NAS 21

NEPAL ACCOUNTING STANDARD 21

The Effects of Changes in Foreign Exchange Rates

CONTENTS
from paragraph

NEPAL ACCOUNTING STANDARD 21

THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES
OBJECTIVE 1
SCOPE 3
DEFINITIONS 8
Elaboration on the definitions 9
SUMMARY OF THE APPROACH REQUIRED BY THIS STANDARD 17
REPORTING FOREIGN CURRENCY TRANSACTIONS IN THE FUNCTIONAL
CURRENCY 20
Initial recognition 20
Reporting at the ends of subsequent reporting periods 23
Recognition of exchange differences 27
Change in functional currency 35
USE OF A PRESENTATION CURRENCY OTHER THAN THE FUNCTIONAL
CURRENCY 38
Translation to the presentation currency 38
Translation of a foreign operation 44
Disposal or partial disposal of a foreign operation 48
TAX EFFECTS OF ALL EXCHANGE DIFFERENCES 50
DISCLOSURE 51
EFFECTIVE DATE AND TRANSITION 58
WITHDRAWAL OF OTHER PRONOUNCEMENTS 61

ASB-NEPAL 991
NAS 21

Nepal Accounting Standard 21 The Effects of Changes in Foreign Exchange Rates

(NAS 21) is set out in paragraphs 1–62. All the paragraphs have equal authority.
NAS 21 should be read in the context of its objective, the Preface to Nepal
Financial Reporting Standards and the Conceptual Framework for Financial
Reporting. NAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors provides a basis for selecting and applying accounting policies in the
absence of explicit guidance.

992 ASB-NEPAL
 NAS 21

Nepal Accounting Standard 21

The Effects of Changes in Foreign Exchange Rates

Objective
1 An entity may carry on foreign activities in two ways. It may have transactions
in foreign currencies or it may have foreign operations. In addition, an entity
may present its financial statements in a foreign currency. 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.
2 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.

Scope
3 This Standard shall be applied:1
(a) in accounting for transactions and balances in foreign currencies, except
for those derivative transactions and balances that are within the scope
of NFRS 9 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 NFRS 9 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 NFRS 9 (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. NFRS 9 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 statements
to be described as complying with Nepal Financial Reporting Standards (NFRSs).
For translations of financial information into a foreign currency that do not meet
these requirements, this Standard specifies information to be disclosed.
7 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 (see NAS 7 Statement of Cash Flows).
1 See also SIC-7 Introduction of the Euro

ASB-NEPAL 993
NAS 21

Definitions
8 The following terms are used in this Standard with the meanings specified:
Closing rate is the spot exchange rate at the end of the reporting period.
Exchange difference is the difference resulting from translating a given number
of units of one currency into another currency at different exchange rates.
Exchange rate is the ratio of exchange for two currencies.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. (See NFRS 13 Fair Value Measurement.)
Foreign currency is a currency other than the functional currency of the entity.
Foreign operation is an entity that is a subsidiary, associate, joint arrangement
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.
Functional currency is the currency of the primary economic environment in
which the entity operates.
A group is a parent and all its subsidiaries.
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.
Net investment in a foreign operation is the amount of the reporting entity’s
interest in the 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.

Elaboration on the definitions

8A-8B [Deleted]

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.

994 ASB-NEPAL
 NAS 21

(b) 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).
10 The following factors may also provide evidence of an entity’s functional currency:
(a) the currency in which funds from financing activities (ie issuing debt and
equity instruments) are generated.
(b) the currency in which receipts from operating activities are usually retained.
11 The following additional factors are considered in determining the functional
currency of a foreign operation, and whether its functional currency is the same
as that of the reporting entity (the reporting entity, in this context, being the
entity that has the foreign operation as its subsidiary, branch, associate or joint
arrangement):
(a) whether the activities of the foreign operation are carried out as an
extension of the reporting entity, rather than being carried out with a
significant degree of autonomy. An example of the former is when the
foreign operation only sells goods imported from the reporting entity and
remits the proceeds to it. An example of the latter is when the operation
accumulates cash and other monetary items, incurs expenses, generates
income and arranges borrowings, all substantially in its local currency.
(b) whether transactions with the reporting entity are a high or a low proportion
of the foreign operation’s activities.
(c) whether cash flows from the activities of the foreign operation directly
affect the cash flows of the reporting entity and are readily available for
remittance to it.
(d) whether cash flows from the activities of the foreign operation are sufficient
to service existing and normally expected debt obligations without funds
being made available by the reporting entity.
12 When the above indicators are mixed and the functional currency is not obvious,
management uses its judgement to determine the functional currency that
most faithfully represents the economic effects of the underlying transactions,
events and conditions. As part of this approach, management gives priority
to the primary indicators in paragraph 9 before considering the indicators in
paragraphs 10 and 11, which are designed to provide additional supporting
evidence to determine an entity’s functional currency.
13 An entity’s functional currency reflects the underlying 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 NAS 29 Financial
Reporting in Hyperinflationary Economies. An entity cannot avoid restatement
in accordance with NAS 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).
ASB-NEPAL 995
NAS 21

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 has a monetary item receivable from or payable to a foreign
operation described in paragraph 15 may be any subsidiary of the group. For
example, an entity has two subsidiaries, A and B. Subsidiary B is a foreign
operation. Subsidiary A grants a loan to Subsidiary B. Subsidiary A’s loan
receivable from Subsidiary B would be part of the entity’s net investment in
Subsidiary B if settlement of the loan is neither planned nor likely to occur in the
foreseeable future. This would also be true if Subsidiary A were itself a foreign
operation.

Monetary items
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; lease liabilities; and cash dividends that are recognised as
a liability. Similarly, a contract to receive (or deliver) a variable number of the
entity’s own equity instruments or a variable amount of assets in which the fair
value to be received (or delivered) equals a fixed or determinable number of
units of currency is a monetary item. Conversely, the essential feature of a non-
monetary item is the absence of a right to receive (or an obligation to deliver) a
fixed or determinable number of units of currency. Examples include: amounts
prepaid for goods and services; goodwill; intangible assets; inventories; property,
plant and equipment; right-of-use assets; and provisions that are to be settled
by the delivery of a non-monetary asset.

Summary of the approach required by this Standard

17 In preparing financial statements, each entity—whether a stand-alone entity,
an entity with foreign operations (such as a parent) or a foreign operation (such
as a subsidiary or branch)—determines its functional currency in accordance
with paragraphs 9–14. The entity translates foreign currency items into its
functional currency and reports the effects of such translation in accordance
with paragraphs 20–37 and 50.
18 Many reporting entities comprise a number of individual entities (eg a group is
made up of a parent and one or more subsidiaries). Various types of entities,
whether members of a group or otherwise, may have investments in associates
or joint arrangements. They may also have branches. It is necessary for the
results and financial position of 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

996 ASB-NEPAL
 NAS 21

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 NAS
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.
19A [Deleted]

Reporting foreign currency transactions in the functional currency

Initial recognition
20 A foreign currency transaction is a transaction that is denominated or requires
settlement in a foreign currency, including transactions arising when an entity:
(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.
21 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.
22 The date of a transaction is the date on which the transaction first qualifies
for recognition in accordance with NFRSs. For practical reasons, a rate that
approximates the actual rate at the date of the transaction is often used, for
example, an average rate for a week or a month might be used for all transactions
in each foreign currency occurring during that period. However, if exchange rates
fluctuate significantly, the use of the average rate for a period is inappropriate.

Reporting at the ends of subsequent reporting periods

23 At the end of each reporting period:
(a) foreign currency monetary items shall be translated using the closing rate;
(b) 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; and
(c) non-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 measured.

ASB-NEPAL 997
NAS 21

24 The carrying amount of an item is determined in conjunction with other relevant

Standards. For example, property, plant and equipment may be measured in
terms of fair value or historical cost in accordance with NAS 16 Property, Plant
and Equipment. Whether the carrying amount is determined 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 NAS 2 Inventories. Similarly, in
accordance with NAS 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 of the reporting period).
The effect of this comparison may be that an impairment loss is recognised in
the functional currency but would not be recognised in the foreign currency, or
vice versa.
26 When several exchange rates are available, the rate used is that at which
the future cash flows represented by the transaction or balance could have
been settled if those cash flows had occurred at the measurement date. If
exchangeability between two currencies is temporarily lacking, the rate used is
the first subsequent rate at which exchanges could be made.

Recognition of exchange differences

27 As noted in paragraphs 3(a) and 5, NFRS 9 applies to hedge accounting for
foreign currency items. The application of hedge accounting requires an entity
to account for some exchange differences differently from the treatment of
exchange differences required by this Standard. For example, NFRS 9 requires
that exchange differences on monetary items that qualify as hedging instruments
in a cash flow hedge are recognised initially in other comprehensive income to
the extent that the hedge is effective.
28 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, except as described in paragraph 32.

998 ASB-NEPAL
 NAS 21

29 When monetary items arise from a foreign currency transaction and there is
a change in the exchange rate between the transaction date and the date of
settlement, an exchange difference results. When the transaction is settled
within the same accounting period as that in which it occurred, all the exchange
difference is recognised in that period. However, when the transaction is settled
in a subsequent accounting period, the exchange difference recognised in each
period up to the date of settlement is determined by the change in exchange
rates during each period.
30 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.
31 Other NFRSs require some gains and losses to be recognised in other
comprehensive income. For example, NAS 16 requires some gains and 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 denominated in the functional currency of the reporting
entity, an exchange difference arises in the foreign operation’s individual financial
statements in accordance with paragraph 28. If such an item is denominated
in the functional currency of the foreign operation, an exchange difference
arises in the reporting entity’s separate financial statements in accordance
with paragraph 28. If such an item is denominated in a currency other than the
functional currency of either the reporting entity or the foreign operation, an
exchange difference arises in the reporting entity’s separate financial statements
and in the foreign operation’s individual financial statements in accordance with
paragraph 28. Such exchange differences are recognised in other comprehensive
income in the financial statements that include the foreign operation and
the reporting entity (ie financial statements in which the foreign operation is
consolidated or accounted for using the equity method).
34 When an entity keeps its books and records in a currency other than its functional
currency, at the time the entity prepares its financial statements all amounts

ASB-NEPAL 999
NAS 21

are translated into the functional currency in accordance with paragraphs 20–
26. This produces the same amounts in the functional currency as would have
occurred had the items been recorded initially in the functional currency. For
example, monetary items are translated into the functional currency using the
closing rate, and non-monetary items that are measured on a historical cost
basis are translated using the exchange rate at the date of the transaction that
resulted in their recognition.

Change in functional currency

35 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.
36 As noted in paragraph 13, the functional currency of an entity reflects the
underlying transactions, events and conditions that are relevant to the entity.
Accordingly, once the functional currency is determined, it can be changed only
if there is a change to those underlying transactions, events and conditions. For
example, a change in the currency that mainly influences the sales prices of
goods and services may lead to a change in an entity’s functional currency.
37 The effect of a change in functional currency 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 currency of a hyperinflationary economy shall be translated into a
different presentation currency using the following procedures:
(a) assets and liabilities for each statement of financial position presented (ie
including comparatives) shall be translated at the closing rate at the date
of that statement of financial position;
(b) income and expenses for each statement presenting profit or loss and
other comprehensive income (ie including comparatives) shall be
translated at exchange rates at the dates of the transactions; and

1000 ASB-NEPAL
 NAS 21

(c) all resulting exchange differences shall be recognised in other

comprehensive income.
40 For practical reasons, a rate that approximates the exchange rates at the dates
of the transactions, for example an average rate for the period, is often used
to translate income and expense items. However, if exchange rates fluctuate
significantly, the use of the average rate for a period is inappropriate.
41 The exchange differences referred to in paragraph 39(c) result from:
(a) translating income and expenses at the exchange rates at the dates of the
transactions and assets and liabilities at the closing rate.
(b) translating the opening net assets at a closing rate that differs from the
previous closing rate.
These exchange differences are not recognised in profit or loss because the
changes in exchange rates have little or no direct effect on the present and future
cash flows from operations. The cumulative amount of the exchange differences
is presented in a separate component of equity until disposal of the foreign
operation. When the exchange differences relate to a foreign operation that is
consolidated but not wholly-owned, accumulated exchange differences arising
from translation and attributable to non-controlling interests are allocated
to, and recognised as part of, non-controlling interests in the consolidated
statement of financial position.
42 The results and financial position of an entity whose functional currency is the
currency of a hyperinflationary economy shall be translated into a different
presentation currency using the following procedures:
(a) all amounts (ie assets, liabilities, equity items, income and expenses,
including comparatives) shall be translated at the closing rate at the date
of the most recent statement of financial position, except that
(b) when amounts are translated into the currency of a non-hyperinflationary
economy, comparative amounts shall be those that were presented 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
NAS 29 before applying the translation method set out in paragraph 42,
except for comparative amounts that are translated into a currency of a non-
hyperinflationary economy (see paragraph 42(b)). When the economy ceases to
be hyperinflationary and the entity no longer restates its financial statements in
accordance with NAS 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

ASB-NEPAL 1001
NAS 21

currency so that the foreign operation can be included in the financial statements
of the reporting entity by consolidation or the equity method.
45 The incorporation of the results and financial position of a foreign operation
with those of the reporting entity follows normal consolidation procedures,
such as the elimination of intragroup balances and intragroup transactions
of a subsidiary (see NFRS 10 Consolidated Financial Statements). However,
an intragroup monetary asset (or liability), whether short-term or long-term,
cannot be eliminated against the corresponding intragroup liability (or asset)
without showing the results of currency fluctuations in the consolidated financial
statements. This is because the monetary item represents a commitment to
convert one currency into another and exposes the reporting entity to a gain
or loss through currency fluctuations. Accordingly, in the consolidated financial
statements of the reporting entity, such an exchange difference is recognised in
profit or loss or, if it arises from the circumstances described in paragraph 32,
it is recognised in other comprehensive income and accumulated in a separate
component of equity until the disposal of the foreign operation.
46 When the financial statements of a foreign operation are as of a date different
from that of the reporting entity, the foreign operation often prepares additional
statements as of the same date as the reporting entity’s financial statements.
When this is not done, NFRS 10 allows the use of a different date provided that
the difference is no greater than three months and adjustments are made for
the effects of any significant transactions or other events that occur between the
different dates. In such a case, the assets and liabilities of the foreign operation
are translated at the exchange rate at the end of the reporting period of the
foreign operation. Adjustments are made for significant changes in exchange
rates up to the end of the reporting period of the reporting entity in accordance
with NFRS 10. The same approach is used in applying the equity method to
associates and joint ventures in accordance with NAS 28.
47 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. Thus they shall be expressed in the functional
currency of the foreign operation and shall 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 NAS 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:

1002 ASB-NEPAL
 NAS 21

(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 non-
controlling 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 subsidiary that includes a foreign operation, the cumulative
amount of the exchange differences relating to that foreign operation that have
been attributed to the non-controlling interests shall be derecognised, but shall
not be reclassified to profit or loss.
48C 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.
48D A partial disposal of an entity’s interest in a foreign operation is any reduction in
an entity’s ownership interest in a foreign operation, except those reductions in
paragraph 48A that are accounted for as disposals.
49 An entity may dispose or partially dispose of its interest in a foreign operation
through sale, liquidation, repayment of share capital or abandonment of all, or
part of, that entity. A write-down of the carrying amount of a foreign operation,
either because of its own losses or because of an impairment recognised by
the investor, does not constitute a partial disposal. Accordingly, no part of the
foreign exchange gain or loss recognised in other comprehensive income is
reclassified to profit or loss at the time of a write-down.

Tax effects of all exchange differences

50 Gains and losses on foreign currency transactions and exchange differences
arising on translating the results and financial position of an entity (including a
foreign operation) into a different currency may have tax effects. NAS 12 Income
Taxes applies to these tax effects.

Disclosure
51 In paragraphs 53 and 55–57 references to ‘functional currency’ apply, in the
case of a group, to the functional currency of the parent.
52 An entity shall disclose:
(a) 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 NFRS 9; and

ASB-NEPAL 1003
NAS 21

(b) 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.
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 and the reason for the 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 NFRSs only if they comply with all the requirements of NFRSs
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 currency is not the currency of a hyperinflationary economy may
convert the financial statements into another currency by translating all items at
the most recent closing rate. Such conversions are not in accordance with NFRSs
and the disclosures set out in paragraph 57 are required.
57 When an entity displays its financial statements or other financial information in
a currency that is different from either its functional currency or its presentation
currency and the requirements of paragraph 55 are not met, it shall:
(a) clearly identify the information as supplementary information to
distinguish it from the information that complies with NFRSs;
(b) disclose the currency in which the supplementary information is displayed;
and
(c) disclose the entity’s functional currency and the method of translation
used to determine the supplementary information.
57A-57B [Deleted]

Effective date and transition

58 An entity shall apply this Standard for annual periods beginning on or after July
16, 2025. Earlier application is encouraged. If an entity applies this Standard for
a period beginning before July 16, 2025 it shall disclose that fact.
Any consequential effect arising from the application of other related Standards
becoming effective on the later date, shall be applied only when those Standards
come into effect.
58A [Deleted]

1004 ASB-NEPAL
 NAS 21

59 [Deleted]
60 [Deleted]
60A [Deleted]
60B [Deleted]
60C [Deleted]
60D [Deleted]
60E [Deleted]
60F [Deleted]
60G [Deleted]
60H [Deleted]
60I [Deleted]
60J [Deleted]
60K [Deleted]
60L-60M [Deleted]

Withdrawal of other pronouncements

61 This standard supersedes NAS 21 The Effects of Changes in Foreign Exchange
Rates (issued in 2018).
62 [Deleted]

ASB-NEPAL 1005
NAS 21

1006 ASB-NEPAL