AS-11: (REVISED)THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

Applicability:-- Accounting Standard (AS) 11, The Effect of Changes in Foreign Exchange Rates

(revised 2003), issued by the Council of the Institute of Chartered Accountants of India, came

into effect in respect of accounting periods commencing on or after 1.4.2004 and is mandatory

in nature from that date.

Scope: This statement should be applied in:

(a) accounting for transactions in foreign currencies.

(b) translating the financial statements of foreign operations.

This statement does not:

(a) specify the currency in which an enterprise presents its financial statements.

(b) deal with the restatement of an enterprise's financial statements from its reporting currency

into another currency.

(c) 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.

(d) deal with exchange difference arising from foreign currency borrowings to the extent that

they are regarded as an adjustment to interest costs.

Definitions:

* Average Rate: Average rate is the mean of the exchange rates in force during a period.

* Closing Rate: Closing rate is the exchange rate at the balance sheet date.

* Exchange Rate: Exchange rate is the ratio for exchange of two currencies.

* Reporting Currency: Reporting currency is the currency used in presenting the financial

statements.

* Foreign Currency: Foreign currency is a currency other than the reporting currency of an

enterprise.

* Forward Rate: Forward rate is the specified exchange rate for exchange of two currencies at a

specified future date.

* Monetary Items: Monetary items are money held and assets and liabilities to be received or

paid in fixed or determinable amounts of money.

* Non-monetary Items: Non-monetary items are assets and liabilities other than monetary

items.

* Foreign Operations: Foreign operations 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.

Recognition of Exchange Differences

(a) Exchange differences arising on the settlement of monetary items or on reporting an

enterprise's monetary items at rates different from those at which they were initially recorded

during the period should be recognised as income or as expenses in the period in which they

arise.

Example1. Hemant Ltd. borrowed US$ 90.000 on 1.1.2006 which will be repaid on 31.7.2006.

Goel Ltd. prepares financial statements ending on 31.3.2006. Rates of exchange between

reporting currency (INR) and foreign currency (USD) on different dates are as under;

1.1.2006 1 US$ =Rs. 48.00

31.3.2006 1 US$ = Rs. 49.00

31.7.2006 1 US$ = Rs. 49.50