MATERIAL ACCOUNTING POLICIES
a. Revenue recognition
Revenue is measured based on the transaction
price, which is the consideration, adjusted for finance
components and volume discounts, service level
credits, performance bonus, price concessions and
incentives, if any, as specified in the contract with the
customers.
Revenue is recognized in the P&L upon transfer of
control of promised products or services to customers
in an amount that reflects the consideration which the
Company expects to receive in exchange for those
services or products and excluding taxes or duties.
To recognize revenues, the Company applies the
following five step approach:
(1) identify the contract with a customer, (2) identify
the performance obligations in the contract, (3)
determine the transaction price, (4) allocate the
transaction price to the performance obligations in
the contract, and (5) recognize revenues when a
performance obligation is satisfied.
At contract inception, the Company assesses its
promise to transfer products or services to a customer
to identify separate performance obligations.
The Company applies judgment to determine whether
each product or service promised to a customer
is capable of being distinct, and are distinct in the
context of the contract, if not, the promised products
or services are combined and accounted as a single
performance obligation. The Company allocates the
contract value to separately identifiable performance
obligations based on their relative standalone selling
price (mostly as reflected in the contracts) or residual
method. Standalone selling prices are determined
based on sale prices for the components when
it is regularly sold separately. In cases where the
Company is unable to determine the standalone
selling price, the Company uses expected cost-plus
margin approach in estimating the standalone selling
price.
For performance obligations where control is
transferred over time, revenues are recognized
by measuring progress towards completion of the
performance obligation. The selection of the method
to measure progress towards completion requires
judgment and is based on the nature of the promised
products or services to be provided.
The method for recognizing revenues depends on
the nature of the products sold/services rendered:
(1) Revenue from Software Products
(a) Software Licensing
Software licensing revenues represent
all fees earned from granting customers
licenses to use the Company’s software,
through initial licensing and or through the
purchase of additional modules or user
rights. For software license arrangements
that do not require significant modification
or customization of the underlying software,
revenue is recognized on delivery of the
software and when the customer obtains a
right to use such licenses.
(b) Subscription for Software as a Service
Subscription fees for offering the hosted
software as a service are recognized as
revenue ratably on straight line basis, over
the term of the subscription arrangement.
(c) Product Support Services
Fees for product support services, covering
inter alia improvement and upgradation of
the basic Software, whether sold separately
(e.g., renewal period AMC) or as an element
of a multiple-element arrangement, are
recognized as revenue ratably on straight
line basis, over the term of the support
arrangement.
(d) Application Maintenance Services
Fees for the application maintenance
services, covering inter alia the support of
the customized software, are recognized
as revenue ratably on straight line basis,
over the term of the support arrangement.
(e) Royalty income
Royalty income represents fees charged
at arms-length basis on the revenue
earned from external customers by the
subsidiaries, by way of Software Licensing,
Product Support Services, Subscription
for Software as a Service and Application
Maintenance Service, in respect of
Company’s Software Products. Such
royalty income is recognized at the point
of time at which the subsidiaries recognize
the said revenue.
(2) Revenue from Software Services
(a) Implementation/Professional Services
Software Implementation/Professional
Services contracts are either fixed price or
time and material based.
Revenues from fixed price contracts,
where the performance obligations are
satisfied over time, are recognized using
the “percentage of completion” method.
Percentage of completion is determined
based on project costs incurred to date
as a percentage of total estimated project
costs required to complete the project.
The cost expended (or input) method has
been used to measure progress towards
completion as there is a direct relationship
between input and productivity. The
performance obligations are satisfied as
and when the services are rendered since
the customer generally obtains control of
the work as it progresses.
Where the Software is required to be
substantially customized as part of the
implementation service, the entire fee for
licensing and implementation services
is considered to be a single performance
obligation and the revenue is recognized
using the percentage of completion
method as the implementation services
are performed.
Revenues from implementation services
in respect of hosting contracts are to be
recognized as revenue ratably over the
longer of the contract term or the estimated
expected life of the customer relationship.
However, considering the existence of
partners being available for rendering such
implementation services, these services
are considered to be a separate element
and recognized in accordance with
percentage of completion method.
When total cost estimates exceed revenues
in an arrangement, the estimated losses
are recognized in the P&L in the period
in which such losses become probable
based on the current contract estimates as
a contract provision.
In the case of time and material contracts,
revenue is recognized based on billable
time spent in the project, priced at the
contractual rate.
Any change in scope or price is considered
as a contract modification. The Company
accounts for modifications to existing
contracts by assessing whether the
services added are distinct and whether
the pricing is at the standalone selling
price. Services added that are not distinct
are accounted for on a cumulative catch
up basis, while those that are distinct are
accounted for prospectively as a separate
contract if the additional services are
priced at the standalone selling price.
Non-refundable one-time upfront fees
for enablement/application installation,
consisting of standardization set-up,
initiation or activation or user login creation
services in the case of hosting contracts,
are recognized in accordance with
percentage of completion method once the
customer obtains a right to access and use
the Software.
(b) Managed Services
Fees for managed services, which
include business processing services,
are recognized as revenue as the related
services are performed.
(c) Contract balances
Contract assets primarily relate to unbilled
amounts on implementation/professional
services contracts and are classified as
non-financial asset as the contractual
right to consideration is dependent on
completion of contractual milestones
(which we refer to as unbilled services
revenue).
Unbilled revenues on software licensing
are classified as a financial asset where
the right to consideration is unconditional
upon passage of time (which we refer to
as unbilled licenses revenue). The unbilled
royalty revenue is also grouped here.
A contract liability is an entity’s obligation
to transfer software products or software
services to a customer for which the entity
has received consideration (or the amount
is due) from the customer (which we refer
to as unearned revenue).
The Company assesses the timing of the
transfer of software products or software
services to the customer as compared
to the timing of payments to determine
whether a significant financing component
exists. As a practical expedient, the
Company does not assess the existence of
a significant financing component when the
difference between payment and transfer
of deliverables is a year or less. If the
difference in timing arises for reasons other
than the provision of finance to either the
customer or us, no financing component is
deemed to exist.
(3) Revenue from Resale of Hardware & Software
Revenue from sale of traded hardware/software
is recognized on transfer of significant risks,
rewards and control to the customer.
b. Finance income
Finance income Interest on bank deposits/
investments (short term other than equity) is
recognized on accrual basis. Interest income from
financial assets is recognized using effective interest
rate method.
c. Employee benefits expense
Short term employee benefits
Short-term employee benefits viz., salaries, wages,
other benefits are recognized as an expense at the
undiscounted amount in the P&L for the year in
which the related service is rendered. A liability is
recognized for the amount expected to be paid 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 obligation can be estimated reliably.
Share based payments
When the stock options are exercised, the Company
issues fresh issue of Equity Shares, upon receipt of
exercise price from the option grantees. The proceeds
received are allocated to Share Capital up to the
face value of shares issued, with any excess being
accounted as Securities Premium in the Balance
Sheet. The cost of fair value determined at the grant
date is expensed over the vesting period in the Profit
and Loss.
Post-employment benefits Defined Contribution
Plan
A defined contribution plan is a post-employment
benefit plan where the Company’s legal or
constructive obligation is limited to the amount that
it contributes and are expensed as an employee
benefits expense in the P&L in the period in which
the related service is provided by the employee.
The Company contributes monthly to Employees’
Provident Fund & Employees’ Pension Fund
administered by the Employees’ Provident Fund
Organization, Government of India, at 12% of
employee’s basic salary.
The Company contributes to Superannuation Fund/
National Pension System (NPS) at a sum equivalent
to 15% (not exceeding rupees one lakh fifty thousand
per annum) and 10% respectively, of the eligible
employee’s basic salary, for those who have opted to
participate based on the options exercised by them.
Contributions to Provident Fund, Superannuation
Fund, and National Pension System (NPS) are
recognized as an expense in the P&L for the year in
which the employees have rendered services. There
are no further obligations except for the above said
contributions.
Defined Benefit Plan
The Company contributes to a defined benefit plan
viz., an approved Gratuity Fund, for its employees
including eligible employees in subsidiary companies.
It is in the form of lump sum payments to vested
employees on resignation, retirement, death while
in employment or on termination of employment,
for an amount equivalent to 15 days’ basic salary for
each completed year of service. Vesting occurs upon
completion of five years of continuous service. The
Company makes annual contributions to the Gratuity
scheme administered through the trust formed for the
purpose. The liability for Gratuity is ascertained as at
the end of the financial year, based on the actuarial
valuation by an independent external actuary as at
the Balance Sheet date using the “projected unit
credit method.
Remeasurement of net defined benefit asset/liability
comprising of actuarial gains or losses arising from
experience adjustments and changes in actuarial
assumptions are charged/credited to OCI in the
period in which they arise and immediately transferred
to retained earnings. Other costs are accounted for in
the P&L.
Other long term employee benefits
The Company provides for expenses towards
compensated absences provided to its employees,
while it is expected to be carried forward beyond
twelve months as a long-term employee benefit,
which is the amount of future benefit that employees
have accumulated at the end of the year. The expense
is recognized at the present value of the amount
payable determined based on actuarial valuation by
an independent external actuary as at the Balance
Sheet date using the “projected unit credit method.
d. Income taxes
Current tax is the amount of tax payable or receivable
on the taxable income or loss for the year as
determined in accordance with the tax rates (and tax
laws) that have been enacted at the reporting date.
Current tax assets and liabilities are offset, when the
Company has legally enforceable right to set off the
recognized amounts and intends to settle the asset
and the liability on a net basis.
Deferred tax is recognized using the Balance Sheet
approach on temporary differences between the
tax bases of assets and liabilities and their carrying
amounts for financial reporting at the reporting date.
The Company reviews the “MAT Credit Entitlement”
at each Balance Sheet date and writes down the
carrying amount of the same to the extent there is
no longer convincing evidence to the effect that the
Company will pay normal Income tax during the
specified period.
Deferred tax assets and liabilities are measured at the
tax rates that are expected to apply in the year where
the asset is realized or the liability is settled, based
on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if such
items relate to taxes on income levied by same
governing tax laws and the Company has legally
enforceable right to set off current tax assets against
current tax liabilities.
Both current tax and deferred tax relating to items
recognized outside the P&L is recognized in OCI.
e. Property, plant and equipments (PPE)
Property, plant and equipment are stated at cost,
net of accumulated depreciation and accumulated
impairment losses, if any. The cost comprises of
purchase price, borrowing cost if capitalization criteria
are met and directly attributable cost of bringing the
asset to its working condition for the intended use. When
significant parts of plant and equipment are required
to be replaced at intervals, the Company depreciates
them separately based on their specific useful lives.
Depreciation in the books of the Company is charged
on a pro-rata basis on the Straight Line Method as
indicated under Schedule II of the Act, over the useful
life of the assets.
The useful lives of various assets used by the
Company are tabled below:
An item of property, plant and equipment and any
significant part initially recognized is de-recognized
upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain or
loss arising on de-recognition of the asset (calculated
as the difference between the net disposal proceeds
and the carrying amount of the asset) is included in
the P&L when the asset is de-recognized.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and adjusted
prospectively, if appropriate.
f. Leases
Company as a lessee
The Company recognizes right-of-use assets
and a lease liability at the commencement date,
except short term leases and low value leases. The
Company’s lease asset classes primarily consist of
leases for Land, Buildings and Office equipments.
Right-of-use assets are depreciated on a straight line
basis over the lease term.
They are subsequently measured at cost less
accumulated depreciation and impairment losses.
The lease liability measured at amortized cost using
the effective interest method. In calculating the
present value of lease payments, the Company uses
its incremental borrowing rate. It is remeasured when
there is a change in future lease payments arising
from a change in an index or rate, if there is a change
in the Company’s estimate of the amount expected
to be payable under a residual value guarantee, or if
Company changes its assessment of whether it will
exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way,
a corresponding adjustment is made to the carrying
amount of the right-of-use asset, or is recorded in the
P&L if the carrying amount of the right-of-use asset
has been reduced to zero.
The Company presents right-of-use assets that do
not meet the definition of investment property in
‘Property, Plant and Equipment’ and Lease liabilities
as a separate line item on face of the Balance Sheet.
The Company has opted not to recognise right-of-
use assets and lease liabilities for short-term leases
that have a lease term of 12 months or less. The
Company recognises the lease payments associated
with these leases as an expense on a straight-line
basis over the lease term.
Company as a lessor
Operating lease receipts are recognized in the P&L
on straight-line basis over the lease terms except
where the payments are structured to increase in
line with the general inflation to compensate for the
expected inflationary cost increases.
g. Intangible assets
Intangible assets acquired from third party and the
patents granted, are measured on initial recognition
at cost.
The cost of development of software are capitalized
and recognized as an Intangible asset, when 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 intends to use or
commercially exploit. Subsequent expenditure
is capitalized only when it increases the future
economic benefits. Research costs and internally
generated intangibles (excluding capitalized software
development costs) are not capitalized and the
related expenditure is reflected in the P&L in the
period in which the expenditure is incurred.
The useful lives of intangible assets of the Company
are assessed as finite.
Intangible assets with finite lives are amortized
over the useful economic life and assessed
for impairment whenever there is an indication
that the intangible asset may be impaired. The
amortization period and the amortization method
for an intangible asset with a finite useful life are
reviewed at least at the end of each reporting period.
Gains or losses arising from de-recognition of an
intangible asset are measured as the difference
between the net disposal proceeds and the carrying
amount of the asset and are recognized in the P&L
when the asset is de-recognized.
Costs incurred in the development of the product,
together with repository of new business components,
upon completion of the development phase, have
been classified and grouped as “Product software”
under intangible assets. Similarly, costs incurred in
the development of technology platform framework,
which would enable the Company to provide
solutions - both standard and customized - in an
efficient manner, have been classified and grouped
as “Technology platform” under intangible assets.
During the period of development and thereafter, the
asset is tested for impairment annually.
The useful life of the above assets is estimated as
under:
h. Financial Instruments
The Company initially determines the classification of
financial assets and liabilities. After initial recognition,
no re-classification is made for financial assets, which
are categorized as equity instruments at FVTOCI,
and financial assets/liabilities that are specifically
designated as FVTPL. However, other financial
assets are re-classifiable when there is a change in
the business model of the Company.
Financial assets
Financial assets comprise of investments in equity
and mutual funds, loans, trade receivables, cash and
cash equivalents and other financial assets.
Initial recognition and measurement
All financial assets are recognized initially at fair
value plus or minus, in the case of financial assets
not recorded at fair value through P&L (FVTPL),
transaction costs that are directly attributable to the
acquisition or issue of the financial asset. However,
Trade receivables that do not contain a significant
financing component are initially measured at
transaction price.
Where the fair value of a financial asset at initial
recognition is different from its transaction price, the
difference between the fair value and the transaction
price is recognized as a gain or loss in the P&L at
initial recognition if the fair value is determined
through a quoted market price in an active market
for an identical asset (i.e. level 1 input) or through a
valuation technique that uses data from observable
markets (i.e. level 2 input).
In case the fair value is not determined using a
level 1 or level 2 input as mentioned above, the
difference between the fair value and transaction
price is deferred appropriately and recognized as a
gain or loss in the P&L only to the extent that such
gain or loss arises due to a change in factor that
market participants take into account when pricing
the financial asset.
Subsequent measurement
For subsequent measurement, the Company
classifies a financial asset in accordance with the
below criteria:
(a) The Company’s business model for managing
the financial asset and,
Financial liabilities
Financial liabilities comprise of Borrowings, Trade
payables, Derivative financial instruments, Financial
guarantee obligations, Lease liabilities and Other
financial liabilities.
Initial recognition and measurement
All financial liabilities are recognized initially at
fair value minus, in the case of financial liabilities
not recorded at fair value through P&L (FVTPL),
transaction costs that are attributable to the
acquisition of the financial liability.
Where the fair value of a financial liability at initial
recognition is different from its transaction price, the
difference between the fair value and the transaction
price is recognized as a gain or loss in the P&L at
initial recognition if the fair value is determined
through a quoted market price in an active market
for an identical asset (i.e. level 1 input) or through a
valuation technique that uses data from observable
markets (i.e. level 2 input).
In case the fair value is not determined using a level
1 or level 2 input as mentioned above, the difference
between the fair value and transaction price is
deferred appropriately and recognized as a gain or
loss in the P&L only to the extent that such gain or
loss arises due to a change in factor that market
participants take into account when pricing the
financial liability.
Subsequent measurement
All financial liabilities of the Company are
subsequently measured at amortized cost using the
effective interest method except for certain items
like foreign exchange forward contracts that do not
qualify for hedge accounting are measured at fair
through P&L (FVTPL).
Transaction cost of financial guarantee contracts
that are directly attributable to the issuance of the
guarantee are recognized initially as a liability at fair
value. Subsequently, the liability is measured at the
higher of the amount of loss allowance determined
as per impairment requirements of Ind AS 109 and
the amount recognized less cumulative amortization.
Fair value measurement
The fair value of an asset or a liability is measured
using the assumptions that the market participants
would use when pricing the asset or liability, assuming
that the market participants act in the economic best
interest.
All assets and liabilities for which fair value is
measured and disclosed in the financial statements
are categorized within fair value hierarchy based on
the lowest level input that is significant to the fair value
measurement as a whole. The fair value hierarchy is
described as below:
Level 1: Unadjusted quoted prices in active markets
for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest
level inputs that are significant to the fair value
measurement is directly or indirectly observable.
Level 3: Valuation techniques for which the lowest
level inputs that are significant to the fair value
measurement is unobservable.
For assets and liabilities that are recognized in the
Balance Sheet on a recurring basis, the Company
determines whether transfers have occurred between
levels in the hierarchy by reassessing categorization
at the end of each reporting period (i.e.) based on the
lowest level input that is significant to the fair value
measurement as a whole.
For the purpose of fair value disclosures, the
Company has determined the classes of assets and
liabilities based on the nature, characteristics and
risks of the assets or liabilities and the level of the fair
value hierarchy as explained above.
i. Impairment of non-financial assets
The carrying amount of assets i.e., property, plant and
equipment including right-of-use asset, investment
properties, cash generating units and intangible
assets other than inventories & deferred tax assets,
are reviewed for impairment at each reporting date,
if there is any indication of impairment based on
internal and external factors.
Non-financial assets are treated as impaired when
the carrying amount of such asset exceeds its
recoverable value.
The Company impairs the Unbilled services revenue
using the simplified approach wherein Expected
Credit Loss model (ECL) is applied.
The ECL over lifetime of the assets are estimated by
using a provision matrix which is based on historical
loss rates reflecting current conditions and forecasts
of future economic conditions which are grouped
on the basis of similar credit characteristics such
as nature of industry, customer segment, past due
status and other factors that are relevant to estimate
the expected cash loss from these assets.
|