1.1. Basis for Preparation of Financial Statements
The financial statements have been prepared under the historical cost
convention on accrual basis in accordance with the mandatory Accounting
Standards or as per the Proposal approved by the Honourable High Court
The Company has outstanding foreign currency convertible bonds (FCCBs)
that are redeemable in March 2012, if not converted earlier. Refer Note
II.3.A and II.3.B below. The Company is pursuing various options not
limiting to fund raising in the form of debt or equity, or a mix of
both, and negotiations with the current lenders, to meet any potential
FCCB debt obligations that arise in March 2012. The Company firmly
believes that, with a combination of its internal cash accruals in the
next financial year and on achieving successful closure on these
options in the coming months, it would be able to meet all repayment
obligations that arise during financial year ending March 31, 2012.
Consequently these financial statements are prepared on a going concern
1.2. Use of Estimates
The preparation of the financial statements in conformity with Indian
GAAP requires that management makes estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of
contingent liabilities as at the date of the financial statements, and
the reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates.
1.3. Revenue Recognition
Revenue from Contracts for software product license includes fees for
transfer of licenses, installation and commissioning. This revenue is
recognized under the percentage completion method based on the extent
of work determined to have been completed as compared to the work
involved in the overall scope of the contract. In the event of any
expected losses on a contract, the entire amount is provided for in the
accounting period in which such losses are first anticipated.
Revenue from sale of additional software licences are recognized on
transfer of such licenses.
Revenue from Software development is recognized on the basis of
chargeable time or achievement of prescribed milestones as relevant to
Sale of hardware under reseller arrangements are recognized on dispatch
of goods to customers and are recorded net of discounts, rebates for
price adjustment, projections, shortage in transit, taxes and duties.
Maintenance and service income is recognised on time proportion basis.
Interest on investments and deposits are booked on a time proportion
basis taking into account the amount invested and the rate of interest.
1.4. Fixed Assets and Intangibles
Fixed assets are stated at cost of acquisition inclusive of freight,
duties, taxes and interest on borrowed money allocated to and utilised
for fixed assets up to the date of capitalisation and other direct
expenditure incurred on ongoing projects. Assets acquired on hire
purchase are capitalised at gross value and interest thereon is charged
Acquired Intangibles are stated at cost inclusive of duties and taxes.
Costs incurred on self generated intangibles are expensed as incurred.
1.5. Depreciation & Amortisation
Fixed assets and Intangibles are depreciated/amortised using the
straight-line method over the useful lives of assets. Depreciation is
charged on pro-rata basis for assets purchased/sold during the year.
1.6. Employee Stock Option Plans
Employee Stock Options are accounted in accordance with the guidelines
stipulated by SEBI. The difference between the market price of the
shares underlying the options granted on the date of grant of option
and the exercise price is expensed as Employees Compensation over the
period of vesting.
1.7. Employee Benefits
The Companys contribution to provident fund, a defined contribution
scheme, is charged to the profit and loss account on accrual basis.
Liability for gratuity is funded with Life Insurance Corporation of
India (LIC) and SBI Life Insurance. Gratuity expense for the year has
been accounted based on actuarial valuation determined under the
projected credit unit method, carried out at the end of the financial
year. Actuarial gains/losses are recognized in full in the profit and
loss account. The retirement benefit obligation recognized in the
balance sheet represents the present value of the defined benefit
obligations adjusted for unrecognized past service cost and as reduced
by the fair value of scheme assets. Any asset resulting from this
calculation is limited to past service cost plus the present value of
available refunds and reduction in future contributions to the scheme.
Liability for encashment of leave considered to be long term liability
is accounted for on the basis of an actuarial valuation. Provision for
outstanding leave credits considered as short term
liability is as estimated by the management. Other short term employee
benefits like medical, leave travel etc are accrued based on the terms
of employment on a time proportion basis
The Company has introduced long term employee compensation plans under
which certain employees are eligible for retention and performance
linked payouts. These payouts are accrued as the services are rendered
and/or when the specific criteria are met.
1.8. Research and Development
Expenses incurred on research and development is charged to revenue in
the same year. Fixed asset purchased for research and development are
capitalized and depreciated as per the Companys policy.
1.9. Foreign Currency Transactions
Transactions denominated in foreign currencies are recorded at the
exchange rates prevailing on the date of the transaction. Monetary
items denominated in foreign currencies at year end are restated at the
exchange rate on the date of the Balance Sheet. Non-monetary items
denominated in foreign currencies are carried at cost. Exchange
differences on settlement or restatement are adjusted in the Profit &
Loss account. Premium or discount on forward contracts is amortized
over the life of such contract and is recognized as income or expense,
in the Profit and Loss account. Any profit or loss arising on
cancellation or renewal or retirement of forward contract is recognized
in profit and loss account.
Long term Investments are stated at cost less diminution in the value
of investments that is other than temporary.
1.11. Income Taxes
Income Tax comprises the current tax provision under the tax payable
method and the net change in the deferred tax asset or liability in the
year. Deferred Tax Assets and liabilities are recognized for the future
tax consequences of temporary differences between the carrying values
of the assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which the
temporary differences are expected to be received or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the income statement in the period of enactment of the
Deferred tax assets are recognized and carried forward to the extent
that there is a reasonable/virtual certainty, as applicable, that
sufficient future taxable income will be available against which such
deferred tax assets can be realized.
Minimum alternative tax (MAT) paid in accordance to the tax laws, which
gives rise to future economic benefits in the form of adjustment of
future income tax liability, is considered as an asset if there is
convincing evidence that the Company will pay normal income tax after
the tax holiday period. Accordingly, MAT is recognized as an asset in
the balance sheet when it is probable that the future economic benefit
associated with it will flow to the Company and the asset can be
1.12. Cash Flow Statement
Cash flow statement has been prepared in accordance with the indirect
method prescribed in Accounting Standard 3, issued under the Companies
(Accounting Standard) Rules 2006.
1.13. Preliminary and Share Issue Expenses
Expenses incurred during the Initial Public Offer, follow on offer and
issue of Bonus Shares are amortised over 5 years. Other issue expenses
are charged to the securities premium account.
1.14. Provisions and Contingencies
A provision is recognized when an enterprise has a present
obligation as a result of past event; it is probable that an outflow
of resources will be required to settle the obligation, in respect
of which a reliable estimate can be made. Provisions are not
discounted to its present value and are determined based on
best estimate required to settle the obligation at the balance
sheet date. These are reviewed at each balance sheet date
and adjusted to reflect the current best estimates. Contingent
liabilities are not provided for but disclosed in the notes to the
I.15 Impairment of Fixed Assets
At each balance sheet date, the Company reviews the carrying amounts of
its fixed assets and intangibles to determine whether there is any
indication that those assets suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of impairment loss. Recoverable amount is
the higher of an assets net selling price and value in use. In
assessing value in use, the estimated future cash flows expected from
the continuing use of the asset and from its disposal are discounted to
their present value using a pre-tax discount rate that reflects the
current market assessments of time value of money and the risks
specific to the asset.
Reversal of impairment losses recognized in prior years, if any, is
recorded when there is an indication that the impairment losses
recognized for the asset no longer exist or have decreased. However,
the increase in carrying amount of an asset due to reversal of an
impairment loss is recognized to the extent it does not exceed the
carrying amount that would have been determined (net of depreciation)
had no impairment loss been recognized for the asset in prior years.