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
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
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
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
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.
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
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.
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
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
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.
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
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.
(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
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
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
(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.
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
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.