4. Ind AS 21 AS 11
Ind AS 21 excludes from its scope forward
exchange contracts and other similar
financial instruments, which are treated in
accordance with Ind AS 39 Financial
Instruments: Recognition and Measurement.
AS 11 does not such exclude accounting for
such contracts.
Ind AS 21 is based on functional currency
approach.
Existing AS 11 is not based on functional
currency approach.
Ind AS 21 is based on the functional
currency approach. However, in Ind AS 21
the factors to be considered in determining
an entity’s functional currency are similar to
the indicators in existing AS 11 to determine
the foreign operations as non-integral foreign
operations. As a result, despite the difference
in the term, there are no substantive
differences in respect of accounting of a
foreign operation.
The existing AS 11 is based on integral
foreign operations and non-integral foreign
operations approach for accounting for a
foreign operation.
5. Ind AS 21 AS 11
Presentation currency can be different from
local currency.
Does not explicitly state so.
Permits an option to recognize exchange
differences arising on translation of certain
long-term monetary items from foreign
currency to functional currency directly in
equity. In this situation, Ind AS 21 requires
the accumulated exchange differences to be
transferred to profit or loss in an appropriate
manner or we can say over the period of
maturity of long term monetary items.
Does not permit such a treatment. but
Gives an option to the foreign currency gains
and losses to recognize exchange differences
arising on translation of certain long-term
monetary items from foreign currency to
functional currency directly in equity to be
transferred to profit or loss over the life of the
relevant liability/asset if such items are not
related to acquisition of fixed assets up to
31st March 2011; where such items are
related to acquisition of fixed assets, the
foreign exchange differences can be
recognized as part of the cost of the asset.
7. SCOPE
•Foreign Currency Transactions
Accounting for Transactions and Balances in Foreign Currencies
Exception: Derivative Transactions and Balances (including Hedge Accounting)
within the Scope of IND AS 39
•Foreign Operations
Translating the Financial Statements of FOREIGN OPERATIONS included in the
FS of entity by Consolidation, Proportionate Consolidation or the Equity Method.
•Presentation of FS in Presentation Currency
Translating an Entity’s FS into a Presentation Currency.
8. IMPORTANT DEFINITIONS
Foreign Currency
Currency other than ‘functional currency.
Spot Exchange Rate
The ‘exchange rate’ for immediate delivery.
Monetary items
Units of currency held and assets and liabilities to be received or paid in a
fixed or determinable number of units of currency.
Presentation Currency
Currency in which financial statements are prepared.
9. CONCEPT OF FUNCTIONAL CURRENCY
Currency of the ‘PRIMARY ECONOMIC ENVIRONMENT’ in which the
Entity operates.
Primary Economic Environment is normally the one in which the
Entity PRIMARILY GENERATES AND EXPENDS CASH.
10. INDICATORS TO DETERMINE THE
FUNCTIONAL CURRENCY :-
Primary Indicators
The Currency that determines the Sales prices of its goods and
services and Operating Costs.
Secondary Indicators
Currency of Generation of Funds from Financing Activities – Issue of
Debt and Equity Instruments & Currency of Retention of Receipts from
Operating Activities.
Additional Indicators to determine functional currency of foreign
operation :-
Autonomy – Activities of Foreign Operation are Extension of the
Reporting Entity or carried with a Significant Degree of Autonomy.
Volume of Transactions with the Reporting Entity
Impact of Cash Flows of Foreign Operation on the Reporting Entity.
Ability to service Debt Obligations without fund being made available
by reporting entity.
11. CHANGE IN FUNCTIONAL CURRENCY
FUNCTIONAL CURRENCY is
Used CONSISTENTLY
NOT Changed unless there is a Change in Underlying Transactions, Events
and Conditions (primary economic environment)
If Changed, then apply TRANSLATION procedures PROSPECTIVELY.
12. INITIAL RECOGNITION OF FOREIGN
CURRENCY TRANSACTION
SPOT EXCHANGE RATE * FOREIGN CURRENCY
# SPOT EXCHANGE RATE IS ON DATE OF TRANSACTION.
# EXCHANGE RATE IS BETWEEN FUNCTIONAL CURRENCY & FOREIGN
CURRECY.
13. SUBSEQUENT MEASUREMENT OF
FOREIGN CURRENCY TRANSACTIONS
Item Translation Rate Recognition of
Exchange Differences
on Settlement or
Translation
Monetary Items Closing Rate on
Balance Sheet Date
To Profit or Loss
Non-Monetary Items at
Historical Cost
Rate as at Date of
Transaction
Equity : If Gain or Loss
is recognized in Equity.
PL : If Gain or Loss is
recognized in PL
Non-Monetary Items at
Fair Value
Rate as at Date of Fair
Value Determination
Equity : If Gain or Loss
is recognized in Equity.
PL : If Gain or Loss is
recognized in PL
Entity can also avail option given under Para 29A in respect to long term
monetary items.
14. PARA 29A-OPTION IN RESPECT OF
RECOGNITION OF EXCHANGE
DIFFERENCE ARISING ON
TRANSLATION OF LONG TERM
MONETARY ITEMS
Unrealized exchange difference arising on long term monetary assets and long
term monetary liabilities denominated in foreign currency shall be recognized
directly in equity and accumulated in separate component of equity.
The amount so accumulated shall be transferred to profit & loss account over
the period of maturity of long term monetary items.
The separate component of equity shall be distinguished from any other
component of equity representing any other exchange difference recognized in
other comprehensive income & accumulated in equity.
15. FOREIGN OPERATION TRANSLATION
TO PRESENTATION CURRENCY
Items Translation Rate Recognition of
Exchange
Difference
Assets and Liabilities
(including
Comparatives)
Closing Rate on
Balance
Sheet Date
As a Separate
Component of Equity.
Income and Expenses
(including
Comparatives)
Exchange Rate at the
date
of the transaction #
As a Separate
Component of Equity.
Exception to above rule for an entity whose functional currency is the
currency of a hyperinflationary economy in this case, the entity shall
restate its financial statement accordance with Ind AS-29 before applying
translation method prescribed above.
# Average Rate is permitted, if the exchange rates don’t fluctuate
significantly.
16. CONTD…
On disposal of foreign operations, cumulative amount of foreign
exchange difference recognized in comprehensive income and
accumulated in separate component of equity, shall be reclassified from
equity to profit & loss when the gain or loss on disposal is recognized.
17. DISCLOSURES
The amount of Exchange Differences recognized in P&L except for those
arising on Financial Instruments measured at Fair Value through P & L (IAS 39).
Net exchange differences classified as a separate component of equity, and
a reconciliation of the amount of such exchange differences at the beginning
and end of the period.
Net exchange differences classified as a separate component of equity in
accordance with Para 29A and a reconciliation of the amount of such exchange
differences at the beginning and end of the period.
When presentation currency is different from functional currency, fact should
be stated, together with disclosure of functional currency & the reason of using
a different presentation currency.
when there is change in functional currency of either reporting entity or
foreign operation , the fact ,the reason for change in functional currency and
date of change.
