AS11 EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES (REVISED 2003)

Need and Objective

Transactions done in currency other than reporting currency is to be translated in reporting currency

Export of goods & services

Need and Objective Import of goods & services Foreign branches

Subsidiary/associate/JV overseas in

Scope & Applicability AS applies to Accounting for transactions in foreign currencies

In translating the financial statement of foreign operation Accounting for forward exchange contract

Non- applicability Re-statement of financial statement from its reporting currency to another currency The presentation in a cash flow statement of cash flows arising from transaction in a foreign currency Exchange difference arising from foreign currency borrowings covered by AS-16

What are Foreign Transactions?

Currency

Transaction denominated in a foreign currency or that require settlement in a foreign currency are called foreign currency transactions.

Classification for Accounting Treatment Category I Buying or selling the goods or services Lending and borrowing in foreign currency Acquisition & disposition of assets denominated in foreign currency.

Classification for accounting treatment Category II Foreign branch An associate Joint venture Foreign subsidiary

* Integral operation *Non-integral operation

Classification for accounting treatment Category III For managing risk/hedging For trading and speculation

Accounting treatment (Category-I)

Initial recognition of foreign transaction.
Valuation at the balance sheet date Contingent liabilities Treatment of exchange difference

Accounting Treatment (Category-II)

Integral foreign operation

Non-integral foreign operation

*Foreign currency translation reserve
*Consolidation procedure (foreign subsidiary & joint venture

Treatment reserve

of foreign currency

On partial disposal proportionate foreign currency translation reserve is recognised as income or expense
On full disposal, whole foreign currency translation reserve is recognised income or expense

Change in classification Integral to non-integral

Non-integral to integral
*Change with prospective effect

Forward exchange contract Means an agreement to exchange different currencies at a forward rate
* For Managing risk
- Premium or discount at the inception - Exchange difference

* Held for trading or speculation

Disclosure
Exchange difference included in net profit or loss. Foreign exchange translation reserve. Reconciliation of foreign exchange translation reserve. Change in classification of significant foreign operation Foreign currency risk management policy (encouraged)

Significant IAS/IFRS

difference

with

Substantially the same as AS-11 Forward contract are covered by IAS-39

Significant difference with US GAAP

Uses different terminology such functional currency Substantially the same as AS-11 FC/hedging is covered by FASB-133 as

Issues in AS-11
Treatment of exchange difference
Asset linked foreign exchange borrowing and resulting exchange difference

Amendment in AS-11 dated 31st March 2009

Re-statement of foreign currency denominated monetary assets and liabilities

Issues in AS-11
Translation difference of foreign operation Forward contract - hedging - speculation Forward contract for future firm commitment Accounting for forward contract IFRS (IAS-21)