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 statements to the presentation currency are recognised in other comprehensive income. 

Note that the exchange differences on monetary as well as non-monetary items are all recognised in other comprehensive income.

The exchange difference should not be recognised in profit and loss account.

Translation to presentation currency

1. Assets and liabilities are translated to presentation currency at the closing rate at the date on which the balance sheet is presented
2. Income and expenses are translated at the exchange rate at the respective transaction dates or based on an average rate for a period where the exchange rates do not fluctuate significantly
3. All resulting exchange differences are recognised in other comprehensive income

Exchange differences arising from presentation currency

• All exchange differences are recognised in other comprehensive income irrespective of whether the item involved is a monetary item or a non-monetary item
• Exchange differences should not be recognised in the profit and loss account for the period concerned, as the changes in exchange rates have no direct effect on the present and future cash flows of the entity from the operations perspective
• Accumulated amount of the exchange differences is shown as a separate component of equity till the time the foreign operation is disposed of
• In the exchange differences relating to foreign operation that is consolidated but not wholly owned, the accumulated exchange differences on translation that can be attributed to non-controlling interest are allotted to and recognised as part of non-controlling interests in the consolidated balance sheet