ACCOUNTING STANDARD-11

1. ACCOUNTING STANDARD-11 The Effects of Changes in Foreign Exchange Rates Presented By: CA K. L.JHANWAR

2. SCOPE • Accounting for transactions in foreign currencies • Translating the financial statements of foreign operations • Accounting for foreign currency transactions in the nature of forward exchange contracts

3. DEFINITIONS ( Para 7) Reporting currency Currency used in presenting F/S Foreign Currency Currency other than reporting currency Exchange rate Ratio for exchange of two currencies Average rate Mean of exchange rates during a period Closing rate Exchange rate at the balance sheet date Forward rate Currency rate established by agreement for exchange of currencies at specified future date

4. Exchange Difference Difference resulting from reporting same number of units in foreign currency at two different exchange rates Forward Exchange Contract Agreement to exchange different currencies at a forward rate Monetary Items Money held and assets/liabilities to be received/paid in fixed/determinable amounts of money Non - Monetary Items Assets and liabilities other than monetary items Recoverable Amount Amount which the enterprise expects to recover from the future use of asset Settlement Date Date at which receivable/payable is due to be collected/paid

5. FOREIGN OPERATIONS 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. It can be classified as: (Para 18) A foreign operation ,the activities of which are an integral part of those of the reporting enterprise. Foreign Operations Integral Foreign Operations Non Integral Foreign Operations (Para 19-20) A foreign operation that is not an integral foreign operation

6. RECORDING OF TRANSACTION ( Para 8-10) Initial Recognition Transaction in foreign currency should be recorded in reporting currency by applying exchange rate at the transaction date except in case of inter related transactions. EAC Opinion Revenue should be recognized at the rate on the date of transaction and not at the rate on the date of forward exchange contract.

7. Subsequent To Initial Recognition (Para 11) At each Balance Sheet Date, disclose : Monetary items At Closing Rate (or, at the amount which is likely to be realised/disbursed if closing rate does not reflect such thing with reasonable accuracy) Non – Monetary Items Carried at Historical Cost : rate at the date of the transaction carried at FMV OR other valuation : Rate on the date of valuation PARA 13 Treatment Of exchange difference Income/ Expense of the period

8. FORWARD EXCHANGE CONTRACT COST (Para 36-38) • Premium or discount arising at the inception : Amortized as an expense or income over the life of the contract • Exchange difference : To be recognised in the statement of profit & loss a/c in the reporting period in which the exchange rates change. • Any profit or loss arising in cancellation or renewal : To be recognized as Income or Expense for the period

9. Translation of F/S of Integral Foreign Operation (Para 21-23) F/S of an IFO should be translated using the same principles and procedures as for the foreign currency transactions of reporting enterprise.

10. Translation of F/S of Non-Integral Foreign Operation (Para 24-30) The resulting exchange difference should be accumulated in a foreign currency translation reserve.

11. Revision for Fixed Assets in AS 11 ( Amended in 2003) As per earlier AS 11, Exchange difference arising on repayment / increase / decrease of liability incurred for acquiring fixed asset should be adjusted in carrying amount of asset. As per amendment, Such exchange difference is to be recognized in Profit & Loss statement for the period.

12. As per old Schedule VI of The Companies Act, 1956 Exchange difference arising on repayment/increase/decrease of liability incurred for acquiring fixed asset from outside India should be adjusted in carrying amount of asset. (Clause deleted in 2008) New insertion in AS 11 (PARA 46) In respect of periods commencing on or after 7 Dec 2006 and ending on or before 31 March 2011, at the OPTION of the enterprise , exchange differences arising on reporting amount of depreciable fixed assets due to increase/decrease of liability, can be added/deducted from the cost of the asset and shall be depreciated over the balance life of the asset, but not beyond 31 March, 2011.

13. Section 43A of The Income Tax Act When an assessee has acquired any asset from a country outside India And If exchange rate changes at any time after the acquisition of such asset & there is an increase/reduction in the liability of the assessee Then the amount by which the liability aforesaid is so increased or reduced during the previous year shall be added to or deducted from the actual cost of the asset(section 43(1) / section 35(1)(iv) / section 35A / section 36(1)(ix) / section 48)

14. DISCLOSURE REQUIREMENTS (Para 40-44) • Exchange differences included in the Net Profit/Loss • Exchange differences accumulated in Foreign Currency Translation Reserve and reconciliation of opening and closing balances • When reporting currency is different from the currency in the country where enterprise is domiciled, the reason for the same • Nature, reason, impact on shareholders funds and profit if there is a change in classification of foreign operation • Difference in respect of Forward exchange Contracts to be recognized in the profit or loss for one or more subsequent accounting periods

15. ADDITIONAL DISCLOSURES • Forward exchange derivative instruments which are outstanding, should be disclosed • The purpose of forward contracts {It should not be speculation but hedging} • Foreign currency exposure that are not hedged by financial instruments (Sales/Purchases/Repayments) • Interest swap outstanding transactions • Currency swap outstanding transactions

16. Thank You