1.             Group overview

AGS Transact Technologies Limited (the ‘Company’) is a company domiciled in India and incorporated under the provisions of the Companies Act, 1956. The Company along with its subsidiaries - Securevalue India Limited (‘SVIL’), India Transact Services Limited (‘ITSL’) and Global Transact Services Pte. Ltd. (‘GTSL’), (together ‘the Group’) is in the business of supplying, installing and managing technology-based automation products and providing related services to its customers brsent in the Banking, Petroleum, Colour and Retail sectors. The Group is also engaged in the business of providing ATM outsourcing, ATM Management Services, Intelligent Cash deposit (ICD), transaction switching service, electronic payment solutions, cash management, cash  replenishment, door step banking and burial services to banks and service providers and supplying of self-service terminals and related software to financial institutions.

2.             Significant accounting policies

2.1         Basis of brparation of financial statements

The financial statements of the Company have been brpared in accordance with generally accepted accounting principles in India (‘Indian GAAP’). The Company has brpared these financial statements to comply in all material respects with the requirements of Accounting Standards specified under Section 133 of the Companies Act, 2013 (the ‘Act’), read with Rule 7 of the Companies (Accounts) Rules, 2014 and Companies (Accounting Standard) Amendment Rules, 2016 and the requirements of the Act. The financial statements have been brpared on an accrual basis and under the historical cost convention.

The accounting policies adopted in the brparation of financial statements are consistent with those of brvious year, except as disclosed.

2.2         Basis of consolidation

a.              The Consolidated Financial Statements (‘CFS’) has been brpared in accordance with the requirements of Accounting Standard 21 (AS 21) – ‘Consolidated Financial Statements’.

b.             The CFS has been brpared using uniform accounting policies for like transactions and other events in similar circumstances:

i)     The financial statements of the Company and its subsidiaries have been combined on a line to line basis by adding together like items of assets, liabilities, income and expenses. The subsidiaries are consolidated from acquisition date till the date they cease to become a subsidiary. The intra group balances and intra group transactions and unrealised profits or losses have been fully eliminated unless cost cannot be recovered.

ii)   The excess of the cost to the Company of its investment in a subsidiary over the Company’s portion of equity of the subsidiary, at the date on which the investment in the subsidiary is made, is accounted as Goodwill; when the cost to the Company of its investment in the subsidiary is less than the Company’s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, the difference is accounted as Capital Reserve. In case of acquisition of additional stake in the existing subsidiary, the excess of purchase consideration over the Company’s portion of equity of the subsidiary on the date on which the additional investment is made is treated as Goodwill.

iii) Minority interest in the net assets of consolidated subsidiaries consists of the amount of equity attributable to the minority shareholders at the date on which investments are made by the Company in the subsidiary companies and further movements in their share in the equity subsequent to the date of investments as stated above.

iv) As far as possible, the consolidated financial statements are brpared using uniform accounting policies for like transactions and other events in similar circumstances and are brsented in the same manner as.the Company’s standalone financial statements. If it is not practicable to use uniform accounting policies in brparation of consolidated financial statement, the fact has been disclosed with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied, if such differences are considered material.

c.              The subsidiaries considered in the brparation of the CFS and the shareholding of the Company in these Companies is as follows:

Subsidiaries	Holding Company	Country of Incorporation	Ownership interest
India Transact Services Limited	Company	India	100%
Securevalue India Limited	Company	India	100%
Global Transact Services Pte. Ltd.	Company	Singapore	100%
Novus Technologies Pte. Ltd. (‘NTPL’)	GTSL	Singapore	90%
Novus Technologies (Cambodia) Company Limited	NTPL	Cambodia	90%
Novus Transact Philippines Corporation	NTPL	Philippines	90%
Novus Tech Transact Lanka (Pvt) Ltd (w.e.f. 23 September 2016)	NTPL	Sri Lanka	90%

2.3     Use of estimates

The brparation of financial statements in conformity with Indian GAAP requires the management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities at the end of the reporting period. Although these estimates are based on the management’s best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods.

2.4         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:

·         it is expected to be realized in, or is intended for sale or consumption in, the Company’s normal operating cycle;

·         it is held primarily for the purpose of being traded;

·         it is expected to be realized within 12 months after the reporting date; or

·         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.

Liability

A liability is classified as current when it satisfies any of the following criteria:

·         it is expected to be settled in the Company’s normal operating cycle;

·         it is held primarily for the purpose of being traded;

·         it is due to be settled within 12 months after the reporting date; or

·         the Company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

Current liabilities include the 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 realisation in cash or cash equivalents. Based on the nature of operations and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current – non-current classification of assets and liabilities.

2.5           Property, plant and equipment

Property, plant and equipment are carried at the cost of acquisition or construction, less accumulated debrciation and accumulated impairment, if any. The cost of Property, plant and equipment includes taxes (other than those subsequently recoverable from tax authorities), duties, freight and other directly attributable cost related to the acquisition and installation of the respective assets. Subsequent expenditures related to an item of Property, plant & equipment are added to its book value only if they increases the future benefit from the existing assets beyond its brviously assessed standard of performance. Further, br-operative expenses such as salaries, rent, octroi charges, brokerage, legal and professional fees, etc. incurred during installation period are capitalized under the respective asset head as part of the indirect installation cost, to the extent to which the expenditure is allocable / apportioned to the asset-head. In case of composite contract involving acquisition of property, plant and equipment and providing services, the Property, plant and equipment are capitalized at the respective fair value of the asset acquired.

Property, plant and equipment eliminated from the financial statements and disposed of when no further benefits are expected from its use. Gain or loss arising from disposal is charged or credited to statement of profit and loss.

An item of Property, plant and equipment is eliminated from the financial statements on disposal or when no further benefits are expected from its use. Losses arising from retirement or gains or losses arising from disposal of fixed assets which are carried at cost are recognised in the Statement of Profit and Loss.

During the year, pursuant to the Notification issued by Ministry of Corporate Affairs (MCA) on                     30 March 2016 to amend the Companies (Accounting Standards) Rules, 2006 and as per the revised accounting standard (AS) 10 Property, plant and equipment, the Company has capitalised stores and spares and Demo assets which meet the definition of property, plant and equipment as stated in AS 10.

Stores and spares includes tangible items used as rotatables in supply of goods or services and are expected to be used for a period more than 1 year.

Demo assets includes assets which are given for training, testing and demonstration to various current and prospective customers for supply of goods or services and are expected to be used for a period more than 1 year.

Advance paid for acquisition/ construction of property, plant and equipment which are not ready for their intended use at each balance sheet date are disclosed under ‘long-term loans and advances’ as ‘capital advances’.

2.6           Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. After initial recognition, intangible assets are carried at cost less accumulated amortisation and accumulated impairment loss, if any.

Intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired.

Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the statement of profit and loss in the year in which the expenditure is incurred.

The amortisation period and the amortisation method are reviewed at least at each financial year end. If the expected useful life of the asset is significantly different from brvious estimates, the amortisation period is changed accordingly.

Intangible assets are amortised on a straight line basis over the estimated useful economic life.

Research and development cost

Research costs are expensed as incurred. Development expenditure incurred on an individual project is recognized as an intangible asset when the Group can demonstrate all the following:

·                The technical feasibility of completing the intangible asset so that it will be available for use or sale

·                Its intention to complete the asset

·                Its ability to use or sell the asset

·                How the asset will generate future economic benefits

·                The availability of adequate resources to complete the development and to use or sell the asset

·                The ability to measure reliably the expenditure attributable to the intangible asset during development.

Following the initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses, if any. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised on a straight line basis over the period of expected future benefit from the related project, i.e., the estimated useful life of four years. Amortisation is recognized in the statement of profit and loss. During the period of development, the asset is tested for impairment annually.

2.7        Debrciation and amortization

Change in accounting estimates

Useful life of property, plant and equipment:

During the year ended 31 March 2016, based on review of physical conditions and technical assessment of the specific assets capitalised in earlier years, the management revised the estimates of useful life for ATM Machines from 7 years to 10 years. The effect of change in useful life on debrciation was recognised prospectively. As a result of change debrciation for the brvious year ended 31 March 2016 was lower by Rs. 155,806,902.

Residual value:

During the year ended 31 March 2016, based on the experience and technical assessment, the management had revised the estimates relating to the residual value of certain class of Property, plant and equipment, mainly ATM Machines and other movable assets at ATM sites like Air Conditioners, UPS, etc. The residual value of these specific assets was revised to 5% of original cost as compared to Zero as estimated earlier. The effect of change in residual value was recognised prospectively. As a result of this change, the debrciation for the year ended 31 March 2016 is lower by Rs 31,101,187.

Debrciation on property, plant and equipment and intangible assets

Debrciation is provided on the Straight-Line Method (‘SLM’) method over the useful life of each asset as determined by management, except in the case of Plant and machinery, furniture and fixtures, office equipments, electrical installations and air conditioners, computers and vehicles for office purpose where Written Down Value (‘WDV’) is used. Debrciation/amortization is provided on a pro-rata basis i.e. from the date on which asset is ready for use.

The Group has used the following method and estimated useful life to provide debrciation/ amortization:

Category	Method of debrciation	Useful lives (years)
ATM machines*# ^	SLM	5 - 10 years
Others assets at ATM Sites*#	SLM	7 years
Vehicles for cash management business*#	SLM	7 years
Software	SLM	4 years
POS machines*# ^	SLM	3 - 5 years
Technical know how	SLM	7 years
Demo asset	SLM	2 - 5 Years
Stores and spares#	SLM	5 Years
Buildings – freehold	SLM	60 years
Plant and machinery*#	WDV	10-15 years
Furniture and fixtures^	WDV	2 - 10 years
Office equipments, electrical installations  and air conditioners^	WDV	2 – 10 years
Computers^	WDV	1 – 6 years
Vehicles for office purpose	WDV	8 years

Goodwill on consolidation is amortised over a period of 5 years.

* ATM machines, other assets at ATM sites, POS machines, vehicles for cash management business and plant and machinery are debrciated over the estimated useful lives, which is lower than the useful life indicated in Schedule II of the Act.

# The management has estimated, supported by independent assessment by professionals, the useful lives of the classes of assets.

^ Foreign subsidiaries are debrciating assets on SLM basis. The useful life for ATM machines, POS machines, furniture and fixtures, office equipments, electrical installation and air conditioner and computers have been estimated to be 5 years, 3 years, 2 years, 2 to 3 years and 1 year respectively.

Leasehold improvements are amortized over the primary period of lease i.e. lease period which ranges from 3 to 10 years as per the agreement or the life of respective assets, whichever is lower.

During the year, as explained in Note 2.5 above, Stores and Spares which are capitalized in line with        AS 10, are debrciated over a period of 5 years. Demo assets are debrciated over a period of 5 years and tools that are issued along with demo assets are debrciated over a period of 2 years. As a result of this change, the profit before tax for year ended 31 March 2017 is higher by Rs. 160,895,564.

2.8     Impairment of Property, plant and equipment and intangible assets:

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) net selling price and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an

asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their brsent value using a br-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining net selling price, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used.

The Group’s impairment calculation is based on detailed budgets and forecast calculations which are brpared separately for each of the Group’s cash-generating units to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, wherever applicable, a long term growth rate is calculated and applied to projected future cash flows after the fifth year.

Impairment losses are recognised in the statement of profit and loss.

After impairment, debrciation is provided on the revised carrying amount of the asset over its remaining useful life.

2.9         Revenue recognition

(a)            Revenue from sale of goods is recognised when all the significant risks and rewards of ownership of the goods have been passed to the buyer usually on delivery of the goods. Revenue from sale of ATM sites is recognised based on customer acceptance received on completion of the ATM sites. Excise duty deducted from revenue (gross) is the amount that is included in the revenue (gross) and not the entire amount of liability arising during the year.

(b)          Revenue from services is recognised on rendering of respective services to customers as per the agreements entered into with the respective customers.

The revenue from ATM management services is disclosed net of one-time upfront fees and brmium on purchase of Property, plant and equipment. The same is amortised over the period of the respective contract.

Revenue from maintenance contracts is recognized pro-rata over the period of the contract as and when services are rendered.

Revenue from one time set up fees is recognised on the basis of installation of POS machine, servicing fees for POS machine is recognised on monthly basis and transaction fees on the basis of transactions settled using POS machines.

(c)           The Group collects service tax, sales tax and value added taxes on behalf of the government and therefore, these are not economic benefits flowing to the Group. Hence, they are excluded from revenue.

(d)          Interest income is recognized on the time proportion basis.

(e)           Finance lease interest income is recognised upon commencement of the finance lease agreement using constant periodic rate of return over the period of the agreement.

2.10  Lease accounting

Where the Group is lessee

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.

Where the Group is the lessor

Leases in which the Group transfers substantially all the risks and benefits of ownership of the asset are classified as finance leases. Assets given under finance lease are recognized as a receivable at an amount equal to the net investment in the lease. After initial recognition, the Group apportions lease rentals between the principal repayment and interest income so as to achieve a constant periodic rate of return on the net investment outstanding in respect of the finance lease. The interest income is recognized in the statement of profit and loss. Initial direct costs such as legal costs, brokerage costs, etc. are recognized immediately in the statement of profit and loss.

2.11  Inventories

(a)           Raw materials, finished goods, stores, spares (other than those capitalized in property, plant and equipment - refer note 2.5 above), traded items and consumables are carried at the lower of cost and net realisable value. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are sold at or above cost. The comparison of cost and net realisable value is made on an item-by-item basis.

(b)          In determining cost of raw materials, finished goods, traded items, stores, spares and consumables, weighted average cost method is used. Cost of inventory comprises all costs of purchase, duties, taxes (other than those subsequently recoverable from tax authorities) and all other costs incurred in bringing the inventory to their brsent location and condition.

(c)           Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(d)          Cost of finished goods includes the cost of raw materials, an appropriate share of fixed and variable production overheads, excise duty as applicable and other costs incurred in bringing the inventories to their brsent location and condition. Fixed production overheads are allocated on the basis of normal capacity of production facilities.

2.12  Transactions in foreign currency

(a)          Initial recognition

Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

(b)          Reporting at Balance Sheet date

Foreign currency monetary items are retranslated using the exchange rate brvailing at the reporting date. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction.

(c)           Exchange differences

All other exchange differences are recognized as income or as expenses in the period in which they arise.

(d)          Translation of non-integral foreign operation

Foreign operations of the Group are classified under non-integral foreign operations. In translating the financial statements of non-integral foreign operations for incorporation in financial statements, the assets and liabilities, both monetary and non-monetary of the non-integral foreign operations are translated at closing rate, income and expense of the non-integral foreign operations are translated at the monthly average exchange rate; all the resulting exchange differences are accumulated in Foreign Currency Translation Reserve (‘FCTR’) until the disposal of the net investment.

On the disposal of a non-integral foreign operation, the cumulative amount of the exchange differences which have been deferred and which relate to that operation are recognized as income or expenses in the same period in which the gain or loss on disposal is recognized.

When there is a change in the classification of a foreign operation, the translation procedures applicable to the revised classification are applied from the date of the change in the classification.

(e)           Forward exchange contracts entered into to hedge foreign currency risk of an existing asset/ liability

The brmium or discount arising at the inception of forward exchange contract is amortised and recognised as an expense/ income over the life of the contract. Exchange differences on such contracts are recognised in the statement of profit and loss in the year in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such forward exchange contract is also recognised as income or as expense for the year.

2.13  Retirement and other employee benefits 

Post-employment benefits

(i)                 Defined contribution plans

A defined contribution plan is a plan for the post-employment benefit of an employee under which the Group pays fixed yearly contributions into Provident Fund and Employee State Insurance Corporations. The Group has no further legal or constructive obligation to pay once contributions are made. Contributions made are charged to employee benefit expenses in the year in which the employment services qualifying for the benefit are provided.

Some of the foreign subsidiaries of the Group makes specified contributions towards pension scheme. These contributions are recognized as an expense in the Statement of Profit and Loss, during the period in which the employee renders the related services. 

(ii)               Defined benefit plans

Gratuity is defined benefit plan.  The gratuity plan provides for a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee’s eligible salary and the tenure of employment with the Group.

Liabilities with regard to gratuity plan are determined by actuarial valuation, carried out at the year -end by an independent actuary using the projected unit credit method. The gratuity plan is not funded.

The discount rates used for determining the brsent value of obligation under defined benefit plans, is based on the market yields on Government securities as at the Balance Sheet date, having maturity periods approximating the terms of related obligations.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the Statement of Profit and Loss in the period in which they arise.

(iii)             Other long-term employee benefits

Compensated absences which are not expected to occur within twelve months after the end of the year in which the employee renders the related services are recognised as a liability at the brsent value of the estimated liability for leave as a result of services rendered by employees, which is determined at each balance sheet date based on an actuarial valuation by an independent actuary using the projected unit credit method. The discount rates used for determining the brsent value of the obligation under other long term employee benefits, are based on the market yields on Government of India securities as at the balance sheet date. Re-measurement gains and losses are recognised immediately in the Statement of profit and loss.

The Company brsents the above liability/(asset) as current and non- current in the balance sheet as per actuarial valuation by the independent actuary.

(iv)              Short-term employee benefits

All employee benefits payable wholly within twelve months of rendering the service are classified short-term employee benefits and they are recognised in the year in which the employee renders the related services. For the amount expected to be paid, the Company recognize an undiscounted  liability if they have a brsent legal or constructive obligation to pay the amount as a result of past service provided by employees, and the obligation can be estimated reliably.

2.14  Income taxes

Tax expense comprises of current and deferred tax. Current income-tax is measured at the amount expected to be paid to the tax authorities in accordance with Tax Laws enacted in the respective counties of domicile. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date.

Deferred income taxes reflect the impact of timing differences between taxable income and accounting income originating during the current year and reversal of timing differences for the earlier years. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted at the reporting date.

Deferred tax liabilities are recognised for all taxable timing differences. Deferred tax assets are recognized for deductible timing differences only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situation where the legal entity has an unabsorbed debrciation or carry forward tax losses, all deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that they can be realised against future taxable profits.

At each reporting date, the Group re-assesses unrecognized deferred tax assets. It recognizes unrecognized deferred tax asset to the extent that it has become reasonably or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realised.

The carrying amount of deferred tax assets are reviewed at each reporting date. The Group writes-down the carrying amount of deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realized. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the same taxable entity and the same taxation authority.

2.15  Provisions and contingencies

A provision is recognized when the Group has a brsent obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not discounted to their brsent value and are determined based on the best estimate required to settle the obligation at the reporting date. These estimates are reviewed at each reporting date and adjusted to reflect the current best estimates.

Warranty provisions

Provisions for warranty-related costs are recognized when the related product is sold or service provided. Provision is based on technical estimates which are based on historical experience. The estimate of such warranty-related costs is reviewed and revised annually.

Contingent liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group or a brsent obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. The Group does not recognize a contingent liability but discloses its existence in the financial statements.

2.16  Earnings per share

Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting brference dividends and attributable taxes) by the weighted average number of equity shares outstanding during the year. Partly paid equity shares are treated as a fraction of an equity share to the extent that they are entitled to participate in dividends relative to a fully paid equity share during the reporting period. The weighted average number of equity shares outstanding during the year is adjusted for events such as bonus issue, bonus element in a rights issue, share split, and reverse share split (consolidation of shares) if any that have changed the number of equity shares outstanding, without a corresponding change in resources.

For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares.

2.17  Measurement of EBITDA

The Company has opted to brsent earnings before interest (finance cost), tax, debrciation and amortisation (EBITDA) as a separate line item on the face of the Statement of profit and loss for the year. The Company measures EBITDA on the basis of profit/loss from continuing operations. Finance cost includes interest on borrowings, amortisation of brmium on forward contracts and exchange difference to the extent considered as an adjustment to borrowing costs.

2.18  Cash and cash equivalents

Cash and cash equivalents for the purposes of cash flow statement comprise unrestricted cash at bank and in hand and short-term investments with an original maturity of three months or less.

2.19  Segment reporting

Identification of Segments:

In accordance with Accounting Standard - 17 - “Segment Reporting”, the Group brsented its segmental information adopting business segment as the primary reporting format and geographical segment as the secondary reporting format.   

The Group’s operating businesses are organized and managed separately according to the nature of products and services provided, with each segment rebrsenting a strategic business unit that offers different products or services and serves different markets.

Accordingly the Group has identified ‘Banking Payment Solutions’, ‘Banking Automation Solutions’ and ‘Other Automation Solutions’ segments as the primary reportable segments.

Inter-segment transfers

The Group generally accounts for intersegment sales and transfers at cost plus appropriate margins.

Allocation of common costs

Common allocable costs are allocated to each segment according to the relative contribution of each segment to the total common costs.

Unallocated items

Unallocated items include general corporate income and expense items which are not allocated to any business segment.

Segment accounting policies

The Group brpares its segment information in conformity with the accounting policies adopted for brparing and brsenting the financial statements of the Group as a whole.

2.20  Borrowing Cost

Borrowing cost includes interest and amortisation of ancillary costs incurred in connection with the arrangement of borrowings.

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur.

2.21  Employee stock compensation cost

Employees (including senior executives) of the Group receive remuneration in the form of share based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). In accordance with the Guidance Note on Accounting for Employee Share-based Payments by Institute of Chartered Accountants of India (‘ICAI’), the cost, if any, of  equity-settled transactions is measured using the intrinsic value method and recognized, together with a corresponding increase in the “Stock options outstanding account” in reserves. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit recognized in the statement of profit and loss for the year rebrsents the movement in cumulative expense recognized as at the beginning and end of that year and is recognized in employee benefits expense.

25.         Employee benefits

           Contribution to Provident fund, Employee State Insurance and other funds:         

Amount of Rs.93,189,123 (31 March 2016 : Rs. 72,345,693) is recognised as an expense and included in “Employee benefits” (refer note 21) in the Statement of profit and loss. This amount includes contribution made by subsidiaries incorporated in and outside India.  

Defined benefit plan for gratuity:

The gratuity benefit payable to the employees of the Company is as per the provisions of the Payment of Gratuity Act, 1972, as amended. Under the gratuity plan, every employee who has completed at least 5 years of service gets gratuity on separation or at the time of superannuation calculated for equivalent to 15 days salary for each completed year of service calculated on last drawn basic salary.

The following tables summarize the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the balance sheet:

Statement of profit and loss

Net expense recognized in Employee cost

	31 March 2017	31 March 2016
Current service cost	20,728,677	13,992,934
Interest cost on benefit obligation	7,671,939	5,499,567
Expected return on plan assets	–	–
Net actuarial loss recognized during the year	8,765,198	5,815,323
Net benefits expense	37,165,814	25,307,824

The Group does not have a fund plan for gratuity liability.

Balance sheet

Benefit asset / liability  

	31 March 2017	31 March 2016
Present value of unfunded obligations	114,927,821	82,262,006
Fair value of plan assets	–	–
Net plan liability	114,927,821	82,262,006

Changes in the brsent value of defined benefit obligation are as follows:

	31 March 2017	31 March 2016
Opening defined benefit obligation	82,262,006	59,664,884
Current service cost	20,728,677	13,992,934
Interest cost	7,671,939	5,499,567
Benefits paid	(4,499,999)	(2,710,702)
Actuarial (gains)/losses on obligation	8,765,198	5,815,323
Past Service Cost	–	–
Closing defined benefit obligation	114,927,821	82,262,006

The principal assumptions used in determining gratuity benefit obligation for the Group’s plan are shown below:

	31 March 2017	31 March 2016
Discount rate	6.85% - 7.05%	7.60% - 7.80%
Salary escalations	7.00%	4.00 - 7.00%
Employee turnover
21 - 30 years	16.00% - 46.00%	12.18% - 21.80%
31 - 40 years	12.00% - 30.00%	10.58% - 26.40%
41 - 50 years	8.00% - 22.00%	9.68% - 14.70%
51 - 59 years	13.00% - 16.00%	12.88% - 28.60%

Amounts for the current and brvious four years are as follows:

Gratuity	31 March 2017	31 March 2016	31 March 2015	31 March 2014	31 March 2013
Defined benefit obligation	114,927,821	82,262,006	59,664,884	42,624,074	34,231,724
(Deficit)	(114,927,821)	(82,262,006)	(59,664,884)	(42,624,074)	(34,231,724)
Experience adjustments on plan liabilities	2,656,860	6,382,456	495,707	1,979,860	8,539,302

- Estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

- Assumptions regarding future mortality are based on published Statistics & Mortality tables. The calculation of death benefit obligation is sensitive to the mortality assumptions.

Compensated absences:

The liability towards compensated absences for the year ended 31 March 2017 based on actuarial valuation using the projected accrued benefit method amounted to Rs 116,354,846 (31 March 2016: Rs 81,697,940).

Amount of Rs 47,834,637 (31 March 2016: Rs 31,595,091) is recognised as an expense and included in “Employee benefits” in the Statement of profit and loss.

26.         Employee stock option plan  

On 29 February 2012, the Board of directors approved the Equity Settled ESOP Scheme (ESOS Scheme) for issue of stock options to the key employees of the Company and others as approved by the board of directors.

Particulars	ESOS 2012
Grant Date	T–1: 05 March 2012 T–2: 24 July 2012 T–3: 01 February 2015 T–4: 01 February 2015
Fair Value at Grant Date	Rs. 156.52 to Rs. 609.83
Exercise Price	Rs. 156.52 to Rs. 444.50
Vesting Period	With 1 to 3 years from the respective date of grant
Exercise Period	5 years or date of listing whichever is later (to be reckoned from date of first vesting)
Expected Life	2.5 to 4 years

The details of activity under ESOS 2012 are summarized below:-

	March 2017 (No. of options)	March 2016 (No. of options)
Particulars	ESOS 2012	ESOS 2012
Outstanding at the beginning of the year	471,500	471,500
Granted during the year	–	–
Exercised during the year	–	–
Lapsed during the year	81,500	–
Outstanding at the end of the year	390,000	471,500
Exercisable at the end of the year	390,000	471,500
Weighted average remaining contractual life (years)	0 to 0.50	0.94 to 1.50
Weighted average fair value of options granted	31.09 to 485.01	31.09 to 485.01
Weighted average exercise price	156.52 to 444.50	156.52 to 444.50

The Black and Scholes Options Pricing model had been used for computing the weighted average fair value considering the following inputs:

Particulars	Tranche–3	Tranche–4
Dividend Yield	0%	0%
Expected Volatility	0%	0%
Risk free interest rate	9.05%	9.05%
Weighted average share price (Rs.)	609.83	609.83
Exercise Price (Rs.)	156.52	444.50
Expected life of options granted in years	2.5	2.31

The Company measures the cost of ESOP using the intrinsic value method. Had the Company used the fair value model to determine compensation, its profit after tax and earnings per share as reported would have changed to the amounts indicated below:

	31 March 2017	31 March 2016
Loss after tax as reported	(116,002,562)	(224,368,991)
Add: ESOP cost using the intrinsic value method	-	20,445,993
Less: ESOP cost using the fair value method	-	(24,306,871)
Proforma loss after tax	(161,002,562)	(228,229,869)
Earnings per share
Basic
- As reported	(1.34)	(1.87)
- Proforma	(1.34)	(1.90)
Diluted
- As reported	(1.34)	(1.87)
- Proforma	(1.34)	(1.90)