Accounting Standard (AS) 11 (revised 1994) The Effects of Changes in Foreign Exchange Rates Paragraphs OB ECT!"E SCO#E $EF!%!T!

O%S FORE!&% C'RRE%C( TRA%SACT!O%S Initial Recognition Reporting at Subsequent Balance Sheet Dates Recognition of !change Differences #et In$est%ent in a #on-integral &oreign 'peration F!%A%C!A) STATE*E%TS OF FORE!&% O#ERAT!O%S *lassification of &oreign 'perations Integral &oreign 'perations #on-integral &oreign 'perations Disposal of a #on-integral &oreign 'peration *hange in the *lassification of a &oreign 'peration A)) C+A%&ES !% FORE!&% E,C+A%&E RATES +a! ffects of !change Differences FOR-AR$ E,C+A%&E CO%TRACTS $!SC)OS'RE TRA%S!T!O%A) #RO"!S!O%S A##E%$!, 1-6 7 8-16 8-10 11-12 1"-16 1(-16 17-") 17-20 21-2" 2)-"2 "1-"2 ""-") "( "( "6-", )0-)) )(

(This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of its ob ective and the Preface to the Statements of Accounting Standards !." -ccounting [Link]. /-S0 111 +he ffects of *hanges in &oreign !change Rates /re$ise. 200"01 issue. b2 the *ouncil of the Institute of *hartere. -ccountants of In.ia1 co%es into effect in respect of accounting perio.s co%%encing on or after 1-)-200) an. is %an.ator2 in nature 2 fro% that .ate3 +he re$ise. [Link]. [Link] -ccounting [Link]. /-S0 111 -ccounting for the ffects of *hanges in &oreign !change Rates /1,,)01 e!cept that in respect of accounting for transactions in foreign currencies entere. into b2 the reporting enterprise itself or through its branches before the .ate this [Link]. co%es into effect1 -S 11 /1,,)0 4ill continue to be applicable3 +he follo4ing is the te!t of the re$ise. -ccounting [Link].3

O./ective -n enterprise %a2 carr2 on acti$ities in$ol$ing foreign e!change in t4o 4a2s3 It %a2 ha$e transactions in foreign currencies or it %a2 ha$e foreign operations3 In [Link] to inclu.e foreign currenc2 transactions an. foreign operations in the financial state%ents of an enterprise1 transactions %ust be e!presse. in the enterprise5s reporting currenc2 an. the financial state%ents of foreign operations %ust be translate. into the enterprise5s reporting currenc23 * Originally issued in 1989 and revised in 1994. AS 11 (1994) is published elsewhere in this o!pendiu!.
1 -ttention is specificall2 .ra4n to paragraph )3" of the Preface1 [Link] to 4hich -ccounting [Link].s are inten.e. to appl2 onl2 to ite%s 4hich are %aterial3 2 Reference %a2 be %a.e to the section title. 5-nnounce%ents of the *ouncil [Link] status of $arious .ocu%ents issue. b2 the Institute of *hartere. -ccountants of In.ia5 appearing at the beginning of this *o%[Link]% for a .etaile. .iscussion on the i%plications of the %an.ator2 status of an accounting [Link].3

+he principal issues in accounting for foreign currenc2 transactions an. foreign operations are to .eci.e 4hich e!change rate to use an. ho4 to recognise in the financial state%ents the financial effect of changes in e!change rates3

Sco0e 11 "his State!ent should be applied# a. b. 23 +his State%ent also .eals 4ith accounting for foreign currenc2 transactions in the nature of for4ar. e!change contracts3 " "3 +his State%ent .oes not specif2 the currenc2 in 4hich an enterprise presents its financial state%ents3 6o4e$er1 an enterprise nor%all2 uses the currenc2 of the countr2 in 4hich it is .o%icile.3 If it uses a .ifferent currenc21 this State%ent requires .isclosure of the reason for using that currenc23 +his State%ent also requires .isclosure of the reason for an2 change in the reporting currenc23
" It %a2 be note. that on the basis of a .ecision of the *ouncil at its %eeting hel. on 7une 2)-261 200)1 an -nnounce%ent title. 5-pplicabilit2 of -ccounting [Link]. /-S0 11 /re$ise. 200"01 +he ffects of *hanges in &oreign !change Rates1 in respect of e!change .ifferences arising on a for4ar. e!change contract entere. into to [Link] the foreign currenc2 ris8 of a fir% co%%it%ent or a highl2 probable forecast transaction5 has been issue.3 +he -nnounce%ent clarifies that -S 11 /re$ise. 200"0 .oes not .eal 4ith the accounting of e!change .ifference arising on a for4ar. e!change contract entere. into to [Link] the foreign currenc2 ris8 of a fir% co%%it%ent or a highl2 probable forecast transaction3 It has also been separatel2 clarifie. that -S 11 /re$ise. 200"0 continues to be applicable to e!change .ifferences on all other for4ar. e!change contracts3 9&or full te!t of the -nnounce%ent reference %a2 be %a.e to the section title. 5-nnounce%ents of the *ouncil [Link] status of $arious .ocu%ents issue. b2 the Institute of *hartere. -ccountants of In.ia5 appearing at the beginning of this *o%[Link]%3:

in accounting $or transactions in $oreign currencies% and in translating the $inancial state!ents o$ $oreign operations.

)3

+his State%ent .oes not .eal 4ith the restate%ent of an enterprise5s financial state%ents fro% its reporting currenc2 into another currenc2 for the con$enience of users accusto%e. to that currenc2 or for si%ilar purposes3

(3 +his State%ent .oes not .eal 4ith the presentation in a cash flo4 state%ent of cash flo4s arising fro% transactions in a foreign currenc2 an. the translation of cash flo4s of a foreign operation /see -S "1 *ash &lo4 State%ents03

63 +his State%ent .oes not .eal 4ith e!change .ifferences arising fro% foreign currenc2 borro4ings to the e!tent that the2 are regar.e. as an a.;ust%ent to interest costs /see paragraph )/e0 of -S 161 Borro4ing *osts03

$efinitions 21 "he $ollowing ter!s are used in this State!ent with the !eanings speci$ied# Average losing rate rate is the is !ean the o$ the e&change rate rates at in $orce during a period. date.

e&change

the

balance

sheet

'&change di$$erence is the di$$erence resulting $ro! reporting the sa!e nu!ber o$ units o$ a $oreign currency in the reporting currency at di$$erent e&change rates. '&change rate is the ratio $or e&change o$ two currencies.

(air value is the a!ount $or which an asset could be e&changed) or a liability settled) between *nowledgeable) willing parties in an ar!+s length transaction. (oreign currency is a currency other than the reporting currency o$ an enterprise. (oreign operation is a subsidiary 4)associate, ) -oint venture . or branch o$ the reporting enterprise) the activities o$ which are based or conducted in a country other than the country o$ the reporting enterprise. (orward e&change contract !eans an agree!ent to e&change di$$erent currencies at a $orward rate. (orward rate is the speci$ied e&change rate $or e&change o$ two currencies at a speci$ied $uture date. /ntegral $oreign operation is a $oreign operation) the activities o$ which are an integral part o$ those o$ the reporting enterprise. 0onetary ite!s are !oney held and assets and liabilities to be received or paid in $i&ed or deter!inable a!ounts o$ !oney. 1et invest!ent in a non2integral $oreign operation is the reporting enterprise+s share in the net assets o$ that operation. 1on2integral $oreign operation is a $oreign operation that is not an integral $oreign operation.

1on2!onetary

ite!s

are

assets

and

liabilities

other

than

!onetary

ite!s.

3eporting currency is the currency used in presenting the $inancial state!ents.

(-s .efine. in -S 2"1 -ccounting for In$est%ents in -ssociates in *[Link]. &inancial State%ents3 6-s .efine. in -S 271 &inancial Reporting of Interests in 7oint <entures3

Foreign Currenc3 Transactions !nitia4 Recognition 83 - foreign currenc2 transaction is a transaction 4hich is .eno%inate. in or requires settle%ent in a foreign currenc21 [Link] transactions arising 4hen an enterprise either= a3 b3 bu2s or sells goo.s or ser$ices 4hose price is .eno%inate. in a foreign currenc2> borro4s or len.s fun.s 4hen the a%ounts pa2able or recei$able are .eno%inate. in a foreign currenc2> beco%es a part2 to an unperfor%e. for4ar. e!change contract> or other4ise acquires or .isposes of assets1 or incurs or settles liabilities1 .eno%inate. in a foreign currenc23

c3 .3

91 A $oreign currency transaction should be recorded) on initial recognition in the reporting currency) by applying to the $oreign currency a!ount the e&change rate between the reporting currency and the $oreign currency at the date o$ the transaction. 103 &or practical reasons1 a rate that appro!i%ates the actual rate at the .ate of the transaction is often use.1 for e!a%ple1 an a$erage rate for a 4ee8 or a %onth %ight be use. for all transactions in each foreign currenc2 occurring .uring that perio.3 6o4e$er1 if e!change rates fluctuate significantl21 the use of the a$erage rate for a perio. is unreliable3

Re0orting at Su.se5uent Ba4ance Sheet $ates 111 At each balance sheet date# a. $oreign currency !onetary ite!s should be reported using the closing rate. 4owever) in certain circu!stances) the closing rate !ay not re$lect with reasonable accuracy the a!ount in reporting currency that is li*ely to be realised $ro!) or re5uired to disburse) a $oreign currency !onetary ite! at the balance sheet date) e.g.) where there are restrictions on re!ittances or where the closing rate is unrealistic and it is not possible to e$$ect an e&change o$ currencies at that rate at the balance sheet date. /n such circu!stances) the relevant !onetary ite! should be reported in the reporting currency at the a!ount which is li*ely to be realised $ro!) or re5uired to disburse) such ite! at the balance sheet date%

b.

non2!onetary ite!s which are carried in ter!s o$ historical cost deno!inated in a $oreign currency should be reported using the e&change rate at the date o$ the transaction% and non2!onetary ite!s which are carried at $air value or other si!ilar valuation deno!inated in a $oreign currency should be reported using the e&change rates that e&isted when the values were deter!ined.

c.

123 *ash1 recei$ables1 an. pa2ables are e!a%ples of %onetar2 ite%s3 &i!e. assets1 in$entories1 an. in$est%ents in equit2 shares are e!a%ples of non-%onetar2 ite%s3 +he carr2ing a%ount of an ite% is .eter%ine. in [Link] 4ith the rele$ant -ccounting [Link].s3 &or e!a%ple1 certain assets %a2 be %easure. at fair $alue or other si%ilar $aluation /e3g31 net realisable $alue0 or at historical cost3 ?hether the carr2ing a%ount is .eter%ine. base. on fair $alue or other si%ilar $aluation or at historical cost1 the a%ounts so .eter%ine. for foreign currenc2 ite%s are then reporte. in the reporting currenc2 in [Link] 4ith this State%ent3 +he contingent liabilit2 .eno%inate. in foreign currenc2 at the balance sheet .ate is .isclose. b2 using the closing rate3

Recognition of Exchange $ifferences 161

'&change di$$erences arising on the settle!ent o$ !onetary ite!s or on reporting an enterprise+s !onetary ite!s at rates di$$erent $ro! those at which they were initially recorded during the period) or reported in previous $inancial state!ents) should be recognised as inco!e or as e&penses in the period in which they arise) with the e&ception o$ e&change di$$erences dealt with in accordance with paragraph 1,.
7 It %a2 be note. that the Institute has issue. in 200" an -nnounce%ent title. 5+reat%ent of e!change .ifferences [Link] -ccounting [Link]. /-S0 11 /re$ise. 200"01 +he ffects of *hanges in &oreign !change Rates $is-a-$is [Link] <I to the *o%panies -ct1 1,(653 -s per the -nnounce%ent1 the require%ent 4ith regar. to treat%ent of e!change .ifferences containe. in -S 11 /re$ise. 200"01 is .ifferent fro% [Link] <I to the *o%panies -ct1 1,(61 since -S 11 /re$ise. 200"0 .oes not require the a.;ust%ent of e!change .ifferences in the carr2ing a%ount of the fi!e. assets1 in the situations en$isage. in [Link] <I3 It has been clarifie. that [Link] the a%en.%ent1 if an21 to [Link] <I to the *o%panies -ct1 1,(61 in respect of the %atter1 a co%pan2 [Link] the treat%ent .escribe. in [Link] <I 4ill still be [Link]. to be co%pl2ing 4ith -S 11 /re$ise. 200"0 for the purposes of section 211 of the -ct3 -ccor.ingl21 the [Link] of the co%pan2 shoul. not assert nonco%pliance 4ith -S 11 /200"0 [Link] section 227/"0/.0 of the -ct in such a case an. shoul. not qualif2 his report in this regar. on the true an. fair $ie4 of the state of the co%pan25s affairs an. profit or loss of the co%pan2 [Link] section 227/20 of the -ct3 /publishe. in 5+he *hartere. -ccountant51 #o$e%ber1 200"1 pp3 ),730 +he full te!t of the -nnounce%ent has been [Link]. in the section title. 5-nnounce%ents of the *ouncil [Link] status of $arious .ocu%ents issue. b2 the Institute of *hartere. -ccountants of In.ia5 appearing at the beginning of this *o%[Link]%3

1)3 -n e!change .ifference results 4hen there is a change in the e!change rate bet4een the transaction .ate an. the .ate of settle%ent of an2 %onetar2 ite%s arising fro% a foreign currenc2 transaction3 ?hen the transaction is settle. 4ithin the sa%e accounting perio. as that in 4hich it occurre.1 all the e!change .ifference is recognise. in that perio.3 6o4e$er1 4hen the transaction is settle. in a subsequent accounting perio.1 the e!change .ifference recognise. in each inter$ening perio. up to the perio. of settle%ent is .eter%ine. b2 the change in e!change rates .uring that perio.3

%et !nvest7ent in a %on8integra4 Foreign O0eration 191

'&change di$$erences arising on a !onetary ite! that) in substance) $or!s part o$ an enterprise+s net invest!ent in a nonintegral $oreign operation should be accu!ulated in a $oreign currency translation reserve in the enterprise+s $inancial state!ents until the disposal o$ the net invest!ent) at which ti!e they should be recognised as inco!e or as e&penses in accordance with paragraph 61. 163 -n enterprise %a2 ha$e a %onetar2 ite% that is recei$able fro%1 or pa2able to1 a non-integral foreign operation3 -n ite% for 4hich settle%ent is neither planne. nor li8el2 to occur in the foreseeable future is1 in substance1 an e!tension to1 or .[Link] fro%1 the enterprise5s net in$est%ent in that non-integral foreign operation3 Such %onetar2 ite%s %a2 inclu.e long-ter% recei$ables or loans but .o not inclu.e tra.e recei$ables or tra.e pa2ables3

Financia4 State7ents of Foreign O0erations C4assification of Foreign O0erations 173 +he %etho. use. to translate the financial state%ents of a foreign operation .epen.s on the 4a2 in 4hich it is finance. an. operates in relation to the reporting enterprise3 &or this purpose1 foreign operations are classifie. as either @integral foreign operations@ or @non-integral foreign operations@3 183 - foreign operation that is integral to the operations of the reporting enterprise carries on its business as if it 4ere an e!tension of the reporting enterprise5s operations3 &or e!a%ple1 such a foreign operation %ight onl2 sell goo.s i%porte. fro% the reporting enterprise an. re%it the procee.s to the reporting enterprise3 In such cases1 a change in the e!change rate bet4een the reporting currenc2 an. the currenc2 in the countr2 of foreign operation has an al%ost i%%[Link] effect on the reporting enterprise5s cash flo4 fro% operations3 +herefore1 the change in the e!change rate affects the in.i$[Link] %onetar2 ite%s hel. b2 the foreign operation rather than the reporting enterprise5s net in$est%ent in that operation3 1,3 In contrast1 a non-integral foreign operation accu%ulates cash an. other %onetar2 ite%s1 incurs e!penses1 generates inco%e an. perhaps arranges borro4ings1 all substantiall2 in its local currenc23 It %a2 also enter into transactions in foreign currencies1 [Link] transactions in the reporting currenc23 ?hen there is a change in the e!change rate bet4een the reporting currenc2 an. the local currenc21 there is little or no .irect effect on the present an. future cash flo4s fro% operations of either the non-integral foreign operation or the reporting enterprise3 +he change in the e!change rate affects the reporting enterprise5s net in$est%ent in the non-integral foreign operation rather than the in.i$[Link] %onetar2 an. non%onetar2 ite%s hel. b2 the non-integral foreign operation3 203 +he follo4ing are [Link] that a foreign operation is a non-integral foreign operation rather than an integral foreign operation= a3 4hile the reporting enterprise %a2 control the foreign operation1 the acti$ities of the foreign operation are carrie. out 4ith a significant .egree of autono%2 fro% those of the reporting enterprise> transactions 4ith the reporting enterprise are not a high proportion of the foreign operation5s acti$ities> the acti$ities of the foreign operation are finance. %ainl2 fro% its o4n operations or local borro4ings rather than fro% the reporting enterprise>

b3

c3

.3

costs of labour1 %aterial an. other co%ponents of the foreign operation5s [Link] or ser$ices are pri%aril2 pai. or settle. in the local currenc2 rather than in the reporting currenc2> the foreign operation5s sales are %ainl2 in currencies other than the reporting currenc2> cash flo4s of the reporting enterprise are insulate. fro% the .a2-to-.a2 acti$ities of the foreign operation rather than being .irectl2 affecte. b2 the acti$ities of the foreign operation> sales prices for the foreign operation5s [Link] are not pri%aril2 responsi$e on a shortter% basis to changes in e!change rates but are .eter%ine. %ore b2 local co%petition or local go$ern%ent regulation> an. there is an acti$e local sales %ar8et for the foreign operation5s pro.ucts1 although there also %ight be significant a%ounts of e!ports3

e3 f3

g3

h3

+he appropriate classification for each operation can1 in principle1 be establishe. fro% factual infor%ation relate. to the [Link] liste. abo$e3 In so%e cases1 the classification of a foreign operation as either a nonintegral foreign operation or an integral foreign operation of the reporting enterprise %a2 not be clear1 an. ;[Link]%ent is necessar2 to .eter%ine the appropriate classification3

Financia4 State7ents of Foreign O0erations !ntegra4 Foreign O0erations :11 "he $inancial state!ents o$ an integral $oreign operation should be translated using the principles and procedures in paragraphs 8 to 1. as i$ the transactions o$ the $oreign operation had been those o$ the reporting enterprise itsel$. 223 +he in.i$[Link] ite%s in the financial state%ents of the foreign operation are translate. as if all its transactions ha. been entere. into b2 the reporting enterprise itself3 +he cost an. .epreciation of tangible fi!e. assets is translate. using the e!change rate at the .ate of purchase of the asset or1 if the asset is carrie. at fair $alue or other si%ilar $aluation1 using the rate that e!iste. on the .ate of the $aluation3 +he cost of in$entories is translate. at the e!change rates that e!iste. 4hen those costs 4ere incurre.3 +he reco$erable a%ount or realisable $alue of an asset is translate. using the e!change rate that e!iste. 4hen the reco$erable a%ount or net realisable $alue 4as .eter%ine.3 &or e!a%ple1 4hen the net realisable $alue of an ite% of in$entor2 is .eter%ine. in a foreign currenc21 that $alue is translate. using the e!change rate at the .ate as at 4hich the net realisable $alue is .eter%ine.3 +he rate use. is therefore usuall2 the closing rate3 -n a.;ust%ent %a2 be require. to [Link] the carr2ing a%ount of an asset in the financial state%ents of the reporting enterprise to its reco$erable a%ount or net realisable $alue e$en 4hen no such a.;ust%ent is necessar2 in the financial state%ents of the foreign operation3 -lternati$el21 an a.;ust%ent in the financial state%ents of the foreign operation %a2 nee. to be re$erse. in the financial state%ents of the reporting enterprise3 2"3 &or practical reasons1 a rate that appro!i%ates the actual rate at the .ate of the transaction is often use.1 for e!a%ple1 an a$erage rate for a 4ee8 or a %onth %ight be use. for all transactions in each foreign currenc2 occurring .uring that perio.3 6o4e$er1 if e!change rates fluctuate significantl21 the use of the a$erage rate for a perio. is unreliable3

%on8integra4 Foreign O0erations :41

/n translating the $inancial state!ents o$ a non2integral $oreign operation $or incorporation in its $inancial state!ents) the reporting enterprise should use the $ollowing procedures# a. the assets and liabilities) both !onetary and non2!onetary) o$ the non2integral $oreign operation should be translated at the closing rate% inco!e and e&pense ite!s o$ the non2integral $oreign operation should be translated at e&change rates at the dates o$ the transactions% and all resulting e&change di$$erences should be accu!ulated in a $oreign currency translation reserve until the disposal o$ the net invest!ent.

b.

c.

2(3 &or practical reasons1 a rate that appro!i%ates the actual e!change rates1 for e!a%ple an a$erage rate for the perio.1 is often use. to translate inco%e an. e!pense ite%s of a foreign operation3 263 +he translation of the financial state%ents of a non-integral foreign operation results in the recognition of e!change .ifferences arising fro%= a3 translating inco%e an. e!pense ite%s at the e!change rates at the .ates of transactions an. assets an. liabilities at the closing rate> translating the opening net in$est%ent in the non-integral foreign operation at an e!change rate .ifferent fro% that at 4hich it 4as pre$iousl2 reporte.> an. other changes to equit2 in the non-integral foreign operation3

b3

c3

+hese e!change .ifferences are not recognise. as inco%e or e!penses for the perio. because the changes in the e!change rates ha$e little or no .irect effect on the present an. future cash flo4s fro% operations of either the non-integral foreign operation or the reporting enterprise3 ?hen a nonintegral foreign operation is [Link]. but is not 4holl2 o4ne.1 accu%ulate. e!change .ifferences arising fro% translation an. attributable to %inorit2 interests are allocate. to1 an. reporte. as part of1 the %inorit2 interest in the [Link]. balance sheet3 273 -n2 goo.4ill or capital reser$e arising on the acquisition of a nonintegral foreign operation is translate. at the closing rate in [Link] 4ith paragraph 2)3 283 - contingent liabilit2 .isclose. in the financial state%ents of a nonintegral foreign operation is translate. at the closing rate for its .isclosure in the financial state%ents of the reporting enterprise3 2,3 +he incorporation of the financial state%ents of a non-integral foreign operation in those of the reporting enterprise follo4s nor%al [Link] proce.ures1 such as the eli%ination of intra-group balances an. intra-group transactions of a subsi.iar2 /see -S 211 *[Link]. &inancial State%ents1 an. -S 271 &inancial Reporting of Interests in 7oint <entures03 6o4e$er1 an e!change .ifference arising on an intra-group %onetar2 ite%1 4hether short-ter% or long-ter%1 cannot be eli%inate. against a [Link] a%ount arising on other intra-group balances because the

%onetar2 ite% represents a co%%it%ent to con$ert one currenc2 into another an. e!poses the reporting enterprise to a gain or loss through currenc2 fluctuations3 -ccor.ingl21 in the [Link]. financial state%ents of the reporting enterprise1 such an e!change .ifference continues to be recognise. as inco%e or an e!pense or1 if it arises fro% the circu%stances .escribe. in paragraph 1(1 it is accu%ulate. in a foreign currenc2 translation reser$e until the .isposal of the net in$est%ent3 "03 ?hen the financial state%ents of a non-integral foreign operation are .ra4n up to a .ifferent reporting .ate fro% that of the reporting enterprise1 the non-integral foreign operation often prepares1 for purposes of incorporation in the financial state%ents of the reporting enterprise1 state%ents as at the sa%e .ate as the reporting enterprise3 ?hen it is i%practicable to .o this1 -S 211 *[Link]. &inancial State%ents1 allo4s the use of financial state%ents .ra4n up to a .ifferent reporting .ate pro$i.e. that the .ifference is no greater than si! %onths an. a.;ust%ents are %a.e for the effects of an2 significant transactions or other e$ents that occur bet4een the .ifferent reporting .ates3 In such a case1 the assets an. liabilities of the non-integral foreign operation are translate. at the e!change rate at the balance sheet .ate of the non-integral foreign operation an. a.;ust%ents are %a.e 4hen appropriate for significant %o$e%ents in e!change rates up to the balance sheet .ate of the reporting enterprises in [Link] 4ith -S 213 +he sa%e approach is use. in appl2ing the equit2 %etho. to associates an. in appl2ing proportionate [Link] to ;oint $entures in [Link] 4ith -S 2"1 -ccounting for In$est%ents in -ssociates in *[Link]. &inancial State%ents an. -S 271 &inancial Reporting of Interests in 7oint <entures3

$is0osa4 of a %on8integra4 Foreign O0eration 611 On the disposal o$ a non2integral $oreign operation) the cu!ulative a!ount o$ the e&change di$$erences which have been de$erred and which relate to that operation should be recognised as inco!e or as e&penses in the sa!e period in which the gain or loss on disposal is recognised. "23 -n enterprise %a2 .ispose of its interest in a non-integral foreign operation through sale1 liqui.ation1 repa2%ent of share capital1 or [Link]%ent of all1 or part of1 that operation3 +he pa2%ent of a .i$[Link]. for%s part of a .isposal onl2 4hen it constitutes a return of the in$est%ent3 In the case of a partial .isposal1 onl2 the proportionate share of the relate. accu%ulate. e!change .ifferences is inclu.e. in the gain or loss3 - 4rite.o4n of the carr2ing a%ount of a non-integral foreign operation .oes not constitute a partial .isposal3 -ccor.ingl21 no part of the .eferre. foreign e!change gain or loss is recognise. at the ti%e of a 4rite-.o4n3

Change in the C4assification of a Foreign O0eration 661 7hen there is a change in the classi$ication o$ a $oreign operation) the translation procedures applicable to the revised classi$ication should be applied $ro! the date o$ the change in the classi$ication. ")3 +he consistenc2 principle requires that foreign operation once classifie. as integral or non-integral is continue. to be so classifie.3 6o4e$er1 a change in the 4a2 in 4hich a foreign operation is finance. an. operates in relation to the reporting enterprise %a2 lea. to a change in the classification of that foreign operation3 ?hen a foreign operation that is integral to the operations of the reporting enterprise is reclassifie. as a non-integral foreign operation1 e!change .ifferences arising on the translation of non-%onetar2 assets at the .ate of the reclassification are accu%ulate. in a foreign

currenc2 translation reser$e3 ?hen a non-integral foreign operation is reclassifie. as an integral foreign operation1 the translate. a%ounts for non-%onetar2 ite%s at the .ate of the change are treate. as the historical cost for those ite%s in the perio. of change an. subsequent perio.s3 !change .ifferences 4hich ha$e been .eferre. are not recognise. as inco%e or e!penses until the .isposal of the operation3

A44 Changes in Foreign Exchange Rates Tax Effects of Exchange $ifferences "(3 Aains an. losses on foreign currenc2 transactions an. e!change .ifferences arising on the translation of the financial state%ents of foreign operations %a2 ha$e associate. ta! effects 4hich are accounte. for in [Link] 4ith -S 221 -ccounting for +a!es on Inco%e3

For;ard Exchange Contracts 6=1

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An enterprise !ay enter into a $orward e&change contract or another $inancial instru!ent that is in substance a $orward e&change contract) which is not intended $or trading or speculation purposes) to establish the a!ount o$ the reporting currency re5uired or available at the settle!ent date o$ a transaction. "he pre!iu! or discount arising at the inception o$ such a $orward e&change contract should be a!ortised as e&pense or inco!e over the li$e o$ the contract. '&change di$$erences on such a contract should be recognised in the state!ent o$ pro$it and loss in the reporting period in which the e&change rates change. Any pro$it or loss arising on cancellation or renewal o$ such a $orward e&change contract should be recognised as inco!e or as e&pense $or the period.
8 See footnote "3

"73 +he ris8s associate. 4ith changes in e!change rates %a2 be %itigate. b2 entering into for4ar. e!change contracts3 -n2 pre%iu% or .iscount arising at the inception of a for4ar. e!change contract is accounte. for separatel2 fro% the e!change .ifferences on the for4ar. e!change contract3 +he pre%iu% or .iscount that arises on entering into the contract is %easure. b2 the .ifference bet4een the e!change rate at the .ate of the inception of the for4ar. e!change contract an. the for4ar. rate specifie. in the contract3 !change .ifference on a for4ar. e!change contract is the .ifference bet4een /a0 the foreign currenc2 a%ount of the contract translate. at the e!change rate at the reporting .ate1 or the settle%ent .ate 4here the transaction is settle. .uring the reporting perio.1 an. /b0 the sa%e foreign currenc2 a%ount translate. at the latter of the .ate of inception of the for4ar. e!change contract an. the last reporting .ate3 6<1 A gain or loss on a $orward e&change contract to which paragraph 6. does not apply should be co!puted by !ultiplying the $oreign currency a!ount o$ the $orward e&change contract by the di$$erence between the $orward rate available at the reporting date $or the re!aining !aturity o$ the contract and the contracted $orward rate (or the $orward rate last used to !easure a gain or loss on that contract $or an earlier period). "he gain or loss so co!puted should be recognised in the state!ent o$ pro$it and loss $or the period. "he pre!iu! or discount on the $orward e&change contract is not recognised separately. ",3

In [Link] a for4ar. e!change contract inten.e. for [Link] or speculation purposes1 the pre%iu% or .iscount on the contract is ignore. an. at each balance sheet .ate1 the $alue of the contract is %ar8e. to its current %ar8et $alue an. the gain or loss on the contract is recognise.3

$isc4osure 4>1 An enterprise should disclose# a. the a!ount o$ e&change di$$erences included in the net pro$it or loss $or the period% and net e&change di$$erences accu!ulated in $oreign currency translation reserve as a separate co!ponent o$ shareholders+ $unds) and a reconciliation o$ the a!ount o$ such e&change di$$erences at the beginning and end o$ the period.

b.

411 7hen the reporting currency is di$$erent $ro! the currency o$ the country in which the enterprise is do!iciled) the reason $or using a di$$erent currency should be disclosed. "he reason $or any change in the reporting currency should also be disclosed. 4:1 7hen there is a change in the classi$ication o$ a signi$icant $oreign operation) an enterprise should disclose# a. b. c. d. the nature o$ the change in classi$ication% the reason $or the change% the i!pact o$ the change in classi$ication on shareholders+ $unds% and the i!pact on net pro$it or loss $or each prior period presented had the change in classi$ication occurred at the beginning o$ the earliest period presented.

)"3 +he effect on foreign currenc2 %onetar2 ite%s or on the financial state%ents of a foreign operation of a change in e!change rates occurring after the balance sheet .ate is .isclose. in [Link] 4ith -S )1 *ontingencies an. $ents 'ccurring -fter the Balance Sheet Date3 ))3 Disclosure is also encourage. of an enterprise5s foreign currenc2 ris8 %anage%ent polic23

Transitiona4 #rovisions 491 On the $irst ti!e application o$ this State!ent) i$ a $oreign branch is classi$ied as a non2 integral $oreign operation in accordance with the re5uire!ents o$ this State!ent) the accounting treat!ent prescribed in paragraphs 66 and 64 o$ the State!ent in respect o$ change in the classi$ication o$ a $oreign operation should be applied.

A00endix 1ote# "his Appendi& is not a part o$ the Accounting Standard. "he purpose o$ this appendi& is only to bring out the !a-or di$$erences between Accounting Standard 11 (revised 8996) and corresponding /nternational Accounting Standard (/AS) 81 (revised 1996). Co70arison ;ith !AS :1? The Effects of Changes in Foreign Exchange Rates (revised 1996) Re$ise. -S 11 /200"0 .iffers fro% International -ccounting [Link]. /I-S0 211 +he ffects of *hanges in &oreign !change Rates1 in the follo4ing %a;or respects in ter%s of scope1 accounting treat%ent1 an. ter%inolog23 11 Sco0e !nc4usion of for;ard exchange contracts

Re$ise. -S 11 /200"0 .eals 4ith for4ar. e!change contracts both inten.e. for [Link] an. for [Link] or speculation3 I-S 21 .oes not .eal 4ith [Link] accounting for foreign currenc2 ite%s other than the classification of e!change .ifferences arising on a foreign currenc2 liabilit2 accounte. for as a [Link] of a net in$est%ent in a foreign entit23 It also .oes not .eal 4ith for4ar. e!change contracts for [Link] or speculation3 +he aforesai. aspects are .ealt 4ith in I-S ",1 &inancial Instru%ents= Recognition an. Beasure%ent3 -lthough1 an [Link] accounting [Link]. [Link] to I-S ", is [Link] preparation1 it has been .eci.e. to .eal 4ith accounting for for4ar. e!change contracts in the re$ise. -S 11 /200"01 since the e!isting -S 11 .eals 4ith the sa%e3 +hus1 accounting for for4ar. e!change contracts 4oul. not re%ain una..resse. untill the issuance of the [Link] accounting [Link]. on financial instru%ents3 :1 Accounting treat7ent Recognition of exchange differences resu4ting fro7 severe currenc3 deva4uations I-S 211 as a bench%ar8 treat%ent1 requires1 in general1 that e!change .ifferences on transactions be recognise. as inco%e or as e!penses in the perio. in 4hich the2 arise3 I-S 211 ho4e$er1 also per%its as an allo4e. alternati$e treat%ent1 that e!change .ifferences that arise fro% a se$ere .e$aluation or .epreciation of a currenc2 be inclu.e. in the carr2ing a%ount of an asset1 if certain [Link] are satisfie.3 In line 4ith the preference of the *ouncil of the Institute of *hartere. -ccountants of In.ia1 to eli%inate alternati$es1 4here possible1 re$ise. -S 11 /200"0 [Link] the bench%ar8 treat%ent as the onl2 acceptable treat%ent3 61 Ter7ino4og3 Foreign o0eration

+he re$ise. -S 11 /200"0 uses the ter%s1 integral foreign operation an. non#integral foreign operation respecti$el2 for the e!pressions @foreign operations that are integral to the operations of the reporting enterprise@ an. @foreign entit2@ use. in I-S 213 +he intention is to co%%unicate the %eaning of these ter%s concisel23 +his change has no effect on the require%ents in re$ise. -S 11 /200"03 Re$ise. -S 11 /200"0 pro$[Link] a..itional i%ple%entation [Link] b2 [Link] t4o %ore [Link] for the classification of a foreign operation as a non-integral foreign operation3