A. Significant Accounting Policies 1. Basis of accounting 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, read with Rule 7 of the Companies (Accounts) Rules, 2014 and the relevant provisions of the Companies Act, 2013. Further the guidance notes/announcements issued by the Institute of Chartered Accountants of India (ICAI) are also considered wherever applicable. The Company maintains its accounts on accrual basis following the historical cost convention. The brparation of financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions that affect the income and expense reported for the period and assets and liabilities reported as of the date of the financial statements. Examples of such estimates include the useful lives of the fixed assets, provision for doubtful debts, future obligations in respect of retirement benefit plans, etc. Actual results could vary from these estimates. 2. Presentation of financial statements The balance sheet and the statement of profit and loss are brpared and brsented in the format brscribed in the schedule III to the Companies Act, 2013. The cash flow statement has been brpared and brsented as per the requirements of Accounting Standard (AS) 3 “Cash Flow Statements”. The disclosure requirements with respect to items in the balance sheet and statement of profit and loss, as brscribed in the schedule III to the Act, are brsented by way of notes forming part of accounts along with the other notes required to be disclosed under the notified Accounting Standards. 3. Revenue recognition a) Revenue from contracts priced on time and material basis are recognised when services are rendered and related costs are incurred. Revenue from services performed on “fixed-price” basis is recognised using the proportionate completion method. Unbilled revenue rebrsents value of services performed in accordance with the contract terms but not billed. Notes forming part of accounts b) Other income i. Interest income is accrued at applicable interest rate. ii. Dividend income is accounted in the period in which the right to receive the same is established. iii. Other items of income are accounted as and when the right to receive arises. 4. Employee benefits a) Short term employee benefits All employee benefits falling due wholly within twelve months of rendering the service are classified as short term employee benefits. The benefits like salaries, wages, short term compensated absences and performance incentives are recognised in the period in which the employee renders the related service. b) Post-employment benefits i) Defined contribution plan: The Company’s superannuation fund and state governed provident fund scheme are classified as defined contribution plans. The contribution paid / payable under the schemes is recognised during the period in which the employee renders the related service. ii) Defined benefit plans: The provident fund scheme managed by trust, employees gratuity fund scheme managed by LIC and post-retirement medical benefit scheme are the Company’s defined benefit plans. Wherever applicable, the brsent value of the obligation under such defined benefit plans is determined based on actuarial valuation 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 plans, is based on the market yields on government bonds as at the balance sheet date, having maturity periods approximating to the terms of related obligations. Actuarial gains and losses are recognised immediately in the profit and loss account. In case of funded plans, the fair value of the plan assets is reduced from the gross obligation under the defined benefit plans to recognize the obligation on net basis. Gains or losses on the curtailment or settlement of any defined benefit plan are recognised when the curtailment or settlement occurs. Past service cost is recognised as expense on a straight-line basis over the average period until the benefits become vested. (iii) Long term employee benefits: The obligation for long term employee benefits like long term compensation absences is recognised in the similar manner as in the case of defined benefit plans as mentioned in (b) (ii) above. 5. Fixed assets Tangible Fixed assets are stated at cost less accumulated debrciation. Intangible Computer software, internally developed software is capitalised at cost. 6. Leases Finance lease Assets acquired under leases where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Such assets are capitalised at the inception of the lease at the lower of the fair value and the brsent value of minimum lease payments and a liability is created 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 period. Operating lease Assets acquired under lease where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Lease rentals are charged to the profit and loss account on accrual basis. 7. Debrciation Tangible - owned assets Debrciation on assets has been provided based on useful life brscribed in schedule II to the Companies Act, 2013 except for the leasehold improvements which is debrciated over the lease period. Tangible - leased assets Assets acquired under finance leases are debrciated at the rates applicable to similar assets owned by the Company as there is reasonable certainty that the Company shall obtain ownership of the assets at the end of the lease term. • Leasehold land Over the residual period of the lease Intangible assets The basis of amortization of intangible assets is as follows: • Computer software 33.33% • Intellectual Property Rights (IPR) 33.33% • Business Rights Over a period of five years Debrciation / amortization on additions / disposals are calculated pro-rata from / to the month of additions / disposals. 8. Investment Trade investments comprise investments in subsidiary companies. Long-term investments including trade investments are stated at cost, less provision for other than temporary diminution in value, if any. Current investments are stated at the lower of cost or market value, determined on the basis of specific identification. Investments, which are readily realisable and are intended to be held for not more than one year from the date of acquisition, are classified as current investments. All other investments are classified as long term investments. 9. Employee stock ownership schemes In respect of stock options granted pursuant to the Company’s stock option schemes, the excess of fair value of the share over the exercise price of the option is treated as discount and accounted as employee compensation cost over the vesting period. 10. Foreign currency transactions a) Foreign currency transactions are initially recorded at the rates brvailing on the date of the transaction. At the balance sheet date, foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried at historical cost denominated in foreign currency are reported using the exchange rate at the date of the transaction. Translation of foreign currency transaction of overseas branches is as under: • Revenue items at the average rate for the period; • Fixed assets and investments at the rates brvailing on the date of the transaction; and • Other assets and liabilities at year end rates Exchange difference on settlement / year end conversion is adjusted to profit and loss account. b) Forward contracts other than those entered into to hedge foreign currency risk on unexecuted firm commitments or of highly probable forecast transactions are treated as foreign currency transactions and accounted accordingly. Exchange differences arising on such contracts are recognised in the period in which they arise and the brmium paid / received is accounted as expense / income over the period of the contract. Profit or loss on such forward contracts is accounted as income or expense for the period. c) All the other derivative contracts, including forward contracts entered into to hedge foreign currency risks on unexecuted firm commitments and highly probable forecast transactions are recognised in the financial statements at fair value as on the balance sheet date. In pursuance of the announcement of the Institute of Chartered Accountants of India (ICAI) dated March 29, 2008 on accounting of derivatives, the Company has adopted Accounting Standard 30 for applying the test of hedge effectiveness of the outstanding derivative contracts. Accordingly, the resultant gains or losses on fair valuation of such contracts are recognised in the profit and loss account or balance sheet as the case may be. 11. Taxes on income Tax on income for the current period is determined on the basis of taxable income and tax credits computed in accordance with the provisions of the Income Tax Act, 1961 and based on the expected outcome of assessments/ appeals. Deferred tax is recognised on timing differences between the income accounted in financial statements and the taxable income for the year, and quantified using the tax rates and laws enacted or substantively enacted as on the Balance Sheet date. Other deferred tax assets are recognised and carried forward to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. 12. Borrowing costs Borrowing costs include interest, commitment charges, finance charges in respect of assets acquired on finance lease and exchange differences arising from foreign currency borrowings, to the extent they are regarded as an adjustment to interest costs. 13. Provisions, contingent liabilities and contingent assets Provisions are recognised for liabilities that can be measured only by using a substantial degree of estimation, if a) the Company has a brsent obligation as a result of a past event; b) a probable outflow of resources is expected to settle the obligation; and c) the amount of the obligation can be reliably estimated Reimbursement expected in respect of expenditure required to settle a provision is recognised only when it is virtually certain that the reimbursement will be received. Contingent liability is disclosed in the case of a) a brsent obligation arising from a past event when it is not probable that an outflow of resources will be required to settle the obligation; or b) a possible obligation unless the probability of outflow of resources is remote Contingent assets are neither recognised nor disclosed. Provisions, contingent liabilities and contingent assets are reviewed at each balance sheet date. 14. Segment accounting Segment accounting policies are in line with the accounting policies of the Company. In addition, the following specific accounting policies have been followed for segment reporting: i. Segment revenue includes sales and other income directly identifiable with/allocable to the segment. ii. Expenses that are directly identifiable with/allocable to segments are considered for determining the segment result. Expenditure which relate to the Company as a whole and not allocable to segments are included under “unallocable corporate expenditure”. iii. Income which relates to the Company as a whole and not allocable to segments is included in “unallocable corporate income”. iv. Fixed assets used and liabilities contracted for performing the Company’s business have not been identified to any of the above reported segments as the fixed assets and services are used interchangeably among segments. 15. Cash flow statement Cash flow statement is brpared segregating the cash flows from operating, investing and financing activities. Cash flow from operating activities is reported using indirect method. Under the indirect method, the net profit is adjusted for the effects of: i. transactions of a non-cash nature ii. any deferrals or accruals of past or future operating cash receipts or payments and iii. items of income or expense associated with investing or financing cash flows. Cash and cash equivalents (including bank balances) are reflected as such in the cash flow statement General descriptions of defined benefit plans: a) Gratuity plan The Company makes contributions to the Employees’ Group Gratuity-cum-Life Assurance Scheme of the Life Insurance Corporation of India, a funded defined benefit plan for qualifying employees. The scheme provides for lump sum payment to employees at retirement, death while in employment or termination of employment of an amount equivalent to 15 days salary for every completed year of service or part thereof in excess of six months, provided the employee has completed five years in service. b) Post-retirement medical benefit plan The post-retirement medical benefit plan provides for reimbursement of health care costs to certain categories of employees post their retirement. The reimbursement is subject to an overall ceiling limit sanctioned at the time of retirement. The ceiling limits are based on cadre of the employee at the time of retirement. c) Self-managed provident fund plan The Company’s provident fund plan is managed by its holding company through a Trust permitted under the Provident Fund Act, 1952. The plan envisages contribution by employer and employees and guarantees interest at the rate notified by the Provident Fund Authority. The contribution by employer and employee together with interest are payable at the time of separation from service or retirement whichever is earlier. The benefit under this plan vests immediately on rendering of service. The interest payment obligation of trust managed provident fund is assumed to be adequately covered by the interest income on long term investments of the fund. Any shortfall in the interest income over the interest obligation is recognised immediately in the Statement of Profit and Loss as actuarial loss. Any loss arising out of the investment risk and actuarial risk associated with the plan is also recognised as expense in the period in which such loss occurs. Further, on amount of Rs. Nil has been provided based on actuarial valuation towards the future obligation arising out of interest rate guarantee associated with the plan. T.(2) (i) In line with the Company’s Financial Risk Management Policy, financial risks relating to changes in the exchange rates, are hedged by forward contracts, besides the natural hedges. The loss on fair valuation of the derivative contracts which are designated and are effective as hedges, amounting to Rs. 2,695.02 Mn (net of deferred tax) (Previous year Rs. 366.96 Mn (net of deferred tax)) has been accounted in retained earnings in balance sheet. The loss/ (gain) of Rs. (1,297.52 Mn) (Previous year gain of Rs. 243.04 Mn) on settlement of the forwards is recognised in statement of profit and loss. T.(6) Leases Finance leases In accordance with Accounting Standard 19 “Leases” issued by the Institute of Chartered Accountants of India, the assets acquired under finance leases on or after April 1, 2001 are capitalised and a loan liability is recognised for an equivalent amount. Consequently debrciation is provided on such assets. Lease rentals paid are allocated to the liability and the interest is charged to statement of profit and loss. T.(9) Segmental reporting The Company had 2 business segments. Services Cluster includes Banking & Financial services, Insurance, Media & Entertainment, Travel & Logistics and Healthcare. Industrials Cluster includes Hi Tech and Consumer Electronics, Consumer, Retail & Pharma, Energy & Process, Automobile & Aerospace, Plant Equipment & Industrial Machinery, Utilities and E&C. T.(10) Based on the information and records available with the Company, there are no amounts payable to micro and small enterprises as defined in the Micro, Small and Medium Enterprises Development Act, 2006. T.(11) On October 16, 2014, the Company acquired entire share capital of Information Systems Resource Centre Private Limited (‘ISRC’), thereby making it a wholly owned subsidiary. Larsen & Toubro Infotech Limited is engaged in software development & related services. ISRC is engaged in software services with respect to application development, information technology support and maintenance services to OTIS Elevator Company Inc. (OTIS) and certain other group companies of OTIS, which are part of United Technologies Corporation (UTC) group. The Company believes that acquisition will strengthen its relationship with UTC group. The acquisition was executed through a share purchase agreement for a consideration of Rs. 806.96 Mn. The Board of Directors of the Company and ISRC have approved the scheme of amalgamation of ISRC with the Company on October 17, 2014 and December 4, 2014, respectively, with October 17, 2014 as the appointed date. Accordingly, a petition for sanctioning the scheme of amalgamation had been filed with the Hon’ble High Court of Judicature at Bombay. The Scheme has been sanctioned by the Hon’ble High Court of Judicature at Bombay vide its order dated September 4, 2015. The Scheme was filed with the Registrar of the Companies on September 21, 2015 and came into effect on that day with appointed date being October 17, 2014. Pursuant thereto, the entire business and all the assets and liabilities, duties and obligations of ISRC have been transferred to and vested in the Company with effect from October 17, 2014. In accordance with the Scheme, the investment held in the subsidiary has been cancelled and ISRC being a wholly owned subsidiary of the Company, no equity shares were exchanged to effect the amalgamation in respect thereof. The amalgamation is accounted in accordance with ‘pooling of interest method’ as per Accounting Standard 14 ‘Accounting for Amalgamations’ and in accordance with scheme approved by the Hon’ble High Court of Bombay. 1) All assets and liabilities (including contingent liabilities),reserves, benefits under income-tax, benefits for under special economic zone registrations, duties and obligations of ISRC have been recorded in the books of account of the Company at their carrying amounts. 2) The amount of share capital of ISRC has been adjusted against the corresponding investment balance held by the Company in the amalgamating company and the excess of share capital over the investment has been adjusted against general reserve T.(12) The Board of Directors of the Company and GDA Technologies Limited (GDA) have approved the scheme of amalgamation of GDA with the Company on October 17, 2014, respectively, with April 1, 2016 as the appointed date. Accordingly, a petition for sanctioning the scheme of amalgamation has been filed with the Hon’ble High Court of Judicature at Bombay & the Hon’ble High Court of Judicature at Madras. The Scheme has been sanctioned by the Hon’ble High Court of Judicature at Bombay vide its order dated April 1, 2016. The approval of the Scheme by the Hon’ble High Court of Madras is awaited. T.(14) The Company is not required to transfer any amount to Investor Education & Protection Fund. T.(15) The Company in its board meeting held on June 16, 2015 has taken approval for the Offer for Sale (‘the Offer’) by Larsen & Toubro Limited in the Initial Public Offering of the Company. Pursuant to the same, the Company had filed its Draft Red Herring Prospectus (‘DRHP’) on September 28, 2015. Owing to change in the Offer structure and other considerations, the said DRHP was withdrawn on April 11, 2016 and pursuant to the approval of the IPO Committee, the Company filed a revised DRHP on April 12, 2016. T.(16) Previous year’s figures have been regrouped / reclassified wherever necessary. As per our report attached SHARP & TANNAN Chartered Accountants Firm’s Registration No. 109982W FIRDOSH D. BUCHIA Partner Membership No: 38332 by the hand of Sanjay Jalona Chief Executive Officer& Managing Director R. Shankar Raman Director Ashok Kumar Sonthalia Chief Financial Officer Subramanya Bhatt Company Secretary Place : Mumbai Date : April 26, 2016 |