exists, the recoverable amount (i.e. higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the cash generating unit (âCGUâ) to which the asset belongs.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised in the standalone statement of profit and loss.
Non-derivative financial instruments consist of the following:
> financial assets, which include cash and cash equivalents, deposits with banks, trade receivables, investments in equity and debt securities and eligible current and non-current assets;
> financial liabilities, which include loans and borrowings, finance lease liabilities, bank overdrafts, trade payables, eligible current and non-current liabilities.
Non-derivative financial instruments are recognised when the Company becomes a party to the contract that gives rise to financial assets and liabilities. Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial asset or financial liability.
Subsequent to initial recognition, non-derivative financial instruments are measured as described below.
The Companyâs cash and cash equivalents consist of cash on hand and in banks and demand deposits with banks with an original maturity of less than or up to three months. For the purposes of the cash flow statement, cash and cash equivalents include cash on hand, in banks and demand deposits with banks, net of outstanding overdrafts that are repayable on demand and are considered part of the Companyâs cash management system.
Financial assets (except for debt instruments that are designated at fair value through Profit or Loss (FVTPL) on initial recognition) are subsequently measured at amortised cost if these financial assets are held within a business whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets (except for debt instruments that are designated at fair value through Profit or Loss (FVTPL) on initial recognition) are measured at fair value through other comprehensive income (âFVTOCIâ) if these financial assets are held within a business whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Interest income is recognized in the standalone statement of profit or loss for FVTOCI debt instruments. Other changes in fair value of FVTOCI financial assets are recognized in other comprehensive income. When the investment is disposed of, the cumulative gain or loss previously accumulated in reserves is transferred to the standalone statement of profit and loss.
Financial assets are measured at FVTPL unless it is measured at amortised cost or at FVTOCI on initial recognition. The transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are immediately recognised in standalone statement of profit and loss. Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognized in the standalone statement of profit and loss. The gain or loss on disposal is recognized in the standalone statement of profit and loss.
Interest income is recognized in the standalone statement of profit and loss for FVTPL debt instruments. Dividend on financial assets at FVTPL is recognized when the Companyâs right to receive dividend is established.
Financial liabilities are subsequently carried at amortized cost using the effective interest rate method. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
The Company is exposed to foreign currency fluctuations on foreign currency assets and liabilities. The Company holds derivative financial instruments such as foreign exchange forward contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
Derivatives are recognized and measured at fair value. Attributable transaction costs are recognized in standalone statement of profit and loss as expenses.
Subsequent to initial recognition, derivative financial instruments are measured as described below.
The Company designates certain foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable cashflow forecast transactions. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the cash flow hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the standalone statement of profit and loss. If the hedging instrument no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging reserve until the forecasted transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the net profit in the standalone statement of profit and loss upon the occurrence of the related forecasted transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified to the standalone statement of profit and loss.
Changes in fair value of foreign currency derivative instruments not designated as cash flow hedges are recognized in the standalone statement of profit and loss and reported within foreign exchange gains, net.
Changes in fair value and gains/(losses) on settlement of foreign currency derivative instruments relating to borrowings, which have not been designated as hedges are recorded as foreign exchange gains/ (losses).
Financial assets are derecognized when substantial risks and rewards of ownership of the financial asset have been transferred. In cases where substantial risks and rewards of ownership of the financial assets are neither transferred nor retained, financial assets are derecognized only when the Company has not retained control over the financial asset. A financial liability (or a part of a financial liability) is derecognized when the obligation specified in the contract is discharged or cancelled or expires. Trade receivables which are subject to non-recourse factoring arrangements are derecognized in accordance with Ind AS 109 and are offset in accordance with Ind AS 32.
Financial assets and financial liabilities are offset and the net amounts are presented in the standalone balance sheet when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.
A number of the Companyâs accounting policies and disclosures require the measurement of fair values, for both financial and nonfinancial assets and liabilities.
When a quote is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as âactiveâ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.
In determining the fair value of its financial instruments, the Company uses following hierarchy and assumptions that are based on market conditions and risks existing at each reporting date.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 â Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 â Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 â Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
a. Short-term employee benefits
All employee benefits payable wholly within twelve months of rendering the service are classified as short-term employee benefits. Benefits such as salaries, wages etc. and the expected cost of ex-gratia are recognised in the period in which the employee renders the related service. A liability is recognised for the amount expected to be paid when there is a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
The Company has a policy on compensated absences that is both accumulating and non-accumulating in nature. Non-accumulating compensated absences are measured on an undiscounted basis and are recognized in the period in which absences occur. The cost of short term compensated absences are provided for based on estimates. The expected cost of accumulating compensated absences is determined by actuarial valuation at each balance sheet date measured based on the amounts expected to be paid / availed as a result of the unused entitlement that has accumulated at the balance sheet date. The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefits for measurement purposes. Such
long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the standalone statement of profit and loss. The Company presents the entire obligation for compensated absences as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement beyond 12 months from the reporting date.
Employee benefits are accrued in the period in which the associated services are rendered by employees of the Company. Contributions to defined contribution schemes such as Provident Fund, Employee State Insurance Scheme, 401(k) and other social security schemes are charged to the standalone statement of profit or loss on an accrual basis.
Mphasis Limited has established a Provident Fund Trust to which contributions towards provident fund are made on a monthly basis. The Provident Fund Trust guarantees a specified rate of return on such contributions on a periodical basis. The contributions to the trust managed by the Company is accounted for as a defined benefit plan as the Company is liable for any shortfall in the fund assets based on the Government specified minimum rates of return.
The Company has a defined benefit gratuity plan that provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment in accordance with âThe Payment of Gratuity Act, 1972â. The amount is based on the respective employeeâs last drawn salary and the tenure of employment with the Company.
Gratuity, which is a defined benefit plan, is determined based on an independent actuarial valuation, which is carried out based on the projected unit credit method. The Company recognizes the net obligation of a defined benefit plan in its balance sheet as an asset or liability. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling and the return on plan assets (excluding interest), is reflected immediately in the balance sheet with a charge or credit recognised in other comprehensive income in the period in which they occur. Past service cost, both vested and unvested, is recognised as an expense at the earlier of (a) when the plan amendment or curtailment occurs; and (b) when the entity recognises related restructuring costs or termination benefits. In accordance with Ind AS, re-measurement gains and losses on defined benefit plans recognised in OCI are not to be subsequently reclassified to standalone statement of profit and loss. As required under Ind AS read with Schedule III to Companies Act, 2013, the Company transfers it immediately to retained earnings. The discount rate is based on the yield of securities issued by the Government of India.
The Company measures compensation cost relating to share-based payments using the fair valuation method in accordance with Ind AS 102, Share-Based Payment. Compensation expense is amortized over the vesting period of the option on a graded basis. The units generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period of the respective tranches of such grants.
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using the Black-Scholes valuation model. The expected term of an option is estimated based on the vesting term and contractual life of the option. Expected volatility during the expected term of the option is based on the historical volatility of share price of the Company. Risk free interest rates are based on the government securities yield in effect at the time of the grant.
The cost of equity settled transactions is recognised, together with a corresponding increase in share-based payment reserve in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Companyâs best estimate of the number of equity instruments that will ultimately vest. Debit or credit in standalone statement of profit and loss for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in employee benefits expense.
The dilutive effect of outstanding options is reflected in the computation of diluted earnings per share.
Foreign currency transactions are recorded at exchange rates prevailing on the date of the transaction. Foreign currency denominated monetary assets and liabilities are restated into the functional currency using exchange rates prevailing on the balance sheet date.
Gains and losses arising on restatement of foreign currency denominated monetary assets and liabilities are included in the standalone statement of profit and loss. Non-monetary assets and liabilities denominated in a foreign currency and measured at historical cost are translated at an exchange rate that approximates the rate prevalent on the date of the transaction.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the period in which the transaction is settled. Revenue, expense 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.
Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year. Current and deferred tax are recognised in standalone statement of profit and loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively.
Current income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the taxable income for that period and reflects the uncertainty related to income tax, if any. The tax rates and tax laws used to compute the amount are those that are enacted by the balance sheet date. The Company offsets current tax assets and current tax liabilities, where it has a legally enforceable right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred income tax assets and liabilities is recognised using the balance sheet approach. Deferred tax is recognized on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as an income or expense in the period that includes the enactment or substantive enactment date.
Deferred income taxes are not provided on the undistributed earnings of subsidiaries where it is expected that the earnings of the subsidiary will not be distributed in the foreseeable future.
For operations carried out in SEZ facilities, deferred tax assets or liabilities, if any, have been established for the tax consequences of those temporary differences between the carrying values of assets and liabilities and their respective tax bases that do not reverse during the tax holiday period(s).
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.
A provision is recognized when an enterprise has a present obligation (legal or constructive) as result of past event and it is probable that an outflow embodying economic benefits of resources will be required to settle the obligation. Provisions are determined based on best estimates required to settle each obligation at the balance sheet date. If the effect of the time value of money is material, provisions ar
Mar 31, 2021
1. CORPORATE INFORMATION
Mphasis Limited (âthe Companyâ) is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. The shares of the Company are listed on two recognised stock exchanges in India. The registered office of the Company is in Bengaluru, India.
Mphasis Limited, a global Information Technology (IT) solutions provider specializing in providing cloud and cognitive services, applies next-generation technology to help enterprises transform businesses globally. Customer centricity is foundational to Mphasis and is reflected in the Mphasisâ Front2Back⢠Transformation approach. Front2Back⢠uses the exponential power of cloud and cognitive to provide hyper-personalized digital experience to clients and their end customers.
The standalone financial statements for the year ended 31 March 2021 have been approved by the Board of Directors on 13 May 2021.
The standalone financial statements comprise the financial statements of the Company and its controlled employee benefit trusts.
Mphasis Limited is the sponsoring entity of Employee Stock Option Plan (âESOPâ) trusts. Management of the Company can appoint and remove the trustees and provide funding to the trust for buying the shares. Basis assessment by the management, it believes that the ESOP trusts are designed to be controlled by the Company as an extension arm of the Company and are hence included in these standalone financial statements.
List of Trusts that are consolidated.
> Mphasis Employees Benefit Trust.
> Mphasis Employees Equity Reward Trust.
Statement of compliance
The standalone financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) specified under Section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules as amended from time to time.
2. SIGNIFICANT ACCOUNTING POLICIES Basis of preparation
The standalone financial statements have been prepared on a historical cost convention and on an accrual basis of accounting, except for the following assets and liabilities which have been measured at fair value.
> Derivative financial instruments.
> Investments classified as Fair Value Through Profit or Loss (âFVTPLâ).
> Fair value of plan assets less present value of defined benefit obligations.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
All assets and liabilities have been classified as current and non-current as per the Companyâs normal operating cycle of 12 months. Current Assets do not include elements which are not expected to be realised within 12 months and Current Liabilities do not include items which are due after 12 months, the period of 12 months being reckoned from the reporting date.
The standalone financial statements are presented in INR (T) and all the values are rounded off to the nearest million (INR 000,000) except when otherwise indicated.
The statement of cash flows have been prepared under the indirect method.
The Company has consistently applied the following accounting policies to all periods presented in these standalone financial statements.
Use of estimates, assumptions and judgements
The preparation of the standalone financial statements in conformity with Ind AS requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the standalone financial statements and the reported amounts of revenues and expenses for the year. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Appropriate change in estimates are made as management become aware of changes in circumstances surrounding the estimates. Revisions to accounting estimates are recognised in the year in which the estimates are revised.
Application of accounting policies that require critical accounting estimates involving judgments and the use of assumptions in the standalone financial statements have been disclosed below:
⢠Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The value in use calculation is based on a discounted cash flow (âDCFâ) model. The cash flows are derived from the forecast for future years. These do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the assetâs performance or the CGU being tested for impairment. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the long-term growth rates.
The Companyâs major tax jurisdictions is in India. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates and reflects uncertainties relating to income taxes, if any. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective companyâs domicile. A tax assessment could involve complex issues, which can only be resolved over extended time periods (refer note 22).
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that future taxable profit will be available against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits.
⢠Defined benefit plans
The cost of the defined benefit gratuity plan, compensated absences and the present value of the defined benefit obligation are determined based on an actuarial valuation carried out by an independent actuary using the projected unit credit method. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, future attrition rates and mortality rates. Due to the complexities involved in the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date (refer note 36).
The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, management considers the interest rates of Government bonds in currencies consistent with the currencies of the post-employment benefit obligation.
The mortality rate is based on publicly available mortality tables. These mortality tables tend to change only at intervals in response to demographic changes. Future salary increases are based on expected future inflation rates.
⢠Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, the fair value is measured using appropriate valuation techniques. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
⢠Useful lives of property, plant and equipment
The Company reviews the useful life of property, plant and equipment at the end of each reporting period. This reassessment may result in change in depreciation expense in future periods.
⢠Revenue recognition
Refer the policy on revenue recognition for discussion on judgements and estimates on revenue.
⢠Expected credit loss (âECLâ) on trade and unbilled receivables
The impairment provisions for financial assets are based on evaluation of the risk of default over the expected life of the receivables and expected timing of collection. The Company uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Companyâs past history of collections, customerâs credit-worthiness, existing market conditions as well as forward looking estimates at the end of each reporting period.
The Company evaluates if an arrangement qualifies to be a lease based on the requirements of the relevant standard. Identification of a lease requires significant management judgment. Computation of the lease liabilities and right-to-use assets requires management to estimate the lease term (including anticipated renewals) and the applicable discount rate. Management estimates the lease term based on past practices and reasonably estimated / anticipated future events. The
discount rate is generally based on the incremental borrowing rate specific to the lease being evaluated or for a portfolio of leases with similar characteristics.
Impact of the Global Pandemic (âCovid-19â)
The Company has taken into account the possible impacts of Covid-19 in preparation of the standalone financial statements, including but not limited to its assessment of liquidity and going concern assumption, impairment triggers for non-current assets, recoverable values of its financial and non-financial assets, impact on revenues and on cost budgets in respect of fixed price contracts, impact on measurement of deferred tax assets / liabilities, impact on leases and impact on effectiveness of its hedging relationships. The Company has considered available sources of information, both internal and external, upto the date of approval of the standalone financial statements and expects to recover the carrying amount of its assets. The impact of Covid-19 on the standalone financial statements may differ from that estimated as at the date of approval of these standalone financial statements.
Revenue recognition
Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services.
The Company derives its revenues primarily from rendering application development and maintenance services, infrastructure outsourcing services, call centre and business & knowledge process outsourcing operations and licensing arrangements.
⢠Revenue from rendering application development and maintenance services comprise income from time-and-material and fixed price contracts. Revenues from call center and business & knowledge process outsourcing operations arise from time-based, unit-priced and fixed price contracts. Revenues from infrastructure outsourcing services arise from time-based, unit-priced and fixed price contracts.
⢠Revenue from time and material, unit-priced contracts is recognized on an output basis, measured by units delivered, efforts expended etc.
⢠Revenue from fixed price contracts is recognized using the percentage-of-completion method, calculated as the proportion of the cost of effort incurred up to the reporting date to estimated cost of total effort.
⢠Fixed Bid monthly milestone-based recognition - The practical expedient of revenue equals invoicing is applied as the amounts invoiced directly correspond with the value transferred to the customer.
⢠Revenue from fixed price maintenance and support services contracts where the Company is standing ready to provide services is recognized based on time elapsed mode and revenue is straight-lined over the period of performance.
⢠Revenue from license transactions where customers are given a right to use intellectual property are recognised upfront at the point in time when the license is delivered to the customer, simultaneously with the transfer of control.
⢠Revenue from bundled contracts is recognized separately for each performance obligation based on their allocated transaction price.
⢠In cases where implementation and / or customisation services rendered significantly modifies or customises the license, these services and license are accounted for as a single performance obligation and revenue is recognised over time using the percentage-of-completion method, calculated as the proportion of the cost of effort incurred up to the reporting date to estimated cost of total effort.
⢠Revenue from the sale of distinct third-party hardware is recognised at the point in time when control is transferred to the customer.
The solutions offered by the Company may include supply of third-party equipment or software. In such cases, revenue for supply of such third-party goods are recorded at gross or net basis depending on whether the Company is acting as the principal or as an agent of the customer. The Company recognises revenue in the gross amount of consideration when it is acting as a principal and at net amount of consideration when it is acting as an agent.
Revenue from sale of services is measured based on the transaction price, which is the consideration, adjusted for discounts and pricing incentives, if any, as specified in the contract with the customer. Sales tax / Value Added Tax (VAT) / Goods and Services Tax (âGSTâ) is not received by the Company on its own account. Rather, it is tax collected on value added to the commodity / service rendered by the seller on behalf of the Government. Accordingly, it is excluded from revenues.
The Company recognises an onerous contract provision when it is probable that the unavoidable costs of meeting the obligations under a contract exceed the economic benefits to be received.
Contract assets are recognised when there is excess of revenue earned over billings on contracts. Contract assets are classified as unbilled receivables (only act of invoicing is pending) when there is unconditional right to receive cash, and only passage of time is required, as per contractual terms. Unearned and deferred revenue (âcontract liabilityâ) is recognised when there are billings in excess of revenues. The billing schedules agreed with customers could include periodic performance-based payments and/ or milestone-based progress payments. Invoices are payable within contractually agreed credit period. Advances received for services are reported as liabilities until all conditions for revenue recognition are met.
Contract modifications: Services added that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct are accounted for prospectively, either as a separate contract if the additional services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price.
Use of significant judgements in revenue recognition
⢠The Companyâs contracts with customers could include promises to transfer multiple goods and services to a customer. The Company assesses the goods / services promised in a contract and identifies distinct performance obligations in the contract. Identification of distinct performance obligation involves judgement to determine the deliverables and the ability of the customer to benefit independently from such deliverables.
⢠Judgement is also required to determine the transaction price for the contract. The transaction price could be either a fixed amount of customer consideration or variable consideration with elements such as volume discounts, performance bonuses, price concessions and incentives. The transaction price is also adjusted for the effects of the time value of money if the contract includes a significant financing component. The Company has applied the practical expedient provided by Ind AS 115, whereby the Company does not adjust the transaction price for the effects of the time value of money where the period between when the control on goods and services transferred to the customer and when payment thereof is due, is one year or less. Any consideration payable to the customer is adjusted to the transaction price, unless it is a payment for a distinct good or service from the customer. The estimated amount of variable consideration is adjusted in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur and is reassessed at the end of each reporting period. The Company allocates the elements of variable considerations to all the performance obligations of the contract unless there is observable evidence that they pertain to one or more distinct performance obligations.
⢠The Company uses judgement to determine an appropriate standalone selling price for a performance obligation. The Company allocates the transaction price to each performance obligation on the basis of the relative standalone selling price of each distinct good or service promised in the contract. Where standalone selling price is not observable, the Company uses the expected cost-plus margin approach to allocate the transaction price to each distinct performance obligation.
⢠The Company exercises judgement in determining whether the performance obligation is satisfied at a point in time or over a period of time. The Company considers indicators such as how a customer consumes benefits as services are rendered or who controls the asset as it is being created or existence of enforceable right to payment for performance to date and alternate use of such good or service, transfer of significant risks and rewards to the customer, acceptance of delivery by the customer, etc.
⢠Use of the percentage-of completion method in accounting for its fixed-price contracts requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity. Judgement is also exercised in determining provisions for estimated losses, if any, on uncompleted contracts based on the expected contract cost estimates as at the reporting date.
⢠Contract fulfilment costs are generally expensed as incurred except for certain costs which meet the criteria for capitalisation. The assessment of this criteria requires the application of judgement, in particular, when considering if costs generate or enhance resources to be used to satisfy future performance obligations and whether costs are expected to be recovered.
⢠Contract acquisition costs are generally expensed as incurred except for certain costs which meet the criteria for capitalization, in particular if such costs are expected to be recovered.
Interest income is recognized as it accrues in the standalone statement of profit and loss using effective interest rate method. Dividend income is recognized when the right to receive the dividend is established.
The Company disaggregates revenue from contracts with customers by segment, geography, services rendered, delivery location and project type (refer note 34).
Property, plant and equipment and intangible assets
Property, plant and equipment are stated at the cost of acquisition or construction less accumulated depreciation and write down for, impairment if any. Direct costs are capitalised until the assets are ready to be put to use. Cost includes expenditure directly attributable to the acquisition. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Subsequent expenditure relating to property, plant and equipment is capitalized only when it is probable that future economic benefits associated with these will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are recognised in the statement of profit and loss as incurred. Property, plant and equipment purchased in foreign currency are recorded at cost, based on the exchange rate on the date of purchase.
The Company identifies and determines cost of each component / part of property, plant and equipment separately, if the component/ part has a cost which is significant to the total cost of the property, plant and equipment and has useful life that is materially different from that of the remaining asset.
I ntangible assets purchased are measured at cost or fair value as of the date of acquisition, as applicable, less accumulated amortisation and accumulated impairment, if any. The amortization period and the amortization method are reviewed at least at each financial year end. Internally developed intangible assets are stated at cost that can be measured reliably during the development phase and capitalised when it is probable that future economic benefits that are attributable to the assets will flow to the Company.
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets. Leasehold land is amortised over the lease term. Freehold land is not depreciated.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date are disclosed under âother assetsâ. The cost of property, plant and equipment not ready to use before the balance sheet date is disclosed under âCapital work in progressâ.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising from de-recognition of property, plant and equipment and intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of property, plant and equipment and are recognized in the statement of profit and loss when the property, plant and equipment is derecognized.
Depreciation and amortization
Depreciation on property, plant and equipment is calculated on a straight-line basis using the rates arrived at, based on the useful lives estimated by management. Intangible assets are amortised on a straight-line basis over the estimated useful economic life. Depreciation / amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted prospectively, if appropriate. The useful lives estimated by management are given below:
(In Years) |
||
Asset |
Useful life as per Companies Act, 2013 |
Useful life estimated by management |
Computer equipment |
3 |
3 |
Furniture and fixtures |
10 |
5 |
Lease hold improvements |
Not Applicable |
10 or remaining lease term whichever is less |
Office equipment |
5 |
5 |
Plant and equipment |
15 |
4 to 7 |
Server and networks |
6 |
6 |
Vehicles |
8 |
5 |
Software |
As per Ind AS 38 |
3 |
I n respect of plant and equipment, furniture and fixtures and vehicles, management, basis internal assessment of usage pattern believes that the useful lives as mentioned above best represent the period over which management expects to use these assets. Hence the useful lives in respect of these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
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.
Project specific assets are depreciated over the period of contract or useful life of the asset, whichever is lower.
Policy applicable with effect from 1 April 2019 Company as a lessee
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:
> the contract involves the use of an identified asset;
> the Company has the right to obtain substantially all the economic benefits from use of the asset throughout the period of use; and
> the Company has the right to direct the use of the asset.
At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of the relative stand-alone prices of the lease components and the aggregate standalone price of the non-lease components.
The Company recognises right-of-use asset representing its right to use the underlying asset for the lease term at the lease commencement date. The cost of the right-of-use asset measured at inception shall comprise of the amount of the initial measurement of the lease liability, adjusted for any lease payments made at or before the commencement date, less any lease incentives received, plus any initial direct costs incurred and an estimate of the costs to be incurred by the lessee in dismantling and removing the underlying asset or restoring the underlying asset or site on which it is located.
The right-of-use asset is subsequently measured at cost less accumulated depreciation, accumulated impairment losses, if any and adjusted for any remeasurement of the lease liability. The right-of-use assets is depreciated using the straight-line method from the commencement date over the shorter of lease term or useful life of right-of-use asset. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. Right-of-use assets are tested for impairment whenever there is any indication that their carrying amounts may not be recoverable. Impairment loss, if any, is recognised in the standalone statement of profit and loss.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate applicable to the entity within the Company. Generally, the Company uses its incremental borrowing rate as the discount rate. For leases with reasonably similar characteristics, the Company, on a lease by lease basis, may adopt either the incremental borrowing rate specific to the lease or the incremental borrowing rate for the portfolio as a whole. The lease payments shall include fixed payments, variable lease payments, residual value guarantees, exercise price of a purchase option where the Company is reasonably certain to exercise that option and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
The lease liability is subsequently remeasured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.
The Company recognises the amount of the re-measurement of lease liability as an adjustment to the right-of-use asset. Where the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Company recognises any remaining amount of the re-measurement in standalone statement of profit and loss.
The Company has elected not to recognise right-of-use assets and lease liabilities for short-term leases of all assets that have a lease term of 12 months or less and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
Company as a lessor
When the Company acts as a lessor at the inception, it determines whether each lease is a finance lease or an operating lease.
The Company recognises lease payments received under operating leases as income on a straight-line basis over the lease term. In case of a finance lease, finance income is recognised over the lease term based on a pattern reflecting a constant periodic rate of return on the lessorâs net investment in the lease. When the Company is an intermediate lessor it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short -term lease to which the Company applies the exemption described above, then it classifies the sub-lease as an operating lease.
If an arrangement contains a lease and non-lease components, the Company applies Ind AS 115-Revenue to allocate the consideration in the contract.
Ministry of Corporate Affairs (âMCAâ) through Companies (Indian Accounting Standards) Amendment Rules, 2019 and Companies (Indian Accounting Standards) Second Amendment Rules, has notified Ind AS 116 Leases which replaces the existing lease standard, Ind AS 17 leases and other interpretations. Ind AS 116 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. It introduces a single, on-balance sheet lease accounting model for lessees.
The Company has adopted Ind AS 116, effective annual reporting period beginning from 1 April 2019 using the modified retrospective method with the cumulative effect of initially applying the Standard, recognised on the date of initial application (1 April 2019). Accordingly, the Company has not restated comparative information, instead, the cumulative effect of initially applying this standard has been recognised as an adjustment to the opening balance of retained earnings as on 1 April 2019.
Company as a lessee
As a lessee, the Company previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Company. Under Ind AS 116, the Company recognizes right of use assets and lease liabilities for most leases i.e. these leases are on balance sheet.
On transition, the Company has applied following practical expedients:
> Applied a single discount rate to a portfolio of leases of similar assets in similar economic environment with similar end date.
> Applied the exemption not to recognise right-of-use-assets and liabilities for leases with less than 12 months of lease term on the date of transition.
> Excluded the initial direct costs from the measurement of the right-of -use-asset at the date of transition.
> Grandfathered the assessment of which transactions are, or contain leases. Accordingly, Ind AS 116 is applied only to contracts that were previously identified as leases under Ind AS 17.
> Relied on its assessment of whether leases are onerous, applying Ind AS 37 immediately before the date of initial application as an alternative to performing an impairment review.
> Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
The Company has also applied recognition exemptions of short-term leases to all categories of underlying assets.
On transition, the Company recognised a lease liability measured at the present value of the remaining lease payments.
On application of Ind AS 116, the nature of expenses has changed from lease rent in previous periods to depreciation cost for the right-to-use asset, and finance cost for interest accrued on lease liability.
Company as a lessor
The Company did not make any adjustments on transition to Ind AS 116 for leases in which it acts as a lessor, except for a sublease. The Company accounted for its leases in accordance with Ind AS 116 from the date of initial application. The Company did not have any significant impact on account of sub-lease on the application of this standard.
Borrowing costs
Borrowing cost includes 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 year they occur.
Impairment
a. Financial assets (other than at fair value)
For financial assets measured at amortised cost, debt instruments at fair value through other comprehensive income, trade receivables and other financial assets, the Company assesses at each date of balance sheet whether the asset is impaired. Ind AS 109 (âFinancial instrumentsâ) requires expected credit losses to be measured through a loss allowance. Expected credit loss is the difference between the contractual cash flows and the cash flows that the entity expects to receive, discounted using the effective interest rate. The Company recognises lifetime expected losses for all contract assets and / or all trade receivables. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. The Company provides for impairment upon the occurrence of the triggering event.
b. Non-financial assets
⢠Tangible and intangible assets
Property, plant and equipment and intangible assets with finite life are evaluated for recoverability whenever there is any indication that their carrying amounts may not be recoverable. If any such indication exists, the recoverable amount (i.e. higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the cash generating unit (âCGUâ) to which the asset belongs.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised in the standalone statement of profit and loss.
Financial instruments Non-derivative financial instruments
Non-derivative financial instruments consist of the following:
> financial assets, which include cash and cash equivalents, deposits with banks, trade receivables, unbilled receivables, investments in equity and debt securities and eligible current and non-current assets;
> financial liabilities, which include long and short-term loans and borrowings, finance lease liabilities, bank overdrafts, trade payables, eligible current and non-current liabilities.
Non-derivative financial instruments are recognised when the Company becomes a party to the contract that gives rise to financial assets and liabilities. Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial asset or financial liability.
Subsequent to initial recognition, non-derivative financial instruments are measured as described below.
a. Cash and cash equivalents
The Companyâs cash and cash equivalents consist of cash on hand and in banks and demand deposits with banks with an original maturity of less than or up to three months. For the purposes of the cash flow statement, cash and cash equivalents include cash on hand, in banks and demand deposits with banks, net of outstanding overdrafts that are repayable on demand and are considered part of the Companyâs cash management system.
b. Financial assets at amortised cost
Financial assets (except for debt instruments that are designated at fair value through Profit or Loss (FVTPL) on initial recognition) are subsequently measured at amortised cost if these financial assets are held within a business whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
c. Financial assets at fair value through other comprehensive income
Financial assets (except for debt instruments that are designated at fair value through Profit or Loss (FVTPL) on initial recognition) are measured at fair value through other comprehensive income (âFVTOCIâ) if these financial assets are held within a business whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Interest income is recognized in the standalone statement of profit or loss for FVTOCI debt instruments. Other changes in fair value of FVTOCI financial assets are recognized in other comprehensive income. When the investment is disposed of, the cumulative gain or loss previously accumulated in reserves is transferred to the standalone statement of profit and loss.
d. Financial assets at fair value through profit or loss
Financial assets are measured at FVTPL unless it is measured at amortised cost or at FVTOCI on initial recognition. The transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are immediately recognised in standalone statement of profit and loss. Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognized in the standalone statement of profit and loss. The gain or loss on disposal is recognized in the standalone statement of profit and loss.
Interest income is recognized in the standalone statement of profit and loss for FVTPL debt instruments. Dividend on financial assets at FVTPL is recognized when the Companyâs right to receive dividend is established.
Financial liabilities are subsequently carried at amortized cost using the effective interest rate method. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign currency assets and liabilities. The Company holds derivative financial instruments such as foreign exchange forward contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
Derivatives are recognized and measured at fair value. Attributable transaction costs are recognized in standalone statement of profit and loss as expenses.
Subsequent to initial recognition, derivative financial instruments are measured as described below.
a. Cash flow hedges
The Company designates certain foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the cash flow hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the standalone statement of profit and loss. If the hedging instrument no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging reserve until the forecasted transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the net profit in the standalone statement of profit and loss upon the occurrence of the related forecasted transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified to the standalone statement of profit and loss.
b. Others
Changes in fair value of foreign currency derivative instruments not designated as cash flow hedges are recognized in the standalone statement of profit and loss and reported within foreign exchange gains, net.
Changes in fair value and gains/(losses) on settlement of foreign currency derivative instruments relating to borrowings, which have not been designated as hedges are recorded as foreign exchange gains/ (losses).
c. De-recognition of financial instruments
Financial assets are derecognized when substantial risks and rewards of ownership of the financial asset have been transferred. In cases where substantial risks and rewards of ownership of the financial assets are neither transferred nor retained, financial assets are derecognized only when the Company has not retained control over the financial asset. A financial liability (or a part of a financial liability) is derecognized when the obligation specified in the contract is discharged or cancelled or expires. Trade receivables which are subject to non-recourse factoring arrangements are derecognized in accordance with Ind AS 109 and are offset in accordance with Ind AS 32.
d. Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amounts are presented in the standalone balance sheet when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
e. Fair value of financial instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.
A number of the Companyâs accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities (refer note 39).
When a quote is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as âactiveâ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.
I n determining the fair value of its financial instruments, the Company uses following hierarchy and assumptions that are based on market conditions and risks existing at each reporting date.
f. Fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 âInputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 â Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 â Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Employee benefits
a. Short-term employee benefits
All employee benefits payable wholly within twelve months of rendering the service are classified as short-term employee benefits. Benefits such as salaries, wages etc. and the expected cost of ex-gratia are recognised in the period in which the employee renders the related service. A liability is recognised for the amount expected to be paid when there is a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
b. Compensated absences
The Company has a policy on compensated absences that is both accumulating and non-accumulating in nature. Nonaccumulating compensated absences are measured on an undiscounted basis and are recognized in the period in which absences occur. The cost of short term compensated absences are provided for based on estimates. The expected cost of accumulating compensated absences is determined by actuarial valuation at each balance sheet date measured based on the amounts expected to be paid / availed as a result of the unused entitlement that has accumulated at the balance sheet date. The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefits for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the consolidated
statement of profit and loss. The Company presents the entire obligation for compensated absences as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement beyond 12 months from the reporting date.
c. Defined contribution plans
Employee benefits are accrued in the period in which the associated services are rendered by employees of the Company. Contributions to defined contribution schemes such as Provident Fund, Employee State Insurance Scheme, 401(k) and other social security schemes are charged to the standalone statement of profit or loss on an accrual basis.
Mphasis Limited has established a Provident Fund Trust to which contributions towards provident fund are made on a monthly basis. The Provident Fund Trust guarantees a specified rate of return on such contributions on a periodical basis. The contributions to the trust managed by the Company is accounted for as a defined benefit plan as the Company is liable for any shortfall in the fund assets based on the Government specified minimum rates of return.
e. Gratuity
The Company has a defined benefit gratuity plan that provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment in accordance with âThe Payment of Gratuity Act, 1972â. The amount is based on the respective employee''s last drawn salary and the tenure of employment with the Company.
Gratuity, which is a defined benefit plan, is determined based on an independent actuarial valuation, which is carried out based on the projected unit credit method. The Company recognizes the net obligation of a defined benefit plan in its balance sheet as an asset or liability. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling and the return on plan assets (excluding interest), is reflected immediately in the balance sheet with a charge or credit recognised in other comprehensive income in the period in which they occur. Past service cost, both vested and unvested, is recognised as an expense at the earlier of (a) when the plan amendment or curtailment occurs; and (b) when the entity recognises related restructuring costs or termination benefits. In accordance with Ind AS, re-measurement gains and losses on defined benefit plans recognised in OCI are not to be subsequently reclassified to standalone statement of profit and loss. As required under Ind AS read with Schedule III to Companies Act, 2013, the Company transfers it immediately to retained earnings. The discount rate is based on the yield of securities issued by the Government of India.
The Company measures compensation cost relating to share-based payments using the fair valuation method in accordance with Ind AS 102, Share-Based Payment. Compensation expense is amortized over the vesting period of the option on a straight-line basis. The units generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period of the respective tranches of such grants.
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using the Black-Scholes valuation model. The expected term of an option is estimated based on the vesting term and contractual life of the option. Expected volatility during the expected term of the option is based on the historical volatility of similar companies. Risk free interest rates are based on the government securities yield in effect at the time of the grant.
The cost of equity settled transactions is recognised, together with a corresponding increase in share-based payment reserve in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Companyâs best estimate of the number of equity instruments that will ultimately vest. Debit or credit in standalone statement of profit and loss for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in employee benefits expense.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. Foreign Currencies Transactions and balances
Foreign currency transactions are recorded at exchange rates prevailing on the date of the transaction. Foreign currency denominated monetary assets and liabilities are restated into the functional currency using exchange rates prevailing on the balance sheet date.
Gains and losses arising on restatement of foreign currency denominated monetary assets and liabilities are included in the standalone statement of profit and loss. Non-monetary assets and liabilities denominated in a foreign currency and measured at historical cost are translated at an exchange rate that approximates the rate prevalent on the date of the transaction.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the period in which the transaction is settled. Revenue, expense 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.
Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year. Current and deferred tax are recognised in standalone statement of profit and loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively.
Current income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the taxable income for that period and reflects the uncertainty related to income tax, if any. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. The Company offsets current tax assets and current tax liabilities, where it has a legally enforceable right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred income tax assets and liabilities is recognised using the balance sheet approach. Deferred tax is recognized on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and l
Mar 31, 2019
NOTES TO THE STANDALONE FINANCIAL STATEMENTS
1. CORPORATE INFORMATION
Mphasis Limited (âthe Company'') is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. The shares of the Company are listed on two recognized stock exchanges in India. The registered office of the Company is in Bengaluru, India.
Mphasis Limited, a global, multicultural organization headquartered in Bengaluru, India, specialises in providing a suite of application development and maintenance services, infrastructure outsourcing services and business & knowledge process outsourcing solutions to clients around the world.
The standalone financial statements for the year ended 31 March 2019 have been approved by the Board of Directors on 27 May 2019.
The standalone financial statements comprise the financial statements of the Company and its controlled employee benefit trusts.
Mphasis Limited is the sponsoring entity of Employee Stock Option Plan (âESOP'') trusts. Management of the Company can appoint and remove the trustees and provide funding to the trust for buying the shares. Basis assessment by the management, it believes that the ESOP trusts are designed to be controlled by the Company as an extension arm of the Company.
List of Trusts that are consolidated
- Mphasis Employees Benefit Trust.
- Mphasis Employees Equity Reward Trust.
Statement of compliance
The standalone financial statements of the Company have been prepared in accordance with Indian Accounting Standards (âInd ASâ) specified under Section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules (as amended from time to time).
2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PREPARATION
The standalone financial statements have been prepared on a historical cost convention and on an accrual basis of accounting, except for the following assets and liabilities which have been measured at fair value.
- Derivative financial instruments.
- Investments classified as Fair Value Through Profit or Loss (âFVTPL'').
- Fair value of plan assets less present value of defined benefit obligations.
The standalone financial statements are presented in INR (â'''') and all the values are rounded off to the nearest million (INR 000,000) except when otherwise indicated.
The Company has consistently applied the following accounting policies to all periods presented in these standalone financial statements, except for the adoption of Ind AS 115 - Revenue from Contracts with Customers, which was adopted with effect from 1 April 2018.
USE OF ESTIMATES, ASSUMPTIONS AND JUDGEMENTS
The preparation of the standalone financial statements in conformity with Ind AS requires the management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the standalone financial statements and the reported amounts of revenues and expenses for the year reported. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised, and future periods are affected.
Application of accounting policies that require critical accounting estimates involving judgments and the use of assumptions in the standalone financial statements have been disclosed below:
- Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The value in use calculation is based on a discounted cash flow (âDCF'') model. The cash flows are derived from the forecast for future years. These do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset''s performance of the CGU
being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to other intangibles with indefinite useful lives recognized by the Company.
- Taxes
The Company''s major tax jurisdictions is in India. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective Company''s domicile. A tax assessment could involve complex issues, which can only be resolved over extended time periods. (refer note 20).
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that future taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits.
- Defined benefit plans
The cost of the defined benefit gratuity plan, compensated absences and the present value of the defined benefit obligation are determined based on an actuarial valuation carried out by an independent actuary using the projected unit credit method. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, future attrition rates and mortality rates. Due to the complexities involved in the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date (refer note 35).
The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation.
The mortality rate is based on publicly available mortality tables. These mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates.
- Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, the fair value is measured using internal valuation techniques. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
- Useful lives of property, plant and equipment
The Company reviews the useful life of property, plant and equipment at the end of each reporting period. This reassessment may result in change in depreciation expense in future periods.
- Revenue recognition
Refer the below policy on revenue recognition for discussion on judgements and estimates on revenue.
REVENUE RECOGNITION Policy applicable from 1 April 2018
Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services.
The Company derives its revenues primarily from rendering application development and maintenance services, infrastructure outsourcing services, call centre and business & knowledge process outsourcing operations and licensing arrangements.
Effective 1 April 2018, the Company has applied Ind AS 115 which establishes a comprehensive framework for determining whether, how much and when revenue is recognized. Ind AS 115 replaces Ind AS 18 Revenue, Ind AS 11 Construction Contracts and related interpretations. The Company has adopted Ind AS 115 using the cumulative effect method (without the practical expedient), with the effect of initially applying this standard recognized at the date of initial application (i.e. 1 April 2018). Under this transition 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 - i.e. the comparative information continues to be reported under Ind AS 18 and Ind AS 11. The adoption of the standard did not have any material impact on the financial statements of the Company.
- Revenues from rendering application development and maintenance services comprise income from time-and-material and fixed price contracts. Revenues from call centre and business & knowledge process outsourcing operations arise from both time-based and unit-priced contracts. Revenues from infrastructure outsourcing services arise from time-based, unit-priced and fixed price contracts.
- Revenue from time and material, unit-priced contracts is recognized on an output basis, measured by units delivered, efforts expended etc.
- Revenue from fixed price contracts is recognized using the percentage-of-completion method, calculated as the proportion of the cost of effort incurred up to the reporting date to estimated cost of total effort.
- Revenue from fixed price maintenance and support services contracts where the Company is standing ready to provide services is recognized based on time elapsed mode and revenue is straight-lined over the period of performance.
- Revenue from license transactions is recognized upfront at the point in time when the license is delivered to the customer, simultaneously with the transfer of control.
- Revenue from bundled contracts is recognized separately for each performance obligation based on their allocated transaction price.
- In cases where implementation and / or customization services rendered significantly modifies or customizes the license, these services and license are accounted for as a single performance obligation and revenue is recognized over time using the percentage-of-completion method, calculated as the proportion of the cost of effort incurred up to the reporting date to estimated cost of total effort.
- Revenue from the sale of distinct third-party hardware is recognized at the point in time when control is transferred to the customer.
The solutions offered by the Company may include supply of third-party equipment or software. In such cases, revenue for supply of such third-party goods are recorded at gross or net basis depending on whether the Company is acting as the principal or as an agent of the customer. The Company recognises revenue in the gross amount of consideration when it is acting as a principal and at net amount of consideration when it is acting as an agent.
Revenue from sale of services is measured based on the transaction price, which is the consideration, adjusted for discounts and pricing incentives, if any, as specified in the contract with the customer. Sales tax / Value Added Tax (VAT) / Service Tax / Goods and Service Tax (âGST'') is not received by the Company on its own account. Rather, it is tax collected on value added to the commodity / service rendered by the seller on behalf of the Government. Accordingly, it is excluded from revenues.
The Company recognizes an onerous contract provision when it is probable that the unavoidable costs of meeting the obligations under a contract exceed the economic benefits to be received
Contract assets are recognized when there is excess of revenue earned over billings on contracts. Contract assets are classified as unbilled receivables (only act of invoicing is pending) when there is unconditional right to receive cash, and only passage of time is required, as per contractual terms. Other contract assets have been disclosed as contract assets within other assets. Unearned and deferred revenue (âcontract liabilityâ) is recognized when there are billings in excess of revenues. The billing schedules agreed with customers could include periodic performance-based payments and/or milestone-based progress payments. Invoices are payable within contractually agreed credit period. Advances received for services are reported as liabilities until all conditions for revenue recognition are met.
Contract modifications: Services added that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct are accounted for prospectively, either as a separate contract if the additional services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price.
Use of significant judgments in revenue recognition
- The Companyâs contracts with customers could include promises to transfer multiple goods and services to a customer. The Company assesses the goods / services promised in a contract and identifies distinct performance obligations in the contract. Identification of distinct performance obligation involves judgment to determine the deliverables and the ability of the customer to benefit independently from such deliverables.
- Judgment is also required to determine the transaction price for the contract. The transaction price could be either a fixed amount of customer consideration or variable consideration with elements such as volume discounts, performance bonuses, price concessions and incentives. The transaction price is also adjusted for the effects of the time value of money if the contract includes a significant financing component. The Company has applied the practical expedient provided by Ind AS 115, whereby the Company does not adjust the transaction price for the effects of the time value of money where the period between when the control on goods and services transferred to the customer and when payment thereof is due, is one year or less. Any consideration payable to the customer is adjusted to the transaction price, unless it is a payment for a distinct good or service from the customer. The estimated amount of variable consideration is adjusted in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur and is reassessed at the end of each reporting period. The Company allocates the elements of variable considerations to all the performance obligations of the contract unless there is observable evidence that they pertain to one or more distinct performance obligations.
- The Company uses judgment to determine an appropriate standalone selling price for a performance obligation. The Company allocates the transaction price to each performance obligation on the basis of the relative stand-alone selling price of each distinct good or service promised in the contract. Where standalone selling price is not observable, the Company uses the expected cost-plus margin approach to allocate the transaction price to each distinct performance obligation.
- The Company exercises judgment in determining whether the performance obligation is satisfied at a point in time or over a period of time. The Company considers indicators such as how customer consumes benefits as services are rendered or who controls the asset as it is being created or existence of enforceable right to payment for performance to date and alternate use of such good or service, transfer of significant risks and rewards to the customer, acceptance of delivery by the customer, etc.
- Use of the percentage-of completion method in accounting for its fixed-price contracts requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity. Judgment is also exercised in determining provisions for estimated losses, if any, on uncompleted contracts based on the expected contract cost estimates as at the reporting date.
- Contract fulfillment costs are generally expensed as incurred except for certain costs which meet the criteria for capitalization. The assessment of this criteria requires the application of judgment, in particular, when considering if costs generate or enhance resources to be used to satisfy future performance obligations and whether costs are expected to be recovered.
Interest income is recognized as it accrues in the statement of profit and loss using effective interest rate method.
Dividend income is recognized when the right to receive the dividend is established.
The Company disaggregates revenue from contracts with customers by business verticals, geography, services rendered, delivery location and project type (refer note 33).
Policy applicable before 1 April 2018
Refer note 2 âSignificant Accounting Policiesâ in the Company''s standalone financial statements as at and for the year ended 31 March 2018 for the accounting policies that were in effect for revenues recognized prior to 1 April 2018.
PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
Property, plant and equipment are stated at the cost of acquisition or construction less accumulated depreciation and write down for, impairment if any. Direct costs are capitalised until the assets are ready to be put to use. Cost includes expenditure directly attributable to the acquisition. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Subsequent expenditure relating to property, plant and equipment is capitalized only when it is probable that future economic benefits associated with these will flow to the Company and the cost of the item can be measured reliably. All other Repairs and maintenance costs are recognized in the statement of profit and loss as incurred. Property, plant and equipment purchased in foreign currency are recorded at cost, based on the exchange rate on the date of purchase.
The Company identifies and determines cost of each component / part of Property, plant and equipment separately, if the component/ part has a cost which is significant to the total cost of the Property, plant and equipment and has useful life that is materially different from that of the remaining asset.
Intangible assets purchased are measured at cost or fair value as of the date of acquisition, as applicable, less accumulated amortisation and accumulated impairment, if any. The amortization period and the amortization method are reviewed at least at each financial year end. Internally developed intangible assets are stated at cost that can be measured reliably during the development phase and capitalised when it is probable that future economic benefits that are attributable to the assets will flow to the Company.
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets. Leasehold land is amortized over the lease term. Freehold land is not depreciated.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date are disclosed under âother assets''. The cost of property, plant and equipment not ready to use before the balance sheet date is disclosed under âCapital work in progress''.
An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising from de-recognition of Property, plant and equipment and intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of Property, plant and equipment and are recognized in the statement of profit and loss when the Property, plant and equipment is derecognized.
In respect of plant and equipment, furniture and fixtures and vehicles, the management, basis internal assessment of usage pattern believes that the useful lives as mentioned above best represent the period over which management expects to use these assets. Hence the useful lives in respect of these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
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.
Project specific assets are depreciated over the period of contract or useful life of the asset, whichever is lower.
LEASES
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
Leases, where the less or effectively retains substantially all the risks and benefits of ownership of the leased items, are classified as operating leases. Operating lease payments are recognized in the statement of profit and loss on a straight-line basis over the lease term, unless the lease agreement explicitly states that increase is because of inflation.
Leases under which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Such assets acquired are capitalized at the fair value of the leased asset or the present value of the minimum lease payments at the inception of the lease, whichever is lower. 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 recorded as finance costs in the standalone statement of profit or loss and other comprehensive income.
Assets acquired under finance lease are depreciated over the shorter of the estimated useful life of the asset and the lease term.
BORROWING COSTS
Borrowing cost includes 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 year they occur.
IMPAIRMENT
a. Financial assets (other than at fair value)
For financial assets measured at amortized cost, debt instruments at FVTOCI, trade receivables and other financial assets, the Company assesses at each date of balance sheet whether the asset is impaired. Ind AS 109 (âFinancial instruments'') requires expected credit losses to be measured through a loss allowance. Expected credit loss is the difference between the contractual cash flows and the cash flows that the entity expects to receive, discounted using the effective interest rate. The Company recognises lifetime expected losses for all contract assets and / or all trade receivables. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. The Company provides for impairment upon the occurrence of the triggering event.
b. Non-financial assets
- Tangible and intangible assets
Property, plant and equipment and intangible assets with finite life are evaluated for recoverability whenever there is any indication that their carrying amounts may not be recoverable. If any such indication exists, the recoverable amount (i.e. higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the cash generating unit (âCGU'') to which the asset belongs.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognized in the statement of profit and loss.
FINANCIAL INSTRUMENTS Non-derivative financial instruments
Non-derivative financial instruments consist of the following:
- financial assets, which include cash and cash equivalents, deposits with banks, trade receivables, unbilled receivables, investments in equity and debt securities and eligible current and non-current assets;
- financial liabilities, which include long and short-term loans and borrowings, finance lease liabilities, bank overdrafts, trade payables, eligible current and non-current liabilities.
Non-derivative financial instruments are recognized when the Company becomes a party to the contract that gives rise to financial assets and liabilities. Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial asset or financial liability.
Subsequent to initial recognition, non-derivative financial instruments are measured as described below.
a. Cash and cash equivalents
The Company''s cash and cash equivalents consist of cash on hand and in banks and demand deposits with banks with an original maturity of less than or up to three months. For the purposes of the cash flow statement, cash and cash equivalents include cash on hand, in banks and demand deposits with banks, net of outstanding bank overdrafts that are repayable on demand and are considered part of the Company''s cash management system.
b. Financial assets at amortized cost
Financial assets (except for debt instruments that are designated at fair value through Profit or Loss (FVTPL) on initial recognition) are subsequently measured at amortized cost if these financial assets are held within a business whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Trade receivables which are subject to factoring arrangements are derecognized in accordance with Ind AS 109.
c. Financial assets at fair value through other comprehensive income
Financial assets (except for debt instruments that are designated at fair value through Profit or Loss (FVTPL) on initial recognition) are measured at fair value through other comprehensive income (âFVTOCI'') if these financial assets are held within a business whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Interest income is recognized in the statement of profit or loss for FVTOCI debt instruments. Other changes in fair value of FVTOCI financial assets are recognized in other comprehensive income. When the investment is disposed of, the cumulative gain or loss previously accumulated in reserves is transferred to the standalone statement of profit and loss and other comprehensive income.
d. Financial assets at fair value through profit or loss
Financial assets are measured at FVTPL unless it is measured at amortized cost or at FVTOCI on initial recognition. The transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are immediately recognized in statement of profit and loss. Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognized in the statement of profit and loss. The gain or loss on disposal is recognized in the statement of profit and loss.
Interest income is recognized in the statement of profit and loss and other comprehensive income for FVTPL debt instruments. Dividend on financial assets at FVTPL is recognized when the Company''s right to receive dividend is established.
e. Other financial assets
Other financial assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are presented as current assets, except for those maturing later than 12 months after the reporting date which are presented as non-current assets. These are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less any impairment losses. These comprise trade receivables, unbilled receivables, deposits with banks and other assets.
f. Financial liabilities
Financial liabilities are subsequently carried at amortized cost using the effective interest method. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign currency assets and liabilities. The Company holds derivative financial instruments such as foreign exchange forward contract to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
Derivatives are recognized and measured at fair value. Attributable transaction costs are recognized in statement of profit and loss as expenses.
Subsequent to initial recognition, derivative financial instruments are measured as described below.
a. Cash flow hedge accounting
The Company designates certain foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the cash flow hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the statement of profit and loss. If the hedging instrument no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging reserve until the forecasted transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the net profit in the statement of profit and loss upon the occurrence of the related forecasted transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified to the statement of profit and loss.
b. Others
Changes in fair value of foreign currency derivative instruments not designated as cash flow hedges are recognized in the statement of profit and loss and reported within foreign exchange gains, net.
Changes in fair value and gains/(losses) on settlement of foreign currency derivative instruments relating to borrowings, which have not been designated as hedges are recorded as foreign exchange gains/ (losses).
c. De-recognition of financial instruments
Financial assets are derecognized when substantial risks and rewards of ownership of the financial asset have been transferred. In cases where substantial risks and rewards of ownership of the financial assets are neither transferred nor retained, financial assets are derecognized only when the Company has not retained control over the financial asset. A financial liability (or a part of a financial liability) is derecognized when the obligation specified in the contract is discharged or cancelled or expires.
d. Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amounts are presented in the statement of financial position when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
e. Fair value of financial instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.
A number of the Company''s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities (refer note 36).
When a quote is available, the Company measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as âactive'' if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis
If there is no quoted price in an active market, then the Company uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.
In determining the fair value of its financial instruments, the Company uses following hierarchy and assumptions that are based on market conditions and risks existing at each reporting date.
f. Fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 âInputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
Level 3 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
RETIREMENT AND OTHER EMPLOYEE BENEFITS
a. Employee benefits
Employee benefits are accrued in the period in which the associated services are rendered by employees of the Company. Contributions to defined contribution schemes such as Provident Fund, Employee State Insurance Scheme and other social security schemes are charged to the standalone statement of profit or loss and other comprehensive income on an accrual basis.
b. Gratuity
The Company has a defined benefit gratuity plan that provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment in accordance with âThe Payment of Gratuity Act, 1972â. The amount is based on the respective employee''s last drawn salary and the tenure of employment with the Company.
Gratuity, which is a defined benefit plan, is determined based on an independent actuarial valuation, which is carried out based on the project unit credit method. The Company recognizes the net obligation of a defined benefit plan in its balance sheet as an asset or liability. Gains and losses through re-measurements of the net defined benefit liability / (asset) are recognized in other comprehensive income. In accordance with Ind AS, re-measurement gains and losses on defined benefit plans recognized in OCI are not to be subsequently reclassified to statement of profit and loss. As required under Ind AS read with Schedule III to Companies Act, 2013, the Company transfers it immediately to retained earnings. The discount rate is based on the yield of securities issued by the Government of India.
c. Compensated absences
The Company has a policy on compensated absences that is both accumulating and non-accumulating in nature. No accumulating compensated absences are measured on an undiscounted basis and are recognized in the period in which absences occur. The cost of short term compensated absences are provided for based on estimates. The expected cost of accumulating compensated absences is determined by actuarial valuation at each balance sheet date measured based on the amounts expected to be paid / availed as a result of the unused entitlement that has accumulated at the balance sheet date. The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefits for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. Actuarial gains/losses are immediately taken to the standalone statement of profit and loss and other comprehensive income. The Company presents the entire obligation for compensated absences as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement beyond 12 months from the reporting date.
d. Provident fund
Mphasis Limited has established a Provident Fund Trust to which contributions towards provident fund are made on a monthly basis. The Provident Fund Trust guarantees a specified rate of return on such contributions on a periodical basis. The contributions to the trust managed by the Company is accounted for as a defined benefit plan as the Company is liable for any shortfall in the fund assets based on the Government specified minimum rates of return.
SHARE BASED PAYMENTS
The Company measures compensation cost relating to share-based payments using the fair valuation method in accordance with Ind AS 102, Share-Based Payment. Compensation expense is amortized over the vesting period of the option on a straight-line basis. The units generally vest in a graded manner over the vesting period. The fair value determined at the grant date is expensed over the vesting period of the respective tranches of such grants.
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using the Black-Scholes valuation model. The expected term of an option is estimated based on the vesting term and contractual life of the option. Expected volatility during the expected term of the option is based on the historical volatility of similar companies. Risk free interest rates are based on the government securities yield in effect at the time of the grant.
The cost of equity settled transactions is recognized, together with a corresponding increase in share-based payment (SBP) reserve in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company''s best estimate of the number of equity instruments that will ultimately vest. Debit or credit in Statement of profit and loss for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in employee benefits expense.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.
FOREIGN CURRENCIES Transactions and balances
Foreign currency transactions are recorded at exchange rates prevailing on the date of the transaction. Foreign currency denominated monetary assets and liabilities are restated into the functional currency using exchange rates prevailing on the balance sheet date.
Gains and losses arising on settlement and restatement of foreign currency denominated monetary assets and liabilities are included in the statement of profit and loss. Non-monetary assets and liabilities denominated in a foreign currency and measured at historical cost are translated at an exchange rate that approximates the rate prevalent on the date of the transaction.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the period in which the transaction is settled. Revenue, expense 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.
INCOME TAXES
Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year. Current and deferred tax are recognized in statement of profit and loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively.
- Current income tax
Current income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the taxable income for that period. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. The Company offsets current tax assets and current tax liabilities, where it has a legally enforceable right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
- Deferred income tax
Deferred income tax assets and liabilities is recognized using the balance sheet approach. Deferred tax is recognized on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as an income or expense in the period that includes the enactment or substantive enactment date.
Deferred income taxes are not provided on the undistributed earnings of subsidiaries where it is expected that the earnings of the subsidiary will not be distributed in the foreseeable future.
Deferred tax assets include Minimum Alternative Tax (âMAT'') paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability. Accordingly, MAT is recognized as deferred tax asset in the balance sheet when the asset can be measured reliably, and it is probable that the future economic benefit associated with the asset will be realized. In the year in which the MAT credit becomes eligible to be recognized as an asset, it is recorded by way of a credit to the statement of comprehensive income and shown as deferred tax assets. 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 future period.
For operations carried out in SEZs, deferred tax assets or liabilities, if any, have been established for the tax consequences of those temporary differences between the carrying values of assets and liabilities and their respective tax bases that reverse after the tax holiday ends.
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.
PROVISIONS AND CONTINGENT LIABILITIES
A provision is recognized when an enterprise has a present obligation (legal or constructive) as result of past event and it is probable that an outflow embodying economic benefits of resources will be required to settle a reliably assessable obligation. Provisions are determined based on best estimate required to settle each obligation at each balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
Provisions for onerous contracts are recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated with that contract.
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed 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 recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the standalone financial statements.
EARNINGS PER SHARE
The basic earnings per share is computed by dividing the net profit attributable to the Company''s owners for the year by the weighted average number of equity shares outstanding during the year adjusted for treasury shares held.
The number of shares used in computing diluted earnings per share comprises the weighted average shares considered for deriving basic earnings per share, and the weighted average number of equity shares which could be issued on the conversion of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date.
CASH DIVIDEND TO EQUITY HOLDERS OF THE COMPANY
The Company recognizes a liability to make cash distributions to equity holders of the Company when the distribution is authorized, and the distribution is no longer at the discretion of the Company. Final dividends on shares is recorded as a liability on the date of approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company''s Board of Directors.
GOVERNMENT GRANTS
The Company recognizes government grants only when there is reasonable assurance that the conditions attached to them shall be complied with, and the grants will be received. When the grant relates to a capital asset, it is presented by deducting the grant in arriving at the carrying amount of the asset. Government grants related to revenue are recognized on a systematic basis in net profit in the statement of profit and loss over the periods necessary to match them with the related costs which they are intended to compensate.
STANDARDS / PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE
Ministry of Corporate Affairs (âMCAâ) through Companies (Indian Accounting Standards) Amendment Rules, 2019 and Companies (Indian Accounting Standards) Second Amendment Rules, has notified the following new and amendments to Ind AS which the Company has not applied as they are effective from 1 April 2019.
Ind AS 116 - Leases
Ind AS 116 will replace the current guidance in Ind AS 17, âLeases''. Ind AS 116 defines a lease as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.
Ind AS 116 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract i.e., the lessee and the lessor. Ind AS 116 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Ind AS 116 substantially carries forward the lessor accounting requirements in Ind AS 17.
The Company will adopt Ind AS 116 with effect from annual reporting periods beginning on 1 April 2019. The Company has chosen to apply the standard retrospectively, with the cumulative effect of initially applying the standard, recognized on the date of initial application i.e. 1 April 2019. Accordingly, the Company will not restate comparative information, instead, the cumulative effect of initially applying this Standard will be recognized as an adjustment to the opening balance of retained earnings as on 1 April 2019. On that date, the Company will recognize a lease liability measured at the present value of the remaining lease payments. The right-of-use asset is recognized at its carrying amount as if the Standard had been applied since the commencement date, but discounted using the lessee''s incremental borrowing rate as at 1 April 2019. In accordance with the standard, the Company will elect not to apply the requirements of Ind AS 116 to short-term leases and leases for which the underlying asset is of low value.
On transition, the Company will be using the practical expedient provided by the standard and therefore, will not reassess whether a contract, is or contains a lease, at the date of initial application.
The Company will recognise with effect from 1 April 2019 new assets and liabilities for its operating leases of premises and other assets.
Previously, the Company recognized operating lease expense on a straight-line basis over the term of the lease, and recognized assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognized. Under Ind AS 116, the nature of expenses related to those leases will change from lease rent in previous periods to amortization charge for the right- to use asset and interest accrued on lease liability.
The Company is evaluating the effect of Ind AS 116 on its standalone financial statements.
Ind AS 19, âEmployee Benefitsâ
Limited amendments to Ind AS 19 in connection with accounting for plan amendments, curtailments and settlements. The amendments require an entity to use updated assumptions to determine current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement and to recognize in profit or loss as part of past service cost, or a gain or loss on settlement, any reduction in a surplus, even if that surplus was not previously recognized because of the impact of the asset ceiling. These amendments will apply to any future plan amendments, curtailments, or settlements of the Company on or after 1 April 2019. The Company does not expect this amendment to have any significant impact on its financial statements.
Appendix C to Ind AS 12, Uncertainty over Income Tax Treatments
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. It outlines the following: (1) the entity has to use judgment, to determine whether each tax treatment should be considered separately or whether some can be considered together. The decision should be based on the approach which provides better predictions of the resolution of the uncertainty (2) the entity is to assume that the taxation authority will have full knowledge of all relevant information while examining any amount (3) entity has to consider the probability of the relevant taxation authority accepting the tax treatment and the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates would depend upon the probability. The Company is evaluating the effect of the said amendment on its standalone financial statements.
Amendment to Ind AS 12 - âIncome Taxesâ
The amendment relating to income tax consequences of dividend clarify that an entity shall recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. The Company does not expect any impact from this pronouncement. It is relevant to note that the amendment does not amend situations where the entity pays a tax on dividend which is akin to taxes paid on behalf of shareholders. Such amount paid or payable to taxation authorities continues to be charged to equity as part of dividend, in accordance with Ind AS 12. The Company is evaluating the effect of the said amendment on its standalone financial statements.
(b) Terms/rights and restrictions attached to equity shares
The Company has only one class of equity shares having par value of '' 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.
In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
(ii) Equity shares extinguished / cancelled on buy back
a. During the previous year ended 31 March 2018, the Company had completed the buyback of 17,370,078 fully paid-up equity shares of face value of Rs, 10 each (âequity sharesâ) on 2 June 2017, representing 8.26% of the total paid-up equity share capital of the Company, at a price of Rs, 635 per equity share for an aggregate consideration of Rs, 11,030.00 million. The shares accepted by the Company under the buyback scheme were extinguished on 7 June 2017 and the paid-up equity share capital of the Company has been reduced to that extent. Subsequent to completion of buyback, the Company has transferred Rs, 173.70 million to Capital Redemption Reserve representing face value of equity shares bought back.
b. During the current year, the Company has completed the buyback of 7,320,555 fully paid-up equity shares of face value Rs, 10 each (âequity sharesâ), representing 3.79% of the total paid-up equity share capital of the Company, at a price of Rs, 1,350 per equity share for an aggregate consideration of Rs, 9,882.75 million. In line with the requirements of the Companies Act, 2013, an amount of Rs, 176.59 million, Rs, 743.89 million and Rs, 8,962.27 million has been utilized from securities premium, general reserve and retained earnings respectively. The shares accepted under the buyback have been extinguished on 28 December 2018 and the paid-up equity share capital of the Company has been reduced to that extent. Subsequent to completion of the buyback, the Company has transferred Rs, 73.21 million to the Capital Redemption Reserve representing face value of equity shares bought back.
As per records of the Company, including its register of shareholders / members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownerships of shares.
(f) Shares reserved for issue under options
For details of shares reserved for issue under the ESOP plan of the Company, refer note 13.
Dividend on equity shares
The Board of Directors, at its meeting held on 10 May 2018 had proposed the final dividend of Rs, 20 per share for the year ended 31 March 2018. The dividend proposed by the Board of Directors has been approved by the shareholders'' in the Annual General Meeting held on 7 August 2018. This resulted in a cash outflow of '' 4,654.82 million, inclusive of dividend distribution tax of '' 794.88 million.
Employee Stock Option Plans - Equity settled Employees Stock Option Plan 1998 (the 1998 Plan)
The Company instituted the 1998 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders in the Annual General Meeting held on 31 July 1998. The 1998 Plan provides for the issuance of 3,720,000 options to eligible employees as recommended by the ESOP Committee constituted for this purpose. In accordance with the 1998 Plan, the Committee has formulated 1998 Plan - (Version I) and 1998 Plan (Version II) during the years 1998 1999 and 1999 2000 respectively.
1998 Plan - (Version I): Each option granted under the 1998 Plan - (Version I), entitles the holder thereof with an option to apply for and be issued one equity share of the Company at an exercise price of '' 34.38 per share. The equity shares covered under these options vest at various dates over a period ranging from six to sixty-six months from the date of grant based on the length of service completed by the employee to the date of grant. The options are exercisable any time after their vesting period.
The options outstanding as at 31 March 2019 have an exercise price of '' 34.38 (31 March 2018: '' 34.38).
1998 Plan - (Version II): Commencing January 2000, the Company decided to grant all future options at the market price immediately preceding the date of grant. The equity shares covered under these options vest at various dates over a period ranging from twelve to forty-eight months from the date of grant based on the grade of the employee. However, in the case of options granted to the then Managing Director or Chief Executive Officer, the vesting period of the options, subject to minimum period of one year from the date of grant, is determined by the ESOP Committee and approved by the Board. The options are to be exercised within a period of ten years from their date of vesting.
Employees Stock Option Plan - 2004 (the 2004 Plan)
At the Extraordinary General Meeting held on 12 May 2004, the shareholders approved a new Employee Stock Option Plan. The 2004 Plan provides for the issue of equity shares to employees and directors of the Company and its subsidiaries and for the exchange of outstanding stock options of Msource Corporation as on 20 September 2004, pursuant to its merger with Mphasis Corporation and the assumption of the Msource stock options by the Company.
The 2004 Plan is administered through the ESOP Committee appointed by the Board and comprises two programs. Under Program
A, outstanding options of Msource Corporation were exchanged for options in the Company on the agreed exchange ratio of 0.14028 stock options with underlying equity shares of the Company for each stock option in the Msource 2001 plan, the exercise price being the equivalent amount payable by the option holder under the Msource 2001 plan. The equity shares underlying these options vest over a period up to forty-eight months from the date of assumption by the Company and shall be exercisable within a period of ten years from the original date of grant under the Msource 2001 plan.
Options under Program B represent fresh grants and will be issued to employees at an exercise price which shall be equal to the fair value of the underlying shares at the date of grant. The equity shares covered under these options vest over a period ranging from twelve to forty-eight months from the date of grant. The exercise period is two years from the date of vesting.
The 2016 Plan is administered by the Mphasis Employees Equity Reward Trust. As per the ESOP 2016 Plan, the stock options are granted at the Market Price subject to a discount up to twenty per cent (20%) as may be determined by the Compensation Committee at the time of Grant. The equity shares covered under these options vest over 60 months from the date of grant. The exercise period is thirty-six months from the respective date of vesting.
The weighted average share price as at the date of exercise of stock option was '' 1,064.34 (31 March 2018: '' 831.99) The options outstanding as at 31 March 2019 have an exercise price ranging from '' 500.00 to '' 941.00 (31 March 2018: '' 500.0 to '' 650.00) and the weighted average remaining contractual life is of 4.24 years
Mar 31, 2018
Basis of preparation
Standalone financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS) specified under Section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time).
The standalone financial statements have been prepared on the historical cost basis, except for following assets and liabilities which have been measured at fair values.
- Derivative financial instruments
- Certain financial assets measured at fair value (refer accounting policy regarding financial instruments).
In addition, the carrying values of assets and liabilities designated as hedged items are recognized at fair value.
The standalone financial statements are presented in INR (T) and all the values are rounded off to the nearest million (INR 000,000) except when otherwise indicated.
Business Combinations
The Company accounts for its business combinations under acquisition method of accounting. Acquisition related costs are recognised in the statement of profit and loss as incurred. The acquireeâs identifiable assets, liabilities and contingent liabilities that meet the condition for recognition are recognised at their fair values at the acquisition date.
Purchase consideration paid in excess of the fair value of net assets acquired is recognised as goodwill. Where the fair value of identifiable assets and liabilities exceed the cost of acquisition, after reassessing the fair values of the net assets and contingent liabilities, the excess is recognised as capital reserve.
Business combinations arising from transfers of interests in entities that are under the common control are accounted using pooling of interest method. The difference between any consideration given and the aggregate historical carrying amounts of assets and liabilities of the acquired entity are recorded in shareholdersâ equity.
use of estimates, assumptions and judgements
The preparation of the standalone financial statements in conformity with Ind AS requires the management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the standalone financial statements and the reported amounts of revenues and expenses for the year reported. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and future periods are affected.
Key source of estimation of uncertainty as at the date of standalone financial statements, which may cause a material adjustment to the carrying amounts of assets and liabilities within the next financial year, is in respect of the following:
- Revenue Recognition
The Company uses the percentage-of-completion method in accounting for its fixed-price contracts. Use of the percentage-of completion method requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the expected contract estimates at the reporting date.
- Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at armâs length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the forecast for future years. These do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the assetâs performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to other intangibles with indefinite useful lives recognized by the Company.
- Share-based payments
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in note 17.
- Taxes
The Companyâs major tax jurisdictions is in India. Significant judgments are involved in determining the provision for income taxes and tax credits, including the amount expected to be paid or refunded. (refer note 24).
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that future taxable profit will be available against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
- Defined benefit plans
The cost of the defined benefit gratuity plan and other post-employment benefits and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. (refer note 41)
The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the postemployment benefit obligation.
The mortality rate is based on publicly available mortality tables. These mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates.
- Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using internal valuation techniques. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
- Intangible assets under development
The Company capitalizes intangible asset under development in accordance with the accounting policy. Initial capitalization of costs is based on managementâs judgement that technological and economic feasibility is confirmed. This is done when a product development project has reached a defined milestone according to an established project management model. In determining the amounts to be capitalized, management makes assumptions regarding the expected future cash generation, discount rates to be applied and the expected tenure of benefits.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, considering contractually defined terms of payment.
Sales tax/Value Added Tax (VAT) / Service Tax / Goods and Service Tax (âGSTâ) is not received by the Company on its own account. Rather, it is tax collected on value added to the commodity/service rendered by the seller on behalf of the government. Accordingly, it is excluded from revenue.
The Company derives its revenues primarily from software services & projects, call centre and business & knowledge process outsourcing operations, infrastructure outsourcing services, licensing arrangement, application services and trading of goods.
Revenues from software services & projects comprise income from time-and-material and fixed price contracts. Revenue from time and material contracts is recognized when the services are rendered in accordance with the terms of contracts with clients. Revenue from fixed price contracts is recognized using the percentage-of-completion method, calculated as the proportion of the cost of effort incurred up to the reporting date to estimated cost of total effort.
Revenues from call centre and business & knowledge process outsourcing operations arise from both time-based and unit-priced client contracts. Such revenue is recognized when the services are rendered in accordance with the terms of the contracts with clients.
Revenues from infrastructure outsourcing services arise from time based, unit-priced and fixed price contracts. Revenue from time based and unit-priced is recognized when the services are rendered in accordance with the terms of the contracts with clients. Revenue from fixed price contracts is recognized using the percentage-of-completion method, calculated as the proportion of the cost of effort incurred up to the reporting date to estimated cost of total effort.
License fee revenues are recognised when the general revenue recognition criteria is met. Revenue from bundled contracts is allocated separately for each element based on their fair values. Maintenance revenue is recognized rateably over the period of underlying maintenance agreements.
Revenue from sale of services is shown as net of applicable discounts and pricing incentives to customer.
Revenues from sale of goods is recognized on transfer of significant risks and rewards where it is probable that economic benefits will flow to the Company and there is neither continuing managerial involvement nor effective control over the goods sold.
Revenue is recognised only when evidence of an arrangement is obtained and the other criteria to support revenue recognition are met, including the price is fixed or determinable, services have been rendered, the cost incurred and cost to complete the transaction can be measured reliably and collectability of the resulting receivables is probable.
Provisions for estimated losses on incomplete contracts are recorded in the year in which such losses become probable based on the current contract estimates.
Unbilled revenue represents revenues in excess of amounts billed to clients as at the balance sheet date. Unearned revenue represent billings in excess of revenues recognized.
Advances received for services are reported as liabilities until all conditions for revenue recognition are met.
Interest income is recognized as it accrues in the statement of profit and loss using effective interest rate method.
Dividend income is recognized when the right to receive the dividend is established.
Property, Plant and Equipment and Intangible assets
Property, plant and equipment are stated at the cost of acquisition or construction less accumulated depreciation and write down for, impairment if any. Direct costs are capitalised until the assets are ready to be put to use. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. All other repair and maintenance costs are recognised in the statement of profit or loss as incurred. Property, plant and equipment purchased in foreign currency are recorded at cost, based on the exchange rate on the date of purchase.
The Company identifies and determines cost of each component/ part of Property, plant and equipment separately, if the component/ part has a cost which is significant to the total cost of the Property, plant and equipment and has useful life that is materially different from that of the remaining asset.
Intangible assets purchased or acquired in business combination, are measured at cost or fair value as of the date of acquisition, as applicable, less accumulated amortisation and accumulated impairment, if any. The amortization period and the amortization method are reviewed at least at each financial year end. Internally developed intangible assets are stated at cost that can be measured reliably during the development phase and capitalised when it is probable that future economic benefits that are attributable to the assets will flow to the Company.
Gains or losses arising from derecognition of Property, plant and equipment are measured as the difference between the net disposal proceeds and the carrying amount of Property, plant and equipment and are recognized in the statement of profit and loss when the Property, plant and equipment is derecognized.
Cost of assets not ready for use at the balance sheet date are disclosed under capital work-in-progress.
Depreciation and amortisation
Depreciation on Property, plant and equipment is calculated on a straight-line basis using the rates arrived at, based on the useful lives estimated by the management. Intangible assets are amortised on a straight-line basis over the estimated useful economic life. The useful lives estimated by the management are given below:
In respect of plant and equipment, furniture and fixtures and vehicles, the management basis internal assessment of usage pattern believes that the useful lives as mentioned above best represent the period over which management expects to use these assets. Hence the useful lives in respect of these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
Project specific assets are depreciated over the period of contract or useful life of the asset, whichever is lower.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit and loss when the asset is derecognised.
The residual values, useful lives and methods of depreciation of property, plant and equipment and intangible assets are reviewed at each financial year end and adjusted prospectively, if appropriate.
Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
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 recognised in the statement of profit and loss on a straight line basis over the lease term, unless the lease agreement explicitly states that increase is because of inflation.
Leases under which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Such assets acquired are capitalised at the fair value of the leased asset or the present value of the minimum lease payments at the inception of the lease, whichever is lower.
For arrangements entered into prior to 1 April 2015, the Company has determined whether the arrangement contain lease on the basis of facts and circumstances existing on the date of transition.
Borrowing costs
Borrowing cost includes 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.
Impairment
Financial assets (other than at fair value)
The Company assesses at each date of balance sheet whether a financial asset or a group of financial assets is impaired. Ind AS 109 (âFinancial Instrumentsâ) requires expected credit losses to be measured through a loss allowance. The Company recognises lifetime expected losses for all contract assets and / or all trade receivables that do not constitute a financing transaction. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. The Company provides for impairment upon the occurrence of the triggering event. As per the policy, The Company provides for impairment of trade receivables (other than intercompany receivables) outstanding more than 180 days from the date they are due for payment.
Non-financial assets tangible and intangible assets
Property, plant and equipment and intangible assets with finite life are evaluated for recoverability whenever there is any indication that their carrying amounts may not be recoverable. If any such indication exists, the recoverable amount (i.e. higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the cash generating unit (CGU) to which the asset belongs.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised in the statement of profit and loss.
Financial instruments
Financial assets and liabilities are recognised when the Company becomes a party to the contract that gives rise to financial assets and financial liabilities. Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial asset or financial liability.
Cash and cash equivalents
The Company considers all highly liquid financial instruments, which are readily convertible into known amounts of cash that are subject to an insignificant risk of change in value and having original maturities of three months or less from the date of purchase, to be cash equivalents. Cash and cash equivalents consist of balances with banks which are unrestricted for withdrawal and usage.
Financial assets at amortised cost
Financial assets are subsequently measured at amortised cost if these financial assets are held within a business whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Trade receivables which are subject to factoring arrangements are derecognized in accordance with Ind AS 109.
Financial assets at fair value through other comprehensive income
Financial assets are measured at fair value through other comprehensive income if these financial assets are held within a business whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at fair value through profit or loss
Financial assets are measured at fair value through profit or loss unless it is measured at amortised cost or at fair value through other comprehensive income on initial recognition. The transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are immediately recognised in statement of profit and loss.
Financial liabilities
Financial liabilities are subsequently carried at amortized cost using the effective interest method, except for contingent consideration recognized in a business combination which is subsequently measured at fair value through profit or loss. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
Derivative financial instruments
The Company holds derivative financial instruments such as foreign exchange forward contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
Financial assets or financial liabilities, at fair value through statement of profit or loss.
This category has derivative financial assets or liabilities which are not designated as hedges.
Any derivative that is either not designated as a hedge, or is so designated but is ineffective as per Ind AS 109, is categorized as a financial asset or financial liability, at fair value through statement of profit and loss.
Derivatives not designated as hedges are recognized initially at fair value. Attributable transaction costs are recognized in the statement of profit and loss as and when incurred. Any gains or losses arising from changes in the fair value of derivatives are taken directly to statement of profit and loss.
Cash flow hedge accounting
The Company designates certain foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the cash flow hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the statement of profit and loss. If the hedging instrument no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging reserve until the forecasted transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the net profit in the statement of profit and loss upon the occurrence of the related forecasted transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified to the statement of profit and loss.
De-recognition of financial instruments
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109. A financial liability (or a part of a financial liability) is derecognized when the obligation specified in the contract is discharged or cancelled or expires.
Fair value of financial instruments
In determining the fair value of its financial instruments, the Company uses following hierarchy and assumptions that are based on market conditions and risks existing at each reporting date.
Fair value hierarchy:
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Retirement and other employee benefits
Gratuity, which is a defined benefit plan, is accrued based on an independent actuarial valuation, which is done based on project unit credit method as at the balance sheet date. The Company recognizes the net obligation of a defined benefit plan in its balance sheet as an asset or liability. Gains and losses through re-measurements of the net defined benefit liability/(asset) are recognized in other comprehensive income. In accordance with Ind AS, re-measurement gains and losses on defined benefit plans recognized in OCI are not to be subsequently reclassified to statement of profit and loss. As required under Ind AS compliant Schedule III, the Company transfers it immediately to retained earnings.
The cost of short term compensated absences are provided for based on estimates. Long term compensated absence costs are provided for based on actuarial valuation using the project unit credit method. The Company presents the entire leave as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement for 12 months after the reporting date.
Contributions payable to recognized provident funds, which are defined contribution schemes, are charged to the statement of profit and loss.
The Company has established a Provident Fund Trust to which contributions towards provident fund are made each month. The Provident Fund Trust guarantees a specified rate of return on such contributions on a periodical basis. This being a defined benefit plan, the Company accounts for it, based on actuarial valuation, as per Projected Unit Credit Method, as at the date of Balance Sheet.
Share based payments
The Company measures compensation cost relating to share-based payments using the fair valuation method in accordance with Ind AS 102 Share-Based Payment. Compensation expense is amortized over the vesting period of the option on a straight line basis. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model (Black-Scholes valuation model). That cost is recognised, together with a corresponding increase in share-based payment (SBP) reserves in equity, over the period in which the performance and/or service conditions are fulfilled in employee benefits expense. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Companyâs best estimate of the number of equity instruments that will ultimately vest.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.
Foreign currencies
Foreign currency transactions are recorded at exchange rates prevailing on the date of the transaction. Foreign currency denominated monetary assets and liabilities are restated into the functional currency using exchange rates prevailing on the balance sheet date.
Gains and losses arising on settlement and restatement of foreign currency denominated monetary assets and liabilities are included in the statement of profit and loss.
The Companyâs financial statements are presented in INR. The Company determines the functional currency as INR on the basis of primary economic environment in which the entity operates.
Income taxes
Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year. Current and deferred tax are recognised in the statement of profit and loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively.
Current income tax
Current income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the taxable income for that period. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
Deferred income tax
Deferred income tax is recognised using the balance sheet approach. Deferred tax is recognized on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to 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.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Deferred tax assets include Minimum Alternative Tax (âMATâ) paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability. Accordingly, MAT is recognized as deferred tax asset in the balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with the asset will be realized.
Provisions and contingent liabilities
A provision is recognized when an enterprise has a present obligation (legal or constructive) as result of past event and it is probable that an outflow embodying economic benefits of resources will be required to settle a reliably assessable obligation. Provisions are determined based on best estimate required to settle each obligation at each balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Provisions for onerous contracts, i.e. contracts where the expected unavoidable costs of meeting obligations under a contract exceed the economic benefits expected to be received, are recognized when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation as a result of an obligating event, based on a reliable estimate of such obligation.
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or nonoccurrence 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 recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the standalone financial statements.
Earnings per share
The basic earnings per share is computed by dividing the net profit attributable to equity shareholders for the period by the weighted average number of equity shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average shares considered for deriving basic earnings per share, and also the weighted average number of equity shares which could be issued on the conversion of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. The diluted potential equity shares have been arrived at, assuming that the proceeds receivable were based on shares having been issued at the average market value of the outstanding shares. In computing dilutive earnings per share, only potential equity shares that are dilutive and that would, if issued, either reduce future earnings per share or increase loss per share, are included.
Inventories
Inventory comprises of traded goods and is measured at lower of cost and net realisable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Cost is determined on a weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business, less estimated cost necessary to make the sale.
Treasury shares
The Company has formed an Employee Benefit Trust (âEBTâ) for providing share-based payment to its employees. The Company uses EBT as a vehicle for distributing shares to employees under the employee remuneration schemes. The EBT buys shares of the company from the market, for giving shares to employees. The Company treats EBT as its extension and shares held by EBT are treated as treasury shares.
Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in statement of profit and loss on the purchase, sale, issue or cancellation of the Companyâs own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in reserve. Share options exercised during the reporting period are adjusted against treasury shares.
Cash dividend to equity holders of the Company
The Company recognises a liability to make cash distributions to equity holders of the Company when the distribution is authorised and the distribution is no longer at the discretion of the Company. Final dividends on shares are recorded as a liability on the date of approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Companyâs Board of Directors.
Government Grants
The Company recognizes government grants only when there is reasonable assurance that the conditions attached to them shall be complied with, and the grants will be received. Government grants related to assets are treated as deferred income and are recognized in net profit in the statement of profit and loss on a systematic and rational basis over the useful life of the asset. Government grants related to revenue are recognized on a systematic basis in net profit in the statement of profit and loss over the periods necessary to match them with the related costs which they are intended to compensate.
Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Company does not restate any previously recognized gains, losses (including impairment gains or losses) or interest.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the standalone balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
Current vs non current classification
The Company presents assets and liabilities in the balance sheet based on current / non current classification.
An asset is treated as current when :
- It is expected to be realised or intended to be sold or consumed in normal operating cycle.
- It is held primarily for purpose of trading.
- It is expected to be realised within twelve months after the reporting period.
- Cash and cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non current.
A liability is treated as current when :
- It is expected to settle in the normal operating cycle.
- It is due to be settled within twelve months after the reporting date.
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
All other liabilities are classified as non current.
Deferred tax assets and liabilities are classified as non current.
Advance tax paid is classified as non current assets.
Mar 31, 2017
NOTES TO THE STANDALONE FINANCIAL STATEMENTS
1. CORPORATE INFORMATION
Mphasis Limited is a public company domiciled in India and is incorporated under the provisions of the Companies Act applicable in India. The shares of the Company are listed on two recognized stock exchanges in India. The registered office of the Company is located in Bengaluru, India.
Mphasis Limited, a global, multicultural organization headquartered in Bengaluru, India, specializes in providing a suite of application development and maintenance services, infrastructure outsourcing services and business & knowledge process outsourcing solutions to clients around the world.
The standalone financial statements for the year ended 31 March 2017 are approved by the Board of Directors on 25 May 2017.
The standalone financial statements comprise the financial statements of the Company and its controlled employee benefit trusts.
Mphasis Limited is the sponsoring entity of Employee Stock Option Plan (âESOP'') trusts. Management of the Company can appoint and remove the trustees and provide funding to the trust for buying the shares. Basis assessment by the management, it believes that the ESOP trusts are designed to be controlled by the Company as an extension arm of the Company.
List of Trusts that are consolidated
- Mphasis Employees Benefit Trust.
- Mphasis Employees Equity Reward Trust.
Abbreviations
Indian Accounting Standards - (âInd AS'')
Employee Stock Option Plan - (âESOP'')
Restricted Stock Units - (âRSU'')
Other Comprehensive Income - (âOCI'')
Fair Value Through Profit and Loss - (âFVTPL'')
Fair Value Through Other Comprehensive Income - (âFVTOCI'')
Dividend Distribution Tax (âDDTâ)
2. SIGNIFICANT ACCOUNTING POLICIES Basis of preparation
In accordance with the notification issued by the Ministry of Corporate Affairs, Mphasis Limited (âthe Company'') has adopted Indian Accounting Standards (referred to as âInd ASâ) notified under the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) amendment Rules 2016, as amended with effect from 1 April 2016. The standalone financial statements of the Company, have been prepared and presented in accordance with Ind AS. Previous year numbers in the standalone financial statements have been restated to Ind AS. In accordance with Ind AS 101 First-time Adoption of Indian Accounting Standards, the Company has presented a reconciliation from the presentation of standalone financial statements under Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 (âPrevious GAAPâ) to Ind AS of Shareholders'' equity as at 31 March 2016 and 1 April 2015 and of the comprehensive net income for the year ended 31 March 2016 (refer note 51 for reconciliations and effect of transitions).
The standalone financial statements have been prepared on the historical cost basis, except for following assets and liabilities which have been measured at fair values.
- Derivative financial instruments
- Certain financial assets measured at fair value (refer accounting policy regarding financial instruments).
In addition, the carrying values of recognized assets and liabilities designated as hedged items are fair value hedges that would otherwise be carried at amortized cost are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationships. The standalone financial statements are presented in INR (T) and all the values are rounded off to the nearest million (INR 000,000) except when otherwise indicated.
Business Combinations
The Company accounts for its business combinations under acquisition method of accounting. Acquisition related costs are recognized in the statement of profit and loss as incurred. The acquirerâs identifiable assets, liabilities and contingent liabilities that meet the condition for recognition are recognized at their fair values at the acquisition date.
Purchase consideration paid in excess of the fair value of net assets acquired is recognized as goodwill. Where the fair value of identifiable assets and liabilities exceed the cost of acquisition, after reassessing the fair values of the net assets and contingent liabilities, the excess is recognized as capital reserve.
Business combinations arising from transfers of interests in entities that are under the common control are accounted at pooling of interest method. The difference between any consideration given and the aggregate historical carrying amounts of assets and liabilities of the acquired entity are recorded in shareholders'' equity.
Use of estimates, assumptions and judgments
The preparation of the standalone financial statements in conformity with Ind AS requires the management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the standalone financial statements and the reported amounts of revenues and expenses for the year reported. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and future periods are affected.
Key source of estimation of uncertainty as at the date of standalone financial statements, which may cause a material adjustment to the carrying amounts of assets and liabilities within the next financial year, is in respect of the following:
- Revenue Recognition
The Company uses the percentage-of-completion method in accounting for its fixed-price contracts. Use of the percentage-of completion method requires the Company to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the expected contract estimates at the reporting date.
- Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm''s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the budget for future years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset''s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to other intangibles with indefinite useful lives recognized by the Company.
- Share-based payments
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in note 18.
- Taxes
The Company''s major tax jurisdictions is in India. Significant judgments are involved in determining the provision for income taxes, tax credits including the amount expected to be paid or refunded. Also refer to Note 25.
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that future taxable profit will be available against which the losses can be utilized. Significant management judgments is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
- Defined benefit plans
The cost of the defined benefit gratuity plan and other post-employment benefits and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. (refer note 42)
The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the postemployment benefit obligation.
The mortality rate is based on publicly available mortality tables. These mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates.
- Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using internal valuation techniques. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgments is required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
- Intangible assets under development
The Company capitalizes intangible asset under development for a project in accordance with the accounting policy. Initial capitalization of costs is based on management''s judgments that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. In determining the amounts to be capitalized, management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the expected period of benefits.
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, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment.
Sales tax/Value Added Tax (VAT)/Service Tax is not received by the Company on its own account. Rather, it is tax collected on value added to the commodity/service rendered by the seller on behalf of the government. Accordingly, it is excluded from revenue.
The Company derives its revenues primarily from software services & projects, call centre and business & knowledge process outsourcing operations, infrastructure outsourcing services, licensing arrangement, application services and trading of goods.
Revenues from software services & projects comprise income from time-and-material and fixed price contracts. Revenue from time and material contracts is recognized when the services are rendered in accordance with the terms of contracts with clients. Revenue from fixed price contracts is recognized using the percentage-of-completion method, calculated as the proportion of the cost of effort incurred up to the reporting date to estimated cost of total effort.
Revenues from call centre and business & knowledge process outsourcing operations arise from both time-based and unit-priced client contracts. Such revenue is recognized when the services are rendered in accordance with the terms of the contracts with clients.
Revenues from infrastructure outsourcing services arise from time based, unit-priced and fixed price contracts. Revenue from time based and unit-priced is recognized when the services are rendered in accordance with the terms of the contracts with clients. Revenue from fixed price contracts is recognized using the percentage-of-completion method, calculated as the proportion of the cost of effort incurred up to the reporting date to estimated cost of total effort.
License fee revenues are recognized when the general revenue recognition criteria is met. Revenue from bundled contracts is allocated separately for each element based on their fair values. Maintenance revenue is recognized ratable over the period of underlying maintenance agreements.
Revenue from sale of services is shown as net of applicable discounts and pricing incentives to customer.
Revenues from sale of goods is recognized on transfer of significant risks and rewards where it is probable that economic benefits will flow to the Company and there is neither continuing managerial involvement nor effective control over the goods sold.
Revenue is recognized only when evidence of an arrangement is obtained and the other criteria to support revenue recognition are met, including the price is fixed or determinable, services have been rendered, the cost incurred and cost to complete the transaction can be measured reliably and collectability of the resulting receivables is probable.
Provisions for estimated losses on incomplete contracts are recorded in the period in which such losses become probable based on the current contract estimates. Unbilled revenue represent revenues in excess of amounts billed to clients as at the balance sheet date. Unearned revenue represent billings in excess of revenues recognized.
Advances received for services are reported as liabilities until all conditions for revenue recognition are met.
Interest income is recognized as it accrues in the statement of profit and loss using effective interest rate method.
Dividend income is recognized when the right to receive the dividend is established.
Property, Plant and Equipment and Intangible assets
Property, plant and equipment are stated at the cost of acquisition or construction less accumulated depreciation and write down for, impairment if any. Direct costs are capitalized until the assets are ready to be put to use. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. All other repair and maintenance costs are recognized in the statement of profit or loss as incurred. Property, plant and equipment purchased in foreign currency are recorded at cost, based on the exchange rate on the date of purchase.
The Company identifies and determines cost of each component/ part of Property, plant and equipment separately, if the component/ part has a cost which is significant to the total cost of the Property, plant and equipment and has useful life that is materially different from that of the remaining asset.
Intangible assets purchased or acquired in business combination, are measured at cost or fair value as of the date of acquisition, as applicable, less accumulated amortization and accumulated impairment, if any. The amortization period and the amortization method are reviewed at least at each financial year end. Internally developed intangible assets are stated at cost that can be measured reliably during the development phase and capitalized when it is probable that future economic benefits that are attributable to the assets will flow to the Company.
Gains or losses arising from derecognition of Property, plant and equipment are measured as the difference between the net disposal proceeds and the carrying amount of Property, plant and equipment and are recognized in the statement of profit and loss when the Property, plant and equipment is derecognized.
Cost of assets not ready for use at the balance sheet date are disclosed under capital work-in-progress.
In respect of plant and equipment, furniture and fixtures and vehicles, the management basis internal assessment of usage pattern believes that the useful lives as mentioned above best represent the period over which management expects to use these assets. Hence the useful lives in respect of these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
Project specific assets are depreciated over the period of contract or useful life of the asset, whichever is lower.
An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit and loss when the asset is derecognized.
The residual values, useful lives and methods of depreciation of property, plant and equipment and intangible assets are reviewed at each financial year end and adjusted prospectively, if appropriate.
Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
Leases, where the less or effectively retains substantially all the risks and benefits of ownership of the leased items, are classified as operating leases. Operating lease payments are recognized on a straight line basis over the lease term, unless the lease agreement explicitly states that increase is on account of inflation in the statement of profit and loss.
Leases under which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Such assets acquired are capitalized at the fair value of the leased asset or the present value of the minimum lease payments at the inception of the lease, whichever is lower.
For arrangements entered into prior to 1 April 2015, the Company has determined whether the arrangement contain lease on the basis of facts and circumstances existing on the date of transition.
Borrowing costs
Borrowing cost includes 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.
Impairment
Financial assets (other than at fair value)
The Company assesses at each date of balance sheet whether a financial asset or a group of financial assets is impaired. Ind AS 109 (âFinancial Instruments'') requires expected credit losses to be measured through a loss allowance. The Company recognizes lifetime expected losses for all contract assets and / or all trade receivables that do not constitute a financing transaction. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. The Company provides for impairment upon the occurrence of the triggering event. As per the policy, Company provides for impairment for trade receivables (other than intercompany receivables) outstanding more than 180 days from the date they are due for payment.
Non-financial assets Tangible and intangible assets
Property, plant and equipment and intangible assets with finite life are evaluated for recoverability whenever there is any indication that their carrying amounts may not be recoverable. If any such indication exists, the recoverable amount (i.e. higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the cash generating unit (CGU) to which the asset belongs.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognized in the statement of profit and loss.
Financial instruments
Financial assets and liabilities are recognized when the Company becomes a party to the contract that gives rise to financial assets and financial liabilities. Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial asset or financial liability.
Cash and cash equivalents
The Company considers all highly liquid financial instruments, which are readily convertible into known amounts of cash that are subject to an insignificant risk of change in value and having original maturities of three months or less from the date of purchase, to be cash equivalents. Cash and cash equivalents consist of balances with banks which are unrestricted for withdrawal and usage.
Financial assets at amortized cost
Financial assets are subsequently measured at amortized cost if these financial assets are held within a business whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at fair value through other comprehensive income
Financial assets are measured at fair value through other comprehensive income if these financial assets are held within a business whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at fair value through profit or loss
Financial assets are measured at fair value through profit or loss unless it is measured at amortized cost or at fair value through other comprehensive income on initial recognition. The transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are immediately recognized in statement of profit and loss.
Financial liabilities
Financial liabilities are subsequently carried at amortized cost using the effective interest method, except for contingent consideration recognized in a business combination which is subsequently measured at fair value through profit or loss. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
Derivative financial instruments
The Company holds derivative financial instruments such as foreign exchange forward contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
Financial assets or financial liabilities, at fair value through statement of profit or loss.
This category has derivative financial assets or liabilities which are not designated as hedges.
Any derivative that is either not designated as a hedge, or is so designated but is ineffective as per Ind AS 109, is categorized as a financial asset or financial liability, at fair value through statement of profit and loss.
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in net profit in the statement of profit and loss when incurred. Any gains or losses arising from changes in the fair value of derivatives are taken directly to statement of profit and loss.
Cash flow hedge accounting
The Company designates certain foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions. When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the cash flow hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the net profit in the statement of profit and loss. If the hedging instrument no longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective remains in cash flow hedging reserve until the forecasted transaction occurs. The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred to the net profit in the statement of profit and loss upon the occurrence of the related forecasted transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow hedging reserve is reclassified to net profit in the statement of profit and loss.
De-recognition of financial instruments
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109. A financial liability (or a part of a financial liability) is derecognized when the obligation specified in the contract is discharged or cancelled or expires.
Fair value of financial instruments
In determining the fair value of its financial instruments, the Company uses following hierarchy and assumptions that are based on market conditions and risks existing at each reporting date.
Fair value hierarchy:
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Retirement and other employee benefits
Gratuity, which is a defined benefit plan, is accrued based on an independent actuarial valuation, which is done based on project unit credit method as at the balance sheet date. The Company recognizes the net obligation of a defined benefit plan in its balance sheet as an asset or liability. Gains and losses through re-measurements of the net defined benefit liability/(asset) are recognized in other comprehensive income. In accordance with Ind AS, re-measurement gains and losses on defined benefit plans recognized in OCI are not to be subsequently reclassified to statement of profit and loss. As required under Ind AS compliant Schedule III, the Company transfers it immediately to retained earnings.
The cost of short term compensated absences are provided for based on estimates. Long term compensated absence costs are provided for based on actuarial valuation using the project unit credit method. The Company presents the entire leave as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement for 12 months after the reporting date.
Contributions payable to recognized provident funds, which are defined contribution schemes, are charged to the statement of profit and loss.
The Company has established a Provident Fund Trust to which contributions towards provident fund are made each month. The Provident Fund Trust guarantees a specified rate of return on such contributions on a periodical basis. This being a defined benefit plan, the Company accounts for it, based on actuarial valuation, as per Projected Unit Credit Method, as at the date of Balance Sheet.
Share based payments
The Company measures compensation cost relating to share-based payments using the fair valuation method in accordance with Ind AS 102 (âShare-Based Payment''). Compensation expense is amortized over the vesting period of the option on a straight line basis. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model (Black-Scholes valuation model). That cost is recognized, together with a corresponding increase in share-based payment (SBP) reserves in equity, over the period in which the performance and/or service conditions are fulfilled in employee benefits expense. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company''s best estimate of the number of equity instruments that will ultimately vest.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.
Foreign currencies
Foreign currency transactions are recorded at exchange rates prevailing on the date of the transaction. Foreign currency denominated monetary assets and liabilities are restated into the functional currency using exchange rates prevailing on the balance sheet date.
Gains and losses arising on settlement and restatement of foreign currency denominated monetary assets and liabilities are included in the statement of profit and loss.
The Company''s financial statements are presented in INR. The Company determines the functional currency as INR on the basis of primary economic environment in which the entity operates.
Income taxes
Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year. Current and deferred tax are recognized in the statement of profit and loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively.
Current income tax
Current income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the taxable income for that period. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
Deferred income tax
Deferred income tax is recognized using the balance sheet approach, deferred tax is recognized on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to 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.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Deferred tax assets include Minimum Alternative Tax (âMAT'') paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability. Accordingly, MAT is recognized as deferred tax asset in the balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with the asset will be realized.
Provisions and contingent liabilities
A provision is recognized when an enterprise has a present obligation (legal or constructive) as result of past event and it is probable that an outflow of embodying economic benefits of resources will be required to settle a reliably assessable obligation. Provisions are determined based on best estimate required to settle each obligation at each balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
Provisions for onerous contracts, i.e. contracts where the expected unavoidable costs of meeting obligations under a contract exceed the economic benefits expected to be received, are recognized when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation as a result of an obligating event, based on a reliable estimate of such obligation.
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or nonoccurrence 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 recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the standalone financial statements.
Earnings per share
The basic earnings per share is computed by dividing the net profit attributable to equity shareholders for the period by the weighted average number of equity shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average shares considered for deriving basic earnings per share, and also the weighted average number of equity shares which could be issued on the conversion of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. The diluted potential equity shares have been arrived at, assuming that the proceeds receivable were based on shares having been issued at the average market value of the outstanding shares. In computing dilutive earnings per share, only potential equity shares that are dilutive and that would, if issued, either reduce future earnings per share or increase loss per share, are included.
Inventories
Inventory comprises of traded goods and is measured at lower of cost and net realizable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Cost is determined on a weighted average basis. Net realizable value is the estimated selling price in the ordinary course of business, less estimated cost necessary to make the sale.
Treasury shares
The Company has created an Employee Benefit Trust (âEBT'') for providing share-based payment to its employees. The Company uses EBT as a vehicle for distributing shares to employees under the employee remuneration schemes. The EBT buys shares of the company from the market, for giving shares to employees. The Company treats EBT as its extension and shares held by EBT are treated as treasury shares.
Own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in statement of profit and loss on the purchase, sale, issue or cancellation of the Company''s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized in reserve. Share options exercised during the reporting period are adjusted against treasury shares.
Cash dividend to equity holders of the Company
The Company recognizes a liability to make cash distributions to equity holders of the Company when the distribution is authorized and the distribution is no longer at the discretion of the Company. Final dividends on shares are recorded as a liability on the date of approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company''s Board of Directors.
Government Grants
The Company recognizes government grants only when there is reasonable assurance that the conditions attached to them shall be complied with, and the grants will be received. Government grants related to assets are treated as deferred income and are recognized in net profit in the statement of profit and loss on a systematic and rational basis over the useful life of the asset. Government grants related to revenue are recognized on a systematic basis in net profit in the statement of profit and loss over the periods necessary to match them with the related costs which they are intended to compensate.
Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Company does not restate any previously recognized gains, losses (including impairment gains or losses) or interest.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the standalone balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
Current vs non-current classification
The Company presents assets and liabilities in the balance sheet based on current / non-current classification.
An asset is treated as current when it is:
- Expected to be realized or intended to be sold or consumed in normal operating cycle.
- Held primarily for purpose of trading.
- Expected to be realized within twelve months after the reporting period.
- Cash and cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is treated as current when it is:
- It is expected to settle in the normal operating cycle.
- It is due to be settled within twelve months after the reporting date.
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non-current.
Advance tax paid is classified as non-current assets.
* Depreciation amounting toRs,0.17 millions (31 March 2016:Rs,27.17 millions) has been adjusted against provision created for loss on long term contract, sale / exit of domestic BPO business.
** Disposals include gross block and accumulated depreciation of assets transferred on account of sale of domestic BPO business amounting toRs,126.92 millions andRs,23.00 millions respectively.
* Balances with statutory/government authorities include service tax input credit receivable net ofRs,1,223.09 millions (31 March 2016:Rs,1,362.24 millions, 1 April 2015Rs,1,640.02 millions ). Based on legal opinion obtained by the Company, service tax liability on imported services under âImport of Services Rulesâ have been discharged using accumulated balance available in CENVAT Credit Account for the period 1 December 2010 to 31 March 2011. Effective 1 April 2011 such position is reversed and service tax liability on select imported services under âImport of Services Rulesâ have been discharged in cash. Further, the Company has obtained legal opinion in support of its position on non-applicability of service tax under âImport of Services Rules'' on onsite services provided by foreign vendors (including group companies). The management, per the legal opinion, is confident that the legal positions taken by the Company are tenable and defendable under law.
a. Created due to receipts from liquidation of trust.
b. Share based payments reserve is used to record the fair value of equity-settled share based payment transactions with employees. The amounts recorded in this account are transferred to share premium upon exercise of stock options by employees. In case of lapse, corresponding balance is transferred to general reserve.
c. Represents equity shares of the Company held by the controlled trusts.
d. Changes in the fair value of financial instruments designated as hedge is recognized in this reserve through OCI. Amounts recognized in hedging reserve is reclassified to profit and loss when the hedge item affects profit or loss.
Employee Stock Option Plans (âESOPâ) - Equity settled
Employees Stock Option Plan - 1998 (the 1998 Plan): The Company instituted the 1998 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders in the Annual General Meeting held on 31 July 1998. The 1998 Plan provides for the issuance of 3,720,000 options to eligible employees as recommended by the ESOP Committee constituted for this purpose. In accordance with the 1998 Plan, the Committee has formulated 1998 Plan - (Version I) and 1998 Plan (Version II) during the years 1998-1999 and 1999-2000 respectively.
1998 Plan - (Version I): Each option granted under the 1998 Plan - (Version I), entitles the holder thereof with an option to apply for and be issued one equity share of the Company at an exercise price ofRs,34.38 per share. The equity shares covered under these options vest at various dates over a period ranging from six to sixty-six months from the date of grant based on the length of service completed by the employee to the date of grant. The options are exercisable any time after their vesting period.
preceding the date of grant. The equity shares covered under these options vest at various dates over a period ranging from twelve to forty-eight months from the date of grant based on the grade of the employee. However, in the case of options granted to the then Managing Director or Chief Executive Officer, the vesting period of the options, subject to minimum period of one year from the date of grant, is determined by the ESOP Committee and approved by the Board. The options are to be exercised within a period of ten years from their date of vesting.
The weighted average share price as at the date of exercise for stock options wasRs,527.86 (31 March 2016:Rs,408.20). The options outstanding as at 31 March 2017 has an exercise price ranging fromRs,67.38 toRs,92.00 (31 March 2016:Rs,67.38 toRs,130.60) and weighted average remaining contractual life of 0.31 years (31 March 2016: 0.37 years).
Employees Stock Option Plan - 2004 (the 2004 Plan): At the Extraordinary General Meeting on 12 May 2004, the shareholders approved a new Employee Stock Option Plan. The 2004 Plan provides for the issuance of equity shares to employees and directors of the Company and its subsidiaries and for the exchange of outstanding stock options of Msource Corporation as on 20 September 2004, pursuant to its merger with Mphasis Corporation and the assumption of the Msource stock options by the Company.
The 2004 Plan is administered through the ESOP Committee appointed by the Board and comprises two programs. Under Program A, outstanding options of Msource Corporation were exchanged for options in the Company on the agreed exchange ratio of 0.14028 stock options with underlying equity shares of the Company for each stock option in the Msource 2001 plan, the exercise price being the equivalent amount payable by the option holder under the Msource 2001 plan. The equity shares underlying these options vest over a period up to forty-eight months from the date of assumption by the Company and shall be exercisable within a period of ten years from the original date of grant under the Msource 2001 plan.
Options under Program B represent fresh grants and will be issued to employees at an exercise price which shall be equal to the fair value of the underlying shares at the date of grant. The equity shares covered under these options vest over a period ranging from twelve to forty-eight months from the date of grant. The exercise period is two years from the date of vesting.
The weighted average share price as at the date of exercise for stock options wasRs,464.30 (31 March 2016:Rs,Nil). The options outstanding as at 31 March 2017 has an exercise price ranging fromRs,117.36 toRs,148.07 (31 March 2016:Rs,50.34 toRs,148.07) and weighted average remaining contractual life of 0.62 years (31 March 2016: 1.17 years).
Employees Stock Option Plan - 2012 (the 2012 Plan): Effective 14 March 2012, the Company instituted the 2012 Plan. The Board and the shareholders of the Company approved 2012 plan on 20 January 2012. The 2012 plan provides for the issue of restricted options to certain employees of the Company and its subsidiaries.
The 2012 plan is administered by the Mphasis Employees Benefit Trust which is created for this purpose. Each option, granted under this plan, entitles the holder thereof with an option to apply for and be issued one equity share of the Company at an exercise price ofRs,410.25 per share. The equity shares covered under these options vest over a period ranging from twelve to twenty-four months from the date of grant. The exercise period is three years from the date of vesting.
The weighted average share price as at the date of exercise of stock options wasRs,562.67 (31 March 2016:Rs,480.47). There are no options outstanding as at 31 March 2017. Options as at 31 March 2016 had an exercise priceRs,410.25. The weighted average remaining contractual life of Nil years (31 March 2016: 0.93 years).
Total Employee Compensation Cost pertaining to 2012 plan during the year isRs,Nil (31 March 2016:Rs,(1.87) millions), net of cross charge to subsidiary.
Employees Stock Option Plan - 2016 (the 2016 Plan): Effective 4 November 2016, the Company instituted the 2016 Plan. The Board of Directors of the Company and shareholders approved the 2016 Plan at its meeting held on 27 September 2016 and 4 November 2016 respectively. The 2016 plan provides for the issue of options to certain employees of the Company and its subsidiaries.
The 2016 Plan is administered by the Mphasis Employee Benifit Trust. As per the ESOP 2016 Plan, the stock options are granted at the Market Price subject to a discount up to twenty per cent (20%) as may be determined by the Compensation Committee at the time of Grant. The equity shares covered under these options vest over 60 months from the date of grant. The exercise period is thirty six months from the respective date of vesting.
* The expected volatility was determined based on historical volatility data.
Total Employee Compensation Cost pertaining to 2016 Plan during the year isRs,20.19 millions, net of cross charge to subsidiary. Restricted Stock Unit Plan-2010 (âRSU Plan-2010â)
Effective 01 August 2010, the Company instituted the Restricted Stock Unit Plan-2010. The Board and the shareholders of the Company approved RSU Plan-2010 on 29 June 2010 and 17 August 2010 respectively. The RSU Plan-2010 provides for the issue of restricted options to employees and directors of the Company and its subsidiaries.
The RSU Plan-2010 is administered by the Mphasis Employees Benefit Trust which was created for this purpose. Each option, granted under the RSU Plan-2010, entitles the holder thereof with an option to apply for and be issued one equity share of the Company at an exercise price ofRs,10.00 per share. The equity shares covered under these options vest over a period ranging from twelve to twenty-four months from the date of grant. The exercise period is one to three years from the date of vesting.
on 31 March 2016 has an exercise price ofRs,Nil (31 March 2016:Rs,10.00). I
Restricted Stock Unit Plan-2014 (âRSU Plan-2014â) I
approved RSU Plan-2014 on 14 May 2014. The RSU Plan-2014 provides for the issue of restricted options to employees of the Company I and its subsidiaries.
equity shares covered under these options vest over a period ranging from twelve to thirty-six months from the date of grant. The exercise S period is three years from the date of vesting.
The weighted average share price as at the date of exercise of stock option wasRs,537.65 (31 March 2016:Rs,475.20). The options outstanding on 31 March 2017 has an exercise price ofRs,10.00 (31 March 2016:Rs,10.00) and the weighted average remaining contractual life of 2.19 years (31 March 2016: 3.68 years).
Total Employee Compensation Cost pertaining to RSU Plan-2014 during the year isRs,9.49 millions (31 March 2016:Rs,30.29 millions), net of cross charge to subsidiary.
Restricted Stock Unit Plan-2015 (âRSU Plan-2015â)
Effective 29 July 2015, the Company instituted the Restricted Stock Unit Plan-2015. The Board and the shareholders of the Company approved RSU Plan-2015 on 9 September 2015. The RSU Plan-2015 provides for the issue of restricted options to employees and directors of the Company and its subsidiaries.
The RSU Plan-2015 is administered by the Mphasis Employees Benefit Trust. Each option, granted under the RSU Plan-2015, entitles the holder thereof with an option to apply for and be issued one equity share of the Company at an exercise price ofRs,10.00 per share. The equity shares covered under these options vest over a period ranging from twelve to thirty-six months from the date of grant. The exercise period is three years from the date of vesting.
The weighted average share price as at the date of exercise of stock option wasRs,551.62 (31 March 2016:Rs,Nil).The options outstanding on 31 March 2017 has an exercise price ofRs,10.00 (31 March 2016:Rs,10.00) and the weighted average remaining contractual life of 2.62 years (31 March 2016: 4.63 years).
Total Employee Compensation Cost pertaining to RSU Plan-2015 during the year isRs,45.33 millions (31 March 2016:Rs,26.92 millions), net of cross charge to subsidiary.
a) During the previous year the Board of Directors of the Company had approved sale and transfer of some contracts of the domestic BPO 1^1 business, which is not a separate major line of the Company''s business to Hinduja Global Solutions Limited and Karvy Data Management
millions) and the closing balance as at 31 March 2017 isRs,Nil. ^B
b) During the previous year, the company had formalized a plan to early exit / ramp down operations in respect of certain domestic BPO ^B contracts. On account of the proposed early closure of the said contracts, the management had provided forRs,92.04 millions (net of tax ^B ofRs,48.67 millions) towards expected loss as an exceptional item. During the year ended 31 March 2017 the Company reversedRs,21.57 ^B millions (net of tax ofRs,11.41 millions) and the closing balance as at 31 March 2017 isRs,35.00 millions.
c) The management had re-assessed the future profitability of long term revenue contract as at 31 March 2016 and accordingly provided ^B forRs,316.28 millions (net of tax ofRs,167.38 millions) towards expected loss as an exceptional item during the year ended 31 March 2016. ^B The loss incurred during the year ended 31 March 2017 under this contract has been adjusted against the said provision and the balance ^B as at 31 March 2017 isRs,204.06 millions.
* Post-shipment loan carries interest @ LIBOR plus 0.20% (31 March 2016: LIBOR plus 0.30%) p.a. The loan has been repaid during the year ended 31 March 2017.
Under the Indian Income Tax Act, 1961, the Company is liable to pay Minimum Alternate Tax in the tax holiday period. MAT paid can be carried forward for a period of 15 years and can be set off against the future tax liabilities.
The Company has units at Bengaluru, Hyderabad, Chennai and Pune registered as Special Economic Zone (SEZ) units which are entitled to a tax holiday under Section 10AA of the Income Tax Act, 1961. The Company also has STPI units at Bengaluru, Pune and other locations which are registered as a 100 percent Export Oriented Unit, which were earlier entitled to a tax holiday under Section 10B / 10A of the Income Tax Act, 1961.
A portion of the profits of the Company''s India operations are exempt from Indian income taxes being profits attributable to export operations from undertakings situated in Special Economic Zone (SEZ). Under the Special Economic Zone Act, 2005 scheme, units in designated special economic zones providing service on or after April 1, 2005 will be eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50 percent of such profits and gains for a further five years. Certain tax benefits are also available for a further five years subject to the unit meeting defined conditions.
Dividend income from certain category of investments is exempt from tax. The difference between the reported income tax expense and income tax computed at statutory tax rate is primarily attributable to income exempt from tax, tax deductions and tax effect on allowances / disallowances.
The Company is also subject to tax on income attributable to its permanent establishment in certain foreign jurisdictions due to operation of its foreign branches.
Mphasis Limited have entered into international and specified domestic transactions with its associated enterprises within the meaning of section 92B and section 92BA respectively of the Income Tax Act, 1961. The Company is of the view that all the aforesaid transactions have been made at arms'' length terms.
Deferred tax for the year ended 31 March 2017 and 31 March 2016 relates to origination and reversal of temporary differences
Mar 31, 2016
Basis of preparation
The financial statements of Mphasis Limited (''the Company'') have been
prepared and presented under the historical cost convention on the
accrual basis of accounting, unless stated otherwise and comply in all
material aspects with the Accounting Standards (''AS'') notified under
section 133 of the Companies Act, 2013, read together with rule 7 of
the Companies (Accounts) Rules, 2014 and other accounting principles
generally accepted in India. The accounting policies adopted in the
preparation of the financial statements are consistent with those of
the previous year.
Use of estimates
The preparation of financial statements requires the management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities on
the date of the financial statements and the reported amounts of
revenues and expenses for the year. Actual results could differ from
those estimates. Any revision to accounting estimates is recognized
prospectively in current and future years.
Revenue recognition
The Company derives its revenues primarily from software services &
projects, call centre & business process outsourcing operations,
infrastructure outsourcing services, licensing arrangement, application
services and trading of goods.
Revenues from software services & projects comprise income from
time-and-material and fixed price contracts. Revenue from time and
material contracts is recognized when the services are rendered in
accordance with the terms of contracts with clients. Revenue from fixed
price contracts is recognized using the percentage-of-completion
method, calculated as the proportion of the cost of effort incurred up
to the reporting date to estimated cost of total effort.
Revenues from call centre & business process outsourcing operations
arise from both time-based and unit-priced client contracts. Such
revenue is recognized when the services are rendered in accordance with
the terms of the contracts with clients.
Revenues from infrastructure outsourcing services arise from time
based, unit-priced and fixed price contracts. Revenue from time based
and unit-priced is recognized when the services are rendered in
accordance with the terms of the contracts with clients. Revenue from
fixed price contracts is recognized using the percentage-of-completion
method, calculated as the proportion of the cost of effort incurred up
to the reporting date to estimated cost of total effort.
Revenue from licensing arrangements is recognized on transfer of the
title in user licenses, except those contracts where transfer of title
is dependent upon rendering of significant implementation services by
the Company, in which case revenue is recognized over the
implementation period in accordance with the specific terms of the
contracts with clients.
Maintenance revenue is recognized rateably over the period of
underlying maintenance agreements.
Revenue from sale of goods is recognized on transfer of significant
risks and rewards in accordance with the terms of contract. Revenue is
shown as net of sales tax, value added tax and applicable discounts.
Provisions for estimated losses on incomplete contracts are recorded in
the period in which such losses become probable based on the current
contract estimates. ''Unbilled revenue'' included in the current assets
represent revenues in excess of amounts billed to clients as at the
balance sheet date. ''Unearned revenue'' included in the current
liabilities represent billings in excess of revenues recognized.
Advances received for services are reported as liabilities until all
conditions for revenue recognition are met.
Interest income is recognized using the time-proportion method, based
on underlying interest rates.
Dividend income is recognized when the right to receive the dividend is
established.
Fixed assets and capital work-in-progress
Fixed assets are stated at the cost of acquisition or construction less
accumulated depreciation and write down for, impairment if any. Direct
costs are capitalised until the assets are ready to be put to use. When
significant parts of plant and equipment are required to be replaced at
intervals, the Company depreciates them separately based on their
specific useful lives. All other repair and maintenance costs are
recognised in the statement of profit and loss as incurred. Fixed
assets purchased in foreign currency are recorded at cost, based on the
exchange rate on the date of purchase.
The Company identifies and determines cost of each component/ part of
the asset separately, if the component / part has a cost which is
significant to the total cost of the asset and has useful life that is
materially different from that of the remaining asset.
Acquired intangible assets are capitalised at the acquisition price.
Following initial recognition, intangible assets are carried at cost
less accumulated amortization and accumulated impairment losses, if
any. The amortization period and the amortization method are reviewed
atleast at each financial year end. Internally generated intangible
assets are stated at cost that can be measured reliably during the
development phase and capitalised when it is probable that future
economic benefits that are attributable to the assets will flow to the
Company.
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.
Cost of assets not ready for use at the balance sheet date are
disclosed under capital work-in-progress.
Depreciation and amortisation
Depreciation on tangible assets is calculated on a straight-line basis
using the rates arrived at, based on the useful lives estimated by the
management. Intangible assets are amortised on a straight line basis
over the estimated useful economic life. The useful lives estimated by
the management are given below:
In respect of plant and equipment, furniture and fixtures and vehicles,
the management basis internal assessment of usage pattern believes that
the useful lives as mentioned above best represent the period over
which management expects to use these assets. Hence the useful lives
in respect of these assets are different from the useful lives as
prescribed under Part C of Schedule II of the Companies Act 2013.
Project specific assets are depreciated over the period of contract or
useful life of the asset, whichever is lower.
Leases
Leases, where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased items, are classified as
operating leases.
Where the Company is lessee, 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 lessor, lease income is recognized in the
statement of profit and loss on straight line basis over the lease
term. Costs are recognized as an expense in the statement of profit
and loss. Initial direct costs such as legal costs, brokerage costs,
etc, are recognized immediately in the statement of profit and loss.
Profit or loss on sale and lease back arrangements resulting in
operating leases are recognized immediately in case the transaction is
established at fair value, else, the excess over the fair value is
deferred and amortized over the period for which the asset is expected
to be used. If the sale price is below fair value, any profit or loss
is recognized immediately in the statement of profit and loss.
Leases under which the Company assumes substantially all the risks and
rewards of ownership are classified as finance leases. Such assets
acquired are capitalised at the fair value of the asset or the present
value of the minimum lease payments at the inception of the lease,
whichever is lower.
Borrowing costs
Borrowing cost includes 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 year they occur.
Impairment of tangible and intangible assets
The Company assesses at each balance sheet date whether there is any
indication that a fixed asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount of the asset. The
recoverable amount is the greater of the asset''s net selling price and
value in use. In determining net selling price, recent market
transactions are taken into account, if available. If no such
transactions can be identified, an appropriate valuation model is used.
In assessing value in use, the estimated future cash flows are
discounted to their present value using the pre-tax discount rate that
reflects current market assessments of the time value of money and
risks specific to the assets. If such recoverable amount of the asset
or the recoverable amount of the cash generating unit to which the
asset belongs is less than its carrying amount, the carrying amount is
reduced to its recoverable amount. The reduction is treated as an
impairment loss and is recognized in the statement of profit and loss.
If at the balance sheet date there is an indication that a previously
assessed impairment loss no longer exists, the recoverable amount is
reassessed and the asset is reflected at the recoverable amount subject
to a maximum of depreciated historical cost.
Investments
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. Provision for diminution in
the value of investments is made if the impairment is not temporary in
nature.
Employee benefits
Gratuity, which is a defined benefit plan, is accrued based on an
independent actuarial valuation, which is done based on project unit
credit method as at the balance sheet date. Actuarial gains/losses are
immediately taken to the statement of profit and loss and are not
deferred.
The cost of short term compensated absences are provided for based on
estimates. Long term compensated absence costs are provided for based
on actuarial valuation using the project unit credit method. The
Company presents the entire leave as a current liability in the balance
sheet, since it does not have an unconditional right to defer its
settlement for 12 months after the reporting date.
Contributions payable to recognized provident funds, which are defined
contribution schemes, are charged to the statement of profit and loss.
The Company has established a Provident Fund Trust to which
contributions towards provident fund are made each month. The Provident
Fund Trust guarantees a specified rate of return on such contributions
on a periodical basis. The Company will meet the shortfall in the
returns, if any, based on actuarial valuation, as per Projected Unit
Credit Method, as at the date of Balance Sheet [refer note 35 (b)].
Stock-based compensation (Equity settled)
Measurement and disclosure of the employee share-based payment plans is
done in accordance with regulations issued by Securities Exchange Board
of India (''SEBI'') from time to time and the Guidance Note on Accounting
for Employee Share-based Payments, issued by the Institute of Chartered
Accountants of India. The Company measures compensation cost relating
to employee stock options using the fair valuation method except for
ESOP 1998 Plan and ESOP 2004 Plan wherein compensation cost is measured
based on intrinsic valuation method. Compensation expense is amortized
over the vesting period of the option on a straight line basis.
Foreign currency
Foreign currency transactions are recorded at the exchange rates
prevailing on the dates of the respective transactions. Exchange
differences arising on foreign exchange transactions settled during the
year are recognized in the statement of profit and loss of that year.
Monetary assets and liabilities denominated in foreign currencies as at
the balance sheet date are translated at the exchange rates on that
date. The resultant exchange differences are recognized in the
statement of profit and loss. Non-monetary items which are carried in
terms of historical cost denominated in foreign currency are reported
using the exchange rate at the date of the transaction.
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.
Forward contracts are entered into to hedge the foreign currency risk
of the underlying outstanding at the balance sheet date and also to
hedge the foreign currency risk of firm commitment or highly probable
forecast transactions. The premium or discount on forward contracts
that are entered into, to hedge the foreign currency risk of the
underlying outstanding at the balance sheet date arising at the
inception of each contract is amortised as income or expense over the
life of the contract. Any profit or loss arising on the cancellation or
renewal of forward contracts is recognized as income or as expense for
the year.
In relation to the forward contracts entered into, to hedge the foreign
currency risk of the underlying outstanding at the balance sheet date,
the exchange difference is calculated and recorded in accordance with
paragraphs 36 and 37 of AS 11. The exchange difference on such a
forward exchange contract is calculated as the difference between the
foreign currency amount of the contract translated at the exchange rate
at the reporting date or the settlement date where the transaction is
settled during the reporting year, and the corresponding foreign
currency amount translated at the later of the date of inception of the
forward exchange contract and the last reporting date. Such exchange
differences are recognized in the statement of profit and loss in the
reporting year in which the exchange rates change.
The Company has adopted the principles of AS 30 "Financial Instruments:
Recognition and Measurement" in respect of its derivative financial
instruments (excluding embedded derivative) that are not covered by AS
11 "The Effects of Changes in Foreign Exchange Rates" and that relate
to a firm commitment or a highly probable forecast transaction. In
accordance with AS 30, such derivative financial instruments, which
qualify for cash flow hedge accounting and where the Company has met
all the conditions of AS 30, are fair valued at the balance sheet date
and the resultant gain / loss is credited / debited to the hedging
reserve included in the Reserves and Surplus. This gain / loss is
recorded in the statement of profit and loss when the underlying
transactions affect earnings. Other derivative instruments that relate
to a firm commitment or a highly probable forecast transaction and that
do not qualify for hedge accounting, have been recorded at fair value
at the reporting date and the resultant gain / loss has been credited /
debited to the statement of profit and loss for the year.
Income taxes
The current charge for income taxes is calculated in accordance with
the relevant tax regulations. Minimum Alternative Tax (''MAT'') paid in
accordance with the tax laws, which gives rise to future economic
benefits in the form of adjustments of future income tax liability, is
considered as an asset if there is convincing evidence that the Company
will pay normal tax after the tax holiday period. MAT credit
entitlement can be carried forward and utilised for a period as
specified in the tax laws of the respective countries.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to timing differences that result between
taxable profits and accounting profits. Deferred tax in respect of
timing differences which originate during the tax holiday period but
reverse after the tax holiday period, is recognized in the period in
which the timing differences originate. For this purpose the timing
difference which originates first is considered to reverse first.
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. The effect on deferred tax assets and liabilities
of change in tax rates is recognized in the period that includes the
enactment date. Deferred tax assets on timing differences are
recognized only if there is a reasonable certainty that sufficient
future taxable income will be available against which such deferred tax
assets can be realised.
However, deferred tax assets on the timing differences when unabsorbed
depreciation and losses carried forward exist, are recognized only to
the extent that there is virtual certainty that sufficient future
taxable income will be available against which such deferred tax assets
can be realised. Deferred tax assets are reassessed for the
appropriateness of their respective carrying values at each balance
sheet date.
Provisions and contingent liabilities
A provision is recognized when an enterprise has a present obligation
as result of past event and it is probable that an outflow of resources
will be required to settle a reliably assessable obligation. Provisions
are not discounted to present value and are determined based on best
estimate required to settle each obligation at each balance sheet date.
Provisions for onerous contracts, i.e. contracts where the expected
unavoidable costs of meeting obligations under a contract exceed the
economic benefits expected to be received, are recognized when it is
probable that an outflow of resources embodying economic benefits will
be required to settle a present obligation as a result of an obligating
event, based on a reliable estimate of such obligation.
A contingent liability is a possible obligation that arises from past
events whose existence will be confirmed 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 recognized because it
cannot be measured reliably. The company does not recognize a
contingent liability but discloses its existence in the financial
statements
Earnings per share
The basic earnings per share is computed by dividing the net profit
attributable to equity shareholders for the year by the weighted
average number of equity shares outstanding during the year. The number
of shares used in computing diluted earnings per share comprises the
weighted average shares considered for deriving basic earnings per
share, and also the weighted average number of equity shares which
could be issued on the conversion of all dilutive potential equity
shares. Dilutive potential equity shares are deemed converted as of the
beginning of the year, unless they have been issued at a later date.
The diluted potential equity shares have been arrived at, assuming that
the proceeds receivable were based on shares having been issued at the
average market value of the outstanding shares. In computing dilutive
earnings per share, only potential equity shares that are dilutive and
that would, if issued, either reduce future earnings per share or
increase loss per share, are included.
Inventories
Inventory comprises of traded goods and is measured at lower of cost
and net realisable value. Cost includes cost of purchase and other
costs incurred in bringing the inventories to their present location
and condition. Cost is determined on a weighted average basis. Net
realisable value is the estimated selling price in the ordinary course
of business, less estimated cost necessary to make the sale.
Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
Mar 31, 2015
The financial statements of Mphasis Limited ('the Company') have been
prepared and presented under the historical cost convention on the
accrual basis of accounting, unless stated otherwise and comply in all
material aspects with the Accounting Standards ('AS') notified under
section 133 of the Companies Act, 2013, read together with rule 7 of
the Companies (Accounts) Rules, 2014 and other accounting principles
generally accepted in India. The accounting policies adopted in the
preparation of the financial statements are consistent with those of
the previous period except for depreciation and amortization as
described in the accounting policy on depreciation and amortization
(refer note 9.1).
Use of estimates
The preparation of financial statements requires the management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities on
the date of the financial statements and the reported amounts of
revenues and expenses for the year / period. Actual results could
differ from those estimates. Any revision to accounting estimates is
recognized prospectively in current and future years.
Revenue recognition
The Company derives its revenues primarily from software services &
projects, call centre & business process outsourcing operations,
infrastructure outsourcing services, licensing arrangement, application
services and trading of goods.
Revenues from software services & projects comprise income from
time-and-material and fixed price contracts. Revenue from time and
material contracts is recognized when the services are rendered in
accordance with the terms of contracts with clients. Revenue from fixed
price contracts is recognized using the percentage-of-completion
method, calculated as the proportion of the cost of effort incurred up
to the reporting date to estimated cost of total effort.
Revenues from call centre & business process outsourcing operations
arise from both time-based and unit-priced client contracts. Such
revenue is recognized when the services are rendered in accordance with
the terms of the contracts with clients.
Revenues from infrastructure outsourcing services arise from time
based, unit-priced and fixed price contracts. Revenue from time based
and unit-priced is recognized when the services are rendered in
accordance with the terms of the contracts with clients. Revenue from
fixed price contracts is recognized using the percentage-of-completion
method, calculated as the proportion of the cost of effort incurred up
to the reporting date to estimated cost of total effort.
Revenue from licensing arrangements is recognized on transfer of the
title in user licenses, except those contracts where transfer of title
is dependent upon rendering of significant implementation services by
the Company, in which case revenue is recognized over the
implementation period in accordance with the specific terms of the
contracts with clients.
Maintenance revenue is recognized rateably over the period of
underlying maintenance agreements.
Revenue from sale of goods is recognized on transfer of significant
risks and rewards in accordance with the terms of contract. Revenue is
shown as net of sales tax, value added tax and applicable discounts.
Provisions for estimated losses on incomplete contracts are recorded in
the period in which such losses become probable based on the current
contract estimates. 'Unbilled revenue' included in the current assets
represent revenues in excess of amounts billed to clients as at the
balance sheet date. 'Unearned revenue' included in the current
liabilities represent billings in excess of revenues recognized.
Advances received for services are reported as liabilities until all
conditions for revenue recognition are met.
Interest income is recognized using the time-proportion method, based
on underlying interest rates.
Dividend income is recognized when the right to receive the dividend is
established.
Fixed assets and capital work-in-progress
Fixed assets are stated at the cost of acquisition or construction less
accumulated depreciation and write down for impairment, if any. Direct
costs are capitalised until the assets are ready to be put to use.
Borrowing costs directly attributable to acquisition or construction of
those fixed assets which necessarily take a substantial period of time
to get ready for their intended use, are capitalised. Fixed assets
purchased in foreign currency are recorded at cost, based on the
exchange rate on the date of purchase.
Subsequent expenditure related to an item of fixed asset 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.
Acquired intangible assets are capitalised at the acquisition price.
Internally generated intangible assets are stated at cost that can be
measured reliably during the development phase and capitalised when it
is probable that future economic benefits that are attributable to the
asset will flow to the Company.
Leases under which the Company assumes substantially all the risks and
rewards of ownership are classified as finance leases. Such assets
acquired are capitalised at the fair value of the asset or the present
value of the minimum lease payments at the inception of the lease,
whichever is lower.
Cost of assets not ready for use at the balance sheet date are
disclosed under capital work- in- progress.
Depreciation and amortization
Pursuant to the notification of Schedule II of the Companies Act, 2013
by the Ministry of Corporate Affairs effective 01 April 2014, the
management has internally reassessed and changed, wherever necessary
the useful lives to compute depreciation, to conform to the
requirements of the Companies Act, 2013.
The comparison of useful lives is as follows: (In years)
Useful life as per
Asset Companies Act, 2013 Revised useful life
Computer equipment 3 3
Furniture and
Fixtures 10 5
Lease hold
Improvements 10 10 or remaining
primary lease term
whichever is less
Office equipment 5 5
Plant and
Machinery 15 7
Server and
Networking
equipments 6 6
Purchased software /
Internally developed
for self as per AS-26 Useful life of the
asset
consumption
Internally developed
software for sale
Vehicles As per AS-26 Useful life of the
asset
Vehicles 8 5
In respect of plant and machinery, furniture and fixtures and vehicles,
the management basis internal assessment of usage pattern believes that
the useful lives as mentioned above best represent the period over
which management expects to use these assets. Hence the useful lives
in respect of these assets are different from the useful lives as
prescribed under Part C of Schedule II of the Companies Act 2013.
Project specific assets are depreciated over the period of contract or
useful life of the asset, whichever is lower.
Leases
Leases, where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased items, are classified as
operating leases.
Where the Company is lessee, 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 lessor, lease income is recognized in the
statement of profit and loss on straight line basis over the lease
term. Costs are recognized as an expense in the statement of profit
and loss. Initial direct costs such as legal costs, brokerage costs,
etc, are recognized immediately in the statement of profit and loss.
Profit or loss on sale and lease back arrangements resulting in
operating leases are recognized immediately in case the transaction is
established at fair value, else, the excess over the fair value is
deferred and amortized over the period for which the asset is expected
to be used. If the sale price is below fair value, any profit or loss
is recognized immediately in the statement of profit and loss.
Borrowing costs
Borrowing cost includes 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 year they occur.
Impairment of tangible and intangible assets
The Company assesses at each balance sheet date whether there is any
indication that a fixed asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount of the asset. 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 the pre-tax discount
rate that reflects current market assessments of the time value of
money and risks specific to the assets. If such recoverable amount of
the asset or the recoverable amount of the cash generating unit to
which the asset belongs is less than its carrying amount, the carrying
amount is reduced to its recoverable amount. The reduction is treated
as an impairment loss and is recognized in the statement of profit and
loss. If at the balance sheet date there is an indication that a
previously assessed impairment loss no longer exists, the recoverable
amount is reassessed and the asset is reflected at the recoverable
amount subject to a maximum of depreciated historical cost.
Investments
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. Provision for diminution in
the value of investments is made if the impairment is not temporary in
nature.
Employee benefits
Gratuity which is a defined benefit is accrued based on an independent
actuarial valuation, which is done based on project unit credit method
as at the balance sheet date. Actuarial gains/losses are immediately
taken to the statement of profit and loss and are not deferred.
The cost of short term compensated absences are provided for based on
estimates. Long term compensated absence costs are provided for based
on actuarial valuation using the project unit credit method. The
Company presents the entire leave as a current liability in the balance
sheet, since it does not have an unconditional right to defer its
settlement for 12 months after the reporting date.
Contributions payable to recognized provident funds, which are defined
contribution schemes, are charged to the statement of profit and loss.
The Company's liability is limited to contribution made to the fund.
Mphasis Limited has established a Provident Fund Trust to which
contributions towards provident fund are made each month. The Provident
Fund Trust guarantees a specified rate of return on such contributions
on a periodical basis. The Company will meet the shortfall in the
returns, if any, based on actuarial valuation, as per Projected Unit
Credit Method, as at the date of Balance Sheet [refer note 32 (b)].
Stock-based compensation (Equity settled)
Measurement and disclosure of the employee share-based payment plans is
done in accordance with regulations issued by the Securities Exchange
Board of India ('SEBI') from time to time and the Guidance Note on
Accounting for Employee Share-based Payments, issued by the Institute
of Chartered Accountants of India. The Company measures compensation
cost relating to employee stock options using the intrinsic value
method except for RSU plan 2010, RSU plan 2011, RSU plan 2014 and ESOP
2012 wherein compensation cost is measured based on fair valuation.
Compensation expense is amortized over the vesting period of the option
on a straight line basis.
Foreign currency
Foreign exchange transactions are recorded at the rates of exchange
prevailing on the dates of the respective transactions. Exchange
differences arising on foreign exchange transactions settled during the
year / period are recognized in the statement of profit and loss of
that year / period.
Monetary assets and liabilities denominated in foreign currencies as at
the balance sheet date are translated at the exchange rates on that
date. The resultant exchange differences are recognized in the
statement of profit and loss. Non-monetary items which are carried in
terms of historical cost denominated in foreign currency are reported
using the exchange rate at the date of the transaction.
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.
Forward contracts are entered into to hedge the foreign currency risk
of the underlying outstanding at the balance sheet date and also to
hedge the foreign currency risk of firm commitment or highly probable
forecast transactions. The premium or discount on forward contracts
that are entered into, to hedge the foreign currency risk of the
underlying outstanding at the balance sheet date arising at the
inception of each contract is amortised as income or expense over the
life of the contract. Any profit or loss arising on the cancellation or
renewal of forward contracts is recognized as income or as expense for
the year / period.
In relation to the forward contracts entered into, to hedge the foreign
currency risk of the underlying outstanding at the balance sheet date,
the exchange difference is calculated and recorded in accordance with
paragraphs 36 and 37 of AS 11. The exchange difference on such a
forward exchange contract is calculated as the difference between the
foreign currency amount of the contract translated at the exchange rate
at the reporting date or the settlement date where the transaction is
settled during the reporting year / period, and the corresponding
foreign currency amount translated at the later of the date of
inception of the forward exchange contract and the last reporting date.
Such exchange differences are recognized in the statement of profit and
loss in the reporting year / period in which the exchange rates change.
The Company has adopted the principles of AS 30 "Financial Instruments:
Recognition and Measurement" in respect of its derivative financial
instruments (excluding embedded derivative) that are not covered by AS
11 "The Effects of Changes in Foreign Exchange Rates" and that relate
to a firm commitment or a highly probable forecast transaction. In
accordance with AS 30, such derivative financial instruments, which
qualify for cash flow hedge accounting and where the Company has met
all the conditions of AS 30, are fair valued at the balance sheet date
and the resultant gain / loss is credited / debited to the hedging
reserve included in the Reserves and Surplus. This gain / loss is
recorded in the statement of profit and loss when the underlying
transactions affect earnings. Other derivative instruments that relate
to a firm commitment or a highly probable forecast transaction and that
do not qualify for hedge accounting, have been recorded at fair value
at the reporting date and the resultant gain / loss has been credited /
debited to the statement of profit and loss for the year / period.
Income taxes
The current charge for income taxes is calculated in accordance with
the relevant tax regulations. Minimum Alternative Tax ('MAT') paid in
accordance with the tax laws, which gives rise to future economic
benefits in the form of adjustments of future income tax liability, is
considered as an asset if there is convincing evidence that the Company
will pay normal tax after the tax holiday period. MAT credit
entitlement can be carried forward and utilised for a period as
specified in the tax laws of the respective countries.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to timing differences that result between
taxable profits and accounting profits. Deferred tax in respect of
timing differences which originate during the tax holiday period but
reverse after the tax holiday period, is recognized in the period in
which the timing differences originate. For this purpose the timing
difference which originates first is considered to reverse first.
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. The effect on deferred tax assets and liabilities
of change in tax rates is recognized in the period that includes the
enactment date. Deferred tax assets on timing differences are
recognized only if there is a reasonable certainty that sufficient
future taxable income will be available against which such deferred
tax assets can be realised. However, deferred tax assets on the timing
differences when unabsorbed depreciation and losses carried forward
exist, are recognized only to the extent that there is virtual
certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised. Deferred tax
assets are reassessed for the appropriateness of their respective
carrying values at each balance sheet date.
Provisions and contingent liabilities
A provision is recognized when an enterprise has a present obligation
as result of past event and it is probable that an outflow of resources
will be required to settle a reliably estimable obligation. Provisions
are not discounted to present value and are determined based on best
estimate required to settle each obligation at each balance sheet date.
Provisions for onerous contracts, i.e. contracts where the expected
unavoidable costs of meeting obligations under a contract exceed the
economic benefits expected to be received, are recognized when it is
probable that an outflow of resources embodying economic benefits will
be required to settle a present obligation as a result of an obligating
event, based on a reliable estimate of such obligation.
A contingent liability is a possible obligation that arises from past
events whose existence will be confirmed 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 recognized because it
cannot be measured reliably. The Company does not recognize a
contingent liability but discloses its existence in the financial
statements.
Earnings per share
The basic earnings per share is computed by dividing the net profit
attributable to equity shareholders for the year / period by the
weighted average number of equity shares outstanding during the year /
period. The number of shares used in computing diluted earnings per
share comprises the weighted average shares considered for deriving
basic earnings per share, and also the weighted average number of
equity shares which could be issued on the conversion of all dilutive
potential equity shares. Dilutive potential equity shares are deemed
converted as of the beginning of the year, unless they have been issued
at a later date. The diluted potential equity shares have been arrived
at, assuming that the proceeds receivable were based on shares having
been issued at the average market value of the outstanding shares. In
computing dilutive earnings per share, only potential equity shares
that are dilutive and that would, if issued, either reduce future
earnings per share or increase loss per share, are included.
Inventories
Inventory comprises of traded goods and is measured at lower of cost
and net realisable value. Cost includes direct materials and related
direct expenses. Cost is determined on a weighted average basis. Net
realisable value is the estimated selling price in the ordinary course
of business, less estimated cost necessary to make the sale.
Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
Oct 31, 2013
Basis of preparation
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accounting, unless
stated otherwise and comply with the mandatory Accounting Standards
(''AS'') prescribed under the Companies Act, 1956 (read with the
General Circular 15/2013 dated 13/9/2013 issued by the Ministry of
Corporate Affairs) and other pronouncements of the Institute of the
Chartered Accountants of India (''ICAI'') and the related provisions of
the Companies Act, 1956. The accounting policies adopted in the
preparation of financial statements are consistent with those of the
previous year.
Use of estimates
The preparation of financial statements requires the management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities on
the date of the financial statements and the reported amounts of
revenues and expenses for the year. Actual results could differ from
those estimates. Any revision to accounting estimates is recognized
prospectively in current and future years.
Revenue recognition
The Company derives its revenues primarily from software services &
projects, call centre & business process outsourcing operations,
infrastructure outsourcing services, licensing arrangement, application
services and trading of goods.
Revenues from software services & projects comprise income from
time-and-material and fixed price contracts. Revenue from time and
material contracts is recognized when the services are rendered in
accordance with the terms of the contracts with clients. Revenue from
fixed price contracts is recognized using the percentage-of-completion
method, calculated as the proportion of the cost of effort incurred up
to the reporting date to estimated cost of total effort.
Revenues from call centre & business process outsourcing operations
arise from both time-based and unit-priced client contracts. Such
revenue is recognized when the services are rendered in accordance with
the terms of the contracts with clients.
Revenues from infrastructure outsourcing services arise from
time-based, unit-priced and fixed price contracts. Revenue from
time-based and unit-priced is recognized when the services are rendered
in accordance with the terms of the contracts with clients. Revenue
from fixed price contracts is recognized using the
percentage-of-completion method, calculated as the proportion of the
cost of effort incurred up to the reporting date to estimated cost of
total effort.
Revenue from licensing arrangements is recognized on transfer of the
title in user licenses, except those contracts where transfer of title
is dependent upon rendering of significant implementation services by
the Company, in which case revenue is recognized over the
implementation period in accordance with the specific terms of the
contracts with clients.
Maintenance revenue is recognized rateably over the period of
underlying maintenance agreements.
Revenue from sale of goods is recognized on transfer of significant
risks and rewards in accordance with the terms of contract. Revenue is
shown as net of sales-tax, value added tax and applicable discounts.
Provisions for estimated losses on incomplete contracts are recorded in
the period in which such losses become probable based on the current
contract estimates. ''Unbilled revenues'' included in the current
assets represent revenues in excess of amounts billed to clients as at
the balance sheet date. ''Unearned revenue'' included in the current
liabilities represent billings in excess of revenues recognized.
Advances received for services are reported as liabilities until all
conditions for revenue recognition are met.
Interest income is recognized using the time-proportion method, based
on underlying interest rates.
Dividend income is recognized when the right to receive the dividend is
established.
Fixed assets and capital work-in-progress
Fixed assets are stated at the cost of acquisition or construction less
accumulated depreciation and write down for impairment if any. Direct
costs are capitalised until the assets are ready to be put to use.
Borrowing costs directly attributable to acquisition or construction of
those fixed assets which necessarily take a substantial period of time
to get ready for their intended use, are capitalised. Fixed assets
purchased in foreign currency are recorded at cost, based on the
exchange rate on the date of purchase.
Acquired intangible assets are capitalised at the acquisition price.
Internally generated intangible assets are stated at cost that can be
measured reliably during the development phase and capitalised when it
is probable that future economic benefits that are attributable to the
asset will flow to the Company.
Leases under which the Company assumes substantially all the risks and
rewards of ownership are classified as finance leases. Such assets
acquired are capitalised at the fair value of the asset or the present
value of the minimum lease payments at the inception of the lease,
whichever is lower.
Cost of assets not ready for use at the balance sheet date are
disclosed under capital work-in-progress.
Assets used for Unique Identification (UID) services have been
depreciated over a period of 2 years.
Freehold land is not depreciated. Leasehold improvements are amortized
over the remaining lease term or 3 years (5 years for call centre
services), whichever is shorter. Significant purchased application
software and internally generated software that is an integral part of
the Company''s computer systems and expected to provide lasting
benefits, is capitalised at cost and amortized on the straight-line
method over its estimated useful life or 3 years, whichever is shorter.
Internally generated software for sale expected to provide lasting
benefits is amortized on the straight-line method over its estimated
life or 7 years, whichever is shorter.
Leases
Leases, where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased items, are classified as
operating leases.
Where the Company is lessee, 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 lessor, lease income is recognized in the
statement of profit and loss on straight line basis over the lease
term. Costs are recognized as an expense in the statement of profit
and loss. Initial direct costs such as legal costs, brokerage costs,
etc, are recognized immediately in the statement of profit and loss.
Profit or loss on sale and lease back arrangements resulting in
operating leases are recognized immediately in case the transaction is
established at fair value, else, the excess over the fair value is
deferred and amortized over the period for which the asset is expected
to be used. If the sale price is below fair value, any profit or loss
is recognized immediately in the statement of profit and loss.
Borrowing costs
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.
Impairment of assets
The Company assesses at each balance sheet date whether there is any
indication that a fixed asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount of the asset. 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 the pre-tax discount
rate that reflects current market assessments of the time value of
money and risks specific to the assets. If such recoverable amount of
the asset or the recoverable amount of the cash generating unit to
which the asset belongs is less than its carrying amount, the carrying
amount is reduced to its recoverable amount. The reduction is treated
as an impairment loss and is recognized in the statement of profit and
loss. If at the balance sheet date there is an indication that a
previously assessed impairment loss no longer exists, the recoverable
amount is reassessed and the asset is reflected at the recoverable
amount subject to a maximum of depreciated historical cost.
Investments
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. Provision for diminution in
the value of investments is made if the impairment is not temporary in
nature.
Employee benefits
Gratuity which is a defined benefit is accrued based on an independent
actuarial valuation, which is done based on projected unit credit
method as at the balance sheet date. Actuarial gains/losses are
immediately taken to the statement of profit and loss and are not
deferred.
The cost of short term compensated absences are provided for based on
estimates. Long term compensated absence costs are provided for based
on actuarial valuation using the projected unit credit method. The
Company presents the entire leave as a current liability in the balance
sheet, since it does not have an unconditional right to defer its
settlement for 12 months after the reporting date.
Contributions payable to recognized provident funds, which are defined
contribution schemes, are charged to the statement of profit and loss.
The Company''s liability is limited to contribution made to the fund.
Effective 03 July 2013, the Company has established a Provident Fund
Trust to which contributions towards provident fund are made each
month. The Provident Fund Trust guarantees a specified rate of return
on such contributions on a periodical basis. The Company will meet the
shortfall in the return, if any, which is provided for based on
actuarial valuation carried out, as per projected unit credit method,
as at the date of balance sheet. Also refer note 33(b) of the financial
statement.
Stock-based compensation (Equity settled)
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by the Institute
of Chartered Accountants of India. The Company measures compensation
cost relating to employee stock options using the intrinsic value
method except for RSU plan 2010 and RSU plan 2011 and Employees Stock
Option Plan - 2012 wherein compensation cost is measured based on fair
valuation. Compensation expense is amortized over the vesting period of
the option on a straight line basis.
Foreign currency
Foreign exchange transactions are recorded at the rates of exchange
prevailing on the dates of the respective transactions. Exchange
differences arising on foreign exchange transactions settled during the
year are recognized in the statement of profit and loss of that year.
Monetary assets and liabilities denominated in foreign currencies as at
the balance sheet date are translated at the exchange rates on that
date. The resultant exchange differences are recognized in the
statement of profit and loss. Non-monetary items which are carried in
terms of historical cost denominated in foreign currency are reported
using the exchange rate at the date of the transaction.
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.
Forward contracts are entered into, to hedge the foreign currency risk
of the underlying outstanding at the balance sheet date and also to
hedge the foreign currency risk of firm commitment or highly probable
forecast transactions. The premium or discount on forward contracts
that are entered into, to hedge the foreign currency risk of the
underlying outstanding at the balance sheet date arising at the
inception of each contract is amortized as income or expense over the
life of the contract. Any profit or loss arising on the cancellation or
renewal of forward contracts is recognized as income or as expense for
the year.
In relation to the forward contracts entered into, to hedge the foreign
currency risk of the underlying outstanding at the balance sheet date,
the exchange difference is calculated and recorded in accordance with
paragraphs 36 and 37 of AS 11. The exchange difference on such a
forward exchange contract is calculated as the difference between the
foreign currency amount of the contract translated at the exchange rate
at the reporting date or the settlement date where the transaction is
settled during the reporting year, and the corresponding foreign
currency amount translated at the later of the date of inception of the
forward exchange contract and the last reporting date. Such exchange
differences are recognized in the statement of profit and loss in the
reporting period in which the exchange rates change.
The Company has adopted the principles of AS 30 "Financial
Instruments: Recognition and Measurement" in respect of its
derivative financial instruments (excluding embedded derivative) that
are not covered by AS 11 "The Effects of Changes in Foreign Exchange
Rates" and that relate to a firm commitment or a highly probable
forecast transaction. In accordance with AS 30, such derivative
financial instruments, which qualify for cash flow hedge accounting and
where the Company has met all the conditions of AS 30, are fair valued
at the balance sheet date and the resultant gain/ loss is credited/
debited to the hedging reserve included in the Reserves and Surplus.
This gain/ loss is recorded in the statement of profit and loss when
the underlying transactions affect earnings. Other derivative
instruments that relate to a firm commitment or a highly probable
forecast transaction and that do not qualify for hedge accounting, have
been recorded at fair value at the reporting date and the resultant
gain/ loss has been credited/ debited to the statement of profit and
loss for the year.
Income taxes
The current charge for income taxes is calculated in accordance with
the relevant tax regulations. Minimum Alternative Tax (''MAT'') paid in
accordance with the tax laws, which gives rise to future economic
benefits in the form of adjustments of future income tax liability, is
considered as an asset if there is convincing evidence that the Company
will pay normal tax after the tax holiday period. MAT credit
entitlement can be carried forward and utilised for a period as
specified in the tax laws of the respective countries.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to timing differences that result between
taxable profits and accounting profits. Deferred tax in respect of
timing differences which originate during the tax holiday period but
reverse after the tax holiday period, is recognized in the period in
which the timing differences originate. For this purpose the timing
difference which originates first is considered to reverse first.
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. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that includes the
enactment date. Deferred tax assets on timing differences are
recognized only if there is a reasonable certainty that sufficient
future taxable income will be available against which such deferred tax
assets can be realised. However, deferred tax assets on the timing
differences when unabsorbed depreciation and losses carried forward
exist, are recognized only to the extent that there is virtual
certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised. Deferred tax
assets are reassessed for the appropriateness of their respective
carrying values at each balance sheet date.
Provisions and contingent liabilities
A provision is recognized when an enterprise has a present obligation
as result of past event and it is probable that an outflow of resources
will be required to settle a reliably estimable obligation. Provisions
are not discounted to present value and are determined based on best
estimate required to settle each obligation at each balance sheet date.
Provisions for onerous contracts, i.e. contracts where the expected
unavoidable costs of meeting obligations under a contract exceed the
economic benefits expected to be received, are recognized when it is
probable that an outflow of resources embodying economic benefits will
be required to settle a present obligation as a result of an obligating
event, based on a reliable estimate of such obligation. Provisions are
not discounted to their present value and are determined based on best
estimate required to settle the obligation at each balance sheet date.
Earnings per share
The basic earnings per share is computed by dividing the net profit
attributable to equity shareholders for the year by the weighted
average number of equity shares outstanding during the year. The number
of shares used in computing diluted earnings per share comprises the
weighted average shares considered for deriving basic earnings per
share, and also the weighted average number of equity shares which
could be issued on the conversion of all dilutive potential equity
shares. Dilutive potential equity shares are deemed converted as of the
beginning of the year, unless they have been issued at a later date.
The diluted potential equity shares have been arrived at, assuming that
the proceeds receivable were based on shares having been issued at the
average market value of the outstanding shares. In computing dilutive
earnings per share, only potential equity shares that are dilutive and
that would, if issued, either reduce future earnings per share or
increase loss per share, are included.
Inventories
Inventory comprises of traded goods and is measured at lower of cost
and net realisable value. Cost includes direct materials and related
direct expenses. Cost is determined on a weighted average basis. Net
realisable value is the estimated selling price in the ordinary course
of business, less estimated cost necessary to make the sale.
Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
Oct 31, 2011
Basis of preparation
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accounting and
comply with the mandatory Accounting Standards ('AS') prescribed in the
Companies (Accounting Standards) Rules, 2006 (as amended) and other
pronouncements of the Institute of the Chartered Accountants of India
('ICAI') and the related provisions of the Companies Act 1956. The
accounting policies have been consistently applied by the Company,
except for the change as disclosed in note 5 as regards to valuation of
employees stock based compensation. Also refer note 35 as regards
segment disclosure.
Use of estimates
The preparation of financial statements requires the management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities on
the date of the financial statements and the reported amounts of
revenues and expenses for the year. Actual results could differ from
those estimates. Any revision to accounting estimates is recognised
prospectively in current and future years.
Revenue recognition
The Company derives its revenues primarily from software services &
projects, call centre & business process outsourcing operations,
infrastructure outsourcing services, licensing arrangement, application
services and trading of goods.
Revenues from software services & projects comprise income from
time-and-material and fixed price contracts. Revenue from time and
material contracts is recognized when the services are rendered in
accordance with the terms of contracts with clients. Revenue from fixed
price contracts is recognized using the percentage-of-completion
method, calculated as the proportion of the cost of effort incurred up
to the reporting date to estimated cost of total effort.
Revenues from call centre & business process outsourcing operations
arise from both time-based and unit-priced client contracts. Such
revenue is recognized when the services are rendered in accordance with
the terms of the contracts with clients.
Revenues from infrastructure outsourcing services arise from time based
unit-priced and fixed price contracts. Revenue from time based and
unit-priced is recognized when the services are rendered in accordance
with the terms of the contracts with clients. Revenue from fixed price
contracts is recognized using the percentage-of-completion method,
calculated as the proportion of the cost of effort incurred up to the
reporting date to estimated cost of total effort.
Revenue from licensing arrangements is recognised on transfer of the
title in user licenses, except those contracts where transfer of title
is dependent upon rendering of significant implementation services by
the company, in which case revenue is recognized over the
implementation period in accordance with the specific terms of the
contracts with clients.
Maintenance revenue is recognised ratably over the period of
underlying maintenance agreements.
Revenue from sale of goods is recognized on transfer of significant
risks and rewards in accordance with the terms of contract. Revenue is
shown as net of sales tax, value added tax and applicable discounts.
Provisions for estimated losses on incomplete contracts are recorded in
the period in which such losses become probable based on the current
contract estimates. 'Unbilled revenues' included in the current assets
represent revenues in excess of amounts billed to clients as at the
balance sheet date. 'Unearned receivables' included in the current
liabilities represent billings in excess of revenues recognised.
Advances received for services are reported as liabilities until all
conditions for revenue recognition are met.
Interest on the deployment of surplus funds is recognised using the
time-proportion method, based on underlying interest rates.
Dividend income is recognised when the right to receive the dividend is
established.
Fixed assets and capital work-in-progress
Fixed assets are stated at the cost of acquisition or construction less
accumulated depreciation and write down for impairment if any. Direct
costs are capitalised until the assets are ready to be put to use.
Borrowing costs directly attributable to acquisition or construction of
those fixed assets which necessarily take a substantial period of time
to get ready for their intended use, are capitalised. Fixed assets
purchased in foreign currency are recorded at cost, based on the
exchange rate on the date of purchase.
Acquired intangible assets are capitalised at the acquisition price.
Internally generated intangible assets are stated at cost that can be
measured reliably during the development phase and capitalised when it
is probable that future economic benefits that are attributable to the
asset will flow to the Company.
Leases under which the Company assumes substantially all the risks and
rewards of ownership are classified as finance leases. Such assets
acquired are capitalised at the fair value of the asset or the present
value of the minimum lease payments at the inception of the lease,
whichever is lower.
Advances paid towards the acquisition of fixed assets and the cost of
assets not ready for use as at the balance sheet date are disclosed
under capital work-in-progress.
Depreciation and amortisation
Depreciation on fixed assets is provided using the straight-line method
over the estimated useful lives of assets. Depreciation is charged on
a proportionate basis for all assets purchased and sold during the
year. Individual assets costing less than Rs. 5,000 are depreciated in
full in the year of purchase. The estimated useful lives of assets are
as follows:
Freehold land is not depreciated. Leasehold improvements are amortised
over the remaining lease term or 3 years (5 years for call centre
services), whichever is shorter. Significant purchased application
software and internally generated software that is an integral part of
the Company's computer systems and expected to provide lasting
benefits, is capitalised at cost and amortised on the straight-line
method over its estimated useful life or 3 years, whichever is shorter.
Leases
Leases where the lesser effectively retains substantially all the risks
and benefits of ownership of the leased term, are classified as
operating leases.
Where the Company is lessee, operating lease payments are recognized as
an expense in the profit and loss account on a straight-line basis over
the lease term.
Where the Company is lesser, lease income is recognised in the profit
and loss account on straight line basis over the lease term. Costs are
recognised as an expense in the profit and loss account. Initial direct
costs such as legal costs, brokerage costs, etc, are recognised
immediately in the profit and loss account.
Profit or loss on sale and lease back arrangements resulting in
operating leases are recognised immediately in case the transaction is
established at fair value, else, the excess over the fair value is
deferred and amortized over the period for which the asset is expected
to be used.
Impairment of assets
The Company assesses at each balance sheet date whether there is any
indication that a fixed asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount of the asset. The
recoverable amount is the greater of 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 the pre-tax discount
rate that reflects current market assessments of the time value of
money and risks specific to the assets. If such recoverable amount of
the asset or the recoverable amount of the cash generating unit to
which the asset belongs is less than its carrying amount, the carrying
amount is reduced to its recoverable amount. The reduction is treated
as an impairment loss and is recognised in the profit and loss account.
If at the balance sheet date there is an indication that a previously
assessed impairment loss no longer exists, the recoverable amount is
reassessed and the asset is reflected at the recoverable amount subject
to a maximum of depreciated historical cost.
Investments
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 or fair value determined on an
individual investment basis.
Long-term investments are carried at cost. Provision for diminution in
the value of investments is made if the impairment is not temporary in
nature.
Employee benefits
Gratuity which is a defined benefit, is accrued based on an independent
actuarial valuation, which is done based on project unit credit method
as at the balance sheet date. Actuarial gains/losses are immediately
taken to the profit and loss account and are not deferred.
The cost of short term compensated absences are provided for based on
estimates. Long term compensated absences costs are provided for based
on actuarial valuation which is done based on project unit credit
method as at the balance sheet date.
Contributions payable to recognized provident funds, which are defined
contribution schemes, are charged to the profit and loss account. The
Company's liability is limited to the contribution made to the fund.
Foreign currency
Foreign exchange transactions are recorded at the rates of exchange
prevailing on the dates of the respective transactions. Exchange
differences arising on foreign exchange transactions settled during a
year are recognized in the profit and loss account of that year.
Monetary assets and liabilities denominated in foreign currencies as at
the balance sheet date are translated at the exchange rates on that
date. The resultant exchange differences are recognised in the profit
and loss account. Non- monetary items which are carried in terms of
historical cost denominated in foreign currency are reported using the
exchange rate at the date of the transaction.
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.
Forward contracts are entered into, to hedge the foreign currency risk
of the underlying outstanding at the balance sheet date and also to
hedge the foreign currency risk of firm commitment or highly probable
forecast transactions. The premium or discount on forward contracts
that are entered into, to hedge the foreign currency risk of the
underlying outstanding at the balance sheet date arising at the
inception of each contract, is amortised as income or expense over the
life of the contract. Any profit or loss arising on the cancellation or
renewal of forward contracts is recognised as income or as expense for
the year.
In relation to the forward contracts entered into, to hedge the foreign
currency risk of the underlying outstanding at the balance sheet date,
the exchange difference is calculated and recorded in accordance with
paragraphs 36 and 37 of AS 11. The exchange difference on such a
forward exchange contract, is calculated as the difference between the
foreign currency amount of the contract translated at the exchange rate
at the reporting date or the settlement date where the transaction is
settled during the reporting year, and the corresponding foreign
currency amount translated at the later of the date of inception of the
forward exchange contract and the last reporting date. Such exchange
differences are recognised in the profit and loss account in the
reporting period in which the exchange rates change.
The Company has adopted the principles of AS 30 "Financial Instruments:
Recognition and Measurement" in respect of its derivative financial
instruments (excluding embedded derivative) that are not covered by AS
11 "The Effects of Changes in Foreign Exchange Rates" and that relate
to a firm commitment or a highly probable forecast transaction. In
accordance with AS 30, such derivative financial instruments, which
qualify for cash flow hedge accounting and where the Company has met
all the conditions of AS 30, are fair valued at the balance sheet date
and the resultant gain / loss is credited / debited to the hedging
reserve included in the Reserves and Surplus. This gain / loss would be
recorded in the profit and loss account when the underlying
transactions affect earnings. Other derivative instruments that relate
to a firm commitment or a highly probable forecast transaction and that
do not qualify for hedge accounting, have been recorded at fair value
at the reporting date and the resultant gain / loss has been credited /
debited to profit and loss account for the year.
Income taxes
The current charge for income taxes is calculated in accordance with
the relevant tax regulations. Minimum Alternative Tax ('MAT') paid in
accordance with the tax laws which gives rise to future economic
benefits in the form of adjustments of future income tax liability, is
considered as an asset if there is convincing evidence that the Company
will pay normal tax after the tax holiday period. MAT credit
entitlement can be carried forward and utilised for a period as
specified in the tax laws of the respective countries.
Deferred tax assets and liabilities are recognised for the future tax
consequences attributable to timing differences that result between
taxable profits and accounting profits. Deferred tax in respect of
timing differences which originate during the tax holiday period but
reverse after the tax holiday period, is recognised in the period in
which the timing differences originate. For this purpose the timing
difference which originates first is considered to reverse first.
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. The effect on deferred tax assets and liabilities
of a change in tax rates, is recognised in the period that includes the
enactment date. Deferred tax assets on timing differences are
recognised only if there is a reasonable certainty that sufficient
future taxable income will be available against which such deferred tax
assets can be realised. However, deferred tax assets on the timing
differences when unabsorbed depreciation and losses carried forward
exist, are recognised only to the extent that there is virtual
certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised. Deferred tax
assets are reassessed for the appropriateness of their respective
carrying values at each balance sheet date.
Provisions and contingent liabilities
A provision is recognised when an enterprise has a present obligation
as 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.
Provisions for onerous contracts, i.e. contracts where the expected
unavoidable costs of meeting the obligations under the contract exceed
the economic benefits expected to be received under it, are recognised
when it is probable that an outflow of resources embodying economic
benefits will be required to settle a present obligation as a result of
an obligating event, based on a reliable estimate of such obligation.
Provisions are not discounted to their 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.
Earnings per share
The basic earnings per share is computed by dividing the net profit
attributable to equity shareholders for the year by the weighted
average number of equity shares outstanding during the year. The number
of shares used in computing diluted earnings per share comprises the
weighted average shares considered for deriving basic earnings per
share, and also the weighted average number of equity shares which
would have been issued on the conversion of all dilutive potential
equity shares. Dilutive potential equity shares are deemed converted as
of the beginning of the year, unless they have been issued at a later
date. The diluted potential equity shares have been arrived at,
assuming that the proceeds receivable were based on shares having been
issued at the average market value of the outstanding shares. In
computing dilutive earnings per share, only potential equity shares
that are dilutive and that either reduce earnings per share or increase
loss per share, are included.
Stock-based Compensation (Equity settled)
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by the Institute
of Chartered Accountants of India. The Company measures compensation
cost relating to employee stock options using the intrinsic value
method except for RSU plan 2010 and RSU plan 2011 wherein compensation
cost is measured based on fair valuation. Compensation expense is
amortized over the vesting period of the option on a straight line
basis.
Inventories
Inventory comprises of traded goods and is measured at lower of cost
and net realisable value. Cost includes direct materials and labour.
Cost is determined on a weighted average basis. Net realisable value is
the estimated selling price in the ordinary course of business, less
estimated cost necessary to make the sale.
Oct 31, 2010
Basis of preparation
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accounting and
comply with the mandatory Accounting Standards (AS) prescribed in the
Companies (Accounting Standards) Rules, 2006 (as amended) and other
pronouncements of the Institute of the Chartered Accountants of India
(ICAI) and the relevant provisions of the Companies Act 1956. The
accounting policies have been consistently applied by the Company
except for the change as disclosed in note 25.
Use of estimates
The preparation of financial statements requires the management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities on
the date of the financial statements and the reported amounts of
revenues and expenses. Actual results could differ from those
estimates. Any revision to accounting estimates is recognised
prospectively in current and future years.
Revenue recognition
The Company derives its revenues primarily from software services &
projects, call centre & business process outsourcing operations,
infrastructure outsourcing services and from licensing arrangements &
application services.
Revenues from software services and projects comprise income from time
and material and fixed price contracts. Revenue from time and material
contracts is recognised on the basis of software developed and billable
in accordance with the : terms of contracts with clients. Revenue from
fixed price contract is recognised using the percentage of completion
method, calculated as the proportion of the cost of effort incurred up
to the reporting date to estimated cost of total efforts.
Revenues from call centre & business process outsourcing operations
arise from both time-based and unit-priced client contracts. Such
revenue is recognised on completion of the related services and is
billable in accordance with the specific terms of the contracts with
clients.
Revenue from infrastructure outsourcing services arises from
time-and-material contracts and accordingly, revenue is recognised on
the basis of services rendered and billable in accordance with the
specific terms of the contracts with clients.
Revenue from licensing arrangements is recognised on transfer of the
title in user licenses, except those contracts which require
significant implementation services, where revenue is recognized over
the implementation period in accordance with the specific terms of the
contracts with clients.
Maintenance revenue is recognised rateably over the period of
underlying maintenance agreements.
Provisions for estimated losses on incomplete contracts are recorded in
the period in which such losses become probable based on the current
contract estimates. Unbilled revenues included in the current assets
represents revenues in excess of amounts billed to clients as at the
balance sheet date. Unearned receivables included in the current
liabilities represents billings in excess of revenues recognised.
Advances received for services are reported as liabilities until all
conditions for revenue recognition are met.
Interest on the deployment of funds is recognised using the
time-proportion method, based on underlying interest rates.
Dividend income is recognised when the right to receive the dividend is
established.
Fixed assets and capital work-in-progress
Fixed assets are stated at the cost of acquisition or construction less
accumulated depreciation, impairment if any. Direct costs are
capitalised until the assets are ready to be put to use. Borrowing
costs directly attributable to acquisition or construction of those
fixed assets which necessarily take a substantial period of time to get
ready for their intended use are capitalised. Fixed assets purchased in
foreign currency are recorded at cost, based on the exchange rate on
the date of purchase.
Acquired intangible assets are capitalised at the acquisition price.
Internally generated intangible assets are stated at cost that can be
measured reliably during the development phase and capitalised when it
is probable that future economic benefits that are attributable to the
asset will flow to the Company.
Leases under which the Company assumes substantially all the risks and
rewards of ownership are classified as finance leases. Such assets
acquired are capitalised at the fair value of the asset or the present
value of the minimum lease payments at the inception of the lease,
whichever is lower.
Advances paid towards the acquisition of fixed assets and the cost of
assets not ready for use as at the balance sheet date are disclosed
under capital work-in-progress.
Leases
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased term, 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.
Profit or loss on sale and lease back arrangements resulting in
operating leases are recognised immediately in case the transaction is
established at fair value, else, the excess over the fair value is
deferred and amortized over the period for which the asset is expected
to be used.
Impairment of assets
The Company assesses at each balance sheet date whether there is any
indication that a fixed asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount of the asset. If
such recoverable amount of the asset or the recoverable amount of the
cash generating unit to which the asset belongs is less than its
carrying amount, the carrying amount is reduced to its recoverable
amount. The reduction is treated as an impairment loss and is
recognised in the profit and loss account. If at the balance sheet date
there is an indication that a previously assessed impairment loss no
longer exists, the recoverable amount is reassessed and the asset is
reflected at the recoverable amount subject to a maximum of depreciated
historical cost.
Investments
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 or fair value determined on an
individual investment basis.
Long-term investments are carried at cost. Provision for diminution in
the value of investments is made if the impairment is not temporary in
nature.
Employee benefits
Gratuity which is a defined benefit, is accrued based on an independent
actuarial valuation, which is done based on. project unit credit
method as at the balance sheet date. Actuarial gains/losses are
immediately taken to the profit and loss account and are not deferred.
The cost of short term compensated absences are provided for based on
estimates. Long term compensated absences costs are provided for based
on actuarial valuation which is done based on project unit credit
method as at the balance sheet date.
Contributions payable to recognised provident funds and approved
superannuation schemes, which are defined contribution schemes, are
charged to the profit and loss account. The Companys liability is
limited to the contribution made to the fund.
Foreign currency
Foreign exchange transactions are recorded at the rates of exchange
prevailing on the dates of the respective transactions. Exchange
differences arising on foreign exchange transactions settled during a
year are recognised in the profit and loss account of that year.
Monetary assets and liabilities denominated in foreign currencies as at
the balance sheet date are translated at the exchange rates on that
date. The resultant exchange differences are recognised in the profit
and loss account.
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.
Forward contracts are entered into, to hedge the foreign currency risk
of the underlying outstanding at the balance sheet date and also to
hedge the foreign currency risk of firm commitment or highly probable
{orecasi transactions.
The premium or discount on forward contracts that are entered into, to
hedge the foreign currency risk of the underlying outstanding at the
balance sheet date arising at the inception of each contract, is
amortised as income or expense over the life of the contract. Any
profit or loss arising on the cancellation or renewal of forward
contracts is recognised as income or as expense for the year.
In relation to the forward contracts entered into, to hedge the foreign
currency risk of the underlying outstanding at the balance sheet date,
the exchange difference is calculated and recorded in accordance with
paragraphs 36 and 37 of AS 11. The exchange difference on such a
forward exchange contract, is calculated as the difference between the
foreign currency amount of the contract translated at the exchange rate
at the reporting date or the settlement date where the transaction is
settled during the reporting period, and the corresponding foreign
currency amount translated at the later of the date of inception of the
forward exchange contract and the last reporting date. Such exchange
differences are recognised in the profit and loss account in the
reporting period in which the exchange rates change.
The Company has adopted the principles of AS 30 "Financial Instruments:
Recognition and Measurement" in respect of its derivative financial
instruments (excluding embedded derivative) that are not covered by AS
11 "The Effects of Changes in Foreign Exchange Rates" and that relate
to a firm commitment or a highly probable forecast transaction. In
accordance with AS 30, such derivative financial instruments, which
qualify for cash flow hedge accounting and where the Company has met
all the conditions of AS 30, are fair valued at the balance sheet date
and the resultant gain / loss is credited / debited to the hedging
reserve included in the Reserves and Surplus. This gain / loss would be
recorded in the profit and loss account when the underlying
transactions affect earnings. Other derivative instruments that relate
to a firm commitment or a highly probable forecast transaction and that
do not qualify for hedge accounting, have been recorded at fair value
at the reporting date and the resultant gain / loss has been credited /
debited to profit and loss account for the year. Also refer note 25.
Fringe Benefit Tax
The Company provides for and discloses the Fringe Benefit Tax (FBT)
as a part of taxes in accordance with the provisions of section 115WC
of the Income tax Act, 1961 and the guidance note on FBT issued by the
Institute of Chartered Accountants of India. The Finance Act, 2009 has
withdrawn FBT w.e.f. 1 April 2009.
Income taxes
The current charge for income taxes is calculated in accordance with
the relevant tax regulations. Minimum Alternative Tax (MAT) paid in
accordance with the tax laws which gives rise to future economic
benefits in the form of adjustments of future income tax liability, is
considered as an asset if there is convincing evidence that the Company
will pay normal tax after the tax holiday period. MAT credit
entitlement can be carried forward and utilised for a period as
specified in the tax laws of the respective countries.
Deferred tax assets and liabilities are recognised for the future tax
consequences attributable to timing differences that result between
taxable profits and accounting profits. Deferred tax in respect of
timing differences which originate during the tax holiday period but
reverse after the tax holiday period, is recognised in the period in
which the timing differences originate. For this purpose the timing
difference which originates first is considered to reverse first.
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. The effect on deferred tax assets and liabilities
of a change in tax rates, is recognised in the period that includes the
enactment date. Deferred tax assets on timing differences are
recognised only if there is a reasonable certainty that sufficient
future taxable income will be available against which such deferred tax
assets can be realised. However, deferred tax assets on the timing
differences when unabsorbed depreciation and losses carried forward
exist, are recognised only to the extent that there is virtual
certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised. Deferred tax
assets are reassessed for the appropriateness of their respective
carrying values at each balance sheet date.
Provisions and contingent liabilities
A provision is recognised when an enterprise has a present obligation
as 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.
Provisions for onerous contracts, i.e. contracts where the expected
unavoidable costs of meeting the obligations under the contract exceed
the economic benefits expected to be received under it, are recognised
when it is probable that an outflow of resources embodying economic
benefits will be required to settle a present obligation as a result of
an obligating event, based on a reliable estimate of such obligation.
Provisions are not discounted to their 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.
Earnings per share
The basic earnings per share is computed by dividing the net profit
attributable to equity shareholders for the year by the weighted
average number of equity shares outstanding during the year. The number
of shares used in computing diluted earnings per share comprises the
weighted average shares considered for deriving basic earnings per
share, and also the weighted average number of equity shares which
would have been issued on the conversion of all dilutive potential
equity shares. Dilutive potential equity shares are deemed converted as
of the beginning of the year, unless they have been issued at a later
date. The diluted potential equity shares have been arrived at,
assuming that the proceeds receivable were based on shares having been
issued at the average market value of the outstanding shares. In
computing dilutive earnings per share, only potential equity shares
that are dilutive and that either reduce earnings per share or increase
loss per share, are included.
Stock-based Compensation (Equity settled)
The Company accounts for stock based compensation based on the
intrinsic value method. Option Discount has been amortised on a
straight-line basis over the vesting period of the shares issued under
Employee Stock Option Plans (ESOP).
Option Discount means the excess of the market price/ fair value of
the underlying shares at the date of grant of the options over the
exercise price of the options.
2. DESCRIPTION OF THE COMPANY
MphasiS Limited (The Company or MphasiS) is a global, multicultural
organisation headquartered in Bangalore, India, specialising in
providing a suite of application development and maintenance services,
infrastructure outsourcing services and business process outsourcing
solutions to clients around the world.
The Company is registered under the Indian Companies Act, 1956 with
its Registered Office in Bangalore. The Company is listed on the
principal stock exchanges of India.
a) The Company acquired control of Kshema Technologies Limited
("Kshema") on 1 June 2004. Kshema has been amalgamated with MphasiS
Limited with effect from 1 April 2005.
The balance consideration payable to the erstwhile shareholders
amounting to Rs. 17,060,055 (31 October 2009: Rs. 17,060,055) is carried as
a liability which will be paid after necessary regulatory approvals are
obtained (refer note 16).
b) During the year ended 31 October 2010, the Company has filed an
application with Accounting and Corporate Regulatory Authority (ACRA),
Singapore for closure of BFL Software Asia Pacific Pte Ltd, a wholly
owned subsidiary of the Company. The final approval from ACRA is
pending as at 31 October 2010.
c) The Company filed a scheme of merger of MphasiS FinSolutions Private
Limited (MphasiS FinSolutions), a wholly owned subsidiary acquired by
MphasiS Limited effective 1 October 2009, with itself, on 28 January
2010 and 15 February 2010 with the Honble High Court of Kamataka and
the Honble High Court of Judicature at Madras respectively. MphasiS
FinSolutions is engaged in providing software development and related
services.
The Honble High Court of Karnataka and the Honble High Court of
Judicature at Madras have passed orders approving the petition of
merger on 5 July 2010 and 17 September 2010 respectively, approving the
merger effective from 1 November 2009. Subsequently the Company has
filed the Court orders with the RoC of Karnataka and Chennai on 11
August 2010 and 8 October 2010 respectively. Accordingly, the Company
has given effect to the merger in these financial statements with
effect from 1 November 2009.
Further, pursuant to the terms of the approved merger scheme:
(a) The amount of investments in MphasiS FinSolutions have been
credited in full and Goodwill ofRs. 173,468,380 accounted at the time of
acquisition of MphasiS FinSolutions by the Company has been reduced
from the securities premium account of the Company.
(b) Deficit of Rs. 4,298,663 in net assets acquired by the Company as of
appointed date of 1 November 2009 has been adjusted against the
securities premium account of the Company.
(c) Expenses of Rs. 622,311 incurred by the Company in connection with
the amalgamation scheme have been adjusted against the General Reserves
of the Company.
The above treatment is different from the requirements of Accounting
Standard 14 for "Accounting for Amalgamations" (AS-14) and Generally
Accepted Accounting Principles (GAAP). In accordance with the
requirements of AS-14 and GAAP, the carrying value of securities
premium should have been higher by Rs. 177,767,044, profit and loss
before tax would have been lower by Rs. 178,389,355 and general reserves
should have been higher by Rs. 622,311.
d) As part of its overall strategy, the Company decided to set up an
offshore development centre in Sri Lanka. In pursuance of this
objective, MphasiS Lanka (Private) Limited was incorporated as a wholly
owned subsidiary of MphasiS Limited on 12 February 2010.
e) Eldorado Computing Inc., a subsidiary of the Company was merged with
its direct subsidiary MphasiS Corporation effective 1 March 2010. The
merger has been accounted in the books of MphasiS Corporation, in terms
of Articles of Merger approved by Arizona Corporation Commission, USA.
f) MphasiS Poland sp.z.o.o. was incorporated as a wholly owned
subsidiary of the Company on 11 May 2010.
Restricted Stock Units
EDS the holding company, had issued Restricted Stock Units (RSU) to
certain employees of the Company. These have been replaced by RSUs of
HP, pursuant to the merger. Subsequent to the merger, HP had also
issued RSUs to certain employees of the Company. The total cost
incurred towards RSUs for the year ended 31 October 2010 and 31 October
2009 amounted to Rs. 41,904,396 and Rs. 87,116,118 respectively. However,
the cost has been borne by HP and accordingly this has not been
accounted as an expense by the Company.
Restricted Stock Unit Plan-2010 ("RSU Plan-2010")
Effective 1 August 2010, the Company instituted the Restricted Stock
Unit Plan-2010. The Board and the shareholders of the Company approved
RSU Plan-2010 on 29 June 2010 and 17 August 2010 respectively. The RSU
Plan-2010 provides for the issue of restricted options to employees and
directors of the Company and its subsidiaries. This plan is
administered by MphasiS Employees Benefit Trust which is created for
this purpose.
Oct 31, 2009
Basis of preparation
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accounting and
comply with the mandatory Accounting Standards (AS) prescribed in the
Companies (Accounting Standards) Rules, 2006 and other pronouncements
of the Institute of the Chartered Accountants of India (ICAI) and the
relevant provisions of the Companies Act 1956.
Use of estimates
The preparation of financial statements requires the management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities on
the date of the financial statements and the reported amounts of
revenues and expenses. Actual results could differ from those
estimates. Any revision to accounting estimates is recognised
prospectively in current and future years.
Revenue recognition
The Company derives its revenues primarily from software services &
projects, call centre & business process outsourcing operations,
infrastructure outsourcing services and from licensing arrangements &
application services.
Revenues from software services and projects comprise income from
time-and-material and fixed-price contracts. Revenue from
time-and-material contracts is recognised on the basis of software
developed and billable in accordance with the terms of contracts with
clients. Revenue from fixed-price contracts is recognised using the
percentage of completion method, calculated as the proportion of the
cost of effort incurred up to the reporting date to estimated cost of
total efforts.
Revenue from call centre & business process outsourcing operations
arises from both time-based and unit-priced client contracts. Such
revenue is recognised on completion of the related services and is
billable in accordance with the specific terms of the contracts with
clients.
Revenue from infrastructure outsourcing services arises from
time-and-material contracts and accordingly, revenue is recognised on
the basis of services billable in accordance with the terms of the
contracts with clients.
Revenue from licensing arrangements is recognised on transfer of the
title in user licenses except those contracts, which require
significant implementation services, where revenue is recognized over
the implementation period in accordance with the specific terms of the
contracts with clients.
Maintenance revenue is recognised rateably over the period of
underlying maintenance agreements.
Provisions for estimated losses on incomplete contracts are recorded in
the period in which such losses become probable based on the current
contract estimates. Unbilled revenues included in the current assets
represents revenues in excess of amounts billed to clients as at the
balance sheet date. Unearned receivables included in current
liabilities represents billings in excess of revenues recognised.
Advances received for services are reported as liabilities until all
conditions for revenue recognition are met.
Interest on the deployment of funds is recognised using the
time-proportion method, based on underlying interest rates.
Dividend income is recognised when the right to receive the dividend is
established.
Fixed assets and capital work-in-progress
Fixed assets are stated at the cost of acquisition or construction less
accumulated depreciation. Direct costs are capitalised until assets are
ready to be put to use. Borrowing costs directly attributable to
acquisition or construction of those fixed assets which necessarily
take a substantial period of time to get ready for their intended use
are capitalised. Fixed assets purchased in foreign currency are
recorded at cost, based on the exchange rate on the date of purchase.
Acquired intangible assets are capitalised at the acquisition price.
Internally generated intangible assets are stated at cost that can be
measured reliably during the development phase and when it is probable
that future economic benefits that are attributable to the asset will
fow to the Company.
Leases under which the Company assumes substantially all the risks and
rewards of ownership are classified as finance leases. Such assets
acquired are capitalised at the fair value of the asset or the present
value of the minimum lease payments at the inception of the lease,
whichever is lower.
Advances paid towards acquisition of fixed assets and the cost of
assets not ready for use as at the balance sheet date are disclosed
under capital work-in-progress.
Depreciation and amortisation
Depreciation on fixed assets is provided using the straight-line method
over the estimated useful lives of assets. Depreciation is charged on a
proportionate basis for all assets purchased and sold during the year.
Individual assets costing less than Rs 5,000 are depreciated in full in
the year of purchase. The estimated useful lives of assets are as
follows:
For assets used in other services
Years
Buildings 10
Plant and machinery 4
Computer equipment 2
Office equipment 3
Furniture and fixtures 4
Vehicles 3 to 5
For assets used in call center services
Years
Buildings 10
Plant and machinery
(including telecom equipments) 5
Computer equipment 5
Office equipment 5
Furniture and fixtures 5
Vehicles 3 to 5
Freehold land is not depreciated. Leasehold improvements are amortised
over the remaining lease term or 3 years (5 years for call centre
services), whichever is shorter. significant purchased application
software and internally generated software that is an integral part of
the Companys computer systems, expected to provide lasting benefits,
is capitalised at cost and amortised on the straight-line method over
its estimated useful life or 3 years, whichever is shorter. Internally
generated software for sale expected to provide lasting benefits is
amortised on the straight-line method over its estimated life. Goodwill
arising on an amalgamation in the nature of purchase of business is
amortised over the period over which the Company expects to realise
future economic benefits.
Leases
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased term, 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.
Profit or loss on sale and lease back arrangements resulting in
operating leases are recognised immediately in case the transaction is
established at fair value, else the excess over the fair value is
deferred and amortized over the period for which the asset is expected
to be used.
Impairment of assets
The Company assesses at each balance sheet date whether there is any
indication that a fixed asset may be impaired. If any such indication
exists, the Company estimates the recoverable amount of the asset. If
such recoverable amount of the asset or the recoverable amount of the
cash generating unit to which the asset belongs is less than its
carrying amount, the carrying amount is reduced to its recoverable
amount. The reduction is treated as an impairment loss and is
recognised in the profit and loss account. If at the balance sheet date
there is an indication that if a previously assessed impairment loss no
longer exists, the recoverable amount is reassessed and the asset is
reflected at the recoverable amount subject to a maximum of depreciated
historical cost.
Investments
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. Provision for diminution in
value of investment is made if the impairment is not temporary in
nature.
Employee benefits
Gratuity which is a defined benefit is accrued based on independent
actuarial valuation which is done based on project unit credit method
as at the balance sheet date. Actuarial gains/losses are immediately
taken to profit and loss account and are not deferred.
The cost of short term compensated absence is provided for based on
estimates. Long term compensated absences cost are provided for based
on actuarial valuation which is done based on project unit credit
method
Contributions payable to recognised provident funds and approved
superannuation schemes, which are defined contribution schemes, are
charged to the profit and loss account. The Companys liability is
limited to the contribution made to the fund.
Foreign currency
Foreign exchange transactions are recorded at the rates of exchange
prevailing on the dates of the respective transactions. Exchange
differences arising on foreign exchange transactions settled during a
year are recognised in the profit and loss account of that year.
Monetary assets and liabilities denominated in foreign currencies as at
the balance sheet date are translated at the exchange rates on that
date. The resultant exchange differences are recognised in the profit
and loss account.
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.
Forward contracts are entered into to hedge the foreign currency risk
of the underlying outstanding at the balance sheet date and also to
hedge the foreign currency risk of frm commitment or highly probable
forecast transaction. The premium or discount on forward contracts that
are entered into to hedge the foreign currency risk of the underlying
outstanding at the balance sheet date, arising at the inception of each
contract is amortised as income or expense over the life of the
contract. Any profit or loss arising on the cancellation or renewal of
forward contracts is recognised as income or as expense for the year.
In relation to the forward contracts entered into to hedge the foreign
currency risk of the underlying outstanding at the balance sheet date,
the exchange difference is calculated and recorded in accordance with
paragraphs 36 and 37 of AS 11. The exchange difference on such a
forward exchange contract is calculated as the difference between the
foreign currency amount of the contract translated at the exchange rate
at the reporting date, or the settlement date where the transaction is
settled during the reporting period, and the corresponding foreign
currency amount translated at the later of the date of inception of the
forward exchange contract and the last reporting date. Such exchange
differences are recognised in the profit and loss account in the
reporting period in which the exchange rates change.
The Company has adopted the principles of AS 30 "Financial Instruments:
Recognition and Measurement" in respect of its derivative financial
instruments (excluding embedded derivative) that are not covered by AS
11 "The Effects of Changes in Foreign Exchange Rates" and that relate
to a frm commitment or a highly probable forecast transaction. In
accordance with AS 30, such derivative financial instruments, which
qualify for cash fow hedge accounting and where Company has met all the
conditions of AS 30, are fair valued at balance sheet date and the
resultant gain / loss is credited / debited to the hedging reserve
included in the Reserves and Surplus. This gain / loss would be
recorded in profit and loss account when the underlying transactions
affect earnings. Other derivative instruments that relate to a frm
commitment or a highly probable forecast transaction and that do not
qualify for hedge accounting have been recorded at fair value at the
reporting date and the resultant gain / loss has been credited /
debited to profit and loss account for the year.
Fringe benefit Tax
The Company provides for and discloses the Fringe benefit Tax (FBT)
as a part of taxes in accordance with the provisions of section 115WC
of the Income tax Act, 1961 and the guidance note on FBT issued by the
Institute of Chartered Accountants of India. The Finance Act, 2009 has
withdrawn FBT w.e.f. 1 April 2009.
Income taxes
The current charge for income taxes is calculated in accordance with
the relevant tax regulations. Minimum Alternative Tax (MAT) paid in
accordance with the tax laws which gives rise to future economic
benefits in the form of adjustments of future income tax liability, is
considered as an asset if there is convincing evidence that the Company
will pay normal tax after the tax holiday period. MAT credit
entitlement can be carried forward and utilised for a period as
specified in the tax laws of the respective countries.
Deferred tax assets and liabilities are recognised for the future tax
consequences attributable to timing differences that result between
taxable profits and accounting profits. Deferred tax in respect of
timing differences which originate during the tax holiday period but
reverse after the tax holiday period is recognised in the period in
which the timing differences originate. For this purpose the timing
difference which originates first is considered to reverse first.
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. The effect on deferred tax assets and liabilities
of a change in tax rates is recognised in the period that includes the
enactment date. Deferred tax assets on timing differences are
recognised only if there is a reasonable certainty that sufficient
future taxable income will be available against which such deferred tax
assets can be realised.
However, deferred tax assets on the timing differences when unabsorbed
depreciation and losses carried forward exist, are recognised only to
the extent that there is virtual certainty that sufficient future
taxable income will be available against which such deferred tax assets
can be realised. Deferred tax assets are reassessed for the
appropriateness of their respective carrying values at each balance
sheet date.
Provisions and contingent liabilities
The Company recognizes provision when there is a present obligation as
a result of an obligating event that probably requires an outfow of
resources and a reliable estimate can be made of the amount of the
obligation. A disclosure for a contingent liability is made when there
is a possible obligation or a present obligation that may, but probably
will not, require an outfow of resources. Where there is a possible
obligation or a present obligation in respect of which the likelihood
of outfow of resources is remote, no provision or disclosure is made.
Provisions for onerous contracts, i.e. contracts where the expected
unavoidable costs of meeting the obligations under the contract exceed
the economic benefits expected to be received under it, are recognised
when it is probable that an outfow of resources embodying economic
benefits will be required to settle a present obligation as a result of
an obligating event, based on a reliable estimate of such obligation.
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.
Earnings per share
The basic earnings per share is computed by dividing the net profit
attributable to equity shareholders for the year by the weighted
average number of equity shares outstanding during the year. The number
of shares used in computing diluted earnings per share comprises the
weighted average shares considered for deriving basic earnings per
share, and also the weighted average number of equity shares which
would have been issued on the conversion of all dilutive potential
equity shares. Dilutive potential equity shares are deemed converted as
of the beginning of the year, unless they have been issued at a later
date. The diluted potential equity shares have been adjusted for the
proceeds receivable had the shares been actually issued at the average
market value of the outstanding shares. In computing dilutive earnings
per share, only potential equity shares that are dilutive and that
either reduce earnings per share or increase loss per share are
included.
Stock-based compensation
The Company accounts for stock based compensation based on the
intrinsic value method. Option Discount has been amortised on a
straight-line basis over the vesting period of the shares issued under
Employee Stock Option Plans (ESOP).
Option Discount means the excess of the market price/ fair value of
the underlying shares at the date of grant of the options over the
exercise price of the options.