Firstsource Solutions

1.  Related Party Transactions
 
 Details of related parties including summary of transactions entered
 into during the year ended 31 March 2009 are summarized below:
 
 Parties with substantial interests 
 
 - ICICI Bank Limited
 - Metavante Investments (Mauritius) Limited
 - Aranda Investments (Mauritius) Pte Limited
 
 Subsidiaries wherein control exists 
 
 - The related parties where control exists are subsidiaries as referred
 to in Schedule 1 to the financial statements.
 
 Companies in which directors are interested 
 
 - ICICI Prudential Life Insurance Company Limited (l-Prudential)
 
 Key Managerial Personnel including relatives 
 
 - Ananda Mukerji
 - Carl Saldanha
 - Raju Venkatraman 
 - Rajesh Subramanium 
 - Rahul Basu 
 
  Non-Executive Directors 
 
 - Ashok Shekhar Ganguly
 - Charles Miller Smith K. P. Balaraj
 - Shikha Sharma
 - Shailesh Mehta
 - Mohit Bhandari
 - Y. H. Malegam
 - Donald Layden, Jr.
 - Lalita D. Gupte 
 - Dinesh Vaswani 
 
 2.  Other operating income
 
 Other operating income comprises net gain/(loss) on restatement and
 settlement of debtor balances and related forward/option contracts.
 
 3.  F:ringe Benefits Tax (FBT)
 
 The Finance Act, 2007 has introduced Fringe Benefits Tax (FBT) on
 employee stock options. The difference between the fair value of the
 underlying share on the date of vesting and the exercise price paid by
 the employee is subject to FBT.  The Company recovers such tax from the
 employee. The Companys obligation to pay FBT arises only upon the
 exercise of the stock option. During the year ended 31 March 2009 the
 Company recognised FBT liability and related recovery of Rs. 3,523 (31
 March 2008: Rs. 6,970) arising from the exercise of stock options.
 
 4.  Adoption of AS 30 and change in accounting policy
 
 In December 2007, the ICAI issued AS 30, Financials Instruments:
 Recognition and Measurement which is recommendatory in respect of
 accounting periods commencing on or after 1 April 2009 and mandatory in
 respect of accounting periods commencing on or after 1 April 2011 for
 the Company.
 
 In March 2008, ICAI announced that earlier adoption of AS 30 is
 encouraged. However, AS 30, along with limited revision to other
 accounting standards, has currently not been notified under the
 Companies (Accounting Standard) Rules, 2006.
 
 In accordance with the announcement dated 27 March, 2008 issued by
 ICAI, the Company adopted AS 30 with effect from March 2008 in so far
 as it relates to the derivatives. Similarly, the Company also adopted
 AS 30 with respect to hedging transactions with effect from 1 July,
 2008. On 1 October, 2008, the Company early adopted AS 30 in its
 entirety, read with AS 31, effective 1 April, 2008 and the prescribed
 limited revisions to other accounting standards.
 
 AS 30 states that particular sections of other accounting standards; AS
 4, Contingencies and Events Occurring after Balance sheet Date, to the
 extent it deals with contingencies, AS 11 (revised 2003), The Effects
 of Changes in Foreign Exchange Rates, to the extent it deals with the
 forward exchange contracts and AS 13, Accounting for Investments,
 except to the extent it relates to accounting for investment
 properties, would stand withdrawn only from the date AS 30 becomes
 mandatory (1 April 2011). In view of the Company, on an early adoption
 of AS 30, accounting treatment made on the basis of the relevant
 sections of the Accounting Standards referred above viz. AS-4, AS-11
 and AS-13 stands withdrawn as it believes that principles of AS 30 more
 appropriately reflect the nature of these transactions.
 
 Pursuant to the early adoption of AS 30, the Company has discounted
 Non-interest-bearing deposits to their present value and the difference
 between original amount of deposit and the discounted present value has
 been disclosed as Unamortized cost under Loans and Advances, which is
 charged to the Profit and loss account over the period of related
 lease. Correspondingly, interest income is accrued on these interest
 free deposits using the implicit rate of return over the period of
 lease and is recognized under Interest income.
 
 Had the Company not early adopted AS 30 as stated above, and continued
 to record Non-interest-bearing deposits at transaction value, profit
 for the year ended 31 March 2009 would have been higher by Rs. 1,205.
 
 In accordance with the transitional provisions of AS 30, charge of Rs.
 4,948 on account of fair valuation of deposits on 1 April 2008 has been
 accounted through General Reserves.
 
 As permitted by AS 30, the Company designated its FCCB along with
 premium payable on redemption as a hedging instrument to hedge its net
 investment in the non-integral foreign operations effective 1 July
 2008. Accordingly, the translation loss on FCCB Rs. 1,778,551 for
 period ended 31 March 2009, which is determined to be effective hedge
 of net investment in non integral foreign operations, has been has been
 charged to the Profit and loss account. Correspondingly, the gain on
 translation of investment in non-integral foreign operations has been
 credited to Profit and loss account. The net impact for the same is
 Nil. The translation loss till 30 June 2008 amounting to Rs. 778,242
 has been charged to Profit and loss account (refer Schedule 18). If the
 Company had continued to apply the provisions of AS 11 to the FCCB and
 not designated it as a cash flow hedge as permitted under AS 30 and the
 consequent limited revision to other accounting standards, the
 translation gain on the investment would not have been recorded in the
 Profit and loss account.
 
 Further, the Company has accounted for embedded derivative option
 included in FCCB and revalued the same at the period end. The Company
 has charged Rs. 113,860 for the year ended 31 March 2009 as amortised
 cost on the fair value of FCCB under Finance charges, net towards
 accretion of FCCB liability using implicit rate of return method over
 the repayment tenor of FCCB.
 
 In accordance with the transitional provisions of AS 30, income of Rs.
 691,875 on account of reduction in option valuation of FCCB and expense
 of Rs. 18,716 on account of difference in fair value of interest rate
 and the implicit interest rate on FCCB on 1 April 2008 has been
 accounted through General Reserve.
 
 During the year, the Company has changed its accounting policy relating
 to premium payable on redemption of FCCB.  Accordingly, the premium
 payable on redemption is amortised on pro-rata basis over the period of
 the bonds by debiting Securities premium account for the year amounting
 to Rs. 696,086 (as permitted by Section 78 of the Companies Act, 1956)
 as against the earlier policy of charging the entire premium payable on
 redemption to the Securities Premium Account upfront in the year of
 issue of bonds. Consequently, the Securities Premium Account has been
 restated by Rs. 4,095,749 after considering the amortization on
 pro-rata basis till 31 March 2008.
 
 5. Segmental Reporting
 
 In accordance with paragraph 4 of Accounting Standard 17 Segment
 Reporting prescribed in the Companies (Accounting Standards) Rules,
 2006, issued by the Central Government, the Company has presented
 segmental information only on the basis of the consolidated financial
 statements (refer Note 25 of the consolidated financial statements).
 
 6. Derivatives
 
 The Company has designated forwards contracts and options to hedge
 highly probably forecasted transactions on the principles of set out in
 AS-30, Financials Instruments: Recognition and Measurement.
 
 As at 31 March 2009, the Company has derivative financial instruments
 to sell USD 98,834,044 (31 March 2008: USD 99,976,959) having fair
 value loss Rs. 497,649 (31 March 2008: loss of Rs. 96,279) and GBP
 21,000,000 (31 March 2008: GBP 31,184,412) having fair gain of Rs.
 224,340 (31 March 2008: gain of Rs. 36,506) relating to highly probable
 forecasted transactions. The Company has recognized mark to market loss
 of Rs. 56,726 (31 March 2008: Rs. 48,702) relating to derivative
 financial instruments that are designated as effective cash flow hedges
 in the Hedge Reserve account under Shareholders funds (refer Schedule
 4). At 31 March 2009, the Company has undesignated certain derivative
 financial instruments and recognised mark to market losses of Rs.
 236,202 thereon in the Profit and loss account, (refer Schedule 15).
 Foreign currency exposures (other than cash and bank balances) on loans
 and receivables that are not hedged by derivative instruments or
 otherwise are Rs. 1,420,625 (equivalent to GBP 19.60 million).
 
 7. The Company is in the business of providing ITES and BPO services.
 Such services are not capable of being expressed in generic unit and
 hence, it is not possible to give the quantitative details required
 under paragraphs 3, 4C and 4D of Part II of Schedule VI to the
 Companies Act, 1956.
 
 8. Prior period comparatives
 
 Previous years figures have been appropriately regrouped / reclassified
 to conform to current year presentation.