AS - 11

Accounting for the effects of changes

in
Foreign Exchange
 AS 11 - Accounting for the effects of changes in
Foreign Exchange Rates (Revised- 2003)

Objectives

Accounting Other
Translation of FS
& Issue
Reporting
Of
Principles Foreign Operation
Disclosure
 Reporting & Recognition Principal

Initial
Recognition (IR) Forward
Exchange
( Recording ) Contract

Reporting
 Translation of FS of Foreign Operation (FO)

FO

Integral Non – Integral

 Other Issues

Disposal of Change in
Non-integral FO classification of FO

Tax Effect of
Exchange difference Non Integral
Integral
To
To
integral
As per AS - 22 Non integral
 Objectives

Firm Deal with Foreign

Currencies ( FC )
Example

1-1-17 Goods sold to US Customer for 50,000 $

1-5-17 Payment made by US Customer

1-1-17 31-3-17 1-5-17

Transaction Reporting Transaction

1 $ = 62 1 $ = 67
1 $ = 58
Gain - 4 Gain - 5
 Objectives

Firm Deal with Foreign Firm Does not directly

Currencies ( FC ) deal with FC

Foreign
Selection of Foreign Branch , Subsidiary, JV ,etc
Exchange ( FE ) Rate
Translation
Treatment of FE Gain /
Loss
 Objectives

Firm Deal with Foreign Firm Does not directly deal

Currencies ( FC ) with FC

Selection of Foreign
Exchange ( FE ) Rate

Treatment of FE Gain /
Loss
 Objectives

➢ Lay down principal for deciding which

exchange rate to be used

➢ How to recognise the financial effect of change

in exchange rates
 Accounting ( recognition ) Principles

Transaction involving foreign currencies

(a) Buying and selling of goods and
services
(b) Borrowing and lending money
(c) Acquiring and disposing of assets
(d) Disposing the liabilities

Cont.
 Rate for transaction

➢ Rate on the date of transaction

( Transaction Rate )
OR
➢ IF no significant fluctuation ,
Average rate
if it approximate to actual rate
 Balance Sheet Items

Amount to be received / paid is fixed by

contract or otherwise
Monetary item
Ex : Debtors,BR,Creditors,loans etc.

Which is to be valued
Non Monetary Item
Ex : FA , Investment , Stock

Historical Cost FA , L/T Investment

Fair Value S/T Investment , Stock

 Selection of exchange rate subsequent to IR ( Reporting )

Monetary item Non Monetary Item

Closing Rate

Historical Cost Fair Value

Closing Rate
Historical Rate
 Foreign Operation

➢ It is a

➢ Subsidiary, Associate, Joint Venture, or branch

➢ of the reporting enterprise,

➢ the activities of which are based or conducted

in a country other than the country of the reporting enterprise.
 Integral foreign Operation

Business Functions
Abroad
Abroad
Prod. Sales Purch.

ACC Fin. HR.

R&D

Abroad

Cont.
The activities of which are an integral part of those
of the reporting enterprise.

It is an extended arm of the reporting entity

 Item Selection of Rate
Cost & Depreciation of Tangible FA Historical Rate
Assets carried at fair value Closing Rate
Cost of inventories Closing Rate

Monetary items Closing Rate

Income / Expenses Avg. Rate

Profit P&L A/c

Cont.
 Item Integral FO Non Integral FO

FA Historical Rate Closing Rate

Investment/ Stock Closing Rate Closing Rate

Monetary items Closing Rate Closing Rate

Income / Expenses Avg. Rate Avg. Rate

Foreign Exchange Recognise in Accumulated in
Gain/Loss Foreign Currency
P & L A/c Translation Reserve
( FCTR)
 Disposal of Non-integral FO

Recognise the cumulative amount of the exchange difference

that have been deferred, as income/expense

in the period in which gain/loss on disposal is recognised

 Integral to Non - integral

Accumulate the exchange difference arising on translation of

Non – monetary assets at the

date of re – classification, in FCTR

 Non - Integral to integral

Translated amount of non-monetary items at the date of change treated as

historical cost

Exchange difference lying in FCTR,

not to be recognised as income / expense ,

untill the disposal of operation

Change in long term liability due to change in FE rate,
which has been undertaken for acquiring the FA

Such exchange gain/Loss is not to be capitalised

It is to be recorded in P&L A/C
 Disclosure Requirements

(A) “Amount of Exchange differences” included in the net Profit

or loss for the period

(b) Net exchange differences accumulated in FCTR

Reconciliation between Opening & closing balance in

the said reserve, to highlight the movements.

(d) A change in classification of a significant foreign operation,
additional disclosures are called for in the following areas:

(i) Nature of change in classification

(ii) Reasons
(iii) Impact of such change on shareholders funds
 Forward Exchange Contract

Hedging Trading /
Speculative
 Hedging
Amortise as income /
Premium / Disc at the expense over the life of
inception of contract the contract

Exchange difference In P&L in the year in

which rates changed

P/L on Recognise as income /

renewal / cancellation expense for the period
Ex : SM - 4

Rau Ltd purchase a plant for US $ 1,00,000 on 1-2-16 ,payable after three month.
Company enter into forward contract for 3 month at Rs. 49.15 per dollar. Exchange
rate per dollar on 1-2-16 was Rs. 48.85.How profit is to be recognised ?

1-2-16 31-3-16 30-4-16

2 Mth 1 Mth

Transaction Reporting Transaction

1 $ = 49.15
1 $ = 48.85

Premium – 0.30
 1-2-16 2 Mth 31-3-16 1 Mth 30-4-16

1 $ = 48.85 Premium – 0.30 1 $ = 49.15

Forward Rate 49.15

(-) Spot Rate 48.85
Premium on contract 0.30

Contract Amount 1,00,000

Total Loss 30,000

Feb , March ( CY ) 30,000 x 2/3 = 20,000

April ( NY ) 30,000 x 1/3 = 10,000

Trading / Speculative

Premium / Disc at
the inception of Ignored
contract

At each B/S date MTM

Gain/Loss is recognised
Ex : SM - 5
Mr. A bought a forward contract for US $ 1,00,000 on 1-12-16 at 1 $ = 47.10
when exchange rate was 1 $ = 47.02. On 31-12-16 when he close its books
Exchange rate per dollar was Rs. 47.15.On 31-1-17 he decided to sell the
contact at 47.18 per dollar. How profit is to be recognised ?

As not hedging contract , only profit / loss on sale is to be

consider

Sale Rate 47.18

(-) Contract Rate
(47.10)
Premium on contract
0.08
Contract Amount 1,00,000
Total Profit 8,000
Thank You