Basis for preparation of financial statements
The financial statements are prepared in accordance with Indian
Generally Accepted Accounting Principles (''GAAP'') under the
historical cost convention on accrual basis. GAAP comprises mandatory
accounting standards as prescribed by the Companies (Accounting
Standards) Rules, 2006 and the provisions of Companies Act, 1956.
1.1 Revenue recognition
Revenue from software development and services on time and material
basis is recognized based on software development, services rendered
and related costs are incurred i.e. based on certification of
timesheets and are billed to clients as per the contractual
obligations. In case of fixed price contracts, revenue is recognized
over the life of contract based on the milestone/s achieved as agreed
upon in the contract on proportionate completion basis and where there
is no uncertainty as to measurement or collectability of consideration.
Revenue from the sale of software products is recognized when the sale
is completed with the passing of the ownership.
Interest income is recognized on time proportion basis
Dividend income is recognized when the Company''s right to receive
dividend is established.
1.2 Borrowing Costs
Borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset are capitalized as
part of cost of that asset. All other borrowing costs are charged to
the Statement of Profit and Loss.
1.3 Trade receivables and advances:
Specific debts and advances identified as irrecoverable or doubtful are
written off or provided for, respectively.
1.4 Fixed Assets
(a) Fixed Assets are stated at the cost of acquisition, less
depreciation/amortization/diminution. Costs comprises of the purchase
price and other attributable costs.
(b) Product development cost are recognised as fixed assets,when
feasibility has been established, the Company has committed technical,
financial and other resources to complete the development and it is
probable that asset will generate probable future benefits.
1.5 Depreciation/ Amortization/ Diminution
Depreciation on tangible fixed assets is provided for on the
straight-line method at the rates and in the manner specified in
Schedule XIV to the Companies Act, 1956 except in respect of the
following assets where the rates are higher:
- Certain Buildings - 7.5%
- Plant and Equipment (Computers) - 25%
- Certain Office Equipments - 10% and 33.33% as applicable
- Certain Furniture and Fixtures - 12.5%
Leasehold land and vehicles taken on lease are amortized over the
period of the lease.
Intangible Assets are amortized on the straight line method at the
- Goodwill - Amortized over period of 3/5 years.
- Product Development Cost - Amortized over period of 3/4 years.
Perpetual Software licenses are amortized over 4 years. However, time-
based software licenses are amortized over their duration.
1.6 Impairment of Fixed Assets
The Management periodically assesses using, external and internal
sources, whether there is an indication that an asset may be impaired.
Impairment loss is recognised when the carrying value of an asset
exceeds its recoverable amount. The recoverable amount is higher of the
asset''s net selling price and value in use. For the purpose of
impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows.
Current investments are carried at lower of cost and fair value.
Long-term Investments are stated at cost less provision for diminution,
other than temporary, in the value of such investments.
Assets acquired under finance leases are recognized at the lower of the
fair value of the leased assets at inception of the lease and the
present value of minimum lease payments. Lease payments are apportioned
between the finance charge and the reduction of the outstanding
liability. The finance charge is allocated to periods during the lease
term at a constant periodic rate of interest on the remaining balance
of the liability.
Lease arrangements where the risks and rewards incidental to the
ownership of an asset substantially vest with the lessor, are
classified as Operating Leases. Lease Rentals under operating leases
are recognised in the statement of Profit and Loss on straight line
basis over the term of the lease.
1.9 Earnings per share
Basic earnings per share is computed by dividing the profit for the
period after tax by the weighted number of equity shares outstanding
during the year. Diluted earnings per share is computed by dividing the
profit for the period after tax by the weighted number of equity shares
outstanding during the year as adjusted for the effects of all dilutive
potential equity shares except where the results are anti-dilutive.
1.10 Foreign currency transactions
(a) Transactions in foreign currencies are recorded at the exchange
rates prevailing on the date of the transaction. Monetary items are
translated at the year-end rates and the exchange differences so
determined as also the realised exchange differences are recognised in
the statement of profit and loss.
Premiums or discount on forward exchange contracts are amortized and
recognized in the Statement of Profit and Loss over the period of the
contract. Forward exchange contracts and currency option contracts
outstanding at the balance sheet date, other than designated cash flow
hedges, are stated at fair values and any gains or losses are
recognized in the Statement of Profit and Loss.
(b) Derivative instruments and hedge accounting
The Company uses foreign currency forward contracts and currency
options to hedge its risk associated with foreign currency fluctuations
relating to certain firm commitments and forecast transactions. The
Company designates these hedging instruments as cash flow hedges
applying the recognition and measurement principles set out in the
Accounting Standard (AS) 30 Financial Instruments: Recognition and
Measurementof the Institute of Chartered Accountants of India
The use of hedging instruments is governed by the Company''s policy
approved by the Board of Directors, which provides 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
counter-party to the Company''s foreign currency forward contracts is
generally a bank.
Hedging instruments are initially measured at fair value and are
re-measured at subsequent reporting dates. Changes in fair value of
these derivatives that are designated and effective as hedges of future
cash flows are recognized directly in shareholder''s fund and the
ineffective portion, if any 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 when the hedging instrument expires or
is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. For forecast transactions any cumulative gain or loss on
the hedging instrument recognized in shareholder''s fund is retained
there until the forecast transaction occurs. When a hedged transaction
occurs or is no longer expected to occur, the net cumulative gain or
loss recognized in shareholder''s fund is transferred to the Statement
of Profit and Loss.
1.11 Retirement benefits to employees
Employee benefits includes gratuity, provident fund and leave
encashment benefits under the approved schemes of the Company.
In respect of defined contribution plans, the contribution payable for
the year is charged to the Statement of Profit and Loss.
In respect of defined benefit plans, the employee benefit costs are
accounted for based on actuarial valuation as at the Balance Sheet
The liability for leave carried forward has been accounted for on
actual basis for all eligible employees except for employees at the
Bangalore location, where the leave liability is calculated on the
basis of an actuarial valuation as of the Balance Sheet date, as per
the policy of the Company.
1.12 Accounting for Taxes on Income
Tax expense comprises current and deferred tax.
(a) Income Tax Provision
Current tax is computed on taxable income determined in accordance with
the provisions of the applicable tax rates and tax laws. Current tax
is net of credit for entitlement for Minimum Alternative Tax (MAT).
(b) Deferred Tax Provision
Deferred tax arising on account of timing differences and which are
capable of reversal in one or more subsequent periods is recognised
using the tax rates and tax laws that have been enacted or
substantively enacted. Deferred tax assets are not recognised unless
there is virtual certainty with respect to the reversal of the same in
1.13 Provisions, Contingent Liabilities and Contingent Assets
As per Accounting Standard (AS) 29, ''Provisions, Contingent
Liabilities and Contingent Assets'', the Company recognizes provisions
only when it has a present obligation as a result of a past event, it
is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and when a reliable estimate
of the amount of the obligation can be made.
No Provisions is recognized for -
(a) Any possible obligation that arises from past events and the
existence of which will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within
the control of the Company; or
(b) Present obligations that arise from past events but are not
recognized because -
1) It is not probable that an outflow of resources embodying economic
benefits will be required to settle the obligation; or
2) A reliable estimate of the amount of obligation cannot be made.
Such obligations are recorded as Contingent Liabilities. These are
assessed continually and only that part of the obligation for which an
outflow of resources embodying economic benefits is probable, is
provided for, except in the extremely rare circumstances where no
reliable estimate can be made.
Contingent Assets are not recognized in the financial statements since
this may result in the recognition of income that may never be
1.14 Provision for Warranty:
The Company has an obligation by way of warranty to maintain the
software during the period of warranty, which may vary from contract to
contract. Costs associated with such sale are accrued at the time when
related revenues are recorded and included in cost of service delivery.
The Company estimates such cost based on historical experience and the
estimates are reviewed periodically for material changes in the
1.15 Employee Stock Option:
In respect of stock options granted pursuant to the company''s
Employee Stock Option Scheme, the intrinsic value of the option is
treated as discount and accounted as employee compensation cost over
the vesting period.
1.16 Use of Estimates:
The preparation of financial statements requires the management of the
Company to make estimates and assumptions that affect the reported
balances of assets and liabilities and disclosures relating to the
contingent liabilities as at the date of the financial statements and
reported amounts of income and expenditure during the year. Differences
between actual results and estimates are recognized in the year in
which the results are known/materialized.