Notes to the consolidated financial statements

2.2 Available-for-sale financial assets

Investments in liquid mutual fund units and unlisted equity securities are classified as available-for-sale financial assets.

Cost and fair value of investment in liquid mutual fund units and unlisted equity securities are as follows :

in Rupee Symbolcrore

As of March 31,

2011

2010

Current

Liquid mutual fund units :

Cost and fair value

21

2,518

Non Current

Unlisted equity securities :

Cost

4

4

Gross unrealized holding gains

19

34

Fair value

23

38

Total available-for-sale financial assets

44

2,556

During February 2010, Infosys sold 32,31,151 shares of OnMobile Systems Inc., U.S., at a price of Rupee Symbol166.58 per share, derived from quoted prices of the underlying marketable equity securities. The total consideration amounted to Rupee Symbol53 crore, net of taxes and transaction costs. The resultant income of Rupee Symbol48 crore was included under other income for the year ended March 31, 2010. Additionally, the remaining 21,54,100 shares had been fair valued at Rupee Symbol38 crore as at March 31, 2010.

As of March 31, 2011 the 21,54,100 shares were fair valued at Rupee Symbol23 crore and the resultant unrealized loss of Rupee Symbol12 crore, net of taxes of Rupee Symbol3 crore has been recognized in other comprehensive income for the year ended March 31, 2011. The fair value of Rupee Symbol23 crore has been derived based on an agreed upon exchange ratio between these unlisted equity securities and quoted prices of the underlying marketable equity securities.

2.3 Business combinations

During the year ended March 31, 2010 Infosys BPO acquired 100% of the voting interests in McCamish Systems LLC (McCamish), a business process solutions provider based in Atlanta, Georgia, in the United States. The business acquisition was conducted by entering into Membership Interest Purchase Agreement for a cash consideration of Rupee Symbol173 crore and a contingent consideration of up to Rupee Symbol93 crore. The fair value of contingent consideration and its undiscounted value on the date of acquisition were Rupee Symbol40 crore and Rupee Symbol67 crore, respectively.

During the year ended March 31, 2011, the liability related to contingent consideration increased by Rupee Symbol4 crore due to the passage of time.

This business acquisition is expected to enable Infosys BPO to deliver growth in platform-based services in the insurance and financial services industry and is also expected to enable McCamish to service larger portfolios of transactions for clients and expand into global markets. Consequently, the excess of the purchase consideration paid over the fair value of assets acquired has been accounted for as goodwill.

The purchase price has been allocated based on the Management’s estimates and independent appraisal of fair values as follows :

in Rupee Symbolcrore

Component

Acquiree’s carrying amount

Fair value adjustments

Purchase price allocated

Property, plant and equipment

5

–

5

Net current assets

9

–

9

Intangible assets-Customer contracts and relationships

–

48

48

Intangible assets-Computer software platform

–

13

13

14

61

75

Goodwill

138

Total purchase price

213

Of the goodwill stated above, goodwill to the extent of Rupee Symbol95 crore is deductible for tax purposes.

The amount of trade receivables acquired from the above business acquisition was Rupee Symbol16 crore. The entire amount has been collected subsequently.

The identified intangible customer contracts and relationships are being amortized over a period of nine years whereas the identified intangible computer software platform has been amortized over a period of four months, based on the Management’s estimate of the useful life of the assets.

The acquisition date fair value of each major class of consideration as of the acquisition date is as follows :

in Rupee Symbolcrore

Particulars

Consideration settled

Fair value of total consideration

Cash paid

161

Liabilities settled in cash

12

Contingent consideration

40

Total

213

The payment of contingent consideration is dependent upon the achievement of certain revenue targets and net margin targets by McCamish over a period of 4 years ending March 31, 2014. Further, contingent to McCamish signing any deal with a customer with total revenues of US$ 100 million or more, the aforesaid period will be extended by 2 years. The total contingent consideration can range between Rupee Symbol67 crore and Rupee Symbol93 crore.

The fair value of the contingent consideration is determined by discounting the estimated amount payable to the previous owners of McCamish on achievement of certain financial targets. The key inputs used for the determination of fair value of contingent consideration are the discount rate of 13.9% and the probabilities of achievement of the net margin and the revenue targets ranging from 50% to 100%.

2.4 Prepayments and other assets

Prepayments and other assets consist of the following :

in Rupee Symbolcrore

As of March 31,

2011

2010

Current

Rental deposits

43

36

Security deposits with service providers

63

63

Loans to employees

137

106

Prepaid expenses (1)

47

39

Interest accrued and not due

21

9

Withholding taxes (1)

548

343

Advance payments to vendors for supply of goods (1)

36

19

Other assets

22

26

917

641

Non-current

Loans to employees

4

6

Deposit with corporation

437

337

Prepaid expenses (1)

20

–

Prepaid gratuity and other benefits (1)

2

4

463

347

1,380

988

Financial assets in prepayments and other assets

727

583

(1) Non-financial assets

Withholding taxes primarily consist of input tax credits. Other assets primarily represent travel advances and other recoverable from customers. Security deposits with service providers relate principally to leased telephone lines and electricity supplies.

Deposit with corporation represents amounts deposited to settle certain employee-related obligations as and when they arise during the normal course of business.

2.5 Property, plant and equipment

Following are the changes in the carrying value of property, plant and equipment for the year ended March 31, 2011 :

in Rupee Symbolcrore

Land

Buildings

Plant and machinery

Computer equipment

Furniture and fixtures

Vehicles

Capital work-in-progress

Total

Gross carrying value as of April 1, 2010

327

3,300

1,263

1,251

765

5

409

7,320

Additions

224

326

170

291

126

2

116

1,255

Deletions

–

–

(147)

(219)

(123)

–

–

(489)

Translation difference

–

–

–

9

3

–

–

12

Gross carrying value as of March 31, 2011

551

3,626

1,286

1,332

771

7

525

8,098

Accumulated depreciation as of April 1, 2010

–

(745)

(648)

(1,046)

(440)

(2)

–

(2,881)

Depreciation

–

(233)

(237)

(236)

(147)

(1)

–

(854)

Accumulated depreciation on deletions

–

–

147

219

123

–

–

489

Translation difference

–

–

1

(7)

(2)

–

–

(8)

Accumulated depreciation as of March 31, 2011

–

(978)

(737)

(1,070)

(466)

(3)

–

(3,254)

Carrying value as of April 1, 2010

327

2,555

615

205

325

3

409

4,439

Carrying value as of March 31, 2011

551

2,648

549

262

305

4

525

4,844

Following are the changes in the carrying value of property, plant and equipment for the year ended March 31, 2010 :

in Rupee Symbolcrore

Land

Buildings

Plant and machinery

Computer equipment

Furniture and fixtures

Vehicles

Capital work-in-progress

Total

Gross carrying value as of April 1, 2009

285

2,913

1,183

1,233

774

4

677

7,069

Additions

42

387

212

199

101

1

(268)

674

Acquisition through business combination

–

–

–

5

–

–

–

5

Deletions

–

–

(133)

(186)

(110)

–

 

(429)

Translation difference

–

–

1

–

–

–

–

1

Gross carrying value as of March 31, 2010

327

3,300

1,263

1,251

765

5

409

7,320

Accumulated depreciation as of April 1, 2009

–

(535)

(521)

(960)

(387)

(1)

–

(2,404)

Depreciation

–

(210)

(259)

(272)

(163)

(1)

 

(905)

Accumulated depreciation on deletions

–

–

132

186

110

–

–

428

Accumulated depreciation as of March 31, 2010

–

(745)

(648)

(1,046)

(440)

(2)

–

(2,881)

Carrying value as of April 1, 2009

285

2,378

662

273

387

3

677

4,665

Carrying value as of March 31, 2010

327

2,555

615

205

325

3

409

4,439

During the years ended March 31, 2011 and March 31, 2010, certain assets which were not in use having gross book value of Rupee Symbol488 crore and Rupee Symbol387 crore, respectively, (carrying value nil) were retired.

The depreciation expense for the years ended March 31, 2011 and March 31, 2010 is included in cost of sales in the statement of comprehensive income.

Carrying value of land includes Rupee Symbol146 crore and Rupee Symbol149 crore as of March 31, 2011 and March 31, 2010 respectively, towards deposits paid under certain lease-cum-sale agreements to acquire land including agreements where the Company has an option to purchase the properties on expiry of the lease period. The Company has already paid 99% of the market value of the properties prevailing at the time of entering into the lease-cum-sale agreements with the balance payable at the time of purchase. The contractual commitments for capital expenditure were Rupee Symbol814 crore and Rupee Symbol301 crore, as of March 31, 2011 and March 31, 2010 respectively.