Notes forming part of the Financial Statements Unconsolidated Financial Statements 197 1) CORPORATE INFORMATION Tata Consultancy Services Limited (referred to as ‘TCS Limited’ or ‘the Company’) provides consulting-led integrated portfolio of information technology (IT) and IT-enabled services delivered through a network of multiple locations around the globe. The Company’s full services portfolio consists of IT and Assurance Services, Business Intelligence and Performance Management, Business Process Services, Cloud Services, Connected Marketing Solutions, Consulting, Eco-sustainability Services, Engineering and Industrial Services, Enterprise Security and Risk Management, Enterprise Solutions, iON-Small and Medium Businesses, IT Infrastructure Services, Mobility Products and Services and Platform Solutions. As at March 31, 2016, Tata Sons Limited owned 73.26% of the Company’s equity share capital and has the ability to control its operating and financial policies. The Company’s registered office is in Mumbai and it has 61 subsidiaries across the globe. 2) SIGNIFICANT ACCOUNTING POLICIES a) Basis of brparation These financial statements have been brpared in accordance with the Generally Accepted Accounting Principles in India (‘Indian GAAP’) to comply with the Accounting Standards specified under Section 133 of the Companies Act, 2013, as applicable. The financial statements have been brpared under the historical cost convention on accrual basis, except for certain financial instruments which are measured at fair value. Comparative figures do not include the figures of erstwhile CMC Limited which is amalgamated with the Company with effect from April 1, 2015. Consequently, the comparative figures are not comparable with the figures for the year ended March 31, 2016. b) Use of estimates The brparation 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 expense during the year. Examples of such estimates include provisions for doubtful receivables, employee benefits, provision for income taxes, accounting for contract costs expected to be incurred, the useful lives of debrciable fixed assets and provision for impairment. Future results could differ due to changes in these estimates and the difference between the actual result and the estimates are recognised in the period in which the results are known / materialise. c) Fixed assets Fixed assets are stated at cost, less accumulated debrciation / amortisation. Costs include all expenses incurred to bring the asset to its brsent location and condition. Fixed assets exclude computers and other assets individually costing Rs. 50,000 or less which are not capitalised except when they are part of a larger capital investment programme. d) Debrciation / amortisation In respect of fixed assets (other than freehold land and capital work-in-progress) acquired during the year, debrciation / amortisation is charged on a straight line basis so as to write-off the cost of the assets over the useful lives and for the assets acquired prior to April 1, 2014, the carrying amount as on April 1, 2014 is debrciated over the remaining useful life based on an evaluation. e) Leases Assets taken on lease by the Company in its capacity as lessee, where the Company has substantially all the risks and rewards of ownership are classified as finance lease. Such a lease is capitalised at the inception of the lease at lower of the fair value or the brsent value of the minimum lease payments and a liability is recognised for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost so as to obtain a constant periodic rate of interest on the outstanding liability for each year. Lease arrangements where the risks and rewards incidental to ownership of an asset substantially vest with the lessor, are recognised as operating leases. Lease rentals under operating leases are recognised in the statement of profit and loss on a straight-line basis. f) Impairment At each balance sheet date, the management reviews the carrying amounts of its assets included in each cash generating unit to determine whether there is any indication that those assets were impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment. Recoverable amount is the higher of an asset’s 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 brsent value using a br-tax discount rate that reflects the current market assessments of time value of money and the risks specific to the asset. Reversal of impairment loss is recognised as income in the statement of profit and loss. g) Investments Long-term investments and current maturities of long-term investments are stated at cost, less provision for other than temporary diminution in value. Current investments, except for current maturities of long-term investments, comprising investments in mutual funds, government securities and bonds are stated at the lower of cost and fair value. h) Employee benefits (i) Post-employment benefit plans Contributions to defined contribution retirement benefit schemes are recognised as expense when employees have rendered services entitling them to such benefits. For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with 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. (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 such as paid annual leave, overseas social security contributions and performance incentives. Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognised as an actuarially determined liability at the brsent value of the defined benefit obligation at the balance sheet date. i) Revenue recognition Revenue from contracts priced on a time and material basis are recognised when services are rendered and related costs are incurred. Revenue from turnkey contracts, which are generally time bound fixed price contracts, are recognised over the life of the contract using the proportionate completion method, with contract costs determining the degree of completion. Foreseeable losses on such contracts are recognised when probable. Revenue from the sale of equipment are recognised upon delivery, which is when title passes to the customer. Revenue from sale of software licences are recognised upon delivery. Revenue from maintenance contracts are recognised pro-rata over the period of the contract. In respect of Business Process Services, revenue on time and material and unit priced contracts is recognised as the related services are rendered, whereas revenue from fixed price contracts is recognised using the proportionate completion method with contract cost determining the degree of completion. Revenue is reported net of discounts. Dividend is recorded when the right to receive payment is established. Interest income is recognised on time proportion basis taking into account the amount outstanding and the rate applicable j) Taxation Current income tax expense comprises taxes on income from operations in India and in foreign jurisdictions. Income tax payable in India is determined in accordance with the provisions of the Income Tax Act, 1961. Tax expense relating to foreign operations is determined in accordance with tax laws applicable in countries where such operations are domiciled. Minimum Alternative Tax (MAT) paid in accordance with the tax laws in India, 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 recognised as an asset in the balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with it will fructify. Deferred tax expense or benefit is recognised on timing differences being the difference between taxable income and accounting income that originate in one period and is likely to reverse in one or more subsequent periods. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. In the event of unabsorbed debrciation and carry forward of losses, deferred tax assets are recognised only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available to realise such assets. In other situations, deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available to realise these assets. Advance taxes and provisions for current income taxes are brsented in the balance sheet after off-setting advance tax paid and income tax provision arising in the same tax jurisdiction for relevant tax paying units and where the Company is able to and intends to settle the asset and liability on a net basis. The Company offsets deferred tax assets and deferred tax liabilities if it has a legally enforceable right and these relate to taxes on income levied by the same governing taxation laws. k) Foreign currency transactions Income and expense in foreign currencies are converted at exchange rates brvailing on the date of the transaction. Foreign currency monetary assets and liabilities other than net investments in non-integral foreign operations are translated at the exchange rate brvailing on the balance sheet date and exchange gains and losses are recognised in the statement of profit and loss. Exchange difference arising on a monetary item that, in substance, forms part of an enterprise’s net investments in a non-integral foreign operation are accumulated in a foreign currency translation reserve. Premium or discount on foreign exchange forward, options and futures contracts are amortised and recognised in the statement of profit and loss over the period of the contract. Foreign exchange forward, options and futures contracts outstanding at the balance sheet date, other than designated cash flow hedges, are stated at fair values and any gains or losses are recognised in the statement of profit and loss. l) Derivative instruments and hedge accounting The Company uses foreign exchange forward, options and futures contracts to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments and forecasted transactions. The Company designates these hedging instruments as cash flow hedges. The use of hedging instruments is governed by the Company’s policy approved by the Board of Directors, which provide written principles on the use of such financial derivatives consistent with the Company’s risk management strategy. Hedging instruments are initially measured at fair value, and are remeasured at subsequent reporting dates. Changes in the fair value of these derivatives that are designated and effective as hedges of future cash flows are recognised directly in shareholders’ funds and the ineffective portion is recognised immediately in the statement of profit and loss. The Company separates the intrinsic value and time value of an option and designates as hedging instruments only the fair value change in the intrinsic value of the option. The change in fair values of the time value of option, is accumulated in hedging reserve, a component of shareholders’ funds and is transferred to the statement of profit and loss when the forecast transaction occurs. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised 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. Cumulative gain or loss on the hedging instrument recognised in shareholders’ funds is retained there and is transferred to the statement of profit and loss when the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in shareholders’ funds is transferred to the statement of profit and loss. m) Inventories Raw materials, sub-assemblies and components are carried at the lower of cost and net realisable value. Cost is determined on a weighted average basis. Purchased goods-in-transit are carried at cost. Work-in-progress is carried at the lower of cost and net realisable value. Stores and spare parts are carried at lower of cost and net realisable value. Finished goods produced or purchased by the Company are carried at lower of cost and net realisable value. Cost includes direct material and labour cost and a proportion of manufacturing overheads. n) Provisions, Contingent liabilities and Contingent assets A provision is recognised when the Company has a brsent obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which reliable estimate can be made. Provisions (excluding retirement benefits and compensated absences) are not discounted to its brsent 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 recognised in the financial statements. A contingent asset is neither recognised nor disclosed in the financial statements. o) Cash and cash equivalents The Company considers all highly liquid financial instruments, which are readily convertible into known amount of cash that are subject to an insignificant risk of change in value and having original maturities of three months or less from the date of purchase, to be cash equivalents. 1) Current tax includes additional provision (net) of Rs. 31.75 crores (March 31, 2015: Rs. 61.33 crores) in domestic and certain overseas jurisdictions relating to earlier years. The impact of MAT entitlement of earlier period is Rs. 89.24 crores (March 31, 2015: Rs. 8.83 crores). 2) AMALGAMATION OF COMPANIES a) Nature of business CMC Limited is engaged in the design, development and implementation of software technologies and applications, providing professional services in India and overseas and procurement, installation, commissioning, warranty and maintenance of imported / indigenous computer and networking systems, and in education and training. The Company holds 51.12% of the voting power of CMC Limited. b) CMC Limited has been amalgamated with the Company with effect from April 1, 2015 (‘appointed date’) in terms of the scheme of amalgamation (‘the Scheme’) sanctioned by the High Court of Judicature at Bombay vide its Order dated August 14, 2015 and the High Court of Judicature at Hyderabad vide its Order dated July 20, 2015. The Scheme came into effect on April 1, 2015 and pursuant thereto all assets, unbilled revenue, debts, outstandings, credits, liabilities, benefits under income tax, service tax, excise, value added tax, sales tax (including deferment of sales tax), benefits for and under Software Technology Parks of India (‘STPI’) and Special Economic Zone (‘SEZ’), duties and obligations of the CMC Limited, have been transferred to and vested in the Company retrospectively with effect from April 1, 2015. Pursuant to the Scheme coming into effect, all the equity shares held by the Company in CMC Limited shall stand automatically cancelled and remaining shareholders of CMC Limited holding fully paid equity shares shall be allotted 3. shares of Rs. 1 each in the Company, credited as fully paid-up, for every 100 shares of Rs. 10 each fully paid-up held in the share capital of CMC Limited by adjusting the General reserve. c) The amalgamation has been accounted for under the ‘pooling of interests’ method as brscribed by Accounting Standard (AS-14) specified under Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014. Accordingly, the assets, liabilities and reserves of CMC Limited as at April 1, 2015 have been taken over at their book values and in the same form. The difference between the amounts recorded as investments of the Company and the amount of share capital of CMC Limited has been adjusted in the General reserve. 4) EMPLOYEE RETIREMENT BENEFITS (a) Defined contribution plans The Company makes Provident fund, Superannuation fund and foreign defined contribution fund contributions to defined contribution retirement benefit plans for eligible employees. Under the schemes, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. In respect of Provident fund contributions to trust set up for this purpose, the Company is generally liable for annual contribution and any deficiency in interest cost compared to interest computed based on the rate of interest declared by the Central Government under the Employees’ Provident Fund Scheme, 1952. In addition to such contributions, the Company also recognises potential deficiency in interest, if any, computed as per actuarial valuation of interest as an expense in the year it is determined. As of March 31, 2016, the fair value of the assets of the fund and the accumulated members’ corpus is Rs. 9743.90 crores and Rs. 9126.96 crores respectively. In accordance with an actuarial valuation, there is no deficiency in the interest cost as the brsent value of the expected future earnings on the fund is greater than the expected amount to be credited to the individual members based on the expected guaranteed rate of interest of 8.80%. The actuarial assumptions include discount rate of 7.75% and an average expected future period of 8 years. The Company recognised Rs. 658.04 crores (March 31, 2015: Rs. 571.65 crores) for provident fund contributions and Rs. 193.02 crores (March 31, 2015: Rs. 163.47 crores) for superannuation contributions in the statement of profit and loss. The contributions payable to these plans by the Company are at rates specified in the rules of the schemes. The Company has contributed Rs. 335.42 crores (March 31, 2015: Rs. 267.63 crores) towards foreign defined contribution plans. (b) Defined benefit plans The Company makes annual contributions to the Employees’ Group Gratuity-cum-Life Assurance Scheme, a funded defined benefit plan for eligible employees. The scheme provides for lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 days salary for service less than 15 years, three-fourth month’s salary for service of 15 years to 19 years and one month salary for service of 20 years and more, payable for each completed year of service or part thereof in excess of six months. Vesting occurs upon completion of five years of service. 5) SEGMENT REPORTING The Company has identified business segments (industry practice) as its primary segment and geographic segments as its secondary segment. Business segments comprise banking, finance and insurance services, manufacturing, retail and consumer packaged goods, telecom, media and entertainment and others such as energy, resources and utilities, Hi-tech, life science and healthcare, s-Governance, travel, transportation and hospitality, products, etc. Revenue and expenses directly attributable to segments are reported under each reportable segment. Expenses which are not directly identifiable to specific segment have been allocated on the basis of associated revenue of the segment and manpower efforts. All other expenses which are not attributable or allocable to segments have been disclosed as unallocable expenses. Assets and liabilities that are directly attributable or allocable to segments are disclosed under each reportable segment. All other assets and liabilities are disclosed as unallocable. Fixed assets that are used interchangeably among segments are not allocated to primary and secondary segments. 6) Research and development expenditure aggregating Rs. 232.22 crores (Previous year: Rs.192.62 crores), including capital expenditure was incurred during the year. 7) During the year, the Company has incurred an amount of Rs. 294.23 crores (Previous year: Rs.218.42 crores) towards Corporate Social Responsibility expenditure. 8) The Company revised its policy of providing debrciation on fixed assets effective April 1, 2014. Debrciation is now provided on a straight line basis for all assets as against the policy of providing on written down value basis on some assets and straight line basis on others. Further the remaining useful life has also been revised wherever appropriate based on an evaluation. The carrying amount as on April 1, 2014 is debrciated over the revised remaining useful life. As a result of these changes, the debrciation charge for the year ended March 31, 2015 is higher by Rs. 131.16 crores and the effect relating to the period prior to April 1, 2014 is a net credit of Rs. 528.38 crores (excluding deferred tax of Rs. 129.62 crores) which has been shown as an ‘Exceptional Item‘ in the statement of profit and loss. 9) During the year ended March 31, 2015, an amount of Rs. 2326.42 crores has been recognised in the statement of profit and loss and accrued under Trade Payables in the balance sheet in respect of one-time bonus to eligible employees. 10) Previous years’ figures have been recast / restated. |