The following is the text of Accounting Standard (AS) 11, 'Accounting for the Effects of Changes in Foreign Exchange

Rates', issued by the Council of the Institute of Chartered Accountants of India. This Standard will come into effect in respect of accounting periods commencing on or after 1.4.1995 and will be mandatory in nature.

Objective An enterprise may have transactions in foreign currencies or it may have foreign branches. Foreign currency transactions should be expressed in the enterprise's reporting currency and the financial statements of foreign branches should be translated into the enterprise's reporting currency in order to include them in the financial statements of the enterprise. The principal issues in accounting for foreign currency transactions and foreign branches are to decide which exchange rate to use and how to recognise in the financial statements the financial effect of changes in exchange rates.

Scope 1. This Statement should be applied by an enterprise : (a) in accounting for transactions in foreign currencies; and (b) in translating the financial statements of foreign branches for inclusion in the financial statements of the enterprise.

EXCHANGE TRANSACTION A transaction in a foreign currency should be recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. For practical reasons, a rate that approximates the actual rate is often used. J.P., KAPUR & UBERAI

. CHANGES IN EXCHANGE RATE SUBSEQUENT TO INITIAL RECOGNITION Exchange differences on settlement of foreign currency transactions during an accounting period as income/expense of the period except exchange differences arising on repayment of the amount borrowed in foreign currency for the purpose of acquiring fixed assets is adjusted to the carrying amount of the fixed assets . In case the fixed assets are revalued the necessary adjustments should be given effect to revalued asset. .the Monetary items denominated in a foreign currency should be reported using the closing rate but in the circumstances where the closing rate is unrealistic or where there are restrictions on remittances etc. the relevant monetary item should be reported at the realisable value . Non-monetary items i.e. investment in equity shares listed on a foreign stock exchange have to be valued at the lower of cost and fair value. Fair value is determined with reference to the closing rate. Exchange difference, if any, on the above should be treated as income/expense for the period.

TRANSLATION OF FINANCIAL STATEMENTS OF FOREIGN BRANCHES -Revenue items, except opening and closing inventories and depreciation- average rates. Opening inventories rate prevalent at the commencement of the accounting period. Monetary items, Closing inventories- closing rate or realisable value. Non monetary items other than inventories and fixed assets- rate prevalent at the date of the transaction. Fixed assets- rate prevalent at the date of the transaction as adjusted for exchange difference arising on settlement or restatement of liabilities incurred for acquiring those assets. Balance in Head office account- balance in the branch account in head office books after adjusting for unresponded transactions. Net exchange difference should be recognised as income/expense for the period. Contingent Liabilities- closing rate, translation does not result in any exchange difference.

DISCLOSURE Amount of exchange difference Included in the net profit or loss for the period. Adjusted in the carrying amount of fixed assets during the accounting period. In respect to the outstanding forward exchange contract relating to one or more subsequent accounting periods. J.P., KAPUR & UBERAI