Accounting Policies of Polaris Consulting & Services Ltd. Company
Mar 31, 2017
This note provides a list of the significant accounting policies adopted in the preparation of the financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated.
a) Basis of preparation
(i) Statement of compliance
These financial statements have been prepared in accordance with the Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 notified under section 133 of the Companies Act, 2013 (the âActâ) and other relevant provisions of the Act.
The financial statements up to and for the year ended March 31, 2016 were prepared in accordance with the Companies (Accounting Standards) Rules, 2006, notified under section 133 of the Act and other relevant provisions of the Act (âPrevious GAAPâ).
As these are financial statements prepared in accordance with the Ind AS, Ind AS 101, âFirst-time Adoption of Indian Accounting Standardsâ, has been applied. An explanation of how the transition to Ind AS has effected the previously reported financial position, financial performance and cash flows of the Company is provided in Note 37
The financial statements were authorised for issue by the Companyâs Board of the Directors on May 15, 2017.
(ii) Functional and presentation currency
These financial statements are presented in Indian Rupees (INR), which is also the Companyâs functional currency. All amounts have been rounded-off to the nearest lakhs, unless otherwise indicated.
(iii) Basis of measurement
The financial statements of the Company have been prepared using the historical cost basis except for the following items:
Items Measurement basis
Certain financial assets and liabilities (including derivative instruments) Fair value
Net defined benefit (asset) / liability Fair value of plan assets less present value of defined benefit obligations
(iv) Use of estimates and judgment
The preparation of the financial statements in conformity with Ind AS requires management to make estimates, judgments and assumptions. These estimates, judgments and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Accounting estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the financial statements.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.
Judgments
Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements is included in the following notes:
- Note 8(E) - Unrecognised deferred tax liabilities
- Note 34 - Consolidation: whether the Group has de facto control over an investee
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending March 31, 2018 is included in the following notes:
- Note 2(k) - revenue recognition for fixed price contracts based on âpercentage of completionâ method;
- Note 8 - recognition of deferred tax assets: availability of future taxable profit against which tax losses carried forward can be used;
- Note 20 - measurement of defined benefit obligations: key actuarial assumptions;
- Note 32 - recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources;
- Note 30 - impairment of financial assets.
(v) Measurement of fair values
A number of the Companyâs accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
- Note 19 - share-based payment arrangements;
- Note 36 - disposal group - assets held for sale;
- Note 6 - investment property (for disclosures); and
- Note 30 - financial instruments
b) Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated into INR at monthly average rate which approximates the actual rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated into INR at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Exchange differences are recognised in Statement of Profit and Loss, except exchange differences arising from the translation of the qualifying cash flow hedges to the extent that the hedges are effective which are recognised in OCI.
Foreign operations
The assets and liabilities of foreign operations (foreign branches) are translated into INR, the functional currency of the Company, at the exchange rates at the reporting dates. The income and expenses of foreign operations are translated into INR at monthly average rate which approximates to the actual rate at the date of the transaction.
c) Financial instruments
(i) Recognition and measurement
Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Company becomes a party to the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue
(ii) Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is classified as measured at
- amortised cost;
- FVOCI - debt investment;
- FVOCI - equity investment; or -FVTPL
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its business model for managing financial assets.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
- the asset is held within a business model whose objective is to hold assets 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
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
- the asset 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.
On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investmentâs fair value in OCI (designated as FVOCI - equity investment). This election is made on an investment-by-investment basis
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Financial assets: Subsequent measurement and gains and losses
Financial assets at FVTPL These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in Statement of Profit and Loss. However, see Note 2(c)(vi) for derivatives designated as hedging instruments
Financial assets at amortised These assets are subsequently measured at amortised cost using the effective interest cost method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in Statement of Profit and Loss. Any gain or loss on derecognition is recognised in Statement of Profit and Loss.
Debt investments at FVOCI These assets are subsequently measured at fair value. Interest income under the effective interest method, foreign exchange gains and losses and impairment are recognised in Statement of Profit and Loss. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to Statement of Profit and Loss.
Equity investments at FVOCI These assets are subsequently measured at fair value. Dividends are recognised as income in Statement of Profit and Loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are not reclassified to Statement of Profit and Loss.
Financial liabilities: Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, or it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in Statement of Profit and Loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in Statement of Profit and Loss. Any gain or loss on derecognition is also recognised in Statement of Profit and Loss. See Note 2(c)(vi) for financial liabilities designated as hedging instruments.
(iii) Derecognition
Financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of wnership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control of the financial asset.
If the Company enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all or substantially all of the risks and rewards of the transferred assets, the transferred assets are not derecognised.
Financial liabilities
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
The Company also derecognises a financial liability when its terms are modified and the cash flows under the modified terms are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised in Statement of Profit and Loss.
(iv) Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
(v) Treasury shares
Associate Stock Option Plan (ASOP) Trust and Orbitech Employee Welfare Trust (OEWT) were created for providing share-based payment to the employees of the Company. Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. When treasury shares are issued to the employees by trusts, the amount received is recognised as an increase in Equity and the resultant gain / (loss) is adjusted in Reserves and Surplus.
(vi) Derivative financial instruments and hedge accounting
The Company holds derivative financial instruments to hedge its foreign currency exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.
Derivatives are measured at fair value. Subsequent to initial recognition, changes therein are generally recognised in Statement of Profit and Loss.
The Company designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates.
At inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in the other equity under âeffective portion of cash flow hedgesâ. The effective portion of changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in Statement of Profit and Loss.
If a hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges are discontinued, the amount that has been accumulated in other equity remains there until, for a hedge of a transaction resulting in recognition of a non-financial item, it is included in the non-financial itemâs cost on its initial recognition or, for other cash flow hedges, it is reclassified to StatementofProfitandLossinthesameperiodorperiodsasthehedgedexpectedfuturecashflowsaffectStatementofProfitandLoss. If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in other equity are immediately reclassified to Statement of Profit and Loss.
(vii) Cash dividend to equity holders
The Company recognises a liability to make cash distribution to equity holders when the distribution is authorised and the distribution is no longer at the discretion of the Company. As per the corporate laws in India, a distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in equity. Interim dividends are recorded as a liability on the date of declaration by the Companyâs Board of Directors.
d) Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost, less accumulated depreciation and accumulated impairment losses, if any.
Cost of an item of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, any directly attributable cost of bringing the item to its working condition for its intended use and estimated costs of dismantling and removing the item and restoring the site on which it is located.
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.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in Statement of Profit and Loss.
(ii) Transition to Ind AS
On transition to Ind AS, the Company has elected to continue with the carrying value of all of its property, plant and equipment recognised as at April 1, 2015, measured as per the previous GAAP, and use that carrying value as the deemed cost of such property, plant and equipment (see Note 37).
(iii) Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.
(iv) Depreciation
Depreciation is calculated on cost of items of property, plant and equipment less their estimated residual values on a straight-line method based on the useful lives specified in Schedule II of the Companies Act, 2013 and is recognised in the statement of profit and loss. Freehold land is not depreciated.
The estimated useful lives of items of property, plant and equipment for the current and comparative periods are as follows:
Depreciation on additions (disposals) is provided on a pro-rata basis i.e. from (upto) the month in which asset is ready for use (disposed of).
e) Other intangible assets
(i) Internally generated: Research and development
Expenditure on research activities is recognised in Statement of Profit and Loss as incurred.
Development expenditure is capitalised as part of the cost of the resulting intangible asset only if the expenditure 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. Otherwise, it is recognised in Statement of Profit and Loss as incurred. Subsequent to initial recognition, the asset is measured at cost less accumulated amortisation and any accumulated impairment losses.
(ii) Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure on internally generated intangibles is recognised in Statement of Profit and Loss as incurred.
(iii) Transition to Ind AS
On transition to Ind AS, the Company has elected to continue with the carrying value of all of its intangible assets recognised as at April 1, 2015, measured as per the previous GAAP, and use that carrying value as the deemed cost of such intangible assets.
(iv) Amortization
Amortisation is calculated to write off the cost of intangible assets over their estimated useful lives using the straight-line method, and is included in depreciation and amortisation in Statement of Profit and Loss.
Amortisation method, useful lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
f) Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Upon initial recognition, an investment property is measured at cost. Subsequent to initial recognition, investment property is measured at cost less accumulated depreciation and accumulated impairment losses, if any.
On transition to Ind AS, the Company has elected to continue with the carrying value of all of its investment property recognised as at April 1, 2015, measured as per the previous GAAP and use that carrying value as the deemed cost of such investment property.
Any gain or loss on disposal of an investment property is recognised in Statement of Profit and Loss. The fair values of investment property is disclosed in the notes.
g) Impairment
(i) Impairment of financial instruments
In accordance with Ind AS 109, the Company applies Expected Credit Loss (âECLâ) model for measurement and recognition of impairment loss on following:
- financial assets measured at amortised cost; and
- financial assets measured at FVOCI- debt investments.
Loss allowance for trade receivables with no significant financing component is measured at an amount equal to lifetime expected credit losses. For all other financial assets, ECL 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 allowance for financial assets measured at amortised cost are deducted from gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charged to Statement of Profit and Loss and is recognised in OCI.
(ii) Impairment of non-financial assets
The Company assesses at each reporting date whether there is any indication that the carrying amount may not be recoverable. If any such indication exists, then the assetâs recoverable amount is estimated and an impairment loss is recognised if the carrying amount of an asset or CGU exceeds its estimated recoverable amount in the Statement of Profit and Loss.
The Companyâs non-financial assets and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assetâs recoverable amount is estimated. For impairment testing, assets that do not generate independent cash inflows are grouped together into cash-generating units (CGUs). Each CGU represents the smallest group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or CGUs.
Impairment loss recognised in respect of a CGU is allocated to reduce the carrying amounts of the assets of the CGU (or Group of CGUs) on a pro rata basis.
In respect of assets for which impairment loss has been recognised in prior periods, the Company reviews at each reporting date whether there is any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. Such a reversal is made only to the extent that the assetâs 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.
h) Non-current assets or disposal group held for sale
Non-current assets, or disposal groups comprising assets and liabilities are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.
Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any resultant loss on a disposal group is allocated to assets and liabilities on pro rata basis, except that no loss is allocated to financial assets, deferred tax assets, and employee benefit assets, which continue to be measured in accordance with the Companyâs other accounting policies. Losses on initial classification as held for sale and subsequent gains and losses on re-measurement are recognised in Statement of Profit and Loss.
Once classified as held-for-sale, intangible assets, property, plant and equipment and investment properties are no longer amortised or depreciated.
i) Employee benefits
(i) Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid e.g., under short-term cash bonus, if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the amount of obligation can be estimated reliably.
(ii) Share-based payment transactions
Recognition and measurement
The grant date fair value of equity settled share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as expense is based on the estimate of the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market vesting conditions at the vesting date.
The ultimate holding company provides restricted stock units (stock options) for its shares to the employees of the Company. With regard to these restricted stock units, the ultimate holding company cross-charges the cost to the Company, and accordingly a liability to the parent has been created by debiting employee expenses.
Transition to Ind AS
On transition to Ind AS, the Company has elected to apply Ind AS 102 to equity instruments that remain unvested as at the date of transition. Also, for modifications that occurred before the date of transition to Ind ASs, the requirements of Ind AS 102 have been applied to the extent that the equity instruments remain unvested on the date of transition (Refer note 37).
(iii) Provident Fund
Employees receive benefits from a provident fund, which is a defined contribution plan. Both the employee and the Company make monthly contributions to the Regional Provident Fund equal to a specified percentage of the covered employeeâs salary. The Company recognizes contribution payable to the provident fund scheme as an expenditure, when an employee renders the related service. The Company has no further obligations under the plan beyond its monthly contributions. The contributions are charged to the Statement of Profit and Loss of the year when the contributions to the respective funds are due and there are no other obligations other than the contribution payable.
(iv) Gratuity
The Company provides for gratuity in accordance with the Payment of Gratuity Act, 1972, a defined benefit retirement plan (the Plan) covering all employees. The plan, subject to the provisions of the above Act, provides a lump sum payment to eligible employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs salary and the tenure of employment. A trust by name âPolaris Software Lab group gratuity trustâ has been constituted to administer the gratuity fund. Gratuity liability is accrued and provided for on the basis of an actuarial valuation on projected unit credit method made at the end of each financial period. Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised in OCI.
(v) Superannuation
The Company contributes a specified percentage of the eligible employeesâ basic salary towards superannuation (the Plan) to a fund. A trust has been created and approved by the Income-tax authorities for this purpose. This Plan provides for various options for payment of pension at retirement or termination of employment as per the trust rules. The Company has no further obligations under the Plan beyond its monthly contributions which are periodically contributed to a trust.
(vi) Compensated absences
Provision for long-term compensated absences is accrued and provided for on the basis of actuarial valuation made at the end of each financial period. The actuarial valuation is done as per projected unit credit method. Short-term encashment of accumulated leave balances are accounted for in the year in which the leave balances are credited to employees on actual basis.
The Company presents the entire leave as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement for 12 months after the reporting date.
(vii) Termination benefits
Termination benefits are expensed at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Company recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they are discounted.
j) Provisions (other than for employee benefits)
A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows (representing the best estimate of the expenditure required to settle the present obligation at the balance sheet date) at 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 recognised as finance cost. Expected future operating losses are not provided for.
Onerous contracts
A contract is considered to be onerous when the expected economic benefits to be derived by the Company from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract 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 such a provision is made, the Company recognises any impairment loss on the assets associated with that contract.
k) Revenue recognition
(i) Rendering of services
The Company derives its revenue from a variety of IT consulting, technology implementation and application outsourcing services. Contracts for these services have different terms and conditions based on the scope, deliverables, and complexity of the engagement which require management to make judgments and estimates in determining the overall cost to the customer. Fees for these contracts may be in the form of time and materials or fixed price arrangements.
Revenue on time-and-material contracts are recognised as the related services are performed and revenue from the end of the last billing to the reporting date is recognised as unbilled revenues. Revenue from fixed-price arrangements, where there is no uncertainty as to measurement or collectability of consideration, is recognised as per the percentage-of-completion method. When there is uncertainty as to measurement or ultimate collectability, revenue recognition is postponed until such uncertainty is resolved. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on current contract estimates. Costs and earnings in excess of billings are classified as unbilled revenue while billing in excess of costs and earnings are classified as deferred revenue. Under the percentage of completion method, management estimates the percentage of completion based upon efforts incurred as a percentage of the total estimated efforts for the specified engagement. When total cost estimates exceed revenue, the Company accrues for the estimated losses immediately. The use of the percentage of completion method requires significant judgment relative to estimating total contract revenue and efforts, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed, and anticipated changes in other engagement related costs. The Companyâs analysis of these contracts also contemplates whether contracts should be combined or segmented. Estimates of total contract revenue and efforts are continuously monitored during the term of the contract and are subject to revision as the contract progresses. When revisions in estimated contract revenue and efforts are determined, such adjustments are recorded in the period in which they are first identified.
The Company offers certain services that are fixed fee or transaction based. The Company recognises revenue from these arrangements either ratably over the contractual period or as transactions occur.
l) Leases
(i) Determining whether an arrangement contains a lease
At inception of an arrangement, it is determined whether the arrangement is or contains a lease.
At inception or on reassessment of the arrangement that contains a lease, the payments and other consideration required by such an arrangement are separated into those for the lease and those for other elements on the basis of their relative fair values. If it is concluded for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. The liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the incremental borrowing rate.
(ii) Lease payments
Payments made under operating leases are generally recognised in Statement of Profit and Loss on a straight-line basis over the term of the lease unless such payments are structured to increase in line with expected general inflation to compensate for the lessorâs expected inflationary cost increases. Lease incentives received are recognised as an integral part of the total lease expense over the term of the lease.
m) Dividend income
Dividend is recognised when the Companyâs right to receive the payment is established, which is generally when shareholders approve the dividend.
n) Income tax
Income tax comprises current and deferred tax. It is recognised in Statement of Profit and Loss except to the extent that it relates to a business combination or to an item recognised directly in equity or in other comprehensive income.
(i) Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax reflects the best estimate of the tax amount expected to be paid or received after considering the uncertainty, if any, related to income taxes. It is measured using tax rates (and tax laws) enacted or substantively enacted by the reporting date.
Current tax assets and current tax liabilities are offset only if there is a legally enforceable right to set off the recognised amounts, and it is intended to realise the asset and settle the liability on a net basis or simultaneously.
(ii) Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for taxation purposes. Deferred tax is also recognised in respect of carried forward tax losses and tax credits. Deferred tax is not recognised for:
- temporary differences arising on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss at the time of the transaction; and
- temporary differences related to investments in subsidiaries and joint venture to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future;
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which they can be used. The existence of unused tax losses is strong evidence that future taxable profit may not be available. Therefore, in case of a history of recent losses, the Company recognises a deferred tax asset only to the extent that it has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which such deferred tax asset can be realised. Deferred tax assets - unrecognised or recognised, are reviewed at each reporting date and are recognised/ reduced to the extent that it is probable/ no longer probable respectively that the related tax benefit will be realised.
Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on the laws that have been enacted or substantively enacted by the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
o) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
- the profit attributable to owners of the Company
- by the weighted average number of equity shares outstanding during the financial year, excluding treasury shares
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:
- the after income tax effect of interest and other financing costs associated with dilutive potential equity shares, and
- the weighted average number of additional equity shares that would have been outstanding assuming the conversion of all dilutive potential equity shares.
p) Operating segments
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Companyâs other components, and for which discrete financial information is available. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Companyâs Chief Executive Officer is responsible for allocating resources and assessing performance of the operating segments and accordingly is identified as the Chief Operating Decision Maker (CODM). The Companyâs CODM reviews financial information presented, for purposes of making operating decisions and assessing financial performance of the Company. Therefore, the Company has determined that it operates in a single operating and reportable segment.
Mar 31, 2015
A) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
year end. Although these estimates are based upon management''s best
knowledge of current events and actions, actual results could differ
from these estimates.
b) Tangible fixed assets and capital work in progress
Fixed assets are stated at cost, less accumulated depreciation and
impairment losses if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Capital work in progress comprises cost of tangible
fixed assets not ready for intended use as at the balance sheet date.
Subsequent expenditure related to an item of fixed asset is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard of performance.
All other expenses on existing fixed assets, including day-to-day
repair and maintenance expenditure and cost of replacing parts, are
charged to the statement of profit and loss for the period during which
such expenses are incurred.
Gains or losses arising from derecognition of fixed assets are measured
as the difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statement of profit and
loss when the asset is derecognized.
c) Depreciation on tangible fixed assets
Depreciation on fixed assets is provided using the straight line method
based on rates specified in Schedule II of the Companies Act 2013.
Till the year ended March 31, 2014, Schedule XIV to the Companies Act,
1956, prescribed requirements concerning depreciation of fixed assets.
From the current year, Schedule XIV has been replaced by Schedule II to
the Companies Act, 2013. The applicability of Schedule II has resulted
in the following changes related to depreciation of fixed assets.
Unless stated otherwise, the impact mentioned for the current year is
likely to hold good for future years also.
Useful lives/ depreciation rates
Till the year ended March 31, 2014, depreciation rates prescribed under
Schedule XIV were treated as minimum rates and the company was not
allowed to charge depreciation at lower rates even if such lower rates
were justified by the estimated useful life of the asset. Schedule II
to the Companies Act 2013 prescribes useful lives for fixed assets
which, in many cases, are different from lives prescribed under the
erstwhile Schedule XIV. However, Schedule II allows companies to use
higher / lower useful lives and residual values if such useful lives
and residual values can be technically supported and justification for
difference is disclosed in the financial statements.
Considering the applicability of Schedule II, the management has
re-estimated useful lives and residual values of all its fixed assets.
The management believes that depreciation rates currently used fairly
reflect its estimate of the useful lives and residual values of fixed
assets, though these rates in certain cases are different from lives
prescribed under Schedule II. Had the company continued to use the
earlier accounting policy, the impact on depreciation of fixed assets
would have been higher by Rs. 53.93 lakhs
Depreciation on assets costing less than Rs. 5,000/-
Till the year ended March 31, 2014, to comply with the requirements of
Schedule XIV to the Companies Act, 1956, the company was charging 100%
depreciation on assets costing less than Rs. 5,000/- in the year of
purchase. However, Schedule II to the Companies Act 2013, applicable
from the current year, does not recognize such practice. Hence, to
comply with the requirement of Schedule II to the Companies Act, 2013,
the company has changed its accounting policy for depreciations of
assets costing less than Rs.5,000/-. As per the revised policy, the
company is depreciating such assets over their useful life as assessed
by the management. The management has decided to apply the revised
accounting policy prospectively from accounting periods commencing on
or after April 1, 2014.
d) Intangible assets
Intangible assets acquired are stated at cost, less accumulated
amortization and impairment losses if any.
Research and development costs
Software product and intellectual property development costs are
expensed as incurred until technological feasibility is established.
Software development costs incurred subsequent to the achievement of
technological feasibility are capitalized and amortised over estimated
useful life of the products. This capitalisation is done only if the
Company has the intention and ability to complete the product, the
product is likely to generate future economic benefits, adequate
resources to complete the product are available to the Company and the
Company is able to accurately measure such expense.
Such software development costs comprise expenditure that can be
directly attributed, or allocated on a reasonable and consistent basis,
to the development of the product and intellectual property rights.
Amortisation
The amortisation of software development and intellectual property
costs is allocated on a straight-line basis over the best estimate of
its useful life after the product is ready for use. The factors
considered for identifying the basis include obsolescence, product life
cycle and actions of competitors. The amortization period and the
method are reviewed at each year end. The expected useful life is
reassessed at each year end and the amortization period is changed
accordingly. The estimated useful life of company''s intangible assets
are stated below:
e) Leases
Lease under which the Company assumes substantially all the risks and
rewards of ownership are classified as finance leases. Such assets
acquired are capitalized at fairvalue of the asset or present value of
the minimum lease payments at the inception of the lease, whichever is
lower. Lease payments under operating leases are recognised as an
expense on a straight line basis in the statement of profit and loss
over the lease term.
f) Impairment of tangible and intangible fixed assets
The carrying amounts of assets are reviewed at each balance sheet date
if there is any indication of impairment based on internal/external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset''s net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value at the pre-tax discount rate reflecting current
market assessment of time value of money and risks specific to asset.
After impairment, depreciation/amortisation is provided on the revised
carrying amount of the asset over its remaining useful life.
g) Investments
Investments are classified as long-term investments and current
investments. Investments that are readily realisable and intended to be
held for not more than a year are classified as current investments.
All other investments are classified as long-term investments.
On initial recognition, all investments are measured at cost. The cost
comprises purchase price and directly attributable acquisition charges
such as brokerage, fees and duties. Current investments are carried in
the financial statements at the lower of cost or fair value determined
on an individual investment basis. Long-term investments are carried at
cost. However, provision for diminution in value is made to recognise a
decline other than temporary in the value of the investments.
On disposal of an investment, the difference between its carrying
amount and net disposal proceeds is charged or credited to the
statement of profit and loss.
h) Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured.
Software development and support services
Revenue from software development and support services comprises income
from time-and-material and fixed price contracts. Revenue with respect
to time-and-material contracts is recognized as related services are
performed. Revenue from fixed-price contracts is recognized in
accordance with the proportionate completion method. Provision for
estimated losses on incomplete contract is recorded in the year in
which such losses become probable based on the current contract
estimates.
Product licenses and related revenues
Revenues from product licenses and related services comprise income
under multiple element arrangements recognized as follows:
* License fees and fees for customization/implementation services are
recognized using proportionate completion method. Provision for
estimated losses, if any, on incomplete contracts are recorded in the
year in which such losses become probable based on current contract
estimates.
* Product maintenance revenues are recognized over the period of the
maintenance contract.
Revenue from sale of licenses which are not in the nature of multiple
element arrangements are recognized upon delivery of these licenses
which constitute transfer of all risks and rewards and has no further
obligations under those arrangements.
Revenues in excess of billing represent earnings on ongoing fixed price
and time and material contracts over amounts invoiced to customers.
Billings in excess of revenues represent amounts billed in case of
ongoing fixed price and time and material contracts wherein amounts
have been billed in accordance with the billing cycle and efforts would
be incurred subsequent to the balance sheet date.
Business Process Outsourcing
Revenue from call centre services comprises income from time and
material contracts. Revenue is recognized in accordance with the terms
of the contract with the customer, as related services are performed.
Other Income
Interest is recognized using the time-proportion basis taking into
account the amount outstanding and the applicable interest rate.
Dividend income is recognized when the Company''s right to receive
dividend is established.
i) Foreign currency transactions and translations
Initial Recognition
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
Conversion
Foreign currency monetary items are reported using the closing rate.
Non-monetary items which are carried in terms of historical cost
denominated in a foreign currency are reported using the exchange rate
at the date of the transaction.
Exchange Differences
Exchange differences arising on the settlement/reporting of monetary
items, at rates different from those at which they were initially
recorded during the year, or reported in previous financial statements,
are recognised as income or as expense in the year in which they arise.
Translation of integral and non-integral foreign operations
The company classifies all its foreign operations as either "integral
foreign operations" or "non-integral foreign operations."
The financial statements of an integral foreign operation are
translated as if the transactions of the foreign operation have been
those of the company itself.
The assets and liabilities of a non-integral foreign operation are
translated into the reporting currency at the exchange rate prevailing
at the reporting date. Their statement of profit and loss are
translated at exchange rates prevailing at the dates of transactions or
weighted average weekly rates, where such rates approximate the
exchange rate at the date of transaction. The exchange differences
arising on translation are accumulated in the foreign currency
translation reserve. On disposal of a non-integral foreign operation,
the accumulated foreign currency translation reserve relating to that
foreign operation is recognized in the statement of profit and loss.
When there is a change in the classification of a foreign operation,
the translation procedures applicable to the revised classification are
applied from the date of the change in the classification.
j) Forward contracts entered into to hedge foreign currency risk
The Company uses foreign exchange contracts to hedge its exposure to
movements in foreign currency rates. The use of these foreign exchange
forward contracts is aimed to reduce the risk/cost to the Company and
the Company does not use the foreign exchange forward contracts for
trading or speculative purposes.
The use of hedging instruments is governed by the Company''s policies
approved by the Board of Directors, which provide written principles on
the use of such financial derivatives consistent with the Company''s
risk management strategy.
The Company designates these hedging instruments as Cash flow hedges
applying the recognition and measurement principles set out in
Accounting standard 30 - "Financial Instruments -Recognition and
measurement".
Hedging instruments are initially measured at fair value, and are
remeasured at subsequent reporting dates. Changes in the fair value of
these derivatives that are designated and effective as hedges of future
cash flows are recognised directly in shareholders'' funds (hedge
fluctuation reserve) and the ineffective portion is recognised
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 recognised 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. At that time for forecasted transactions, any cumulative
gain or loss on the hedging instrument recognised in shareholders''
funds (hedge fluctuation reserve) is retained there until the
forecasted transaction occurs. If a hedged transaction is no longer
expected to occur, the net cumulative gain or loss recognised in
shareholders'' funds is transferred to the profit and loss.
k) Retirement and other employee benefits
Provident Fund
Employees receive benefits from a provident fund, which is a defined
contribution plan. Both the employee and the Company make monthly
contributions to the Regional Provident Fund equal to a specified
percentage of the covered employee''s salary. The company recognizes
contribution payable to the provident fund scheme as an expenditure,
when an employee renders the related service. The Company has no
further obligations under the plan beyond its monthly contributions.
The contributions are charged to the Statement of Profit and Loss of
the year when the contributions to the respective funds are due and
there are no other obligations other than the contribution payable.
Gratuity
The Company provides for gratuity in accordance with the Payment of
Gratuity Act, 1972, a defined benefit retirement plan (the Plan)
covering all employees. The plan, subject to the provisions of the
above Act, provides a lump sum payment to eligible employees at
retirement, death, incapacitation or termination of employment, of an
amount based on the respective employee''s salary and the tenure of
employment. A trust by name "Polaris Software Lab group gratuity trust"
has been constituted to administer the gratuity fund. Gratuity
liability is accrued and provided for on the basis of an actuarial
valuation on projected unit credit method made at the end of each
financial period. Actuarial gains/losses are immediately taken to
Statement of profit and loss and are not deferred.
Superannuation
The Company contributes a specified percentage of the eligible
employees'' basic salary towards superannuation (the Plan) to a fund. A
trust has been created and approved by the Income-tax authorities for
this purpose. This Plan provides for various options for payment of
pension at retirement or termination of employment as per the trust
rules. The Company has no further obligations under the Plan beyond its
monthly contributions which are periodically contributed to a trust.
Leave Benefits
Provision for long-term compensated absences is accrued and provided
for on the basis of actuarial valuation made at the end of each
financial period. The actuarial valuation is done as per projected unit
credit method. Short-term encashment of accumulated leave balances are
accounted for in the year in which the leave balances are credited to
employees on actual basis. The company presents the entire leave as a
current liability in the balance sheet, since it does not have an
unconditional right to defer its settlement for 12 months after the
reporting date.
l) Income and Deferred Taxes
Tax expense comprises of current and deferred tax. The current charge
for income taxes is calculated in accordance with the relevant tax
regulations applicable to the Company. The current tax provision and
advance income tax as at balance sheet date have been arrived at after
setting off advance tax and current tax provision where the Company has
legally enforceable right to set off assets against liabilities and
where such assets and liabilities relate to taxes on income levied by
the same governing taxation laws.
Deferred tax assets and liabilities are recognised for the future tax
consequences attributable to timing differences between the taxable
income and accounting income. Deferred tax assets and liabilities are
measured using the tax rates and tax laws that have been enacted or
substantively enacted by the balance sheet date. The effect on deferred
tax assets and liabilities of a change in tax rates is recognised in
the period that includes the enactment date. Deferred tax assets and
deferred tax liabilities across various countries of operation are not
set off against each other as the Company does not have legal right to
do so.
Deferred tax assets are recognised only if there is a reasonable
certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised and are
reassessed for the appropriateness of their respective carrying values
at each balance sheet date. Unrecognised deferred tax assets of earlier
years are re-assessed and recognised to the extent that it has become
reasonably certain that future taxable income will be available against
which such deferred tax assets can be realized. The Company writes-down
the carrying amount of a deferred tax asset to the extent that it is no
longer reasonably certain, that sufficient future taxable income will
be available against which deferred tax asset can be realised.
MAT credit is recognised as an asset only when and to the extent there
is convincing evidence that the company will pay normal income tax
during the specified period. In the year in which the Minimum Alternate
Tax (MAT) credit becomes eligible to be recognized as an asset in
accordance with the recommendations contained in Guidance Note issued
by the Institute of Chartered Accountants of India, the said asset is
created by way of a credit to the Statement of profit and loss and
shown as MAT Credit Entitlement. The Company reviews the same at each
balance sheet date and writes down the carrying amount of MAT Credit
Entitlement to the extent there is no longer convincing evidence to the
effect that Company will pay normal Income Tax during the specified
period.
The Company enjoys tax holiday under Sec 10AA of the Income tax Act on
some of its units set up in the Special Economic Zones (SEZ)
m) Stock Based Compensation
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by the Institute
of Chartered Accountants of India. The Company measures compensation
cost relating to employee stock options using the intrinsic value
method. Compensation expense is amortized over the vesting period of
the option on a straight line basis.
n) Earnings per share
The basic earnings per share are computed by dividing the net profit
for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period are
adjusted for the effects of all dilutive potential equity shares.
o) Provisions and contingent liabilities
A provision is recognized when an enterprise has a present obligation
as a result of past event; it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on best estimate required to
settle the obligation at the balance sheet date. These are reviewed at
each balance sheet date and adjusted to reflect the current best
estimates.
A contingent liability is a possible obligation that arises from past
events whose existence will be confirmed by the occurrence or
non-occurrence of one or more uncertain future events beyond the
control of the company or a present obligation that is not recognized
because it is not probable that an outflow of resources will be
required to settle the obligation. A contingent liability also arises
in extremely rare cases where there is a liability that cannot be
recognized because it cannot be measured reliably. The company does not
recognize a contingent liability but discloses its existence in the
financial statements. Where there is a possible obligation or a present
obligation in respect of which the likelihood of outflow of resources
is remote, no provision or disclosure is made.
p) Segment reporting
The company''s operating businesses are organized and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and serves different markets. The analysis of geographical
segments is based on the areas in which major operating divisions of
the company operate.
The company prepares its segment information in conformity with the
accounting policies adopted for preparing and presenting the financial
statements of the company as a whole.
q) Cash and Cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and highly liquid investments that
are readily convertible into known amounts of cash and which are
subject to insignificant risks of change in value.
Mar 31, 2013
A) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
year end. Although these estimates are based upon management''s best
knowledge of current events and actions, actual results could differ
from these estimates.
b) Tangible fixed assets and capital work in progress
Fixed assets are stated at cost, less accumulated depreciation and
impairment losses if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Capital work in progress comprises cost of tangible
fixed assets not ready for intended use as at the Balance Sheet date.
c) Depreciation on tangible fixed assets
Depreciation on fixed assets is provided using the straight-line method
based on rates specified in Schedule XIV of the Companies Act, 1956 or
rates arrived at based on estimated useful lives of assets estimated by
the management, whichever is higher. Individual assets costing less
than Rs 5,000/- are depreciated at the rate of 100 %.
d) Intangible assets
Intangible assets acquired are stated at cost, less accumulated
amortization and impairment losses if any.
Research and development costs
Software product and intellectual property development costs are
expensed as incurred until technological feasibility is established.
Software development costs incurred subsequent to the achievement of
technological feasibility are capitalized and amortised over estimated
useful life of the products. This capitalisation is done only if the
Company has the intention and ability to complete the product, the
product is likely to generate future economic benefits, adequate
resources to complete the product are available to the Company and the
Company is able to accurately measure such expense.
Such software development costs comprise expenditure that can be
directly attributed, or allocated on a reasonable and consistent basis,
to the development of the product and intellectual property rights.
Amortisation
The amortisation of software development and intellectual property
costs is allocated on a straight-line basis over the best estimate of
its useful life after the product is ready for use. The factors
considered for identifying the basis include obsolescence, product life
cycle and actions of competitors. The amortization period and the
method are reviewed at each year end. If the expected useful life of
the product is shorter from previous estimates, the amortisation period
is changed accordingly. The estimated useful life of company''s
intangible assets are stated below:
e) Operating leases
Leases where the lessor effectively retains substantially all the risks
and the benefits of ownership of the leased term are classified as
operating leases. Operating lease payments are recognized as an expense
in the Statement of Profit and Loss on a straight-line basis over the
lease term.
f) Impairment of tangible and intangible fixed assets
The carrying amounts of assets are reviewed at each Balance Sheet date
if there is any indication of impairment based on internal/external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset''s net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value at the pre-tax discount rate reflecting current
market assessment of time value of money and risks specific to asset.
After impairment, depreciation/amortisation is provided on the revised
carrying amount of the asset over its remaining useful life.
g) Investments
Investments are classified as long-term investments and current
investments. Investments that are readily realisable and intended to be
held for not more than a year are classified as current investments.
All other investments are classified as long-term investments.
On initial recognition, all investments are measured at cost. The cost
comprises purchase price and directly attributable acquisition charges
such as brokerage, fees and duties. Current investments are carried in
the financial statements at the lower of cost or fair value determined
on an individual investment basis. Long-term investments are carried at
cost. However, provision for diminution in value is made to recognise a
decline other than temporary in the value of the investments.
h) Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured.
Software development and support services
Revenue from software development and support services comprises income
from time-and- material and fixed price contracts. Revenue with respect
to time-and-material contracts is recognized as related services are
performed. Revenue from fixed-price contracts is recognized in
accordance with the proportionate completion method. Provision for
estimated losses on incomplete contract is recorded in the year in
which such losses become probable based on the current contract
estimates.
Product licenses and related revenues
Revenues from product licenses and related services comprise income
under multiple element arrangements recognized as follows:
- License fees and fees for customization/implementation services are
recognized using proportionate completion method. Provision for
estimated losses, if any, on incomplete contracts are recorded in the
year in which such losses become probable based on current contract
estimates.
- Product maintenance revenues are recognized over the period of the
maintenance contract.
Revenue from sale of licenses which are not in the nature of multiple
element arrangements are recognized upon delivery of these licenses
which constitute transfer of all risks and rewards and has no further
obligations under those arrangements.
Revenue in excess of billing represents earnings on ongoing fixed price
and time and material contracts over amounts invoiced to customers.
Billings in excess of revenue represent amounts billed in case of
ongoing fixed price and time and material contracts wherein amounts
have been billed in accordance with the billing cycle and efforts would
be incurred subsequent to the Balance Sheet date.
Business Process Outsourcing
Revenue from call centre services comprises income from time and
material contracts. Revenue is recognized in accordance with the terms
of the contract with the customer, as related services are performed.
Other Income
Interest is recognized using the time-proportion basis taking into
account the amount outstanding and the applicable interest rate.
Dividend income is recognized when the Company''s right to receive
dividend is established.
i) Foreign currency transactions and translations
Initial Recognition
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
Conversion
Foreign currency monetary items are reported using the closing rate.
Non-monetary items which are carried in terms of historical cost
denominated in a foreign currency are reported using the exchange rate
at the date of the transaction.
Exchange Differences
Exchange differences arising on the settlement/reporting of monetary
items, at rates different from those at which they were initially
recorded during the year, or reported in previous financial statements,
are recognised as income or as expenses in the year in which they
arise.
Translation of integral and non-integral foreign operations
The company classifies all its foreign operations as either "integral
foreign operations" or "non- integral foreign operations."
The financial statements of an integral foreign operation are
translated as if the transactions of the foreign operation have been
those of the company itself.
The assets and liabilities of a non-integral foreign operation are
translated into the reporting currency at the exchange rate prevailing
at the reporting date. Their statement of profit and loss are
translated at exchange rates prevailing at the dates of transactions or
weighted average weekly rates, where such rates approximate the
exchange rate at the date of transaction. The exchange differences
arising on translation are accumulated in the foreign currency
translation reserve. On disposal of a non-integral foreign operation,
the accumulated foreign currency translation reserve relating to that
foreign operation is recognized in the statement of profit and loss.
When there is a change in the classification of a foreign operation,
the translation procedures applicable to the revised classification are
applied from the date of the change in the classification.
j) Forward contracts entered into to hedge foreign currency risk
The Company uses foreign exchange contracts to hedge its exposure to
movements in foreign currency rates. The use of these foreign exchange
forward contracts reduces the risk/cost to the Company and the Company
does not use the foreign exchange forward contracts for trading or
speculative purposes.
The use of hedging instruments is governed by the Company''s policies
approved by the Board of Directors, which provide written principles on
the use of such financial derivatives consistent with the Company''s
risk management strategy.
Upto the previous year, pursuant to the announcement of the ICAI dated
March 29, 2008, in respect of forward exchange contracts entered in to
hedge a highly probable forecast transaction, the Company recorded net
mark-to-market losses, after considering the offsetting effect of the
underlying hedged item, if any. Net mark-to-market gains were not
recorded for such transactions. Effective April 1, 2012, the Company
has adopted AS 30, ''Financial Instruments: Recognition and
Measurement'', to the extent that the adoption did not conflict with
existing accounting standards and other authoritative pronouncements of
the Company Law and other regulatory requirements. In accordance with
the transitional provision, the Company has debited its general reserve
for Rs. 7,276.26 Lakhs representing the impact as of April 1, 2012 on
account of such adoption.
Hedging instruments are initially measured at fair value, and are
remeasured at subsequent reporting dates. Changes in the fair value of
these derivatives that are designated and effective as hedges of future
cash flows are recognised directly in shareholders'' funds (hedge
fluctuation reserve) and the ineffective portion is recognised
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 recognised 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. At that time for forecasted transactions, any cumulative
gain or loss on the hedging instrument recognised in shareholders''
funds (hedge fluctuation reserve) is retained there until the
forecasted transaction occurs. If a hedged transaction is no longer
expected to occur, the net cumulative gain or loss recognised in
shareholders'' funds is transferred to the statement of profit and loss
for the period.
k) Retirement and other employee benefits
Provident Fund
Employees receive benefits from a provident fund, which is a defined
contribution plan. Both the employee and the Company make monthly
contributions to the Regional Provident Fund equal to a specified
percentage of the covered employee''s salary. The company recognizes
contribution payable to the provident fund scheme as an expenditure,
when an employee renders the related service. The Company has no
further obligations under the plan beyond its monthly contributions.
The contributions are charged to the Statement of Profit and Loss of
the year when the contributions to the respective funds are due and
there are no other obligations other than the contribution payable.
Gratuity
The Company provides for gratuity in accordance with the Payment of
Gratuity Act, 1972, a defined benefit retirement plan (the Plan)
covering all employees. The plan, subject to the provisions of the
above Act, provides a lump sum payment to eligible employees at
retirement, death, incapacitation or termination of employment, of an
amount based on the respective employee''s salary and the tenure of
employment. A trust by name "Polaris Software Lab group gratuity
trust" has been constituted to administer the gratuity fund. Gratuity
liability is accrued and provided for on the basis of an actuarial
valuation on projected unit credit method made at the end of each
financial period. Actuarial gains/losses are immediately taken to
Statement of profit and loss and are not deferred.
Superannuation
The Company contributes a specified percentage of the eligible
employees'' basic salary towards superannuation (the Plan) to a fund. A
trust has been created and approved by the Income-tax authorities for
this purpose. This Plan provides for various options for payment of
pension at retirement or termination of employment as per the trust
rules. The Company has no further obligations under the Plan beyond its
annual contribution.
Leave Benefits
Provision for long-term compensated absences is accrued and provided
for on the basis of actuarial valuation made at the end of each
financial period. The actuarial valuation is done as per projected unit
credit method. Short-term encashment of accumulated leave balances are
accounted for in the year in which the leave balances are credited to
employees on actual basis. The company presents the entire leave as a
current liability in the Balance Sheet, since it does not have an
unconditional right to defer its settlement for 12 months after the
reporting date.
l) Income and Deferred Taxes
Tax expense comprises of current and deferred tax. The current charge
for income taxes is calculated in accordance with the relevant tax
regulations applicable to the Company. The current tax provision and
advance income tax as at Balance Sheet date have been arrived at after
setting off advance tax and current tax provision where the Company has
legally enforceable right to set off assets against liabilities and
where such assets and liabilities relate to taxes on income levied by
the same governing taxation laws.
Deferred tax assets and liabilities are recognised for the future tax
consequences attributable to timing differences between the taxable
income and accounting income. Deferred tax assets and liabilities are
measured using the tax rates and tax laws that have been enacted or
substantively enacted by the Balance Sheet date. The effect on deferred
tax assets and liabilities of a change in tax rates is recognised in
the period that includes the enactment date. Deferred tax assets and
deferred tax liabilities across various countries of operation are not
set off against each other as the Company does not have legal right to
do so.
Deferred tax assets are recognised only if there is a reasonable
certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised and are
reassessed for the appropriateness of their respective carrying values
at each Balance Sheet date. Unrecognised deferred tax assets of
earlier years are re-assessed and recognised to the extent that it has
become reasonably certain that future taxable income will be available
against which such deferred tax assets can be realized. The Company
writes-down the carrying amount of a deferred tax asset to the extent
that it is no longer reasonably certain, that sufficient future taxable
income will be available against which deferred tax asset can be
realised.
MAT credit is recognised as an asset only when and to the extent there
is convincing evidence that the company will pay normal income tax
during the specified period. In the year in which the Minimum
Alternative tax (MAT) credit becomes eligible to be recognized as an
asset in accordance with the recommendations contained in Guidance Note
issued by the Institute of Chartered Accountants of India, the said
asset is created by way of a credit to the Statement of profit and loss
and shown as MAT Credit Entitlement. The Company reviews the same at
each Balance Sheet date and writes down the carrying amount of MAT
Credit Entitlement to the extent there is no longer convincing evidence
to the effect that Company will pay normal Income Tax during the
specified period.
The Company enjoys tax holiday under Sec 10AA of the Income tax Act on
some of its units set up in the Special Economic Zones (SEZ)
m) Stock based Compensation
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by the Institute
of Chartered Accountants of India. The Company measures compensation
cost relating to employee stock options using the intrinsic value
method. Compensation expense is amortized over the vesting period of
the option on a straight line basis.
n) Earnings per share
The basic earnings per share are computed by dividing the net profit
for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period are
adjusted for the effects of all dilutive potential equity shares.
o) Provisions
A provision is recognized when an enterprise has a present obligation
as a result of past event; it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on best estimate required to
settle the obligation at the Balance Sheet date. These are reviewed at
each Balance Sheet date and adjusted to reflect the current best
estimates.
p) Cash and Cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and highly liquid investments that
are readily convertible into known amounts of cash and which are
subject to insignificant risks of change in value.
Mar 31, 2012
A) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
year end. Although these estimates are based upon management's best
knowledge of current events and actions, actual results could differ
from these estimates.
b) Tangible fixed assets and capital work in progress
Fixed assets are stated at cost, less accumulated depreciation and
impairment losses if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Capital work in progress comprises cost of tangible
fixed assets not ready for intended use as at the balance sheet date.
c) Depreciation on tangible fixed assets
Depreciation on fixed assets is provided using the straight-line method
based on rates specified in Schedule XIV of the Companies Act, 1956 or
rates arrived at based on estimated useful lives of assets estimated by
the management, whichever is higher. Individual assets costing less
than Rs 5,000/- are depreciated at the rate of 100 %.
d) Intangible assets
Intangible assets acquired are stated at cost, less accumulated
amortization and impairment losses if any.
Research and development costs
Software product and intellectual property development costs are
expensed as incurred until technological feasibility is established.
Software development costs incurred subsequent to the achievement of
technological feasibility are capitalized and amortised over estimated
useful life of the products. This capitalisation is done only if the
Company has the intention and ability to complete the product, the
product is likely to generate future economic benefits, adequate
resources to complete the product are available to the Company and the
Company is able to accurately measure such expense.
Such software development costs comprise expenditure that can be
directly attributed, or allocated on a reasonable and consistent basis,
to the development of the product and intellectual property rights.
Amortisation
The amortisation of software development and intellectual property
costs is allocated on a straight-line basis over the best estimate of
its useful life after the product is ready for use. The factors
considered for identifying the basis include obsolescence, product life
cycle and actions of competitors. The amortization period and the
method are reviewed at each year end. If the expected useful life of
the product is shorter from previous estimates, the amortisation period
is changed accordingly. The estimated useful life of company's
intangible assets are stated below:
e) Operating leases
Leases where the lessor effectively retains substantially all the risks
and the benefits of ownership of the leased term are classified as
operating leases. Operating lease payments are recognized as an expense
in the Statement of Profit and Loss account on a straight-line basis
over the lease term.
f) Impairment of tangible and intangible fixed assets
The carrying amounts of assets are reviewed at each balance sheet date
if there is any indication of impairment based on internal/external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset's net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value at the pre-tax discount rate reflecting current
market assessment of time value of money and risks specific to asset.
After impairment, depreciation/amortisation is provided on the revised
carrying amount of the asset over its remaining useful life.
g) Investments
Investments are classified as long-term investments and current
investments. Investments that are readily realisable and intended to
be held for not more than a year are classified as current investments.
All other investments are classified as long- term investments.
On initial recognition, all investments are measured at cost. The cost
comprises purchase price and directly attributable acquisition charges
such as brokerage, fees and duties. Current investments are carried in
the financial statements at the lower of cost or fair value determined
on an individual investment basis. Long-term investments are carried at
cost. However, provision for diminution in value is made to recognise a
decline other than temporary in the value of the investments.
h) Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured.
Software development and support services
Revenue from software development and support services comprises income
from time-and-material and fixed price contracts. Revenue with respect
to time-and- material contracts is recognized as related services are
performed. Revenue from fixed-price contracts is recognized in
accordance with the proportionate completion method. Provision for
estimated losses on incomplete contract is recorded in the year in
which such losses become probable based on the current contract
estimates.
Revenue in excess of billing represents earnings on ongoing fixed price
& time and material contracts over amounts invoiced to customers.
Billings in excess of revenue represent amounts billed in case of
ongoing fixed price and time and material contracts wherein amounts
have been billed in accordance with the billing cycle and efforts would
be incurred subsequent to the balance sheet date.
Product licenses and related revenues
Revenues from product licenses and related services comprise income
under multiple element arrangements recognized as follows:
- License fees and fees for customization/implementation services are
recognized using proportionate completion method. Provision for
estimated losses, if any, on incomplete contracts are recorded in the
year in which such losses become probable based on current contract
estimates.
- Product maintenance revenues are recognized over the period of the
maintenance contract.
- Revenue from sale of licenses which are not in the nature of
multiple element arrangements are recognized upon delivery of these
licenses which constitute transfer of all risks and rewards and has no
further obligations under those arrangements.
Business Process Outsourcing
Revenue from call centre services comprises income from time and
material contracts. Revenue is recognized in accordance with the terms
of the contract with customer, as related services are performed.
Other Income
Interest is recognized using the time-proportion basis taking into
account the amount outstanding and the applicable interest rate.
Dividend income is recognized when the Company's right to receive
dividend is established.
i) Foreign currency transactions and translations Initial Recognition
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
transaction.
Conversion
Foreign currency monetary items are reported using the closing rate.
Non-monetary items which are carried in terms of historical cost
denominated in a foreign currency are reported using the exchange rate
at the date of the transaction.
Exchange Differences
Exchange differences arising on the settlement/reporting of monetary
items not covered above, at rates different from those at which they
were initially recorded during the year, or reported in previous
financial statements, are recognised as income or as expenses in the
year in which they arise.
Translation of integral and non-integral foreign operations
The company classifies all its foreign operations as either "integral
foreign operations" or "non-integral foreign operations."
The financial statements of an integral foreign operation are
translated as if the transactions of the foreign operation have been
those of the company itself.
The assets and liabilities of a non-integral foreign operation are
translated into the reporting currency at the exchange rate prevailing
at the reporting date. Their statement of profit and loss are
translated at exchange rates prevailing at the dates of transactions or
weighted average weekly rates, where such rates approximate the
exchange rate at the date of transaction. The exchange differences
arising on translation are accumulated in the foreign currency
translation reserve. On disposal of a non-integral foreign operation,
the accumulated foreign currency translation reserve relating to that
foreign operation is recognized in the statement of profit and loss.
When there is a change in the classification of a foreign operation,
the translation procedures applicable to the revised classification are
applied from the date of the change in the classification.
j) Forward contracts entered into to hedge foreign currency risk
The Company used foreign exchange contracts to hedge its exposure to
movements in foreign currency rates. The use of these foreign exchange
forward contracts reduces the risk/cost to the Company and the Company
does not use the foreign exchange forward contracts for trading or
speculative purposes.
Pursuant to the Announcement of the ICAI dated March 29, 2008, in
respect of forward exchange contracts entered in to hedge a highly
probable forecast transaction, the Company records net mark-to-market
losses, after considering the offsetting effect of the underlying
hedged item, if any. Net mark-to-market gains are not recorded for such
transactions.
k) Retirement and other employee benefits
Provident Fund
Employees receive benefits from a provident fund, which is a defined
contribution plan. Both the employee and the Company make monthly
contributions to the Regional Provident Fund equal to a specified
percentage of the covered employee's salary. The Company has no further
obligations under the plan beyond its monthly contributions. The
contributions are charged to the Statement of Profit and Loss Account
of the year when the contributions to the respective funds are due and
there are no other obligations other than the contribution payable.
Gratuity
The Company provides for gratuity in accordance with the Payment of
Gratuity Act, 1972, a defined benefit retirement plan (the Plan)
covering all employees. The plan, subject to the provisions of the
above Act, provides a lump sum payment to eligible employees at
retirement, death, incapacitation or termination of employment, of an
amount based on the respective employee's salary and the tenure of
employment. Gratuity liability is accrued and provided for on the
basis of an actuarial valuation on projected unit credit method made at
the end of each financial period. Actuarial gains/losses are
immediately taken to Statement of profit and loss account and are not
deferred.
Superannuation
The Company contributes a specified percentage of the eligible
employees' basic salary towards superannuation (the Plan) to a fund. A
trust has been created and approved by the Income-tax authorities for
this purpose. This Plan provides for various options for payment of
pension at retirement or termination of employment as per the trust
rules. The Company has no further obligations under the Plan beyond its
annual contribution.
Leave Benefits
As per the current employment policy of the Company, employees can
carry forward accumulated leave balances to be utilized in the
subsequent years. In case of overseas branches, the employees are
eligible to encash the accumulated leave balances.
Provision for long-term compensated absences is accrued and provided
for on the basis of actuarial valuation made at the end of each
financial period. The actuarial valuation is done as per projected unit
credit method. Short-term encashment of accumulated leave balances are
accounted for in the year in which the leave balances are credited to
employees on actual basis.
The company presents the entire leave as a current liability in the
balance sheet, since it does not have an unconditional right to defer
its settlement for 12 months after the reporting date.
Employees taken over from BPO division of Optimus, consequent to the
scheme of demerger discussed in Note 12.III.(a) below Consequent to the
demerger, as per the approved Scheme of Arrangement, from October 1,
2011 all employees of the demerged undertaking, have become employees
of the Company without any break or interruption in their service and
with continuity of the service on same terms and conditions on which
they were engaged with the demerged undertaking immediately before the
demerger. In accordance with the Scheme of Arrangement, the Company has
taken over the liability of the demerged undertaking towards Provident
fund, gratuity fund and special funds created for the benefit of the
employees at their respective book values.
l) Income and Deferred Taxes
Tax expense comprises of current and deferred tax. The current charge
for income taxes is calculated in accordance with the relevant tax
regulations applicable to the Company. The current tax provision and
advance income tax as at balance sheet date have been arrived at after
setting off advance tax and current tax provision where the Company has
legally enforceable right to set off assets against liabilities and
where such assets and liabilities relate to taxes on income levied by
the same governing taxation laws.
Deferred tax assets and liabilities are recognised for the future tax
consequences attributable to timing differences between the taxable
income and accounting income. Deferred tax assets and liabilities are
measured using the tax rates and tax laws that have been enacted or
substantively enacted by the balance sheet date. The effect on deferred
tax assets and liabilities of a change in tax rates is recognised in
the period that includes the enactment date. Deferred tax assets and
deferred tax liabilities across various countries of operation are not
set off against each other as the Company does not have legal right to
do so.
Deferred tax assets are recognised only if there is a reasonable
certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised and are
reassessed for the appropriateness of their respective carrying values
at each balance sheet date. Unrecognised deferred tax assets of earlier
years are re- assessed and recognised to the extent that it has become
reasonably certain that future taxable income will be available against
which such deferred tax assets can be realized. The Company writes-down
the carrying amount of a deferred tax asset to the extent that it is no
longer reasonably certain, that sufficient future taxable income will
be available against which deferred tax asset can be realised.
Minimum Alternate Tax (MAT) credit is recognised as an asset only when
and to the extent there is convincing evidence that the company will
pay normal income tax during the specified period. In the year in which
the MAT credit becomes eligible to be recognized as an asset in
accordance with the recommendations contained in guidance Note issued
by the Institute of Chartered Accountants of India, the said asset is
created by way of a credit to the Statement profit and loss account and
shown as MAT Credit Entitlement. The Company reviews the same at each
balance sheet date and writes down the carrying amount of MAT Credit
Entitlement to the extent there is no longer convincing evidence to the
effect that Company will pay normal Income Tax during the specified
period.
The Company enjoys tax holiday under Sec 10AA of the Income tax Act on
some of its units set up in the Special Economic Zones (SEZ)
m) Stock based Compensation
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share- based Payments, issued by the Institute
of Chartered Accountants of India. The Company measures compensation
cost relating to employee stock options using the intrinsic value
method. Compensation expense is amortized over the vesting period of
the option on a straight line basis.
n) Earnings per share
The basic earnings per share are computed by dividing the net profit
for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period are
adjusted for the effects of all dilutive potential equity shares.
o) Provisions
A provision is recognized when an enterprise has a present obligation
as a result of past event; it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on best estimate required to
settle the obligation at the balance sheet date. These are reviewed at
each balance sheet date and adjusted to reflect the current best
estimates.
p) Cash and Cash equivalents
Cash and cash equivalents for the purpose of cash flow statement
comprise cash at bank and in hand and highly liquid investments that
are readily convertible into known amounts of cash and which are
subject to insignificant risks of change in value.
Mar 31, 2011
1. All amounts in the financial statements are presented in Rupees
Lacs, unless otherwise stated. The note numbers appearing in the
brackets "[ ]" are as they appear in the complete set of Financial
Statements. These abridged financial statements have been prepared in
accordance with the requirements of Rule 7A of the Companies (Central
Governments) General Rules and Forms, 1956 and clause 32 of the
Listing Agreement. These abridged financial statements have been
prepared on the basis of the complete set of financial statements for
the year ended March 31, 2011.
2. [B5] Capital commitments and contingent liabilities
i) The estimated amount of contracts remaining to be executed on
capital account and not provided for (net of advances) as at March 31,
2011 is Rs.3,171.10 (March 31, 2010: Rs.1,689.85).
ii) As at March 31, 2011, the Company has outstanding guarantees and
counter guarantees of Rs.1,222.29 (March 31, 2010: Rs.1,447.86) issued
to various banks, in respect of guarantees given by the banks in favour
of various government authorities and others.
iii) Claims against the Company, not acknowledged as debts include:
a) Demand from Indian income tax authorities as at March 31, 2011 is
Rs.754.63 (March 31, 2010: Rs.692.08). The tax demand is mainly on
account of disallowance of a portion of the deduction claimed by the
company under Section 10A of the Income Tax Act. The Company is in the
process of filing an appeal with the higher appellate authorities.
b) Sales Tax demand from Commercial Tax Officer Chennai is Rs.520.00 as
at March 31, 2011 (March 31, 2010: Rs.520.00).
c) Sales Tax demand from Commercial Tax Officer, Hyderabad is Rs.98.00
as at March 31, 2011 (March 31, 2010: Rs.42.40).
d) Service tax demand from Commissioner of Central Excise, Chennai as
at March 31, 2011 is Rs.32.25 (March 31, 2010: Rs.32.25).
The Company is contesting the demands raised by the respective tax
authorities, and the management, including its tax advisers, believes
that its position will likely be upheld in the appellate process and
ultimate outcome of these proceedings will not have a material adverse
effect on the Companys financial position and results of operations.
iv) The Company is also involved in other law suit and claims including
suits filed by former employees, which arise in the ordinary course of
business. However there are no such matters pending that the Company
expects to be material in relation to its business.
4. [B7] Quantitative details
The Company is engaged in the development of computer software. The
production and sale of such software cannot be expressed in any generic
unit. Hence, it is not possible to give the quantitative details of
sales and the information as required under paragraphs 3, 4C and 4D of
part II of Schedule VI to the Companies Act, 1956.
5. [B8] Managerial remuneration
The Directors are covered under the Companys gratuity policy along
with the other employees of the Company. Proportionate amount of
gratuity is not included in the disclosure above. However actual
payments, if any, made on their resignation / retirement is considered.
Salaries and perquisites to other directors include commission of
Rs.38.00 (March 31, 2010 Rs. 30.00) payable to non-executive directors.
Mar 31, 2010
1. Basis of preparation
(a) The consolidated financial statements of the Polaris Group are
prepared under the historical cost convention on the accrual basis in
accordance with Generally Accepted Accounting Principles (GAAP) in
India, and in all material respects comply with the notified accounting
standard by Companies Accounting Standards Rules, 2006 ( as amended)
and the relevant provisions of the Companies Act, 1956, (the Act).
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. Management evaluates all recently issued or revised
accounting standards on an ongoing basis.
The consolidated financial statements include the financial statements
of Polaris Software Lab Limited and all its subsidiaries, which are
more than 50%, owned or controlled. The financial statements are
prepared in accordance with the principles and procedures required for
the preparation and presentation of consolidated financial statements
as laid down under the accounting standard on Consolidated Financial
Statements as specified in the Companies (Accounting Standard) Rules,
2006 (as amended).
The financial statements of the Company and its subsidiaries are
consolidated on a line by line basis by adding together like items of
assets, liabilities, income and expenses. In respect of investments
made in Associate Companies, the equity method prescribed under
Accounting for Investments in Associates in Consolidated Financial
Statements as specified in the Companies Accounting Standards Rules,
2006 (as amended), has been adopted in the preparation of these
financial statements. The consolidated financial statements are
prepared by applying uniform accounting policies in use at the Group.
All material inter-company transactions and balances are eliminated on
consolidation.
(b) In case of foreign subsidiaries, revenue items are consolidated at
the average rate prevailing during the year. All the assets and
liabilities are converted at the rates prevailing at the end of the
year. Exchange gains / (losses) arising on conversion are recognized
under Foreign Currency Translation Reserve. The excess of cost to the
Company of its investment in subsidiary companies over its share of the
equity of the subsidiary companies at the date on which the investments
in the subsidiary companies are made, is recognized as goodwill being
an asset in the consolidated financial statement.
(c) Goodwill arising on acquisition of an associate by the Group has
been included in the carrying amount of investments in the associates
and has been disclosed separately.
2. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
year end. Although these estimates are based upon managementÃs best
knowledge of current events and actions, actual results could differ
from these estimates.
Management periodically assesses using external and internal sources
whether there is an indication that an asset may be impaired.
Impairment occurs where the carrying value exceeds the present value of
future cash flows expected to arise from the continuing use of the
asset and its eventual disposal.
The impairment loss to be expensed is determined as the excess of the
carrying amount over the higher of the assetÃs net sales price or
present value as determined above. Contingencies are recorded when it
is probable that a liability will be incurred and the amount can be
reasonably estimated. Actual results could differ from those estimates.
3. Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured.
Software development and support services
Revenue from software development and support services comprises income
from time and material and fixed price contracts. Revenue with respect
to time and material contracts is recognized as related services are
performed. Revenue from fixed-price contracts is recognised in
accordance with the proportionate completion method. The stage of
completion of project is determined by the proportion that contract
costs incurred for work performed upto the balance sheet date bear to
the estimated total contract costs. Provision for estimated losses on
incomplete contract is recorded in the year in which such losses become
probable based on the current contract estimates.
Revenue in excess of billings represent earnings on ongoing fixed price
and time and material contracts over amounts invoiced to customers.
Billings in excess of revenue represent amounts received in advance in
case of ongoing fixed price and time and material contracts wherein
amounts have been billed in accordance with the billing cycle and
efforts would be incurred subsequent to the year end.
Product licenses and related revenues
Revenues from product licenses and related services comprise income
under multiple element arrangements recognized as follows:
à License fees and fees for customization/implementation services are
recognized using proportionate completion method. The stage of
completion of project is determined by the proportion that contract
costs incurred for work performed up to the balance sheet date bear to
the estimated total contract costs. Provision for estimated losses, if
any, on incomplete contracts are recorded in the year in which such
losses become probable based on current contract estimates.
à Product maintenance revenues are recognized over the period of the
maintenance contract.
Business Process Outsourcing
Revenue from call center services comprises income from time and
material contracts. Revenue is recognized in accordance with the terms
of the contract with the customer, as related services are performed.
Other Income
Interest is recognized using the time-proportion method.
Dividend income is recognized when the GroupÃs right to receive
dividend is established.
4. Fixed assets and capital work in progress
Fixed assets are stated at cost, less accumulated depreciation until
the date of the balance sheet and impairment losses if any. Cost
comprises the purchase price and any attributable cost of bringing the
asset to its working condition for its intended use. Capital
work-in-progress includes advances paid to acquire fixed assets and
cost of assets not ready for intended use before the balance sheet
date.
5. Leases
Assets acquired on finance leases are capitalized and a corresponding
liability disclosed as lease obligations under ÃSecured LoansÃ. Such
assets are capitalised at fair values or present value of minimum lease
payments, whichever is lower, at the inception of the lease term and
disclosed as leased assets. Rentals paid by the Group are apportioned
between the finance charge and as a reduction of the outstanding
liability. Finance charge reflects a constant periodic rate of interest
on the remaining balance of liability for each period. Lease management
fees, legal charges and other initial direct costs are capitalised.
Leases where the lessor effectively retains substantially all the risks
and the benefits of ownership of the leased term are classified as
operating leases. Operating lease payments are recognized as an
expense in the Profit and Loss account on a straight-line basis over
the lease term.
6. Depreciation and Amortisation
Depreciation on fixed assets is provided using the straight-line method
based on rates specified in Schedule XIV of the Companies Act, 1956 or
on estimated useful life of assets estimated by the management,
whichever is higher. Individual assets costing less than Rs.5,000/- are
depreciated at the rate of 100%.
7. Impairment
The carrying amounts of assets are reviewed at each balance sheet date
if there is any indication of impairment based on internal/external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the assetÃs net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value at the weighted average cost of capital.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
8. Research and development expenses for software products
Expenditure
Software product and Intellectual property development costs are
expensed as incurred until technological feasibility is established.
Development costs incurred subsequent to the achievement of
technological feasibility are capitalised and amortised over estimated
useful life of the products. This capitalisation is done only if the
Group has the intention and ability to complete the product, the
product is likely to generate future economic benefits, adequate
resources to complete the product are available to the Group and the
Group is able to accurately measure such expense.
Such costs comprise expenditure that can be directly attributed or
allocated on a reasonable and consistent basis, to development of the
product and intellectual property rights.
Amortization
The amortization of software development costs and intellectual
property rights are allocated on a systematic basis over the best
estimate of its useful life after the product is ready for use. The
factors considered for identifying the basis include obsolescence,
product life cycle and actions of competitors.
The amortization period and the method are reviewed at each year end.
If the expected useful life of the product is shorter from previous
estimates, the amortization period is changed accordingly.
9. Foreign currency transactions and translations
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rates that
approximates prevailing at the date of the transaction.
Foreign currency monetary items are reported using the closing rate.
Non-monetary items which are carried in terms of historical cost
denominated in a foreign currency are reported using the exchange rate
at the date of the transaction; and non- monetary items which are
carried at fair value or other similar valuation denominated in a
foreign currency are reported using the exchange rates that existed
when the values were determined.
Exchange differences arising on the settlement of monetary items or on
reporting Groups monetary items at rates different from those at which
they were initially recorded during the year or reported in previous
financial statements, are recognised as income or as expenses in the
year in which they arise except those arising from investments in
non-integral operations.
The financial statements of a non-integral foreign operation are
translated into Indian Rupees as follows:
à Income and Expense items are translated at the average exchange rate
for the year.
à Assets and Liabilities, both monetary and non-monetary, are
translated at the closing rate.
à All resulting exchange differences are accumulated in foreign
currency translation reserve, which is reflected under Reserves and
Surplus.
On the disposal of a non-integral foreign operation, the cumulative
amount of the exchange differences which have been deferred and which
relate to that operation are recognized as income or as expenses in the
same period in which the gain or loss on disposal is recognized.
When there is a change in the classification of a foreign operation,
the translation procedures applicable to the revised classification are
applied from the date of the change in the classification.
10. Forward contracts in foreign currencies
The Group uses foreign exchange forward contracts to hedge its exposure
to movements in foreign currency rates. The use of these foreign
exchange forward contracts reduces the risk or cost to the Group and
the Group does not use the foreign exchange forward contracts for
trading or speculation purposes. Forward exchange contracts that are
not hedges of forecasted transactions are accounted for using the
Guidance in Accounting Standard (ÃASÃ) 11, ÃThe effects of changes in
foreign exchange ratesÃ. The premium or discount on all such contracts
arising at the inception of each contract is amortised as income or
expense over the life of the contract. Any profit or loss arising on
the cancellation or renewal of forward contracts is recognized as
income or as expense for the period. The exchange difference is
calculated as the difference between the foreign currency amount of the
contract translated at the exchange rate at the reporting date, or the
settlement date where the transaction is settled during the reporting
period, and the corresponding foreign currency amount translated at the
latter of the date of inception of the forward exchange contract and
the last reporting date. Such exchange differences are recognised in
the Profit and Loss account in the reporting period in which the
exchange rates change.
Pursuant to the Announcement of the ICAI dated March 29, 2008, the
Group records net mark-to-market losses, if any, in respect of forward
exchange contracts entered in to hedge a highly probable forecast
transaction but, net mark-to-market gains are not recorded for such
transactions.
11. Investments
Investments are classified as long-term investments and current
investments. Investments that are readily realizable and intended to
be held for not more than a year are classified as current investments.
All other investments are classified as long-term investments.
Long-term investments are stated at cost and any decline other than
temporary, in the value of such investments is charged to the Profit
and Loss account. Current investments are stated at the lower of cost
and market value determined on an individual investment basis. However,
provision for diminution in value is made to recognise a decline other
than temporary in the value of the investments.
12. Retirement and other employee benefits
Provident Fund
Employees receive benefits from a provident fund, which is a defined
contribution plan. Both the employee and the Company make monthly
contributions to the Regional Provident Fund equal to a specified
percentage of the covered employeeÃs salary. The Group has no further
obligations under the plan beyond its monthly contributions. The
contributions are charged to the Profit and Loss Account of the year
when the contributions to the respective funds are due and there are no
other obligations other than the contribution payable.
Gratuity
The Group provides for gratuity in accordance with the Payment of
Gratuity Act, 1972, a defined benefit retirement plan (the Plan)
covering all employees. The plan, subject to the provisions of the
above Act, provides a lump sum payment to eligible employees at
retirement, death, incapacitation or termination of employment, of an
amount based on the respective employeeÃs salary and the tenure of
employment. Gratuity liability is accrued and provided for on the basis
of an actuarial valuation on projected unit credit method made at the
end of each financial year. Actuarial gains/losses are immediately
taken to profit and loss account and are not deferred.
Superannuation
The Group contributes a specified percentage of the eligible employeesÃ
basic salary towards superannuation (the Plan) to a fund. A trust has
been created and approved by the Income-tax authorities for this
purpose. This Plan provides for various options for payment of pension
at retirement or termination of employment as per the trust rules. The
Group has no further obligations under the Plan beyond its annual
contribution.
Leave Benefits
As per the current employment policy of the Group, employees can carry
forward accumulated leave balances as per GroupÃs leave policy which
can be utilized in the subsequent years. In case of overseas branches,
the employees are eligible to encash the accumulated leave balances.
Provision for compensated absences is accrued and provided for on the
basis of actuarial valuation made at the end of the each financial
year. The actuarial valuation is done as per projected unit credit
method. Encashment of accumulated leave balances are accounted for in
the year in which the leave balances are credited to employees on
actual basis.
Subsidiaries
Retirement benefits are provided to employees of subsidiaries in
accordance with the local laws and regulations prevailing in the
Country in which the subsidiary is located.
13. Income Taxes and Deferred Tax
Tax expense comprises of current, Deferred and Fringe Benefit Tax. The
current charge for income taxes and fringe benefit tax is calculated in
accordance with the relevant tax regulations applicable to the Group.
The current tax provision and advance income tax as at balance sheet
date have been arrived at after setting off advance tax and current tax
provision where the Group has legally enforceable right to set off
assets against liabilities and where such assets and liabilities relate
to taxes on income levied by the same governing taxation laws.
Minimum alternative tax (MAT) paid in accordance to the tax laws, which
gives rise to future economic benefits in the form of adjustment of
future income tax liability, is considered as an asset if there is
convincing evidence that the Group will pay normal income tax after the
tax holiday period. Accordingly, MAT is recognised as an asset in the
balance sheet when it is probable that the future economic benefit
associated with it will flow to the Group and the asset can be measured
reliably.
Deferred tax assets and liabilities are recognised for the future tax
consequences attributable to timing differences between the taxable
income and accounting income. Deferred tax assets and liabilities are
measured using the tax rates and tax laws that have been enacted or
substantively enacted by the balance sheet date. The effect on deferred
tax assets and liabilities of a change in tax rates is recognised in
the year that includes the enactment date. Deferred tax assets and
deferred tax liabilities across various countries of operation are not
set off against each other as the Group does not have legal right to do
so.
Deferred tax assets are recognised only if there is a reasonable
certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised and are
re-assessed for the appropriateness of their respective carrying values
at each balance sheet date. Unrecognised deferred tax assets of earlier
years are re-assessed and recognised to the extent that it has become
reasonably certain that future taxable income will be available against
which such deferred tax assets can be realized. The Group writes-down
the carrying amount of a deferred tax asset to the extent that it is no
longer reasonably certain, that sufficient future taxable income will
be available against which deferred tax asset can be realized.
The Company has availed the tax holiday benefits under Section 10A of
the Income tax Act, 1961 for some of the units and accordingly, its
business income (to the extent covered by that section) is exempt from
tax up to and including year ending March 31, 2011.
14. Stock based compensation
In accordance with the Employee Stock Option Scheme and Employee Stock
Purchase Scheme Guidelines, 1999 issued by the Securities and Exchange
Board of India (ÃSEBIÃ) and the Guidance Note on Accounting for
Employee Share-based Payments, issued by the Institute of Chartered
Accountants of India, the ÃOption Discountà has been amortized on a
straight-line basis over the vesting period of the shares to be issued
if any, under Stock Option Plans and disclosed as Ãemployee stock
compensation expenseà in the Profit and Loss account. The Company
measures compensation cost relating to employee stock options using the
intrinsic value method.
ÃOption Discountà means the excess of the market price / fair value of
the underlying shares at the date of grant of the options over the
exercise price of the options.
15. Earnings Per Share
The basic earnings per share are computed by dividing the net profit
attributable to equity shareholders for the year by the weighted
average number of equity shares outstanding during the year. The number
of shares used in computing diluted earnings per share comprises the
weighted average shares considered for deriving basic earnings per
share and also the weighted average number of equity shares which would
have been issued on the conversion of all dilutive potential equity
shares. Dilutive potential equity shares are deemed converted as at the
beginning of the year, unless they have been issued at a later date.
The diluted potential equity shares have been adjusted for the proceeds
receivable had the shares been actually issued at fair value (i.e.) the
average market value of the outstanding shares. In computing dilutive
earnings per share, only potential equity shares that are dilutive and
that either reduces earnings per share or increase loss per share are
included.
16. Provisions
A provision is recognized when an enterprise has a present obligation
as a result of past event; it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on best estimate required to
settle the obligation at the balance sheet date. These are reviewed at
each balance sheet date and adjusted to reflect the current best
estimates.
17. Cash and Cash Equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank
and in hand and short-term investments with an original maturity of
three months or less.
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