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AS 11 query

Krunal Raichura (Financial Advisory) (2134 Points)

06 March 2009

For the purpose of accountinf for derivatives, under AS - 11, when is the profit/loss transferred to foreign currency translation reserve and under what circumstances it is accounted in P&L?

The above question relates to only that part of AS 11 which relates to derivative accounting part.

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3 Replies

Suresh VR (Treasury) (29 Points)
Replied 10 March 2009

As 11 deals not with the entire derivatives but only with respect to forward contracts.

In case of non integral foreign operations, all the foreign exchange differences that arise while traslating the foreign operations financials into the reporting currency, will get captured in Foreign currency Translation Reserve (FCTL). The same frm FCTL will get recognised in P&L on disposal of the foreign operations.

However, wrt to integral foreign operations, the foreign exchange differences wil get immediately recognised in P&L.

Different forex rates (closing / average / transaction ...) are specified in the standard for each type of item (monetary / non monetary) which also varies depending upon the foreign operations (integral / non integral)

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rakshit jain (Audit assistant) (26 Points)
Replied 11 March 2009

since AS 11 not specifically define integral operation and non integral operation so we have to follow the accounting policy and nature and dependency of the business however if Co. decided that non intergral operation is to be transfered into integral operation than FCTR transfered into P&L and vise versa

Suresh VR (Treasury) (29 Points)
Replied 12 March 2009

Para 18, 19 & 20 of AS 11 specifies the characters of Non integral and Integral foreign operation.

Also, when a non integral operation takes the character of integral operation, the losses / gains so far till date accumulated in FCTL will still remain in FCTL and will not get transferred to P&L until disposal of foreign operation . However, from the date of change of classification of operation, the forex difference arising thereon (subsequent to change) will hit P&L.