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Accounting Standard 11

Accounting Standard 11

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Published by: api-3828505 on Oct 18, 2008
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03/18/2014

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Statements of Accounting Standards(AS 11)
Accounting for the Effects of Changes in Foreign ExchangeRates
(In this Accounting Standard, the Standard portions have beenset in
bold italic
type. These should be read in the context of thebackground material which has been set in normal type, and inthe context of the 'Preface to the Statements of AccountingStandards'.)The following is the text of Accounting Standard (AS) 11,'Accounting for the Effects of Changes in Foreign ExchangeRates', issued by the Council of the Institute of CharteredAccountants of India.This Standard will come into effect in respect of accountingperiods commencing on or after 1.4.1995 and will be mandatoryin nature.
Objective
An enterprise may have transactions in foreign currencies or itmay have foreign branches. Foreign currency transactions shouldbe expressed in the enterprise's reporting currency and thefinancial statements of foreign branches should be translated intothe enterprise's reporting currency in order to include them in thefinancial statements of the enterprise.The principal issues in accounting for foreign currencytransactions and foreign branches are to decide which exchangerate to use and how to recognise in the financial statements thefinancial effect of changes in exchange rates.
Scope
1. This Statement should be applied by an enterprise :
 
(a) in accounting for transactions in foreign currencies; and (b) in translating the financial statements of foreign branches for inclusion in the financial statements of the enterprise.
Definitions
2. The following terms are used in this Statement with themeanings specified :Reporting currency is the currency used in presenting thefinancial statements.Foreign currency is a currency other than the reportingcurrency of an enterprise.Exchange rate is the ratio for exchange of two currenciesas applicable to the realisation of a specific asset or the payment of a specific liability or the recording of a specific transaction or a group of inter-related transactions. Average rate is the mean of the exchange rates in forceduring a period.Forward rate is the exchange rate established by theterms of an agreement for exchange of two currencies at a specified future date.Closing rate is the exchange rate at the balance sheedate.Monetary items are money held and assets and liabilitiesto be received or paid in fixed or determinable amounts of money, e.g., cash, receivables, payables.Non-monetary items are assets and liabilities other thanmonetary items e.g. fixed assets, inventories, investmentsin equity shares.
 
Settlement date is the date at which a receivable is due tobe collected or a payable is due to be paid.Recoverable amount is the amount which the enterpriseexpects to recover from the future use of an asset,including its residual value on disposal.
Foreign Currency TransactionsExchange Rate
3. A multiplicity of foreign exchange rates is possible in a givensituation. In such a case, the term 'exchange rate' refers to therate which is applicable to the particular transaction.4. The term 'exchange rate' is defined in this Statement withreference to a specific asset, liability or transaction or a groupof inter-related transactions. For the purpose of thisStatement, two or more transactions are considered inter-related if, by virtue of being set off against one another orotherwise, they affect the net amount of reporting currencythat will be available on, or required for, the settlement of those transactions. Although the exchange rates applicable torealisations and disbursements in a foreign currency may bedifferent, an enterprise may, where legally permissible, partlyuse the receivables to settle the payables directly, in whichcase the payables and receivables are reported at theexchange rate as applicable to the net amount of receivable orpayable. Further, where realisations are deposited into, anddisbursements made out of, a foreign currency bank account,all the transactions during a period (e.g. a month) are reportedat a rate that approximates the actual rate during that period.However, where transactions cannot be considered inter-related as stated above, by set-off or otherwise, thereceivables and payables are reported at the rates applicableto the respective amounts even where these are receivablefrom, or payable to, the same foreign party.
Recording Transactions on Initial Recognition

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