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HCL Technologies

BSE: 532281|NSE: HCLTECH|ISIN: INE860A01027|SECTOR: Computers - Software
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« Jun 14
Accounting Policy Year : Jun '15
Company Overview
 
 HCL Technologies Limited (hereinafter referred to as ''HCL'' or the
 ''Company'') is primarily engaged in providing a range of software
 services, business process outsourcing services and IT infrastructure
 services. The Company was incorporated in India in November 1991. The
 Company leverages its extensive offshore infrastructure and global
 network of offices and professionals located in various countries to
 deliver solutions across select verticals including financial services,
 manufacturing (automotive, aerospace, hi-tech and semi conductors),
 telecom, retail and consumer packaged goods services , media,
 publishing and entertainment, public services, energy and utility,
 healthcare and travel, transport and logistics.
 
 a) Basis of preparation
 
 The financial statements of the Company have been prepared in
 accordance with generally accepted accounting principles in India
 (Indian GAAP). These financial statements have been prepared to comply
 in all material aspects with the applicable accounting standards
 notified under section 133 of the Companies Act 2013, read together
 with paragraph 7 of the Companies (Accounts) Rules 2014. The financial
 statements have been prepared under the historical cost convention on
 an accrual and going concern basis except for certain financial
 instruments which are measured at fair value.
 
 The accounting policies adopted in the preparation of the financial
 statements are consistent with those of the previous year unless stated
 specifically in the accounting policies below.
 
 b) Use of estimates
 
 The preparation of financial statements in conformity with Indian GAAP
 requires the management to make estimates and assumptions that affect
 the reported amounts of assets and liabilities and disclosure of
 contingent liabilities at the date of the financial statements and the
 results of operations during the reporting period. Although these
 estimates are based upon the management''s best knowledge of current
 events and actions, actual results could differ from these estimates.
 
 c) 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
 directly attributable cost of bringing the asset to its working
 condition for its intended use. Any trade discounts and rebates are
 deducted in arriving at the purchase price.
 
 Subsequent expenditure related to an item of fixed assets is added to
 its book value only if it increases the future benefits from the
 existing asset beyond its previously assessed standard or period of
 performance. All other expenses on existing fixed assets, including
 day-to-day repairs, 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.
 
 Fixed assets under construction and cost of assets not ready for use
 before the year-end, are disclosed as capital work – in -progress.
 
 The useful lives as given above best represent the period over which
 the management expects to use these assets, based on technical
 assessment. Hence, the useful lives for these assets are different from
 the useful lives prescribed under Part C of Schedule II of the
 Companies Act 2013.
 
 Till year ended 30 June 2014, to comply with the requirements of
 Schedule XIV to the Companies Act, 1956, the Company was charging 100%
 depreciation on assets costing Rs. 5,000/- or less in the year of
 purchase. However, to comply with the requirement of Schedule II to the
 Companies Act, 2013, the Company has changed its accounting policy for
 depreciation of assets costing Rs. 5,000/- or less. As per the revised
 policy, the Company depreciates such assets over their useful lives as
 assessed by the management. The management has decided to apply the
 revised accounting policy prospectively from the accounting year
 commencing on or after 01 July 2014.
 
 The change in the accounting for depreciation of assets costing Rs.
 5,000/- or less did not have any material impact on financial
 statements of the Company for the current year.
 
 e) Intangible assets
 
 Intangible assets acquired separately are measured on initial
 recognition at cost. The cost of intangible assets acquired in an
 amalgamation in the nature of purchase is their fair value as at the
 date of amalgamation. Following the initial recognition, intangible
 assets are carried at cost less accumulated amortization and
 accumulated impairment losses, if any. Internally generated intangible
 assets, excluding capitalized development costs, are not capitalized
 and expenditure is reflected in the statement of profit and loss in the
 year in which the expenditure is incurred.
 
 Intangible assets are amortized on a straight line basis over their
 estimated useful economic life. The Company uses a rebuttable
 presumption that the useful life of an intangible asset will not exceed
 ten years from the date when the asset is available for use.
 
 The amortization period and the amortization method are reviewed at
 least at each financial year end. If the expected useful life of the
 asset is significantly different from the previous estimate, the
 amortization period is changed accordingly. If there has been a
 significant change in the expected pattern of economic benefit from the
 asset, the amortization method is changed to reflect the changed
 pattern.
 
 Gains or losses arising from derecognition of intangible assets are
 measured as the difference between the net disposal proceeds and the
 carrying amount of the assets and are recognized in the statement of
 profit and loss when the asset is derecognized.
 
 Goodwill arising out of amalgamation is amortized over 5 years unless a
 longer period can be justified.
 
 The management''s estimates of the useful life of Software is 3 years.
 
 f) Research and development costs
 
 Research costs are expensed as incurred. Development expenditure
 incurred on an individual project is recognized as an intangible asset
 when the Company can demonstrate all the following:
 
 (i) The technical feasibility of completing the intangible asset so
 that it will be available for use or sale;
 
 (ii) Its intention to complete the asset;
 
 (iii) Its ability to use or sell the asset;
 
 (iv) How the asset will generate future economic benefits;
 
 (v) The availability of adequate resources to complete the development
 and to use or sell the asset; and
 
 (vi) The ability to measure reliably the expenditure attributable to
 the intangible asset during development.
 
 Any expenditure so capitalized is amortized over the period of expected
 future sales from the related project.
 
 The carrying value of development costs is reviewed annually for
 impairment when the asset is not yet in use, and otherwise when events
 or changes in circumstances indicate that the carrying value may not be
 recoverable.
 
 g) Leases
 
 Where the Company is the lessee
 
 Finance leases, which effectively transfer to the Company substantially
 all the risks and benefits incidental to ownership of the leased item,
 are capitalized at the inception of the lease term at the lower of the
 fair value or present value of the minimum lease payments. Lease
 payments are apportioned between the finance charges and reduction of
 the lease liability so as to achieve a constant rate of interest on the
 remaining balance of the liability. Finance charges are recognized as
 finance cost in the statement of profit and loss. Lease management
 fees, legal charges and other initial direct costs of the lease are
 capitalized.
 
 A leased asset is depreciated on a straight line basis over the useful
 life of the asset. However, if there is no reasonable certainty that
 the Company will obtain the ownership by the end of the lease term, the
 capitalized asset is depreciated on a straight line basis over the
 shorter of the estimated useful life of the asset or lease term.
 
 Leases, where the lessor effectively retains substantially all the
 risks and benefits of ownership of the leased items, are classified as
 operating leases. Operating lease payments are recognized as an expense
 in the statement of profit and loss on a straight-line basis over the
 lease term.
 
 Where the Company is the lessor
 
 Leases in which the Company transfers substantially all the risk and
 benefits of ownership of the asset are classified as finance leases.
 Assets given under a finance lease are recognized as a receivable at an
 amount equal to the net investment in the leased assets. After initial
 recognition, the Company apportions lease rentals between the principal
 repayment and interest income so as to achieve a constant periodic rate
 of return on the net investment outstanding in respect of the finance
 leases. The interest income is recognized in the statement of profit
 and loss. Initial direct costs such as legal cost, brokerage cost etc
 are recognized immediately in the statement of profit and loss.
 
 Leases in which the Company does not transfer substantially all the
 risk and benefits of ownership of the assets, are classified as
 operating leases. Assets subject to operating leases are included in
 fixed assets. Lease income on an operating lease is recognized in the
 statement of profit and loss on a straight line basis over the lease
 term. Costs, including depreciation, are recognized as an expense in
 the statement of profit and loss. Initial direct costs such as legal
 cost, brokerage cost etc are recognized immediately in the statement of
 profit and loss.
 
 h) Borrowing cost
 
 Borrowing costs include interest, amortization of ancillary costs
 incurred in connection with the arrangement of borrowings and exchange
 differences arising from foreign currency borrowings to the extent they
 are regarded as an adjustment to the interest cost.
 
 Borrowing costs directly attributable to the acquisition, construction
 or production of an asset that necessarily takes a substantial period
 of time to get ready for its intended use or sale are capitalized as
 part of the cost of the respective asset.  All other borrowing costs
 are expensed in the period they occur.
 
 i) Impairment of tangible and intangible assets
 
 An assessment is done at each balance sheet date as to whether there is
 any indication that an asset (tangible or intangible) may be impaired.
 For the purpose of assessing impairment, the smallest identifiable
 group of assets that generates cash inflows from continuing use that
 are largely independent of the cash inflows from other assets or groups
 of assets, is considered as a cash generating unit. If any such
 indication exists, an estimate of the recoverable amount of the
 asset/cash generating unit is made. Assets whose carrying value exceeds
 their recoverable amount are written down to the recoverable amount.
 The recoverable amount is the higher of an asset''s or cash generating
 unit''s net selling price or its value in use. Value in use is the
 present value of estimated future cash flows expected to arise from the
 continuing use of an asset and from its disposal at the end of its
 useful life. In assessing value in use, the estimated future cash flows
 are discounted to their present value using a pre- tax discount rate
 that reflects current market assessments of the time value of money and
 risks specific to the asset.
 
 j) Investments
 
 Investments, which are readily realizable and intended to be held for
 not more than one year from the date on which such investments are
 made, 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 the purchase price and directly attributable acquisition
 charges such as brokerage, fees and duties. If an investment is
 acquired, or partly acquired by the issue of shares or other
 securities, the acquisition cost is the fair value of securities
 issued. If an investment is acquired in exchange for another asset, the
 acquisition is determined by reference to the fair value of the asset
 given up or by reference to the fair value of the investment acquired,
 whichever is more clearly evident.
 
 Current investments are carried at the lower of cost and fair value
 determined on an individual investment basis. Long-term investments are
 carried at cost. However, provision for diminution in value is made to
 recognize a decline, other than temporary, in the value of the long
 term 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.
 
 k) Inventories
 
 Stock in trade, stores and spares are valued at the lower of the cost
 or net realizable value. Net realizable value is the estimated selling
 price in the ordinary course of business, less estimated costs of
 completion and estimated costs necessary to make the sale.
 
 Cost of stock in trade procured for specific projects is assigned by
 identification of individual costs of each item. Cost of stock in
 trade, that are interchangeable and not specific to any project and
 cost of stores and spare parts are determined using the weighted
 average cost formula.
 
 l) 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. Revenue from sale of goods and rendering of services
 is recognized when risk and reward of ownership have been transferred
 to the customer, the sale price is fixed or determinable and
 collectability is reasonably assured.
 
 The Company derives revenues primarily from:-
 
 - Software services;
 
 - IT Infrastructure services; and
 
 - Business process outsourcing services.
 
 i) Software services
 
 Revenue from software 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 percentage
 completion method under which revenue is recognized on the basis of
 cost incurred in respect of each contract as a proportion of total cost
 expected to be incurred. The cumulative impact of any revision in
 estimates of the percentage of work completed is reflected in the year
 in which the change becomes known.  Provision for estimated losses is
 made during the year in which a loss becomes probable based on current
 cost estimates.  Revenue from sale of licenses for the use of software
 applications is recognized on transfer of title in the user license.
 Revenue from annual technical service contracts is recognized on a pro
 rata basis over the period in which such services are rendered. Income
 from revenue sharing agreements is recognized when the right to receive
 is established.
 
 ii) IT Infrastructure services
 
 Revenue from sale of products is recognized when risk and reward of
 ownership have been transferred to the customer, the sale price is
 fixed or determinable and collectability is reasonably assured. Revenue
 related to products with installation services that are critical to the
 products is recognized when installation of networking equipment at
 customer site is completed and accepted by the customer. Revenue from
 bandwidth services is recognized upon actual usage of such services by
 customers based on either the time for which these services are
 provided or volume of data transferred or both and excludes service
 tax. Revenue from maintenance services is recognized ratably over the
 period of the contract. Revenue from IT infrastructure management
 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 with respect to
 fixed price contracts is recognized in accordance with the percentage
 of completion method.
 
 Unearned revenue arising in respect of bandwidth services and
 maintenance services is calculated on the basis of the unutilized
 period of service at the balance sheet date and represents revenue
 which is expected to be earned in future periods in respect of these
 services.
 
 In case of multiple-deliverable contracts where revenue cannot be
 allocated to various deliverables in a contract, the entire contract is
 accounted for as one deliverable and accordingly the revenue is
 recognized on a proportionate completion method following the
 performance pattern of predominant services in the contract or is
 deferred until the last deliverable is delivered.
 
 iii) Business process outsourcing services
 
 Revenue from business process outsourcing services is derived from both
 time based and unit-price contracts. Revenue is recognized as the
 related services are performed in accordance with the specific terms of
 the contracts with the customers.
 
 Earnings in excess of billing are classified as unbilled revenue, while
 billing in excess of earnings are classified as unearned revenue.
 Incremental revenue from existing contracts arising on future sales of
 the customers'' products will be recognized when it is earned. Revenue
 and related direct costs from transition services in outsourcing
 arrangements are deferred and recognized over the period of the
 arrangement. Certain upfront non-recurring costs incurred in the
 initial phases of outsourcing contracts and contract acquisition costs,
 are deferred and amortized usually on a straight line basis over the
 term of the contract. The Company periodically estimates the
 undiscounted cash flows from the arrangement and compares it with the
 unamortized costs.  If the unamortized costs exceed the undiscounted
 cash flow, a loss is recognized.
 
 The Company gives volume discounts and pricing incentives to customers.
 The discount terms in the Company''s arrangements with customers
 generally entitle the customer to discounts, if the customer completes
 a specified level of revenue transactions. In some arrangements, the
 level of discount varies with increases in the levels of revenue
 transactions.  The Company recognizes discount obligations as a
 reduction of revenue based on the rateable allocation of the discount
 to each of the underlying revenue transactions that result in progress
 by the customer toward earning the discount.
 
 Revenues are shown net of sales tax, value added tax, service tax and
 applicable discounts and allowances.
 
 Revenue from finance leases is recognized when risk of loss is
 transferred to the customer and there are no unfulfilled obligations
 that affect the client''s final acceptance of the arrangement. Interest
 attributable to finance leases is recognized on the accrual basis using
 the effective interest method.
 
 (iv) Others
 
 Interest on the deployment of surplus funds is recognized using the
 time-proportion method, based on interest rates implicit in the
 transaction. Brokerage, commission and rent are recognized once the
 same are earned and accrued to the Company and dividend income is
 recognized when the right to receive the dividend is established.
 
 m) Foreign currency translation
 
 (i) 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.
 
 (ii) 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.
 
 (iii) Exchange Differences
 
 Exchange differences arising on the settlement of monetary items, or on
 reporting such monetary items at rates different from those at which
 they were initially recorded during the year, or reported in previous
 financial statements, are recognized as income or expense in the
 statement of profit and loss in the year in which they arise.
 
 (iv) Hedging
 
 (a) Cash flow hedging
 
 The Company uses derivative financial instruments (foreign currency
 forward and option contracts) to hedge its risks associated with
 foreign currency fluctuations relating to certain highly probable
 forecast transactions.
 
 The use of foreign currency forward and options contracts is governed
 by the Company''s policies, which provide written principles on the use
 of such financial derivatives, consistent with the Company''s risk
 management strategy.  The Company does not use derivative financial
 instruments for speculative purposes.
 
 The derivative instruments are initially measured at fair value, and
 are re-measured at subsequent reporting dates. In respect of
 derivatives designated as hedges, the Company formally documents all
 relationships between hedging instruments and hedged items, as well as
 its risk management objective and strategy for undertaking various
 hedge transactions. The Company also formally assesses, both at the
 inception of the hedge and on an ongoing basis, whether each derivative
 is highly effective in offsetting changes in fair values or cash flows
 of the hedged item.  Changes in the fair value of these derivatives
 (net of tax) that are designated and effective as hedges of future cash
 flows are recognized directly in the hedging reserve account under
 shareholders'' funds and the ineffective portion is recognized
 immediately in the statement of profit and loss. Changes in the fair
 value of derivative financial instruments that do not qualify for hedge
 accounting are recognized in the statement of profit and loss as they
 arise.
 
 Hedge accounting is discontinued from the last testing date when the
 hedging instrument expires or is sold, terminated, or exercised, or no
 longer qualifies for hedge accounting. Cumulative gain or loss on such
 hedging instrument recognized in shareholders'' funds is retained until
 the forecast transaction occurs. If a hedged transaction is no longer
 expected to occur, the net cumulative gain or loss recognized in
 shareholders'' funds is transferred to the statement of profit and loss
 for the year.
 
 (b) Hedging of monetary assets and liabilities
 
 Exchange differences on such contracts are recognized in the statement
 of profit and loss in the period in which the exchange rates change.
 Any profit or loss arising on cancellation or renewal of a forward
 exchange contract is recognized as income or as an expense for the
 year.
 
 (v) Translation of integral and non-integral foreign operation
 
 The financial statements of an integral foreign operation are
 translated as if the transactions of the foreign operation had been
 those of the Company itself.
 
 In translating the financial statements of a non-integral foreign
 operation for incorporation in the financial statements, the assets and
 liabilities, both monetary and non-monetary, of the non-integral
 foreign operation are translated at the closing rate; and income and
 expense items of the non-integral foreign operation are translated at
 weighted average rates, which approximate the actual exchange rates.
 All resulting exchange differences are accumulated in a foreign
 currency translation reserve until the disposal of the net investment.
 
 On the disposal of a non-integral foreign operation, the cumulative
 amount of the exchange differences which had been deferred and which
 relate to that operation are recognized as income or as an expense in
 the same period in which the gain or loss on disposal is recognized.
 
 n) Retirement and other employee benefits
 
 i. Contributions to provident fund, a defined benefit plan, are
 deposited with Recognized Provident Fund Trusts, set up by the Company.
 The Company''s liability is actuarially determined at the end of the
 year. Actuarial losses/ gains are recognized in the statement of profit
 and loss in the year in which they arise. The minimum interest rate
 payable by the Trust to the beneficiaries every year is notified by the
 Government and the Company has an obligation to make good the
 shortfall, if any, between the return from the investments of the Trust
 and the notified interest rate.
 
 ii. In respect of superannuation, a defined contribution plan for
 applicable employees, the Company contributes to a scheme administered
 on its behalf by an insurance company and such contributions for each
 year of service rendered by the employees are charged to the statement
 of profit and loss. The Company has no further obligations to the
 superannuation plan beyond its contributions.
 
 iii. Gratuity liability: The Company provides for gratuity, a defined
 benefit plan (the Gratuity Plan) covering eligible employees.  The
 Gratuity Plan provides a lump sum payment to vested employees at
 retirement, death, incapacitation or termination of employment, of an
 amount based on the respective employee''s base salary and the tenure of
 employment (subject to maximum of Rs. 10 Lacs per employee). The
 Company''s liability is actuarially determined (using the Projected Unit
 Credit method) at the end of each year.
 
 iv. Compensated absences: The employees of the Company are entitled to
 compensated absences which are both accumulating and non-accumulating
 in nature. The expected cost of accumulating compensated absences is
 determined by actuarial valuation (using the Projected Unit Credit
 method) based on the additional amount expected to be paid as a result
 of the unused entitlement that has accumulated at the balance sheet
 date. The expense on non-accumulating compensated absences is
 recognized in the period in which the absences occur.
 
 v.  Actuarial gains/losses are immediately taken to the statement of
 profit and loss and are not deferred.
 
 vi. State Plans : The Company''s contribution to State Plans , a defined
 contribution plan namely Employee State Insurance Fund and Employees
 Pension Scheme are charged to the statement of profit and loss.
 
 o) Taxation
 
 Tax expense comprises current and deferred tax. Current income tax
 expense comprises taxes on income from operations in India and foreign
 jurisdictions. Income tax payable in India is determined in accordance
 with the provisions of the Income Tax Act, 1961 and tax expense
 relating to overseas operations is determined in accordance with tax
 laws applicable in countries where such operations are domiciled.
 
 Deferred tax expense or benefit is recognized on timing differences
 being the difference between taxable income and accounting income that
 originate in one period and are capable of reversal in one or more
 subsequent periods.
 
 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. Deferred income tax relating to items recognized
 directly in equity is recognized in equity and not in the statement of
 profit and loss. Deferred tax assets and deferred tax liabilities are
 offset, if a legally enforceable right exists to set off current tax
 assets, against current tax liabilities and the deferred tax assets and
 deferred tax liabilities relate to the taxes on income levied by the
 same governing taxation laws.
Source : Dion Global Solutions Limited
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