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

 DOES NOT DEAL WITH EXCHANGE

DIFFERENCES RELATING TO
INTEREST ON FOREIGN CURRENCY
BORROWINGS
 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
 NON MONETARY ITEM -
 AT HISTORICAL COST - RATE OF DATE OF
TRANSACTION
 AT FAIR MARKET - AT CLOSING RATE
VALUE
 INVENTORIES/ INVESTMENTS/ FIXED ASSETS
 TREATMENT OF FIXED ASSET -
AS Vs. SCHEDULE VI
.

 (REVISED)AS-11 - DIFFERENCE OF
EXCHANGE RATE RELATING TO
CORRESPONDING LIABILITY TO BE ADJUSTED IN P &
L A/C.
 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 CLOSING

DATE @ 42/- DATE@ 45/-

PURCHASES DR.$1000 42,000 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 42,000 VALUE OF 42,000
CLOSING STOCK
EXCHANGE 3,000
FLUCTUATION

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 B/S DATE
DATE
COST $ 100 FAIR VALUE $ 90 TO
CARRY
@ Rs.40 PER $ @ Rs.50/- PER $ IN B/S AT
Rs. 4000 /- Rs. 4500/- Rs.4000/-
OR
Rs.4500/-
 FORWARD EXCHANGE
CONTRACTS

 TRANSACTION TO BE RECODED AT
EXCHANGE RATE OF TRANSACTION DATE

 PREMIUM OR DISCOUNT RELATING TO

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