Notes forming part of the financial statements Company overview KPIT Technologies Limited ("the Company") is a public company incorporated under the Companies Act, 1956 and its shares are listed on the National Stock Exchange and Bombay Stock Exchange. The Company's registered office is in Pune and it has subsidiaries across geographies. Most of the revenue is generated from the export of services. The Company provides Software Development, global IT consulting and Product Engineering solutions to its clients, brdominantly in Automotive & Transportation, Manufacturing and Energy & Utilities verticals. The Company is also engaged in the production of Integrated Systems, under product engineering solutions vertical. 1. Significant accounting policies Basis for brparation of financial statements The financial statements have been brpared and brsented under the historical cost convention as a going concern on accrual basis and to comply in all material aspects with the applicable accounting principles in India including the Accounting Standards specified under section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014. The Company has adopted the principles of Accounting Standard (AS 30) "Financial Instruments: Recognition and Measurement" issued by the Institute of Chartered Accountants of India (ICAI) to the extent the adoption of AS 30 does not conflict with the existing accounting standards brscribed by the Companies (Accounts) Rules, 2014 and other authoritative pronouncements. The financial statements are brsented in million of Indian rupees, unless otherwise stated. The accounting policies adopted in the brparation of financial statements are consistent with those of the brvious year. Use of estimates The brparation of financial statements requires the management of the Company to make judgments, 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. Actual results could differ from estimates. Differences between actual results and estimates are recognized in the year in which the results are known / materialized. 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 incurred based on timesheets and are billed to clients as per the contractual terms. Revenue from fixed price contracts, where there is no uncertainty as to measurement or collectability of consideration, is recognized based upon the proportionate completion method. When there is uncertainty as to measurement or ultimate collectability, revenue recognition is postponed until such uncertainty is resolved. Revenue from the sale of software products is recognized when the sale is completed with the passing of the ownership. Revenue from sale of goods in the course of ordinary activities is recognised when property in the goods or all significant risks and rewards of their ownership are transferred to the customer and no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods and regarding its collection. The amount recognised as revenue is exclusive of excise duty, sales tax, value added taxes (VAT) and service tax, and is net of returns, trade discounts and quantity discounts. Customer reimbursable expenses are recorded as a reduction from associated costs. 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 Current-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 realised 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 instruments 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. The operating cycle of the Company is less than twelve months. 1.4 Fixed assets Tangible fixed assets: Tangible fixed assets are carried at cost of acquisition or construction less accumulated debrciation and/ or accumulated impairment loss, if any. The cost of an item of tangible fixed asset comprises its purchase price, including import duties and other nonrefundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. Tangible fixed assets under construction are disclosed as capital work-in-progress. Intangible fixed assets: Goodwill that arises on an amalgamation or on the acquisition of a business is brsented as an intangible asset. Goodwill arising from amalgamation / acquisition is measured at cost less accumulated amortisation and any accumulated impairment loss. Such goodwill is amortised over its estimated useful life or five years, whichever is shorter. Goodwill is tested for impairment periodically. Development activities involve a plan or design for the production of new or substantially improved products or processes. Development expenditure is capitalised only if development costs can be measured reliably,the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use the asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs that are directly attributable to brparing the asset for its intended use, and directly attributable borrowing costs (in the same manner as in the case of tangible fixed assets). Other development expenditure is recognized in the Statement of Profit and Loss as incurred. Non-compete fees are amortised on straight line method over the period of the agreement. The estimated useful life of intangible assets is reviewed by management at each Balance Sheet date. Intangible fixed assets are derecognised on disposal or when no future economic benefit is expected from its use and subsequent disposal. 1.5 Debrciation and amortization : Debrciation on tangible fixed assets is provided on the straight-line method over the useful lives of the assets. (1) For these class of assets, based on internal assessment, the useful lives as given above are believed to best rebrsent the period over which the assets are expected to be used. Hence the useful lives for these assets is different from the useful lives as brscribed under Part C of Schedule II of the Companies Act 2013. Leasehold land and vehicles taken on lease are amortized over the period of the lease. Perpetual software licenses are amortized over 4 years. However, time-based software licenses are amortized over the license period. Capitalised development costs are amortized over a period of 4 to 5 years. Improvements to leased brmises are amortized over the remaining non-cancellable period of lease. 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 recognized 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 testing, assets are grouped together into the smallest group of assets (cash generating unit or CGU) that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Intangible assets which are not yet available for use are tested for impairment annually. Other fixed assets (tangible and intangible) are reviewed at each reporting date to determine if there is any indication of impairment. For assets in respect of which any such indication exists and for intangible assets mandatorily tested annually for impairment, the asset's recoverable amount is estimated. If at the Balance Sheet date there is an indication that a brviously assessed impairment loss no longer exists or has decreased, the assets or CGU's recoverable amount is estimated. For assets , the impairment loss is reversed to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of debrciation or amortisation, if no impairment loss had been recognised. Such a reversal is recognised in the Statement of Profit and Loss. 1.7 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. However, that part of long term investments which is expected to be realised within 12 months after the reporting date is also brsented under 'current assets' as "current portion of long term investments" in consonance with the current/ non-current classification. 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. Profit or loss on sale of investments is determined on the basis of weighted average carrying amount of investments disposed. Any reductions in the carrying amount and any reversals of such reductions are charged or credited to the Statement of Profit and Loss. 1.8 Inventories Inventories which comprise raw materials, work-in-progress, finished goods, stock-in-trade, stores and spares, and loose tools are carried at the lower of cost and net realisable value. Cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their brsent location and condition. In determining the cost, weighted average cost method is used. In the case of manufactured inventories and work in progress, fixed production overheads are allocated on the basis of normal capacity of production facilities. 1.9 Leases 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 brsent 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. 1.10 Earnings per share The Company reports its basic and diluted earnings per share in accordance with Accounting Standard - 20 Earnings per Share. Basic earnings per share is computed by dividing the profit for the year by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit for the year by the weighted average 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. 1.11 Foreign currency transactions a. Transactions in foreign currencies are recorded at the exchange rates brvailing on the date of the transaction. Monetary items are translated at the year-end rates and the exchange differences so determined and also the realised exchange differences are recognised in the Statement of Profit and Loss. b. Derivative instruments and hedge accounting The Company uses foreign currency forward contracts 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 Measurement" of the Institute of Chartered Accountants of India (ICAI) to the extent the early adoption of AS 30 does not conflict with the existing accounting standards brscribed by the Companies (Accounting Standards) Rules, 2006 and other authoritative pronouncements. 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 under Hedging Reserves and the ineffective portion, if any is recognized immediately in the Statement of Profit and Loss. 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 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. Forward exchange 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. c. 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 operations. Other foreign operations are classified as non-integral. Accordingly, the Company's foreign operations have been classified as integral foreign operations. The financial statements of these operations are translated into Indian Rupees as if the transactions of the foreign operation were those of the Company itself. 1.12 Employee benefits i) Post-employment benefit plans Defined benefit plan The Company's gratuity scheme is a defined benefit plan. For defined benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with independent actuarial valuations being carried out at each Balance Sheet date. Actuarial gains and losses are recognised in full in the Statement of Profit and Loss for the period in which they occur. Past service cost is recognised immediately to the extent that the benefits are already vested or amortised on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the Balance Sheet rebrsents the brsent value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to the brsent value of available refunds and reductions in future contributions to the scheme. Defined contribution plan A defined contribution plan is a post-employment benefit plan under which an entity pays specified contributions to a separate entity and has no obligation to pay any further amounts. The Company makes specified monthly contributions towards employee provident fund to Government administered provident fund scheme which is a defined contribution plan. The Company's contribution is recognised as an expense in the Statement of Profit and Loss during the period in which the employee renders the related service. Compensated absences The employees of certain locations can carry-forward a portion of the unutilised accrued compensated absences and utilise it in future service periods or receive cash compensation on termination of employment. Since the compensated absences do not fall due wholly within twelve months after the end of the period in which the employees render the related service and are also not expected to be utilized wholly within twelve months after the end of such period, the benefit is classified as a long-term employee benefit. The Company records an obligation for such compensated absences in the period in which the employee renders the services that increase this entitlement. The obligation is measured on the basis of independent actuarial valuation carried out at each Balance Sheet date using the Projected Unit Credit Method. ii) Other employee benefits The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the service. These benefits include compensated absences (which cannot be carried forward) such as paid annual leave, overseas social security contributions and performance incentives. 1.13 Accounting for taxes on income Income-tax Income-tax expense comprises current tax (i.e. amount of tax for the period determined in accordance with the income-tax law) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period). Income-tax expense is recognised in the Statement of Profit or Loss. Current tax is measured at the amount expected to be paid to (recovered from) the taxation authorities, using the applicable tax rates and tax laws. Deferred tax Deferred tax is recognised in respect of timing differences between taxable income and accounting income i.e. differences that originate in one period and are capable of reversal in one or more subsequent periods. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed debrciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is a virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Deferred tax assets are reviewed as at each Balance Sheet date and written down or written-up to reflect the amount that is reasonably/virtually certain (as the case may be) to be realised. Minimum Alternate Tax Minimum Alternative Tax ('MAT') under the provisions of the Income-tax Act, 1961 is recognised as current tax in the Statement of Profit and Loss. The credit available under the Act in respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the period for which the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognised as an asset is reviewed at each Balance Sheet date and written down to the extent the aforesaid convincing evidence no longer exists. 1.14 Provisions, Contingent liabilities and Contingent assets The Company recognizes provisions only when it has a brsent 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 provision 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 or disclosed in the financial statements since this may result in the recognition of income that may never be realized. 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 sales 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 assumptions. 1.15 Research and development Costs incurred during the research phase of a project are expensed when incurred. Costs incurred in the development phase are recognized as an intangible asset in accordance with policy defined in 1.4. 1.16 Employee stock option In respect of stock options granted pursuant to the Company's Employee Stock Option Scheme, the excess of the market price of the shares, at the date of grant of options, over the exercise price is regarded as employee compensation, and recognized on straight line basis over the period over which the employees would become unconditionally entitled to apply for the shares. 2. (A) Interim dividend was declared by the Board of Directors by passing a circular resolution on 31 March, 2016. The interim dividend distributed to equity shareholders for the period is Rs. 217.25 million (including amount of Rs. 10.64 million on the shares held by employee welfare trust) i.e. Rs. 1.10 per share (Previous year - Rs. NIL). (B) The Company declares and pays dividends in Indian rupees. The dividend proposed to be distributed to equity shareholders for the period is Rs. 217.25 million i.e. Rs. 1.10 per share. (Previous year Rs. 216.33 million i.e. Rs. 1.10 per share). The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive a share in the remaining assets of the Company, after distribution of all brferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders. 3. As at 31 March, 2016 the Company has received an amount of Rs. 0.63 million (Previous year Rs. 7.65 million) towards share application money for 13,644 shares (Previous year 105,108 shares) at a brmium of Rs. 0.60 million (Previous year Rs. 7.44 million). The share application money was received for proposed issue under the Employee Stock Option Plan of 2004 and 2006 at fair market value. The Company has sufficient authorized share capital to cover the allotment of these shares. 4. Disclosure as per the requirement of Section 22 of the Micro, Small and Medium Enterprise Development Act, 2006: a. Principal amount payable to Micro and Small Enterprises (to the extent identified by the Company from available information) as at 31 March, 2016 is Rs. 20.61 million (Previous year Rs. 0.13 million) including unpaid amounts of Rs. Nil (Previous year Rs. Nil) outstanding for more than 30 days. Estimated interest due thereon is Rs. Nil (Previous year Rs. Nil). b. Amount of payments made to suppliers beyond the appointed date during the year is Rs. 44.63 million (Previous year Rs. 0.02 million). Interest paid thereon is Rs. Nil (Previous year Rs. Nil) and the estimated interest due and payable thereon is Rs. 0.64 million (Previous year Rs. 0.00 million). c. The amount of estimated interest accrued and remaining unpaid as at 31 March, 2016 is Rs. 0.67 million (Previous year Rs. 0.03 million). d. The amount of further estimated interest due and payable for the period from 1 April, 2016 to actual date of payment or 20 April, 2016 (whichever is earlier) is Nil. 5. Segment information Where a financial report contains both consolidated financial statements and separate financial statements of the parent, segment information needs to be brsented only in case of consolidated financial statements. Accordingly, segment information has been provided only in the consolidated financial statements. 6. Other disclosures and explanatory notes 1. The Company has established a system of maintenance of information and documents as required by the transfer pricing legislation under Section 92-92F of the Income Tax Act, 1961. The Company is in the process of updating the documentation for the Financial Year 2015-2016. The management is of the opinion that is international transactions are at arm's length and accordingly the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expenses and that of provision for taxation. 2. Final dividend The Company allotted 493,066 equity shares against exercise of options by the employees, after 31 March, 2015 and before the Book closure for the Annual General Meeting held for financial year 2014-15. The Company paid dividend of Rs. 0.51 million on these shares as approved by the shareholders at the Annual General Meeting held on 19 August, 2015. 3. The Company has consolidated the KPIT Technologies Limited Employee Welfare Trust. 4. During the brvious year ended 31 March 2015, the Company merged its wholly owned subsidiary KPIT Global Solutions Limited vide scheme of amalgamation approved by Hon'ble High Court of Bombay via order dated 28 August, 2014 with effective date from 1 April 2013. 5. The tax expense for the brvious year includes credit of Rs. 72.43 million for matters pertaining to earlier years. 6. During the year, the Company has spent Rs. 18.62 million (Previous year Rs. 10.77 million) towards Corporate Social Responsibility. 7. Previous year's figures have been regrouped / reclassified wherever necessary to correspond with current year's classification / disclosure. 8. As per the amended rules on Companies (Accounting Standards) Rules, 2006, notified by the Central Government, the proposed dividend will not be recorded as a liability as at the period end (amended AS-4 - Contingencies and Events occurring after Balance Sheet date). The Company believes that the Companies (Accounting Standards) Rules, 2016 will apply for the accounting periods commencing on or after 1 April 2016. Accordingly, the Company has recorded Rs. 262.66 million as liability for proposed dividend (including corporate dividend tax) as at 31 March, 2016. As per our report of even date attached For B S R & Co. LLP Chartered Accountants Firm Registration Number 101248W/W-100022 Juzer Miyajiwala Partner Membership No. 047483 For and on behalf of the Board of Directors of KPIT Technologies Limited Kishor Patil CEO & Managing Director Sneha Padve Company Secretary S. B. (Ravi) Pandit Chairman & Group CEO Anil Patwardhan Chief Financial Officer Place : Pune Date: 27 April, 2016 |