Articles on Ind AS 21

Objectives, Scope & Benefits Ind AS 21

Objectives, Scope & Benefits – Ind AS  21 Introduction to Ind AS 21 The importance of international trade in any business entity cannot be over-emphasisedWith globalisation, several entities have started to operate in more than one countryEven those entities that do not operate in other countries either buy or sell goods and/or services from their overseas parties or customersSeveral entities have their own overseas branches which could either be in the form subsidiary or an associateThe result of this is that the entities deal with multiple currencies all the timeThere are also requirements for an entity to present its financial statements in …
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Functional Currency – Ind AS 21

Functional Currency – Ind AS 21 Executive summary of Functional Currency Functional currency is determined based on the primary economic environment in which it operates.  The primary economic environment is determined based on two primary factors as specified in the Standard viz., the currency in which cash is generated and the currency in which major expenses are incurred by the entity.  When there is a conflict between the two primary factors, then the entity should look for further indicators viz., the currency in which funds are generated which could be either equity or debt instruments and the currency in which the receipts from the …
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Foreign operations – Ind AS 21

Foreign operations – Ind AS 21 Executive summary of Foreign Operations Let us see how the functional currency is determined for a foreign operation.  So what are the factors to be considered in determining the functional currency of a foreign operation?  Basically, there are four factors to be considered. Let us see those factors one by one. The first factor to be considered is the degree of autonomy.  The question that needs to be asked is whether the foreign operation is conducted as an extension of the reporting entity. Are the activities in such foreign operation carried out without significant autonomy? If the answer …
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Presentation Currency – Ind AS 21

Presentation Currency – Ind AS 21 Executive summary of Presentation currency Let us understand what is a presentation currency and how it is different from the functional currency. Presentation currency is the currency in which the financial statements are prepared.  This can be in a currency chosen by the entity as the entity is free to choose its own currency.  This is mainly for the purpose of presenting the financial statements to the stake holders who are located in another geographical area having a different local currency.  The main difference between a functional currency and the presentation currency should be understood very clearly.  Functional currency is determined …
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Recognition and measurement – Ind AS 21

Recognition and measurement – Ind AS 21 Executive summary of recognition and measurement Let us see the recognition and measurement of foreign currency transactions in the books of accounts. First we need to understand what is meant by a foreign currency transaction.  Foreign currency transaction is a transaction in a currency other than the functional currency of the entity.  A foreign currency transaction is the one that is denominated in foreign currency that requires settlement in such foreign currency.  Let us look at the requirements for recognising a foreign currency transaction initially.  First, the foreign currency transaction is entered in separate books of accounts.  Then, the same is …
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Treatment of exchange differences – Ind AS 21

Treatment of exchange differences – Ind AS 21 Executive  summary of treatment of exchange differences Let us examine the treatment of exchange differences in the books of accounts with a practical example. Let us analyse the treatment of foreign exchange differences arising on account of translating the foreign currency balances to the presentation currency in respect of monetary items. The exchange differences arise either on settlement or on remeasurement at the reporting date. In both these cases, the exchange differences are recognised in the profit and loss account.  Let us briefly understand the difference between the FX revaluation entry and the FX translation entry.  The FX revaluation …
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Translation to presentation currency- Ind AS 21

Translation to presentation currency- Ind AS 21 Executive summary of translation to presentation currency Let us see how the financial statements are translated to presentation currency Financial statements should be translated to presentation currency if the currency is different from the functional currency.  The assets and liabilities are translated based on the closing rate at which the balance sheet is prepared.  Income and expenses are translated at the exchange rate at the respective transaction dates.  Sometimes, this could also be based on the average rate for a period where the exchange rates do not fluctuate significantly.  The exchange differences arising on account of translation of the financial …
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