(Summary) Ind AS 21
The Effects of Changes in Foreign Exchange Rates
To prescribe how to include foreign currency transactions and foreign operations in the FS of an entity and how to translate FS into a presentation currency.
Apply this standard to
- In accounting for transactions and balances in foreign currencies, except for those within the scope of Ind AS 109.
- In translating the results and financial position of foreign operations that are included in the FS of the entity.
- In translating an entity’s results and financial position into a presentation currency.
- Exchange Rate
- Foreign Operations
- Net Investment in Foreign Operation
- Foreign Currency
- Monetary Items
- Spot Exchange Rate
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.
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.
Spot Exchange Rate: Is the exchange rate for immediate delivery.
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; and
- 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.
Recognition of Exchange Difference:
- 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 FS shall be recognised in profit or loss in the period in which they arise.
- When a gain or loss on a non-monetary item is recognised in OCI, any exchange component of that gain or loss shall be recognised in OCI. 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.
- Differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation shall be recognised in profit or loss in the separate FS of the reporting entity or the individual FS of the foreign operation, as appropriate. In the FS that include the foreign operation and the reporting entity, such exchange differences shall be recognised initially in OCI and reclassified from equity to profit or loss on disposal of the net investment.
Change in functional currency:
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.
Use of a presentation currency other than the functional currency
Translation to the presentation currency:
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:
- Assets and liabilities for each balance sheet presented 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 shall be translated at exchange rates at the dates of the transactions; and
- All resulting exchange differences shall be recognised in OCI.
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:
- All amounts shall be translated at the closing rate at the date of the most recent balance sheet, except that
- 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
Translation of a foreign operation:
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.
Disposal or partial disposal of a foreign operation
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 when the gain or loss on disposal is recognised
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 NCI 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 OCI.
- Functional Currency
- The amount of exchange differences recognised in profit or loss except for those arising on financial instruments measured at FVTPL
Net exchange differences recognised in OCI 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.