TaxTMI 
TaxTMI 
The Effects of Changes in Foreign Exchange Rates
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....nsactions and balances that are within the scope of Ind AS 109, Financial Instruments; (b) in translating the results and financial position of foreign operations that are included in the financial statements of the entity by consolidation or the equity method; and (c) in translating an entity's results and financial position into a presentation currency. 4 Ind AS 109 applies to many foreign currency derivatives and, accordingly, these are excluded from the scope of this Standard. However, those foreign currency derivatives that are not within the scope of Ind AS 109 (eg some foreign currency derivatives that are embedded in other contracts) are within the scope of this Standard. In addition, this Standard applies when an entity translates amounts relating to derivatives from its functional currency to its presentation currency. 5 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. 6 This Standard applies to the presentation of an entity's financial statements in a foreign currency and sets out requirements for the resulting financial statemen....
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.... net assets of that operation. Presentation currency is the currency in which the financial statements are presented. Spot exchange rate is the exchange rate for immediate delivery. 8[Elaboration on the definitions Exchangeable (paragraphs A2-A10) 8A An entity assesses whether a currency is exchangeable into another currency: (a) at a measurement date; and (b) for a specified purpose. 8B If an entity is able to obtain no more than an insignificant amount of the other currency at the measurement date for the specified purpose, the currency is not exchangeable into the other currency.] Elaboration on the definitions Functional currency 9 The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. An entity considers the following factors in determining its functional currency: (a) the currency: (i) 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 (ii) of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services. ....
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....lying transactions, events and conditions that are relevant to it. Accordingly, once determined, the functional currency is not changed unless there is a change in those underlying transactions, events and conditions. 14 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. An entity cannot avoid restatement in accordance with Ind AS 29 by, for example, adopting as its functional currency a currency other than the functional currency determined in accordance with this Standard (such as the functional currency of its parent). Net investment in a foreign operation 15 An entity may have a monetary item that is receivable from or payable to a foreign operation. An item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the entity's net investment in that foreign operation, and is accounted for in accordance with paragraphs 32 and 33. Such monetary items may include long-term receivables or loans. They do not include trade receivables or trade payables. 15A The entity that....
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....f each individual entity included in the reporting entity to be translated into the currency in which the reporting entity presents its financial statements. This Standard permits the presentation currency of a reporting entity to be any currency (or currencies). The results and financial position of any individual entity within the reporting entity whose functional currency differs from the presentation currency are translated in accordance with paragraphs 38- 50. 19 This Standard also permits a stand-alone entity preparing financial statements or an entity preparing separate financial statements in accordance with Ind AS 27, Separate Financial Statements, to present its financial statements in any currency (or currencies). If the entity's presentation currency differs from its functional currency, its results and financial position are also translated into the presentation currency in accordance with paragraphs 38-50. 9[Estimating the spot exchange rate when a currency is not exchangeable (paragraphs A11-A17) 19A An entity shall estimate the spot exchange rate at a measurement date when a currency is not exchangeable into another currency (as described in paragraphs 8, 8A-8B a....
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....d on the basis of historical cost or on the basis of fair value, if the amount is determined in a foreign currency it is then translated into the functional currency in accordance with this Standard. 25 The carrying amount of some items is determined by comparing two or more amounts. For example, the carrying amount of inventories is the lower of cost and net realisable value in accordance with Ind AS 2, Inventories. Similarly, in accordance with Ind AS 36, Impairment of Assets, the carrying amount of an asset for which there is an indication of impairment is the lower of its carrying amount before considering possible impairment losses and its recoverable amount. When such an asset is non-monetary and is measured in a foreign currency, the carrying amount is determined by comparing: (a) the cost or carrying amount, as appropriate, translated at the exchange rate at the date when that amount was determined (ie the rate at the date of the transaction for an item measured in terms of historical cost); and (b) the net realisable value or recoverable amount, as appropriate, translated at the exchange rate at the date when that value was determined (eg the closing rate at the end o....
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....nd losses arising on a revaluation of property, plant and equipment to be recognised in other comprehensive income. When such an asset is measured in a foreign currency, paragraph 23(c) of this Standard requires the revalued amount to be translated using the rate at the date the value is determined, resulting in an exchange difference that is also recognised in other comprehensive income. 32 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 in accordance with paragraph 48. 33 When a monetary item forms part of a reporting entity's net investment in a foreign operation and is de....
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....ency is accounted for prospectively. In other words, an entity translates all items into the new functional currency using the exchange rate at the date of the change. The resulting translated amounts for non-monetary items are treated as their historical cost. Exchange differences arising from the translation of a foreign operation previously recognised in other comprehensive income in accordance with paragraphs 32 and 39(c) are not reclassified from equity to profit or loss until the disposal of the operation. Use of a presentation currency other than the functional currency Translation to the presentation currency 38 An entity may present its financial statements in any currency (or currencies). 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. 39 The results and financial position of an entity whose functional currency is not the cur....
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....ented as current year amounts in the relevant prior year financial statements (ie not adjusted for subsequent changes in the price level or subsequent changes in exchange rates). 43 When an entity's functional currency is the currency of a hyperinflationary economy, the entity shall restate its financial statements in accordance with Ind AS 29 before applying the translation method set out in paragraph 42, except for comparative amounts that are translated into a currency of a nonhyperinflationary economy (see paragraph 42(b)). When the economy ceases to be hyperinflationary and the entity no longer restates its financial statements in accordance with Ind AS 29, it shall use as the historical costs for translation into the presentation currency the amounts restated to the price level at the date the entity ceased restating its financial statements. Translation of a foreign operation 44 Paragraphs 45-47, in addition to paragraphs 38-43, apply when the results and financial position of a foreign operation are translated into a presentation currency so that the foreign operation can be included in the financial statements of the reporting entity by consolidation or the equity me....
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....l be translated at the closing rate in accordance with paragraphs 39 and 42. Disposal or partial disposal of a foreign operation 48 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 (see Ind AS 1, Presentation of Financial Statements). 48A In addition to the disposal of an entity's entire interest in a foreign operation, the following partial disposals are accounted for as disposals: (a) when the partial disposal involves the loss of control of a subsidiary that includes a foreign operation, regardless of whether the entity retains a noncontrolling interest in its former subsidiary after the partial disposal; and (b) when the retained interest after the partial disposal of an interest in a joint arrangement or a partial disposal of an interest in an associate that includes a foreign operation is a financial asset that includes a foreign operation. 48B On disposal of a sub....
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....mount of such exchange differences at the beginning and end of the period. 53 When the presentation currency is different from the functional currency, that fact shall be stated, together with disclosure of the functional currency and the reason for using a different presentation currency. 54 When there is a change in the functional currency of either the reporting entity or a significant foreign operation, that fact, the reason for the change in functional currency and the date of change in functional currency shall be disclosed. 55 When an entity presents its financial statements in a currency that is different from its functional currency, it shall describe the financial statements as complying with Ind ASs only if they comply with all the requirements of each applicable Standard including the translation method set out in paragraphs 39 and 42. 56 An entity sometimes presents its financial statements or other financial information in a currency that is not its functional currency without meeting the requirements of paragraph 55. For example, an entity may convert into another currency only selected items from its financial statements. Or, an entity whose functional curre....
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.... entity reports foreign currency transactions in its functional currency, and, at the date of initial application, concludes that its functional currency is not exchangeable into the foreign currency or, if applicable, concludes that the foreign currency is not exchangeable into its functional currency, the entity shall, at the date of initial application: i. translate affected foreign currency monetary items, and non-monetary items measured at fair value in a foreign currency, using the estimated spot exchange rate at that date; and ii. recognise any effect of initially applying the amendments as an adjustment to the opening balance of retained earnings. (b) when the entity uses a presentation currency other than its functional currency, or translates the results and financial position of a foreign operation, and, at the date of initial application, concludes that its functional currency (or the foreign operation's functional currency) is not exchangeable into its presentation currency or, if applicable, concludes that its presentation currency is not exchangeable into its functional currency (or the foreign operation's functional currency), the entity shall, at the date of ....
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....f an entity is able to either exchange LC for PC, or exchange LC for another currency (FC) and then exchange FC for PC. Markets or exchange mechanisms A5 In assessing whether a currency is exchangeable into another currency, an entity shall consider only markets or exchange mechanisms in which a transaction to exchange the currency for the other currency would create enforceable rights and obligations. Enforceability is a matter of law. Whether an exchange transaction in a market or exchange mechanism would create enforceable rights and obligations depends on facts and circumstances. Purpose of obtaining the other currency A6 Different exchange rates might be available for different uses of a currency. For example, a jurisdiction facing pressure on its balance of payments might wish to deter capital remittances (such as dividend payments) to other jurisdictions but encourage imports of specific goods from those jurisdictions. In such circumstances, the relevant authorities might: (a) set a preferential exchange rate for imports of those goods and a 'penalty' exchange rate for capital remittances to other jurisdictions, thus resulting in different exchange rates applying to di....
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....tal amount of the other currency required for that purpose. For example, an entity with a functional currency of LC has liabilities denominated in currency FC. The entity assesses whether the total amount of FC it can obtain for the purpose of settling those liabilities is no more than an insignificant amount compared with the aggregated amount (the sum) of its liability balances denominated in FC. Step II: Estimating the spot exchange rate when a currency is not exchangeable (paragraph 19A) A11 This Standard does not specify how an entity estimates the spot exchange rate to meet the objective in paragraph 19A. An entity can use an observable exchange rate without adjustment (see paragraphs A12-A16) or another estimation technique (see paragraph A17). Using an observable exchange rate without adjustment A12 In estimating the spot exchange rate as required by paragraph 19A, an entity may use an observable exchange rate without adjustment if that observable exchange rate meets the objective in paragraph 19A. Examples of an observable exchange rate include: (a) a spot exchange rate for a purpose other than that for which an entity assesses exchangeability (see paragraphs A13-A14....
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....aph 19A. If the rate meets the objective in paragraph 19A, an entity may use that rate as the estimated spot exchange rate. A16 In assessing whether the first subsequent exchange rate meets the objective in paragraph 19A, an entity shall consider, among other factors: (a) the time between the measurement date and the date at which exchangeability is restored-the shorter this period, the more likely the first subsequent exchange rate will reflect the prevailing economic conditions. (b) inflation rates-when an economy is subject to high inflation, including when an economy is hyperinflationary (as specified in Ind AS 29, Financial Reporting in Hyperinflationary Economies), prices often change quickly, perhaps several times a day. Accordingly, the first subsequent exchange rate for a currency of such an economy might not reflect the prevailing economic conditions. Using another estimation technique A17 An entity using another estimation technique may use any observable exchange rate- including rates from exchange transactions in markets or exchange mechanisms that do not create enforceable rights and obligations-and adjust that rate, as necessary, to meet the objective in parag....
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....ge rate between the functional currency and the foreign currency (the exchange rate) at the date of the transaction. Paragraph 22 of Ind AS 21 states that the date of the transaction is the date on which the transaction first qualifies for recognition in accordance with Ind AS Standards (Standards). 2 When an entity pays or receives consideration in advance in a foreign currency, it generally recognises a non-monetary asset or non-monetary liability2 before the recognition of the related asset, expense or income. The related asset, expense or income (or part of it) is the amount recognised applying relevant Standards, which results in the derecognition of the non-monetary asset or non-monetary liability arising from the advance consideration. 3 Initially, the issue was how to determine 'the date of the transaction' applying paragraphs 21 -22 of Ind AS 21 when recognising revenue. The question specifically addressed circumstances in which an entity recognises a non-monetary liability arising from the receipt of advance consideration before it recognises the related revenue. It was noted that the receipt or payment of advance consideration in a foreign currency is not restricted to....
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....April 1, 2018. A2 On initial application, an entity shall apply this Appendix either: (a) retrospectively applying Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors; or (b) prospectively to all assets, expenses and income in the scope of the Appendix initially recognised on or after: (i) the beginning of the reporting period in which the entity first applies the Appendix; or (ii) the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the Appendix. A3 An entity that applies paragraph A2(b) shall, on initial application, apply the Appendix to assets, expenses and income initially recognised on or after the beginning of the reporting period in paragraph A2(b)(i) or (ii) for which the entity has recognised non-monetary assets or non-monetary liabilities arising from advance consideration before that date.] 14[Appendix C References to matters contained in other Indian Accounting Standards This Appendix is an integral part of the Ind AS. This appendix lists the appendix which is a part of another Indian Accounting Standard and makes reference....
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....ounting Standards', has been included in Ind AS 21 to draw attention to guidance material already available in other Ind ASs, which is also relevant to the topic in Ind AS 21.] Also see in PDF Indian Accounting Standard (Ind AS) 21 The Effects of Changes in Foreign Exchange Rates ***************** NOTES:- 1. Inserted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018 w.e.f. 01-04-2018 2. Inserted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018 w.e.f. 01-04-2018 3. Inserted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018 w.e.f. 01-04-2018 4. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as "16 The essential feature of a monetary item is a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: pensions and other employee benefits to be paid in cash; provisions that are to be settled in cash; and cash dividends that are recognised as a liability. Similarly, a contract to receive (or deliver) a variable number of the entity's own equi....