Xtranet Technologies Ltd. కంపెనీ అకౌంటింగ్ విధానాలు

1.4. SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

a. Property, plant and equipment

Property, plant and equipment except capital work-
in progress is stated at cost, net of accumulated
depreciation and impairment losses, if any.
Capital work-in-progress is stated at cost less any
recognized impairment loss. The cost of property,
plant & equipment comprises its purchase price
net of any trade discounts and rebates, any
import duties and other taxes (other than those
subsequently recoverable from the tax authorities),
any directly attributable expenditure on making the
asset ready for its intended use, other incidental
expenses and interest on borrowings attributable
to acquisition of qualifying property, plant &
equipment up to the date the asset is ready for
its intended use. The cost of an item of Property,
plant & equipment is recognized as an asset if, and
only if, it is probable that the economic benefits
associated with the item will flow to the Company
in future periods and the cost of the item can be
measured reliably. Expenditure incurred after the
Property Plant and Equipment have been put
into operations, such as repairs and maintenance
expenses are charged to the profit and loss during
the period in which they are incurred.

The subsequent cost incurred by an entity for
improvement of Property, plant and equipment is
added to the carrying value of the item of Property,
plant & equipment and for the items replacing
existing Property, plant & equipment, an entity
recognizes in the carrying amount of an item of
Property, plant & equipment, the cost of replacing
part of such an item when that cost is incurred if the
recognition criteria are met. The carrying amount
of those parts that are replaced is derecognized
in accordance with the derecognition provisions.

An item of Property, plant & equipment is de¬
recognized upon disposal or when no future
economic benefits are expected to arise from
the continued use of the assets. Any gain or loss
arising on the disposal or retirement of an item of
Property, plant & equipment, is determined as the
difference between the sales proceeds and the
carrying amount of the asset and is recognized in
the Profit and Loss.

Depreciation on Property, plant and equipment

Depreciable amount of Property, plant and
equipment is the cost of an asset less its estimated
residual value.

Property, plant and equipment is depreciated on
the Straight Line method as per the useful life
prescribed in Schedule II to the Companies Act,
2013 or useful life of the assets has been assessed
as under based on technical advice, taking into
account the nature of the asset, the estimated
usage of the asset, the operating conditions of
the asset, past history of replacement, anticipated
technological changes, manufacturer warranties
and maintenance support, etc.

b. Intangible assets and amortization of
intangible assets

i. Intangible assets are initially measured
at cost. Such intangible assets are
subsequently measured at cost less

accumulated amortization and impairment
losses, if any.

The intangible assets, that are not yet ready
for their intended use are carried at cost
and are reflected under intangible assets
under development. Direct costs associated
in the developing the intangible assets are
capitalized when the following criteria are
met, otherwise, it is recognized in profit and
loss as incurred:

• it is technically feasible to complete
the intangible asset so that it will be
available for use,

• management intends to complete the
intangible asset and put it to use,

• there is ability to use the intangible
asset,

• there is an identifiable asset that will
generate expected future economic
benefits and

• t here is an ability to measure reliably
the expenditure attributable to the
intangible asset during its development

ii. I ntangible assets are amortized on written
down value basis over the useful life
prescribed in Schedule II to the Companies
Act, 2013 or technical estimate made by the
Company, whichever is lower. The useful
lives of intangible assets (computer software
& PKI Project Assets) is 7 years.

iii. The estimated useful life of the intangible
assets is reviewed at the end of each
financial year and the amortization method is
revised to reflect the changed pattern, if any.

iv. An intangible asset is de-recognized on
disposal or when no future economic
benefits are expected from its use. Gains
or losses arising from de-recognition of an
intangible asset, measured as the difference
between the net disposal proceeds and the
carrying amount of the asset are recognized
in the statement of profit and loss when the
asset is de-recognized.

c. Impairment of property, plant and equipment,
and intangible assets

The Company assesses at each reporting date
as to whether there is any indication that any

Property, Plant and Equipment and Intangible
Assets may be impaired. If any such indication
exists, the recoverable amount of an asset is
estimated to determine the extent of impairment,
if any. An impairment loss is recognized in the
Statement of Profit and Loss to the extent, asset’s
carrying amount exceeds its recoverable amount.
The recoverable amount is higher of an asset’s
fair value less cost of disposal and value in use.
Value in use is based on the estimated future cash
flows, discounted to their present value using
pre-tax discount rate that reflects current market
assessments of the time value of money and
risk specific to the assets. The impairment loss
recognized in prior accounting period is reversed
if there has been a change in the estimate of
recoverable amount.

d. Leases

At inception of a contract, the Company assesses
whether a contract is, or contains, a lease if the
contract conveys the right to control the use of an
identified asset for a period of time in exchange
for consideration.

As a lessee

The Company recognizes a right-of-use asset and
a lease liability at the lease commencement date.
The right-of-use asset is initially measured at cost,
which comprises the initial amount of the lease
liability adjusted for any lease payments made at
or before the commencement date, plus any initial
direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to
restore the underlying asset or the site on which it
is located, less any lease incentives received.

The right-of-use asset is subsequently
depreciated using the straight-line method from
the commencement date to the end of the lease
term, unless the lease transfers ownership of
the underlying asset to the Company by the end
of the lease term or the cost of the right-of-use
asset reflects that the Company will exercise
a purchase option. In that case the right-of-use
asset will be depreciated over the useful life of
the underlying asset, which is determined on
the same basis as those of property, plant and
equipment. In addition, the right-of-use asset is
periodically reduced by impairment losses, if any,
and adjusted for certain re-measurements of the
lease liability.

The lease liability is initially measured at the
present value of the lease payments that are
not paid at the commencement date, discounted
using the Company’s incremental borrowing rate.

The Company determines its incremental
borrowing rate by obtaining interest rates from
various external financing sources that reflects
the terms of the lease and type of the asset
leased.

Lease payments included in the measurement of
the lease liability comprises the following:

• fixed payments, including in-substance fixed
payments;

• variable lease payments that depend on an
index or a rate, initially measured using the
index or rate at the commencement date;

• amounts expected to be payable under a
residual value guarantee; and

• t he exercise price under a purchase option
that the Company is reasonably certain to
exercise, lease payments in an optional
renewal period if the Company is reasonably
certain to exercise an extension option, and
penalties for early termination of a lease
unless the Company is reasonably certain
not to terminate early.

The lease liability is measured at amortized cost
using the effective interest method. It is re-measured
when there is a change in future lease payments
arising from a change in an index or rate, if there is
a change in the Company’s estimate of the amount
expected to be payable under a residual value
guarantee, if the Company changes its assessment
of whether it will exercise a purchase, extension
or termination option or if there is a revised in¬
substance fixed lease payment.

When the lease liability is re-measured in this
way, a corresponding adjustment is made to the
carrying amount of the right-of-use asset, or is
recorded in profit or loss if the carrying amount of
the right-of-asset has been reduced to zero.

The Company presents right-of-use assets and
lease liabilities separately on the face of the
balance sheet.

Short-term leases

The Company has elected not to recognize right-of-
use assets and lease liabilities for short-term leases.

The Company recognizes the lease payments
associated with these leases as an expense on a
straight-line basis over the lease term.

e. Inventories

I nventories are stated at the lower of cost and
net realizable value. Costs of inventories are
determined on a first-in-first-out basis. Net
realizable value represents the estimated selling
price for inventories less all estimated costs of
completion and costs necessary to make the
sale. The cost includes cost of purchase and
other costs incurred in bringing the inventories to
their present location and condition.

f. Foreign currency transactions

i. In preparing the financial statements of
the Company, transactions in foreign
currencies, other than the Company’s
functional currency, are recognized at the
rate of exchange prevailing at the dates
of the transactions. At the end of each
reporting period, monetary assets and
liabilities dominated in foreign currencies are
translated at the rate prevailing at that date.
Non-monetary items that are measured in
terms of historical cost in a foreign currency
are not re-translated.

Exchange differences on monetary items
are recognized in the profit and loss in the
period in which these arise.

The financial statements are presented
in '', which is the functional currency of
the Company and the currency of the
primary economic environment in which
the Company operates, and all values are
rounded off to the nearest rupee except as
otherwise indicated.

g. Revenue recognition

Revenue with contracts with customers/Income
from services

The Company recognizes revenue when (or as)
a performance obligation is satisfied, i.e. when
‘control’ of the goods or services underlying the
particular performance obligation is transferred to
the customer.

Revenue from sale of products or services is
recognized upon transfer of control of promised
products or services to customers in an amount

that reflects the consideration expected to be
received in exchange for those products or
services.

Revenue from services is recognized over period
of time and in the accounting period in which the
services are rendered.

Revenue is measured based on the transaction
price, which is the consideration, adjusted
for volume discounts, price concessions and
incentives, if any, as specified in the contract
with the customer. Revenue also excludes taxes
collected from customers.

Revenue is measured at the fair value of the
consideration received or receivable, taking into
account contractually defined terms of payment
and excluding taxes and duty.

Revenues from customer contracts are
considered for recognition and measurement
when the contract has been approved by the
parties, in writing, to the contract, the parties to the
contract are committed to perform their respective
obligations under the contract, and the contract is
legally enforceable. When there is uncertainty as
to collectability, revenue recognition is postponed
until such uncertainty is resolved.

The Company recognizes revenue on completion
of its performance obligations at the fixed
transaction prices specified in the underlying
contracts or orders. Variable consideration,
including discounts, rebates, incentives and
penalties, is estimated at contract inception
and included in the transaction price only to the
extent that it is highly probable that a significant
reversal in the amount of cumulative revenue
recognized will not occur. Where the contract
or order includes more than one performance
obligation, the transaction price is allocated to
each obligation based on their stand-alone selling
prices. These are separately listed as individual
items within the contract or order. The primary
areas of judgement for revenue recognition as
principal versus agent are set out under critical
estimates and judgements section and described
further below for each revenue category.
Revenue is only recognized to the extent that
it is highly probable that significant reversal will
not occur. Transaction price excludes taxes and
duties collected on behalf of the government. The

Company generally does not have any contracts
where the period between the transfer of the
promised goods or services to the customer and
payment by the customer exceeds one year. As
a consequence, the group does not adjust any of
the transaction prices for the time value of money.

Hardware

The Company’s activities under this revenue
stream comprise the sale of hardware items
consisting of servers, hardware security modules
and authentication keys. For hardware sales, the
Company acts as principal, as it assumes primary
responsibility for fulfilling the promise to provide
the goods and for their acceptability, is exposed
to inventory risk during the delivery period and
has discretion in establishing the selling price.
Revenue is recognized at the gross amount
receivable from the customer for the hardware
provided and on a point-in-time basis when
delivered to the customer.

Software and Allied Support

The Company’s performance obligation is
to fulfil customers’ requirements through the
procurement of appropriate software products
from relevant vendors. The Company invoices,
and receives payment from, the customer itself.
Whilst the transaction price is set by the Company
at the amount specified in its contract/order with
the customer, the software licensing agreement
is between the vendor and the customer. The
vendor is responsible for issuing the licences and
activation keys, for the software’s functionality,
and for fulfilling the promise to provide the
licences to the customer. Therefore, the Company
acts as an agent and recognizes revenue on a net
basis. The Company recognizes such software
sales revenue on a point-in-time basis once it has
satisfied its performance obligations.

Revenue from professional/technical services
and renewal of service packs is recorded on a net
basis as the level of inventory risk, to which the
Company is exposed to, in these arrangements
is negligible. The Company recognizes such
services revenue on a point-in-time basis once it
has satisfied its performance obligations.

IT enabled Services

The Company’s activities under this revenue
stream comprises of revenue from support and

maintenance contracts towards infrastructure
managed services and annual services contracts.

Revenue is recognized when it transfers control
over a service to the customer. Amount received
towards services are reported as advances from
customers until all the conditions for revenue
recognition are met.

The Company acts as a principal, as it assumes
primary responsibility for fulfilling the promise
to provide the services and has discretion
in establishing the service fees. Revenue is
recognized at the gross amount receivable from
the customer for the services provided over the
period of the underlying contracts.

Contract assets

A contract asset is the right to consideration
in exchange for services transferred to the
customer. If the Company performs by transferring
services to a customer before the customer
pays consideration or before payment is due,
a contract asset is recognized for the earned
consideration that is conditional. Contract assets
are transferred to receivables when the rights
become unconditional and contract liabilities
are recognized as and when the performance
obligation is satisfied. Contract assets are subject
to impairment assessment.

Trade receivables

A receivable is recognized if an amount of
consideration that is unconditional (i.e., only the
passage of time is required before payment of the
consideration is due).

Contract liabilities

A contract liability is recognized if a payment
is received or a payment is due (whichever is
earlier) from a customer before the Company
transfers the related services. Contract liabilities
are recognized as revenue when the Company
performs under the contract (i.e., transfers control
of the related services to the customer).

h. Other income

i. Dividend from investments is recognized
when the right to receive the payment
is established and when no significant
uncertainty as to measurability and
collectability exists.

ii. Interest income is recognized on accrual
basis.

iii. For all financial instruments measured at
amortized cost, interest income is recorded
using the effective interest rate (EIR),
which is the rate that exactly discounts the
estimated future cash payments or receipts
through the expected life of the financial
instrument to the gross carrying amount of
the financial asst.

i. Employee benefits

i. Short-term employee benefits

Short-term employee benefits are
determined as per Company’s policy/
scheme on an undiscounted basis. A
liability is recognized for benefits accruing
to employees in respect of salaries,
performance incentives and compensated
absences in the period the related service is
rendered at the undiscounted amount of the
benefits expected to be paid in exchange for
that service.

ii. Defined benefit plan

A defined benefit plan is a post-employment
benefit plan other than a defined-contribution
plan. The Company’s obligation in respect of
defined benefit plans is calculated separately
for each plan by estimating the amount of
future benefit that employees have earned
in the current and prior periods.

The Company’s gratuity plan is funded,
the defined benefit obligation of which is
determined annually by a qualified actuary
using the projected unit credit method as at
each balance sheet date. Re-measurement
of defined benefit obligation, which comprises
of actuarial gains and losses are recognized
in other comprehensive income in the
period in which they occur. The Company
determines the net interest expenses on
the net defined benefit obligation, taking
into account any changes in the net defined
benefit liability during the period as a result
of contribution and benefit payments. Net
interest expenses related to defined benefit
plan are recognized in finance cost in the
statement of profit and loss.

iii. Defined contribution plan

A defined contribution plan is a post¬
employment benefit plan under which an
entity pays fixed contributions to a separate
entity and will have no legal or constructive
obligation to pay further amounts. The
Company makes monthly contributions
towards Government administered schemes
such as the provident fund and employee
state insurance scheme. Obligations for
contributions to defined contribution plans
are recognized as an employee benefit
expense in the statement of profit and loss in
the periods during which the related services
are rendered by the employees.

iv. Long-term employee benefits

The Company’s obligation in respect of
long-term employee benefits other than
post-employment benefits is the amount of
future benefit that employees have earned
in return for their service in the current and
prior periods. The obligation is measured on
the basis of an annual independent actuarial
valuation using the projected unit credit
method as at each balance sheet date.

j. Current Tax

The tax currently payable is based on taxable
profit for the year. Taxable profit differs from
net profit as reported in profit of loss because
it excludes items of income or expense that
are taxable or deductible in other years and it
further excludes items that are never taxable or
deductible. The Company’s liability for current
tax is calculated using tax rates that have been
enacted or substantively enacted by the end of
the reporting period.

Deferred Tax

Deferred tax is recognized on temporary
differences between the carrying amounts of the
assets and liabilities in the financial statements
and the corresponding tax bases used in the
computation of the taxable profit.

Deferred tax liabilities are generally recognized
for all taxable temporary differences and deferred
tax assets are recognized to the extent that it
is probable that taxable profits will be available
against which deductible temporary differences
can be utilized. Such assets and liabilities are

not recognized if the temporary differences
arises from the initial recognition (other than in a
business combination) of assets and liabilities in
a transaction that affects neither the taxable profit
nor the accounting profit.

The carrying amount of deferred tax assets is
reviewed at each reporting date and reduced
to the extent that it is no longer probable that
sufficient taxable profits will be available to allow
all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that
are expected to apply in the period when the
liability is settled or the asset is realized based
on tax laws and rates that have been enacted or
substantively enacted at the reporting date.

The measurement of deferred tax liabilities and
assets reflects the tax consequences that would
follow from the manner in which the Company
expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets
and liabilities.

Deferred tax assets and liabilities are offset when
there is a legally enforceable right to set off current
tax assets against current tax liabilities and when
they relate to income taxes levied by the same
taxation authority and the Company intends to
settle its current tax assets and liabilities on a net
basis.

Current tax and deferred tax for the year

Current and deferred tax are recognized in profit
or loss, except when they relate to items that
are recognized in other comprehensive income
or directly in equity, in which case, the current
and deferred tax are also recognized in other
comprehensive income or directly in equity
respectively.