Indian Accounting Standard (Ind AS) 21

The Effects of Changes in Foreign Exchange

Rates
Contents Paragraph
OBJECTIVE 1-2
SCOPE -!
"E#I$ITIO$S %-1&
E'a(oration on the de)initions *-1&
Functional currency 9-14
Net investment in a foreign operation 15-15A
Monetary items 16
S+,,A-. O# T/E APP-OAC/ -E0+I-E" B. T/IS
STA$"A-" 1!-1*
-EPO-TI$1 #O-EI1$ C+--E$C. T-A$SACTIO$S
I$ T/E #+$CTIO$A2 C+--E$C. 23-!
Initia' recognition 23-22
-eporting at the ends o) su(se4uent reporting periods 2-2&
-ecognition o) e5change di))erences 2!-6
Change in )unctiona' currenc7 8-!
+SE O# A P-ESE$TATIO$ C+--E$C. OT/E- T/A$
T/E #+$CTIO$A2 C+--E$C. %-6*
Trans'ation to the presentation currenc7 %-6
Trans'ation o) a )oreign operation 66-6!
1
"isposa' or partia' disposa' o) a )oreign operation 6%-6*
TA9 E##ECTS O# A22 E9C/A$1E "I##E-E$CES 83
"ISC2OS+-E 81-8!
APPE$"ICES
Appendi5 A: -e)erences to ;atters contained in other Indian Accounting
Standards
Appendi5 B: I''ustrati<e E5a;p'es
Appendi51: Co;parison =ith IAS 21> The Effects of Changes in Foreign
Exchange Rates
2
Indian Accounting Standard (Ind AS) 21
The Effects of Changes in Foreign Exchange
Rates
(This Indian Accounting Standard includes paragraphs set in bold type and plain type,
which have equal authority. Paragraphs in bold type indicate the main principles.)
O(?ecti<e
1 An entity may carry on foreign activities in two ways. It may ave transactions
in )oreign currencies or it may ave )oreign operations. In a!!ition" an entity
may present its financial statements in a foreign currency. #e o$%ective of tis
&tan!ar! is to prescri$e ow to inclu!e foreign currency transactions an! foreign
operations in te financial statements of an entity an! ow to translate financial
statements into a presentation currenc7.
2 #e principal issues are wic e5change rate(s) to use an! ow to report te
effects of canges in e'cange rates in te financial statements.
Scope
This Standard sha'' (e app'ied

(a) in accounting )or transactions and (a'ances in )oreign currencies>
e5cept )or those deri<ati<e transactions and (a'ances that are =ithin
the scope o) Ind AS * Financial Instruments: Recognition and
Measurement@
(() in trans'ating the resu'ts and )inancia' position o) )oreign operations
that are inc'uded in the )inancia' state;ents o) the entit7 (7
conso'idation> proportionate conso'idation or the e4uit7 ;ethod@
and
(c) in trans'ating an entit7As resu'ts and )inancia' position into a
presentation currenc7B
4 In! A& (9 applies to many )oreign currenc7 !erivatives an!" accor!ingly" tese
are e'clu!e! from te scope of tis &tan!ar!. )owever" tose foreign currency
!erivatives tat are not witin te scope of In! A& (9 *eg some foreign currency
!erivatives tat are em$e!!e! in oter contracts+ are witin te scope of tis
&tan!ar!. In a!!ition" tis &tan!ar! applies wen an entity translates amounts
3
relating to !erivatives from its )unctiona' currenc7 to its presentation
currenc7.
5 #is &tan!ar! !oes not apply to e!ge accounting for )oreign currenc7 items" inclu!ing te
e!ging of a net in<est;ent in a )oreign operation. In! A& (9 applies to e!ge
accounting.
5 This Standard app'ies to the presentation o) an entit7As )inancia'
state;ents in a )oreign currenc7 and sets out re4uire;ents )or the resu'ting
)inancia' state;ents to (e descri(ed as co;p'7ing =ith Indian Accounting
StandardsB #or trans'ations o) )inancia' in)or;ation into a )oreign currenc7 that do
not ;eet these re4uire;ents> this Standard speci)ies in)or;ation to (e disc'osedB
6 This Standard does not app'7 to the presentation in a state;ent o) cash
)'o=s o) the cash )'o=s arising )ro; transactions in a )oreign currenc7> or to the
trans'ation o) cash )'o=s o) a )oreign operation (see Ind AS ! Statement of Cash
Flows)B
"e)initions
, The )o''o=ing ter;s are used in this Standard =ith the ;eanings speci)ied:
Closing rate is the spot e5change rate at the end o) the reporting periodB
Exchange difference is the di))erence resu'ting )ro; trans'ating a gi<en
nu;(er o) units o) one currenc7 into another currenc7 at di))erent
e5change ratesB
Exchange rate is the ratio o) e5change )or t=o currenciesB
Fair value is the a;ount )or =hich an asset cou'd (e e5changed> or a
'ia(i'it7 sett'ed> (et=een Cno='edgea('e> =i''ing parties in an ar;As 'ength
transactionB
Foreign currency is a currenc7 other than the )unctiona' currenc7 o) the
entit7B
Foreign oeration is an entit7 that is a su(sidiar7> associate> ?oint <enture
or (ranch o) a reporting entit7> the acti<ities o) =hich are (ased or
conducted in a countr7 or currenc7 other than those o) the reporting entit7B
Functional currency is the currenc7 o) the pri;ar7 econo;ic en<iron;ent
in =hich the entit7 operatesB
A grou is a parent and a'' its su(sidiariesB
Monetary items are units o) currenc7 he'd and assets and 'ia(i'ities to (e
recei<ed or paid in a )i5ed or deter;ina('e nu;(er o) units o) currenc7B
4
!et investment in a foreign oeration is the a;ount o) the reporting entit7As
interest in the net assets o) that operationB
"resentation currency is the currenc7 in =hich the )inancia' state;ents are
presentedB
Sot exchange rate is the e5change rate )or i;;ediate de'i<er7B
E'a(oration on the de)initions
#unctiona' currenc7
- #e primary economic environment in wic an entity operates is normally te
one in wic it primarily generates an! e'pen!s cas. An entity consi!ers te following
factors in !etermining its )unctiona' currenc7.
te
currency.
*i+ tat mainly influences sales prices for goo!s an! services *tis will
often $e te currency in wic sales prices for its goo!s an!
services are !enominate! an! settle!+/ an!
*ii+ of te country wose competitive
forces an! regulations mainly !etermine te sales prices of its
goo!s an! services.
*$+ te currency
tat mainly influences la$our" material an! oter costs of provi!ing goo!s
or services *tis will often $e te currency in wic suc costs are
!enominate! an! settle!+.
9 #e following factors may also provi!e evi!ence of an entity0s )unctiona'
currenc7.
*a+ te currency
in wic fun!s from financing activities *ie issuing !e$t an! e1uity
instruments+ are generate!.
*$+ te currency in wic receipts from operating activities are usually
retaine!.
12 #e following a!!itional factors are consi!ere! in !etermining te )unctiona'
currenc7 of a )oreign operation" an! weter its functional currency is te same as
tat of te reporting entity *te reporting entity" in tis conte't" $eing te entity tat as
te foreign operation as its su$si!iary" $ranc" associate or %oint venture+.
(c) weter te
activities of te foreign operation are carrie! out as an e'tension of te
5
reporting entity" rater tan $eing carrie! out wit a significant !egree of
autonomy. An e'ample of te former is wen te foreign operation only
sells goo!s importe! from te reporting entity an! remits te procee!s to
it. An e'ample of te latter is wen te operation accumulates cas an!
oter monetary items" incurs e'penses" generates income an! arranges
$orrowings" all su$stantially in its local currency.
*!+ weter transactions wit te reporting entity are a ig or a low
proportion of te foreign operation0s activities
*e+ weter cas flows from te activities of te foreign operation !irectly
affect te cas flows of te reporting entity an! are rea!ily availa$le for
remittance to it.
*f+ weter cas flows from te activities of te foreign operation are
sufficient to service e'isting an! normally e'pecte! !e$t o$ligations
witout fun!s $eing ma!e availa$le $y te reporting entity.
11 3en te a$ove in!icators are mi'e! an! te )unctiona' currenc7 is not
o$vious" management uses its %u!gement to !etermine te functional currency tat most
faitfully represents te economic effects of te un!erlying transactions" events an!
con!itions. As part of tis approac" management gives priority to te primary in!icators
in paragrap 9 $efore consi!ering te in!icators in paragraps 12 an! 11" wic are
!esigne! to provi!e a!!itional supporting evi!ence to !etermine an entity0s functional
currency.
14 An entity0s )unctiona' currenc7 reflects te un!erlying transactions" events an!
con!itions tat are relevant to it. Accor!ingly" once !etermine!" te functional currency is
not cange! unless tere is a cange in tose un!erlying transactions" events an!
con!itions.
6 If te functional currency is te currency of a yperinflationary economy" te
entity0s financial statements are restate! in accor!ance wit In! A& 49 inancial
!eporting in "yperin#lationary $conomies. An entity cannot avoi! restatement in
accor!ance wit In! A& 49 $y" for e'ample" a!opting as its functional currency a
currency oter tan te functional currency !etermine! in accor!ance wit tis &tan!ar!
*suc as te functional currency of its parent+.
$et in<est;ent in a )oreign operation
7 An entity may ave a monetary item tat is receiva$le from or paya$le to a
foreign operation. An item for wic settlement is neiter planne! nor li5ely to occur in
te foreseea$le future is" in su$stance" a part of te entity0s net investment in tat
foreign operation" an! is accounte! for in accor!ance wit paragraps (4 an! ((. &uc
monetary items may inclu!e long-term receiva$les or loans. #ey !o not inclu!e tra!e
receiva$les or tra!e paya$les.
15A #e entity tat as a monetary item receiva$le from or paya$le to a foreign
operation !escri$e! in paragrap 15 may $e any su$si!iary of te group. For
6
e'ample" an entity as two su$si!iaries" A an! 6. &u$si!iary 6 is a foreign
operation. &u$si!iary A grants a loan to &u$si!iary 6. &u$si!iary A0s loan
receiva$le from &u$si!iary 6 woul! $e part of te entity0s net investment in
&u$si!iary 6 if settlement of te loan is neiter planne! nor li5ely to occur in te
foreseea$le future. #is woul! also $e true if &u$si!iary A were itself a foreign
operation.

7
,onetar7 ite;s
8 #e essential feature of a monetary item is a rigt to receive *or an o$ligation to
!eliver+ a fi'e! or !etermina$le num$er of units of currency. 7'amples inclu!e. pensions
an! oter employee $enefits to $e pai! in cas/ provisions tat are to $e settle! in cas/
an! cas !ivi!en!s tat are recognise! as a lia$ility. &imilarly" a contract to receive *or
!eliver+ a varia$le num$er of te entity0s own e1uity instruments or a varia$le amount of
assets in wic te fair value to $e receive! *or !elivere!+ e1uals a fi'e! or !etermina$le
num$er of units of currency is a monetary item. 8onversely" te essential feature of a
non-monetary item is te a$sence of a rigt to receive *or an o$ligation to !eliver+ a fi'e!
or !etermina$le num$er of units of currency. 7'amples inclu!e. amounts prepai! for
goo!s an! services *eg prepai! rent+/ goo!will/ intangi$le assets/ inventories/ property"
plant an! e1uipment/ an! provisions tat are to $e settle! $y te !elivery of a non-
monetary asset.
Su;;ar7 o) the approach re4uired (7 this Standard
9 In preparing financial statements" eac entity9weter a stan!-alone entity" an
entity wit foreign operations *suc as a parent+ or a foreign operation *suc as a
su$si!iary or $ranc+9!etermines its functional currency in accor!ance wit
paragraps 9:14. #e entity translates foreign currency items into its functional currency
an! reports te effects of suc translation in accor!ance wit paragraps 42:(, an! 52.
10 Many reporting entities comprise a num$er of in!ivi!ual entities *eg a group is
ma!e up of a parent an! one or more su$si!iaries+. ;arious types of entities" weter
mem$ers of a group or oterwise" may ave investments in associates or %oint ventures.
#ey may also ave $rances. It is necessary for te results an! financial position of
eac in!ivi!ual entity inclu!e! in te reporting entity to $e translate! into te currency in
wic te reporting entity presents its financial statements. #is &tan!ar! permits te
presentation currency of a reporting entity to $e any currency *or currencies+. #e results
an! financial position of any in!ivi!ual entity witin te reporting entity wose functional
currency !iffers from te presentation currency are translate! in accor!ance wit
paragraps (-:52.
11 #is &tan!ar! also permits a stan!-alone entity preparing financial statements or
an entity preparing separate financial statements in accor!ance wit In! A& 4,
%onsolidated and Separate inancial Statements to present its financial statements in
any currency *or currencies+. If te entity0s presentation currency !iffers from its
functional currency" its results an! financial position are also translate! into te
presentation currency in accor!ance wit paragraps (-:52.
8
-eporting )oreign currenc7 transactions in the
)unctiona' currenc7
Initia' recognition
12 A foreign currency transaction is a transaction tat is !enominate! or re1uires
settlement in a foreign currency" inclu!ing transactions arising wen an entity.
*a+ $uys or sells goo!s or services wose price is !enominate! in a foreign
currency/
*$+ $orrows or
len!s fun!s wen te amounts paya$le or receiva$le are !enominate! in
a foreign currency/ or
*c+ oterwise ac1uires or !isposes of assets" or incurs or settles lia$ilities"
!enominate! in a foreign currency.
13 A )oreign currenc7 transaction sha'' (e recorded> on initia' recognition in
the )unctiona' currenc7> (7 app'7ing to the )oreign currenc7 a;ount the spot
e5change rate (et=een the )unctiona' currenc7 and the )oreign currenc7 at the
date o) the transactionB
14 #e !ate of a transaction is te !ate on wic te transaction first 1ualifies for
recognition in accor!ance wit In!ian Accounting &tan!ar!s. For practical reasons" a
rate tat appro'imates te actual rate at te !ate of te transaction is often use!" for
e'ample" an average rate for a wee5 or a mont migt $e use! for all transactions in
eac foreign currency occurring !uring tat perio!. )owever" if e'cange rates fluctuate
significantly" te use of te average rate for a perio! is inappropriate.
-eporting at the ends o) su(se4uent reporting periods
1( At the end o) each reporting period
(a) )oreign
currenc7 ;onetar7 ite;s sha'' (e trans'ated using the c'osing rate@
(b) non-
;onetar7 ite;s that are ;easured in ter;s o) historica' cost in a
)oreign currenc7 sha'' (e trans'ated using the e5change rate at the
date o) the transaction@ and
9
(c) non-
;onetar7 ite;s that are ;easured at )air <a'ue in a )oreign currenc7
sha'' (e trans'ated using the e5change rates at the date =hen the
)air <a'ue =as deter;inedB
24 #e carrying amount of an item is !etermine! in con%unction wit oter relevant
&tan!ar!s. For e'ample" property" plant an! e1uipment may $e measure! in
terms of fair value or istorical cost in accor!ance wit In! A& 16 Property, Plant
and $quipment. 3eter te carrying amount is !etermine! on te $asis of
istorical cost or on te $asis of fair value" if te amount is !etermine! in a
foreign currency it is ten translate! into te functional currency in accor!ance
wit tis &tan!ar!.
45 #e carrying amount of some items is !etermine! $y comparing two or
more amounts. For e'ample" te carrying amount of inventories is te
lower of cost an! net realisa$le value in accor!ance wit In! A& 4
Inventories. &imilarly" in accor!ance wit In! A& (6 Impairment o# Assets"
te carrying amount of an asset for wic tere is an in!ication of
impairment is te lower of its carrying amount $efore consi!ering possi$le
impairment losses an! its recovera$le amount. 3en suc an asset is
non-monetary an! is measure! in a )oreign currenc7" te carrying
amount is !etermine! $y comparing.
*a+ te cost or carrying amount" as appropriate" translate! at te
e5change rate at te !ate wen tat amount was !etermine!
*ie te rate at te !ate of te transaction for an item measure! in
terms of istorical cost+/ an!
*$+ te net realisa$le value or recovera$le amount" as appropriate"
translate! at te e'cange rate at te !ate wen tat value was
!etermine! *eg te c'osing rate at te en! of te reporting
perio!+.
#e effect of tis comparison may $e tat an impairment loss is recognise! in te
)unctiona' currenc7 $ut woul! not $e recognise! in te foreign currency" or vice
versa.
46 3en several e5change rates are availa$le" te rate use! is tat at
wic te future cas flows represente! $y te transaction or $alance
coul! ave $een settle! if tose cas flows a! occurre! at te
measurement !ate. If e'cangea$ility $etween two currencies is
temporarily lac5ing" te rate use! is te first su$se1uent rate at wic
e'canges coul! $e ma!e.
-ecognition o) e5change di))erences
10
4, As note! in paragrap ( *a+ an! 5" In! A& (9 applies to e!ge accounting
for )oreign currenc7 items. #e application of e!ge accounting re1uires
an entity to account for some e5change di))erences !ifferently from te
treatment of e'cange !ifferences re1uire! $y tis &tan!ar!. For
e'ample" In! A& (9 re1uires tat e'cange !ifferences on ;onetar7
ite;s tat 1ualify as e!ging instruments in a cas flow e!ge are
recognise! initially in oter compreensive income to te e'tent tat te
e!ge is effective.
4- E5change di))erences arising on the sett'e;ent o) ;onetar7 ite;s or
on trans'ating ;onetar7 ite;s at rates di))erent )ro; those at =hich
the7 =ere trans'ated on initia' recognition during the period or in
pre<ious )inancia' state;ents sha'' (e recognised in pro)it or 'oss in
the period in =hich the7 arise> e5cept:
(i) e5change di))erences arising on a ;onetar7 ite; that )or;s part
o) a reporting entit7As net in<est;ent in a )oreign operation as
descri(ed in paragraph 2@
(ii) =here an entit7 e5ercises the option pro<ided in paragraph 2*A in
respect o) 'ong-ter; ;onetar7 ite;sB
49 3en ;onetar7 ite;s arise from a )oreign currenc7 transaction an!
tere is a cange in te e'cange rate $etween te transaction !ate an!
te !ate of settlement" an e5change di))erence results. 3en te
transaction is settle! witin te same accounting perio! as tat in wic it
occurre!" all te e'cange !ifference is recognise! in tat perio!.
)owever" wen te transaction is settle! in a su$se1uent accounting
perio!" te e'cange !ifference recognise! in eac perio! up to te !ate
of settlement is !etermine! $y te cange in e5change rates !uring eac
perio!. <aragrap 49A provi!es an option to recognise unrealise!
e'cange !ifferences arising on translation of certain long-term monetary
assets an! long-term monetary lia$ilities from foreign currency to
functional currency.
49A An entity may e'ercise te option in respect of recognition of e'cange
!ifferences arising on translation of long-term monetary items from foreign
currency to functional currency as follows.
*i+ =nrealise! e'cange !ifferences arising on long-term monetary assets
an! long-term-term monetary lia$ilities !enominate! in a foreign currency
sall $e recognise! !irectly in e1uity an! accumulate! in a separate
component of e1uity. #e amount so accumulate! sall $e transferre! to
profit or loss over te perio! of maturity of suc long-term monetary items
in an appropriate manner. #e separate component of e1uity sall $e
!istinguise! from any oter component of e1uity representing any oter
e'cange !ifference recognise! in oter compreensive income an!
accumulate! in e1uity.
11
*ii+ #e option provi!e! in paragrap 49A*i+ is not availa$le for te long-term
monetary assets an! long-term monetary lia$ilities !uring te perio! tey
are classifie! as at fair value troug profit or loss in accor!ance wit In!
A& (9" eiter $ecause tey are el! for tra!ing or $ecause of teir
!esignation as at fair value troug profit or loss.
*iii+ #e option provi!e! in paragrap 49A*i+ sall $e e'ercise! for te first
time wen te e'cange !ifference arising on a long-term monetary asset
or a long-term monetary lia$ility mentione! in paragrap 49A*i+ is
recognise!. #e option" once e'ercise!" sall $e irrevoca$le an! sall $e
e'ercise! in respect of all te long-term monetary assets an! long-term
monetary lia$ilities mentione! in paragrap 49A*i+.
*iv+ For te purpose of tis paragrap" a monetary asset or a monetary
lia$ility sall $e treate! as long-term" if tat asset or lia$ility as a maturity
perio! of twelve monts or more from te !ate of te initial recognition of
tat asset or lia$ility.
(2 Dhen a gain or 'oss on a non-;onetar7 ite; is recognised in other
co;prehensi<e inco;e> an7 e5change co;ponent o) that gain or
'oss sha'' (e recognised in other co;prehensi<e inco;eB
Con<erse'7> =hen a gain or 'oss on a non-;onetar7 ite; is
recognised in pro)it or 'oss> an7 e5change co;ponent o) that gain or
'oss sha'' (e recognised in pro)it or 'ossB
(1 >ter In!ian Accounting &tan!ar!s re1uire some gains an! losses to $e
recognise! in oter compreensive income. For e'ample" In! A& 16
re1uires some gains an! losses arising on a revaluation of property" plant
an! e1uipment to $e recognise! in oter compreensive income. 3en
suc an asset is measure! in a )oreign currenc7" paragrap 4(*c+ of tis
&tan!ar! re1uires te revalue! amount to $e translate! using te rate at
te !ate te value is !etermine!" resulting in an e5change di))erence
tat is also recognise! in oter compreensive income.
(4 E5change di))erences arising on a ;onetar7 ite; that )or;s part o)
a reporting entit7As net in<est;ent in a )oreign operation
(see paragraph 18) sha'' (e recognised in pro)it or 'oss in the
separate )inancia' state;ents o) the reporting entit7 or the indi<idua'
)inancia' state;ents o) the )oreign operation> as appropriateB In the
)inancia' state;ents that inc'ude the )oreign operation and the
reporting entit7 (eg conso'idated )inancia' state;ents =hen the
)oreign operation is a su(sidiar7)> such e5change di))erences sha''
(e recognised initia''7 in other co;prehensi<e inco;e and
rec'assi)ied )ro; e4uit7 to pro)it or 'oss on disposa' o) the net
in<est;ent in accordance =ith paragraph 6%B
12
(( 3en a ;onetar7 ite; forms part of a reporting entity0s net in<est;ent
in a )oreign operation an! is !enominate! in te )unctiona' currenc7 of
te reporting entity" an e5change di))erence arises in te foreign
operation0s in!ivi!ual financial statements in accor!ance wit paragrap
4-. If suc an item is !enominate! in te functional currency of te
foreign operation" an e'cange !ifference arises in te reporting entity0s
separate financial statements in accor!ance wit paragrap 4-. If suc an
item is !enominate! in a currency oter tan te functional currency of
eiter te reporting entity or te foreign operation" an e'cange !ifference
arises in te reporting entity0s separate financial statements an! in te
foreign operation0s in!ivi!ual financial statements in accor!ance wit
paragrap 4-. &uc e'cange !ifferences are recognise! in oter
compreensive income in te financial statements tat inclu!e te foreign
operation an! te reporting entity *ie financial statements in wic te
foreign operation is consoli!ate!" proportionately consoli!ate! or
accounte! for using te e1uity meto!+.
(4 3en an entity 5eeps its $oo5s an! recor!s in a currency oter tan its
)unctiona' currenc7" at te time te entity prepares its financial
statements all amounts are translate! into te functional currency in
accor!ance wit paragraps 42:46. #is pro!uces te same amounts in
te functional currency as woul! ave occurre! a! te items $een
recor!e! initially in te functional currency. For e'ample" ;onetar7 ite;s
are translate! into te functional currency using te c'osing rate" an!
non-monetary items tat are measure! on a istorical cost $asis are
translate! using te e5change rate at te !ate of te transaction tat
resulte! in teir recognition.
Change in )unctiona' currenc7
(5 Dhen there is a change in an entit7As )unctiona' currenc7> the entit7
sha'' app'7 the trans'ation procedures app'ica('e to the ne=
)unctiona' currenc7 prospecti<e'7 )ro; the date o) the changeB
(6 As note! in paragrap 1(" te )unctiona' currenc7 of an entity reflects
te un!erlying transactions" events an! con!itions tat are relevant to te
entity. Accor!ingly" once te functional currency is !etermine!" it can $e
cange! only if tere is a cange to tose un!erlying transactions" events
an! con!itions. For e'ample" a cange in te currency tat mainly
influences te sales prices of goo!s an! services may lea! to a cange in
an entity0s functional currency.
13
(, #e effect of a cange in )unctiona' currenc7 is accounte! for
prospectively. In oter wor!s" an entity translates all items into te new
functional currency using te e5change rate at te !ate of te cange.
#e resulting translate! amounts for non-monetary items are treate! as
teir istorical cost. E5change di))erences arising from te translation of
a )oreign operation previously recognise! in oter compreensive
income in accor!ance wit paragraps (4 an! (9*c+ are not reclassifie!
from e1uity to profit or loss until te !isposal of te operation. 3en te
option provi!e! in paragrap 49A is e'ercise!" e'cange !ifferences
previously recognise! !irectly in e1uity an! accumulate! in a separate
component of e1uity in accor!ance wit tat paragrap are not
transferre! to profit or loss imme!iately on cange of te entity?s
functional currency. #ey sall continue to $e transferre! to profit or loss
in te manner state! in tat paragrapB
14
+se o) a presentation currenc7 other than the )unctiona'
currenc7
Trans'ation to the presentation currenc7
(- An entity may present its financial statements in any currency
*or currencies+. If te presentation currenc7 !iffers from te entity0s
)unctiona' currenc7" it translates its results an! financial position into te
presentation currency. For e'ample" wen a group contains in!ivi!ual
entities wit !ifferent functional currencies" te results an! financial
position of eac entity are e'presse! in a common currency so tat
consoli!ate! financial statements may $e presente!.
(9 The resu'ts and )inancia' position o) an entit7 =hose )unctiona'
currenc7 is not the currenc7 o) a h7perin)'ationar7 econo;7 sha'' (e
trans'ated into a di))erent presentation currenc7 using the )o''o=ing
procedures:
*a+ assets and 'ia(i'ities )or each (a'ance sheet presented
(ie inc'uding co;parati<es) sha'' (e trans'ated at the c'osing
rate at the date o) that (a'ance sheet@
*$+ inco;e and e5penses )or each state;ent o) pro)it and 'oss
presented (ie inc'uding co;parati<es) sha'' (e trans'ated at
e5change rates at the dates o) the transactions@ and
*c+ a'' resu'ting e5change di))erences sha'' (e recognised in
other co;prehensi<e inco;eB
42 For practical reasons" a rate tat appro'imates te e5change rates at te
!ates of te transactions" for e'ample an average rate for te perio!" is
often use! to translate income an! e'pense items. )owever" if e'cange
rates fluctuate significantly" te use of te average rate for a perio! is
inappropriate.
41 #e e5change di))erences referre! to in paragrap (9*c+ result from.
(a) translating income an! e'penses at te e5change rates at te !ates of
te transactions an! assets an! lia$ilities at te c'osing rate.
*$+ translating te opening net assets at a closing rate tat !iffers from te
previous closing rate.
#ese e'cange !ifferences are not recognise! in profit or loss $ecause te
canges in e'cange rates ave little or no !irect effect on te present an! future
cas flows from operations. #e cumulative amount of te e'cange !ifferences
is presente! in a separate component of e1uity until !isposal of te foreign
operation. 3en te e'cange !ifferences relate to a foreign operation tat is
consoli!ate! $ut not wolly-owne!" accumulate! e'cange !ifferences arising
15
from translation an! attri$uta$le to non-controlling interests are allocate! to" an!
recognise! as part of" non-controlling interests in te consoli!ate! $alance seet.
44 The resu'ts and )inancia' position o) an entit7 =hose )unctiona'
currenc7 is the currenc7 o) a h7perin)'ationar7 econo;7 sha'' (e
trans'ated into a di))erent presentation currenc7 using the )o''o=ing
procedures:
(a) a'' a;ounts (ie assets> 'ia(i'ities> e4uit7 ite;s>
inco;e and e5penses> inc'uding co;parati<es) sha'' (e trans'ated at
the c'osing rate at the date o) the ;ost recent (a'ance sheet> e5cept
that
(b) =hen a;ounts are trans'ated into the currenc7 o)
a non-h7perin)'ationar7 econo;7> co;parati<e a;ounts sha'' (e
those that =ere presented as current 7ear a;ounts in the re'e<ant
prior 7ear )inancia' state;ents (ie not ad?usted )or su(se4uent
changes in the price 'e<e' or su(se4uent changes in e5change
rates)B
4( Dhen an entit7As )unctiona' currenc7 is the currenc7 o) a
h7perin)'ationar7 econo;7> the entit7 sha'' restate its )inancia'
state;ents in accordance =ith Ind AS 2* (e)ore app'7ing the
trans'ation ;ethod set out in paragraph 62> e5cept )or co;parati<e
a;ounts that are trans'ated into a currenc7 o) a non-
h7perin)'ationar7 econo;7 (see paragraph 62(())B Dhen the
econo;7 ceases to (e h7perin)'ationar7 and the entit7 no 'onger
restates its )inancia' state;ents in accordance =ith Ind AS 2*>
it sha'' use as the historica' costs )or trans'ation into the
presentation currenc7 the a;ounts restated to the price 'e<e' at the
date the entit7 ceased restating its )inancia' state;entsB
Trans'ation o) a )oreign operation
44 <aragraps 45:4," in a!!ition to paragraps (-:4(" apply wen te
results an! financial position of a )oreign operation are translate! into a
presentation currenc7 so tat te foreign operation can $e inclu!e! in
te financial statements of te reporting entity $y consoli!ation"
proportionate consoli!ation or te e1uity meto!.
16
45 #e incorporation of te results an! financial position of a )oreign
operation wit tose of te reporting entity follows normal consoli!ation
proce!ures" suc as te elimination of intragroup $alances an! intragroup
transactions of a su$si!iary *see In! A& 4, an! In! A& (1 Interests in
&oint 'entures+. )owever" an intragroup monetary asset *or lia$ility+"
weter sort-term or long-term" cannot $e eliminate! against te
correspon!ing intragroup lia$ility *or asset+ witout sowing te results of
currency fluctuations in te consoli!ate! financial statements. #is is
$ecause te ;onetar7 ite; represents a commitment to convert one
currency into anoter an! e'poses te reporting entity to a gain or loss
troug currency fluctuations. Accor!ingly" in te consoli!ate! financial
statements of te reporting entity" suc an e5change di))erence is
recognise! in profit or loss or" if it arises from te circumstances
!escri$e! in paragrap (4" it is recognise! in oter compreensive
income an! accumulate! in a separate component of e1uity until te
!isposal of te foreign operation. 3en te option provi!e! in paragrap
49A is e'ercise!" in te consoli!ate! financial statements of te reporting
entity" suc an e'cange !ifference is !irectly recognise! in e1uity an!
!ispose! of in te manner prescri$e! in tat paragrap.
46 3en te financial statements of a )oreign operation are as of a !ate
!ifferent from tat of te reporting entity" te foreign operation often
prepares a!!itional statements as of te same !ate as te reporting
entity0s financial statements. 3en tis is not !one" In! A& 4, allows te
use of a !ifferent !ate provi!e! tat te !ifference is no greater tan tree
monts an! a!%ustments are ma!e for te effects of any significant
transactions or oter events tat occur $etween te !ifferent !ates. In
suc a case" te assets an! lia$ilities of te foreign operation are
translate! at te e5change rate at te en! of te reporting perio! of te
foreign operation. A!%ustments are ma!e for significant canges in
e'cange rates up to te en! of te reporting perio! of te reporting entity
in accor!ance wit In! A& 4,. #e same approac is use! in applying te
e1uity meto! to associates an! %oint ventures an! in applying
proportionate consoli!ation to %oint ventures in accor!ance wit In! A& 4-
Investments in Associates an! In! A& (1.
4, An7 good=i'' arising on the ac4uisition o) a )oreign operation and
an7 )air <a'ue ad?ust;ents to the carr7ing a;ounts o) assets and
'ia(i'ities arising on the ac4uisition o) that )oreign operation sha'' (e
treated as assets and 'ia(i'ities o) the )oreign operationB Thus the7
sha'' (e e5pressed in the )unctiona' currenc7 o) the )oreign
operation and sha'' (e trans'ated at the c'osing rate in accordance
=ith paragraphs * and 62B
"isposa' or partia' disposa' o) a )oreign operation
17
4- On the disposa' o) a )oreign operation> the cu;u'ati<e a;ount o) the
e5change di))erences re'ating to that )oreign operation> recognised
in other co;prehensi<e inco;e and accu;u'ated in the separate
co;ponent o) e4uit7> sha'' (e rec'assi)ied )ro; e4uit7 to pro)it or
'oss (as a rec'assi)ication ad?ust;ent) =hen the gain or 'oss on
disposa' is recognised (see Ind AS 1 "resentation of Financial
Statements)B
4-A In a!!ition to te !isposal of an entity0s entire interest in a foreign operation" te
following are accounte! for as !isposals even if te entity retains an interest in
te former su$si!iary" associate or %ointly controlle! entity.
te loss of control of a su$si!iary tat inclu!es a
foreign operation/
*$+ te loss of significant influence over an associate tat
inclu!es a foreign operation/ an!
*c+ te loss of %oint control over a %ointly controlle! entity
tat inclu!es a foreign operation.
4-6 >n !isposal of a su$si!iary tat inclu!es a foreign operation" te cumulative
amount of te e'cange !ifferences relating to tat foreign operation tat ave
$een attri$ute! to te non-controlling interests sall $e !erecognise!" $ut sall
not $e reclassifie! to profit or loss.
6%C On the partia' disposa' o) a su(sidiar7 that inc'udes a )oreign operation> the
entit7 sha'' re-attri(ute the proportionate share o) the cu;u'ati<e a;ount o)
the e5change di))erences recognised in other co;prehensi<e inco;e to the
non-contro''ing interests in that )oreign operationB In an7 other partia'
disposa' o) a )oreign operation the entit7 sha'' rec'assi)7 to pro)it or 'oss
on'7 the proportionate share o) the cu;u'ati<e a;ount o) the e5change
di))erences recognised in other co;prehensi<e inco;eB
4-@ A partial !isposal of an entity0s interest in a foreign operation is any re!uction in
an entity0s ownersip interest in a foreign operation" e'cept tose re!uctions in
paragrap 4-A tat are accounte! for as !isposals.
49 An entity may !ispose or partially !ispose of its interest in a foreign operation
troug sale" li1ui!ation" repayment of sare capital or a$an!onment of all" or part of"
tat entity. A write-!own of te carrying amount of a foreign operation" eiter $ecause of
its own losses or $ecause of an impairment recognise! $y te investor" !oes not
constitute a partial !isposal. Accor!ingly" no part of te foreign e'cange gain or loss
recognise! in oter compreensive income is reclassifie! to profit or loss at te time of a
write-!own.
Ta5 e))ects o) a'' e5change di))erences
18
52 Aains an! losses on )oreign currenc7 transactions an! e5change
di))erences arising on translating te results an! financial position of an
entity *inclu!ing a )oreign operation+ into a !ifferent currency may ave
ta' effects. In! A& 14 Income Ta(es applies to tese ta' effects.
"isc'osure
51 In paragraphs 8 and 88E8! re)erences to F)unctiona' currenc7A app'7> in the
case o) a group> to the )unctiona' currenc7 o) the parentB
54 An entit7 sha'' disc'ose:
(a) the a;ount o) e5change di))erences recognised in pro)it or 'oss
e5cept )or those arising on )inancia' instru;ents ;easured at )air
<a'ue through pro)it or 'oss in accordance =ith Ind AS *@
(b) net e5change di))erences recognised in other co;prehensi<e
inco;e and accu;u'ated in a separate co;ponent o) e4uit7> and a
reconci'iation o) the a;ount o) such e5change di))erences at the
(eginning and end o) the period@ and
(c) net e5change di))erences recognised direct'7 in e4uit7 and
accu;u'ated in a separate co;ponent o) e4uit7 in accordance =ith
paragraph 2*A> and a reconci'iation o) the a;ount o) such e5change
di))erences at the (eginning and end o) the periodB
5( Dhen the presentation currenc7 is di))erent )ro; the )unctiona' currenc7>
that )act sha'' (e stated> together =ith disc'osure o) the )unctiona' currenc7 and
the reason )or using a di))erent presentation currenc7B
54 Dhen there is a change in the )unctiona' currenc7 o) either the reporting
entit7 or a signi)icant )oreign operation> that )act> the reason )or the change in
)unctiona' currenc7 and the date o) change in )unctiona' currenc7 sha'' (e
disc'osedB
55 Dhen an entit7 presents its )inancia' state;ents in a currenc7 that is
di))erent )ro; its )unctiona' currenc7> it sha'' descri(e the )inancia' state;ents as
co;p'7ing =ith Indian Accounting Standards on'7 i) the7 co;p'7 =ith a'' the
re4uire;ents o) each app'ica('e Standard inc'uding the trans'ation ;ethod set out
in paragraphs * and 62B
56 An entity sometimes presents its financial statements or oter financial
information in a currency tat is not its functional currency witout meeting te
re1uirements of paragrap 55. For e'ample" an entity may convert into anoter currency
only selecte! items from its financial statements. >r" an entity wose functional currency
is not te currency of a yperinflationary economy may convert te financial statements
into anoter currency $y translating all items at te most recent closing rate. &uc
conversions are not in accor!ance wit In!ian Accounting &tan!ar!s an! te !isclosures
set out in paragrap 5, are re1uire!.
19
5, Dhen an entit7 disp'a7s its )inancia' state;ents or other )inancia'
in)or;ation in a currenc7 that is di))erent )ro; either its )unctiona' currenc7 or its
presentation currenc7 and the re4uire;ents o) paragraph 88 are not ;et> it sha'':
(a) c'ear'7 identi)7 the in)or;ation as supp'e;entar7 in)or;ation to
distinguish it )ro; the in)or;ation that co;p'ies =ith Indian
Accounting Standards@
(() disc'ose the currenc7 in =hich the supp'e;entar7 in)or;ation is
disp'a7ed@ and
(c) disc'ose the entit7As )unctiona' currenc7 and the ;ethod
o) trans'ation used to deter;ine the supp'e;entar7 in)or;ationB
20
Appendi5 A
-e)erences to ;atters contained in other Indian
Accounting Standards
This Appendi( is an integral part o# Indian Accounting Standard )*
#is appen!i' lists te appen!i' wic is a part of anoter In!ian Accounting &tan!ar!
an! ma5es reference to In! A& 41" The $##ects o# %hanges in oreign $(change !ates.
1. Appen!i' @ "edges o# a +et Investment in a oreign ,peration containe! in In!
A& (9" inancial instruments- !ecognition and .easurement ma5es reference
to tis &tan!ar! also.
21
Appendi5 B
This Appendi( accompanies, but is not part o# Ind AS )*.
E5a;p'e i''ustrating paragraph 16
7ntity < as a su$si!iary 7ntity &. Functional currencies of 7ntities < an! & !etermine!
in accor!ance wit In! A& 41 are Bupee an! 8= respectively. Furter" currency 8= is
!etermine! as currency of a yperinflationary economy witin te meaning of In! A& 49.
#e financial statements of 7ntity & soul! $e restate! in accor!ance wit In! A& 49.
#is re1uirement cannot $e avoi!e!" for e'ample" $y a!opting Bupee as te functional
currency of 7ntity &.
E5a;p'e i''ustrating i;pair;ent 'oss in paragraph 28
7ntity A0s functional currency is Bupee. It as a $uil!ing locate! in =& ac1uire! at a cost
of =&C 12"222 wen te e'cange rate was =&C 1DBs.52. #e $uil!ing is carrie! at cost
in te financial statements of 7ntity A. For te purpose of tis e'ample !epreciation is
ignore!. At te $alance seet !ate" tere is an in!ication of impairment for tis $uil!ing.
8onse1uently" an impairment test as $een ma!e in accor!ance wit In! A& (6 as at
te $alance seet !ate an! te recovera$le amount of te $uil!ing is !etermine! to $e
=&C 9"522. #e e'cange rate as at te $alance seet !ate is =&C 1DBs.5(.

Bs.
8ost translate! at te e'cange rate on te !ate of ac1uisition-
=&C12"222 EBs.52 per =&C
522"222
Becovera$le amount translate! at te e'cange rate on te $alance
seet !ate-=&C9"522 E Bs.5( per =&C
52("522
#oug tere is an impairment loss of =&C 522 *=&C12"222-=&C9"522+ in terms of
foreign currency" tere is no impairment loss in terms of functional currency. #is is
$ecause" recovera$le amount in terms of functional currency *Bs.52("522+ e'cee!s
carrying amount *ie cost in tis e'ample+ in terms of functional currency *Bs.522"222+.
)ence" no impairment loss is recognise! for te $uil!ing.
E5a;p'e i''ustrating paragraph
7ntity < as a foreign su$si!iary 7ntity &1. #e functional currencies of 7ntities < an!
&1 are Bupee an! =&C respectively. 6ot te entities follow financial year as accounting
year. Accounting Fear of $ot te entities en!s on Marc (1. #e presentation currency
for 7ntity <0s separate as well as consoli!ate! financial statements is Bupee.
In all te following situations" it is assume! tat te loan forms part of te entity0s net
investment in te foreign operation.
22
Situation *-
7ntity &1 owes to 7ntity < =&C1"222 towar!s a loan o$taine! some years $ac5.
7'cange rates as at (1 Marc 42G2 an! (1 Marc 42G1 were =&C 1DBs.4- an! =&C
1DBs.52 respectively.
In te a$ove situation" in te in!ivi!ual financial statements of 7ntity &1" no e'cange
!ifference arises on te loan since it is !enominate! in its own functional currency.
In te separate financial statements of 7ntity <" an e'cange gain of Bs.4"222 arises as
sown $elow.
Bs.
Hoan asset of =&C1"222 translate!
E e'cange rate as at (1 Marc 42G1*Bs.52 per =&C+ 52"222
E e'cange rate as at (1 Marc 42G2*Bs.4- per =&C+ 4-"222
7'cange gain 4"222
In te consoli!ate! financial statements of 7ntity <" te e'cange gain of Bs.4"222 will
$e recognise! in oter compreensive income an! accumulate! in e1uity.
Situation )-
7ntity &1 owes to 7ntity < Bs. 4-"222 towar!s a loan o$taine! some years $ac5. For te
purpose of tis e'ample" it is assume! tat te use of te average e'cange rate
provi!es a relia$le appro'imation of te spot rates !uring te year. 7'cange rates as at
(1 Marc 42G2 an! (1 Marc 42G1 were =&C 1DBs.4- an! =&C 1DBs.52 respectively.
Average e'cange rate !uring te financial year en!ing (1 Marc 42G1 was =&C
1DBs.49.
In te a$ove situation" in te separate financial statements of 7ntity <" no e'cange
!ifference arises on te loan since it is !enominate! in its own functional currency.
In te in!ivi!ual financial statements of 7ntity &1" an e'cange gain of =&C42 arises as
sown $elow.
=&C
Hoan lia$ility of Bs.4-"222 translate!
E e'cange rate as at (1 Marc 42G1*Bs.52 per =&C+ 962
E e'cange rate as at (1 Marc 42G2*Bs.4- per =&C+ 1"222
7'cange gain 42
After translating te financial statements of 7ntity &1 into Bupees in accor!ance wit
paragraps (--4, of In! A& 41" in te consoli!ate! financial statements of 7ntity <" te
e'cange gain in terms of Bupee correspon!ing to =&C42 i.e. Bs.1"962 *=&C42 E
Bs.49+0 will $e recognise! in oter compreensive income an! accumulate! in e1uity.
Situation /-
23
7ntity &1 owes to 7ntity < I1"222 towar!s a loan o$taine! some years $ac5.
$(change rates-
As at (1 Marc 42G2 As at (1 Marc 42G1
I1DBs.62
I1D=&C1.(
I1DBs.61
I1D=&C.1.4
Average e'cange rate $etween =&C an! Bupee !uring te financial year en!ing (1
Marc 42G1 was =&C 1D Bs.45. For te purpose of tis e'ample" it is assume! tat te
use of te average e'cange rate provi!es a relia$le appro'imation of te spot rates
!uring te year.
In te separate financial statements of 7ntity <" an e'cange gain of Bs.1"222 arises as
sown $elow.
Bs.
Hoan asset of I1"222 translate!
E e'cange rate as at (1 Marc 42G1*Bs.61 per
I+
61"222
E e'cange rate as at (1 Marc 42G2*Bs.62 per
I+
62"222
7'cange gain 1"222
In te consoli!ate! financial statements of 7ntity <" te e'cange gain of Bs.1"222 will
$e recognise! in oter compreensive income an! accumulate! in e1uity.
In te in!ivi!ual financial statements of 7ntity &1" an e'cange loss of =&C122 arises as
sown $elow.
=&C
Hoan lia$ility of I1"222 translate!
E e'cange rate as at (1 Marc 42G1*=&C1.4 per
I+
1"422
E e'cange rate as at (1 Marc 42G2*=&C1.( per
I+
1"(22
7'cange loss 122
After translating te financial statements of 7ntity &1 into Bupees in accor!ance wit
paragraps (--4, of In! A& 41" in te consoli!ate! financial statements of 7ntity <" te
e'cange loss in terms of Bupee correspon!ing to =&C122 ie Bs.4"522 *=&C122 E
Bs.45+ will $e recognise! in oter compreensive income an! accumulate! in e1uity.
E5a;p'e i''ustrating paragraph !
24
Bigt from inception" 7ntity A0s functional currency as $een Bupee. It as one foreign
operation wit 7uro as its functional currency. As a result of cange in circumstances
affecting te operations of te entity" te management !etermines tat wit effect from 1
January 42G1" te entity0s functional currency will $e =&C. #e e'cange rate on tat
!ate is =&C 1DBs.52. >n tat !ate" te carrying amount of inventories carrie! at cost in
terms of previous functional currency is Bs.122"222. #e entity as previously
recognise! in oter compreensive income e'cange !ifferences arising on translation
of its foreign operation an! accumulate! in e1uity as Foreign 8urrency #ranslation
Beserve *KF8#B0+. #e accumulate! F8#B as at 1 January 42G1 in terms of te
previous functional currency is Bs.52"222. #ere is no cange in te functional currency
of te foreign operation. #e entity follows calen!ar year as accounting year.
7ntity A sall apply te translation proce!ures applica$le to te new functional currency
ie =&C prospectively from te !ate of cange in functional currency. Accor!ingly" all
items in its $alance seet as at 1 January 42G1 are translate! into =&C at te e'cange
rate of =&C 1DBs.52.
#e carrying amount of te inventories as at 1 January 42G1 in terms of te new
functional currency will $e =&C4"222 *Bs.122"222 translate! E Bs.52 per =&C+.
=&C4"222 will $e te istorical cost of te inventories. #is will $e so even if te
inventories were ac1uire! prior to 1 January 42G1.
#e accumulate! F8#B as at 1 January 42G1 in terms of te new functional currency
will $e =&C1"222 *Bs.52"222 translate! E Bs.52 per =&C+. #is amount is not
reclassifie! from e1uity to profit or loss until te !isposal of te foreign operation.
25
Appendi5 1
+ote- This Appendi( is not a part o# the Indian Accounting Standard. The purpose o#
this Appendi( is only to bring out the di##erences between Indian Accounting Standard
(Ind AS) )* and the corresponding International Accounting Standard (IAS) )*, The
$##ects o# %hanges in oreign $(change !ates.
Co;parison =ith IAS 21> The Effects of Changes in Foreign
Exchange Rates
1 #e transitional provisions given in IA& 41 ave not $een given in te In! A& 41"
since all transitional provisions relate! to In!ian A&s" werever consi!ere!
appropriate" ave $een inclu!e! in In! A& 121" irst0time Adoption o# Indian
Accounting Standards correspon!ing to IFB& 1" irst0time Adoption o#
International inancial !eporting Standards.
2 In! A& 41 permits an option to recognise e'cange !ifferences arising on
translation of certain long-term monetary items from foreign currency to functional
currency !irectly in e1uity. In tis situation" In! A& 41 re1uires te accumulate!
e'cange !ifferences to $e transferre! to profit or loss in an appropriate manner.
IA& 41 !oes not permit suc a treatment. 8onse1uentially a new paragrap 49A
as $een a!!e! in In! A& 41 as compare! to IA& 41.
3 8onse1uent to te optional treatment prescri$e! for some e'cange !ifferences
*as mentione! in 4 a$ove+" an a!!itional !isclosure as $een a!!e! in paragrap
54 of In! A& 41.
4 Appen!i' containing e'amples illustrating application of paragraps 14" 45" (( an!
(, ave $een a!!e! in In! A& 41.
5 3en tere is a cange in functional currency of eiter te reporting currency or a
significant foreign operation" IA& 41 re1uires !isclosure of tat fact an! te reason
for te cange in functional currency. In! A& 41 re1uires an a!!itional !isclosure of
te !ate of cange in functional currency.
6 @ifferent terminology is use! in tis &tan!ar! e.g." te term F$alance seet0 is use!
instea! of K&tatement of financial position0.
26
27