Ind AS 121: Effects of Changes in Foreign Exchange Rates#
Key Definitions#
- Foreign currency: Currency other than functional currency
- Functional currency: Currency of primary economic environment
- Presentation currency: Currency in which financial statements presented
Functional Currency#
Factors to consider:
- Currency that mainly influences sales prices
- Currency of country whose competitive forces affect pricing
- Currency that mainly influences labor, material costs
Initial Recognition#
Foreign currency transactions recorded:
- At spot rate on transaction date
- Or approximate rate if not significantly fluctuating
Reporting at Each Reporting Date#
- Monetary items: At closing rate
- Non-monetary items: At historical rate
- Exchange differences: Recognized in P&L
Presentation Currency#
Translation of Financial Statements#
Foreign Operation (Integral)
- Translated like monetary items
- Exchange differences in P&L
Foreign Operation (Non-integral)
- Translated at closing rate
- Exchange differences in OCI
- Cumulative translation reserve in equity
Disclosure Requirements#
- Functional currency
- Presentation currency
- Exchange rates used
- Exchange differences recognized in P&L and OCI
- Net foreign exchange gains/losses