1. General Information
Xchanging Solutions Limited (‘the Company’), incorporated on February 1, 2002, is an information technology (IT) services provider with operations in India and an international presence established through subsidiaries in USA, Singapore and the uK.
Pursuant to agreements, arrangements, amalgamations, etc. (with requisite approvals from various High Courts in India, wherever applicable), the Company has, during earlier years, acquired the IT services businesses (including assets and liabilities) of / from the following entities:
- SSI Limited (Information Technology division with operations in India, USA and several other countries).
- Scandent Group Limited, Mauritius (with operations in USA, Singapore, Germany, etc.).
- Matrix One India Limited (with operations in India).
Pursuant to share purchase agreements between Xchanging (Mauritius) Limited (XML), a wholly owned subsidiary of Xchanging Ltd (Formerly known as “Xchanging Plc”) incorporated in UK, and the erstwhile principal shareholders of the Company, and consequent open offer to public, XML acquired 75.00% of the outstanding share capital of the Company. Though the open offer process was completed on April 9, 2009, XML obtained the power of operational control of the Company effective January 1, 2009. On June 18, 2015 , XML has sold 22.93% of its holding in the Company to its fellow subsidiary Xchanging Technology Services India Private Limited, India (‘XTSIPL) and as a result XML holding in the Company has reduced to 52.07%.
* DXC Technology India Private Limited (Promoters group) acquired 3.77% of shares on January 6, 2017 through mandatory open offer.
** Edelweiss Securities Limited holds shares as Registered Owner from December 29, 2016 onwards as collateral on behalf of Scandent Holding Mauritius Limited.
2. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in note 2, the management of the Company is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
2.1 Critical judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimations, that the management have made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
i) Revenue recognition- The Company uses the percentage of completion method using the input (cost expended or efforts spend) method to measure progress towards completion in respect of fixed price contracts. Percentage of completion method accounting relies on estimates of total expected contract revenue and costs. This method is followed when reasonably dependable estimates of the revenues and costs applicable to various elements of the contract can be made. Key factors that are reviewed in estimating the future costs to complete include estimates of future labour costs and productivity efficiencies. As the financial reporting of these contracts depends on estimates that are assessed continually during the term of these contracts, recognized revenue and profit are subject to revisions as the contract progresses to completion. When estimates indicate that a loss will be incurred, the loss is provided for in the period in which the loss becomes probable.
ii) Impairment of investment in subsidiaries- Determining whether investment in subsidiaries is impaired requires an estimation of the value in use of the subsidiaries. The value in use calculation requires the management to estimate the future cash flows expected to arise from the subsidiaries operations and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. No impairment for investment in subsidiaries has been identified during the year.
iii) Income taxes- The Company’s two major tax jurisdictions in India and the Company also files tax returns. Significant judgments are involved in determining the provision for income taxes, including the amount expected to be paid or recovered in connection with uncertain tax positions. Also refer to note 30.
iv) Other estimates- The preparation of financial statements involves estimates and assumptions that affect the reported amount of assets, liabilities, disclosure of contingent liabilities at the date of financial statements and the reported amount of revenues and expenses for the reporting period. Specifically, the Company estimates the probability of collection of accounts receivable by analysing historical payment patterns, customer concentrations, customer credit-worthiness and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required.
v) Fair value measurements and valuation processes- Investment in mutual funds, derivative financial instruments are measured at fair value and the gratuity liability is measured based on actuarial valuation for financial reporting purposes. In estimating the fair value and actuarial valuation, the Company uses market-observable data to the extent it is available. Where such inputs are not available, the Company engages third party qualified valuers to perform the valuation.
Note: As at March 31, 2018, the loans and advances balance of Rs. 17,283 (2017: Rs. 17,283, 2016: Rs. 17,283) due from subsidiaries is interest free and repayable on demand. However, management does not have an intention to demand these loans in the next 12 months and hence these have been classified under noncurrent financial assets. These financial assets are carried at amortised cost.
b) Terms/ rights attached to equity shares
The Company has only one class of shares referred to as equity shares having a par value of Rs.10 each. Each shareholder is eligible for one vote per share held. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding.
Nature of security and terms of repayment for secured borrowings are as follows:
a) Nature of security: Vehicles purchased on loan for employees
b) Terms of Repayment: Monthly payment of equated monthly instalments for a period of 3-6 years (2017: 36 years, 2016: 2-6 years)
c) Interest rate: 9.7% to 10.5% per annum (2017: 9.5% to 10.5% per annum, 2016: 9.5% to 13.5% per annum)
Notes:
(i) There are no dues to micro and small enterprises as defined under the Micro, Small and Medium Enterprises Development Act, 2006 as of March 31, 2018, March 21, 2017 and January 1, 2016, outstanding for more than 45 days on the basis of such parties having been identified by management and relied upon by the auditors.
(ii) The credit period ranges from 0 to 90 days. No interest is charged on trade payables up to the due date. The Company has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms.
The income tax rate used for the above reconciliations is current tax 34.608% (2017: 33.063%) and Deferred tax 29.120% (2017: 33.063%), these are the corporate tax rate payable by corporate entities in India on taxable profits under the Indian tax law.
3 SEGMENT INFORMATION
(Refer note 2.21)
The entire operation of the Company relate only to one segment “Software Services” and hence there are no primary segment to be reported.
4 Employee Benefits Expense
(Refer note 2.7)
(a) Defined Contribution Plans
Provident Fund and Other Funds:_ During the year, the Company has recognised Rs. 152 (2017: Rs. 331) in the Statement of Profit and Loss relating to provident fund and other funds, which is included in the ‘Contribution to provident and other funds’.
(b) Defined Benefit Plan
Gratuity (unfunded):_The Company provides for gratuity, a defined benefit plan (the “gratuity plan”) covering eligible employees in accordance with the Payment of Gratuity Act, 1972. The gratuity plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee’s last drawn salary and years of employment with the Company.
The Company is exposed to various risks in providing the above gratuity benefit such as: interest rate risk, longetivity risk and salary risk.
Interest risk: A decrease in the bond interest rate will increase the plan liability.
Longevity risk: The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability.
Salary risk: The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan’s liability.
The following tables summarise the components of expense recognised in the Statement of Profit and Loss and amounts recognised in the Balance Sheet for the gratuity plan:
Notes:
(i) The estimates of future salary increases, considered in the actuarial valuation, takes into on account, inflation, seniority, promotions and other relevant factors, such as supply and demand in the employment market.
(ii) The discount rate is based on the prevailing market yields of Indian government securities as at the Balance Sheet date for the estimated term of the obligation.
(vi) Sensitivity analysis
Significant actuarial assumptions for the determination of the defined obligation are discount rate and expected salary increase. The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
The following table summarizes the impact on defined benefit obligation arising due to increase / decrease in key actuarial assumptions by 50 basis points:
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of-the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the balance sheet.
5 Financial instruments
5.1 Capital management
The Company manages its capital to ensure that it will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance.The capital structure of the Company consists net debt (borrowings as detailed in notes 17 and 21) and total equity of the Company.The Company is not subject to any externally imposed capital requirements.
5.1.1 Debt equity ratio
The debt equity ratio at end of the reporting period was as follows.
(i) Debt is defined as long-term and short term borrowings (excluding derivative, financial guarantee contracts and contingent consideration), as described in notes 17 and 21.
(ii) Total equity comprises issued share capital, reserves, retained earnings and other comprehensive income as set out in the statement of changes in equity.
5.2 Financial risk management
The Company is exposed to foreign currency risk, liquidity risk, credit risk and interest risk which may impact the fair value of its financial instruments. The Company has a risk management policy to manage & mitigate these risks. The Company’s risk management policy aims to reduce volatility in financial statements while maintaining balance between providing predictability in the Company’s business plan along with reasonable participation in market movement.
5.3 Market Risk
The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (see note 34.5). The Company enters into derivative financial instruments to manage its exposure to foreign currency risk through forward foreign exchange contracts to hedge the exchange rate risk arising on the export of services to other countries.
5.4 Foreign currency risk management
The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise.
The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows.
5.5.1 Foreign currency sensitivity analysis
The Company is mainly exposed to the USD and GBP
The following table details the Company’s sensitivity to a 10% increase and decrease in the Rs. against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Company where the denomination of the loan is in a currency other than the functional currency of the lender or the borrower. A positive number below indicates an increase in profit or equity where the Rs. strengthens 10% against the relevant currency. For a 10% weakening of the Rs. against the relevant currency, there would be a comparable impact on the profit or equity, and the balances below would be negative.
* Others include currencies such as SGD,EUR,MYR and AUD.
In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year. This is mainly attributable to the exposure outstanding on USD receivable and payable in the Company at end of the reporting period.
5.5.2 Forward foreign exchange contracts
It is the policy of the Company to enter into forward foreign exchange contracts to cover specific foreign currency receivables. The Company also enters into forward foreign exchange contracts to manage the risk associated with forecasted transactions.
As at March 31, 2018 and March 31, 2017 there are no outstanding forward foreign exchange contracts. The following table details the forward foreign currency (FC) contracts outstanding at the end of the reporting period January 1, 2016:
5.6 Interest rate risk management
The Company is exposed to interest rate risk because the Company lend/ borrow funds at fixed interest rates. There is no exposure to market rate fluctuations.The Companies exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.
5.7 Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company uses other publicly available financial information and its own trading records to rate its major customers. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivables.The Company does not have significant credit risk exposure to any single counterparty.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies
Provision for expected credit losses
The Company provides for expected credit loss based on the following:
5.8 Liquidity risk management
The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
5.8.1 Liquidity and interest risk tables
The following tables detail the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The tables include both interest and principal cash flows.
Fair value hierarchy
- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
- Level 3 inputs are unobservable inputs for the asset or liability.
The assets and liabilities measured at fair value on a recurring basis as at March 31, 2018 and the basis for that measurement is as below:
There are no financial liabilities measured at fair value
There have been no transfers between Level 1 and Level 2 during the year
The following table discloses the assets and liabilities measured at fair value on a recurring basis as at March 31, 2017 and the basis for that measurement:
There are no financial liabilities measured at fair value
There have been no transfers between Level 1 and Level 2 during the year
There have been no transfers between Level 1 and Level 2 during the year Valuation Methodologies
Investments in mutual funds: The Company’s investments consist primarily of investment in debt linked mutual funds. Fair values of investment securities classified as fair value through profit and loss are determined using the closing NAV and are classified as Level 1.
Derivative financial instruments: The Company’s derivative financial instruments consist of foreign currency forward exchange contracts. The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date and are classified as Level 2.
Fair value of financial assets and financial liabilities that are not measured at fair value The management assessed that fair value of cash and cash equivalents, trade receivables, trade payables, other current financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
6 Leases
(Refer note 2.5)
Operating lease
As lessee:
In case of assets taken on lease:
The Company has operating lease arrangements for its office premises, guest houses and certain equipment. The lease arrangements for premises and guest houses have been entered up to a maximum of six years from the respective dates of inception. Some of these lease arrangements have price escalation clauses. Rent and hire charges for such operating leases recognised in the Statement of Profit and Loss for the period ended March 31, 2018 amounts to Rs. 159 (2017: Rs. 470).
There are no future minimum lease payments under non-cancellable operating lease arrangements.
7 CAPITAL AND OTHER COMMITMENTS
(a) Capital Commitments
Estimated value of contracts in capital account remaining to be executed (net of advances)
(b) Other Commitments
(i) The Company has export obligations under the Software Technology Parks of India (STPI) scheme. In accordance with such scheme, the Company procures capital goods without payment of duties, for which, agreements and bonds are executed by the Company in favour of the Government. In case the Company does not fulfil the export obligation, it is liable to pay, on demand an amount equal to such duties saved including interest and liquidated damages. As at March 31, 2018, the Company has availed duty benefits amounting to Rs. 84 (2017: Rs. 178, 2016: Rs. 178). The Company expects to meet its commitment to earn requisite revenue in foreign currency as stipulated by the STPI regulations.
(ii) As at March 31, 2018, Xchanging Solutions (USA) Inc, USA, Company’s wholly owned subsidiary, has negative net assets amounting to Rs. 19,225 (2017: Rs. 21,221, 2016: Rs. 23,713). While the subsidiary is confident of generating funds from their operations, the Company intends to support the shortfall, if any.
(ii) (a) During the quarter ended March 31, 2016, one of the customers of the Company has disputed its outstanding balance of INR 960 as on March 31, 2016. Arbitration proceeding for this dispute is ongoing. However as a matter of abundant caution, provision has been made for the amounts due.
(b) The above customer has made a claim on the company for the damages incurred by them to the extent of INR 1821, which has not been accepted by the Company.
Notes:
(a) The above contingent liabilities are possible obligation or present obligation that may (but probably will not) require an outflow of resources.
(b) Represents various income tax demands under appeal. On April 26, 2018 the company has received revised Appeal Effect order for FY 2008-09 pursuant to favourable order of ITAT and Rectification Order for FY 2012-13 due to which the demand for these years has been reduced substantially. The contingent liability number reported above is after considering these orders.
(c) Represents service tax amount on select categories of transactions relating to financial years 2007-08 to 2011-12 set out in a show cause notice issued by the Commissioner of Service Tax, Bangalore, which is responded by the Company. Based on consultation with legal counsel, the Company has filed a formal reply to the show cause notice.
(d) It is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of the above pending resolution of the respective proceedings.
(e) The Company does not expect any reimbursements in respect of the above contingent liabilities.
8 CORPORATE SOCIAL RESPONSIBILITY (CSR)
As per Sec 135 of the Companies Act, 2013 applicable in the current year, the Company has spent Rs 21 (2017: Rs 15) on various CSR initiatives, during the year, which are mentioned below:
9 The Company has strategic gross investment amounting to Rs. 11,224 (2017: Rs. 11,224, 2016: Rs. 11,224) in Xchanging Solutions (USA) Inc, USA, its wholly owned subsidiary. Based on assessment of diminution in the value of investments, the Company has made a provision of Rs. 6,045 (2017: Rs. 6,045, 2016: Rs. 6,045) in prior years considering it to be “a decline other than temporary”. The Company has tested the investments for impairment as at year end using cash flow projections based on financial forecast approved by the management covering a five-year period. The Company considers Xchanging Solutions (USA) Inc as a strategic long term investment and based on future growth projections, in the opinion of the management, the remaining value of the investments is not impaired. Further, the Company has granted loans and advances aggregating to Rs. 17,283 (2017: Rs. 17,283, 2016: Rs. 17,283) and the same was provided in prior years considering it to be doubtful of recovery. The company also has receivables (net of payables and provision) from the subsidiary amounting to Rs. 149 (2017: Rs. 780, 2016: Rs. 1,420), based on the evaluation of recoverability, the net receivables is considered good and recoverable.
10 The Company has strategic gross investments amounting to Rs. 2,222 (2017: Rs. 2,222, 2016: Rs. 2,222) in Xchanging Solutions (Europe) Limited, UK, its wholly owned subsidiary. Based on assessment of diminution in the value of investments, the Company has made a provision of Rs. 2,222 (2017: Rs. 2,222, 2016: Rs. 2,222) in prior years considering it to be “a decline other than temporary”. The Company has done the assessment of investment as at the year end and as a result of such assessment no change is identified in the assessment done in the previous year. Further, the Company also has payables to the subsidiary amounting to Rs. Nil (2017: Rs 11, 2016: Rs 45).
11 On August 1, 2002, the Company issued 1,500,000, 11% debentures of face value of Rs. 100 each. The debentures were repayable at par at the end of five years from the date of issuance. Based on the orders of the Debt Recovery Tribunal, the Company had issued duplicate debenture certificates for 625,000 debentures in favour of a Bank and these debentures were redeemed in June 2007. Post redemption of these debentures, a civil suit was filed against the Company by Third Party claiming rights over the said 625,000 debentures. On the basis of an interim application filed by the Third Party, the Hon’ble High Court passed an Interim Order restraining the Company from reflecting the redemption of debentures and directing the Company to continue to show it as due and payable. The Hon’ble Madras High Court vide order dated September 28, 2016 dismissed the suit filed by the said Third Party and also set aside the interim order. The Third Party filed a special leave petition before the Supreme Court challenging the said order of the Hon’ble Madras High Court. On March 26, 2018 the Hon’ble Supreme Court dismissed the special leave petition filed by the Third Party.
12 Open offer for acquisition of up to 2,36,49,767 fully paid up equity shares of face value of INR 10 each (“Offer Shares”) representing 21.23% of the fully diluted voting share capital of Xchanging Solutions Limited (“Target Company”) from the public shareholders of the Target Company (“Public Shareholders”) by Xchanging Technology Services India Private Limited (“Acquirer”) together with Computer Sciences Corporation India Private Limited (“PAC 1”) and DXC Technology Company (“PAC 2”) (PAC 1 and PAC 2 are collectively referred to as “PAC”) as the persons acting in concert with the Acquirer pursuant to and in compliance with Regulations 3(1), 4, and 5(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and subsequent amendments thereto (“Takeover Regulations”) at an offer price of INR 55.22 per Offer Share (“Offer”).
This Offer is being made in accordance with Regulations 3(1), 4, and 5(1) of the Takeover Regulations as a result of an indirect acquisition of 78.77% of the voting rights in and control by PAC 2 over the Target Company.
This Offer is a mandatory open offer being made by the Acquirer and PAC to the Public Shareholders pursuant to Regulations 3(1), 4, and 5(1) of the Takeover Regulations. The Offer is being made on account of the Merger Agreement dated May 24, 2016 (which was further amended on November 2, 2016 and December 6, 2016) entered into inter alia between Hewlett Packard Enterprise Company, Computer Sciences Corporation and PAC 2. The transactions contemplated under the Merger Agreement were completed on April 1, 2017.
The Acquirer and PAC had made the Public Announcement on November 17, 2017, Detailed Public Statement (“DPS”) published on November 24, 2017 and the draft letter of offer with respect to the Offer (“DLoF”) was filed with sEBi on November 30, 2017.
SEBI has issued observation letter bearing reference no. SEBI/HO/CFD/DCR1/OW/P/2018/13149/1 on May 2, 2018 (“SEBI Letter”).
The revised schedule of activities relating to the Offer made in the DLoF, is issued in all the newspapers in which the DPS was published in terms of the SEBI Letter.
13 Transfer Pricing
The Company has carried out international and domestic transactions with associated enterprises. The Company appoints independent consultants to conduct a Transfer Pricing Study to determine whether the transactions with associated enterprises undertaken during the period are on an “arms length basis”. For the current year, the transfer pricing study shall be completed within the permissible time under the legislation and adjustments, if any, arising from the transfer pricing study shall be accounted for as and when the study is completed.
However, the Management is confident that its international and domestic transactions with associated enterprises are at arm’s length so that the aforesaid legislation/transactions will not have any material impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation for the current year.
14 The Board of Directors of the Company in their meeting held on August 11, 2016 have extended the previous financial period of the Company up to a period of 15 months i.e. January 1, 2016 to March 31, 2017. Subsequently, each financial year of the Company shall commence on April 1 and end on March 31 every year. Previous year figures are not comparable as they are for a period of 15 months.
15 Disclosure as per regulation 34(3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
Loans and advances in the nature of loans given to fellow subsidiaries in which directors are interested:
Note: Figures in bracket relate to previous year
16 FIRST-TIME ADOPTION OF IND AS
The Company has adopted Indian Accounting Standards (Ind AS) as notified by the Ministry of Corporate Affairs with effect from April 1, 2017, with a transition date of January 1, 2016. These financial statements for the year ended March 31, 2018 are the first financial statements the Company has prepared under Ind AS. For all periods upto and including the period ended March 31, 2017 , the Company prepared its financial statements in accordance with the previously applicable Indian GAAP (previous GAAP).
The adoption of Ind AS has been carried out in accordance with Ind AS 101, First-time Adoption of Indian Accounting Standards. Ind AS 101 requires that all Ind AS standards and interpretations that are issued and effective for the first Ind AS financial statements be applied retrospectively and consistently for all financial years presented. Accordingly, the Company has prepared financial statements which comply with Ind AS for year ended March 31, 2018, together with the comparative information as at and for the period ended March 31, 2017. The Company’s opening Ind AS Balance Sheet has been prepared as at January 1, 2016, being the date of transition to Ind AS.
In preparing its opening Ind AS balance sheet as at January 1, 2016, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act. An explanation of how the transition from previous GAAP to Ind AS has affected the company’s financial position, financial performance and cash flows is set out in the following tables and notes.
Overall principle
The Company has prepared the opening balance sheet as per lnd AS as of January 1, 2016 (the transition date) by recognising all assets and liabilities whose recognition is required by Ind AS, not recognising items of assets or liabilities which are not permitted by Ind AS, by reclassifying items from previous GAAP to Ind AS as required under Ind AS, and applying Ind AS in measurement of recognised assets and liabilities.
Transition to Ind AS
In preparing these Ind AS financial statements, the Company has availed certain exemptions and exceptions in accordance with Ind AS 101, as explained below. The resulting difference between the carrying values of the assets and liabilities in the financial statements as at the transition date under Ind AS and previous GAAP have been recognised directly in equity. This note explains the adjustments made by the Company in restating its previous GAAP financial statements, including the Balance Sheet as at January 1, 2016 and the financial statements as at and for the period ended March 31, 2017.
17.1 Exemptions and exceptions availed
Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.
17.1.1 Ind AS optional exemptions
17.1.1.1 Deemed cost for property, plant and equipment and intangible assets
Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment and intangible assets as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities.Accordingly, the Company has elected to measure all of its property, plant and equipment (PPE) and intangible assets at their previous GAAP carrying value.
17.1.1.2 Leases
Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. Ind AS 101 provides an option to make this assessment on the basis of facts and circumstances existing at the date of transition to Ind AS, except where the effect is expected to be not material.
The Company has elected to apply this exemption for such contracts/arrangements.
17.1.2 Ind AS mandatory exceptions
17.1.2.1 Estimates
An entity’s estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.Ind AS estimates as at January 1, 2016 are consistent with the estimates as at the same date made in conformity with previous GAAP The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:
- Impairment of financial assets based on expected credit loss model.
17.1.2.2 Derecognition of financial assets and financial liabilities
The Company has applied the derecognition requirements of financial assets and financial liabilities prospectively for transactions occurring on or after January 1, 2016 (the transition date).
17.1.2.3 Classification and measurement of financial assets
Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of the facts and circumstances that exist at the date of transition to Ind AS. Consequently, the Company has applied the above assessment based on facts and circumstances that exist at the transition date.
17.2 Reconciliations between previous GAAP and Ind AS
Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior periods. The following tables represent the reconciliations from previous GAAP to Ind AS.
17.2.1 Effect of Ind As adoption on the balance sheet as at March 31, 2017 and January 1, 2016
There are no reconciliation items between balance sheet prepared under Indian GAAP and those prepared under Ind AS.
17.2.2 Reconciliation of total equity as at March 31, 2017 and January 1, 2016
There are no reconciliation items between total equity prepared under Indian GAAP and those prepared under Ind AS.
17.2.3 Cash flow statement
There were no significant reconciliation items between cash flows prepared under Indian GAAP and those prepared under Ind AS.
Notes to the reconciliations
1 Remeasurements of post-employment benefit obligations
Under previous GAAP, actuarial gains and losses were recognised in the statement of profit and loss. Under Ind AS, the actuarial gains and losses form part of remeasurement of the net defined benefit liability/ asset which is recognised in other comprehensive income. Consequently, the tax effect of the same has also been recognised in other comprehensive income under Ind AS instead of the statement of profit and loss.
2 Other comprehensive income
Under Ind AS, all items of income and expense recognised in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognised in profit or loss but are shown in the statement of profit and loss as ‘other comprehensive income’ includes remeasurements of defined benefit plans. The concept of other comprehensive income did not exist under previous GAAP
18 Previous period/ year figures
Previous period/ year figures have been regrouped / reclassified wherever necessary to correspond with the current year classification / disclosure.
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