b) Rights of Equity Shareholders
The Company has only one class of equity shares having a par value of Rs. 10 each. Each shareholder has
right to vote in respect of such share, on every resolution placed before the Company and his voting right on
a poll shall be in proportion to his share of the paid -up equity capital of the Company. In the event of
liquidation, the equity shareholders are entitled to receive the remaining assets of the Company after
payments to preferential amounts secured and unsecured creditors, if any, in proportion to their
f) During the period of five years immediately preceding the date of Balance Sheet the Company has not
issued any bonus shares and issued any shares pursuant to contract without payment being received in cash.
g) Shares reserved for issue under options:
a. Employees Stock Option Plan (Plan 2007):
The shareholders in its Nineteenth Annual General meeting held on July 21, 2007 had approved to issue
1,100,000 equity shares of a face value of Rs.10 each with each such option conferring a right upon the
employee to opt for one equity share of the company, in terms of HOVS ESOP Plan 2007. Under the plan, 400,000
options were reserved for employees of the Company and 700,000 for employees of subsidiary companies. Options
were issued to employees at an exercise price not less than closing price of the stock exchange where there
is highest trading volume, prior to the date of meeting of the Compensation & Remuneration Committee in which
options are granted. The options will vest in a phased manner within five years as 10% in each first to four
years and balance 60% at the end of fifth year.
b. Employees Stock Option Plan (Plan 2008):
The shareholders in its Twentieth Annual General meeting held on September 30, 2008 approved additional
750,000 equity shares of a face value of Rs.10 each and no ESOP have been vested and granted till date.
NOTE 19: SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
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 providing IT and IT Enabled Services such as Data Entry Services,
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 Act, 2013 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
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 software’s meant for in-house consumption
are capitalized at the acquisition price.
6. Impairment of Assets:
In accordance with AS 28 on ''Impairment of Assets'' notified by the Companies Act, 2013 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 been recognized.
7. Depreciation / Amortization:
a) Tangible Assets - Depreciation on fixed assets is provided based on useful life and in the manner
prescribed in part C of Schedule II of the Companies Act, 2013.
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 amortized 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
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 at the
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 Loss.
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, 1961.
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
lessor, leases are classified as Operating Lease. Lease rentals for such leases are charged to Statement of
Profit and Loss.
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 financial statement.