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Notes forming part of consolidated onancial statements (Contd.)
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Annual Report 2016-17
4. Summary of signiocant accounting policies
(a) Use of estimates
The preparation of the onancial 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 oxed-price contracts. Use of the
percentage-of-completion method 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.
ii. Income taxes
The Group’s two major tax jurisdictions are India and the United States, though the Group also oles tax returns in
other overseas jurisdictions. Signiocant 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
identioable intangible assets and contingent consideration to be fair valued in order to ascertain the net fair value
of identioable assets, liabilities and contingent liabilities of the acquiree. Signiocant 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 signiocant 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 pows 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 beneoting 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 pow projections take
into account past experience and represent management’s best estimate about future developments.
vi. Provisions
Provisions are determined based on the best estimate required to settle the obligation at the reporting date. If the
effect of time value of money is material, provisions are discounted using a current pre-tax rate that repects the
risks specioc to the liability. These estimates are reviewed at each balance sheet date and adjusted to repect the
current best estimates.