Ind AS - 21 The Effects of Changes in Foreign Exchange Rates

Objective  The objective of this Standard is to prescribe how to include foreign currency transactions
and foreign operations in the financial statements of an entity and how to translate financial
statements into a presentation currency.
 The principal issues are which exchange rate(s) to use and how to report the effects of
changes in exchange rates in the financial statements.

Applicability  Accounting for transactions and balances in foreign currencies.

 Translating the results and financial position of foreign operations that are included in the
financial statements of the entity by consolidation, proportionate consolidation or the
equity method.
 Translating an entity’s results and financial position into a presentation currency.

S.No Particulars Y/N/NA Remarks

.
1. Whether the entity deals in Foreign Currency transactions?

2. If the entity deals in Foreign Currency transactions, what is the

nature of such transactions?
a) Buys or sells goods or services whose price is denominated
in a foreign currency;
b) Borrows or lends funds when the amounts payable or
receivable are denominated in a foreign currency; or
c) Otherwise acquires or disposes of assets, or incurs or settles
liabilities, denominated in a foreign currency.

3. What is the functional currency of the entity?

4. What is the presentation currency of the entity?

5. Whether foreign currency transactions are recorded, 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?

6. Whether the entity is:

a) Stand-alone entity
b) Entity with foreign operations (as a parent)
c) A foreign operation (a subsidiary or branch)

7. Whether the foreign currency transaction is 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?

8. Whether foreign currency monetary items are translated using the

closing rate?

9. Whether non-monetary items that are measured in terms of historical

cost in a foreign currency are translated using the exchange rate at the
 date of the transaction?
10. Whether non-monetary items that are measured at fair value in a
foreign currency are translated using the exchange rates at the date
when the fair value was determined?

11. When an asset, disposed of or acquired, is non-monetary and is

measured in a foreign currency, whether 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 of
the reporting period)?

12. Unrealised exchange differences arising on long-term monetary

assets and liabilities denominated in a foreign currency shall be
recognised directly in equity. Whether the amount so accumulated is
transferred to profit or loss over the period of maturity of such long-
term monetary items in an appropriate manner?

13. When a gain or loss on a non-monetary item is recognised in other

comprehensive income, whether any exchange component of that
gain or loss shall be recognised in other comprehensive income?

14. When a gain or loss on a non-monetary item is recognised in profit or

loss, whether any exchange component of that gain or loss shall be
recognised in profit or loss?

15. Whether exchange differences arising on a monetary item that forms

part of a reporting entity’s net investment in a foreign operation is
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?

16. Whether 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?

17. Whether the entity keeps its books and records in a currency other
than its functional currency?

If yes, whether at the time the entity prepares its financial statements,
all amounts are translated into the functional currency?

18. When there is a change in an entity’s functional currency, whether

the entity applies the translation procedures applicable to the new
functional currency prospectively from the date of the change?

19. Whether the results and financial position of an entity, whose

functional currency is not the currency of a hyperinflationary
 economy, is translated using the following procedures:
a) Assets and liabilities for each balance sheet presented (ie
including comparatives) is translated at the closing rate at the
date of that balance sheet;
b) Income and expenses for each statement of profit and loss
presented (ie including comparatives) is translated at
exchange rates at the dates of the transactions; and
c) All resulting exchange differences is recognised in other
comprehensive income?

20. The results and financial position of an entity, whose functional

currency is the currency of a hyperinflationary economy is translated
using the following procedures:
a) All amounts (ie assets, liabilities, equity items, income and
expenses, including comparatives) is translated at the closing
rate at the date of the most recent balance sheet, except that
b) When amounts are translated into the currency of a non-
hyperinflationary economy, comparative amounts are those
that were presented as current year amounts in the relevant
prior year financial statements?

21. When the financial statements of a foreign operation are as of a date

different from that of the reporting entity, whether the foreign
operation prepares additional statements as of the same date as the
reporting entity’s financial statements?

22. When this is not done and where the difference is no greater than
three months, whether the adjustments are made for the effects of any
significant transactions or other events that occur between the
different dates (as per Ind AS 27)?

23. Whether there is 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?

24. Whether such goodwill is treated as assets and liabilities of the

foreign operation and thus expressed in the functional currency of the
foreign operation and translated at the closing rate?

25. Whether, 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, is reclassified from equity to profit or
loss (as a reclassification adjustment) when the gain or loss on
disposal is recognized?

Disclosure Requirements :
1. The amount of exchange differences recognised in profit or loss
except for those arising on financial instruments measured at fair
value through profit or loss in accordance with Ind AS 39.

2. Net exchange differences recognised in other comprehensive income

and accumulated in a separate component of equity, and a
reconciliation of the amount of such exchange differences at the
 beginning and end of the period.
3. Net exchange differences recognised directly in equity and
accumulated in a separate component of equity, and a reconciliation
of the amount of such exchange differences at the beginning and end
of the period.

4. 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.

5. 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.

6. 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 Indian Accounting Standards only if
they comply with all the requirements of each applicable Standard.

Relevant Definitions –
1. Exchange difference is the difference resulting from translating a given number of units of one currency into
another currency at different exchange rates.

2. Foreign operation is an entity that is a subsidiary, associate, joint venture or branch of a reporting entity, the
activities of which are based or conducted in a country or currency other than those of the reporting entity.

3. Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or
determinable number of units of currency.

4. Functional currency is the currency of the primary economic environment in which the entity operates.

5. Presentation currency is the currency in which the financial statements are presented.