"AJSH & Co LLP"    is now    "Mercurius & Associates LLP" "AJSH & Co LLP"    is now    "Mercurius & Associates LLP" "AJSH & Co LLP"    is now    "Mercurius & Associates LLP"

Ind AS 21 – Updation in the Effects of Changes in Foreign Exchange Rates


Ind AS 21 describes how to account for the changes in foreign exchange rates. It includes how the foreign currency transactions will be recorded in the financial statements and converted into a presentation currency and will address how the foreign exchange rate affects the foreign currency transactions in the financial statements.

To summarize the same following are the essential points to be considered while applying Ind AS 21.

This Standard shall be applied:

  • To the presentation and disclosure of the transactions and balances in foreign currencies.
  • In case of consolidation, proportionate consolidation or the equity method, for understanding of the financial position of foreign operations.
  • For analyzing the results and financial position into a presentation currency.
  • To those foreign currency derivatives that are not within the scope of Ind AS 39. Also, this Standard applies only when an entity translates the derivative amounts from its functional currency to its presentation currency.
  • To the presentation of an entity’s financial statements in a foreign currency and for the compliance requirements of the resulting financial statements in accordance with the Indian Accounting Standards.

This Standard shall not be applied:

  • To those derivative transactions and balances that are within the scope of Ind AS 39 Financial Instruments: Recognition and Measurement.
  • To hedge accounting (Ind AS 39) for foreign currency items, including hedging a net investment in a foreign operation.
  • To the presentation in a statement of cash flows (Ind AS 7) of the cash flows emerging from transactions in a foreign currency, or to the translation of cash flows of a foreign operation.

The meaning of the following terms used repetitively in the Standard are:

  • The closing rate is the exchange rate prevailing at the end of the reporting period.
  • Exchange difference is the difference resulting from translating the foreign exchange currency with the Functional currency.
  • The exchange rate is when a single unit of foreign currency can be converted into Functional currency.
  • Fair value is the amount at which two parties exchange an asset or a liability at an arm’s length price.
  • Foreign currency is a currency prevailing in the financial operation.
  • Functional currency is the currency of the home country in which the entity operates.
  • A group is a holding company, including all its subsidiaries.
  • Monetary items are the assets and liabilities fixed from the point of Receivable and Payable in the foreign currency.
  • Net investment is the amount invested by the reporting entity in the net assets of the foreign operation.
  • Presentation currency is the currency in which the financial statements are disclosed.
  • Spot exchange rate records the exchange rate for an immediate transaction.

Reporting foreign currency transactions in the functional currency

  • Initial recognition
    On initial recognition in the functional currency, a foreign currency transaction shall be recorded at the actual rate that prevails on the date the transaction was made.
  • Reporting at the end of each period
    At the end of each reporting period:

    • Foreign currency monetary items shall be reported at the closing rate;
    • Non-monetary items that are sustained in terms of historical cost in a foreign currency shall be described using the exchange rate prevailing at the date the transaction was made; and
    • Non-monetary items that are measured at fair value in a foreign currency must be reported using the exchange rates at the date of determination of the fair value.
  • Recognition of Exchange Differences
    Any fluctuation in the Exchange rate shall be transferred to Profit or Loss in the period they arise.
  • Change in functional currency
    Accordingly, when the current functional currency changes, the new translation procedures shall be applicable to the new functional currency expected from the date of the change.

Using the presentation currency

  • Translation to the Presentation Currency
    The financial position and the results of an entity shall be translated into a different presentation currency by taking into consideration:
      • Ashassets and liabilities for each balance sheet presented ll be recorded at the prevailing closing rate as at the date of that balance sheet;
      • Income and expenses for each statement of profit and loss granted shall be recorded at the persuading exchange rates at the transaction date; and
      • All accumulated exchange differences shall be recognized in other comprehensive income.
  • Translation to a Foreign Operation
    During the acquisition of a foreign operation, any goodwill and fair value adjustments to the carrying amounts of assets and liabilities shall be treated as assets and liabilities of the foreign operation. Accordingly, these goodwill and fair value adjustments shall be recorded at the Functional currency and then translated at the prevailing closing rate of the foreign operation.


  • The cumulative exchange differences recognized as profit or loss in the financial statements, other than those foreign exchange transactions measured at Fair value, shall be disclosed.
  • When the Functional currency of the entity changes, according to Ind AS 22, the reason for the change and the date of change in the Functional currency shall be disclosed.
  • When the functional and presentation currencies are not the same, the Functional currency shall be disclosed stating the reason for using a different presentation currency.

At AJSH, we assist our clients in bookkeeping, payroll, auditing, taxation, secretarial compliances and preparation of financial statements ensuring compliance with accounting standards. If you have any questions or wish to know more about IND AS 21, kindly contact us.


Ready to assist with any of your queries or concerns


Ready to assist with your Queries