IAS 21 / IND AS 21 — The Effects of Changes in Foreign Exchanges Rates
Idea : This is a quick cheat sheet for understanding and application of IAS 21 / IND AS 21.
IAS 21 / IND AS 21 Applicable for…
1 How to account for your foreign currency transactions — Initially
2 How to account for your foreign currency transactions — Subsequently
3 Treatment of foreign exchange difference that arise thereof
4 Incorporation of foreign operations into reporting entity’s financial statement
5 Translation of financial statements into presentation currency
Definitions :
Monetary items :
Are the items/accounts in the balance sheet of assets/liabilities of which amount can be knows whether fixed amount or determinable amount.
Non-Monetary items :
Which are not monetary items
Loans forming part of net investment in subsidiary :
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 — Reference MCA website
Functional currency :
Currency which primarily impact companies business
Presentation currency :
Currency in which financial statements are prepared
Closing rate :
Balance-sheet date rate
Long term monetary items :
Monetary items whose maturity >= 12 months from the date of initial recognition of Asset/Liabilities
Short forms Used :
FS - Financial statements
OCI - Other comprehensive income
P&L — Profit and loss
Major IND AS 21 & IAS 21 difference :
Additional option in IND AS 21 for — Long term monetary assets/Liabilities :
IND AS 21 gives option Long term monetary assets/Liabilities to be recognised directly into equity as a separate component. And such accumulated exchange differences must be transferred to P&L over the period of maturity.
This is the only 1 major difference in both the GAAP’s.
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