1).Applicable
to all enterprises for which accounting period commences on or after 1-4-2004.
It is applicable to
transactions
in foreign currency and translating financial statements of foreign
subsidiary/branches.
2).Monetary
items denominated in Foreign Currency shall be reported using closing rates.
Non
monetary items carried in terms of historical cost in foreign currency shall be
reported at the exchange
rate
on the date of the transaction.
3).Exchange
differences shall be recognised as income/expenses in the period in which they
arise except in case
of
fixed assets and differences on account of forward contracts
4).Translation
of foreign exchange transaction of revenue items except opening/closing
inventories and
depreciation
shall be made by applying rate at the date of the transactions. For convenience
purposes an
average
rate or weighted average rate may be used, provided it approximates the rate of
exchange.
5). Opening and
closing inventories shall be translated at rates prevalent on opening and
closing dates, respectively and depreciation
amount shall be converted by applying the rate used for translation of the
asset.
6).Translation
gains and losses for branches/subsidiaries forming integral part of operations
of the entity shall be
accounted
as stated in above. However translation gains and losses for non-integral
operations shall be
directly
credited to reserves. It may be mentioned that that the method of arriving
translation gains or losses
shall
be different from that stated above; i.e., all assets and liabilities are
converted at closing rates and
revenue
items are converted at average rates, where it approximates the rates at the
date of transactions.
7).Integral
foreign operation is a foreign operation, the activities of which are an integral part of those of the
reporting enterprise.
8).Exchange
differences arising on repayment of liabilities incurred for purchase of fixed
assets shall be
expensed
through profit and loss account. {Note, in case of a Company (read as required
by Schedule VI),
where
the fixed asset is purchased from outside India, the related exchange gains and
loss, if any, are required
to
be capitalized}. Also in case of a company, other exchange differences arising
out of long-term monetary
items
can be initially deferred and later amortized over the period up to March 31,
2012 or the life of the
related
long-term monetary asset whichever is lower with corresponding adjustments in
balance sheet
through
"Foreign Currency Monetary Item Translation Difference Account".
9).Gains
or losses on accounting of forward contracts is recognised through profit and
loss account (unless it
relates
to fixed assets as described in above for a Company).However,
measurement of gains or losses on forward contract depends upon the intention
for which it is taken.
Where it is not for trading or speculative purposes the premium/discount is
amortised over the term of the
contracts. Where these are held for either speculative or trading purposes, the
gain or loss is arrived at each
reporting date after comparing the FAIR VALUE of contract for its remaining
term of maturity with the carrying
amount at the reporting date.
10).Profit/Loss
on cancellation or renewal of forward exchange contract shall be recognised as
income/expenses
of
the respective period (unless it relates to fixed assets as described in above
for a Company).
11).Amount
of exchange difference included in Profit & Loss Account adjusted in
carrying forward or amount of
fixed
assets or due to forward contracts recognised in Profit & Loss Account for
one or more accounting
period
must be disclosed.
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