1. Company Information:
The Company was incorporated in 1989 under the Companies Act, 1956 as
Codec Communication Pvt. Ltd with registration number 25-14448. The
Company commenced its operations on January 10, 1989. In March, 2006
the Company changed its name to HOV Services Limited as a part of its
plans to create brand recognition among its customers. The company is
engaged in the BPO business of Finance and Accounting sector including
Software Development and Support Services.
2. Basis for Preparation of Financial Statements:
The Financial Statements are prepared in accordance with the Generally
Accepted Accounting Principles (GAAP) applicable in India under the
historical cost convention, on the accrual basis, in compliance with
the Accounting Standards (AS) prescribed by the Companies (Accounting
Standards) Rules, 2006 to the extent applicable and on the principles
of a going concern.
3. Use of Estimates:
The preparation of financial statements in conformity with AS and GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosures of
contingent liabilities on the date of financial statements and reported
amounts of revenue and expenses for that year. Actual result could
differ from these estimates. Any revision to accounting estimates is
4. Revenue Recognition:
Revenue from Software & IT enabled services are recognized as per the
work orders/agreements entered with the customers.
Rental and Interest income is recognized on time proportion basis and
is disclosed under Other Income.
5. Fixed Assets:
Tangible: Fixed assets are stated at historical cost, which comprises
of purchase consideration and other directly attributable cost of
bringing an asset to its working condition for the intended use, less
Intangible: Costs that are directly associated with identifiable and
unique software products controlled by the Company, developed in-house
or acquired, and have probable economic benefits exceeding the cost
beyond one year are recognized as software products. Other acquired
softwares meant for in-house consumption are capitalized at the
6. Impairment of Assets:
In accordance with AS 28 on 'Impairment of Assets' prescribed by the
Companies (Accounting Standard) Rules,2006 where there is an indication
of impairment of the Company's assets related to cash generating units,
the carrying amounts of such assets are reviewed at each balance sheet
date to determine whether there is any impairment. The recoverable
amount of such assets is estimated as the higher of its net selling
price and its value in use. An impairment loss is recognized in the
statement of Profit and Loss whenever the carrying amount of such
assets exceeds its recoverable amount. If at the balance sheet date,
there is an indication that a previously assessed impairment loss no
longer exists, then such loss is reversed and the asset is restated to
extent of the carrying value of the asset that would have been
determined (net of amortization / depreciation), had no impairment loss
7. Depreciation / Amortization:
a) Tangible Assets - Depreciation on fixed assets is provided on
Straight Line Method at the rates and in the manner prescribed in the
Schedule XIV to the Companies Act, 1956. Investment property is
amortized over the period of lease.
b) Intangible Assets - Software product (meant for sale) are amortized
over its estimated useful life of 8 years. Other Software products are
depreciated over its period of license.
Investments are classified into long term and current investments.
Long-term investments are carried at cost and provision is made to
recognize any decline in the value other than temporary in the value of
such investments. Current investments are carried at the lower of the
cost or fair value/market value and provision is made to recognize any
decline in the carrying value of the investments. Investment in
property is recognized at cost less amortization.
9. Employee Benefits:
The Company provides for gratuity, a defined benefit retirement plan,
covering eligible employees. Liability under gratuity plan is
determined on actuarial valuation done by the Life Insurance
Corporation of India (LIC) at the beginning of the year, based upon
which, the Company contributes to the Scheme with LIC. The Company also
provides for the additional liability over the amount contributed to
LIC based on the actuarial valuation done by an independent value
using the Projected Unit Credit Method.
b) Provident Fund:
Retirement benefits in the form of Provident Fund / Pension Fund is a
defined contribution scheme and the contributions are charged to the
Statement of Profit and Loss of the year when the contributions to the
respective funds are due.
c) Leave Entitlement:
Liability for Leave entitlement for employees is provided on the basis
of Actuarial Valuation done during the year.
10. Foreign Exchange Transactions:
Transactions in foreign currency are recorded at the rate of exchange
in force on the date of the transactions. Current assets, current
liabilities and borrowings denominated in foreign currency are
translated at the exchange rate prevalent at the date of Balance Sheet.
The resultant gain or loss is recognized in the Statement of Profit and
11. Accounting for Taxes on Income:
Provision for current income tax is made on the basis of the estimated
taxable income for the year in accordance with the Income Tax Act,
MAT credit asset is recognized and carried forward only if there is a
reasonable certainty of it being set off against regular tax payable
within the stipulated statutory period.
Deferred tax resulting from timing differences between book profits and
tax profits is accounted for under the liability method, at the current
rate of tax, to the extent that the timing differences are expected to
crystallize. Deferred tax assets are recognized and carried forward
only if there is a virtual/ reasonable certainty that they will be
realized and are reviewed for the appropriateness of their respective
carrying values at each Balance Sheet date.
12. Borrowing Costs:
Borrowing costs attributable to acquisition and construction of
qualifying assets are capitalized as a part of the cost of such assets
up to the date when such asset is ready for its intended use. Other
borrowing costs are charged to Statement of Profit and Loss.
Where the Company has substantially acquired all risks and rewards of
ownership of the assets, leases are classified as financial lease. Such
assets are capitalized at the inception of the lease, at the lower of
the fair value or present value of minimum lease payment and liability
is created for equivalent amount. Each lease rent paid is allocated
between liability and interest cost so as to obtain constant periodic
rate of interest on the outstanding liability for each year. Where
significant portion of risks and reward of ownership of assets acquired
under lease are retained by lesser, leases are classified as Operating
Lease. Lease rentals for such leases are charged to Statement of Profit
14. Earnings Per Share:
The earnings considered in ascertaining Earnings Per Share comprise the
net profit after tax. The number of shares used in computing Basic EPS
is weighted average number of shares outstanding during the year. The
number of shares used in computing diluted EPS comprises of weighted
average shares considered for deriving Basic EPS, and also weighted
average number of equity shares which could have been issued on the
conversion of all diluted potential equity shares. Diluted potential
equity shares are deemed converted at the beginning of the year, unless
they have been issued at later date.
15. Provisions, Contingent Liability and Contingent Assets:
i) Provisions involving substantial degree of estimation in measurement
are recognized when there is present obligation as a result of past
events and it is probable that there will be outflow of resources.
ii) Disclosures for a contingent liability is made, without a provision
in books, when there is an obligation that may, but probably will not,
require outflow of resources.
iii) Contingent Assets are neither recognized nor disclosed in the