Investment in Equity Shares – Accounting Policy
Initial Recognition and Measurement
The Company enters into commercial arrangements with certain clients under which part of the consideration for IT services provided is settled through the issue of equity shares in the client’s company. Under these arrangements, 50% of the service fee is invoiced and settled in cash, and the remaining 50% is satisfied through the acquisition of equity instruments in the client entity.
In accordance with Section 26 of FRS 102 (Share-based Payment), when the Company receives services as consideration for its own equity instruments (or those of the client as part of a commercial transaction), the transaction is measured at the fair value of the services received at the date the services are received.
The services provided and the corresponding investment asset are recognised at this fair value, which is determined by the agreed cash price of the equivalent services provided under the arrangement. The date of recognition is the point at which the right to the equity instruments is established (e.g., when the performance obligation for the service delivery is met).
Subsequent Measurement
The equity shares acquired are classified as basic financial instruments under Section 11 of FRS 102.
Fair Value through Profit or Loss: Investments in non-puttable equity instruments that are publicly traded or whose fair value can be measured reliably without undue cost or effort are subsequently measured at fair value at each reporting date, with changes in fair value recognised immediately in the profit and loss account.
Cost less Impairment: If the fair value of an unquoted equity investment cannot be measured reliably without undue cost or effort, the investment is measured subsequently at cost less accumulated impairment losses. Cost, in this context, refers to the fair value of the services provided at initial recognition.
Impairment and Income Recognition
At each reporting date, investments measured at cost or fair value are reviewed for indicators of impairment. If indicators exist, the recoverable amount of the investment is estimated, and any resulting impairment loss is recognised in profit or loss in accordance with Section 27 of FRS 102.
Dividend income arising from these investments is recognised in the profit or loss account when the Company's right to receive payment is established.
The Company does not exercise control or significant influence over the entities in which these equity investments are held. Accordingly, these investments are not treated as subsidiaries, associates, or joint ventures under the scope of FRS 102 Section 9 and Section 14.