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• Annual Report 2018-19
Shaping the future of software driven business
4. Summary of significant accounting policies
(a) Use of estimates
The preparation of the consolidated financial statements in conformity with Ind AS requires the management to make
judgments, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities and
disclosure of contingent liabilities at the end of year. 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.
Critical accounting estimates
i.
Revenue recognition
The Group uses the percentage-of-completion method in accounting for its fixed-price contracts. Use of the
percentage-of-completionmethod requires the Group to estimate the efforts or costs expended to date as a proportion
of the total efforts or costs to be expended. Efforts or costs expended have been used to measure progress towards
completion. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which
such losses become probable based on the expected contract estimates at the reporting date.
Further, the Group uses significant judgement while determining the transaction price allocated to performance
obligations using the expected cost plus margin approach.
In respect of the contracts where the transaction price is payable as revenue share at pre-defined percentage of
customer revenue and bearing in mind, the time gap between the close of the accounting period and availability
of the revenue report from the customer, the Group is required to use its judgement to ascertain the income from
revenue share on the basis of historical trends of customer revenue.
ii.
Income taxes
The Group’s two major tax jurisdictions are India and the United States, though the Group also files tax returns in
other overseas jurisdictions. Significant judgements are involved in determining the provision for income taxes.
iii. Intangible assets and contingent consideration in business combinations
Business combinations are accounted for using Ind AS 103, Business Combinations. Ind AS 103 requires the
identifiable intangible assets and contingent consideration to be fair valued in order to ascertain the net fair value
of identifiable assets, liabilities and contingent liabilities of the acquiree. Significant estimates are required to be
made in determining the value of contingent consideration and intangible assets. These valuations are conducted by
independent valuation experts.
iv. Property, plant and equipment
Property, plant and equipment represent a significant proportion of the asset base of the Group. The charge in respect
of depreciation is derived after determining an estimate of an asset’s expected useful life and the expected residual
value at the end of its life. The useful lives and residual values of Group’s assets are determined by management
at the time the asset is acquired and reviewed periodically. The lives are based on historical experience with similar
assets as well as anticipation of future events, which may impact their life, such as changes in technology.
v.
Impairment of Goodwill
Goodwill is tested for impairment on an annual basis and whenever there is an indication that the recoverable amount
of a cash generating unit is less than its carrying amount based on a number of factors including operating results,
business plans, future cash flows and economic conditions. The recoverable amount of cash generating units is
determined based on higher of value-in-use and fair value less cost to sell. The goodwill impairment test is performed
at the level of the cash-generating unit or groups of cash-generating units which are benefiting from the synergies
of the acquisition and which represents the lowest level at which goodwill is monitored for internal management
purposes. Market related information and estimates are used to determine the recoverable amount. Key assumptions
on which management has based its determination of recoverable amount include estimated long term growth rates,
weighted average cost of capital and estimated operating margins. Cash flow projections take into account past
experience and represent management’s best estimate about future developments.
Notes forming part of consolidated financial statements (Contd.)