The Effects of Changes in Foreign Exchange Rates Contents

108 Accounting Standard (AS) 11 The Effects of Changes in Foreign Exchange Rates Contents OBJECTIVE SCOPE Paragraphs 1-6 DEFINITIONS 7 FOREIGN CURRENCY TRANSACTIONS 8-16 Initial Recognition 8-10 Reporting at Subsequent Balance Sheet Dates 11-12 Recognition of Exchange Differences 13-16 Net Investment in a Non-integral Foreign Operation 15-16 FINANCIAL STATEMENTS OF FOREIGN OPERATIONS 17-34 Classification of Foreign Operations 17-20 Integral Foreign Operations 21-23 Non-integral Foreign Operations 24-32 Disposal of a Non-integral Foreign Operation 31-32 Change in the Classification of a Foreign Operation 33-34 Continued../. . 109 ALL CHANGES IN FOREIGN EXCHANGE RATES 35 Tax Effects of Exchange Differences 35 FORWARD EXCHANGE CONTRACTS 36-39 DISCLOSURE 40-44 TRANSITIONAL PROVISIONS 45 110 AS 11 Accounting Standard (AS) 11* The Effects of Changes in Foreign Exchange Rates (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 objective and the General Instructions contained in part A of the Annexure to the Notification.) Objective An enterprise may carry on activities involving foreign exchange in two ways. It may have transactions in foreign currencies or it may have foreign operations. In order to include foreign currency transactions and foreign operations in the financial statements of an enterprise, transactions must be expressed in the enterprise’s reporting currency and the financial statements of foreign operations must be translated into the enterprise’s reporting currency. The principal issues in accounting for foreign currency transactions and foreign operations are to decide which exchange rate to use and how to recognise in the financial statements the financial effect of changes in exchange rates. Scope 1. This Standard should be applied: (a) in accounting for transactions in foreign currencies; and (b) in translating the financial statementsof foreign operations. * In respect of accounting for transactions in foreign currencies entered into by the reporting enterprise itself or through its branches before the effective date of the notification prescribing this Standard under Section 211 of the Companies Act, 1956, the applicability of this Standard would be determined on the basis of the Accounting Standard (AS) 11 revised by the ICAI in 2003. The Effects of Changes in Foreign Exchange Rates 111 2. This Standard also deals with accounting for foreign currency transactions in the nature of forward exchange contracts. 1 3. This Standard does not specify the currency in which an enterprise presents its financial statements. However, an enterprise normally uses the currency of the country in which it is domiciled. If it uses a different currency, this Standard requires disclosure of the reason for using that currency. This Standard also requires disclosure of the reason for any change in the reporting currency. 4. This Standard does not deal with the restatement of an enterprise’s financial statements from its reporting currency into another currency for the convenience of users accustomed to that currency or for similar purposes. 5. This Standard does not deal with the presentation in a cash flow statement of cash flows arising from transactions in a foreign currency and the translation of cash flows of a foreign operation (see AS...

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