This Standard does not apply to hedge accounting for foreign currency items, including the hedging of a net investment in a foreign operation. Ind AS 109 applies to hedge accounting. This Standard does not apply to the presentation in a statement of cash flows of the cash flows arising from transactions in a foreign currency, or to the translation of cash flows of a foreign operation (Ind AS 7, Statement of Cash Flows). This Standard does not also apply to long-term foreign currency monetary items for which an entity has opted for the exemption given in paragraph D13AA of Appendix D to Ind AS 101. Such an entity may continue to apply the accounting policy so opted for such long-term foreign currency monetary items.
List of other IndAS
Functional currency
Functional currency is the currency of the primary economic environment in which the entity operates. The primary economic environment in which an entity operates is normally the one in which it primarily generates and An entity considers the following factors in determining its functional currency:
the currency: that mainly influences sales prices for goods and services (this will often be the currency in which sales prices for its goods and services are denominated and settled); and of the country whose competitive forces and regulations mainly determine the sales prices of its goods and the currency that mainly influences labour, material and other costs of providing goods or services (this will often be the currency in which such costs are denominated and settled).
If the functional currency is the currency of a hyperinflationary economy, the entity’s financial statements are restated in accordance with Ind AS 29, Financial Reporting in Hyperinflationary Economies.
Reporting foreign currency transactions in the functional currency
Foreign currency is a currency other than the functional currency of the entity. Spot exchange rate is the exchange rate for immediate delivery. Exchange difference is the difference resulting from translating a given number of units of one currency into another currency at different exchange rates. Net investment in a foreign operation is the amount of the reporting entity’s interest in the net assets of that operation. A foreign currency transaction shall be recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period:
foreign currency monetary items shall be translated using the closing rate;non-monetary items that are measured in terms of historical cost in a foreign currency shall be translated using the exchange rate at the date of the transaction; andnon-monetary items that are measured at fair value in a foreign currency shall be translated using the exchange rates at the date when the fair value was.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognised in profit or loss in the period in which they arise. However, Exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation (see paragraph 15) shall be recognised in profit or loss in the separate financial statements of the reporting entity or the individual financial statements of the foreign operation, as appropriate. In the financial statements that include the foreign operation and the reporting entity (eg consolidated financial statements when the foreign operation is a subsidiary), such exchange differences shall be recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment. Furthermore, when a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss shall be recognised in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss shall be recognised in profit or loss. When there is a change in an entity’s functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change.
Translation to the presentation currency / Translation of a foreign operation
An entity may present its financial statements in any currency (or currencies). For this purpose, an entity could be a stand-alone entity, a parent preparing consolidated financial statements or a parent, an investor or a venturer preparing separate financial statements in accordance with Ind AS 27, Separate Financial Statements. If the presentation currency differs from the entity’s functional currency, it translates its results and financial position into the presentation currency. For example, when a group contains individual entities with different functional currencies, the results and financial position of each entity are expressed in a common currency so that consolidated financial statements may be presented. The results and financial position of an entity whose functional currency is not the currency of a hyper inflationary economy shall be translated into a different presentation currency using the following procedures:
assets and liabilities for each balance sheet presented (ie including comparatives) shall be translated at the closing rate at the date of that balance sheet;income and expenses for each statement of profit and loss presented (ie including comparatives) shall be translated at exchange rates at the dates of the transactions; andall resulting exchange differences shall be recognised in other comprehensive
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operation. Foreign operation is an entity that is a subsidiary, associate, joint arrangement or branch of a reporting entity. On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognised in other comprehensive income and accumulated in the separate component of equity, shall be reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss on disposal is recognised (Ind AS 1, Presentation of Financial Statements). On the partial disposal of a subsidiary that includes a foreign operation, the entity shall re-attribute the proportionate share of the cumulative amount of the exchange differences recognised in other comprehensive income to the non-controlling interests in that foreign operation. In any other partial disposal of a foreign operation the entity shall reclassify to profit or loss only the proportionate share of the cumulative amount of the exchange differences recognised in other comprehensive income.
Difference Between IndAS 21 and AS 11
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Reporting currency: The currency in which the financial statements are presented Foreign Currency: It is the currency other than reporting currency.
Similarly, a transaction in functional currency will have to be converted into presentation currency (In case functional and presentation currency are different) However, in Ind AS 21, the factors to be considered in determining an entity’s functional currency are similar to the indicators in existing AS 11 to identify non-integral foreign operations. As a result, despite the difference in the terminology used, there are no substantive differences in respect of accounting of a foreign operation.
If the exchange difference relate to acquisition of depreciable capital asset, they can be adjusted in the cost of the asset and thereby depreciated over the balance life of asset. If the exchange difference relate to the acquisition of a non-depreciable capital asset, then it can be accumulated in a “Foreign Currency Monetary Item Translation Difference Account” in the enterprise’s financial statements and amortized over the balance period of such long-term asset/ liability, by recognition as income or expense in each of such periods, but not beyond 31st March, 2020.
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