1. 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
2. APPLICABILITY
ALL ENTERPRISES - CORPORATES OR
NON-CORPORATES.
STATEMENT OF 1994 REVISED IN 2003.
REVISED STATEMENT EFFECTIVE FROM
1ST APRIL 2004
MANDATORY IN NATURE.
3. SCOPE
ACCOUNTING FOR TRANSACTIONS IN
FOREIGN CURRENCIES.
TRANSLATING THE FINANCIAL
STATEMENTS OF FOREIGN
OPERATIONS.
4. 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
5. ISSUES INVOLVED
WHICH EXCHANGE RATE TO USE.
FINANCIAL EFFECT OF CHANGES IN
EXCHANGE RATES.
6. INITIAL RECOGNITION OF
TRANSACTIONS
AS PER EXCHANGE RATE AT THE DATE
OF TRANSACTION .
AVERAGE RATE IF NOT TOO MUCH
FLUCTUATION.
7. 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
8. .
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
9. SHEET DATE-ACTUAL SETTLEMENT
AMOUNT.
EVENT OCCURING AFTER BALANCE
RESPECTIVE HEAD OF INCOME/LOSS.
SEPERATE HEAD OR ADJUSTMENT IN
ISSUES
WHICH THEY ARISE.
INCOME OR EXPENSE IN THE PERIOD IN
DIFFERENCES
RECOGNITION OF EXCHANGE
10. 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.
11. .
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
12. 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.
13. 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/-
14. 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.
18. .
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)
19. 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)
20. 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
21. ISSUES
CONSOLIDATION OF FINANCIAL
STATEMENTS
RECLASSIFICATION OF FOREIGN
OPERATIONS - REVISED CLASSIFICATION
TO APPLY FROM DATE OF CHANGE OF
CLASSIFICATION
22. DISCLOSURES
AMOUNT OF EXCHANGE
DIFFERENCES INCLUDED IN P L
A/C.
NET EXCHANGE DIFFERENCE
ACCUMULATED IN “FOREIGN
CURRENCY TRANSLATION
RESERVE”
23. .
AMOUNT OF EXCHANGE
DIFFERENCES IN RESPECT OF
FORWARD EXCHANGE CONTRACTS
FOREIGN EXCHANGE RISK
MANAGEMENT POLICY.
