Notes to the financial statements 1. Background Accelya Kale Solutions Limited ("Accelya") is a software solutions provider to the global Airline and Travel industry. Accelya delivers world class software products, managed processes, technology and hosting services. Accelya's industry solutions are driven by active partnerships with industry bodies and customers, and significant domain knowledge. It's customised approach in deploying these solutions supports clients with best fit solutions to match their requirements. 2. Summary of significant accounting policies a) Basis of brparation of financial statements These financial statements are brpared in accordance with Indian Generally Accepted Accounting Principles (GAAP) under the historical cost convention on the accrual basis except for certain financial instruments which are measured at fair values. GAAP comprises mandatory accounting standards as brscribed under Section 133 of the Companies Act, 2013 ('the Act') read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the Act (to the extent notified) and guidelines issued by the Securities and Exchange Board of India (SEBI). Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use. b) Use of estimates The brparation of financial statements in conformity with generally accepted accounting principles in India requires the management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent liabilities as of the date of financial statements and the reported amounts of revenue and expenses during the reporting period. The management believes that the estimates made in the brparation of the financial statements are prudent and reasonable.Actual results could differ from those estimates. Any revision to accounting estimates is recognized prospectively in current and future periods. c) Current and Non-current classification All assets and liabilities are classified into current and non-current. Assets An asset is classified as current when it satisfies any of the following criteria: (a) It is expected to be realized in, or is intended for sale or consumption in, the Company's normal operating cycle; (b) It is held primarily for the purpose of being traded; (c) It is expected to be realised within 12 months after the reporting date; or (d) It is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date; Current assets include the current portion of non-current financial assets. All other assets are classified as non-current. Liabilities A liability is classified as current when it satisfies any of the following criteria: (a) It is expected to be settled in the Company's normal operating cycle; (b) It is held primarily for the purpose of being traded; (c) It is due to be settled within 12 months after the reporting date; or (d) The Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instrument do not affect its classification. Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as non-current. Operating cycle Operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. Generally 12 months is considered as an operating cycle. d) Revenue recognition Revenue is derived primarily from transaction processing and sale of software license, related implementation and maintenance service. Revenues from transaction processing service i.e. airline ticket and coupon processing charges, is recognized based on the rates fixed in the contract with customers based on the work completed and where there is no uncertainty as to measureability or collectability of that amount. Arrangements with customers for software development and related implementation services are classified as fixed-price contracts. Revenue from maintenance services are on a time-and-material basis. Revenue from the sale of user licenses for software applications is recognized on transfer of the title in the user license, except in cases of multiple element contracts which require significant implementation services, where revenue for the entire arrangement is recognized over the implementation period based upon the percentage-of-completion. Revenue from fixed-price contracts where there is no uncertainty as to measurement or collectability of consideration, is recognized based on the percentage of completion. Percentage of completion is measured as a proportion of time spent on the contract till the balance sheet date to the total estimated time to complete the contract. When there is uncertainty as to measurement or ultimate collectability, revenue recognition is postponed until such uncertainty is resolved. Cost and estimated earnings in excess of billings are classified as unbilled revenue while billing in excess of cost and estimated earnings are classified as unearned revenue. Provision for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the current estimates. Revenue on time-and-material contracts are recognized as the related services are performed and revenue from the end of the last billing to the balance sheet date is recognized as unbilled revenue. Revenue from client training, support and other services arising due to the sale of software products, is recognized as the related services are performed. Interest income is recognized using the time proportion method based on the underlying interest rate. Dividend income is recognized when the right to receive dividend is established. e) Fixed assets and debrciation (including intangible assets) Fixed assets are stated at cost of acquisition or construction less accumulated debrciation and impairment, if any. Cost includes freight, duties, taxes and incidental expenditure relating to the acquisition and installation of fixed assets incurred up to the date the asset is ready for its intended use. Capital work-in-progress includes the cost of fixed assets that are not ready to use at the balance sheet date. Debrciation on fixed assets is provided pro rata for the period of use based on management’s best estimate of useful lives of the assets. The useful life of the assets consider for debrciation is summarized below: Building 30 years Computer equipment and Plant and machinery 3 to 6 years Furniture and Fixture, Equipment and other Assets 4 to 6 years Software Acquired/developed 3 to 5 years Vehicles 5 years Leased assets To be amortized over the lesser of the period of lease and the useful life of the asset For these class of assets, based on internal assessment and independent technical evaluation carried out by external valuer, the management believes that the useful lives as given above best rebrsent the period over which management expects to use these assets. Hence the useful lives for these assets are different from the useful lives as brscribed under Part C of Schedule II to the Companies Act, 2013. f) Research and Development cost Research costs are expensed as incurred. Software product development costs are expensed as incurred unless technical and commercial feasibility of the project is demonstrated, future economic benefits are probable and Company has intention and the ability to complete and use or sell the software and the costs can be measured reliably. g) Asset impairment In accordance with AS 28-'Impairment of Assets', where there is an indication of impairment of the Company's assets, the carrying amounts of the Company's assets are reviewed at each balance sheet date to determine whether there is any impairment. The recoverable amount of the assets (or where applicable that of the cash generating unit to which the asset belongs) is estimated as the higher of its net selling price and its value in use. An impairment loss is recognized whenever the carrying amount of an asset or a cash generating unit exceeds its recoverable amount. Impairment loss is recognized in the profit and loss account. h) Investments Investments that are readily realisable and intended to be held for not more than a year from the date of acquisition are classified as current investments. All other investments are classified as long term investments. Long term investments are carried at cost. Provision for diminution, is made to recognize a decline, other than temporary, in the value of long term investments and is determined separately for each individual investment. The fair value of a long term investment is ascertained with reference to its market value, the investee's assets and results and the expected cash flows from the investment. Current investments are carried at lower of cost and market value of each investment individually. i) Leases Operating lease Lease rentals under an operating lease are recognized as an expense in the statement of profit and loss on a straight line basis over the lease term. Finance Lease Assets acquired under finance lease are recorded as an asset and liability at the inception of the lease and are recorded at an amount equal to lower of fair value of the leased asset and the brsent value of the future minimum lease payments. j) Foreign currency transactions Transactions denominated in foreign currency are recorded at the exchange rate brvailing on the date of transactions. Exchange differences arising on foreign exchange transactions settled during the period are recognized in the profit and loss account of the period. Monetary assets and liabilities in foreign currency, which are outstanding as at the year-end, are translated at the year-end closing exchange rate and the resultant exchange differences are recognized in the profit and loss account. Non-monetary foreign currency items are carried at cost. Translation of foreign operations For translating the financial statements of foreign branches, these are classified into 'integral' and 'non integral' foreign operations. Integral foreign operations are those which carry on their business as if they were an extension of the Company's operation. Other foreign operations are classified as non-integral. The financial statements of an integral foreign operation are translated into Indian rupees as if the transaction of the foreign operation were those of the Company itself. In the case of a non integral foreign operation, the assets and liabilities, both monetary and non-monetary, are translated at the closing exchange rate and income and expense items are translated at the exchange rates on the date of transaction. The resulting exchange differences are accumulated in foreign currency translation reserve. On the disposal of non-integral foreign operation, the cumulative amount of foreign currency translation reserve, which pertains to that operation, is recognised as income or expense. Derivative instruments Forward foreign exchange contracts and other derivatives are not covered by AS 11 and relates to a firm commitment or highly probable forecasted transactions, these contracts are marked to market as on the reporting date and loss on these contract are charged to the Statement of Profit and Loss. k) Employee benefits Defined Contribution Plan Company's contributions during the year to Provident Fund administered by government authority, are recognized in the Statement of Profit and Loss. Defined Benefit Plan The Company's net obligation in respect of gratuity is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its brsent value, and the fair value of any plan assets is deducted. The brsent value of the obligation under such defined benefit plan is determined based on actuarial valuation by an independent actuary using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation. The obligation is measured at the brsent value of the estimated future cash flows. The discount rates used for determining the brsent value of the obligation under defined benefit plan are based on the market yields on Government securities as at the Balance Sheet date. Actuarial gains and losses are recognized immediately in the Statement of Profit and Loss. Provision for leave encashment cost has been made based on actuarial valuation by an independent actuary at balance sheet date. The employees of the Company are entitled to compensated absence. The employees can carry-forward a portion of the unutilized accrued compensated absence and utilize it in future periods or receive cash compensation at termination of employment for the unutilized accrued compensated absence. The Company records an obligation for compensated absences in the period in which the employee renders the services that increase this entitlement. The Company measures the expected cost of compensated absence as the additional amount that the Company expects to pay as a result of the unused entitlement that has accumulated at the balance sheet date. l) Income taxes Income-tax expenses comprise current tax and deferred tax charge or credit. Current taxes Provision for current income-tax is recognised in accordance with the provisions of Indian Income-tax Act, 1961 and is made annually based on the tax liability after taking credit for tax allowances and exemptions. The Income tax Act, 1961 allows credit in respect of Minimum Alternate Tax ("MAT") paid under section 115JB, to be carried forward up to five succeeding assessment years. The amount of MAT credit can be set-off only in the year in which the Company is liable to pay tax as per the normal provisions of the Income tax Act 1961, and such tax is in excess of MAT for that year. The amount of set-off would be to the extent of excess of normal income-tax over the amount of MAT calculated as if Section 115JB had been applied for that assessment year for which the set-off is being allowed. In accordance with the guidance note on "Accounting for credit available in respect of Minimum Alternate Tax under the Income tax Act, 1961 " issued by the Institute of CharteredAccountants of India, MAT paid in accordance with 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 tax within the eligible period and the asset can be measured reliably. Deferred taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to timing differences that result from differences between the profits offered for income taxes and the profits as per the financial statements. Deferred tax assets and liabilities are measured using the tax rates and the tax laws that have been enacted or substantively enacted at the balance sheet date. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date. Deferred tax assets on timing differences are recognized only if there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. However, deferred tax assets on the timing differences when unabsorbed debrciation and losses carried forward exist, are recognized only to the extent that there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. Deferred tax assets are reassessed for the appropriateness of their respective carrying amounts at each balance sheet date. m) Earnings per share (EPS) Basic and diluted earnings per share are computed by dividing the net profit attributable to equity shareholders for the year, by the weighted average number of equity shares outstanding during the year. The number of shares used in computing diluted earnings per share comprises the weighted average number of shares considered for deriving basic earning per share, and also the weighted average number of equity shares which may be issued on conversion of all dilutive potential shares, unless the results would be anti - dilutive. n) Provisions and contingent liabilities Provisions are recognized when the Company recognizes that it has a brsent obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount can be reasonably estimated. A disclosure for a contingent liability is made when there is a possible obligation or a brsent obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a brsent obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed. Contingent assets are not recognized in financial statements. However, contingent assets are assessed continuously and if it is virtually certain that economic benefit will arise, the assets and related income are recognized in the period in which the changes occur. o) Onerous contracts Provision for onerous contracts is recognised when the expected benefits to be derived by the Company from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. The provision is measured at lower of the expected cost of terminating the contract and the expected net cost of fulfilling the contract. 2 SEGMENTAL REPORTING In accordance with paragraph 4 of Accounting Standard 17 "Segment Reporting" brscribed in the Companies (Accounting Standards) Rules, 2006, issued by the central government, the Company has brsented segmental information only on the basis of the consolidated financial statements (refer note 33 of consolidated financial statements). 3 Unbilled revenue include revenue based on percentage of completion basis Rs. 19,989,099 (brvious year Rs. 8,251,980) 4 Previous year's figures have been reclassified, regrouped/rearranged wherever considered necessary to conform to the current year's brsentation as follows: 5 Pursuant to the requirement of the Companies Act, 2013 (the"Act") the Company has revised the debrciation rate for end use computer, based on the estimated economic useful life as brscribed by the Schedule II of the Act. Accordingly the Company has adjusted the net residual value as at July 1 2014 aggregating to Rs. 1,016,247 to retained earnings and deferred tax thereon i 345,422. 6 During the year Company has received Income tax refund for the financial year 2008-09, 2009-10 and 2010-11 amounting to Rs. 31,866,760 out of which Interest on Income tax refund amounting to Rs. 5,995,211 accounted in profit and loss account under other income. 7 The Company's management is of the opinion that its international transactions with related parties are at arms length and that the Company is in compliance with the transfer pricing legislation. Based on the above, the Company's management believes that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of the provision for taxation. 8 LONG-TERM CONTRACTS The Company has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Company has reviewed and ensured that adequate provision as required under any law / accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) has been made in the books of account. 48 Information with regard to other matters specified in Schedule III to the Act is either nil or not applicable to the Company for the year. As per our report of even date attached For B S R & Co. LLP Chartered Accountants Firm's Registration No: 101248W/W-100022 Bhavesh Dhupelia Partner Membership No: 042070 Place: Mumbai Date : 5 August, 2015 For and on behalf of Board of Directors Accelya Kale Solutions Limited CIN: L74140PN1986PLC041033 Philippe Lesueur Chairman DIN: 03327819 Vipul Jain Managing DirectorDIN: 00142518 Gurudas Shenoy Chief Financial Officer Ninad Umranikar Company Secretary Place: Mumbai Date : 5 August, 2015 |