AS-11-ACCOUNTING FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES.

PRESENTED BY: DR. RAJ K. AGARWAL M.COM FCA, FCS,AICWA,LLB,Phd. M/S RAKESH RAJ & ASSOCIATES CHARTERED ACCOUNTANTS

APPLICABILITY
ALL ENTERPRISES - CORPORATES OR

NON-CORPORATES.
STATEMENT OF 1994 REVISED IN 2003. REVISED STATEMENT EFFECTIVE FROM

1ST APRIL 2004

MANDATORY IN NATURE.

SCOPE
ACCOUNTING FOR TRANSACTIONS IN

FOREIGN CURRENCIES.
TRANSLATING THE FINANCIAL

STATEMENTS OF FOREIGN OPERATIONS.

EXCLUSIONS
DOES NOT APPLY ON RESTATEMENTS
DOES

NOT APPLY ON CASH FLOW STATEMENTS NOT DEAL WITH EXCHANGE DIFFERENCES RELATING TO INTEREST ON FOREIGN CURRENCY BORROWINGS

DOES

ISSUES INVOLVED

WHICH EXCHANGE RATE TO USE.

FINANCIAL EFFECT OF CHANGES IN

EXCHANGE RATES.

INITIAL RECOGNITION OF TRANSACTIONS

AS PER EXCHANGE RATE AT THE DATE

OF TRANSACTION .
AVERAGE RATE IF NOT TOO MUCH

FLUCTUATION.

EFFECTS OF CHANGES IN EXCHANGE RATES AT B/S DATE

MONETARY ITEMS

TO BE RESTATED AT CLOSING
RATE

FOREIGN CURRENCY NOTES BALANCE IN FOREIGN CURRENCY BANK A/CS RECEIVABLES/ PAYABLES FOREIGN CURRENCY LOANS AT HISTORICAL COST - RATE OF DATE OF TRANSACTION

NON MONETARY ITEM AT FAIR MARKET - AT CLOSING RATE VALUE INVENTORIES/ INVESTMENTS/

FIXED ASSETS

TREATMENT OF FIXED ASSET AS Vs. SCHEDULE VI

- DIFFERENCE OF
EXCHANGE RATE RELATING TO CORRESPONDING LIABILITY TO BE ADJUSTED IN P & L A/C.

(REVISED)AS-11

SCHEDULE VI

EXCHANGE DIFFERENCE OF LIABILITIES INCURRED FOR FIXED ASSESTS TO BE ADJUSTED IN THE COST OF RESPECTIVE FIXED ASSESTS

ISSUES AS PER PREFACE TO ACCOUNTING STANDARD STATUTORY REQUIREMENT OF ANY LAW TO GET PRECEEDENCE OVER AS IN CASE AS-11 BEING FOLLOWED - DEVIATION FROM INCOME TAX ACT SECTION 43A - ADJUSTMENT OF TIMING DIFFERENCE AS PER AS-22

RECOGNITION OF EXCHANGE DIFFERENCES

INCOME OR EXPENSE IN THE PERIOD IN

WHICH THEY ARISE. ISSUES

SEPERATE HEAD OR ADJUSTMENT IN

RESPECTIVE HEAD OF INCOME/LOSS. EVENT OCCURING AFTER BALANCE SHEET DATE-ACTUAL SETTLEMENT AMOUNT.

CASE STUDY1 - MONETORY ITEM AT CLOSING RATE

TRANSACTION DATE @ 42/PURCHASES DR.$1000 42,000 CLOSING DATE@ 45/42,000 INVENTORY

TO PAYABLE $ 1000

42,000

45,000 DIFFERENCE TO GO TO EXCHANGE FLUCTUATION , VALUEOFINVENTORY OR PURCHASES NOT TO BE ADJUSTED.

PROFIT & LOSS A/C

PURCHASES EXCHANGE FLUCTUATION 42,000 3,000 VALUE OF 42,000 CLOSING STOCK

BALANCE SHEET
PAYABLES 45,000 CLOSING 42,000

STOCK

CASE STUDY : SUBSEQUENT YEAR NO FOREIGN CURRENCY TRANSACTION

31/3/06 RECEIVABLES / PAYABLES - ON

CLOSING RATE
NEXT YEAR ACTUAL SETTLEMENT - FOREIGN

EXCHANGE RATE DIFFERENCE

NO FOREIGN CURRENCY TRANSACTION IN

NEXT YEAR - ALLOWABILITY / TAX EXEMPTION OF SUCH FOREIGN EXCHANGE FLUCTUATION AMOUNT IN NEXT YEAR UNDER INCOME TAX ACT.

CASE STUDY2- NON MONETORY ITEM AT FAIR VALUE

TRANSACTION DATE COST $ 100 @ Rs.40 PER $ Rs. 4000 /B/S DATE
FAIR VALUE $ 90 TO CARRY IN B/S AT Rs.4000/OR Rs.4500/-

@ Rs.50/- PER $ Rs. 4500/-

FORWARD EXCHANGE CONTRACTS

TRANSACTION TO BE RECODED AT

EXCHANGE RATE OF TRANSACTION DATE

PREMIUM OR DISCOUNT RELATING TO

FORWARD EXHANGE CONTRACT BE RECOGNISED AS INCOME OR EXPENSE OVER THE LIFE OF THE CONTRACT - PERIOD WISE.

TO

TRANSLATION OF THE FINANCIAL STATEMENTS OF FOREIGN OPERATIONS

INTEGRAL FOREIGN OPERATIONS

TO BE TREATED AT PAR WITH

DOMESTIC OPERATIONS.

CONSOLIDATION OF NON INTEGRAL FOREIGN OPERATIONS

MEANING OF NON INTEGRAL FOREIGN OPERATIONS

AN

FOREIGN OPERATION THAT IS NOT INTEGRAL TO OPERATIONS OF REPORTING ENTERPRISE

INDICATORS OF NON INTEGRAL

FOREIGN OPERATIONS 1. AUTONOMY OF OPERATIONS 2. NO OR LITTLE CORELATION OF CASH FLOWS OF REPORTING ENTERPRISE AND FOREIGN OPERATION 3. FINANCING OF ACTIVITIES OF FOREIGN OPERATION BY ITS LOCAL RESOURCES (AND NOT BY REPORTING ENTERPRISE)

TRANSLATION OF THE FINANCIAL STATEMENTS OF NON INTEGRAL FOREIGN OPERATIONS

ASSETS & LIABILITIES BOTH MONETARY AND CLOSING RATE NON MONETARY

INCOMES & EXPENSE

EXCHANGE RATE AT THE DATE OF TRANSACTION (OR AVERAGE RATES)

RECOGNITION OF EXCHANGE DIFFERENCES

TO BE ACCUMULATED IN A FOREIGN

CURRENCY TRANSLATION RESERVE TILL DISPOSAL OF NET INVESTMENT IN FOREIGN OPERATION

TO

BE TRANSFERRED TO INCOME/ EXPENSE IN THE PERIOD IN WHICH PROFIT / LOSS ON DISPOSAL OF NET INVESTMENT IN OPERATION IS RECOGNISED

ISSUES

CONSOLIDATION OF FINANCIAL

STATEMENTS
RECLASSIFICATION OF FOREIGN

OPERATIONS - REVISED CLASSIFICATION TO APPLY FROM DATE OF CHANGE OF CLASSIFICATION

DISCLOSURES
AMOUNT OF EXCHANGE

DIFFERENCES INCLUDED IN P & L A/C. NET EXCHANGE DIFFERENCE ACCUMULATED IN FOREIGN CURRENCY TRANSLATION RESERVE

AMOUNT OF EXCHANGE

DIFFERENCES IN RESPECT OF FORWARD EXCHANGE CONTRACTS

FOREIGN EXCHANGE RISK

MANAGEMENT POLICY.