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.

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.

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

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.

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.

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

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

. (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 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.

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.

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

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.

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/-

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.

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.

TO BE TREATED AT PAR WITH DOMESTIC OPERATIONS.

. CONSOLIDATION 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) 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)

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

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

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 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.

AMOUNT OF EXCHANGE DIFFERENCES IN RESPECT OF FORWARD EXCHANGE CONTRACTS

FOREIGN EXCHANGE RISK MANAGEMENT POLICY.

. . THANK YOU