1 Reporting entity

Polaris Consulting & Services Limited (formerly known as Polaris Financial Technology Limited) (“Polaris” or “the Company”) is primarily engaged in the business of IT services and IT-enabled services delivering customized software solutions and products in the domain of contemporary services which include banking and financial services. The Company (CIN: L65993TN1993PLC024142) is a public limited Company domiciled and incorporated in India and its equity shares are listed on the National Stock Exchange and Bombay Stock Exchange. The Company is a subsidiary of Virtusa Consulting Services Private Limited (“holding company” or “Virtusa India”) and its ultimate holding company is Virtusa Corporation (“Virtusa”).

2 Standards issued but not yet effective

In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7, Statement of cash flows and Ind AS 102, Share-Based Payment. These amendments are in accordance with the recent amendments made by International Accounting Standards Board (IASB) to IAS 7, Statement of cash flows and IFRS 2, Share-Based Payment, respectively. The amendments are applicable to the Company from April 1, 2017.

Amendments to Ind AS 7

The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financial activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the Balance Sheet for liability arising from financing activities, to meet the disclosure requirement.

The Company has evaluated the disclosure requirements of the amendment and the effect on the financial statements is not expected to be material.

Amendments to Ind AS 102

The amendment to Ind AS 102 provides specific guidance for the measurement of cash-settled awards, modification of cash-settled awards and awards that include a net settlement feature in respect of withholding taxes.

It clarifies that the fair value of cash-settled awards is determined on a basis consistent with that used for equity-settled awards. Market-based performance conditions and non-vesting conditions are reflected in the ‘fair values’ but non-market performance conditions and service vesting conditions are reflected in the estimate of the number of awards expected to vest. Also, the amendment clarifies that if the terms and conditions of a cash-settled share-based payment transaction are modified with the result that it becomes an equity-settled, share-based payment transaction, the transaction is accounted for as such from the date of the modification. Further, the amendment requires the award that include a net settlement feature in respect of with holding taxes to be treated as equity-settled in its entirety. The case payment to the tax authority is treated as if it was part of an equity settlement.

The Company has evaluated the disclosure requirements of the amendment and no effect on the financial statements is expected.

A Measurement of fair values

i. Fair value hierarchy

Investment property comprises of land in Gurgaon. The fair value of investment property has been determined based on the current prices in an active market for similar properties.

The fair value measurement for the investment property has been categorised as a Level 2 (see Note 2(a)(v)).

ii. Valuation technique

The Company follows a sales comparison approach. The valuation model estimates the value based on what other purchasers and sellers have agreed to as a price of land in the same locality. The model has taken in to consideration, the sales price and the estimated transaction cost to sale in arriving at the value of the land.

B. Unrecognised deferred tax liabilities

As at April 1, 2015, March 31, 2016 and March 31, 2017, deferred tax liability on the undistributed reserves of the subsidiaries has not been recognised because the Company controls the dividend policy of its subsidiaries i.e., the Company controls the timing of reversal of the related taxable temporary differences and management is satisfied that they will not reverse in the foreseeable future.

C. Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items, because it is not probable that future taxable profit will be available against which the Company can use the benefits therefrom:

3A. Other equity

(i) Securities premium

Securities premium is used to record the premium received on issue of shares. It is utilised in accordance with the provisions of the Companies Act, 2013. Securities premium also includes gains/losses arising from sale of the Company’s shares by the trusts.

(ii) Share based payments reserve

The Company has established various equity-settled share-based payment plans for certain categories of employees of the Company. Refer to Note 19 for further details on these plans.

(iii) Treasury shares

Own equity instruments that are reacquired [treasury shares] are recognised at cost and deducted from equity.

3B. Analysis of accumulated OCI, net of tax

b. Disaggregation of changes in items of OCI Exchange differences on translation of foreign operations

These comprise of all exchange differences arising from translation of financial statements of foreign operations.

Effective portion of cash flow hedges

This comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

Investments through OCI

This comprises changes in the fair value of investments recognised in other comprehensive income and accumulated within equity. The Company transfers amounts from such component of equity to retained earnings when the relevant investments are derecognised.

Remeasurements of defined benefit liability (asset)

Remeasurements of defined benefit liability (asset) comprises actuarial gains and losses and return on plan assets (excluding interest income).

Gain on sale of equity instruments classified as FVOCI

The Company may make an irrevocable election at initial recognition for particular investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income (FVOCI). This sub-head comprises of the gain on sale of such equity instruments subsequently classified as FVOCI.

4. Share-based payments

A. Description of share-based payment arrangements

At March 31, 2017, the Company has the following share-based payment arrangements

Associate Stock Option Plan 2003

The Shareholders of the Company at the Extra-ordinary General Meeting (EGM) held on March 12, 2004 approved an Associate Stock Option Plan (the 2003 Plan). The 2003 Plan provides for issuance of 3,895,500 options, convertible to equivalent number of equity shares of Rs.5 each, to the employees including Directors. The options are granted at the market price on the date of the grant. The market price, in accordance with the Securities and Exchange Board of India (SEBI) Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date. No options were granted under this plan during the year.

Associate Stock Option Plan 2004

The Shareholders of the Company in the AGM held on July 22, 2005 approved an Associate Stock Option Plan (the 2004 plan). The 2004 plan provides for issuance of 1,084,745 options, convertible to equivalent number of equity shares of Rs.5 each, to the associates including Directors. The options are granted at the market price on the date of the grant. The market price, in accordance with the SEBI Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date. No options were granted under this plan during the year.

Associate Stock Option Plan 2011

The Shareholders of the Company in the Extraordinary General Meeting held on October 28, 2011 approved an Associate Stock Option Plan (the 2011 plan). The 2011 plan provides for issuance of 4,960,000 options convertible into equivalent number of equity shares of INR 5 each. The 2011 plan shall be administered under 4 different schemes based on the following terms:

The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered.

The option vests over a period of 5 years from the date of grant in a graded manner, subject to fulfilment of vesting conditions as follows:

Associate Stock Option Plan 2015

The Shareholders of the Company in the Extraordinary General Meeting held on March 19, 2015 approved an Associate Stock Option Plan (the 2015 plan). The 2015 plan provides for issuance of 5,000,000 options convertible into equivalent number of equity shares of INR 5 each. The plan shall be administered under 5 different schemes based on the following terms:

The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. No options were granted under this plan during the year.

During September 15 2014, the Products business was demerged / spun of into a separate legal entity, Intellect Design Arena Limited (IDAL) through a court approved demerger scheme. As per the scheme of arrangement, the exercise price of stock options for the above plans, held by employees, were modified to 72% of the erstwhile exercise price and the employees were granted an equivalent number of options in IDAL. The balance exercise price represented the price of the stock options issued by IDAL to the employees.

Associate Stock Option Plan (Trust) 2011

The Shareholders of the Company in the Extraordinary General Meeting held on October 28, 2011 approved an Associate Stock Option Plan (TRUST) 2011 [the 2011(Trust) plan]. The 2011(Trust) plan provides for issuance of 1,984,000 options, convertible to equivalent number of equity shares of INR 5 each. The options shall be granted at the market price if the market price is below INR 175 or at discount of 10% on market price if the market price is INR 175 or above. The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 60 calendar months from the relevant vesting date. No options were granted under this plan during the year.

Restricted stock units

Certain employees of the Company received stock options of the ultimate holding company, Virtusa Corporation, USA, under the Employee Stock option plans instituted by Virtusa Corporation.

In May 2015, the Virtusa Corporation adopted the 2015 Stock Option and Incentive Plan (“2015 Plan”) which was also approved by the Virtusa Corporation’s stockholders on September 1, 2015. The 2015 Plan permits the granting of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, unrestricted stock awards, performance share awards, performance-based awards to covered employees, cash-based awards and dividend equivalent rights. During the year, the employees of the Company were allotted 151,945 units under the above 2015 Plan.

Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price, particularly over the historical period commensurate with the expected term. The expected term of the instruments has been based on historical experience and general option holder behavior.

C. Reconciliation of outstanding share options

The number and weighted-average exercise prices of share options under the share option plans are as follows

The options outstanding at March 31, 2017 have an exercise price in the range of INR 49.03 to INR 133.88 (March 31, 2016: INR 24.73 to INR 150.30) and a weighted average remaining contractual life of 2.06 years (March 31, 2016: 2.92 years)

The weighted average share price at the date of exercise for share options exercised in 2016-17 was INR 193.28 (2015-16: INR 187.15)

The options outstanding at March 31, 2017 have an exercise price in the range of INR 124.42 to INR 140.08 (March 31, 2016: INR 92.52 to INR 133.88) and a weighted average remaining contractual life of 2.20 years (March 31, 2016: 3.09 years)

The weighted average share price at the date of exercise for share options exercised in 2016-17 was INR 185.06 (2015-16: INR 200.07)

The options outstanding at March 31, 2017 have an exercise price in the range of INR 78.48 to INR 126 (March 31, 2016: INR 78.48 to INR 175) and a weighted average remaining contractual life of 5.44 years (March 31, 2016: 6.27 years)

The weighted average share price at the date of exercise for share options exercised in 2016-17 was INR 183.39 (2015-16: INR 204.70)

The options outstanding at March 31, 2017 have an exercise price of INR 130.22 to INR 179.95 (March 31, 2016: INR 130.22 to INR 168.56) and a weighted average remaining contractual life of 6.59 years (March 31, 2016: 7.53 years)

The weighted average share price at the date of exercise for share options exercised in 2016-17 was INR 181.55 (2015-16: INR 212.59)

D. Expense recognised in Statement of Profit and Loss

For details on the employee benefits expense, see Note 25.

For details about the related employee benefit expenses, see Note 25

The Company has a defined benefit gratuity plan in India, governed by the Payment of Gratuity Act, 1972. The plan entitles an employee, who has rendered at least five years of continuous service, to gratuity at the rate of fifteen days wages for every completed year of service or part thereof in excess of six months, based on the rate of wages last drawn by the employee concerned. A trust by name “Polaris Software Lab group gratuity trust” has been constituted to administer the gratuity fund.

These defined benefit plans expose the Company to actuarial risks, such as longevity risk, interest rate risk and market (investment) risk.

The Company provides the gratuity benefit through annual contribution to Life Insurance Corporation of India (LIC).

A. Reconciliation of the net defined benefit (asset) liability

The following table shows a reconciliation from the opening balances to the closing balances for the net defined benefit (asset) liability and its components.

Details of dues to micro and small enterprises as defined under the MSMED Act, 2006

As at March 31, 2017, the Company had no outstanding dues to Micro and Small enterprises (for March 31, 2016: Rs Nil; April 1, 2015: Nil). The list of Micro and Small enterprises was determined by the Company on the basis of information available with the Company. The Company also had no outstanding dues that require to be furnished under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006.

5. Exceptional items

(a) Transaction expenses

On March 3, 2016, Virtusa Consulting Services Private Limited, a subsidiary of Virtusa Corporation, completed the acquisition of 52.9% of the outstanding share capital of Polaris from certain shareholders of the Company for approximately INR 113,642.83 lakhs (USD 174 million) in cash (the “Polaris SPA Transaction”). In addition, under applicable Securities and Exchange Board of India (Substantial acquisition and take over regulations) 2015, Virtusa India made an unconditional mandatory offer to the public shareholders of the Company to purchase up to an additional 26% of the outstanding shares of the Company. Virtusa India accepted the purchase of 26,719,942 shares of Polaris for INR 220.73 per share (USD 3.25 per share) for an aggregate purchase price of INR 58,980 lakhs (USD 86.8 million). The mandatory open offer began on March 11, 2016 and closed on March 28, 2016 and was fully subscribed. As a result, Virtusa India now holds approximately 79% of the total outstanding share capital of Polaris. In connection with this transaction, Polaris incurred a costs of INR 1,517.55 lakhs for the year ended March 31, 2016 and the same is disclosed under exceptional items-others, being significant and non-recurring.

6. Earnings per share

A. Basic earnings per share

The calculations of basic earnings per share based on profit attributable to equity shareholders and weighted average number of equity shares outstanding are as follows:

B. Diluted earnings per share

The calculation of diluted earnings per share is based on profit attributable to equity shareholders and weighted average number of equity shares outstanding, after adjustment for the effects of all dilutive potential equity shares as follows:

7. Financial instruments - Fair values and risk management

A. Accounting classifications and fair values

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy

For all of the Company’s assets and liabilities which are not carried at fair value, disclosure of fair value is not required as the carrying amounts approximates the fair values.

B. Measurement of fair values

i. Valuation techniques and significant unobservable inputs

The following table shows the valuation techniques used in measuring Level 2 fair values for financial instruments measured at fair value in the balance sheet. Related valuation processes are described in Note 2(a)(v).

C. Financial risk management

The Company has exposure to the following risks arising from financial instruments:

- credit risk (see (C)(ii));

- liquidity risk (see (C)(iii)); and

- market risk (see (C)(iv)).

8. Financial instruments - Fair values and risk management

i. Risk management framework

The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The board of directors has established the risk management committee, which is responsible for developing and monitoring the Company’s risk management policies. The committee reports regularly to the board of directors on its activities.

The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations

The Company’s audit committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The audit committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and adhoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.

ii. Credit risk

Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The carrying amounts of financial assets represent the maximum credit risk exposure.

Trade receivables and unbilled revenue are typically unsecured and are derived from revenue earned from customers primarily Citi Bank Group. Credit risk has always been managed by the Company through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.

On account of adoption of Ind AS 109, the Company uses Expected Credit Loss model to assess the impairment loss or gain. The Company allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of loss (including but not limited to external ratings, audited financial statements, management accounts and cash flow projections and available press information about customers) and applying experienced credit judgment. Credit risk grades are defined using qualitative and quantitative factors that are indicative of the risk of loss.

Credit risk on cash and cash equivalents is limited as the Company generally invests in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies. Investments primarily include investment in mutual fund units, bonds and preference shares.

iii. Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company’s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company has no outstanding bank borrowings. The Company believes that the working capital is sufficient to meet its current requirements.

As of March 31, 2017, the Group had a working capital of INR 70,705.90 lakhs including cash and bank balances of INR 16,685.55 lakhs and investments of INR 17,253.07 lakhs. As of March 31, 2016, the Group had a working capital of INR 59,365.68 lakhs including cash and bank balances of INR 4,385.66 lakhs and investments of INR 20,475.96 lakhs.

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include contractual interest payments and exclude the impact of netting agreements.

iv. Market risk

The Company operates internationally and a major portion of the business is transacted in several currencies and consequently the Company is exposed to foreign exchange risk through its sales and services in the United States and elsewhere. The Company holds derivative financial instruments such as foreign exchange forward to mitigate the risk of changes in exchange rates on foreign currency exposures. The exchange rate between the Indian rupee and foreign currencies has changed substantially in recent years and may fluctuate substantially in the future. Consequently, the results of the Company’s operations are adversely affected as the rupee appreciates / depreciates against these currencies.

Exposure to currency risk

The summary quantitative data about the Company’s exposure to currency risk (based on notional amounts) as reported to the management is as follows

Sensitivity analysis

A reasonably possible strengthening (weakening) of the INR against USD or GBP at March 31 would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.

Hedge accounting

The Company holds derivative financial instruments such as foreign currency forward to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank. These derivative financial instruments are valued based on quoted prices for similar assets and liabilities in active markets or inputs that are directly or indirectly observable in the marketplace.

Cash flow hedges

At March 31, 2017, the Group holds the following instruments to hedge exposures to changes in foreign currency rates.

D. Capital management

The key objective of the Company’s capital management is to ensure that it maintains a stable capital structure with the focus on total equity to uphold investor, creditor, and customer confidence and to ensure future development of its business. The Company focused on keeping strong total equity base to ensure independence, security, as well as a high financial flexibility for potential future borrowings, if required without impacting the risk profile of the Company.

There are no borrowings in the Company as at March 31, 2017, March 31, 2016 and April 1, 2015.

9. Operating leases

Leases as lessee

The Company has taken on lease a number of offices and guest houses for the employees under operating leases. The leases typically expires at various dates in future years. There are no significant restrictions imposed by the lease arrangements. Some leases agreements have price escalation clauses.

i. Future minimum lease payments

At March 31, the future minimum lease payments to be made under non-cancellable operating leases are as follows

Notes

i. Pending resolution of the respective proceedings, it is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of the above as it is determinable only on receipt of judgments/decisions pending with various forums/authorities.

ii. The Company has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed as contingent liabilities where applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a materially adverse effect on its financial position.

iii. As at March 31, 2017, the Company is committed to spend INR 746.18 lakhs (March 31, 2016: 236 lakhs) under a contract to purchase property, plant and equipment.

iv. The Company is also involved in a law suit with and claims including suits filed by former employees, which arise in the ordinary course of business. However there are no such matters pending that the Company expects to be material in relation to its business.

* Amount attributable to post employment benefits and compensated absences have not been disclosed as the same cannot be identified distinctly in the actuarial valuation.

Compensation of the Company’s key managerial personnel includes salaries, non-cash benefits and contributions to postemployment defined benefit plan (see Note 20).

Executive officers also participate in the Group’s share option plan (see Note 19).

10. Associate Stock Option Plan (ASOP) Trust and Orbitech Employee Welfare Trust (OEWT)

The Company does not hold any interest in two trusts, Associate Stock Option Plan (ASOP) Trust and Orbitech Employee Welfare Trust (OEWT). However, these entities have been created for the benefit of the employees and administered by the trustees appointed by the Company. Consequently, the Company consolidates the entities.

11. Operating segments

A. Basis for segmentation

Accounting pronouncements establish standards for the manner in which public companies report information about operating segments in annual and interim financial statements. Operating segments are component of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker on deciding on how to allocate resources and in assessing performance. The Company’s operations predominantly relate to IT services only and accordingly this is the only business segment. The Company’s chief operating decision-maker (CODM) is considered to be the Company’s Chief Executive Officer. The Company’s CODM reviews financial information presented, for making operating decisions and assessing financial performance of the Company. Therefore, the Company has determined that it operates in a single operating and reportable segment.

B. Geographical information

C. Major customer

Revenue from one customer of the Company is INR 72,066.50 lakhs (2015-2016: INR 78,499.28 lakhs) which is more than 40 percent of the Company’s total revenue.

12. Disposal group held for sale

In February 2016, management committed to a plan to sell the Business Process Outsourcing (BPO) division. Accordingly, that part of the division is presented as a disposal group held for sale. Efforts to sell the disposal group were started post March 2016 and the sale consummated in the second quarter of the financial year ended March 31, 2017.

A. Impairment losses (write-down) relating to the disposal group held for sale

A loss of INR 666.03 lakhs in the financial year 2015-2016, for write down of the disposal group to the lower of its carrying amount and its fair value less costs to sell has been recognised in ‘Exceptional items’ (see Note 28). The loss has been applied to reduce the carrying amount of property, plant and equipment and other non-current assets within the disposal group.

B. Assets and liabilities of the disposal group held for sale

At March 31, 2016, the disposal group has been stated at fair value less costs to sell (being lower of their carrying amount) and comprises the following assets and liabilities

C. Measurement of fair values

i. Fair value hierarchy

The non-recurring fair value measurement for the disposal group of INR 200 lakh has been categorised as a Level 3 fair value based on the inputs to the valuation technique used.

ii. Valuation technique and significant unobservable inputs

The pricing of the transaction has been determined by knowledgable parties based on valuation of business, which has been arrived taking into consideration the forecasted growth, budgeted capital expenditure and risk adjusted discount rates.

13. Explanation of transition to Ind AS

As stated in Note 2(a)(i), these are the Company’s first financial statements prepared in accordance with Ind AS. For the year ended March 31, 2016, the Company had prepared its financial statements in accordance with Companies (Accounting Standards) Rules, 2006, notified under Section 133 of the Act and other relevant provisions of the Act (‘previous GAAP’).

The accounting policies set out in Note 2(b) - 2(q) have been applied in preparing these Standalone financial statements for the year ended March 31, 2017 including the comparative information for the year ended March 31, 2016 and the opening Ind AS balance sheet on the date of transition i.e. April 1, 2015.

In preparing its Ind AS balance sheet as at April 1, 2015 and in presenting the comparative information for the year ended March 31, 2016, the Company has adjusted amounts reported previously in financial statements prepared in accordance with previous GAAP. This note explains the principal adjustments made by the Company in restating its financial statements prepared in accordance with previous GAAP, and how the transition from previous GAAP to Ind AS has affected the Company’s financial position, financial performance and cash flows.

Optional exemptions availed and mandatory exceptions

In preparing these financial statements, the Company has applied the below mentioned optional exemptions and mandatory exceptions.

A. Optional exemptions availed

1. Property plant and equipment, intangible assets and investment properties

As per Ind AS 101 an entity may elect to:

(i) measure an item of property, plant and equipment at the date of transition at its fair value and use that fair value as its deemed cost at that date

(ii) use a previous GAAP revaluation of an item of property, plant and equipment at or before the date of transition as deemed cost at the date of the revaluation, provided the revaluation was, at the date of the revaluation, broadly comparable to:

- fair value;

- or cost or depreciated cost under Ind AS adjusted to reflect, for example, changes in a general or specific price index. The elections under (i) and (ii) above are also available for intangible assets that meets the recognition criteria in Ind AS 38,Intangible Assets, (including reliable measurement of original cost); and criteria in Ind AS 38 for revaluation (including the existence of an active market).

(iii) use carrying values of property, plant and equipment, intangible assets and investment properties as on the date of transition to Ind AS (which are measured in accordance with previous GAAP and after making adjustments relating to decommissioning liabilities prescribed under Ind AS 101) if there has been no change in its functional currency on the date of transition.

As permitted by Ind AS 101, the Company has elected to continue with the carrying values under previous GAAP for all the items of property, plant and equipment. The same election has been made in respect of intangible assets and investment property also.

2. Designation of previously recognised financial instruments

Ind AS 101 permits an entity to designate particular equity investments (other than equity investments in subsidiaries, associates and joint arrangements) as at fair value through other comprehensive income (FVOCI) based on facts and circumstances at the date of transition to Ind AS (rather than at initial recognition). Other equity investments are classified at fair value through profit or loss (FVTPL).

The Company has opted to apply this exemption for its investments in equity instruments

3. Share based payments

As per Ind AS 101, a first-time adopter is encouraged, but not required, to apply Ind AS 102 Share-based payment to equity instruments that vested before date of transition to Ind ASs. However, if a first-time adopter elects to apply Ind AS 102 to such equity instruments, it may do so only if the entity has disclosed publicly the fair value of those equity instruments, determined at the measurement date, as defined in Ind AS 102. If a first-time adopter modifies the terms or conditions of a grant of equity instruments to which Ind AS 102 has not been applied, the entity is not required to apply modification accounting as specified in paragraphs 26-29 of Ind AS 102 if the modification occurred, before the date of transition to Ind ASs.

The Company has elected to apply Ind AS 102 to equity instruments that remain unvested as at the date of transition. Also, for modifications that occurred before the date of transition to Ind ASs, the requirements of Ind AS 102 have been applied to the extent that the equity instruments remain unvested on the date of transition.

4. Investment in subsidiaries and joint venture

As per Ind AS 101, When an entity prepares separate financial statements, Ind AS 27 requires it to account for its investments in subsidiaries, joint ventures and associates either:

(a) at cost; or

(b) in accordance with Ind AS 109

If a first-time adopter measures such an investment at cost in accordance with Ind AS 27, it shall measure that investment at one of the following amounts in its separate opening Ind AS Balance Sheet:

(a) cost determined in accordance with Ind AS 27; or

(b) deemed cost. The deemed cost of such an investment shall be its:

(i) fair value at the entity’s date of transition to Ind ASs in its separate financial statements; or

(ii) previous GAAP carrying amount at that date.

A first-time adopter may choose either (i) or (ii) above to measure its investment in each subsidiary, joint venture or associate that it elects to measure using a deemed cost.

The Company has opted for deemed cost (previous GAAP carrying amount) of the investment in subsidiaries and joint venture

B. Mandatory exemptions

1. Estimates

As per Ind AS 101, an entity’s estimates in accordance with Ind AS at the date of transition to Ind AS, should be consistent with estimates made for the same date in accordance with the previous GAAP unless there is objective evidence that those estimates were in error. However, the estimates should be adjusted to reflect any differences in accounting policies.

As per Ind AS 101, where application of Ind AS requires an entity to make certain estimates that were not required under previous GAAP, those estimates should be made to reflect conditions that existed at the date of transition (for preparing opening Ind AS balance sheet) or at the end of the comparative period (for presenting comparative information as per Ind AS).

The Company’s estimates under Ind AS are consistent with the above requirement. Key estimates considered in preparation of the Standalone financial statements that were not required under the previous GAAP are listed below:

- Fair valuation of financial instruments carried at FVTPL and/ or FVOCI.

- Impairment of financial assets based on the expected credit loss model.

2. Classification and measurement of financial assets

Ind AS 101 requires an entity to assess classification of financial assets on the basis of facts and circumstances existing as on the date of transition. Further, the standard permits measurement of financial assets accounted at amortised cost based on facts and circumstances existing at the date of transition if retrospective application is impracticable.

Accordingly, the Company has determined the classification of financial assets based on facts and circumstances that exist on the date of transition.

3. Hedge accounting

The Company had designated various hedging relationships as cash flow hedges under the previous GAAP. On date of transition to Ind AS, the entity has assessed that all the designated hedging relationship qualifies for hedge accounting as per Ind AS 109. Consequently, the Company continues to apply hedge accounting on and after the date of transition to Ind AS.

The following reconciliations provide the effect of transition to Ind AS from previous GAAP in accordance with Ind AS 101 - First time adoption of Ind AS

C. Difference on account of revenue recognition

Difference on account of revenue recognition is primarily due to difference in timing of revenue recognition under Ind AS a s compared to the previous GAAP.

D. Fair valuation of investments

In accordance with Ind AS, financial assets representing investment in equity shares of entities other than subsidiaries and joint venture as well as debt securities, preference shares and mutual funds have been fair valued. The Group has designated certain investments classified as fair value through profit or loss with certain others designated as at fair value through other comprehensive income as permitted by Ind AS 109. Under the previous GAAP, the application of the relevant accounting standard resulted in all these investments being carried at cost.

E. Consolidation of trusts

As detailed in Note 34, Associate Stock Option Plan (ASOP) Trust and Orbitech Employee Welfare Trust (OEWT) are consolidated as part of the Company under Ind AS. These entities were not consolidated under the previous GAAP. Accordingly, the assets and liabilities of the trusts and the profit or loss items have been consolidated as part of the financial statements.

F. Actuarial gain / loss

Under Ind AS, all actuarial gains and losses are recognised in other comprehensive income. Under previous GAAP the Group recognised actuarial gains and losses in profit or loss. However, this has no impact on the total comprehensive income and total equity as on April 1, 2015 or as on March 31, 2016.

G. Share-based payments measurement

The Group granted equity-settled share-based payments to certain employees. The Group accounted for these share-based payment arrangements by reference to their intrinsic value under previous GAAP. Under Ind AS, the related liability has been adjusted to reflect the fair value of the outstanding equity-settled shared-based payments.

H. Proposed dividend

Under previous GAAP, dividends proposed by the Board of Directors after the reporting date but before the approval of financial statements were considered to be adjusting event and accordingly recognised (along with related dividend distribution tax) as liabilities at the reporting date. Under Ind AS, dividends so proposed by the board are considered to be non-adjusting event. Accordingly, provision for proposed dividend and dividend distribution tax recognised under previous GAAP has been reversed.

I. Allowance for credit loss

On transition to Ind AS, the Group has recognised impairment loss on trade receivables based on the expected credit loss model as required by Ind AS 109. Consequently, trade receivables has been reduced with a corresponding decrease in retained earnings on the date of transition.