Professional Documents
Culture Documents
SAKSHI CHAWLA
ROLL NO.: 37
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CERTIFICATE
This is to certify that Sakshi Chawla of M.Com (Accounts) Semester I (academic
year 2015-2016) has successfully completed the project on
FOREIGN CURRENCY CONVERSION
under the Guidance of Prof. Dhanabalu R. Naikar
_________________
_________________
(Payal Samwani)
__________________
__________________
(External Examiner)
Place: _____________
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Date: ___________
DECLARATION
The information presented in this project is true and original to the best of
my knowledge.
___________________
Sakshi Chawla
Roll No.: 37
Place: _____________
Date: _____________
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ACKNOWLEDGEMENT
I would like to thank the University of Mumbai, for introducing M.Com(Accounts)
course, thereby giving its students a platform to be abreast with changing business
scenario, with the help of theory as a base and practical as a solution.
Last but not the least; I would like to thank my parents for giving the best
education and for their support and contribution without which this project would
not have been possible.
______________________
Sakshi Chawla
Roll no.: 37
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Index
Introduction
AS-11: The Effect of Exchange Difference
Terminology
Accounting Treatment
Classification of Foreign Operations
Translation of Financial Statements
Disposal of Non-Integral Operations
Disclosures
Forward Exchange Contracts
Example of an Indian Company with operations
overseas
Ranbaxy Laboratories Limited
Illustration
Solution
Example of a Foreign Company with operations in
India
The Coca-Cola Company
Illustration
Solution
Conclusion
Bibliography
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Introduction
A multinational corporation (MNC) or multinational enterprise is an
organization that owns or controls production of goods or services in one or more
countries other than their home country. It can also be referred as an international
corporation, a "transnational corporation", or a stateless corporation.
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In India, these foreign currency transactions and their treatment is governed by the
Accounting Standard 11 The Effects of Exchange Differences.
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Scope
1. This Standard should be applied:
(a) in accounting for transactions in foreign currencies; and
(b) in translating the financial statements of foreign operations.
2. This Standard also deals with accounting for foreign currency
transactions in the nature of forward exchange contracts.
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Terminology
The following terms are used in Accounting Standard 11 with the meanings
specified:
1. Average rate is the mean of the exchange rates in force during a period.
2. Closing rate is the exchange rate at the balance sheet date.
3. Exchange difference is the difference resulting from reporting the same
number of units of a foreign currency in the reporting currency at different
4.
5.
exchange rates.
Exchange rate is the ratio for exchange of two currencies.
Fair value is the amount for which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in an arms length
6.
transaction.
Foreign currency is a currency other than the reporting currency of an
7.
enterprise.
Foreign operation is a subsidiary, associate, joint venture or branch of the
reporting enterprise, the activities of which are based or conducted in a
8.
9.
12.
15.
statements.
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Accounting Treatment
Initial Recognition
A foreign currency transaction should be recorded, on initial recognition in the
reporting currency, by applying to the foreign currency amount the exchange rate
between the reporting currency and the foreign currency at the date of the
transaction.
F o r e ig n
C u rre n c
y
Am ount
E x c h a n g e R a te
a t th e d a te o f
t r a n s a c t io n
A m o u n t in
R e p o r t in g
C u u re n c y
For practical reasons, a rate that approximates the actual rate at the date of the
transaction is often used, for example, an average rate for a week or a month might
be used for all transactions in each foreign currency occurring during that period.
However, if exchange rates fluctuate significantly, the use of the average rate for a
period is unreliable.
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a) Monetary Items
F
g
C
n
A
n
n
u
c
y
m
C
o
n
R
t e
l
s
i
g
a
A
t
R
n
C
c
m
i n
e
g
o
p
o
u
r
r
i
n
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(a) The assets and liabilities, both monetary and non-monetary, of the nonintegral foreign operation should be translated at the closing rate;
(b) Income and expense items of the non-integral foreign operation should
be translated at exchange rates at the dates of the transactions; and
(c) All resulting exchange differences should be accumulated in a foreign
currency translation reserve until the disposal of the net investment.
Exchange Differences
The translation of the financial statements of a non-integral foreign operation
results in the recognition of exchange differences arising from:
(a) Translating income and expense items at the exchange rates at the dates
of transactions and assets and liabilities at the closing rate;
(b) Translating the opening net investment in the non-integral foreign
operation at an exchange rate different from that at which it was previously
reported; and
(c) Other changes to equity in the non-integral foreign operation.
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These exchange differences are not recognized as income or expenses for the
period because the changes in the exchange rates have little or no direct effect on
the present and future cash flows from operations of either the non-integral foreign
operation or the reporting enterprise.
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Disclosures
An enterprise should disclose:
(a) The amount of exchange differences included in the net profit or loss for
the period; and
(b) Net exchange differences accumulated in foreign currency translation
reserve as a separate component of shareholders funds, and a reconciliation
of the amount of such exchange differences at the beginning and end of the
period.
When the reporting currency is different from the currency of the country in which
the enterprise is domiciled, the reason for using a different currency should be
disclosed. The reason for any change in the reporting currency should also be
disclosed.
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(d) The impact on net profit or loss for each prior period presented had the
change in classification occurred at the beginning of the earliest period presented.
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Speculative
In recording a forward exchange contract intended for trading or speculation
purposes, the premium or discount on the contract is ignored.
The value of the contract is marked to its current market value at each balance
sheet date, and the gain or loss on the contract is recognized.
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In the Brand Trust Report 2014, Ranbaxy was ranked 184th among India's most
trusted brands according to the Brand Trust Report 2014, a study conducted by
Trust Research Advisory, a brand analytics company.
Ranbaxy was started by Ranbir Singh and Gurbax Singh in 1937 as a distributor
for a Japanese company Shionogi. The name Ranbaxy is a portmanteau of the
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names of its first owners Ranbir and Gurbax. Bhai Mohan Singh bought the
company in 1952 from his cousins Ranbir and Gurbax. After Bhai Mohan Singh's
son Parvinder Singh joined the company in 1967, the company saw an increase in
scale.
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Illustration Question
XYZ Ltd. has a branch in New Jersey, USA. On December 31, 2013, the Trial
Balance of the branch was as follows:
Particulars
Goods from Head Office
Stock as on 01.01.13
Furniture and Fixtures
Cash in hand
Cash at bank
Salaries
Taxes and Insurance
Rent
Debtors
Dr. ($)
45,000
7,500
10,000
1,050
950
13,000
250
1,000
12,250
Particulars
Head Office account
Sales
Owing for expenses
91,000
Cr. ($)
9,000
81,000
1,000
91,000
The Branch account in the head office showed a debit balance of Rs. 1,12,500 and
Goods sent to Branch account showed a credit balance of Rs. 8,07,500.
Furniture and Fixtures are acquired on 01.01.10, when $1 = Rs.15
Provide for depreciation @10% per annum.
Stock at the branch as on 31.12.13 was valued at $4500.
Exchange rates:
01.01.13
$1 = Rs. 17.50
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01.12.13
$1 = Rs. 18.50
Average
$1 = Rs. 18.00
Prepare:
1) Trading and Profit and Loss A/c
2) Balance Sheet of New Jersey Branch
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Illustration Solution
Dr.
Particulars
Goods from HO
Stock
Furniture and Fix
Cash in Hand
Cash at Bank
Salaries
Tax & Insurance
Rent
Debtors
Rate
given
17.50
15
18.50
18.50
18
18
18
18.50
Rs.
807500
131250
150000
19425
17575
234000
4500
18000
226625
1608875
Particulars
HO A/c
Sales
Owing for expenses
Exchange difference
$
9000
81000
1000
Cr.
Rate
given
18
18.50
Rs.
112500
1458000
18500
19875
1608875
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Dr.
Trading and Profit and Loss A/c for the year ended 31.12.13
Particulars
To, Opening Stock
To, Goods from HO
To, Gross Profit c/d
To, Salaries
To, Depreciation
To, Tax and Insurance
To, Rent
To, Net Profit
Rs.
131250
807500
602500
1541250
Particulars
By, Sales
By, Closing Stock ($4500 x Rs.18.5)
234000
15000
4500
18000
350875
622375
Cr.
Rs.
1458000
83250
1541250
602500
19875
622375
Rs.
112500
350875
Rs.
463375
18500
481875
Assets
Furniture and Fixture
(-) Depreciation @ 10%
Cash in hand
Cash at bank
Debtors
Closing Stock
Rs.
150000
15000
Rs.
135000
19425
17575
226625
83250
481875
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The Coca-Cola Company is the worlds largest beverage company. The companys
best known product Coca Cola was invented by John Stith Pemberton in 1886. The
Coca-Cola formula and brand was bought in 1889 by Asa Candler who
incorporated The Coca-Cola Company in 1892.
Coca-Cola currently offers nearly 400 brands in over 200 countries or territories
and serves 1.5 billion servings each day.
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Coca-Cola acquired most of the local Indian brands including Thums Up, Limca,
Maaza, Citra and Gold Spot.
The country wide marketing office is located at Gurgaon, Haryana. The company
has 3 more regional offices in Mumbai, Hyderabad, and Kolkata. It also has over
50 manufacturing locations in the country.
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Illustration Question
A Canadian firm has a branch in Mumbai, India. On December 31, 2009, the Trial
Balance of the branch was as follows:
Particulars
Stock on 01.01.09
Purchases/Sales
Debtors/Creditors
Bills Receivable/Payable
Wages and Salaries
Rents, Rates, Taxes
Head Office balance
Miscellaneous Expenses
Furniture
Cash at Bank
Dr. (Rs)
37800
225000
117000
31200
14400
10800
Cr. (Rs)
337500
78000
27300
103500
4500
14730
90870
546300
546300
$1 = Rs. 67.50
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31.12.09
$1 = Rs. 68.50
Average
$1 = Rs. 68.00
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Illustration Solution
Dr.
Particulars
Stock (01.01.09)
Debtors
Bills Receivable
Purchases
Wages and Salaries
Rents, Rates, Taxes
Miscellaneous Exp
Furniture and Fix
Cash at bank
Rate
67.50
68.50
68.50
68
68
68
68
Given
68.50
$
560
1708
455
3309
212
159
66
125
1327
7921
Particulars
Sales
Creditors
Bills Payable
HO Balance
Exchange Difference
Rs.
337500
78000
27300
103500
Cr.
Rate
68
68.50
68.50
Given
$
4963
1139
399
1080
340
7921
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Dr.
Trading and Profit and Loss A/c for the year ended 31.12.09
Particulars
To, Opening Stock
To, Purchases
To, Wages and Salaries
To, Gross Profit c/d
To, Rents, Rates, Taxes
To, Miscellaneous Expenses
To, Net Profit
Cr.
$
560
3309
212
1831
5912
Particulars
By, Sales
By, Closing Stock (Rs.65000 $68.50)
159
66
1946
$
4963
949
5912
1831
340
2171
2171
$
1080
1946
$
3026
1139
399
4564
Assets
Furniture and Fixture
Bills Receivable
Cash at bank
Debtors
Closing Stock
$
125
455
1327
1708
949
4564
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Conclusion
International corporations have their operations in more than one country. Since
every country has its own currency, the consolidation of all of the operations
becomes a little tricky. That is where the Accounting Standard comes into the
picture.
Accounting standards facilities uniform preparation and reporting of general
purpose financial statements published annually for the benefit of shareholders,
creditors, employee and public at large. They are very useful to the investors and
other external groups in assessing the progress and prospects of alternative
investments in different companies in different countries.
Depending on which country the Head Office of a firm is located, the reporting
currency changes, as it is usually the currency of the origin of the organization.
If the HO is in India, the figures of the branch will have to be converted to Indian
Rupees. While, if the HO is located outside of India, the figures of the Indian
Branch will have to be converted to the required currency of the HO.
Without bringing in such uniformity, it would have become difficult to assess and
analyze the overall progress and evaluate the performance of various branches.
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Bibliography
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