Comparison Chart of ICDS-IV, AS-11 & IndAS-21 - Income Tax - Ready Reckoner - Income Tax

Topic ICDS Indian GAAP Ind AS Foreign Exchange ICDS VI relating to the effects of changes in foreign exchange rates AS 11 The Effects of Changes in Foreign Exchange Rates Ind AS 21 The Effects of Changes in Foreign Exchange Rates Ind AS 109 Financial Instruments Scope There is no scope exception for exchange differences arising from foreign currency borrowings which may be regarded as an adjustment to interest costs. There is exception for exchange differences arising from foreign currency borrowings to the extent considered as an adjustment to interest costs. Similar to Indian GAAP Functional and presentation Currency Foreign currency is a currency other than the reporting currency. Reporting currency means Indian currency except for foreign operations where it shall mean currency of the country where the operations are carried out. Foreign currency is a currency other than the reporting currency which is the currency in which financial statements are presented. There is no concept of functional currency Functional currency is the currency of the primary economic environment in which the entity operates. Foreign currency is a currency other than the functional currency. Presentation currency is the currency in which the financial statements are presented. Conversion at period- end for non-monetary foreign currency items Non-monetary foreign currency items shall be converted into reporting currency by using the exchange rate at the date of the transaction. Exchange differences arising shall not be recognised as income or expense in that year. Recognition of exchange difference shall be subject to provisions of section 43A of the Act or Rule 115 of the Rules, as the case may be. Non-monetary foreign currency items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction; and Those which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined. Similar to Indian GAAP Exchange differences monetary items Monetary items shall be converted into reporting currency by applying the closing rate. Exchange differences arising on the settlement of monetary items or on conversion thereof at last day of the year shall be recognised as income or as expense in that year. Recognition of exchange difference shall be subject to provisions of section 43A of the Act or Rule 115 of the Rules, as the case may be. Same as ICDS. Exchange differences arising on translation or settlement of foreign currency monetary items are recognised in profit or loss in the period in which they arise (subject to below). There is an exception to the above that there is a limited period irrevocable option for corporate entities to capitalise exchange differences on long-term foreign currency monetary items incurred for acquisition of depreciable capital assets and to amortise exchange differences on other long-term foreign currency monetary items over the life of such items but not beyond the stipulated date. Exchange differences on monetary items, that in substance, form part of net investment in a non integral foreign operation, are accumulated in a foreign currency translation reserve in the enterprise s financial statements until the disposal of the net investment, at which time they should be recognised as income or as expenses. Same as ICDS. Exchange differences arising on translation or settlement of foreign currency monetary items are recognised in profit or loss in the period in which they arise (subject to below). However, an entity may continue the policy adopted for exchange differences arising from translation of long-term foreign currency monetary items recognised in the financial statements for the period ending immediately before the beginning of the first Ind AS financial reporting period as per previous GAAP. Exchange differences on monetary items, that in substance, form part of net investment in a foreign operation, are recognised in profit or loss in the period in which they arise in the separate financial statements and in other comprehensive income in the consolidated financial statements and reclassified from equity to profit or loss on disposal of the net investment. Translation of the financial statements of Foreign operations [Foreign Branch] There is no bifurcation like Integral or non-integral foreign operation. Accordingly, the assets and liabilities of foreign operations would need to be classified into monetary and non-monetary and the recognition of foreign exchange gain/loss for income computation purpose will be as per para 5 of this ICDS subject to para 6 of this ICDS. Monetary assets are translated at closing rate and the exchange differences are recognised as income or expense. Non-monetary shall be converted into reporting currency by using the exchange rate at the date of the transaction. Above provisions are subject to section 43A of the Act and rule 115 of the Rules. Integral Foreign Operations. Translation of financial statements of a foreign operation to the reporting currency of the parent/investor depends on the classification of that operation as integral or non-integral. In the case of an integral foreign operation, monetary assets are translated at closing rate. Non-monetary items are translated at historical rate if they are valued at cost. Non-monetary items which are carried at fair value or other similar valuation are reported using the exchange rates that existed when the values were determined. Income and expense items are translated at historical/average rate. Exchange differences are taken to the statement of profit and loss. For non-integral foreign operations, closing rate method should be followed (i.e. all assets and liabilities are to be translated at closing rate while profit and loss account items are translated at actual/average rates). The resulting exchange difference is taken to reserve and is recycled to profit and loss on the disposal of the non-integral foreign operation. Treatment for disposal does not depend on whether control over a foreign subsidiary is lost or not. Even if control is lost, only proportionate amount of the reserve is recycled to statement of profit and loss. There is no bifurcation like Integral or non-integral foreign operation. Assets and liabilities should be translated from functional currency to presentation currency at the closing rate at the date of the balance sheet; income and expenses at actual/average rates for the period; exchange differences are recognised in other comprehensive income and accumulated in a separate component of equity. These are reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss on disposal is recognised. Treatment of disposal depends on whether control is lost or not. Thus, if control is lost, the exchange difference attributable to the parent is reclassified to profit or loss from foreign currency translation reserve in other comprehensive income.