IND AS VS AS

INDEX

Decoding of differences Between Ind

AS- 21 & AS-11

Brief About Ind AS-21

DECODING OF DIFFERENCES

Ind AS 21 AS 11

Ind AS 21 excludes from its scope forward

exchange contracts and other similar

financial instruments, which are treated in

accordance with Ind AS 39 Financial

Instruments: Recognition and Measurement.

AS 11 does not such exclude accounting for

such contracts.

Ind AS 21 is based on functional currency

approach.

Existing AS 11 is not based on functional

currency approach.

Ind AS 21 is based on the functional

currency approach. 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 determine

the foreign operations as non-integral foreign

operations. As a result, despite the difference

in the term, there are no substantive

differences in respect of accounting of a

foreign operation.

The existing AS 11 is based on integral

foreign operations and non-integral foreign

operations approach for accounting for a

foreign operation.

Ind AS 21 AS 11

Presentation currency can be different from

local currency.

Does not explicitly state so.

Permits an option to recognize exchange

differences arising on translation of certain

long-term monetary items from foreign

currency to functional currency directly in

equity. In this situation, Ind AS 21 requires

the accumulated exchange differences to be

transferred to profit or loss in an appropriate

manner or we can say over the period of

maturity of long term monetary items.

Does not permit such a treatment. but

Gives an option to the foreign currency gains

and losses to recognize exchange differences

arising on translation of certain long-term

monetary items from foreign currency to

functional currency directly in equity to be

transferred to profit or loss over the life of the

relevant liability/asset if such items are not

related to acquisition of fixed assets up to

31st March 2011; where such items are

related to acquisition of fixed assets, the

foreign exchange differences can be

recognized as part of the cost of the asset.

BRIEF ABOUT IND AS-21

SCOPE

•Foreign Currency Transactions

Accounting for Transactions and Balances in Foreign Currencies

Exception: Derivative Transactions and Balances (including Hedge Accounting)

within the Scope of IND AS 39

•Foreign Operations

Translating the Financial Statements of FOREIGN OPERATIONS included in the

FS of entity by Consolidation, Proportionate Consolidation or the Equity Method.

•Presentation of FS in Presentation Currency

Translating an Entity’s FS into a Presentation Currency.

IMPORTANT DEFINITIONS

Foreign Currency

Currency other than ‘functional currency.

Spot Exchange Rate

The ‘exchange rate’ for immediate delivery.

Monetary items

Units of currency held and assets and liabilities to be received or paid in a

fixed or determinable number of units of currency.

Presentation Currency

Currency in which financial statements are prepared.

CONCEPT OF FUNCTIONAL CURRENCY

Currency of the ‘PRIMARY ECONOMIC ENVIRONMENT’ in which the Entity operates.

Primary Economic Environment is normally the one in which the

Entity PRIMARILY GENERATES AND EXPENDS CASH.

INDICATORS TO DETERMINE THE

FUNCTIONAL CURRENCY :-

Primary Indicators

The Currency that determines the Sales prices of its goods and

services and Operating Costs.

Secondary Indicators

Currency of Generation of Funds from Financing Activities – Issue of

Debt and Equity Instruments & Currency of Retention of Receipts from

Operating Activities.

Additional Indicators to determine functional currency of foreign

operation :-

Autonomy – Activities of Foreign Operation are Extension of the

Reporting Entity or carried with a Significant Degree of Autonomy.

Volume of Transactions with the Reporting Entity

Impact of Cash Flows of Foreign Operation on the Reporting Entity.

Ability to service Debt Obligations without fund being made available

by reporting entity.

CHANGE IN FUNCTIONAL CURRENCY

FUNCTIONAL CURRENCY is

Used CONSISTENTLY

NOT Changed unless there is a Change in Underlying Transactions, Events

and Conditions (primary economic environment)

If Changed, then apply TRANSLATION procedures PROSPECTIVELY.

INITIAL RECOGNITION OF FOREIGN

CURRENCY TRANSACTION

SPOT EXCHANGE RATE * FOREIGN CURRENCY

# SPOT EXCHANGE RATE IS ON DATE OF TRANSACTION.

# EXCHANGE RATE IS BETWEEN FUNCTIONAL CURRENCY & FOREIGN

CURRECY.

SUBSEQUENT MEASUREMENT OF

FOREIGN CURRENCY TRANSACTIONS

Item Translation Rate Recognition of

Exchange Differences

on Settlement or

Translation

Monetary Items Closing Rate on

Balance Sheet Date

To Profit or Loss

Non-Monetary Items at

Historical Cost

Rate as at Date of

Transaction

Equity : If Gain or Loss

is recognized in Equity.

PL : If Gain or Loss is

recognized in PL

Non-Monetary Items at

Fair Value

Rate as at Date of Fair

Value Determination

Equity : If Gain or Loss

is recognized in Equity.

PL : If Gain or Loss is

recognized in PL

Entity can also avail option given under Para 29A in respect to long term

monetary items.

PARA 29A-OPTION IN RESPECT OF

RECOGNITION OF EXCHANGE

DIFFERENCE ARISING ON

TRANSLATION OF LONG TERM

MONETARY ITEMS

Unrealized exchange difference arising on long term monetary assets and long

term monetary liabilities denominated in foreign currency shall be recognized

directly in equity and accumulated in separate component of equity.

The amount so accumulated shall be transferred to profit & loss account over

the period of maturity of long term monetary items.

The separate component of equity shall be distinguished from any other

component of equity representing any other exchange difference recognized in

other comprehensive income & accumulated in equity.

FOREIGN OPERATION TRANSLATION

TO PRESENTATION CURRENCY

Items Translation Rate Recognition of

Exchange

Difference

Assets and Liabilities

(including

Comparatives)

Closing Rate on

Balance

Sheet Date

As a Separate

Component of Equity.

Income and Expenses

(including

Comparatives)

Exchange Rate at the

date

of the transaction #

As a Separate

Component of Equity.

Exception to above rule for an entity whose functional currency is the

currency of a hyperinflationary economy in this case, the entity shall

restate its financial statement accordance with Ind AS-29 before applying

translation method prescribed above.

# Average Rate is permitted, if the exchange rates don’t fluctuate significantly.

CONTD…

On disposal of foreign operations, cumulative amount of foreign

exchange difference recognized in comprehensive income and

accumulated in separate component of equity, shall be reclassified from

equity to profit & loss when the gain or loss on disposal is recognized.

DISCLOSURES

The amount of Exchange Differences recognized in P&L except for those

arising on Financial Instruments measured at Fair Value through P & L (IAS 39).

Net exchange differences classified as a separate component of equity, and

a reconciliation of the amount of such exchange differences at the beginning

and end of the period.

Net exchange differences classified as a separate component of equity in

accordance with Para 29A and a reconciliation of the amount of such exchange

differences at the beginning and end of the period.

When presentation currency is different from functional currency, fact should

be stated, together with disclosure of functional currency & the reason of using

a different presentation currency.

when there is change in functional currency of either reporting entity or

foreign operation , the fact ,the reason for change in functional currency and

date of change.

CA UMESH SHARMA

+91-7206253453 , 7838003554

CHARTEREDUMESH@GMAIL.COM