NAS 21 The Effects

of Changes in
Foreign Exchange
Rates
CA Saugat Gautam
 Invests in
100% shares of
A Ltd.

P Ltd. A Ltd. Japan Ltd.

(USA) (Nepal) (Japan)

Prepares Financial
Statements in
USD. Hence, for Machine
consolidation Prepares Financial NPR = Functional Currency
purpose, it needs Statements in NPR Yen = Foreign Currency
F.S. of A Ltd. in
USD = Presentation Currency
USD as well.

Foreign Currency Translation Foreign Currency Transaction

 This Standard shall be applied:
Scope (a) in accounting for transactions and balances in
foreign currencies, except for those derivative
transactions and balances that are within the
scope of IFRS 9 Financial Instruments;
(b) in translating the results and financial position
of foreign operations that are included in the
financial statements of the entity by
consolidation or the equity method; and
(c) in translating an entity’s results and financial
position into a presentation currency.
 Functional Currency
Definitions • Functional currency is the currency of the
primary economic environment in which
the entity operates.

Foreign Currency
• Foreign currency is a currency other than
the functional currency of the entity.

Presentation Currency
• Presentation currency is the currency in
which the financial statements are
presented.
 • A foreign currency transaction shall be recorded,
Reporting on initial recognition in the functional currency, by
applying to the foreign currency amount the spot
Foreign exchange rate between the functional currency
and the foreign currency at the date of the
Currency transaction.
• Spot exchange rate is the exchange rate for
Transaction immediate delivery.[today's rate]

in Functional
Currency
 1st Falgun 2079 31st Baisakh 2080

PPE purchased $50,000 Payment made.

Payment to be made after 3 $1 = Rs. 132
months.
$1 = Rs. 130

PPE A/c – Dr. 65,00,000 US Supplier A/c – Dr. 65,00,000

To US Supplier 65,00,000 Exchange Loss (P/L) A/c – Dr. 1,00,000 (b/f)
($50,000 x Rs. 130/$) To Bank A/c 66,00,000
[50,000 x Rs. 132]

Subsequent
Recognition
FCMI → Closing Rate
Non-monetary items measured at
Historical cost→ Historical rate
Fair Value→ Rate when FV is measured
At the end of each reporting period:
(a)foreign currency monetary items shall be
translated using the closing rate;
(b)non-monetary items that are measured in
terms of historical cost in a foreign currency
shall be translated using the exchange rate
at the date of the transaction; and
(c) non-monetary items that are measured at fair
value in a foreign currency shall be
translated using the exchange rates at the
date when the fair value was measured.
 • Monetary items are:
Monetary • units of currency held and

item • assets and liabilities to be received or paid in a

fixed or determinable number of units of
currency.
• Examples:
• pensions and other employee benefits to be paid
in cash;
• Provisions that are to be settled in cash
• lease liabilities; and
• cash dividends that are recognised as a liability.
 • amounts prepaid for goods and services;
Non- • goodwill;

monetary • intangible assets;

• inventories;
item • property, plant and equipment;
• right-of-use assets; and
• provisions that are to be settled by the
delivery of a non-monetary asset.
 1st Jestha 2080 31st Ashadh 2080
(Reporting Date) 31st Shrawan 2080

$1 = Rs. 132
PPE purchased $50,000 Payment made.
Payment to be made after 3 $1 = Rs. 133
months. Restatement of monetary item
$1 = Rs. 130 US Supplier (payable) is a monetary item
denominated in foreign currency. Hence,
it shall be restated.
US Supplier (existing) = Rs. 65,00,000
US Supplier (closing rate) = Rs. 66,00,000
PPE A/c – Dr. 65,00,000 US Supplier A/c – Dr. 66,00,000
To US Supplier 65,00,000 Exchange Loss (P/L) A/c – Dr. 50,000 (b/f)
($50,000 x Rs. 130/$) To Bank A/c 66,50,000
[50,000 x Rs. 133]

Exchange loss (P/L) A/c – Dr. 1,00,000

To US Supplier A/c 1,00,000
 20th Ashadh 2080 31st Ashadh 2080
(Reporting Date)

$1 = Rs. 128
PPE purchased $20,000
Carrying amount (PPE) = Rs. 25,00,00
$1 = Rs. 125
Fair Value = $21,000
(Revaluation Model)
Fair Value (Rs.) = 21000 x 128
= 26,88,000

PPE A/c – Dr. 25,00,000 PPE A/c – Dr. 1,88,000

To Bank A/c 25,00,000 To Revaluation Reserve (OCI) 1,88,000
 • Exchange differences arising
Treatment • on the settlement of monetary items or
• on translating monetary items
• at rates different from those at which they were
translated on initial recognition
• during the period or in previous financial
statements
• shall be recognised in profit or loss in the period
in which they arise.
Use of
Particulars Rate
Presentation Assets/Liabilities Closing Rate
Currency Income/Expenses Actual Rate
[For practical reasons,
other than average rate may be used]

Functional Equity NAS 21 is silent. In practice,

historical rate is used.
Currency
Trial Balance of A Ltd. (Nepal) for P Ltd. (USA)
Functional Presentation
Currency Currency
Particulars NPR Rate USD
Assets xxx Closing xxx
Liabilities xxx Closing Xxx
Income xxx Actual/Average xxx
Expenses xxx Actual/Average xxx
Equity xxx Historical xxx
Exchange Gain/Loss (balancing figure) xxx
It shall be recognized through OCI and presented as a
separate heading within equity
Statement of Other Comprehensive Income

Particulars Amount (Rs.)

OCI that will not be subsequently reclassified to
profit or loss
Revaluation Surplus (NAS 16) xxx
OCI that will be subsequently reclassified to profit
or loss
Foreign currency translation difference (NAS 21) xxx