Mar 31, 2023
Company Overview
Birlasoft Limited ("the Company") is a public limited Company incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange and Bombay Stock Exchange. The Company''s registered office is in Pune and it has subsidiaries and branches across multiple geographies.
The Company provides Software Development, global IT consulting to its clients, predominantly in Banking, Financial Services and Insurance, Life Sciences and Services, Energy Resources and Utilities and Manufacturing (which mainly includes Discrete Manufacturing, Hi-Tech & Media, Auto and Consumer packaged goods) verticals.
These financial statements were authorized for issue by the Company''s Board of Directors on 08 May 2023.
1. Significant accounting policies
Basis of preparation of standalone financial statements
The standalone financial statements are prepared in accordance with the Indian Accounting Standards (referred to as "Ind AS") as prescribed under Section 133 of the Companies Act, 2013 read with Companies (Indian Accounting Standards) Rules as amended from time to time. The standalone financial statements are presented in millions of Indian rupees rounded off to two decimal places, except per share information, unless otherwise stated.
Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.
These financial statements have been prepared on the historical cost basis except share based payments, defined benefit obligations and certain financial instruments, which are measured at fair values at the end of each reporting period, as explained in the accounting policies below.
Use of estimates
The preparation of standalone financial statements requires the management of the Company to make judgments, estimates and assumptions that affect the reported balances of assets and liabilities and disclosures relating to the contingent liabilities as at the date of the financial statements and reported amounts of income and expenditure during the year. Actual results could differ from estimates. Differences between actual results and estimates are recognized in the year in which the results are known / materialized.
Critical accounting estimates
a. 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 satisfaction of performance obligation. 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.
b. Income tax & Deferred tax
Significant judgments are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions. A deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilised. Accordingly, the Company exercises its judgement to reassess the carrying amount of deferred tax assets at the end of each reporting period.
c. Measurement of defined benefit obligation, key actuarial assumptions and share based payments
Information about assumptions and estimation uncertainties in respect of defined benefit obligation and share based payment are given in note 31 and note 36 respectively.
d. Business combinations
Business combinations are accounted for using Ind-AS 103, Business Combinations. Ind-AS 103 requires the identifiable intangible assets and contingent consideration to be fair valued in order to ascertain the net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree. Significant estimates are required to be made in determining the value of contingent consideration and intangible assets.
e. Leases
The Company evaluates if an arrangement qualifies to be a lease as per the requirements of Ind AS 116. Identification of a lease requires significant judgment. The Company uses significant judgement in assessing the lease term (including anticipated renewals) and the applicable discount rate.
f. Impairment of investment in subsidiaries
The Company reviews its carrying value of investments carried at cost (net of impairment, if any) annually,
or more frequently when there is indication for impairment. If the recoverable amount is less than its carrying amount, the impairment loss is accounted for in the statement of profit and loss.
1.1 Current-non-current classification
All assets and liabilities are classified into current and noncurrent.
Assets
An asset is classified as current when it satisfies any of the following criteria:
a. it is expected to be realized in, or is intended for sale or consumption in, the Company''s normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is expected to be realized within 12 months after the reporting date; or
d. it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.
Current assets include the current portion of non-current financial assets. All other assets are classified as non-current.
Liabilities
A liability is classified as current when it satisfies any of the following criteria:
a. it is expected to be settled in the Company''s normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is due to be settled within 12 months after the reporting date; or
d. the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification.
Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as noncurrent.
Operating cycle
Operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. The operating cycle of the Company is twelve months.
1.2 Revenue recognition
The Company earns revenue primarily from providing IT services, consulting and business solutions. The Company offers a consulting-led, integrated portfolio of IT.
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration which the Company expects to receive in exchange for those products or services.
⢠Revenue from time and material and job contracts is recognized on output basis measured by units delivered, efforts expended, number of transactions processed, etc.
⢠Revenue related to 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.
⢠In respect of other fixed-price contracts, revenue is recognized using percentage-of-completion method (âPOC method'') of accounting with contract costs incurred determining the degree of completion of the performance obligation.
⢠Revenue from third party software is recognized upfront at the point in time when software is delivered to the customer, such revenue is recognized on net basis when the Company is acting as an agent. In cases where implementation and / or customisation services rendered significantly modifies or customises the software, these services and software are accounted for as a single performance obligation and revenue is recognised over time on a POC method.
Revenue is measured based on the transaction price, which is the consideration, adjusted for volume discounts, service level credits, performance bonuses, price concessions and incentives, if any, as specified in the contract with the customer. Expenses reimbursed by customers during the project execution are recorded as reduction to associated costs. Revenue also excludes taxes collected from customers.
Contract assets are recognised when there is excess of revenue earned over billings on contracts. Contract assets are classified as unbilled revenue (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.
The Company recognizes contract fulfillment cost as an asset if those costs specifically relate to a contract or to an anticipated contract, the costs generate or enhance resources that will be used in satisfying performance
obligations in future; and the costs are expected to be recovered. The asset so recognized is amortized on a systematic basis consistent with the transfer of goods or services to customer to which the asset relates.
Unearned revenue ("contract liability") is recognized when there is billings in excess of revenues.
The billing schedules agreed with customers include periodic performance based payments and / or milestone based progress payments. Invoices are payable within contractually agreed credit period.
In accordance with Ind AS 37, the Company recognizes an onerous contract provision when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits to be received.
Contracts are subject to modification to account for changes in contract specification and requirements. The Company reviews modification to contract in conjunction with the original contract, basis which the transaction price could be allocated to a new performance obligation, or transaction price of an existing obligation could undergo a change. In the event transaction price is revised for existing obligation, a cumulative adjustment is accounted for.
The Company disaggregates revenue from contracts with customers by geography and business verticals.
Use of significant judgments in revenue recognition
⢠The Company''s contracts with customers could include promises to transfer multiple products and services to a customer. The Company assesses the products / 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, service level credits, 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. Any consideration payable to the customer is adjusted to the transaction price, unless it is a payment for a distinct product 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 product 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 product or service, transfer of significant risks and rewards to the customer, acceptance of delivery by the customer, etc.
⢠Revenue for fixed-price contracts is recognized using percentage-of-completion method. The Company uses judgment to estimate the future cost-to-completion of the contracts which is used to determine the degree of the completion of the performance obligation.
⢠Contract Fulfillment costs are generally expensed as incurred except for costs which meet the criteria for capitalization as per Ind AS 115. Such costs are amortised over the contractual period. 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.
1.3 Property, plant and equipment
Property, plant and equipment are carried at cost of acquisition or construction less accumulated depreciation and/or accumulated impairment loss, if any. The cost of an item of property, plant and equipment comprises its purchase price, including import duties and other non-
refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. If significant parts of an item of property, plant and equipment have different useful lives , than they are accounted for as separate items (major components) of property, plant and equipment. The cost and related accumulated depreciation are eliminated from the standalone financial statements upon sale or retirement of the asset and the resultant gains or losses are recognized in the Statement of Profit and Loss. Assets under construction are disclosed as capital work-in-progress.
The Company does not have any Benami Property under the Benami Transactions (Prohibition) Act, 1988.
1.4 Intangible assets
Intangible assets are stated at cost less accumulated amortization and accumulated impairment, if any.
In case of internally generated intangibles, costs incurred during the research phase of a project are expensed when incurred. Development activities involve a plan or design for the production of new or substantially improved products or processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and directly attributable borrowing costs (in the same manner as in the case of property, plant and equipment). Other development expenditure is recognized in the Statement of Profit and Loss as incurred.
Intangible assets are derecognized on disposal or when no future economic benefits are expected from its use and subsequent disposal or when the economic benefits are not measurable.
1.5 Depreciation and amortization
Depreciation on property, plant and equipment is provided on the straight-line method over the useful lives of the assets. The management''s estimates of the useful lives of various assets for computing depreciation are as follows:
Type of asset Useful life (No. of years) |
|
Buildings |
25 |
Plant and equipment |
3-4 |
Office Equipment |
5-10 |
Owned Vehicle |
3-5 |
Furniture and fixtures |
7-10 |
The useful lives as given above best represent the period over which the management expects to use these assets, based on technical assessment. The estimated useful lives for these assets are therefore different from the useful lives prescribed under Part C of Schedule II of the Companies Act 2013. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
Right of use assets are amortised over shorter of useful lives and period of lease.
Improvements to leased premises are amortized over the remaining non-cancellable period of the lease.
The estimated useful life of an identifiable intangible asset is based on a number of factors including the effects of obsolescence, demand, competition, and other economic factors (such as the stability of the industry, and known technological advances), and the level of maintenance expenditures required to obtain the expected future cash flows from the asset.
The management''s estimates of the useful lives of various intangible assets for computing amortization are as follows:
Type of asset |
Useful life (No. of years) |
Product Development cost (internally generated) |
3-4 |
Perpetual Software License |
4 |
Time based software license |
License period |
Depreciation and amortisation methods, useful lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
1.6 Impairment
a. Financial assets
The Company assesses at each Balance Sheet date whether a financial asset or a group of financial assets is impaired. Ind AS 109 requires expected credit losses to be measured through a loss allowance. The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets which are not fair valued through profit or loss. Expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL. Loss allowances for trade receivables are always measured at an amount equal to lifetime expected credit losses. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized is recorded as an impairment gain or loss in Statement of Profit and Loss.
b. Non- financial assets
Property, plant and equipment and intangible assets
The management periodically assesses using, external and internal sources, whether there is an indication that an asset may be impaired. Impairment loss is recognized when the carrying value of an asset exceeds its recoverable amount. The recoverable amount is higher of the asset''s fair value less cost of disposal and value in use. For the purpose of impairment testing, assets are grouped together into the smallest group of assets (cash generating unit or CGU) that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs.
Intangible assets which are not yet available for use are tested for impairment annually. Other assets (tangible and intangible) are reviewed at each reporting date to determine if there is any indication of impairment. For assets in respect of which any such indication exists and for intangible assets mandatorily tested annually for impairment, the asset''s recoverable amount is estimated.
If at the Balance Sheet date there is an indication that a previously assessed impairment loss no longer exists or has decreased, the assets or CGU''s recoverable amount is estimated. For assets other than goodwill, the impairment loss is reversed to the extent that the asset''s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Such a reversal is recognized in the Statement of Profit and Loss.
1.7 Leases
The Company primarily has leased rental offices premises, guest house, parking space, laptops etc across multiple locations.
At the inception of contract the Company assesses whether the contract is , or contains a lease. A contract is, or contains, a lease if the contract involves use of an identified asset and conveys the right to control the use of asset for period of time in exchange for consideration i.e. customer has right to:
- obtain substantially all the economic benefits from using the asset and
- direct the use of asset Company as a lessee
1. Recognition and measurement
The Company recognises the right of use asset and lease liability at the commencement date of lease. The right of use asset is initially measured at cost, which comprises of present value of future lease rent
payouts adjusted for any payment made at or before commencement date, any initial direct cost incurred and an estimate of cost to dismantle or remove an underlying asset or to restore an asset less any lease incentive received.
The lease liability is initially measured at present value of lease payments that is not paid at commencement date discounted at implicit rate mentioned in lease or incremental borrowing rate. The Company generally uses incremental borrowing rate as discount rate.
The right-of-use assets is depreciated using the straight-line method from the commencement date over the useful life of right-of-use asset.
The lease liability is subsequently measured at amortised cost using effective interest method. It is remeasured to reflect any lease modifications or reassessments.
2. Extension and termination of lease
The Company determines the lease term as the noncancellable period of a lease, together with both periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option; and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option. In assessing whether the Company is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, it considers all relevant facts and circumstances that create an economic incentive for the Company to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The Company revises the lease term if there is a change in the non-cancellable period of a lease.
3. Short term leases and low value assets
The Company has elected not to recognise right of use of assets and lease liabilities for short-term leases that have lease term of 12 months or less and leases of low value assets. The Company recognises the lease payments associated with these leases as an expense on a straight- line basis over lease term.
4. Impairment testing for right of use of assets
Right of use assets are tested for impairment whenever there is any indication that their carrying amount is not recoverable. Impairment loss, if any, is recognised in statement of profit and loss.
1.8 Earnings per share
Basic earnings per share are computed by dividing the net
profit for the year after tax by the weighted average number
of equity shares outstanding during the year. Diluted
earnings per share is computed by dividing the net profit for the year after tax for the year by the weighted average number of equity shares outstanding during the year as adjusted for the effects of all dilutive potential equity shares except where the results are anti-dilutive.
1.9 Foreign currency transactions
a. Functional and presentation currency
Indian Rupee is the Company''s functional as well as presentation currency.
b. Transactions in foreign currencies are translated to the functional currency of the Company at the exchange rates prevailing on the date of the transaction. Monetary items denominated in foreign currencies are translated into the functional currency at the year-end rates. The exchange differences so determined and also the realized exchange differences are recognized in the Statement of Profit and Loss. Non-monetary items denominated in foreign currencies and measured at fair value are translated into the functional currency at the exchange rate prevalent at the date when the fair value was determined. Non-monetary items denominated in foreign currencies and measured at historical cost are translated into the functional currency at the exchange rate prevalent at the date of transaction.
c. Translation of foreign operations
For translating the financial statements of foreign branches, their functional currencies are determined. The results and the financial position of the foreign branches are translated into presentation currency so that the foreign operation could be included in the standalone financial statements.
1.10 Employee benefits
i) Post-employment benefit plans Defined benefit plan
The Company''s gratuity scheme is a defined benefit plan. For defined benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with independent actuarial valuations being carried out at each Balance Sheet date. Remeasurement of net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effects of asset ceiling (if any, excluding interest) are recognized in Other Comprehensive Income for the period in which they occur. Net interest expense and other expenses related to defined benefit plans are recognized in Statement of Profit and Loss. Past service cost is recognized immediately to the extent that the benefits are already vested or amortized
on a straight-line basis over the average period until the benefits become vested.
The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of scheme assets, if any. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the scheme.
Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays specified contributions to a separate entity and has no obligation to pay any further amounts. The Company makes specified monthly contributions towards employee provident fund to Government administered provident fund scheme which is a defined contribution plan. The Company''s contribution is recognized as an expense in the Statement of Profit and Loss during the period in which the employee renders the related service.
ii) Other employee benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognized during the period when the employee renders the service. These benefits include compensated absences (which cannot be carried forward) such as paid annual leave, overseas social security contributions and performance incentives.
1.11 Income taxes
Income tax expense comprises current and deferred income tax. Income tax expense is recognized in the Statement of profit and Loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in other comprehensive income. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred income tax assets and liabilities are recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the standalone financial statements.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the period that includes the enactment or the substantive enactment date. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting profit nor taxable profit (tax loss). A deferred income tax asset is recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilized. Deferred income taxes are not provided on the undistributed earnings of branches where it is expected that the earnings of the branch will not be distributed in the foreseeable future. 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.
The taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates for the purposes of current and deferred tax have been determined on the basis of Company''s evaluation of acceptability of its tax positions by the taxation authorities.
1.12 Provisions, Contingent liabilities and Contingent assets
The Company recognizes provisions only when it has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
No provision is recognized for -
a. Any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company; or
b. Present obligations that arise from past events but are not recognized because-
1) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or
2) A reliable estimate of the amount of obligation cannot be made.
Such obligations are disclosed as contingent liabilities. These are assessed continually and only that part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made.
Contingent assets are not recognized in the standalone financial statements since this may result in the recognition of income that may never be realized.
Onerous contracts
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.
Decommissioning Liability
The Company uses various premises on lease to run its operation and records a provision for decommissioning costs to be incurred for the restoration of these premises at the end of the lease period. Decommissioning costs are provided at the present value of expected costs to settle the obligation using estimated cash flows and are recognized as part of the cost of the particular asset. The cash flows are discounted using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is expensed as incurred and recognized in the statement of profit and loss as an interest expense. The estimated future costs of decommissioning and interest rate are reviewed annually and adjusted as appropriate. Changes in the estimated future costs or in the discount rate applied are added to or deducted from the cost of the asset.
1.13 Research and development:
Costs incurred during the research phase of a project are expensed when incurred. Costs incurred in the development phase are recognized as an intangible asset in accordance with policy defined in 1.5.
1.14 Share based payment
In respect of stock options granted pursuant to the Company''s Employee Stock Option Scheme, the Company recognizes employee compensation expense, using the grant date fair value in accordance with Ind-AS 102 - Share Based Payment, on straight line basis over the period over which the employees would become unconditionally entitled to apply for the shares.
1.15 Investment in subsidiaries
Investment in subsidiaries are measured at cost less impairment.
1.16 Financial instruments
a. Initial recognition
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are initially measured at fair value, except for trade receivables which are initially measured at transaction price unless those contain a significant financing component determined in accordance with Ind AS 115. 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.
b. Subsequent measurement
i) Non-derivative financial instruments
Financial assets carried at amortized cost
A financial asset is subsequently measured at amortized cost if it is held within a business model whose objective is to hold the asset 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
A financial asset is subsequently measured at fair value through Other Comprehensive Income if it is held within a business model 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
A financial asset which is not classified in any of the above categories are subsequently fair valued through profit or loss.
However, in cases where the Company has made an irrevocable election for particular investments in equity instruments that would otherwise be measured at fair value through profit or loss, the subsequent changes in fair value are recognized in Other Comprehensive Income.
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 and loss. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
ii) 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 Company does not use derivative financial instruments for speculative purposes. The counter-party to the Company''s foreign currency forward contracts is generally a bank.
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in the statement of profit and loss, when incurred. Subsequent to initial recognition, these derivatives are measured at fair value through profit or loss and the resulting exchange gains or losses are included in other income. Assets/ liabilities in this category are presented as current assets/current liabilities if they are either held for trading or are expected to be realized within 12 months after the balance sheet date.
Cash flow hedge
The use of hedging instruments is governed by the Company''s policy approved by the Board of Directors, which provides written principles on the use of such financial derivatives consistent with the Company''s risk management strategy.
The Company designates foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on firm commitments and highly probable forecast transactions.
Hedging instruments are initially measured at fair value and are re-measured at subsequent reporting dates. 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 significant ineffective portion of changes in the fair value of the derivative is recognized immediately in the Statement of Profit and Loss. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. For forecast transactions any cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve is retained until the forecast transaction occurs. When a hedged transaction occurs or is no longer expected to occur, the net cumulative gain or loss recognized in cash flow hedging reserve is transferred to the Statement of Profit and Loss.
The amount recognized in Other Comprehensive Income is reclassified to profit or loss as a reclassification adjustment in the same period as the hedged cash flows affect profit or loss, and in the same line item in the Statement of Profit or Loss and Other Comprehensive Income.
c. Derecognition 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 from the Company''s Balance Sheet when the obligation specified in the contract is discharged or cancelled or expires.
d. Fair value of financial instruments
The Company uses discounted cash flow analysis method for the fair value of its financial instruments except for employee stock options (ESOP) , where Black and Scholes options pricing model is used. The method of assessing fair value results in general approximation of value and such value may never actually be realized.
For all other financial instruments the carrying amount approximates fair value due to short maturity of those instruments.
Fair value measurements
The Company measures financial instruments, such as, derivatives and investments in mutual funds at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
a. In the principal market for the asset or liability, or
b. In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
All assets and liabilities for which fair value is measured 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:
a. Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
b. Level 2 â Valuation techniques for which the
lowest level input that is significant to the fair value
measurement is directly or indirectly observable
c. 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
Standalone 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.
The Company''s finance team determines the policies and procedures for both recurring fair value measurement, such as derivative instruments and unquoted financial assets measured at fair value, and for non-recurring measurement, such as assets held for distribution in discontinued
2023. The Company has evaluated the amendment and the impact of the amendment is insignificant in the Company''s financial statements.
Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors
This amendment has introduced a definition of âaccounting estimates'' and included amendments to Ind AS 8 to help entities distinguish changes in accounting policies from changes in accounting estimates. The effective date for adoption of this amendment is annual periods beginning on or after 1 April 2023. The Company has evaluated the
operations. The team comprises of the head of the treasury operation and chief finance officer.
External valuers are involved for valuation of significant assets and liabilities. Involvement of external valuers is decided on the basis of nature of transaction and complexity involved. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.
At each reporting date, the finance team analyses the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the Company''s accounting policies. For this analysis, the team verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents. A change in fair value of assets and liabilities is also compared with relevant external sources to determine whether the change is reasonable.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
1.17 Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
For the purpose of the standalone statement of cash flows, cash and cash equivalents consist of cash and shortterm deposits, as defined above, net of outstanding bank overdrafts (if any) as they are considered an integral part of the Company''s cash management.
1.18 Dividends
Provision is made for the amount of any dividend declared, being appropriately authorized and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.
1.19 Business combinations
a. Business combinations are accounted for using the acquisition method under the provisions of Ind AS 103, Business Combinations. The cost of an acquisition is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the date of acquisition, which is the date on which control is transferred to the Company. The cost of acquisition also includes the fair value of any contingent consideration. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value on the date of acquisition.
Transaction costs that the Company incurs in connection with a business combination such as finders'' fees, legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred.
Impact of any changes in the purchase consideration, after the measurement period, is recorded in the Statement of Profit and Loss.
b. Goodwill represents the cost of business acquisition in excess of the Company''s interest in the net fair value of identifiable assets, liabilities and contingent liabilities of the acquire. When the net fair value of the identifiable assets, liabilities and contingent liabilities acquired exceeds the cost of business acquisition, a gain is recognized immediately in net profit in the Statement of Profit and Loss. Goodwill is measured at cost less accumulated impairment losses.
c. Business combinations arising from transfer of interests in entities that are under the control of the shareholder that control the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established.
Business combinations involving entities that are controlled by the group are accounted for using the pooling of interests method as follows:
⢠The assets and liabilities of the combining entities are reflected at their carrying amounts.
⢠The identity of the reserves are preserved and the reserves of the transferor become the reserves of the transferee.
⢠The difference, if any, between consideration and the amount of share capital of required entity is transferred to capital reserve.
1.20 Recent accounting pronouncements
Ministry of Corporate Affairs (âMCA") notifies new standards or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time. On 31 March 2023, MCA amended the Companies (Indian Accounting Standards) Amendment Rules, 2023, as below:
Ind AS 1 - Presentation of Financial Statements
This amendment requires the entities to disclose their material accounting policies rather than their significant accounting policies. The effective date for adoption of this amendment is annual periods beginning on or after 1 April
amendment and there is no impact on its Standalone financial statements.
Ind AS 12 - Income Taxes
This amendment has narrowed the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. The effective date for adoption of this amendment is annual periods beginning on or after 1 April 2023. The Company has evaluated the amendment and there is no impact on its Standalone financial statement.
Mar 31, 2022
COMPANY OVERVIEW
Birlasoft Limited ("the Company") is a public limited Company incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange and Bombay Stock Exchange. The Company''s registered office is in Pune and it has subsidiaries and branches across multiple geographies.
The Company provides Software Development, global IT consulting to its clients, predominantly in Banking, Financial Services and Insurance, Life Sciences and Services, Energy Resources and Utilities and Manufacturing (which mainly includes Discrete Manufacturing, Hi-Tech & Media, Auto and Consumer packaged goods) verticals.
These financial statements were authorized for issue by the Company''s Board of Directors on 23 May 2022.
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation of standalone financial statements
The standalone financial statements are prepared in accordance with the Indian Accounting Standards (referred to as âInd AS") as prescribed under Section 133 of the Companies Act, 2013 read with Companies (Indian Accounting Standards) Rules as amended from time to time. The standalone financial statements are presented in millions of Indian rupees rounded off to two decimal places, except per share information, unless otherwise stated.
Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.
These financial statements have been prepared on the historical cost basis except share based payments, defined benefit obligations and certain financial instruments, which are measured at fair values at the end of each reporting period, as explained in the accounting policies below.
use of estimates
The preparation of standalone financial statements requires the management of the Company to make judgments, estimates and assumptions that affect the reported balances of assets and liabilities and disclosures relating to the contingent liabilities as at the date of the financial statements and reported amounts of income and expenditure during the year. Actual results could differ from estimates. Differences between actual results and estimates are recognized in the year in which the results are known / materialized.
Critical accounting estimates
a. 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 satisfaction of performance obligation. 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.
b. Income tax & Deferred tax
Significant judgments are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions. A deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilised. Accordingly, the Company exercises its judgement to reassess the carrying amount of deferred tax assets at the end of each reporting period.
c. measurement of defined benefit obligation, key actuarial assumptions and share based payments
Information about assumptions and estimation uncertainties in respect of defined benefit obligation and share based payment are given in note 31 and note 36 respectively.
d. Business combinations
Business combinations are accounted for using Ind-AS 103, Business Combinations. Ind-AS 103 requires the identifiable intangible assets and contingent consideration to be fair valued in order to ascertain the net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree. Significant estimates are required to be made in determining the value of contingent consideration and intangible assets.
e. leases
The Company evaluates if an arrangement qualifies to be a lease as per the requirements of Ind AS 116.
The Company recognizes contract fulfillment cost as an asset if those costs specifically relate to a contract or to an anticipated contract, the costs generate or enhance resources that will be used in satisfying performance obligations in future; and the costs are expected to be recovered. The asset so recognized is amortized on a systematic basis consistent with the transfer of goods or services to customer to which the asset relates.
Unearned revenue ("contract liability") is recognized when there is billings in excess of revenues.
The billing schedules agreed with customers include periodic performance based payments and / or milestone based progress payments. Invoices are payable within contractually agreed credit period.
In accordance with Ind AS 37, the Company recognizes an onerous contract provision when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits to be received.
Contracts are subject to modification to account for changes in contract specification and requirements. The Company reviews modification to contract in conjunction with the original contract, basis which the transaction price could be allocated to a new performance obligation, or transaction price of an existing obligation could undergo a change. In the event transaction price is revised for existing obligation, a cumulative adjustment is accounted for.
The Company disaggregates revenue from contracts with customers by geography and business verticals.
use of significant judgments in revenue recognition
⢠The Company''s contracts with customers could include promises to transfer multiple products and services to a customer. The Company assesses the products / 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, service level credits, 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. Any consideration payable to the customer is adjusted to the transaction price, unless it is a payment
Identification of a lease requires significant judgment. The Company uses significant judgement in assessing the lease term (including anticipated renewals) and the applicable discount rate.
f. impairment of investment in subsidiaries
The Company reviews its carrying value of investments carried at cost (net of impairment, if any) annually, or more frequently when there is indication for impairment. If the recoverable amount is less than its carrying amount, the impairment loss is accounted for in the statement of profit and loss.
1.1 Current-non-current classification
All assets and liabilities are classified into current and noncurrent.
Assets
An asset is classified as current when it satisfies any of the following criteria:
a. it is expected to be realized in, or is intended for sale or consumption in, the Company''s normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is expected to be realized within 12 months after the reporting date; or
d. it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.
Current assets include the current portion of non-current financial assets. All other assets are classified as noncurrent.
Liabilities
A liability is classified as current when it satisfies any of the following criteria:
a. it is expected to be settled in the Company''s normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is due to be settled within 12 months after the reporting date; or
d. the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification.
Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as noncurrent.
operating cycle
Operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. The operating cycle of the Company is twelve months.
1.2 Revenue recognition
The Company earns revenue primarily from providing IT services, consulting and business solutions. The Company offers a consulting-led, integrated portfolio of IT.
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration which the Company expects to receive in exchange for those products or services.
⢠Revenue from time and material and job contracts is recognized on output basis measured by units delivered, efforts expended, number of transactions processed, etc.
⢠Revenue related to 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.
⢠In respect of other fixed-price contracts, revenue is recognized using percentage-of-completion method (âPOC method'') of accounting with contract costs incurred determining the degree of completion of the performance obligation.
⢠Revenue from third party software is recognized upfront at the point in time when software is delivered to the customer, such revenue is recognized on net basis when the Company is acting as an agent.
Revenue is measured based on the transaction price, which is the consideration, adjusted for volume discounts, service level credits, performance bonuses, price concessions and incentives, if any, as specified in the contract with the customer. Expenses reimbursed by customers during the project execution are recorded as reduction to associated costs. Revenue also excludes taxes collected from customers.
Contract assets are recognised when there is excess of revenue earned over billings on contracts. Contract assets are classified as unbilled revenue (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.
for a distinct product 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 product 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 product or service, transfer of significant risks and rewards to the customer, acceptance of delivery by the customer, etc.
⢠Revenue for fixed-price contracts is recognized using percentage-of-completion method. The Company uses judgment to estimate the future cost-to-completion of the contracts which is used to determine the degree of the completion of the performance obligation.
⢠Contract Fulfillment costs are generally expensed as incurred except for costs which meet the criteria for capitalization as per Ind AS 115. Such costs are amortised over the contractual period. 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.
1.3 Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of cost of that asset. All other borrowing costs are charged to the Statement of Profit and Loss.
The exchange differences arising from foreign currency borrowings, to the extent that they are regarded as an adjustment to interest costs, are regrouped from foreign exchange differences to finance costs.
1.4 Property, plant and equipment
Property, plant and equipment are carried at cost of acquisition or construction less accumulated depreciation and/or accumulated impairment loss, if any. The cost of an item of property, plant and equipment comprises its purchase price, including import duties and other nonrefundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. If significant parts of an item of property, plant and equipment have different useful lives , than they are accounted for as separate items (major components) of property, plant and equipment. The cost and related accumulated depreciation are eliminated from the standalone financial statements upon sale or retirement of the asset and the resultant gains or losses are recognized in the Statement of Profit and Loss. Assets under construction are disclosed as capital work-in-progress.
The Company does not have any Benami Property under the Benami Transactions (Prohibition) Act, 1988.
1.5 intangible assets
Intangible assets are stated at cost less accumulated amortization and accumulated impairment, if any.
In case of internally generated intangibles, costs incurred during the research phase of a project are expensed when incurred. Development activities involve a plan or design for the production of new or substantially improved products or processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and directly attributable borrowing costs (in the same manner as in the case of property, plant and equipment). Other development expenditure is recognized in the Statement of Profit and Loss as incurred.
Intangible assets are derecognized on disposal or when no future economic benefits are expected from its use and subsequent disposal or when the economic benefits are not measurable.
1.6 Depreciation and amortization
Depreciation on property, plant and equipment is provided on the straight-line method over the useful lives of the assets. The management''s estimates of the useful lives of various assets for computing depreciation are as follows:
Type of asset |
useful life (No. of years) |
Buildings |
25 |
Plant and equipment |
4 |
Office Equipment |
10 |
Owned Vehicle |
5 |
Furniture and fixtures |
8 |
The useful lives as given above best represent the period over which the management expects to use these assets, based on technical assessment. The estimated useful lives for these assets are therefore different from the useful lives prescribed under Part C of Schedule II of the Companies Act 2013. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
Right of use assets are amortised over shorter of useful lives and period of lease.
Perpetual software licenses are amortized over 4 years. However, time-based software licenses are amortized over the license period.
Capitalized development costs are amortized over a period of 3 to 4 years.
The estimated useful life of an identifiable intangible asset is based on a number of factors including the effects of obsolescence, demand, competition, and other economic factors (such as the stability of the industry, and known technological advances), and the level of maintenance expenditures required to obtain the expected future cash flows from the asset.
Improvements to leased premises are amortized over the remaining non-cancellable period of the lease.
Depreciation and amortisation methods, useful lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
1.7 impairment
a. Financial assets
The Company assesses at each Balance Sheet date whether a financial asset or a group of financial assets
is impaired. Ind AS 109 requires expected credit losses to be measured through a loss allowance. The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets which are not fair valued through profit or loss. Expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL. Loss allowances for trade receivables are always measured at an amount equal to lifetime expected credit losses. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized is recorded as an impairment gain or loss in Statement of Profit and Loss.
b. Non- financial assets
property, plant and equipment and intangible assets
The management periodically assesses using, external and internal sources, whether there is an indication that an asset may be impaired. Impairment loss is recognized when the carrying value of an asset exceeds its recoverable amount. The recoverable amount is higher of the asset''s fair value less cost of disposal and value in use. For the purpose of impairment testing, assets are grouped together into the smallest group of assets (cash generating unit or CGU) that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs.
Intangible assets which are not yet available for use are tested for impairment annually. Other assets (tangible and intangible) are reviewed at each reporting date to determine if there is any indication of impairment. For assets in respect of which any such indication exists and for intangible assets mandatorily tested annually for impairment, the asset''s recoverable amount is estimated.
If at the Balance Sheet date there is an indication that a previously assessed impairment loss no longer exists or has decreased, the assets or CGU''s recoverable amount is estimated. For assets other than goodwill, the impairment loss is reversed to the extent that the asset''s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Such a reversal is recognized in the Statement of Profit and Loss.
1.8 Leases
The Company primarily has leased rental offices premises, guest house, parking space, laptops etc across multiple locations.
At the inception of contract the Company assesses whether the contract is , or contains a lease. A contract is, or contains, a lease if the contract involves use of an identified asset and conveys the right to control the use of asset for period of time in exchange for consideration i.e. customer has right to :
- obtain substantially all the economic benefits from using the asset and
- direct the use of asset company as a lessee
1. Recognition and measurement
The Company recognises the right of use asset and lease liability at the commencement date of lease. The right of use asset is initially measured at cost, which comprises of present value of future lease rent payouts adjusted for any payment made at or before commencement date, any initial direct cost incurred and an estimate of cost to dismantle or remove an underlying asset or to restore an asset less any lease incentive received. The lease liability is initially measured at present value of lease payments that is not paid at commencement date discounted at implicit rate mentioned in lease or incremental borrowing rate. The Company generally uses incremental borrowing rate as discount rate. The right-of-use assets is depreciated using the straight-line method from the commencement date over the useful life of right-of-use asset.
The lease liability is subsequently measured at amortised cost using effective interest method. It is remeasured to reflect any lease modifications or reassessments.
2. Extension and termination of lease
The Company determines the lease term as the noncancellable period of a lease, together with both periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option; and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option. In assessing whether the Company is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, it considers all relevant facts and circumstances that create an economic incentive for the Company to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The Company revises the lease term if there is a change in the non-cancellable period of a lease.
3. Short term leases and low value assets
The Company has elected not to recognise right of use of assets and lease liabilities for short-term leases that have lease term of 12 months or less and leases of low value assets. The Company recognises the lease payments associated with these leases as an expense on a straight- line basis over lease term.
4. impairment testing for right of use of assets
Right of use assets are tested for impairment whenever there is any indication that their carrying amount is not recoverable. Impairment loss ,if any ,is recognised in statement of profit and loss.
1.9 Earnings per share
Basic earnings per share are computed by dividing the net profit for the year after tax by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the net profit for the year after tax for the year by the weighted average number of equity shares outstanding during the year as adjusted for the effects of all dilutive potential equity shares except where the results are anti-dilutive.
1.10 Foreign currency transactions
a. functional and presentation currency
Indian Rupee is the Company''s functional as well as presentation currency.
b. Transactions in foreign currencies are translated to the functional currency of the Company at the exchange rates prevailing on the date of the transaction. Monetary items denominated in foreign currencies are translated into the functional currency at the year-end rates. The exchange differences so determined and also the realized exchange differences are recognized in the Statement of Profit and Loss. Non-monetary items denominated in foreign currencies and measured at fair value are translated into the functional currency at the exchange rate prevalent at the date when the fair value was determined. Non-monetary items denominated in foreign currencies and measured at historical cost are translated into the functional currency at the exchange rate prevalent at the date of transaction.
c. Translation of foreign operations
For translating the financial statements of foreign branches, their functional currencies are determined. The results and the financial position of the foreign branches are translated into presentation currency so that the foreign operation could be included in the standalone financial statements.
1.11 Employee benefits
i) post-employment benefit plans Defined benefit plan
The Company''s gratuity scheme is a defined benefit plan. For defined benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with independent actuarial valuations being carried out at each Balance Sheet date. Remeasurement of net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effects of asset ceiling (if any, excluding interest) are recognized in Other Comprehensive Income for the period in which they occur. Net interest expense and other expenses related to defined benefit plans are recognized in Statement of Profit and Loss. Past service cost is recognized immediately to the extent that the benefits are already vested or amortized on a straight-line basis over the average period until the benefits become vested.
The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of scheme assets, if any. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the scheme.
Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays specified contributions to a separate entity and has no obligation to pay any further amounts. The Company makes specified monthly contributions towards employee provident fund to Government administered provident fund scheme which is a defined contribution plan. The Company''s contribution is recognized as an expense in the Statement of Profit and Loss during the period in which the employee renders the related service.
ii) other employee benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognized during the period when the employee renders the service. These benefits include compensated absences (which cannot be carried forward) such as paid annual leave, overseas social security contributions and performance incentives.
1.12 income taxes
Income tax expense comprises current and deferred income tax. Income tax expense is recognized in the Statement of profit and Loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in other comprehensive income. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred income tax assets and liabilities are recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the standalone financial statements.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the period that includes the enactment or the substantive enactment date. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting profit nor taxable profit (tax loss). A deferred income tax asset is recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilized. Deferred income taxes are not provided on the undistributed earnings of branches where it is expected that the earnings of the branch will not be distributed in the foreseeable future. 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.
The taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates for the purposes of current and deferred tax have been determined on the basis of Company''s evaluation of acceptability of its tax positions by the taxation authorities.
1.13 provisions, contingent liabilities and contingent assets
The Company recognizes provisions only when it has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
No provision is recognized for -
a. Any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company; or
b. Present obligations that arise from past events but are not recognized because-
1) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or
2) A reliable estimate of the amount of obligation cannot be made.
Such obligations are disclosed as contingent liabilities. These are assessed continually and only that part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made.
Contingent assets are not recognized in the standalone financial statements since this may result in the recognition of income that may never be realized.
onerous contracts
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.
decommissioning Liability
The Company uses various premises on lease to run its operation and records a provision for decommissioning
costs to be incurred for the restoration of these premises at the end of the lease period. Decommissioning costs are provided at the present value of expected costs to settle the obligation using estimated cash flows and are recognized as part of the cost of the particular asset. The cash flows are discounted using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is expensed as incurred and recognized in the statement of profit and loss as an interest expense. The estimated future costs of decommissioning and interest rate are reviewed annually and adjusted as appropriate. Changes in the estimated future costs or in the discount rate applied are added to or deducted from the cost of the asset.
1.14 Research and development:
Costs incurred during the research phase of a project are expensed when incurred. Costs incurred in the development phase are recognized as an intangible asset in accordance with policy defined in 1.5.
1.15 Employee stock option
In respect of stock options granted pursuant to the Company''s Employee Stock Option Scheme, the Company recognizes employee compensation expense, using the grant date fair value in accordance with Ind-AS 102 - Share Based Payment, on straight line basis over the period over which the employees would become unconditionally entitled to apply for the shares.
1.16 investment in subsidiaries
Investment in subsidiaries are measured at cost less impairment.
1.17 Financial instruments a. initial recognition
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are initially measured at fair value, except for trade receivables which are initially measured at transaction price. 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.
b. subsequent measurement
i) Non-derivative financial instruments
Financial assets carried at amortized cost
A financial asset is subsequently measured at amortized cost if it is held within a business model whose objective is to hold the asset 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
A financial asset is subsequently measured at fair value through Other Comprehensive Income if it is held within a business model 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
A financial asset which is not classified in any of the above categories are subsequently fair valued through profit or loss.
However, in cases where the Company has made an irrevocable election for particular investments in equity instruments that would otherwise be measured at fair value through profit or loss, the subsequent changes in fair value are recognized in Other Comprehensive Income.
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 and loss. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
ii) 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 Company does not use derivative financial instruments for speculative purposes.
The counter-party to the Company''s foreign currency forward contracts is generally a bank.
financial assets or financial liabilities, at fair value through profit or loss
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in the statement of profit and loss, when incurred. Subsequent to initial recognition, these derivatives are measured at fair value through profit or loss and the resulting exchange gains or losses are included in other income. Assets/ liabilities in this category are presented as current assets/current liabilities if they are either held for trading or are expected to be realized within 12 months after the balance sheet date.
cash flow hedge
The use of hedging instruments is governed by the Company''s policy approved by the Board of Directors, which provides written principles on the use of such financial derivatives consistent with the Company''s risk management strategy.
The Company designates certain foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on firm commitments and highly probable forecast transactions.
Hedging instruments are initially measured at fair value and are re-measured at subsequent reporting dates. 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. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. For forecast transactions any cumulative gain or loss on the hedging instrument recognized in cash flow hedging
reserve is retained until the forecast transaction occurs. When a hedged transaction occurs or is no longer expected to occur, the net cumulative gain or loss recognized in cash flow hedging reserve is transferred to the Statement of Profit and Loss.
The amount recognized in Other Comprehensive Income is reclassified to profit or loss as a reclassification adjustment in the same period as the hedged cash flows affect profit or loss, and in the same line item in the Statement of Profit or Loss and Other Comprehensive Income.
c. Derecognition 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 from the Company''s Balance Sheet when the obligation specified in the contract is discharged or cancelled or expires.
d. fair value of financial instruments
The Company uses discounted cash flow analysis method for the fair value of its financial instruments except for employee stock options (ESOP) , where Black and Scholes options pricing model is used. The method of assessing fair value results in general approximation of value and such value may never actually be realized.
For all other financial instruments the carrying amount approximates fair value due to short maturity of those instruments.
fair value measurements
The Company measures financial instruments, such as, derivatives and investments in mutual funds at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
a. In the principal market for the asset or liability, or
b. In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Company.
liabilities of the acquire. When the net fair value of the identifiable assets, liabilities and contingent liabilities acquired exceeds the cost of business acquisition, a gain is recognized immediately in net profit in the Statement of Profit and Loss. Goodwill is measured at cost less accumulated impairment losses.
c. Business combinations arising from transfer of interests in entities that are under the control of the shareholder that control the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant''s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
All assets and liabilities for which fair value is measured 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:
a. Level 1 â Quoted (unadjusted) market prices in active markets for identical assets or liabilities
b. Level 2 â Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
c. 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 Standalone 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.
The Company''s finance team determines the policies and procedures for both recurring fair value measurement, such as derivative instruments and unquoted financial assets measured at fair value, and for non-recurring measurement, such as assets held for distribution in discontinued operations. The team comprises of the head of the treasury operation and chief finance officer.
External valuers are involved for valuation of significant assets and liabilities. Involvement of external valuers is decided on the basis of nature of transaction and complexity involved. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.
At each reporting date, the finance team analyses the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the Company''s accounting policies. For this analysis, the team verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to
contracts and other relevant documents. A change in fair value of assets and liabilities is also compared with relevant external sources to determine whether the change is reasonable.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
1.18 Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
For the purpose of the standalone statement of cash flows, cash and cash equivalents consist of cash and shortterm deposits, as defined above, net of outstanding bank overdrafts (if any) as they are considered an integral part of the Company''s cash management.
1.19 Dividends
Provision is made for the amount of any dividend declared, being appropriately authorized and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.
1.20 Business combinations
a. Business combinations are accounted for using the acquisition method under the provisions of Ind AS 103, Business Combinations. The cost of an acquisition is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the date of acquisition, which is the date on which control is transferred to the Company. The cost of acquisition also includes the fair value of any contingent consideration. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value on the date of acquisition.
Transaction costs that the Company incurs in connection with a business combination such as finders'' fees, legal fees, due diligence fees, and other professional and consulting fees are expensed as incurred.
Impact of any changes in the purchase consideration, after the measurement period, is recorded in the Statement of Profit and Loss.
b. Goodwill represents the cost of business acquisition in excess of the Company''s interest in the net fair value of identifiable assets, liabilities and contingent
Business combinations involving entities that are controlled by the group are accounted for using the pooling of interests method as follows:
⢠The assets and liabilities of the combining entities are reflected at their carrying amounts.
⢠The identity of the reserves are preserved and the reserves of the transferor become the reserves of the transferee.
⢠The difference, if any, between consideration and the amount of share capital of required entity is transferred to capital reserve.
Mar 31, 2018
Company Overview
KPIT Technologies Limited ("the Company") is a public limited company incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange and Bombay Stock Exchange. The Company''s registered office is in Pune and it has subsidiaries, associate/joint venture across multiple geographies. Most of the revenue is generated from the export of services.
The Company provides Software Development, global IT consulting and Product Engineering solutions to its clients, predominantly in Automotive & Transportation, Manufacturing and Energy & Utilities verticals. The Company is also engaged in the production of Integrated Systems, under Product Engineering Solutions vertical.
These financial statements were authorized for issue by the Company''s Board of Directors on 23 May 2018.
1. Significant accounting policies
Basis of preparation of standalone financial statements
The standalone financial statements are prepared in accordance with the Indian Accounting Standards ("Ind-AS") as specified under Section 133 of the Companies Act, 2013 read with the Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016 and the provisions of Companies Act, 2013. The standalone financial statements are presented in millions of Indian rupees rounded off to two decimal places, except per share information, unless otherwise stated.
Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.
These financial statements have been prepared on the historical cost basis, except for share based payments, defined benefit obligations and certain financial instruments which are measured at fair values at the end of each reporting period, as explained in the accounting policies below.
Use of estimates
The preparation of standalone financial statements requires the management of the Company to make
judgments, estimates and assumptions that affect the reported balances of assets and liabilities and disclosures relating to the contingent liabilities as at the date of the financial statements and reported amounts of income and expenditure during the year. Actual results could differ from estimates. Differences between actual results and estimates are recognized in the year in which the results are known / materialized.
Critical accounting estimates
a. 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.
b. Impairment of goodwill
Goodwill is tested for impairment on an annual basis and whenever there is an indication that the recoverable amount of a cash generating unit is less than its carrying amount based on a number of factors including operating results, business plans, future cash flows and economic conditions. The recoverable amount of cash generating units is determined based on higher of value-in-use and fair value less cost to sell. The goodwill impairment test is performed at the level of the cash-generating unit or groups of cash-generating units which are benefiting from the synergies of the acquisition and which represents the lowest level at which goodwill is monitored for internal management purposes.
c. Income tax
Significant judgments are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions.
d. Measurement of defined benefit obligation and key actuarial assumptions
Information about assumptions and estimation uncertainties in respect of defined benefit obligation and share based payment in note 35 and note 42 respectively.
1.1 Current-non-current classification
All assets and liabilities are classified into current and non-current.
Assets
An asset is classified as current when it satisfies any of the following criteria:
a. a. it is expected to be realized in, or is intended for sale or consumption in, the Company''s normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is expected to be realized within 12 months after the reporting date; or
d. it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.
Current assets include the current portion of non-current financial assets. All other assets are classified as noncurrent.
Liabilities
A liability is classified as current when it satisfies any of the following criteria:
a. it is expected to be settled in the Company''s normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is due to be settled within 12 months after the reporting date; or
d. the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification.
Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as non-current.
Operating cycle
Operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. The operating cycle of the Company is less than twelve months.
1.2 Revenue recognition
The Company derives revenues primarily from software development and related services and from the sale of licenses and products. Arrangements with customers for software related services are either on a fixed-price or on a time-and-material basis.
Revenue from software development and services, on time and material basis, is recognized based on software development, services rendered and related costs incurred based on timesheets and are billed to clients as per the contractual terms. Revenue from the end of the last billing to the Balance Sheet date is recognized as unbilled revenues.
Revenue from fixed-price contracts, where there is no uncertainty as to measurement or collectability of consideration, is recognized as per the percentage-of-completion method based on costs expended subject to the cost (both incurred and expected future cost) being identified and being measured reliably.
When there is uncertainty as to measurement or ultimate collectability, revenue recognition is postponed until such uncertainty is resolved. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the current contract estimates. Earnings in excess of billings are classified as unbilled revenue while billings in excess of earnings are classified as unearned revenue.
Maintenance revenue is recognized ratably over the term of the underlying maintenance arrangement. Revenue from client training, support and other services arising due to the sale of software products is recognized as the services are performed.
For the arrangements for sale of license, related services and maintenance services, that meet the criteria for separately identifiable components, the Company has measured the revenue in respect of each separable component of a transaction at its fair value to allocate the consideration in accordance with principles given in Ind AS 18. The price that is regularly charged for an item when sold separately is the best evidence of its fair value. In cases where the company is unable to establish objective and reliable evidence of fair value for the software development and related services, the company has used a residual method to allocate the arrangement consideration. In these cases the balance of the consideration, after allocating the fair values of undelivered components of a transaction has been allocated to the delivered components for which specific fair values do not exist
Revenue from sale of third party licenses is recognized only when the sale is completed by passing ownership. Advances received for services and products are separately reported in the financials as advance received from customers.
The Company accounts for volume and / or trade discounts to customers as a reduction of revenue. Also, when the level of discount varies with increases in levels of revenue transactions, the company recognizes the liability based on its estimate of the customer''s future purchases. The company recognizes changes in the estimated amount of obligations for discounts in the period in which the change occurs. The discounts are passed on to the customer either as direct payments or as a reduction of payments due from the customer.
Revenue from sale of goods is recognized upon actual delivery of goods along with transfer of significant risks and rewards to the customers.
Expenses reimbursed by customers during the project execution are recorded as a reduction to associated costs. The Company presents revenues from products gross of excise duties and net of goods and services tax in its Statement of Profit and Loss.
Interest income is recognized using effective interest rate method.
Dividend income is recognized when the right to receive payment is established.
1.3 Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of cost of that asset. All other borrowing costs are charged to the Statement of Profit and Loss.
The exchange differences arising from foreign currency borrowings, to the extent that they are regarded as an adjustment to interest costs, are regrouped from foreign exchange differences to finance costs.
1.4 Property, plant and equipment
Property, plant and equipment are carried at cost of acquisition or construction less accumulated depreciation and/or accumulated impairment loss, if any. The cost of an item of property, plant and equipment comprises its purchase price, including import duties and other non-refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. If significant parts of an item of property, plant and equipment have different useful lives, than they are accounted for as separate items (major components) of property, plant and equipment. The cost and related accumulated depreciation are eliminated from the standalone financial statements upon sale or retirement of the asset and the resultant gains or losses are recognized in the Statement of Profit and Loss. Assets under construction are disclosed as capital work-in-progress.
1.5 Intangible assets
Intangible assets are stated at cost less accumulated amortization and accumulated impairment, if any.
In case of internally generated intangibles, costs incurred during the research phase of a project are expensed when incurred. Development activities involve a plan or design for the production of new or substantially improved products or processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and directly attributable borrowing costs (in the same manner as in the case of property, plant and equipment). Other development expenditure is recognized in the Statement of Profit and Loss as incurred.
Intangible fixed assets are derecognized on disposal or when no future economic benefits are expected from its use and subsequent disposal or when the economic benefits are not measurable.
11 For these class of assets, based on internal assessment, the useful lives as given above are believed to best represent the period over which the assets are expected to be used. Hence, the useful lives for these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act, 2013.
Leasehold land and vehicles taken on lease are amortized over shorter of useful lives and period of lease.
Perpetual software licenses are amortized over 4 years. However, time-based software licenses are amortized over the license period.
Capitalized development costs are amortized over a period of 3 to 4 years.
The estimated useful life of an identifiable intangible asset is based on a number of factors including the effects of obsolescence, demand, competition, and other economic factors (such as the stability of the industry, and known technological advances), and the level of maintenance expenditures required to obtain the expected future cash flows from the asset.
Improvements to leased premises are amortized over the remaining non-cancellable period of the lease.
Depreciation and amortisation methods, useful lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
1.7 Impairment
a. Financial assets
The Company assesses at each Balance Sheet date whether a financial asset or a group of financial
assets is impaired. Ind AS 109 requires expected credit losses to be measured through a loss allowance. The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets which are not fair valued through profit or loss. Expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL. Loss allowances for trade receivables are always measured at an amount equal to lifetime expected credit losses. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized is recorded as an impairment gain or loss in Statement of Profit or Loss.
b. Non- financial assets
i. Property, plant and equipment and intangible assets
The management periodically assesses using, external and internal sources, whether there is an indication that an asset may be impaired. Impairment loss is recognized when the carrying value of an asset exceeds its recoverable amount. The recoverable amount is higher of the asset''s fair value less cost of disposal and value in use. For the purpose of impairment testing, assets are grouped together into the smallest group of assets (cash generating unit or CGU) that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs.
Intangible assets which are not yet available for use are tested for impairment annually. Other assets (tangible and intangible) are reviewed at each reporting date to determine if there is any indication of impairment. For assets in respect of which any such indication exists and for intangible assets mandatorily tested annually for impairment, the asset''s recoverable amount is estimated.
If at the Balance Sheet date there is an indication that a previously assessed impairment loss no longer exists or has decreased, the assets or CGU''s recoverable amount is estimated. For assets other than goodwill, the impairment loss is reversed to the extent that the asset''s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Such a reversal is recognized in the Statement of Profit and Loss.
ii. Goodwill
CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is indication for impairment. If the recoverable amount of a CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit prorate on the basis of the carrying amount of each asset in the unit.
1.8 Inventories
Inventories which comprise raw materials, work-in-progress, finished goods and stores and spares, are carried at the lower of cost and net realizable value. Cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In determining the cost, weighted average cost method is used. In the case of manufactured inventories and work in progress, fixed production overheads are allocated on the basis of normal capacity of production facilities.
1.9 Leases
a. Finance lease
Assets acquired under finance leases are recognized at the lower of the fair value of the leased assets at inception of the lease or the present value of the minimum lease payments. Lease payments are apportioned between the finance charge and the reduction of outstanding liability. The finance charge is allocated to periods during the lease terms at a constant periodic rate of interest on the remaining balance of the liability.
b. Operating lease
Lease arrangements where the risks and rewards incidental to the ownership of an asset substantially vest with the lesser, are classified as operating leases. Lease rentals under operating leases are recognized in the Statement of Profit and Loss on straight line basis over the term of the lease, unless the increase in rentals is in line with expected general inflation.
1.10 Earnings per share
Basic earnings per share are computed by dividing the net profit for the year after tax by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the net profit for the year after tax for the year by the weighted average number of equity shares outstanding during the year as adjusted for the effects of all dilutive potential equity shares except where the results are anti-dilutive.
1.11 Foreign currency transactions
a. Functional and presentation currency
Indian Rupee is the Company''s functional as well as presentation currency.
b. Transactions in foreign currencies are translated to the functional currency of the Company at the exchange rates prevailing on the date of the transaction. Monetary items denominated in foreign currencies are translated into the functional currency at the year-end rates. The exchange differences so determined and also the realized exchange differences are recognized in the Statement of Profit and Loss. Non-monetary items denominated in foreign currencies and measured at fair value are translated into the functional currency at the exchange rate prevalent at the date when the fair value was determined. Non-monetary items denominated in foreign currencies and measured at historical cost are translated into the functional currency at the exchange rate prevalent at the date of transaction.
c. Translation of foreign operations
For translating the financial statements of foreign branches, their functional currencies are determined. The results and the financial position of the foreign branches are translated into presentation currency so that the foreign operation could be included in the standalone financial statements.
1.12 Employee benefits
i) Post-employment benefit plans Defined benefit plan
The Company''s gratuity scheme is a defined benefit plan. For defined benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with independent actuarial valuations being carried out at each Balance Sheet date. Remeasurement of net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effects of asset ceiling (if any, excluding interest) are recognized in Other Comprehensive Income for the period in which they occur. Net interest expense and other expenses related to defined benefit plans are recognized in Statement of Profit and Loss. Past service cost is recognized immediately to the extent that the benefits are already vested or amortized on a straight-line basis over the average period until the benefits become vested.
The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of scheme assets, if any. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the scheme.
Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays specified contributions to a separate entity and has no obligation to pay any further amounts. The Company makes specified monthly contributions towards employee provident fund to Government administered provident fund scheme which is a defined contribution plan. The Company''s contribution is recognized as an expense in the Statement of Profit and Loss during the period in which the employee renders the related service.
ii) Other employee benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognized during the period when the employee renders the service. These benefits include compensated absences (which cannot be carried forward) such as paid annual leave, overseas social security contributions and performance incentives.
1.13 Income taxes
Income tax expense comprises current and deferred income tax. Income tax expense is recognized in the Statement of profit and Loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in other comprehensive income. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred income tax assets and liabilities are recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the standalone financial statements.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the period that includes the enactment or the substantive enactment date. A deferred income tax asset is recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilized. Deferred income taxes are not provided on the undistributed earnings of branches where it is expected that the earnings of the branch will not be distributed in the foreseeable future. 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.
Minimum Alternate Tax
Minimum Alternative Tax (''MAT'') under the provisions of the Income-tax Act, 1961 is recognized as current tax in the Statement of Profit and Loss. The credit available under the Act in respect of MAT paid is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognized as an asset is reviewed at each Balance Sheet date and written down to the extent the aforesaid convincing evidence no longer exists.
1.14 Provisions, Contingent liabilities and Contingent assets
The Company recognizes provisions only when it has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
No provision is recognized for -
a) Any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company; or
b) Present obligations that arise from past events but are not recognized because-
1) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or
2) A reliable estimate of the amount of obligation cannot be made.
Such obligations are disclosed as contingent liabilities. These are assessed continually and only that part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made.
Contingent assets are not recognized in the standalone financial statements since this may result in the recognition of income that may never be realized.
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.
Warranty
The Company has an obligation by way of warranty to maintain the software during the period of warranty, as per the contractual requirements, for certain products/ licenses. Costs associated with such sale are accrued at the time when related revenues are recorded and included in cost of service delivery. The Company estimates such cost based on historical experience and the estimates are reviewed periodically for material changes in the assumptions.
1.15 Research and development:
Costs incurred during the research phase of a project are expensed when incurred. Costs incurred in the development phase are recognized as an intangible asset in accordance with policy defined in 1.5.
1.16 Employee stock option
In respect of stock options granted pursuant to the Company''s Employee Stock Option Scheme, the Company recognizes employee compensation expense, using the grant date fair value in accordance with Ind-AS 102 - Share Based Payment, on straight line basis over the period over which the employees would become unconditionally entitled to apply for the shares.
1.17 Investment in subsidiaries
Investment in subsidiaries are measured at cost less impairment.
1.18 Financial instruments
a. Initial recognition
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are initially measured at fair value, except for trade receivables which are initially measured at transaction price. 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.
b. Subsequent measurement
i) Non-derivative financial instruments
Financial assets carried at amortized cost
A financial asset is subsequently measured at amortized cost if it is held within a business model whose objective is to hold the asset 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
A financial asset is subsequently measured at fair value through Other Comprehensive Income if it is held within a business model 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
A financial asset which is not classified in any of the above categories are subsequently fair valued through profit or loss.
However, in cases where the Company has made an irrevocable election for particular investments in equity instruments that would
otherwise be measured at fair value through profit or loss, the subsequent changes in fair value are recognized in Other Comprehensive Income.
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 and loss. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
ii) 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 Company does not use derivative financial instruments for speculative purposes. The counter-party to the Company''s foreign currency forward contracts is generally a bank.
Financial assets or financial liabilities, at fair value through profit or loss
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in the statement of profit and loss, when incurred. Subsequent to initial recognition, these derivatives are measured at fair value through profit or loss and the resulting exchange gains or losses are included in other income. Assets/ liabilities in this category are presented as current assets/ current liabilities if they are either held for trading or are expected to be realized within 12 months after the balance sheet date.
Cash flow hedge
The use of hedging instruments is governed by the Company''s policy approved by the Board of Directors, which provides written principles on the use of such financial derivatives consistent with the Company''s risk management strategy.
The Company designates certain foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on firm commitments and highly probable forecast transactions.
Hedging instruments are initially measured at fair value and are re-measured at subsequent reporting dates. 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. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. For forecast transactions any cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve is retained until the forecast transaction occurs. When a hedged transaction occurs or is no longer expected to occur, the net cumulative gain or loss recognized in cash flow hedging reserve is transferred to the Statement of Profit and Loss.
The amount recognized in Other Comprehensive Income is reclassified to profit or loss as a reclassification adjustment in the same period as the hedged cash flows affect profit or loss, and in the same line item in the Statement of Profit or Loss and Other Comprehensive Income.
iii) Treasury Shares
When any entity within the Group (KPIT Technologies Limited and its subsidiaries) purchases the Company''s ordinary shares, the consideration paid including any directly attributable incremental cost is presented as a deduction from total equity, until they are cancelled, sold or reissued. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/ from share premium.
c. Derecognition 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 from the Company''s Balance Sheet when the obligation specified in the contract is discharged or cancelled or expires.
d. Fair value of financial instruments
The Company uses discounted cash flow analysis method for the fair value of its financial instruments except for employee stock options (ESOP) , where Black and Scholes options pricing model is used. The method of assessing fair value results in general approximation of value and such value may never actually be realized.
For all other financial instruments the carrying amount approximates fair value due to short maturity of those instruments.
1.19 Recent accounting pronouncements
Standards issued but not yet effective
In March 2018, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2018, notifying amendments to Ind-AS 21 : The effects of changes in Foreign Exchange rates and new Ind-AS 115 : Revenue from Contracts with Customers. The amendments are applicable to the Company from 01 April 2018.
(i) Amendment to Ind-AS 21
Appendix B : Foreign Currency Transactions and Advance Consideration, has been incorporated to Ind AS-21. The amendment clarifies that the date of transaction to determine the spot exchange rate for translation, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability, when foreign currency consideration is paid or received in advance of the item it relates. If the transaction is recognized in stages, then a transaction date would be established for each stage.
The Company is evaluating the requirements and the impact of the amendment on the standalone financial statements.
(ii) Ind-AS 115 : Revenue from Contracts with Customers
TThe new standard will replace the existing revenue recognition standards Ind-AS 18: Revenue and Ind-AS 11: Construction Contracts.
The core principle of the new standard is that revenue should be recognized when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled.
Two methods of transition is permissible as per the standard:
Retrospective approach : As per this approach the standard will be applied retrospectively to each prior reporting period presented as per Ind-AS. Cumulative catch-up approach : Under this approach the standard would be applied retrospectively with cumulative effect of initially applying the standard recognized at the date of initial application.
The Company will adopt the standard from 01 April 2018, using the cumulative catch-up approach. The Company is evaluating the impact of the new standard on the standalone financial statements.
(i) With respect to some of the intangible assets, change in the technology resulted in obsolescence of the assets and hence the assets were impaired during the year, resulting in an impairment loss of '' 17.64 million, recognized under depreciation and amortization expense in the Statement of Profit and Loss.
(ii) With respect to some of the intangible assets, the Company was unable to track separately the future economic benefits and the expected cash flows, but yielding results at the combined business level. Further, it was difficult to assess the period over which the benefits were expected to flow. Hence, during the previous year, the Company has impaired the intangible asset, resulting in an impairment loss of '' 36.08 million, recognized under depreciation and amortization expense in the Statement of Profit and Loss.
15.1 The Company declares and pays dividends in Indian rupees. The dividend proposed to be distributed to equity shareholders for the year ended 31 March 2018 is '' 474.00 million i.e. '' 2.40 per share (Previous year '' 434.50 million i.e. '' 2.20 per share). The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.
Dividends during the year ended 31 March 2018 include '' 2.20 per share towards final dividend for the year ended 31 March
2017. Dividends during the year ended 31 March 2017 include '' 1.10 per share towards final dividend for the year ended 31 March 2016.
15.2 In the event of liquidation of the Company, the holders of equity shares will be entitled to receive a share in the 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.
15.3 Reconciliation of the number of equity shares outstanding at the beginning and at the end of the year:
15.6 Aggregate number of equity shares allotted as fully paid up by way of bonus shares for the period of five years immediately preceding the Balance Sheet date - NIL (Previous year 88,971,438 shares).
15.7 Capital Management
The Company''s objective is to safeguard its ability to continue as a going concern and to maintain investor, creditor and market confidence and to maximize shareholder value. In order to fulfill its objective, the management of the Company monitors the return on capital as well as the level of dividends to ordinary shareholders.
(i) The ECB loan consisted of loan secured by pari passu charge over Company''s Land and Building located at Plot No. 35,36 & 45, MIDC area of Rajiv Gandhi Infotech Park, Phase I, Hinjawadi excluding charge over R&D Centre developed in the premises. The term loan carried interest rate of 6 months LIBOR 220 basis points. This ECB loan has been repaid during the year.
(ii) The ECB loan consists of loan secured by pari passu charge over Company''s Land and Building located at Plot No. 17, Rajiv Gandhi Infotech Park, Phase III, Hinjawadi. The term loan carries interest rate of 6 months LIBOR 160 basis points. The ECB loan is repayable in eight equal semi-annual installments of USD 2.5 million each, with a moratorium of 1 year, upto March 2021. The principal amount of loan outstanding as at the Balance Sheet date is USD 15 million.
(iii) Other term loans from bank are secured against property, plant and equipment obtained under the loan arrangement. The loan carries interest upto 10.10 % p.a. and is repayable in equated monthly installments of '' 0.28 million each upto October 2020.
(iv) Term loan from other than banks is secured by way of first and exclusive charge on property, plant and equipment acquired under the loan arrangement. This loan has been repaid during the year.
(v) Term loan from other than banks consist of unsecured loan, carrying interest rate of 3% p.a. The repayment of loan will start from October 2018 upto October 2027.
(vi) Information about the Company''s exposure to interest rate risk, foreign currency risk and liquidity risk is disclosed in note
Mar 31, 2017
Company Overview
KPIT Technologies Limited ("the Company") is a public limited company incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange and Bombay Stock Exchange. The Company''s registered office is in Pune and it has subsidiaries across geographies. Most of the revenue is generated from the export of services.
The Company provides Software Development, global IT consulting and Product Engineering solutions to its clients, predominantly in Automotive & Transportation, Manufacturing and Energy & Utilities verticals. The Company is also engaged in the production of Integrated Systems, under Product Engineering Solutions vertical.
These financial statements were authorized for issue by the Company''s Board of Directors on 26 April 2017.
1. Significant accounting policies
Basis of preparation of standalone financial statements
The standalone financial statements are prepared in accordance with the Indian Accounting Standards ("Ind-AS") as specified under Section 133 of the Companies Act, 2013 read with the Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016 and the provisions of Companies Act, 2013. The standalone financial statements are presented in millions of Indian rupees rounded off to two decimal places, unless otherwise stated.
The Company adopted Ind-AS from April 1, 2016 and accordingly the transition was carried out, from the accounting principles generally accepted in India as specified under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules,
2014 (IGAAP), in accordance with Ind-AS 101 - First time adoption of Indian Accounting Standards. Accordingly, the impact on transition has been recorded in opening reserves as at April 1, 2015 and all the periods presented have been restated accordingly. Reconciliations and descriptions of the effect of the transition has been summarized in Note 2.1, 2.2 and 2.3.
Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.
These financial statements have been prepared on the historical cost basis, except for share based payments, defined benefit obligations and certain financial instruments which are measured at fair values at the end of each reporting period, as explained in the accounting policies below.
Use of estimates
The preparation of standalone financial statements requires the management of the Company to make judgments, estimates and assumptions that affect the reported balances of assets and liabilities and disclosures relating to the contingent liabilities as at the date of the financial statements and reported amounts of income and expenditure during the year. Actual results could differ from estimates. Differences between actual results and estimates are recognized in the year in which the results are known / materialized.
Critical accounting estimates a. 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.
b. Impairment of goodwill
Goodwill is tested for impairment on an annual basis and whenever there is an indication that the recoverable amount of a cash generating unit is less than its carrying amount based on a number of factors including operating results, business plans, future cash flows and economic conditions. The recoverable amount of cash generating units is determined based on higher of value-in-use and fair value less cost to sell. The goodwill impairment test is performed at the level of the cash-generating unit or groups of cash-generating units which are benefiting from the synergies of the acquisition and which represents the lowest level at which goodwill is monitored for internal management purposes.
c. Income tax
Significant judgments are involved in determining the provision for income taxes, including amount expected to be paid/recovered for uncertain tax positions.
d. Measurement of defined benefit obligation and key actuarial assumptions
Information about assumptions and estimation uncertainties in respect of defined benefit obligation and share based payment in note 36 and note 43 respectively.
1.1 Current-non-current classification
All assets and liabilities are classified into current and non-current.
Assets
An asset is classified as current when it satisfies any of the following criteria:
a. it is expected to be realized in, or is intended for sale or consumption in, the Company''s normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is expected to be realized within 12 months after the reporting date; or
d. it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.
Current assets include the current portion of non-current financial assets. All other assets are classified as noncurrent.
Liabilities
A liability is classified as current when it satisfies any of the following criteria:
a. it is expected to be settled in the Company''s normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is due to be settled within 12 months after the reporting date; or
d. the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification.
Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as non-current.
Operating cycle
Operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. The operating cycle of the Company is less than twelve months.
1.2 Revenue recognition
The Company derives revenues primarily from software development and related services and from the sale of licenses and products. Arrangements with customers for software related services are either on a fixed-price or on a time-and-material basis.
Revenue from software development and services, on time and material basis, is recognized based on software development, services rendered and related costs incurred based on timesheets and are billed to clients as per the contractual terms. Revenue from the end of the last billing to the Balance Sheet date is recognized as unbilled revenues.
Revenue from fixed-price contracts, where there is no uncertainty as to measurement or collectability of consideration, is recognized as per the percentage-of-completion method based on costs expended subject to the cost (both incurred and expected future cost) being identified and being measured reliably.
When there is uncertainty as to measurement or ultimate collectability, revenue recognition is postponed until such uncertainty is resolved. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the
current contract estimates. Earnings in excess of billings are classified as unbilled revenue while billings in excess of earnings are classified as unearned revenue.
Maintenance revenue is recognized ratably over the term of the underlying maintenance arrangement. Revenue from client training, support and other services arising due to the sale of software products is recognized as the services are performed.
For the arrangements for sale of license, related services and maintenance services, that meet the criteria for separately identifiable components, the Company has measured the revenue in respect of each separable component of a transaction at its fair value to allocate the consideration in accordance with principles given in Ind AS 18. The price that is regularly charged for an item when sold separately is the best evidence of its fair value. In cases where the company is unable to establish objective and reliable evidence of fair value for the software development and related services, the company has used a residual method to allocate the arrangement consideration. In these cases the balance of the consideration, after allocating the fair values of undelivered components of a transaction has been allocated to the delivered components for which specific fair values do not exist.
Revenue from sale of third party licenses is recognized only when the sale is completed by passing ownership.
Advances received for services and products are separately reported in the financials as advance received from customers.
The Company accounts for volume and / or trade discounts to customers as a reduction of revenue. Also, when the level of discount varies with increases in levels of revenue transactions, the company recognizes the liability based on its estimate of the customer''s future purchases. The company recognizes changes in the estimated amount of obligations for discounts in the period in which the change occurs. The discounts are passed on to the customer either as direct payments or as a reduction of payments due from the customer.
Revenue from sale of goods is recognized upon actual delivery of goods along with transfer of significant risks and rewards to the customers.
Expenses reimbursed by customers during the project execution are recorded as a reduction to associated costs.
The Company presents revenues from products gross of excise duties in its Statement of Profit and Loss.
Interest income is recognized using effective interest rate method.
Dividend income is recognized when the right to receive payment is established.
1.3 Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of cost of that asset. All other borrowing costs are charged to the Statement of Profit and Loss.
The exchange differences arising from foreign currency borrowings, to the extent that they are regarded as an adjustment to interest costs, are regrouped from other exchange differences to finance costs.
1.4 Property, plant and equipment
Property, plant and equipment are carried at cost of acquisition or construction less accumulated depreciation and/or accumulated impairment loss, if any. The cost of an item of property, plant and equipment comprises its purchase price, including import duties and other non-refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. If significant parts of an item of property, plant and equipment have different useful lives , then they are accounted for as separate items (major components) of property, plant and equipment. The cost and related accumulated depreciation are eliminated from the standalone financial statements upon sale or retirement of the asset and the resultant gains or losses are recognized in the Statement of Profit and Loss. Assets under construction are disclosed as capital work-in-progress.
1.5 Intangible assets
Intangible assets are stated at cost less accumulated amortization and accumulated impairment, ifany.
In case of internally generated intangibles, costs incurred
during the research phase of a project are expensed when incurred. Development activities involve a plan or design for the production of new or substantially improved products or processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and directly attributable borrowing costs (in the same manner as in the case of property, plant and equipment). Other development expenditure is recognized in the Statement of Profit and Loss as incurred.
Intangible fixed assets are derecognized on disposal or when no future economic benefits are expected from its use and subsequent disposal or when the economic benefits are not measurable.
(1 For these class of assets, based on internal assessment, the useful lives as given above are believed to best represent the period over which the assets are expected to be used. Hence, the useful lives for these assets are different from the useful lives as prescribed under Part C of Schedule II of the Companies Act, 2013.
Leasehold land and vehicles taken on lease are amortized over shorter of useful lives and period of lease.
Perpetual software licenses are amortized over 4 years. However, time-based software licenses are amortized over the license period.
Capitalized development costs are amortized over a period of3to4 years.
The estimated useful life of an identifiable intangible asset is based on a number of factors including the effects of obsolescence, demand, competition, and other economic factors (such as the stability of the industry, and known technological advances), and the level of maintenance expenditures required to obtain the expected future cash flows from the asset.
Improvements to leased premises are amortized over the remaining non-cancellable period of lease.
Depreciation and amortization methods, useful lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
1.7 Impairment
a. Financial assets
The Company assesses at each Balance Sheet date whether a financial asset or a group of financial assets is impaired. Ind AS 109 requires expected credit losses to be measured through a loss allowance. The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial assets which are not fair valued through profit or loss. Expected credit losses are measured at an amount equal to the 12-month ECL, unless there has been a significant increase in credit risk from initial recognition in which case those are measured at lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized is recorded as an impairment gain or loss in Statement of Profit and Loss.
b. Non- financial assets
i. Property, plant and equipment and intangible assets
The management periodically assesses using, external and internal sources, whether there is an indication that an asset may be impaired. Impairment loss is recognized when the carrying value of an asset exceeds its recoverable amount. The recoverable amount is higher of the asset''s fair value less cost of disposal and value in use. For the purpose of impairment testing, assets are grouped together into the smallest group of assets (cash generating unit or CGU) that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs.
Intangible assets which are not yet available for use are tested for impairment annually. Other assets (tangible and intangible) are reviewed at each reporting date to determine if there is any indication of impairment. For assets in respect of which any such indication exists and for intangible assets mandatorily tested annually for impairment, the asset''s recoverable amount is estimated.
If at the Balance Sheet date there is an indication that a previously assessed impairment loss no longer exists or has decreased, the assets or CGU''s recoverable amount is estimated. For assets other than goodwill, the impairment loss is reversed to the extent that the asset''s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Such a reversal is recognized in the Statement of Profit and Loss.
ii. Goodwill
CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is indication for impairment. If the recoverable amount of a CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit prorate on the basis of the carrying amount of each asset in the unit.
1.8 Inventories
Inventories which comprise raw materials, work-in- progress, finished goods and stores and spares, are carried at the lower of cost and net realizable value.
Cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In determining the cost, weighted average cost method is used. In the case of manufactured inventories and work in progress, fixed production overheads are allocated on the basis of normal capacity of production facilities.
1.9 Leases
a. Finance lease
Assets acquired under finance leases are recognized at the lower of the fair value of the leased assets at inception of the lease or the present value of the minimum lease payments. Lease payments are apportioned between the finance charge and the reduction of outstanding liability. The finance charge is allocated to periods during the lease terms at a constant periodic rate of interest on the remaining balance of the liability.
b. Operating lease
Lease arrangements where the risks and rewards incidental to the ownership of an asset substantially vest with the lessor, are classified as operating leases. Lease rentals under operating leases are recognized in the Statement of Profit and Loss on straight line basis over the term of the lease, unless the increase in rentals is in line with expected general inflation.
1.10 Earnings per share
Basic earnings per share are computed by dividing the net profit for the year after tax by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the net profit for the year after tax for the year by the weighted average number of equity shares outstanding during the year as adjusted for the effects of all dilutive potential equity shares except where the results are anti-dilutive.
1.11 Foreign currency transactions
a. Functional and presentation currency.
Indian Rupee is the Company''s functional as well as presentation currency.
b. Transactions in foreign currencies are translated to the functional currency of the Company at the exchange rates prevailing on the date of the transaction. Monetary items denominated in foreign currencies are translated into the functional currency at the year-end rates. The exchange differences so determined and also the realized exchange differences are recognized in the Statement of Profit and Loss. Non-monetary items denominated in foreign currencies and measured at fair value are translated into the functional currency at the exchange rate prevalent at the date when the fair value was determined. Non-monetary items denominated in foreign currencies and measured at historical cost are translated into the functional currency at the exchange rate prevalent at the date of transaction.
c. Translation of foreign operations
For translating the financial statements of foreign branches, their functional currencies are determined. The results and the financial position of the foreign branches are translated into presentation currency so that the foreign operation could be included in the standalone financial statements.
1.12 Employee benefits
i) Post-employment benefit plans
Defined benefit plan
The Company''s gratuity scheme is a defined benefit plan. For defined benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with independent actuarial valuations being carried out at each Balance Sheet date. Remeasurement of net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effects of asset ceiling (if any, excluding interest) are recognized in Other Comprehensive Income for the period in which they occur. Net interest expense and other expenses related to defined benefit plans are recognized in Statement of Profit and Loss. Past service cost is recognized immediately to the extent that the benefits are already vested or amortized on a straight-line basis over the average period until the benefits become vested.
The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of scheme assets, if any. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the scheme.
Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays specified contributions to a separate entity and has no obligation to pay any further amounts. The Company makes specified monthly contributions towards employee provident fund to Government administered provident fund scheme which is a defined contribution plan. The Company''s contribution is recognized as an expense in the Statement of Profit and Loss during the period in which the employee renders the related service.
Compensated absences
The employees of certain locations can carry-forward a portion of the unutilized accrued compensated absences and utilize it in future service periods or receive cash compensation on termination of employment. Since the compensated absences do not fall due wholly within twelve months after the end of the period in which the employees render the related service and are also not expected to be utilized wholly within twelve months after the end of such period, the benefit is classified as a long-term employee benefit. The Company records an obligation for such compensated absences in the period in which the employee renders the services that increase this entitlement. The obligation is measured on the basis of independent actuarial valuation using the projected unit credit method. Remeasurement gains/losses are recognized in the Statement of Profit and Loss in the period in which they arise.
ii) Other employee benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognized during the period when the employee renders the service. These benefits include compensated absences (which cannot be carried forward) such as paid annual leave, overseas social security contributions and performance incentives.
1.13 Income taxes
Income tax expense comprises current and deferred income tax. Income tax expense is recognized in the Statement of profit and Loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in other comprehensive income. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred income tax assets and liabilities are recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the standalone financial statements.
Deferred income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as income or expense in the period that includes the enactment or the substantive enactment date. A deferred income tax asset is recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilized. Deferred income taxes are not provided on the undistributed earnings of branches where it is expected that the earnings of the branch will not be distributed in the foreseeable future. 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.
Minimum Alternate Tax
Minimum Alternative Tax (''MAT'') under the provisions of the Income-tax Act, 1961 is recognized as current tax in the Statement of Profit and Loss. The credit available under the Act in respect of MAT paid is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognized as an asset is reviewed at each Balance Sheet date and written down to the extent the aforesaid convincing evidence no longer exists.
1.14 Provisions, Contingent liabilities and Contingent assets
The Company recognizes provisions only when it has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
No provision is recognized for
a. Any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company; or
b. Present obligations that arise from past events but are not recognized because-
1) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or
2) A reliable estimate of the amount of obligation cannot be made.
Such obligations are disclosed as contingent liabilities. These are assessed continually and only that part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made.
Contingent assets are not recognized in the standalone financial statements since this may result in the recognition of income that may never be realized.
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.
Warranty
The Company has an obligation by way of warranty to maintain the software during the period of warranty, as per the contractual requirements, for certain products/ licenses. Costs associated with such sale are accrued at the time when related revenues are recorded and included in cost of service delivery. The Company estimates such cost based on historical experience and the estimates are reviewed periodically for material changes in the assumptions.
1.15 Research and development
Costs incurred during the research phase of a project are expensed when incurred. Costs incurred in the development phase are recognized as an intangible asset in accordance with policy defined in 1.5.
1.16 Employee stock option
In respect of stock options granted pursuant to the Company''s Employee Stock Option Scheme, the Company recognizes employee compensation expense, using the grant date fair value in accordance with Ind-AS 102 - Share Based Payment, on straight line basis over the period over which the employees would become unconditionally entitled to apply for the shares.
1.17 Investment in subsidiaries
Investment in subsidiaries are measured at cost less impairment.
1.18 Financial instruments
a. Initial recognition
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are initially measured at fair value, except for trade receivables which are initially measured at transaction price. 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.
b. Subsequent measurement
i) Non-derivative financial instruments
Financial assets carried at amortized cost
A financial asset is subsequently measured at amortized cost if it is held within a business model whose objective is to hold the asset 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
A financial asset is subsequently measured at fair value through Other Comprehensive Income if it is held within a business model 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
A financial asset which is not classified in any of the above categories are subsequently fair valued through profit or loss.
However, in cases where the Company has made an irrevocable election for particular investments in equity instruments that would otherwise be measured at fair value through profit or loss, the subsequent changes in fair value are recognized in Other Comprehensive Income.
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 and loss. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments.
ii) 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 Company does not use derivative financial instruments for speculative purposes. The counter-party to the Company''s foreign currency forward contracts is generally a bank.
Financial assets or financial liabilities, at fair value through profit or loss
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in the statement of profit and loss, when incurred. Subsequent to initial recognition, these derivatives are measured at fair value through profit or loss and the resulting exchange gains or losses are included in other income. Assets/ liabilities in this category are presented as current assets/ current liabilities if they are either held for trading or are expected to be realized within 12 months after the balance sheet date.
Cash flow hedge
The use of hedging instruments is governed by the Company''s policy approved by the Board of Directors, which provides written principles on the use of such financial derivatives consistent with the Company''s risk management strategy.
The Company designates certain foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on firm commitments and highly probable forecast transactions.
Hedging instruments are initially measured at fair value and are re-measured at subsequent reporting dates. 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. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. For forecast transactions any cumulative gain or loss on the hedging instrument recognized in cash flow hedging reserve is retained until the forecast transaction occurs. When a hedged transaction occurs or is no longer expected to occur, the net cumulative gain or loss recognized in cash flow hedging reserve is transferred to the Statement of Profit and Loss.
The amount recognized in Other Comprehensive Income is reclassified to profit or loss as a reclassification adjustment in the same period as the hedged cash flows affect profit or loss, and in the same line item in the Statement of Profit and Loss and Other Comprehensive Income.
iii) Treasury Shares
When any entity within the Group (KPIT Technologies Limited and its subsidiaries) purchases the Company''s ordinary shares, the consideration paid including any directly attributable incremental cost is presented as a deduction from total equity, until they are cancelled, sold or reissued. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/ from share premium.
c. Derecognition 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 from the Company''s Balance Sheet when the obligation specified in the contract
is discharged or cancelled or expires.
d. Fair value of financial instruments
The Company uses discounted cash flow analysis method for the fair value of its financial instruments except for employee stock options (ESOP) , where Black and Scholes options pricing model is used. The method of assessing fair value results in general approximation of value and such value may never actually be realized.
For all other financial instruments the carrying amount approximates fair value due to short maturity of those instruments.
1.19 Recent accounting pronouncements
Standards issued but not yet effective
In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind-AS 7 : Statement of cash flows and Ind-AS 102 : Share based payment. These amendments are in accordance with the recent amendments made by International Accounting Standards Board (IASB) to IAS 7 : Statement of cash flows and IFRS 2 : Share based payment, respectively. The amendments are applicable to the Company from 01 April 2017.
(i) Amendment to Ind-AS 7
The amendment to Ind-AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the Balance Sheet for liabilities arising from financing activities, to meet the disclosure requirement.
The Company is evaluating the requirements of the amendment and the impact on the standalone financial statements is being evaluated.
(ii) Amendment to Ind-AS 102
The amendment to Ind-AS 102 provides specific guidance to measurement of cash-settled awards, modification of cash-settled awards and awards that include a net settlement feature in respect of withholding taxes.
It clarifies that the fair value of cash-settled awards is determined on a basis consistent with that used for equity-settled awards. Market based performance conditions and non-vesting conditions are reflected in the ''fair values'', but non-market performance conditions and service vesting conditions are reflected in the estimate of the number of awards expected to vest. Also, the amendment clarifies that if the terms and conditions of a cash-settled share based payment transaction are modified with the result that it becomes an equity-settled share based payment transaction, the transaction is accounted for as such from the date of the modification. Further, the amendment requires the award that include a net settlement feature in respect of withholding taxes to be treated as equity-settled in its entirety. The cash payment to the tax authority is treated as if it was part of an equity settlement.
The Company is evaluating the requirements of the amendment and the impact on the standalone financial statements is being evaluated.
2 First time adoption of Ind-AS :
2.1 Explanation of transition to Ind-AS
a. These are the Company''s first standalone financial statements prepared in accordance with Ind-AS.
b. The accounting policies set out in Note 1 have been applied in preparing the standalone financial statements for the year ended 31 March 2017, the comparative information presented in these financial statements for the year ended 31 March 2016 and in the preparation of an opening Ind-AS Balance Sheet as at 1 April 2015 (the Company''s date of transition).
c. In preparing its opening Ind-AS Balance Sheet and in presenting the comparative information for the year ended 31 March 2016, the Company has adjusted amounts reported previously in standalone financial statements, prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian Generally Accepted Accounting
Principles (IGAAP)). An explanation of how the transition from IGAAP to Ind-AS has affected the Company''s financial position, financial performance and cash flows is set out in the following tables and notes.
2.2 Optional exemptions availed and mandatory exceptions
In preparing these financial statements, the Company has availed certain optional exemptions and mandatory exceptions in accordance with Ind-AS 101 as explained below:
a. Optional exemptions availed
i. Share based payments
The Company has elected to apply the share based payment exemption available under Ind-AS 101 on application of Ind-AS 102- "Share Based Payment", to the grants that are vested before the transition date. Accordingly, only the unvested options as at the date of transition to Ind-AS have been fair valued.
ii. Deemed cost
The Company has availed the exemption under Ind-AS 101 on deemed cost, where it has elected to continue with the carrying value for all of its property, plant and equipment, and intangible assets, measured as per IGAAP and use that as its deemed cost as at the date of transition to Ind-AS.
b. Mandatory exceptions from full retrospective application
i Hedge accounting exceptions
The Company had followed hedge accounting under IGAAP which is aligned to Ind-AS. Accordingly, the Company continues to apply hedge accounting on and after the date of transition to Ind-AS.
ii Estimates
As per Ind AS 101, an entity''s estimates in accordance with Ind AS at the date of transition to Ind AS at the end of the comparative period presented in the entity''s first Ind AS financial statements are consistent with estimates made for the same date in accordance with the previous GAAP unless there is objective evidence that those estimates were in error.
2.3 Reconciliations
a. The below mentioned reconciliations provide the quantification of the effect of significant differences arising on the transition from IGAAP to Ind-AS, in accordance with Ind-AS 101:
Notes explaining the effects of transaction from IGAAP to Ind-AS:
i Effect of fair valuation of security deposits and amortization of advance rentals under Ind-AS.
ii Effect of deferred taxes recognized on the Ind-AS adjustments.
iii Effect of financial liabilities initially measured at fair value and subsequently measured at amortized cost with the corresponding impacts on the Statement of Profit and Loss.
iv Under Ind-AS, dividend and dividend distribution tax is recorded as a liability on the date of approval by the shareholders while under IGAAP it is recognized in the period to which it relates.
v As per Ind-AS, share based payments are measured at fair value, whereas under IGAAP they are measured at intrinsic value.
vi As per Ind-AS, actuarial gains/(losses) are recorded in other comprehensive income as items that will not be reclassified to profit or loss.
vii Under Ind-AS, the effective portion of gains/(losses) on hedging instruments in cash flow hedges are recorded in other comprehensive income as items that will be reclassified to profit or loss.
Cash flow statement:
There are no material reconciliation items to the cash flow statement, as previously reported under IGAAP and Ind-AS.
Note:
(i) With respect to one of the intangible assets, the Company is unable to track separately the future economic benefits and the expected cash flows, but yielding results at the combined business level. Further, it is difficult to assess the period over which the benefits are expected to flow. Hence, during the year ended 31 March 2017, the Company has impaired the intangible asset, resulting in an impairment loss ofRs, 36.08 million, recognized under depreciation and amortization expense in the Statement of Profit and Loss.
16.1 The Company declares and pays dividends in Indian rupees. The dividend proposed to be distributed to equity shareholders for the year ended 31 March 2017 is '' 434.50 million i.e. '' 2.20 per share (Previous year'' 217.25 million i.e. '' 1.10 per share). The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.
Dividends during the year ended 31 March 2017 include '' 1.10 per share towards final dividend for the year ended 31 March
2016. Dividends during the year ended 31 March 2016 include '' 1.10 per share towards interim dividend for the year ended 31 March 2016 and '' 1.10 per share towards final dividend for the year ended 31 March 2015.
16.2 In the event of liquidation of the Company, the holders of equity shares will be entitled to receive a share in the 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.
16.4 The Company has only one class of shares referred to as equity shares having a par value of '' 2. Each shareholder of equity shares is entitled to one vote per share.
16.6 Aggregate number of equity shares allotted as fully paid up by way of bonus shares for the period of five years immediately preceding the Balance Sheet date 88,971,438 (Previous year 88,971,438).
16.7 Capital Management
The Company''s objective is to safeguard its ability to continue as a going concern and to maintain investor, creditor and market confidence and to maximize shareholder value. In order to fulfil its objective, the management of the Company monitors the return on capital as well as the level of dividends to ordinary shareholders.
Mar 31, 2016
Company overview
KPIT Technologies Limited ("the Company") is a public company
incorporated under the Companies Act, 1956 and its shares are listed on
the National Stock Exchange and Bombay Stock Exchange. The Company''s
registered office is in Pune and it has subsidiaries across
geographies. Most of the revenue is generated from the export of
services.
The Company provides Software Development, global IT consulting and
Product Engineering solutions to its clients, predominantly in
Automotive & Transportation, Manufacturing and Energy & Utilities
verticals. The Company is also engaged in the production of Integrated
Systems, under product engineering solutions vertical.
Basis for preparation of financial statements
The financial statements have been prepared and presented under the
historical cost convention as a going concern on accrual basis and to
comply in all material aspects with the applicable accounting
principles in India including the Accounting Standards specified under
section 133 of the Companies Act, 2013 read with Rule 7 of the
Companies (Accounts) Rules, 2014. The Company has adopted the
principles of Accounting Standard (AS 30) "Financial Instruments:
Recognition and Measurement" issued by the Institute of Chartered
Accountants of India (ICAI) to the extent the adoption of AS 30 does
not conflict with the existing accounting standards prescribed by the
Companies (Accounts) Rules, 2014 and other authoritative
pronouncements. The financial statements are presented in million of
Indian rupees, unless otherwise stated.
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 of the
Company to make judgments, estimates and assumptions that affect the
reported balances of assets and liabilities and disclosures relating to
the contingent liabilities as at the date of the financial statements
and reported amounts of income and expenditure during the year. Actual
results could differ from estimates. Differences between actual results
and estimates are recognized in the year in which the results are known
/ materialized.
1.1 Revenue recognition
Revenue from software development and services, on time and material
basis, is recognized based on software development, services rendered
and related costs incurred based on timesheets and are billed to
clients as per the contractual terms. Revenue from fixed price
contracts, where there is no uncertainty as to measurement or
collectability of consideration, is recognized based upon the
proportionate completion method. When there is uncertainty as to
measurement or ultimate collectability, revenue recognition is
postponed until such uncertainty is resolved. Revenue from the sale of
software products is recognized when the sale is completed with the
passing of the ownership.
Revenue from sale of goods in the course of ordinary activities is
recognised when property in the goods or all significant risks and
rewards of their ownership are transferred to the customer and no
significant uncertainty exists regarding the amount of the
consideration that will be derived from the sale of the goods and
regarding its collection. The amount recognised as revenue is exclusive
of excise duty, sales tax, value added taxes (VAT) and service tax, and
is net of returns, trade discounts and quantity discounts.
Customer reimbursable expenses are recorded as a reduction from
associated costs.
Interest income is recognized on time proportion basis.
Dividend income is recognized when the Company''s right to receive
dividend is established.
1.2 Borrowing costs
Borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset are capitalized as
part of cost of that asset. All other borrowing costs are charged to
the Statement of Profit and Loss.
1.3 Current-non-current classification
All assets and liabilities are classified into current and non-current.
Assets
An asset is classified as current when it satisfies any of the
following criteria:
a. it is expected to be realised in, or is intended for sale or
consumption in, the Company''s normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is expected to be realised within 12 months after the reporting
date; or
d. it is cash or cash equivalent unless it is restricted from being
exchanged or used to settle a liability for at least 12 months after
the reporting date.
Current assets include the current portion of non- current financial
assets. All other assets are classified as non-current.
Liabilities
A liability is classified as current when it satisfies any of the
following criteria:
a. it is expected to be settled in the Company''s normal operating
cycle;
b. it is held primarily for the purpose of being traded;
c. it is due to be settled within 12 months after the reporting date;
or
d. the Company does not have an unconditional right to defer
settlement of the liability for at least 12 months after the reporting
date. Terms of a liability that could, at the option of the
counterparty, result in its settlement by the issue of equity
instruments do not affect its classification.
Current liabilities include current portion of non- current financial
liabilities. All other liabilities are classified as non-current.
Operating cycle
Operating cycle is the time between the acquisition of assets for
processing and their realization in cash or cash equivalents. The
operating cycle of the Company is less than twelve months.
1.4 Fixed assets
Tangible fixed assets:
Tangible fixed assets are carried at cost of acquisition or
construction less accumulated depreciation and/ or accumulated
impairment loss, if any. The cost of an item of tangible fixed asset
comprises its purchase price, including import duties and other non-
refundable taxes or levies and any directly attributable cost of
bringing the asset to its working condition for its intended use; any
trade discounts and rebates are deducted in arriving at the purchase
price. Tangible fixed assets under construction are disclosed as
capital work-in-progress.
Intangible fixed assets:
Goodwill that arises on an amalgamation or on the acquisition of a
business is presented as an intangible asset. Goodwill arising from
amalgamation / acquisition is measured at cost less accumulated
amortisation and any accumulated impairment loss. Such goodwill is
amortised over its estimated useful life or five years, whichever is
shorter. Goodwill is tested for impairment periodically.
Development activities involve a plan or design for the production of
new or substantially improved products or processes. Development
expenditure is capitalised only if development costs can be measured
reliably, the product or process is technically and commercially
feasible, future economic benefits are probable, and the Company
intends to and has sufficient resources to complete development and to
use the asset. The expenditure capitalised includes the cost of
materials, direct labour, overhead costs that are directly attributable
to preparing the asset for its intended use, and directly attributable
borrowing costs (in the same manner as in the case of tangible fixed
assets). Other development expenditure is recognized in the Statement
of Profit and Loss as incurred.
Non-compete fees are amortised on straight line method over the period
of the agreement. The estimated useful life of intangible assets is
reviewed by management at each Balance Sheet date.
Intangible fixed assets are derecognised on disposal or when no future
economic benefit is expected from its use and subsequent disposal.
1.5 Depreciation and amortization :
Depreciation on tangible fixed assets is provided on the straight-line
method over the useful lives of the assets. The estimated useful lives
for tangible assets are as follows:
(1) For these class of assets, based on internal assessment, the useful
lives as given above are believed to best represent the period over
which the assets are expected to be used. Hence the useful lives for
these assets is different from the useful lives as prescribed under
Part C of Schedule II of the Companies Act 2013.
Leasehold land and vehicles taken on lease are amortized over the
period of the lease.
Perpetual software licenses are amortized over 4 years. However,
time-based software licenses are amortized over the license period.
Capitalised development costs are amortized over a period of 4 to 5
years.
Improvements to leased premises are amortized over the remaining
non-cancellable period of lease.
1.6 Impairment of fixed assets
The management periodically assesses, using external and internal
sources, whether there is an indication that an asset may be impaired.
Impairment loss is recognized when the carrying value of an asset
exceeds its recoverable amount. The recoverable amount is higher of the
asset''s net selling price and value in use. For the purpose of
impairment testing, assets are grouped together into the smallest group
of assets (cash generating unit or CGU) that generates cash inflows
from continuing use that are largely independent of the cash inflows of
other assets or CGUs.
Intangible assets which are not yet available for use are tested for
impairment annually. Other fixed assets (tangible and intangible) are
reviewed at each reporting date to determine if there is any indication
of impairment. For assets in respect of which any such indication
exists and for intangible assets mandatorily tested annually for
impairment, the asset''s recoverable amount is estimated.
If at the Balance Sheet date there is an indication that a previously
assessed impairment loss no longer exists or has decreased, the assets
or CGU''s recoverable amount is estimated. For assets , the impairment
loss is reversed to the extent that the asset''s carrying amount does
not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been
recognised. Such a reversal is recognised in the Statement of Profit
and Loss.
1.7 Investments
Investments that are readily realisable and intended to be held for not
more than a year from the date of acquisition are classified as current
investments. All other investments are classified as long-term
investments. However, that part of long term investments which is
expected to be realised within 12 months after the reporting date is
also presented under ''current assets'' as "current portion of long term
investments" in consonance with the current/ non-current
classification.
Current investments are carried at lower of cost and fair value.
Long term Investments are stated at cost less provision for diminution,
other than temporary, in the value of such investments.
Profit or loss on sale of investments is determined on the basis of
weighted average carrying amount of investments disposed. Any
reductions in the carrying amount and any reversals of such reductions
are charged or credited to the Statement of Profit and Loss.
1.8 Inventories
Inventories which comprise raw materials, work-in- progress, finished
goods, stock-in-trade, stores and spares, and loose tools are carried
at the lower of cost and net realisable value. Cost of inventories
comprises all costs of purchase, costs of conversion and other costs
incurred in bringing the inventories to their present location and
condition. In determining the cost, weighted average cost method is
used. In the case of manufactured inventories and work in progress,
fixed production overheads are allocated on the basis of normal
capacity of production facilities.
1.9 Leases
Assets acquired under finance leases are recognized at the lower of the
fair value of the leased assets at inception of the lease and the
present value of minimum lease payments. Lease payments are apportioned
between the finance charge and the reduction of the outstanding
liability. The finance charge is allocated to periods during the lease
term at a constant periodic rate of interest on the remaining balance
of the liability.
Lease arrangements where the risks and rewards incidental to the
ownership of an asset substantially vest with the lessor, are
classified as Operating Leases. Lease rentals under operating leases
are recognised in the Statement of Profit and Loss on straight line
basis over the term of the lease.
1.10 Earnings per share
The Company reports its basic and diluted earnings per share in
accordance with Accounting Standard - 20 Earnings per Share.
Basic earnings per share is computed by dividing the profit for the
year by the weighted average number of equity shares outstanding during
the year. Diluted earnings per share is computed by dividing the profit
for the year by the weighted average number of equity shares
outstanding during the year as adjusted for the effects of all dilutive
potential equity shares except where the results are anti-dilutive.
1.11 Foreign currency transactions
a. Transactions in foreign currencies are recorded at the exchange
rates prevailing on the date of the transaction. Monetary items are
translated at the year-end rates and the exchange differences so
determined and also the realised exchange differences are recognised in
the Statement of Profit and Loss.
b. Derivative instruments and hedge accounting
The Company uses foreign currency forward contracts to hedge its risk
associated with foreign currency fluctuations relating to certain firm
commitments and forecast transactions. The Company designates these
hedging instruments as cash flow hedges applying the recognition and
measurement principles set out in the Accounting Standard (AS) 30
"Financial Instruments: Recognition and Measurement" of the Institute
of Chartered Accountants of India (ICAI) to the extent the early
adoption of AS 30 does not conflict with the existing accounting
standards prescribed by the Companies (Accounting Standards) Rules,
2006 and other authoritative pronouncements.
The use of hedging instruments is governed by the Company''s policy
approved by the Board of Directors, which provides written principles
on the use of such financial derivatives consistent with the Company''s
risk management strategy. The Company does not use derivative
financial instruments for speculative purposes. The counter-party to
the Company''s foreign currency forward contracts is generally a bank.
Hedging instruments are initially measured at fair value and are
re-measured at subsequent reporting dates. Changes in fair value of
these derivatives that are designated and effective as hedges of future
cash flows are recognized directly in shareholder''s fund under Hedging
Reserves and the ineffective portion, if any is recognized immediately
in the Statement of Profit and Loss.
Hedge accounting is discontinued when the hedging instrument expires or
is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. For forecast transactions any cumulative gain or loss on
the hedging instrument recognized in shareholder''s fund is retained
until the forecast transaction occurs. When a hedged transaction
occurs or is no longer expected to occur, the net cumulative gain or
loss recognized in shareholder''s fund is transferred to the Statement
of Profit and Loss.
Forward exchange contracts outstanding at the Balance Sheet date, other
than designated cash flow hedges, are stated at fair values and any
gains or losses are recognized in the Statement of Profit and Loss.
c. Translation of foreign operations
For translating the financial statements of foreign branches, these are
classified into ''integral'' and ''non-integral'' foreign operations.
Integral foreign operations are those which carry on their business as
if they were an extension of the Company''s operations. Other foreign
operations are classified as non-integral. Accordingly, the Company''s
foreign operations have been classified as integral foreign operations.
The financial statements of these operations are translated into Indian
Rupees as if the transactions of the foreign operation were those of
the Company itself.
1.12 Employee benefits
i) Post-employment benefit plans Defined benefit plan
The Company''s gratuity scheme is a defined benefit plan. For defined
benefit plans, the cost of providing benefits is determined using the
Projected Unit Credit Method, with independent actuarial valuations
being carried out at each Balance Sheet date. Actuarial gains and
losses are recognised in full in the Statement of Profit and Loss for
the period in which they occur. Past service cost is recognised
immediately to the extent that the benefits are already vested or
amortised on a straight-line basis over the average period until the
benefits become vested.
The retirement benefit obligation recognised in the Balance Sheet
represents the present value of the defined benefit obligation as
adjusted for unrecognised past service cost, and as reduced by the fair
value of scheme assets. Any asset resulting from this calculation is
limited to the present value of available refunds and reductions in
future contributions to the scheme.
Defined contribution plan
A defined contribution plan is a post-employment benefit plan under
which an entity pays specified contributions to a separate entity and
has no obligation to pay any further amounts. The Company makes
specified monthly contributions towards employee provident fund to
Government administered provident fund scheme which is a defined
contribution plan. The Company''s contribution is recognised as an
expense in the Statement of Profit and Loss during the period in which
the employee renders the related service.
Compensated absences
The employees of certain locations can carry-forward a portion of the
unutilised accrued compensated absences and utilise it in future
service periods or receive cash compensation on termination of
employment. Since the compensated absences do not fall due wholly
within twelve months after the end of the period in which the employees
render the related service and are also not expected to be utilized
wholly within twelve months after the end of such period, the benefit
is classified as a long-term employee benefit. The Company records an
obligation for such compensated absences in the period in which the
employee renders the services that increase this entitlement. The
obligation is measured on the basis of independent actuarial valuation
carried out at each Balance Sheet date using the Projected Unit Credit
Method.
ii) Other employee benefits
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees is recognised
during the period when the employee renders the service. These
benefits include compensated absences (which cannot be carried forward)
such as paid annual leave, overseas social security contributions and
performance incentives.
1.13 Accounting for taxes on income
Income-tax
Income-tax expense comprises current tax (i.e. amount of tax for the
period determined in accordance with the income-tax law) and deferred
tax charge or credit (reflecting the tax effects of timing differences
between accounting income and taxable income for the period).
Income-tax expense is recognised in the Statement of Profit or Loss.
Current tax is measured at the amount expected to be paid to (recovered
from) the taxation authorities, using the applicable tax rates and tax
laws.
Deferred tax
Deferred tax is recognised in respect of timing differences between
taxable income and accounting income i.e. differences that originate in
one period and are capable of reversal in one or more subsequent
periods. The deferred tax charge or credit and the corresponding
deferred tax liabilities or assets are recognised using the tax rates
and tax laws that have been enacted or substantively enacted by the
Balance Sheet date. Deferred tax assets are recognised only to the
extent there is reasonable certainty that the assets can be realised in
future; however, where there is unabsorbed depreciation or carried
forward loss under taxation laws, deferred tax assets are recognised
only if there is a virtual certainty supported by convincing evidence
that sufficient future taxable income will be available against which
such deferred tax assets can be realised. Deferred tax assets are
reviewed as at each Balance Sheet date and written down or written-up
to reflect the amount that is reasonably/virtually certain (as the case
may be) to be realised.
Minimum Alternate Tax
Minimum Alternative Tax (''MAT'') under the provisions of the Income-tax
Act, 1961 is recognised as current tax in the Statement of Profit and
Loss. The credit available under the Act in respect of MAT paid is
recognised as an asset only when and to the extent there is convincing
evidence that the Company will pay normal income tax during the period
for which the MAT credit can be carried forward for set-off against the
normal tax liability. MAT credit recognised as an asset is reviewed at
each Balance Sheet date and written down to the extent the aforesaid
convincing evidence no longer exists.
1.14 Provisions, Contingent liabilities and Contingent assets
The Company recognizes provisions only when it has a present obligation
as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the
obligation and when a reliable estimate of the amount of the obligation
can be made.
No provision is recognized for -
(a) Any possible obligation that arises from past events and the
existence of which will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within
the control of the Company; or
(b) Present obligations that arise from past events but are not
recognized because-
1) It is not probable that an outflow of resources embodying economic
benefits will be required to settle the obligation; or
2) A reliable estimate of the amount of obligation cannot be made.
Such obligations are recorded as Contingent liabilities. These are
assessed continually and only that part of the obligation for which an
outflow of resources embodying economic benefits is probable, is
provided for, except in the extremely rare circumstances where no
reliable estimate can be made.
Contingent assets are not recognized or disclosed in the financial
statements since this may result in the recognition of income that may
never be realized.
Warranty
The Company has an obligation by way of warranty to maintain the
software during the period of warranty, which may vary from contract to
contract. Costs associated with such sales are accrued at the time when
related revenues are recorded and included in cost of service delivery.
The Company estimates such cost based on historical experience and the
estimates are reviewed periodically for material changes in the
assumptions.
1.15 Research and development
Costs incurred during the research phase of a project are expensed when
incurred. Costs incurred in the development phase are recognized as an
intangible asset in accordance with policy defined in 1.4.
1.16 Employee stock option
In respect of stock options granted pursuant to the Company''s Employee
Stock Option Scheme, the excess of the market price of the shares, at
the date of grant of options, over the exercise price is regarded as
employee compensation, and recognized on straight line basis over the
period over which the employees would become unconditionally entitled
to apply for the shares.
Mar 31, 2015
Basis for preparation of financial statements
The financial statements have been prepared and presented under the
historical cost convention as a going concern on the accrual basis and
to comply in all material aspects with all the applicable accounting
principles in India including the Accounting Standards specified under
section 133 of the Companies Act, 2013 read with Rule 7 of the
Companies (Accounts) Rules, 2014. The Company has adopted the
principles of Accounting Standard (AS 30) "Financial Instruments:
Recognition and Measurement" issued by the Institute of Chartered
Accountants of India (ICAI) to the extent the adoption of AS 30 does
not conflict with the existing accounting standards prescribed by the
Companies (Accounts) Rules, 2014 and other authoritative
pronouncements. The financial statements are presented in Indian rupees
rounded off to the nearest rupee.
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 of the
Company to make judgments, estimates and assumptions that affect the
reported balances of assets and liabilities and disclosures relating to
the contingent liabilities as at the date of the financial statements
and reported amounts of income and expenditure during the year. Actual
results could differ from estimates. Differences between actual results
and estimates are recognized in the year in which the results are known
/ materialized.
1.1 Revenue recognition
Revenue from software development and services, on time and material
basis, is recognized based on software development, services rendered
and related costs incurred based on timesheets and are billed to
clients as per the contractual obligations. Revenue from
fixed price contracts, where there is no uncertainty as to measurement
or collectability of consideration, is recognized based upon the
proportionate completion method. When there is uncertainty as to
measurement or ultimate collectability, revenue recognition is
postponed until such uncertainty is resolved. Revenue from the sale of
software products is recognized when the sale is completed with the
passing of the ownership.
Revenue from sale of goods in the course of ordinary activities is
recognised when property in the goods or all significant risks and
rewards of their ownership are transferred to the customer and no
significant uncertainty exists regarding the amount of the
consideration that will be derived from the sale of the goods and
regarding its collection. The amount recognised as revenue is exclusive
of sales tax, value added taxes (VAT) and service tax, and is net of
returns, trade discounts and quantity discounts.
Interest income is recognized on time proportion basis.
Dividend income is recognized when the Company's right to receive
dividend is established.
1.2 Borrowing costs
Borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset are capitalized as
part of cost of that asset. All other borrowing costs are charged to
the Statement of Profit and Loss.
1.3 Current-non-current classification
All assets and liabilities are classified into current and non-current.
Assets
An asset is classified as current when it satisfies any of the
following criteria:
a. it is expected to be realised in, or is intended for sale or
consumption in, the Company's normal operating cycle;
b. it is held primarily for the purpose of being traded;
c. it is expected to be realised within 12 months after the reporting
date; or
d. it is cash or cash equivalent unless it is restricted from being
exchanged or used to settle a liability for at least 12 months after
the reporting date.
Current assets include the current portion of non- current financial
assets. All other assets are classified as non-current.
Liabilities
A liability is classified as current when it satisfies any of the
following criteria:
a. it is expected to be settled in the Company's normal operating
cycle;
b. it is held primarily for the purpose of being traded;
c. it is due to be settled within 12 months after the reporting date;
or
d. the Company does not have an unconditional right to defer settlement
of the liability for at least 12 months after the reporting date. Terms
of a liability that could, at the option of the counterparty, result in
its settlement by the issue of equity instruments do not affect its
classification.
Current liabilities include current portion of non- current financial
liabilities. All other liabilities are classified as non-current.
Operating cycle
Operating cycle is the time between the acquisition of assets for
processing and their realization in cash or cash equivalents. The
operating cycle of the Company is less than twelve months.
1.4 Fixed assets
Tangible fixed assets:
Tangible fixed assets are carried at cost of acquisition or
construction less accumulated depreciation and/ or accumulated
impairment loss, if any. The cost of an item of tangible fixed asset
comprises its purchase price, including import duties and other non-
refundable taxes or levies and any directly attributable cost of
bringing the asset to its working condition for its intended use; any
trade discounts and rebates are deducted in arriving at the purchase
price. Tangible fixed assets under construction are disclosed as
capital work-in-progress.
Intangible fixed assets:
Goodwill that arises on an amalgamation or on the acquisition of a
business is presented as an intangible asset. Goodwill arising from
amalgamation/acquisition is measured at cost less accumulated
amortisation and any accumulated impairment loss. Such goodwill is
amortised over its estimated useful life or five years, whichever is
shorter. Goodwill is tested for impairment periodically.
Development activities involve a plan or design for the production of
new or substantially improved products or processes. Development
expenditure is capitalised only if development costs can be measured
reliably, the product or process is technically and commercially
feasible, future economic benefits are probable, and the Company
intends to and has sufficient resources to complete development and to
use the asset. The expenditure capitalised includes the cost of
materials, direct labour, overhead costs that are directly
attributable to preparing the asset for its intended use, and directly
attributable borrowing costs (in the same manner as in the case of
tangible fixed assets). Other development expenditure is recognized in
the Statement of Profit and Loss as incurred.
Non-compete fees are amortised on straight line method over the period
of the agreement. The estimated useful life of intangible assets is
reviewed by management at each Balance Sheet date.
1.5 Depreciation and amortization :
Depreciation on tangible fixed assets is provided on the straight-line
method over the useful lives of the assets. The estimated useful lives
for tangible assets are as follows:
Type of asset Useful life
(Number of years)
Buildings'11 25
Plant and equipment111 4
Office equipment111 10
Owned vehicle111 5
Furniture and fixtures'11 8
(1)For these class of assets, based on internal assessment, the useful
lives as given above are believed to best represent the period over
which the assets are expected to be used. Hence the useful lives for
these assets is different from the useful lives as prescribed under
Part C of Schedule II of the Companies Act 2013.
Based on the internal evaluation by the Company, the useful life of
Buildings has been reassessed from 15 years to 25 years. The impact of
this change on the depreciation for the year is not expected to be
material.
Leasehold land and vehicles taken on lease are amortized over the
period of the lease.
Perpetual Software licenses are amortized over 4 years. However,
time-based software licenses are amortized over the license period.
Capitalised development costs are amortized over a period of4to5 years.
1.6 Impairment of fixed assets
The Management periodically assesses, using external and internal
sources, whetherthere is an indication that an asset may be impaired.
Impairment loss is recognized when the carrying value of an asset
exceeds its recoverable amount. The recoverable amount is higher of the
asset's net selling price and value in use. For the purpose of
impairment testing, assets are grouped together into the smallest group
of assets (cash generating unit or CGU) that generates cash inflows
from continuing use that are largely independent of the cash inflows of
other assets or CGUs.
Intangible assets which are not yet available for use are tested for
impairment annually. Other fixed assets (tangible and intangible) are
reviewed at each reporting date to determine if there is any indication
of impairment. For assets in respect of which any such indication
exists and for intangible assets mandatorily tested annually for
impairment, the asset's recoverable amount is estimated.
If at the Balance Sheet date there is an indication that a previously
assessed impairment loss no longer exists or has decreased, the assets
or CGU's recoverable amount is estimated. For assets, the impairment
loss is reversed to the extent that the asset's carrying amount does
not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been
recognised. Such a reversal is recognised in the Statement of Profit
and Loss.
1.7 Investments
Investments that are readily realisable and intended to be held for not
more than a year from the date of acquisition are classified as current
investments. All other investments are classified as long-term
investments. However, that part of long term investments which is
expected to be realised within 12 months after the reporting date is
also presented under 'current assets' as "current portion of long term
investments" in consonance with the current/non- current
classification.
Current investments are carried at lower of cost and fair value.
Long term Investments are stated at cost less provision for diminution,
other than temporary, in the value of such investments.
Profit or loss on sale of investments is determined on the basis of
weighted average carrying amount of investments disposed. Any
reductions in the carrying amount and any reversals of such reductions
are charged or credited to the Statement of Profit and Loss.
1.8 Inventories
Inventories which comprise raw materials, work-in- progress, finished
goods, stock-in-trade, stores and spares, and loose tools are carried
at the lower of cost and net realisable value. Cost of inventories
comprises all costs of purchase, costs of conversion and other costs
incurred in bringing the inventories to their present location and
condition. In determining the cost, weighted average cost method is
used. In the case of manufactured inventories and work in progress,
fixed production overheads are allocated on the basis of normal
capacity of production facilities.
1.9 Leases
Assets acquired under finance leases are recognized at the lower of the
fair value of the leased assets
at inception of the lease and the present value of minimum lease
payments. Lease payments are apportioned between the finance charge and
the reduction of the outstanding liability. The finance charge is
allocated to periods during the lease term at a constant periodic rate
of interest on the remaining balance ofthe liability.
Lease arrangements where the risks and rewards incidental to the
ownership of an asset substantially vest with the lessor, are
classified as Operating Leases. Lease rentals under operating leases
are recognised in the Statement of Profit and Loss on straight line
basis over the term of the lease.
1.10 Earnings per share
The Company reports its basic and diluted earnings per share in
accordance with Accounting Standard - 20 Earnings per Share.
Basic earnings per share is computed by dividing the profit for the
year by the weighted average number of equity shares outstanding during
the year. Diluted earnings per share is computed by dividing the profit
for the year by the weighted average number of equity shares
outstanding during the year as adjusted for the effects of all dilutive
potential equity shares except where the results are anti-dilutive.
1.11 Foreign currency transactions
a. Transactions in foreign currencies are recorded at the exchange
rates prevailing on the date of the transaction. Monetary items are
translated at the year-end rates and the exchange differences so
determined as also the realised exchange differences are recognised in
the Statement of Profit and Loss.
b. Derivative instruments and hedge accounting
The Company uses foreign currency forward contracts to hedge its risk
associated with foreign currency fluctuations relating to certain firm
commitments and forecast transactions. The Company designates these
hedging instruments as cash flow hedges applying the recognition and
measurement principles set out in the Accounting Standard (AS) 30
"Financial Instruments: Recognition and Measurement" ofthe Institute of
Chartered Accountants of India (ICAI) to the extent the early adoption
of AS 30 does not conflict with the existing accounting standards
prescribed by the Companies (Accounting Standards) Rules, 2006 and
other authoritative pronouncements.
The use of hedging instruments is governed by the Company's policy
approved by the Board of Directors, which provides written principles
on the use of such financial derivatives consistent with the Company's
risk management strategy.
The Company does not use derivative financial instruments for
speculative purposes. The counter-party to the Company's foreign
currency forward contracts is generally a bank.
Hedging instruments are initially measured at fair value and are
re-measured at subsequent reporting dates. Changes in fair value of
these derivatives that are designated and effective as hedges of future
cash flows are recognized directly in shareholder's fund under Hedging
Reserves and the ineffective portion, if any is recognized immediately
in the Statement of Profit and Loss.
Hedge accounting is discontinued when the hedging instrument expires or
is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. For forecast transactions any cumulative gain or loss on
the hedging instrument recognized in shareholder's fund is retained
until the forecast transaction occurs. When a hedged transaction
occurs or is no longer expected to occur, the net cumulative gain or
loss recognized in shareholder's fund is transferred to the Statement
of Profit and Loss.
Forward exchange contracts outstanding at the Balance Sheet date, other
than designated cash flow hedges, are stated at fair values and any
gains or losses are recognized in the Statement of Profit and Loss.
c. Translation of foreign operations
For translating the financial statements of foreign branches, these are
classified into 'integral' and 'non-integral' foreign operations.
Integral foreign operations are those which carry on their business as
if they were an extension of the Company's operations. Other foreign
operations are classified as non-integral. Accordingly, the Company's
foreign operations have been classified as integral foreign operations.
The financial statements of these operations are translated into Indian
Rupees as if the transactions of the foreign operation were those of
the Company itself.
1.12 Employee benefits
i) Post-employment benefit plans Defined benefit plan
The Company's gratuity scheme is a defined benefit plan. For defined
benefit plans, the cost of providing benefits is determined using the
Projected Unit Credit Method, with independent actuarial valuations
being carried out at each Balance Sheet date. Actuarial gains and
losses are recognised in full in the Statement of Profit and Loss for
the period in which they occur. Past service cost is recognised
immediately to the extent that the benefits are already vested or
amortised on a straight-line basis over the average period until the
benefits become vested.
The retirement benefit obligation recognised in the Balance Sheet
represents the present value of the defined benefit obligation as
adjusted for unrecognised past service cost, and as reduced by the fair
value of scheme assets. Any asset resulting from this calculation is
limited to the present value of available refunds and reductions in
future contributions to the scheme.
Defined contribution plan
A defined contribution plan is a post-employment benefit plan under
which an entity pays specified contributions to a separate entity and
has no obligation to pay any further amounts. The Company makes
specified monthly contributions towards employee provident fund to
Government administered provident fund scheme which is a defined
contribution plan. The Company's contribution is recognised as an
expense in the Statement of Profit and Loss during the period in which
the employee renders the related service.
Compensated absences
The employees of certain locations can carry-forward a portion of the
unutilised accrued compensated absences and utilise it in future
service periods or receive cash compensation on termination of
employment. Since the compensated absences do not fall due wholly
within twelve months after the end of the period in which the employees
render the related service and are also not expected to be utilized
wholly within twelve months after the end of such period, the benefit
is classified as a long-term employee benefit. The Company records an
obligation for such compensated absences in the period in which the
employee renders the services that increase this entitlement. The
obligation is measured on the basis of independent actuarial valuation
carried out at each Balance Sheet date using the Projected Unit Credit
Method.
ii) Other employee benefits
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees is recognised
during the period when the employee renders the service. These
benefits include compensated absences (which cannot be carried forward)
such as paid annual leave, overseas social security contributions and
performance incentives.
1.13 Accounting for taxes on income
Income tax
Income-tax expense comprises current tax (i.e. amount of tax for the
period determined in accordance with the income-tax law) and deferred
tax charge or credit (reflecting the tax effects of timing differences
between accounting income and taxable income for the period). Income-tax expense is recognised in the Statement of Profit or Loss. Current tax is measured at the amount expected to be paid to (recovered from) the
taxation authorities, using the applicable tax rates and tax laws.
Deferred tax
Deferred tax is recognised in respect of timing differences between
taxable income and accounting income i.e. differences that originate in
one period and are capable of reversal in one or more subsequent
periods. The deferred tax charge or credit and the corresponding
deferred tax liabilities or assets are recognised using the tax rates
and tax laws that have been enacted or substantively enacted by the
Balance Sheet date. Deferred tax assets are recognised only to the
extent there is reasonable certainty that the assets can be realised in
future; however, where there is unabsorbed depreciation or carried
forward loss under taxation laws, deferred tax assets are recognised
only if there is a virtual certainty supported by convincing evidence
that sufficient future taxable income will be available against which
such deferred tax assets can be realised. Deferred tax assets are
reviewed as at each balance sheet date and written down or written-up
to reflect the amount that is reasonably/virtually certain (as the case
may be) to be realised.
Minimum alternate tax
Minimum Alternative Tax ('MAT') under the provisions of the Income-tax
Act, 1961 is recognised as current tax in the Statement of Profit and
Loss. The credit available under the Act in respect of MAT paid is
recognised as an asset only when and to the extent there is convincing
evidence that the Company will pay normal income tax during the period
for which the MAT credit can be carried forward for set-off against the
normal tax liability. MAT credit recognised as an asset is reviewed at
each Balance Sheet date and written down to the extent the aforesaid
convincing evidence no longer exists.
1.14 Provisions, Contingent liabilities and Contingent assets
The Company recognizes provisions only when it has a present obligation
as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the
obligation and when a reliable estimate of the amount of the obligation
can be made.
No provision is recognized for -
(a) Any possible obligation that arises from past events and the
existence of which will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within
the control of the Company; or
(b) Present obligations that arise from past events but are not
recognized because-
1) It is not probable that an outflow of resources embodying economic
benefits will be required to settle the obligation; or
2) A reliable estimate of the amount of obligation cannot be made.
Such obligations are recorded as Contingent liabilities. These are
assessed continually and only that part of the obligation for which an
outflow of resources embodying economic benefits is probable, is
provided for, except in the extremely rare circumstances where no
reliable estimate can be made.
Contingent assets are not recognized or disclosed in the financial
statements since this may result in the recognition of income that may
never be realized.
Warranty
The Company has an obligation by way of warranty to maintain the
software during the period of warranty, which may vary from contract to
contract. Costs associated with such sales are accrued at the time when
related revenues are recorded and included in cost of service delivery.
The Company estimates such cost based on historical experience and the
estimates are reviewed periodically for material changes in the
assumptions.
1.15 Research and development
Costs incurred during the research phase of a project are expensed when
incurred. Costs incurred in the development phase are recognized as an
intangible asset in accordance with policy defined in 1.4.
1.16 Employee stock option
In respect of stock options granted pursuant to the Company's Employee
Stock Option Scheme, the excess of the market price of the shares, at
the date of grant of options, over the exercise price is regarded as
employee compensation, and recognized on straight line basis over the
period over which the employees would become unconditionally entitled
to apply for the shares.
2.2 The Company has only one class of shares referred to as equity
shares having a par value of Rs. 2. Each shareholder of equity shares is
entitled to one vote per share.
2.3 Number of equity shares held by each shareholder holding more than
5% shares in the Company are as follows:
2.4 5,273,643 equity shares (Previous year 8,169,543) ofRs. 2 each are
reserved for issuance towards outstanding employee stock options
granted (Refer note 45)
2.5 Aggregate number of equity shares allotted as fully paid up by way
of bonus shares for the period of five years immediately preceding the
Balance Sheet date 44,789,985 (Previous year 88,971,438)
2.6 Also refer note 28
Notes:
(i) The ECB loan is secured by pari passu charge over Company's Land
and Building located at Plot No. 35,36 & 45, MIDC area of Rajiv Gandhi
Infotech Park, Phase I, Hinjawadi excluding charge over R&D Centre
developed in the premises. The term loan carries interest rate of 6
months LIBOR 300 basis points. The ECB loan is repayable in eight
equal semi-annual installments of USD 2,500,000 each, with a moratorium
of 1 year, upto November 2017.
(ii) Other term loans from bank are secured against fixed assets
obtained under the loan arrangement. The loan carries interest upto
10.25 % p.a. and is repayable in equated monthly installments of INR
169,060 each upto August 2016.
(iii) Term loans from other than banks are secured by way of first and
exclusive charge on fixed assets acquired under the loan arrangement.
The loan is to be repaid in April 2015.
Notes:
(i) The above loan is secured by way of "First charge by way of
hypothecation of Company's entire book debts, both present and future",
on pari passu basis, carrying an average interest rate upto 6 months
LIBOR plus 2% per annum.
(ii) The loan amount carries interest rate upto 6 months LIBOR plus
0.75% per annum.
Mar 31, 2013
Basis for preparation of financial statements
The financial statements are prepared in accordance with Indian
Generally Accepted Accounting Principles (''GAAP'') under the
historical cost convention on accrual basis.GAAP comprises mandatory
accounting standards notified under section 211(3C) [Companies
(Accounting Standards) Rules, 2006, as amended]and the other relevant
provisions of Companies Act, 1956.
1.1 Revenue recognition
Revenue from software development and services on time and material
basis is recognized based on software development, services rendered
and related costs incurred based on timesheets and are billed to
clients as per the contractual obligations. In case of fixed price
contracts, revenue is recognized over the life of contract based on the
milestone/s achieved as agreed upon in the contract on proportionate
completion basis and where there is no uncertainty as to the
measurement or collectability of the consideration. Revenue from the
sale of software products is recognized when the sale is completed with
the passing of the ownership.
Interest income is recognized on time proportion basis.
Dividend income is recognized when the Company''s right to receive
dividend is established.
1.2 Borrowing Costs
Borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset are capitalized as
part of cost of that asset.All other borrowing costs are charged to the
Statement of Profit and Loss.
1.3 Trade receivables and advances
Specific debts and advances identified as irrecoverable or doubtful are
written off or provided for, respectively.
1.4 Fixed Assets
(a) Fixed Assets are stated at the cost of acquisition, less
depreciation /amortization /diminution. Costs comprises of the purchase
price and other attributable costs.
(b) Product development cost are recognized as fixed assets,when
feasibility has been established, the Company has committed technical,
financial and other resources to complete the development and it is
probable that asset will generate probable future benefits.
1.5 Depreciation / Amortization / Diminution
Depreciation on tangible fixed assets is provided for on the
straight-line method at the rates and in the manner specified in
Schedule XIV to the Companies Act, 1956 except in respect of the
following assets where the rates are higher:
Perpetual Software licenses are amortized over 4 years. However,
time-based software licenses are amortized over the license period.
1.6 Impairment of Fixed Assets
The Management periodically assesses using, external and internal
sources, whether there is an indication that an asset may be impaired.
Impairment loss is recognized when the carrying value of an asset
exceeds its recoverable amount. The recoverable amount is higher of the
asset''s net selling price and value in use. For the purpose of
impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows.
1.7 Investments
Current investments are carried at lower of cost and fair value.
Long term Investments are stated at cost less provision for diminution,
other than temporary, in the value of such investments.
1.8 Leases
Assets acquired under finance leases are recognized at the lower of the
fair value of the leased assets at inception of the lease and the
present value of minimum lease payments. Lease payments are apportioned
between the finance charge and the reduction of the outstanding
liability. The finance charge is allocated to periods during the lease
term at a constant periodic rate of interest on the remaining balance
of the liability.
Lease arrangements where the risks and rewards incidental to the
ownership of an asset substantially vest with the lessor, are
classified as Operating Leases. Lease Rentals under operating leases
are recognised in the Statement of Profit and Loss on straight line
basis over the term of the lease.
1.9 Earnings per share
The Company reports its basic and diluted earnings per share in
accordance with Accounting Standard (AS) -20 "Earnings Per Share".
Basic earnings per share is computed by dividing the profit for the
period after tax by the weighted average number of equity shares
outstanding during the year. Diluted earnings per share is computed by
dividing the profit for the period after tax by the weighted average
number of equity shares outstanding during the year as adjusted for the
effects of all dilutive potential equity shares except where the
results are anti-dilutive.
1.10 Foreign currency transactions
(a) Transactions in foreign currencies are recorded at the exchange
rates prevailing on the date of the transaction. Monetary items are
translated at the year-end rates and the exchange differences so
determined as also the realised exchange differences are recognised in
the Statement of Profit and Loss.
Premiums or discount on forward exchange contracts are amortized and
recognized in the Statement of Profit and Loss over the period of the
contract. Forward exchange contracts outstanding at the balance sheet
date, other than designated cash flow hedges, are stated at fair values
and any gains or losses are recognized in the Statement of Profit and
Loss.
(b) Derivative instruments and hedge accounting
The Company uses foreign currency forward contracts to hedge its risk
associated with foreign currency fluctuations relating to certain firm
commitments and forecast transactions. The Company designates these
hedging instruments as cash flow hedges applying the recognition and
measurement principles set out in the Accounting Standard(AS) 30
"Financial Instruments: Recognition and Measurement" of the
Institute of Chartered Accountants of India (ICAI).
The use of hedging instruments is governed by the Company''s policy
approved by the Board of Directors, which provides written principles
on the use of such financial derivatives consistent with the
Company''s risk management strategy. The Company does not use
derivative financial instruments for speculative purposes. The
counter-party to the Company''s foreign currency forward contracts is
generally a bank.
Hedging instruments are initially measured at fair value and are
re-measured at subsequent reporting dates. Changes in fair value of
these derivatives that are designated and effective as hedges of future
cash flows are recognized directly in shareholder''s fund and the
ineffective portion, if any is recognized immediately in the Statement
of Profit and Loss.
Changes in the fair value of derivative financial instruments that do
not qualify for hedge accounting are recognized in the Statement of
Profit and Loss as they arise.
Hedge accounting is discontinued when the hedging instrument expires or
is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. For forecast transactions any cumulative gain or loss on
the hedging instrument recognized in shareholder''s fund is retained
there until the forecast transaction occurs. When a hedged transaction
occurs or is no longer expected to occur, the net cumulative gain or
loss recognized in shareholder''s fund is transferred to the Statement
of Profit and Loss.
1.11 Retirement benefits to employees
Employee benefits includes gratuity, provident fund and leave
encashment benefits under the approved schemes of the Company.
In respect of defined contribution plans, the contribution payable for
the year is charged to the Statement of Profit and Loss.
In respect of defined benefit plans, the employee benefit costs are
accounted for based on actuarial valuation as at the Balance Sheet
date.
The liability for leave carried forward has been accounted for on
actual basis for all eligible employees except for employees at the
Bangalore location, where the leave liability is calculated on the
basis of an actuarial valuation as of the Balance Sheet date, as per
the policy of the Company.
1.12 Accounting for Taxes on Income
Tax expense comprises of current and deferred tax.
(a) Income Tax Provision
Current tax is computed on taxable income determined in accordance with
the provisions of the applicable tax rates and tax laws. Current tax
is net of credit for entitlement for Minimum Alternative tax (MAT).
(b) Deferred Tax Provision
Deferred tax arising on account of timing differences and which are
capable of reversal in one or more subsequent periods is recognised
using the tax rates and tax laws that have been enacted or
substantively enacted. Deferred tax assets are not recognised unless
there is virtual certainty with respect to the reversal of the same in
future years.
1.13 Provisions, Contingent Liabilities and Contingent Assets
As per Accounting Standard (AS) 29, ''Provisions, Contingent
Liabilities and Contingent Assets'', the Company recognizes provisions
only when it has a present obligation as a result of a past event, it
is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and when a reliable estimate
of the amount of the obligation can be made.
No Provisions is recognized for -
(a) Any possible obligation that arises from past events and the
existence of which will be confirmed only by the occurrence or non-
occurrence of one or more uncertain future events not wholly within the
control of the Company; or
(b) Present obligations that arise from past events but are not
recognized because-
1. It is not probable that an outflow of resources embodying economic
benefits will be required to settle the obligation; or
2. A reliable estimate of the amount of obligation cannot be made.
Such obligations are recorded as Contingent Liabilities. These are
assessed continually and only that part of the obligation for which an
outflow of resources embodying economic benefits is probable, is
provided for, except in the extremely rare circumstances where no
reliable estimate can be made.
Contingent Assets are not recognized in the financial statements since
this may result in the recognition of income that may never be
realized.
1.14 Research and Development
Costs incurred during the research phase of a project are expensed when
incurred. Costs incurred in the development phase are recognized as an
intangible asset in accordance with policy defined in 1.4B. Capitalized
costs are amortized over a period of 4 years.
1.15 Provision for Warranty
The Company has an obligation by way of warranty to maintain the
software during the period of warranty, which may vary from contract to
contract. Costs associated with such sale are accrued at the time when
related revenues are recorded and included in cost of service delivery.
The Company estimates such cost based on historical experience and the
estimates are reviewed periodically for material changes in the
assumptions.
1.16 Employee Stock Option
In respect of stock options granted pursuant to the company''s
Employee Stock Option Scheme, the intrinsic value of the option is
treated as discount and accounted as employee compensation cost over
the vesting period.
1.17 Use of Estimates
The preparation of financial statements requires the management of the
Company to make estimates and assumptions that affect the reported
balances of assets and liabilities and disclosures relating to the
contingent liabilities as at the date of the financial statements and
reported amounts of income and expenditure during the year. Differences
between actual results and estimates are recognized in the year in
which the results are known / materialized.
Mar 31, 2012
Basis for preparation of financial statements
The financial statements are prepared in accordance with Indian
Generally Accepted Accounting Principles ('GAAP') under the
historical cost convention on accrual basis. GAAP comprises mandatory
accounting standards as prescribed by the Companies (Accounting
Standards) Rules, 2006 and the provisions of Companies Act, 1956.
1.1 Revenue recognition
Revenue from software development and services on time and material
basis is recognized based on software development, services rendered
and related costs are incurred i.e. based on certification of
timesheets and are billed to clients as per the contractual
obligations. In case of fixed price contracts, revenue is recognized
over the life of contract based on the milestone/s achieved as agreed
upon in the contract on proportionate completion basis and where there
is no uncertainty as to measurement or collectability of consideration.
Revenue from the sale of software products is recognized when the sale
is completed with the passing of the ownership.
Interest income is recognized on time proportion basis
Dividend income is recognized when the Company's right to receive
dividend is established.
1.2 Borrowing Costs
Borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset are capitalized as
part of cost of that asset. All other borrowing costs are charged to
the Statement of Profit and Loss.
1.3 Trade receivables and advances:
Specific debts and advances identified as irrecoverable or doubtful are
written off or provided for, respectively.
1.4 Fixed Assets
(a) Fixed Assets are stated at the cost of acquisition, less
depreciation/amortization/diminution. Costs comprises of the purchase
price and other attributable costs.
(b) Product development cost are recognised as fixed assets,when
feasibility has been established, the Company has committed technical,
financial and other resources to complete the development and it is
probable that asset will generate probable future benefits.
1.5 Depreciation/ Amortization/ Diminution
Depreciation on tangible fixed assets is provided for on the
straight-line method at the rates and in the manner specified in
Schedule XIV to the Companies Act, 1956 except in respect of the
following assets where the rates are higher:
- Certain Buildings - 7.5%
- Plant and Equipment (Computers) - 25%
- Certain Office Equipments - 10% and 33.33% as applicable
- Certain Furniture and Fixtures - 12.5%
Leasehold land and vehicles taken on lease are amortized over the
period of the lease.
Intangible Assets are amortized on the straight line method at the
following rates:
- Goodwill - Amortized over period of 3/5 years.
- Product Development Cost - Amortized over period of 3/4 years.
Perpetual Software licenses are amortized over 4 years. However, time-
based software licenses are amortized over their duration.
1.6 Impairment of Fixed Assets
The Management periodically assesses using, external and internal
sources, whether there is an indication that an asset may be impaired.
Impairment loss is recognised when the carrying value of an asset
exceeds its recoverable amount. The recoverable amount is higher of the
asset's net selling price and value in use. For the purpose of
impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows.
1.7 Investments
Current investments are carried at lower of cost and fair value.
Long-term Investments are stated at cost less provision for diminution,
other than temporary, in the value of such investments.
1.8 Leases
Assets acquired under finance leases are recognized at the lower of the
fair value of the leased assets at inception of the lease and the
present value of minimum lease payments. Lease payments are apportioned
between the finance charge and the reduction of the outstanding
liability. The finance charge is allocated to periods during the lease
term at a constant periodic rate of interest on the remaining balance
of the liability.
Lease arrangements where the risks and rewards incidental to the
ownership of an asset substantially vest with the lessor, are
classified as Operating Leases. Lease Rentals under operating leases
are recognised in the statement of Profit and Loss on straight line
basis over the term of the lease.
1.9 Earnings per share
Basic earnings per share is computed by dividing the profit for the
period after tax by the weighted number of equity shares outstanding
during the year. Diluted earnings per share is computed by dividing the
profit for the period after tax by the weighted number of equity shares
outstanding during the year as adjusted for the effects of all dilutive
potential equity shares except where the results are anti-dilutive.
1.10 Foreign currency transactions
(a) Transactions in foreign currencies are recorded at the exchange
rates prevailing on the date of the transaction. Monetary items are
translated at the year-end rates and the exchange differences so
determined as also the realised exchange differences are recognised in
the statement of profit and loss.
Premiums or discount on forward exchange contracts are amortized and
recognized in the Statement of Profit and Loss over the period of the
contract. Forward exchange contracts and currency option contracts
outstanding at the balance sheet date, other than designated cash flow
hedges, are stated at fair values and any gains or losses are
recognized in the Statement of Profit and Loss.
(b) Derivative instruments and hedge accounting
The Company uses foreign currency forward contracts and currency
options to hedge its risk associated with foreign currency fluctuations
relating to certain firm commitments and forecast transactions. The
Company designates these hedging instruments as cash flow hedges
applying the recognition and measurement principles set out in the
Accounting Standard (AS) 30 "Financial Instruments: Recognition and
Measurement"of the Institute of Chartered Accountants of India
(ICAI).
The use of hedging instruments is governed by the Company's policy
approved by the Board of Directors, which provides written principles
on the use of such financial derivatives consistent with the
Company's risk management strategy. The Company does not use
derivative financial instruments for speculative purposes. The
counter-party to the Company's foreign currency forward contracts is
generally a bank.
Hedging instruments are initially measured at fair value and are
re-measured at subsequent reporting dates. Changes in fair value of
these derivatives that are designated and effective as hedges of future
cash flows are recognized directly in shareholder's fund and the
ineffective portion, if any is recognized immediately in the Statement
of Profit and Loss.
Changes in the fair value of derivative financial instruments that do
not qualify for hedge accounting are recognized in the Statement of
Profit and Loss as they arise.
Hedge accounting is discontinued when the hedging instrument expires or
is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. For forecast transactions any cumulative gain or loss on
the hedging instrument recognized in shareholder's fund is retained
there until the forecast transaction occurs. When a hedged transaction
occurs or is no longer expected to occur, the net cumulative gain or
loss recognized in shareholder's fund is transferred to the Statement
of Profit and Loss.
1.11 Retirement benefits to employees
Employee benefits includes gratuity, provident fund and leave
encashment benefits under the approved schemes of the Company.
In respect of defined contribution plans, the contribution payable for
the year is charged to the Statement of Profit and Loss.
In respect of defined benefit plans, the employee benefit costs are
accounted for based on actuarial valuation as at the Balance Sheet
date.
The liability for leave carried forward has been accounted for on
actual basis for all eligible employees except for employees at the
Bangalore location, where the leave liability is calculated on the
basis of an actuarial valuation as of the Balance Sheet date, as per
the policy of the Company.
1.12 Accounting for Taxes on Income
Tax expense comprises current and deferred tax.
(a) Income Tax Provision
Current tax is computed on taxable income determined in accordance with
the provisions of the applicable tax rates and tax laws. Current tax
is net of credit for entitlement for Minimum Alternative Tax (MAT).
(b) Deferred Tax Provision
Deferred tax arising on account of timing differences and which are
capable of reversal in one or more subsequent periods is recognised
using the tax rates and tax laws that have been enacted or
substantively enacted. Deferred tax assets are not recognised unless
there is virtual certainty with respect to the reversal of the same in
future years.
1.13 Provisions, Contingent Liabilities and Contingent Assets
As per Accounting Standard (AS) 29, 'Provisions, Contingent
Liabilities and Contingent Assets', the Company recognizes provisions
only when it has a present obligation as a result of a past event, it
is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and when a reliable estimate
of the amount of the obligation can be made.
No Provisions is recognized for -
(a) Any possible obligation that arises from past events and the
existence of which will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within
the control of the Company; or
(b) Present obligations that arise from past events but are not
recognized because -
1) It is not probable that an outflow of resources embodying economic
benefits will be required to settle the obligation; or
2) A reliable estimate of the amount of obligation cannot be made.
Such obligations are recorded as Contingent Liabilities. These are
assessed continually and only that part of the obligation for which an
outflow of resources embodying economic benefits is probable, is
provided for, except in the extremely rare circumstances where no
reliable estimate can be made.
Contingent Assets are not recognized in the financial statements since
this may result in the recognition of income that may never be
realized.
1.14 Provision for Warranty:
The Company has an obligation by way of warranty to maintain the
software during the period of warranty, which may vary from contract to
contract. Costs associated with such sale are accrued at the time when
related revenues are recorded and included in cost of service delivery.
The Company estimates such cost based on historical experience and the
estimates are reviewed periodically for material changes in the
assumptions.
1.15 Employee Stock Option:
In respect of stock options granted pursuant to the company's
Employee Stock Option Scheme, the intrinsic value of the option is
treated as discount and accounted as employee compensation cost over
the vesting period.
1.16 Use of Estimates:
The preparation of financial statements requires the management of the
Company to make estimates and assumptions that affect the reported
balances of assets and liabilities and disclosures relating to the
contingent liabilities as at the date of the financial statements and
reported amounts of income and expenditure during the year. Differences
between actual results and estimates are recognized in the year in
which the results are known/materialized.
Mar 31, 2011
Company Overview
The Company, along with its wholly owned subsidiaries in the USA, UK,
Germany, France and branches at Japan, Singapore and South Africa
provides software services and IT enabled services to its clients. The
Company predominantly provides services in Manufacturing and Financial
services sectors. Most of the revenue is generated from the export of
services.
1. Significant Accounting Policies
Basis for preparation of financial statements
The financial statements are prepared in accordance with Indian
Generally Accepted Accounting Principles (GAAP) under the historical
cost convention on accrual basis. All items of income and expenditure
having a material bearing on the financial statements are recognized on
the accrual basis. GAAP comprises mandatory accounting standards as
prescribed by the Companies (Accounting Standards) Rules, 2006, the
provisions of Companies Act, 1956 and guidelines issued by the
Securities and Exchange Board of India (SEBI).
Use of Estimates
The preparation of financial statements requires the management of the
Company to make estimates and assumptions that affect the reported
balances of assets and liabilities and disclosures relating to the
contingent liabilities as at the date of the financial statements and
reported amounts of income and expenditure during the year.
1.1 Revenue recognition
Revenue from software development and services on time and material
basis is recognized based on software development, services rendered
and billed to clients as per the contractual obligations. In case of
fixed price contracts, revenue is recognized based on the milestone/s
achieved as agreed upon in the contract on proportionate completion
basis and where there is no uncertainty as to measurement or collect
ability of consideration. Revenue from the sale of software products is
recognized when the sale is completed with the passing of the
ownership.
Interest income is recognized on time proportion basis.
Dividend income is recognized when the Companys right to receive
dividend is established.
1.2 Expenditure
Expenses are accounted on the accrual basis and provisions are made for
all probable losses and liabilities.
a) Borrowing Costs
Borrowing costs that are directly attributable to the acquisition,
construction or production of an asset which takes a substantial time
in getting ready for its intended use are capitalized as part of cost
of that asset till the date it is put to use. All other borrowing costs
are charged to the Statement of Profit and Loss.
b) Provision for Doubtful Debts
The Company periodically carries out an exercise to evaluate recovery
of its receivables. While making such provision, various other factors
like probable recovery of the dues, business risks, economic factors,
legal status of the customers/partners are taken into account.
1.3 Fixed Assets, Intangible Assets and Capital Work-in-Progress
a) Fixed Assets are stated at the cost of acquisition, less accumulated
depreciation and impairment loss, if any. Direct costs are capitalized
till the assets are put to use. Vehicles taken on Lease have been
capitalized in accordance with the Accounting Standard (AS) 19
ÃAccounting for Leases.
b) Intangible Assets
If Company incurs expenditure which meets criteria of intangible asset
as mentioned in Accounting Standard (AS) 26, such expenditure is
capitalized and is amortized over its useful life as estimated by the
Management.
However, in some instances, technical feasibility is completed and the
market release status is reached in the same period. Therefore, such
intangible assets are amortized in the same period.
c) Capital Work-in-Progress
Capital Work-in-Progress includes capital advances and the cost of
fixed assets that are not yet ready for the intended use at the
reporting date.
1.4 Depreciation/Amortization
Depreciation on fixed assets is provided using straight-line method
over the useful life of the fixed assets as estimated by the
Management. Depreciation is charged on all assets purchased and sold
during the year on a proportionate basis. The rates of depreciation are
as per or above minimum rates prescribed under Schedule XIV of the
Companies Act, 1956. The Rates of Depreciation are as follows:
Individual assets costing less than X 5,000/- and mobile phones issued
to employees are charged off to the Statement of Profit and Loss in the
year of purchase.
- Leasehold land - Amortized over the lease period.
- Buildings - 1.63%
- Buildings (Hinjewadi) - 7.50%
- Plant and machinery
- Office equipments - 4.75%
- Office equipments (Hinjewadi) - 10.00%
- Electrical systems - 33.33%
- Electrical systems (Hinjewadi) - 10.00%
- Computers - 25.00%
(including software and peripherals)
- Furniture and fittings - 6.33%
Furniture and fittings (Hinjewadi) - 12.50%
- Vehicles - 9.50%
- Vehicles on lease - Amortized over the lease period
Perpetual Software licenses are amortized over their useful lives as
stated above. However, time-based software licenses are amortized over
their duration.
1.5 Goodwill
Goodwill on acquisition is amortized over a period of its useful life
as estimated by the management.
1.6 Impairment of Fixed Assets
The Management periodically assesses using, external and internal
sources, whether there is an indication that an asset may be impaired.
Impairment loss is recognised when the carrying value of an asset
exceeds its recoverable amount. The recoverable amount is higher of the
assets net selling price and value in use, which means the present
value of future cash flows expected to arise from the continuing use of
the asset and its eventual disposal.
1.7 Investments
Investments are either classified as current or long-term, based on
Managements intention at the time of purchase. Current investments are
carried at lower of cost and fair value. Cost for overseas investment
comprises the Indian rupee value of the consideration paid for the
investment translated at the exchange rate prevalent at the date of
investment. Long-term Investments are stated at cost less provisions
recorded to recognise any decline, other than temporary, in the
carrying value of each investment. Such costs are inclusive of
acquisition costs directly attributable to the Investments such as
legal expenses, professional fees etc. incurred during the course of
such acquisition.
1.8 Leases
Assets leased by the Company in the capacity of their lessee, where the
Company has substantially all the risks and rewards of ownership are
classified as Finance Leases. Such leases are capitalized at the
inception of lease at the lower of their fair value or the present
value
of minimum lease payments and a liability is created for an equivalent
amount. Each lease rental paid is allocated between the liability and
interest cost so as to obtain a constant periodic rate of interest on
the outstanding liability for each year.
Lease arrangements where the risks and rewards incidental to the
ownership of an asset substantially vest with the lessor, are
recognised as Operating Leases. Lease Rentals under operating leases
are recognised in the statement of Profit and Loss on
straight-line-basis
1.9 Earnings per share
Basic earnings per share is computed by dividing the net profit after
tax by the weighted number of equity shares outstanding during the
period. Diluted earnings per share is computed by dividing the net
profit after tax by the weighted number of equity shares considered for
deriving basic earnings per share and also the weighted average number
of equity shares that could have been issued upon conversion of
dilutive potential equity shares. The diluted potential equity shares
are adjusted for the proceeds receivable had the shares been actually
issued at fair value which is the average market value of the
outstanding shares.
1.10 Foreign currency transactions
a) Foreign currency denominated monetary assets and liabilities are
translated at exchange rates in effect at the balance sheet date. The
gains or losses resulting from such transactions are included in the
Statement of Profit and Loss. Income and Expenses denominated in
foreign currencies are translated using exchange rate in effect on the
date of transaction. Transaction gains or losses realized upon
settlement of foreign currency transactions are included in determining
the net profit for the period in which the transaction is settled.
Premiums or discount on forward exchange contracts are amortized and
recognized in the Statement of Profit and Loss over the period of the
contract. Forward exchange contracts and currency option contracts
outstanding at the balance sheet date, other than designated cash flow
hedges, are stated at fair values and any gains or losses are
recognized in the Statement of Profit and Loss.
b) Derivative instruments and hedge accounting
The Company uses foreign currency forward contracts and currency
options to hedge its risk associated with foreign currency fluctuations
relating to certain firm commitments and forecast transactions. The
Company designates these hedging instruments as cash flow hedges
applying the recognition and measurement principles set out in the
Accounting Standard (AS) 30 "Financial Instruments: Recognition and
Measurementà of the Institute of Chartered Accountants of India (ICAI).
The use of hedging instruments is governed by the Companys policy
approved by the Board of Directors, which provides written principles
on the use of such financial derivatives consistent with the Companys
risk management strategy. The Company does not use derivative financial
instruments for speculative purposes. The counter-party to the
Companys foreign currency forward contracts is generally a bank.
Hedging instruments are initially measured at fair value and are
re-measured at subsequent reporting dates. Changes in fair value of
these derivatives that are designated and effective as hedges of future
cash flow are recognized directly in shareholders fund and the
ineffective portion, if any is recognized immediately in the Statement
of Profit and Loss.
Changes in the fair value of derivative financial instruments that do
not qualify for hedge accounting are recognized in the Statement of
Profit and Loss as they arise.
Hedge accounting is discontinued when the hedging instrument expires or
is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. For forecast transactions any cumulative gain or loss on
the hedging instrument recognized in shareholders fund is retained
there until the forecast transaction occurs. When a hedge transaction
occurs or, is no longer expected to occur, the net cumulative gain or
loss recognized in shareholders fund is transferred to the Statement
of Profit and Loss.
1.11 Retirement benefits to employees
Gratuity:
In accordance with the payment of Gratuity Act, 1972, the Company
provides a liability for gratuity, a defined benefit retirement plan.
The amount of gratuity is computed based on respective employees
salary and the tenure of employment with the Company. Gratuity is
accrued based on actuarial valuation as at the balance sheet date,
carried out by an independent actuary using projected unit credit
method. The amount is funded from internal accruals.
For employees of erstwhile KPIT Cummins Infosystems (Bangalore) Pvt.
Ltd. who were on the roll as at March 31, 2007 (before the date of the
merger) the amount is funded through an employees group gratuity
trust, managed by Kotak Mahindra Old Mutual Life Insurance Limited.
Actuarial gains and losses in respect of defined benefit plans are
recognized in the Statement of Profit and Loss for the year in which
they occur.
Provident Fund:
Eligible employees receive benefits from provident fund, which is a
defined contribution plan. Provident Fund Contribution of covered
employees basic salary is deducted and paid along with Companys
Contribution of an equal amount on a monthly basis to the appropriate
authority.
Leave Accrual:
The liability for leave carried forward has been accounted for on
actual basis.
1.12 Accounting for Taxes on Income
a) Income Tax Provision
Current income tax expense comprises taxes on income from operations in
India and in foreign jurisdictions. Income tax payable in India is
determined in accordance with the provisions of the Income Tax Act,
1961. Tax expense relating to foreign operations is determined in
accordance with tax laws applicable in countries where such operations
are domiciled.
Provisions are also recorded when it is estimated that a liability due
to disallowances or other matters is probable.
The Company has provided for Minimum Alternate Tax (MAT) in accordance
with the provisions of Section 115JB of the Income Tax Act, 1961.
In accordance with the Guidance Note on Accounting for Credit Available
in Respect of Minimum Alternative Tax under the Income- tax Act, 1961
the Company recognizes MAT credit, where there is convincing evidence
that the Company will pay normal tax after the tax holiday period.
The Company offsets, on an year-on-year basis, the current tax assets
and liabilities, where it has a legally enforceable right to offset and
where it intends to settle such assets and liabilities on a net basis.
Tax on distributed profits payable in accordance with the provisions of
the Income Tax Act, 1961 is disclosed in accordance with the Guidance
Note on Accounting for Corporate Dividend Tax issued by the ICAI.
b) Deferred Tax Provision
- Pursuant to the Accounting Standard (AS) 22 on "Accounting for taxes
on incomeÃ, the Company has considered the effect of timing differences
in the tax expenses in the Statement of Profit and Loss as deferred tax
asset/liability in the Balance Sheet.
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.
In respect of unabsorbed depreciation and carry forward losses,
deferred tax assets are recognised only to the extent that there is
virtual certainty supported by convincing evidence that sufficient
future taxable income will be available to realize such assets. In
other situations, deferred tax assets are recognised only to the extent
that there is reasonable certainty that sufficient future taxable
income will be available to realize these assets.
- As the Company is currently under the tax holiday period, no deferred
tax asset/liability is recognized for the timing differences arising
during the tax holiday period and reversing within the tax holiday
period.
- However, deferred tax asset/liability is recognized on the timing
differences which arise during the tax holiday period and reverse after
the tax holiday period is over.
1.13 Provisions, Contingent Liabilities and Contingent Assets
As per Accounting Standard (AS) 29, ÃProvisions, Contingent Liabilities
and Contingent Assets, the Company recognizes provisions only when it
has a present obligation as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be
required to settle the obligation and when a reliable estimate of the
amount of the obligation can be made.
No Provisions is recognized for -
A. Any possible obligation that arises from past events and the
existence of which will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within
the control of the Company; or
B. Present obligation that arises from past events but are not
recognized because -
1. It is not probable that an outflow of resources embodying economic
benefits will be required to settle the obligation; or
2. A reliable estimate of the amount of obligation cannot be made are
disclosed as Contingent Liabilities. These are assessed periodically
and only that part of the obligation for which an outflow of resources
embodying economic benefits is probable, is provided for, except in the
extremely rare circumstances where no reliable estimate can be made.
Contingent Assets are not recognized in the financial statements since
this may result in the recognition of income that may never be
realized.
1.14 Research and Development
Costs incurred during the research phase of a project are expensed when
incurred. Costs incurred in the development phase are recognised as an
intangible asset if it is demonstrated that: the project is technically
feasible, the Company has the intent and the ability to complete the
development of the asset for use or sale, it is probable that the asset
will generate future economic benefits, resources to complete the
development and to use or sell the asset are available, and such costs
are reliably measurable. Capitalized costs are amortized over a period
depending upon the assets market release status. Where the release is
soon after the asset is completed, costs are amortized in the same
period; otherwise, over the assets useful life.
2. Disclosures as required by Schedule VI of the Companies Act, 1956
2.7 Capital Commitments:
a) Tangible Assets
Estimated amounts of contracts remaining to be executed on Capital
Account and not provided for (net of advances) is Rs. 19,586,026/- as
at March 31, 2011 (Previous Year Rs. 1,802,992/-).
b) Intangible Assets
Estimated amounts of contracts remaining to be executed on Capital
Account and not provided for (net of advances) is Rs. 4,555,716/- as at
March 31, 2011 (Previous Year Rs. 3,184,906/-).
Mar 31, 2010
Basis for preparation of financial statements
The financial statements are prepared in accordance with Indian
Generally Accepted Accounting Principles (GAAP) under the historical
cost convention on accrual basis. All items of income and expenditure
having a material bearing on the financial statements are recognized on
the accrual basis. GAAP comprises mandatory accounting standards as
prescribed by the Companies (Accounting Standards) Rules, 2006, the
provisions of the Companies Act, 1956 and guidelines issued by the
Securities and Exchange Board of India (SEBI).
Use of Estimates
The preparation of financial statements requires the management of the
Company to make estimates and assumptions that affect the reported
balances of assets and liabilities and disclosures relating to the
contingent liabilities as at the date of the financial statements and
reported amounts of income and expenditure during the year.
1.1 Revenue recognition
Revenue from software development and services on time and material
basis is recognized based on software development, services rendered
and billed to clients as per the contractual obligations. In case of
fixed price contracts, revenue is recognized based on the milestone(s)
achieved as agreed upon in the contract on proportionate completion
basis and where there is no uncertainty as to measurement or
collectability of consideration. Revenue from the sale of software
products is recognized when the sale is completed with the passing of
the ownership.
Interest income is recognized on time proportion basis.
Dividend income is recognised when the Companys right to receive
dividend is established.
1.2 Expenditure
Expenses are accounted on the accrual basis and provisions are made for
all known losses and liabilities.
a) Borrowing Costs
Borrowing costs that are directly attributable to the acquisition,
construction or production of an asset which takes a substantial time
in getting ready for its intended use are capitalized as part of cost
of that asset till the date it is put to use. All other borrowing costs
are charged to Profit 6t Loss Account During the current year, the
Company has capitalized borrowing cost of Rs. 2,355,223/- (PY Nil).
b) Provision for Doubtful Debts
The Company carries out the periodic exercise to evaluate its
receivables. While making such provision, various other factors like
probable recovery of the dues, business risks, economic factors, legal
status of the Customer/Partners are taken into account.
1.3 Fixed Assets, Intangible Assets and Capital Work in Progress
a) Fixed Assets are stated at the cost of acquisition, less accumulated
depreciation and impairment loss, if any. Direct costs are capitalized
till the assets are put to use. Vehicles taken on Lease have been
capitalized in accordance with the Accounting Standard -19 Accounting
for Leases issued by the Institute of Chartered Accountants of India.
Capital Work in Progress includes capital advances amounting to Rs
836,488/- towards purchase of assets (PY Rs. 236,581,160/-).
b) Intangible Assets
If Company incurs expenditure which meets criteria of intangible asset
as mentioned in Accounting Standard 26, such expenditure is capitalized
and is amortized over its useful life as estimated by the Management.
1.4 Depreciation/Amortization
Depreciation on fixed assets is provided using straight-line method
based on useful life of assets as estimated by the Management.
Depreciation is charged on all assets purchased and sold during the
year on a proportionate basis. The rates of depreciation are as per or
above minimum rates prescribed under Schedule XIV of the Companies Act,
1956. The Rates of Depreciation are as follows:
Individual assets costing less than Rs. 5,000/- and mobile phones
issued to employees are charged off to Profit and Loss Account in the
year of purchase.
1.5 Goodwill
During the previous year, the Company had taken over substantial part
of the Mechanical Design Engineering Service Business of Harita TVS
Technologies (known as TVS Technologies Ltd., in India) vide its
agreement dated July 9, 2008. Goodwill of Rs. 56,888,437/- represents
amount paid towards acquisition of Customers based out of
US/Germany/India. Goodwill on acquisition is being amortized over a
period of five years.
1.6 Impairment of Fixed Assets
The Management periodically assesses using, external and internal
sources, whether there is an indication that an asset may be impaired.
Impairment loss is recognised when the carrying value of an asset
exceeds its recoverable amount. The recoverable amount is higher of the
assets net selling price and value in use, which means the present
value of future cash flows expected to arise from the continuing use of
the asset and its eventual disposal.
During the year under consideration, there was no indication, either
internal or external as to the impairment of any of the assets.
1.7 Investments
Investments are either classified as current or long term, based on
Managements intention at the time of purchase. Current investments are
carried at lower of cost and fair value. Cost for overseas investment
comprises the Indian Rupee value of the consideration paid for the
investment translated at the exchange rate prevalent at the date of
investment. Long-term Investments are stated at cost, less provisions
recorded to recognise any decline, other than temporary, in the
carrying value of each investment. Such costs are inclusive of
acquisition costs directly attributable to the Investments such as
legal expenses, professional fees, etc., incurred during the course of
such acquisition.
1.8 Leases
Assets leased by the Company in the capacity of the Lessee, where the
Company has substantially all the risks and rewards of ownership are
classified as Finance Lease. Such leases are capitalized at the
inception of Lease at lower of the Fair Value or the present value of
minimum lease payments and a liability is created for an equivalent
amount. Each lease rental paid is allocated between the liability and
interest cost so as to obtain a constant period rate of interest on the
outstanding liability for each year.
Lease arrangement where the risks and rewards incidental to the
ownership of an asset substantially vest with the lessor, are
recognised as Operating Lease. Lease Rentals under operating lease are
recognised in the Profit & Loss Account on straight-line basis.
1.9 Foreign currency transactions
a) Foreign currency denominated monetary assets and liabilities are
translated at exchange rates in effect at the Balance Sheet date. The
gains or losses resulting from such transactions are included in the
Profit & Loss Account. Income & expenses denominated in foreign
currencies are translated using exchange rate in effect on the date of
transaction. Transaction gains or losses realized upon settlement of
foreign currency transactions are included in determining the net
profit for the period in which transaction is settled.
Premium or discount on forward exchange contracts are amortized and
recognized in Profit & Loss Account over the period of the contract.
Forward exchange contracts and currency option contracts outstanding at
the Balance Sheet date, other than designated cash flow hedges, are
stated at fair values and any gains or losses are recognized in the
Profit and Loss account.
b) Derivative instruments and hedge accounting
The Company uses foreign currency forward contracts and currency
options to hedge its risk associated with foreign currency fluctuations
relating to certain firm commitments and forecasted transactions. The
Company designates these hedging instruments as cash flow hedges
applying the recognition and measurement principles set out in the
Accounting Standard 30 "Financial Instruments: Recognition and
Measurement" (AS 30).
The use of hedging instrulnents is governed by the Companys policy
approved by the Board of Directors, which provides written principles
on the use of such financial derivatives consistent with the Companys
risk management strategy. The Company does not use Derivative financial
instruments for speculative purposes. The counter party to the
Companys foreign currency forward contracts is generally a bank.
Hedging instruments are initially measured at fair value and are
re-measured at subsequent reporting dates. Changes in fair value of
these derivatives that are designated and effective as hedges of future
cash flow are recognized directly in shareholders fund and the
ineffective portion, if any is recognized immediately in Profit and
Loss Account.
Changes in the fair value of derivative financial instruments that do
not qualify for hedge accounting are recognized in the Profit & Loss
Account as they arise.
Hedge accounting is discontinued when the hedging instrument expires or
is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. At the time for forecasted transaction any cumulative gain
or loss on the hedging instrument recognized in shareholders fund is
retained there until, the forecasted transaction occurs. If a hedged
transaction is no longer expected to occur, the net cumulative gain or
loss recognized in reserves is transferred to profit and loss account.
1.10 Retirement benefits to employees
Gratuity
In accordance with the payment of Gratuity Act, 1972, the Company
provides for gratuity, a defined benefit retirement plan covering
eligible employees. The amount of gratuity has been computed based on
respective employees salary and the tenure of employment with the
Company. Gratuity has been accrued based on actuarial valuation as at
the Balance Sheet date, carried out by an independent actuary using
projected unit credit method. The amount is funded from internal
accruals.
For Employees of erstwhile KPIT Cummins Infosystems (Bangalore) Pvt.
Ltd. who were on roll as at March 31, 2007 (before the date of the
merger) the amount is funded through an employees group gratuity
trust, managed by Kotak Mahindra Old Mutual Life Insurance Limited.
Actuarial gains and losses in respect of defined benefit plans are
recognized in the Profit & Loss Account for the year in which they
occur.
Provident Fund
Eligible employees receive benefits from provident fund, which is a
defined contribution plan. Provident Fund Contribution of 12% of
covered employees basic salary is deducted and paid along with
Companys Contribution of an equal amount on a monthly basis to the
appropriate authority.
Leave Accrual
As per Accounting Standard 15, the carry forward leaves have been
accounted for as short term benefit on actual basis.
1.11 Accounting for Taxes on Income
a) Income Tax Provision
Current income tax expense comprises taxes on income from operations in
India and in foreign jurisdictions. Income tax payable in India is
determined in accordance with the provisions of the Income Tax Act,
1961. Tax expense relating to foreign operations is determined in
accordance with tax laws applicable in countries where such operations
are domiciled.
Provisions are also recorded when it is estimated that a liability due
to disallowances or other matters is probable.
The Company has provided for Minimum Alternate Tax (MAT) in accordance
with the provisions of Section 115JB of the Income Tax Act, 1961.
In accordance with the Guidance Note on Accounting for Credit Available
in Respect of Minimum Alternative Tax under the Income-tax Act, 1961
the Company has recognized MAT credit of Rs. 42,347,329/- (PY Rs.
23,836,361 /-) during the year, there being convincing evidence that
the Company will pay normal tax after the tax holiday period.
The Company offsets, on year-on-year basis, the current tax assets and
liabilities, where it has legally enforceable right and where it
intends to settle such assets and liabilities on a net basis.
Tax on distributed profits payable in accordance with the provisions of
the Income Tax Act, 1961 is disclosed in accordance with the guidance
note on Accounting for Corporate Dividend Tax issued by the ICAI.
b) Deferred Tax Provision
à Pursuant to the Accounting Standard (AS-22) on "Accounting for taxes
on income" issued by the Institute of Chartered Accountants of India
which is mandatory, the Company has considered the effect of timing
differences in the tax expenses in the Profit and Loss Account as
deferred tax asset/liability in the Balance Sheet.
Deferred tax assets 6 liabilities are measured using the tax rates and
tax laws that have been enacted or substantively enacted by the Balance
Sheet Date.
In the event of unabsorbed depreciation and carry forward losses,
deferred tax assets are recognised only to the extent that there is
virtual certainty that sufficient future taxable income will be
available to realize such assets. In other situations, deferred tax
assets are recognised only to the extent that there is reasonable
certainty that sufficient future taxable income will be available to
realize these assets.
à As the Company is currently under the tax holiday period, no deferred
tax asset / liability is recognized for the timing differences arising
during the tax holiday period and reversing within the tax holiday
period.
à However, deferred tax asset/liability is recognized on the timing
differences which arise during the tax holiday period and reverse after
the tax holiday period is over.
1.12 Provisions, Contingent Liabilities and Contingent Assets
As per Accounting Standard 29, Provisions, Contingent Liabilities and
Contingent Assets, the Company recognizes provisions only when it has
a present obligation as a result of a past event, it is probable that
an outflow of resources embodying economic benefits will be required to
settle the obligation and when a reliable estimate of the amount of the
obligation can be made.
No Provisions is recognized for -
a) Any possible obligation that arises from past events and the
existence of which will be confirmed only by the occurrence or non-
occurrence of one or more uncertain future events not wholly within the
control of the Company; or
b) Any present obligation that arises from past events but is not
recognized because -
1. It is not probable that an outflow of resources embodying economic
benefits will be required to settle the obligation; or
2. A reliable estimate of the amount of obligation cannot be made.
Such obligations are recorded as Contingent Liabilities. These are
assessed periodically and only that part of the obligation for which an
outflow of resources embodying economic benefits is probable, is
provided for, except in the extremely rare circumstances where no
reliable estimate can be made.
Contingent Assets are not recognized in the financial statements since
this may result in the recognition of income that may never be
realized.
2.7 Capital Commitments:
a. Tangible Assets
Estimated amounts of contracts remaining to be executed on Capital
Account and not provided for (net of advances) is Rs. 1,802,992/- as at
March 31, 2010 (previous year Rs. 46,251,277/-).
b. Intangible Assets
Estimated amounts of contracts remaining to be executed on Capital
Account and not provided for (net of advances) is Rs. 3,184,906/- as at
March 31, 2010 (previous year Rs. 40,608,649/-).
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