Indian Accounting Standard (Ind AS) 21 The Effects of Changes in Foreign Exchange Rates (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.) Objective e[A currency is exchangeable into another currency when an entity is able to obtain the other currency within a time frame that allows for a normal administrative delay and through a market or exchange mechanism in which an exchange transaction would create enforceable rights and obligations.] e[Elaboration on the definitions Exchangeable (paragraphs A2–A10) 8A An entity assesses whether a currency is exchangeable into another currency: (a) at a measurement date; and (b) for a specified purpose. 8B If an entity is able to obtain no more than an insignificant amount of the other currency at the measurement date for the specified purpose, the currency is not exchangeable into the other currency.] b[16 The essential feature of a monetary item is a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: pensions and other employee benefits to be paid in cash; provisions that are to be settled in cash; lease liabilities; and cash dividends that are recognised as a liability. Similarly, a contract to receive (or deliver) a variable number of the entity’s own equity instruments or a variable amount of assets in which the fair value to be received (or delivered) equals a fixed or determinable number of units of currency is a monetary item. Conversely, the essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: amounts prepaid for goods and services; goodwill; intangible assets; inventories; property, plant and equipment; right-of-use assets and provisions that are to be settled by the delivery of a nonmonetary asset.;] e[Estimating the spot exchange rate when a currency is not exchangeable (paragraphs A11–A17) “19A An entity shall estimate the spot exchange rate at a measurement date when a currency is not exchangeable into another currency (as described in paragraphs 8, 8A–8B and A2–A10) at that date. An entity’s objective in estimating the spot exchange rate is to reflect the rate at which an orderly exchange transaction would take place at the measurement date between market participants under prevailing economic conditions.”] 20 A foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency, including transactions arising when an entity: 38 An entity may present its financial statements in any currency (or currencies). If the presentation currency differs from the entity’s functional currency, it translates its results and financial position into the presentation currency. For example, when a group contains individual entities with different functional currencies, the results and financial position of each entity are expressed in a common currency so that consolidated financial statements may be presented. e[57A When an entity estimates a spot exchange rate because a currency is not exchangeable into another currency (see paragraph 19A), the entity shall disclose information that enables users of its financial statements to understand how the currency not being exchangeable into the other currency affects, or is expected to affect, the entity’s financial performance, financial position and cash flows. To achieve this objective, an entity shall disclose information about: (a) the nature and financial effects of the currency not being exchangeable into the other currency; (b) the spot exchange rate(s) used; (c) the estimation process; and (d) the risks to which the entity is exposed because of the currency not being exchangeable into the other currency. 57B Paragraphs A18–A20 specify how an entity applies paragraph 57A.] c[Effective date and transition 58-60J Omitted* 60K Ind AS 116 amended paragraph 16. An entity shall apply that amendment when it applies Ind AS 116.;] e[60L Lack of Exchangeability, amended paragraphs 8 and 26, and added paragraphs 8A–8B, 19A, 57A–57B and Appendix A. An entity shall apply those amendments for annual reporting periods beginning on or after 1 April 2025. The date of initial application is the beginning of the annual reporting period in which an entity first applies those amendments. 60M In applying Lack of Exchangeability, an entity shall not restate comparative information. Instead: (a) when the entity reports foreign currency transactions in its functional currency, and, at the date of initial application, concludes that its functional currency is not exchangeable into the foreign currency or, if applicable, concludes that the foreign currency is not exchangeable into its functional currency, the entity shall, at the date of initial application: i. translate affected foreign currency monetary items, and non-monetary items measured at fair value in a foreign currency, using the estimated spot exchange rate at that date; and ii. recognise any effect of initially applying the amendments as an adjustment to the opening balance of retained earnings. (b) when the entity uses a presentation currency other than its functional currency, or translates the results and financial position of a foreign operation, and, at the date of initial application, concludes that its functional currency (or the foreign operation’s functional currency) is not exchangeable into its presentation currency or, if applicable, concludes that its presentation currency is not exchangeable into its functional currency (or the foreign operation’s functional currency), the entity shall, at the date of initial application: i. translate affected assets and liabilities using the estimated spot exchange rate at that date; ii. translate affected equity items using the estimated spot exchange rate at that date if the entity’s functional currency is hyperinflationary; and iii. recognise any effect of initially applying the amendments as an adjustment to the cumulative amount of translation differences—accumulated in a separate component of equity.”]
g. [Appendix A Application guidance
This appendix is an integral part of the Standard.
Exchangeability A1 The purpose of the following diagram is to help entities assess whether a currency is exchangeable and estimate the spot exchange rate when a currency is not exchangeable
Step I: Assessing whether a currency is exchangeable (paragraphs 8 and 8A–8B) A2 Paragraphs A3–A10 set out application guidance to help an entity assess whether a currency is exchangeable into another currency. An entity might determine that a currency is not exchangeable into another currency, even though that other currency might be exchangeable in the other direction. For example, an entity might determine that currency PC is not exchangeable into currency LC, even though currency LC is exchangeable into currency PC. Time frame A3 Paragraph 8 defines a spot exchange rate as the exchange rate for immediate delivery. However, an exchange transaction might not always complete instantaneously because of legal or regulatory requirements, or for practical reasons such as public holidays. A normal administrative delay in obtaining the other currency does not preclude a currency from being exchangeable into that other currency. What constitutes a normal administrative delay depends on facts and circumstances.
Ability to obtain the other currency A4 In assessing whether a currency is exchangeable into another currency, an entity shall consider its ability to obtain the other currency, rather than its intention or decision to do so. Subject to the other requirements in paragraphs A2–A10, a currency is exchangeable into another currency if an entity is able to obtain the other currency—either directly or indirectly—even if it intends or decides not to do so. For example, subject to the other requirements in paragraphs A2–A10, regardless of whether the entity intends or decides to obtain PC, currency LC is exchangeable into currency PC if an entity is able to either exchange LC for PC, or exchange LC for another currency (FC) and then exchange FC for PC.
Markets or exchange mechanisms
A5 In assessing whether a currency is exchangeable into another currency, an entity shall consider only markets or exchange mechanisms in which a transaction to exchange the currency for the other currency would create enforceable rights and obligations. Enforceability is a matter of law. Whether an exchange transaction in a market or exchange mechanism would create enforceable rights and obligations depends on facts and Purpose of obtaining the other currency
A6 Different exchange rates might be available for different uses of a currency. For example, a jurisdiction facingpressure on its balance of payments might wish to deter capital remittances (such as dividend payments) to other jurisdictions but encourage imports of specific goods from those jurisdictions. In such circumstances, the relevant authorities might: (a) set a preferential exchange rate for imports of those goods and a ‘penalty’ exchange rate for capital remittances to other jurisdictions, thus resulting in different exchange rates applying to different exchange transactions; or (b) make the other currency available only to pay for imports of those goods and not for capital remittances to other jurisdictions.
A7 Accordingly, whether a currency is exchangeable into another currency could depend on the purpose for which the entity obtains (or hypothetically might need to obtain) the other currency. In assessing exchangeability: (a) when an entity reports foreign currency transactions in its functional currency (see paragraphs 20– 37), the entity shall assume its purpose in obtaining the other currency is to realise or settle individual foreign currency transactions, assets or liabilities. (b) when an entity uses a presentation currency other than its functional currency (see paragraphs 38– 43), the entity shall assume its purpose in obtaining the other currency is to realise or settle its net assets or net liabilities. (c) when an entity translates the results and financial position of a foreign operation into the presentation currency (see paragraphs 44–47), the entity shall assume its purpose in obtaining the other currency is to realise or settle its net investment in the foreign operation.
A8 An entity’s net assets or net investment in a foreign operation might be realised by, for example: (a) the distribution of a financial return to the entity’s owners; (b) the receipt of a financial return from the entity’s foreign operation; or (c) the recovery of the investment by the entity or the entity’s owners, such as through disposal of the investment.
A9 An entity shall assess whether a currency is exchangeable into another currency separately for each purpose specified in paragraph A7. For example, an entity shall assess exchangeability for the purpose of reporting foreign currency transactions in its functional currency (see paragraph A7(a)) separately from exchangeability for the purpose of translating the results and financial position of a foreign operation (see paragraph A7(c)).
Ability to obtain only limited amounts of the other currency A10 A currency is not exchangeable into another currency if, for a purpose specified in paragraph A7, an entity is able to obtain no more than an insignificant amount of the other currency. An entity shall assess the significance of the amount of the other currency it is able to obtain for a specified purpose by comparing that amount with the total amount of the other currency required for that purpose. For example, an entity with a functional currency of LC has liabilities denominated in currency FC. The entity assesses whether the total amount of FC it can obtain for the purpose of settling those liabilities is no more than an insignificant amount compared with the aggregated amount (the sum) of its liability balances denominated in FC. Step II: Estimating the spot exchange rate when a currency is not exchangeable (paragraph 19A) A11 This Standard does not specify how an entity estimates the spot exchange rate to meet the objective in paragraph 19A. An entity can use an observable exchange rate without adjustment (see paragraphs A12–A16) or another estimation technique (see paragraph A17). Using an observable exchange rate without adjustment A12 In estimating the spot exchange rate as required by paragraph 19A, an entity may use an observable exchange rate without adjustment if that observable exchange rate meets the objective in paragraph 19A. Examples of an observable exchange rate include: (a) a spot exchange rate for a purpose other than that for which an entity assesses exchangeability (see paragraphs A13–A14); and (b) the first exchange rate at which an entity is able to obtain the other currency for the specified purpose after exchangeability of the currency is restored (first subsequent exchange rate) (see paragraphs A15–A16). Using an observable exchange rate for another purpose
A13 A currency that is not exchangeable into another currency for one purpose might be exchangeable into that currency for another purpose. For example, an entity might be able to obtain a currency to import specific goods but not to pay dividends. In such situations, the entity might conclude that an observable exchange rate for another purpose meets the objective in paragraph 19A. If the rate meets the objective in paragraph 19A, an entity may use that rate as the estimated spot exchange rate.
A14 In assessing whether such an observable exchange rate meets the objective in paragraph 19A, an entity shall consider, among other factors: (a) whether several observable exchange rates exist—the existence of more than one observable exchange rate might indicate that exchange rates are set to encourage, or deter, entities from obtaining the other currency for particular purposes. These observable exchange rates might include an ‘incentive’ or ‘penalty’ and therefore might not reflect the prevailing economic conditions. (b) the purpose for which the currency is exchangeable—if an entity is able to obtain the other currency only for limited purposes (such as to import emergency supplies), the observable exchange rate might not reflect the prevailing economic conditions. (c) the nature of the exchange rate—a free-floating observable exchange rate is more likely to reflect the prevailing economic conditions than an exchange rate set through regular interventions by the relevant authorities. (d) the frequency with which exchange rates are updated—an observable exchange rate unchanged over time is less likely to reflect the prevailing economic conditions than an observable exchange rate that is updated on a daily basis (or even more frequently). Using the first subsequent exchange rate
A15 A currency that is not exchangeable into another currency at the measurement date for a specified purpose might subsequently become exchangeable into that currency for that purpose. In such situations, an entity might conclude that the first subsequent exchange rate meets the objective in paragraph 19A. If the rate meets the objective in paragraph 19A, an entity may use that rate as the estimated spot exchange rate.
A16 In assessing whether the first subsequent exchange rate meets the objective in paragraph 19A, an entity shall consider, among other factors: (a) the time between the measurement date and the date at which exchangeability is restored—the shorter this period, the more likely the first subsequent exchange rate will reflect the prevailing economic conditions. (b) inflation rates—when an economy is subject to high inflation, including when an economy is hyperinflationary (as specified in Ind AS 29, Financial Reporting in Hyperinflationary Economies), prices often change quickly, perhaps several times a day. Accordingly, the first subsequent exchange rate for a currency of such an economy might not reflect the prevailing economic conditions. Using another estimation technique A17 An entity using another estimation technique may use any observable exchange rate— including rates from exchange transactions in markets or exchange mechanisms that do not create enforceable rights and obligations—and adjust that rate, as necessary, to meet the objective in paragraph 19A. Disclosure when a currency is not exchangeable A18 An entity shall consider how much detail is necessary to satisfy the disclosure objective in paragraph 57A. An entity shall disclose the information specified in paragraphs A19–A20 and any additional information necessary to meet the disclosure objective in paragraph 57A.
A19 In applying paragraph 57A, an entity shall disclose: (a) the currency and a description of the restrictions that result in that currency not being exchangeable into the other currency; (b) a description of affected transactions; (c) the carrying amount of affected assets and liabilities; (d) the spot exchange rates used and whether those rates are: i. observable exchange rates without adjustment (see paragraphs A12–A16); or ii. spot exchange rates estimated using another estimation technique (see paragraph A17);
(e) a description of any estimation technique the entity has used, and qualitative and quantitative information about the inputs and assumptions used in that estimation technique; and (f) qualitative information about each type of risk to which the entity is exposed because the currency is not exchangeable into the other currency, and the nature and carrying amount of assets and liabilities exposed to each type of risk. A20 When a foreign operation’s functional currency is not exchangeable into the presentation currency or, if applicable, the presentation currency is not exchangeable into a foreign operation’s functional currency, an entity shall also disclose: (a) the name of the foreign operation; whether the foreign operation is a subsidiary, joint operation, joint venture, associate or branch; and its principal place of business; (b) summarised financial information about the foreign operation; and (c) the nature and terms of any contractual arrangements that could require the entity to provide financial support to the foreign operation, including events or circumstances that could expose the entity to a loss.”]
Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 21 and the corresponding International Accounting Standard (IAS) 21, The Effects of Changes in Foreign Exchange Rates a[and IFRIC 22 Foreign Currency Transactions and Advance Consideration], issued by the International Accounting Standards Board. Comparison with IAS 21, The Effects of Changes in Foreign Exchange Rates a[and IFRIC 22] d[5. Paragraphs 58-60J of IAS 21 have not been included in Ind AS 21 as these paragraphs relate to Effective date and transition. However, in order to maintain consistency with paragraph numbers of IAS 21, these paragraph numbers are retained in Ind AS 21.] e. [6. Appendix C ‘References to matters contained in other Indian Accounting Standards’, has been included in Ind AS 21 to draw attention to guidance material already available in other Ind ASs, which is also relevant to the topic in Ind AS 21.”] a[Appendix B, Foreign Currency Transactions and Advance Consideration This appendix is an integral part of the Ind AS Background 1 Paragraph 21 of Ind AS 21, The Effects of Changes in Foreign Exchange Rates, requires an entity to record a foreign currency transaction, on initial recognition in its functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency (the exchange rate) at the date of the transaction. Paragraph 22 of Ind AS 21 states that the date of the transaction is the date on which the transaction first qualifies for recognition in accordance with Ind AS Standards (Standards). 2 When an entity pays or receives consideration in advance in a foreign currency, it generally recognises a non-monetary asset or non-monetary liability2 before the recognition of the related asset, expense or income. The related asset, expense or income (or part of it) is the amount recognised applying relevant Standards, which results in the derecognition of the non-monetary asset or non-monetary liability arising from the advance consideration. 3 Initially, the issue was how to determine ‘the date of the transaction’ applying paragraphs 21 -22 of Ind AS 21 when recognising revenue. The question specifically addressed circumstances in which an entity recognises a non-monetary liability arising from the receipt of advance consideration before it recognises the related revenue. It was noted that the receipt or payment of advance consideration in a foreign currency is not restricted to revenue transactions. Accordingly, this appendix clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income when an entity has received or paid advance consideration in a foreign currency. Scope 4 This Appendix applies to a foreign currency transaction (or part of it) when an entity recognises a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognises the related asset, expense or income (or part of it). 5 This Appendix does not apply when an entity measures the related asset, expense or income on initial recognition: (a) at fair value; or (b) at the fair value of the consideration paid or received at a date other than the date of initial recognition of the non-monetary asset or non-monetary liability arising from advance consideration (for example, the measurement of goodwill applying Ind AS 103, Business Combinations). 2 For example, paragraph 106 of Ind AS 115, Revenue from Contracts with Customers, requires that if a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (ie a receivable), before the entity transfers a good or service to the customer, the entity shall present the contract as a contract liability when the payment is made or the payment is due (whichever is earlier). 6 An entity is not required to apply this Appendix to: (a) income taxes; or (b) insurance contracts (including reinsurance contracts) that it issues or reinsurance contracts that it holds. Issue 7 This Appendix addresses how to determine the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration in a foreign currency. Accounting Principles 8 Applying paragraphs 21–22 of Ind AS 21, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. 9 If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration.Effective date and transition of Appendix B This is an integral part of Appendix B and has the same authority as the other parts of the Appendix B. Effective date A1 An entity shall apply this Appendix for annual reporting periods beginning on or after April 1, 2018. A2 On initial application, an entity shall apply this Appendix either: (a) retrospectively applying Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors; or (b) prospectively to all assets, expenses and income in the scope of the Appendix initially recognised on or after: (i) the beginning of the reporting period in which the entity first applies the Appendix; or (ii) the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the Appendix. A3 An entity that applies paragraph A2(b) shall, on initial application, apply the Appendix to assets, expenses and income initially recognised on or after the beginning of the reporting period in paragraph A2(b)(i) or (ii) for which the entity has recognised non-monetary assets or non-monetary liabilities arising from advance consideration before that date.] e. [ Appendix C References to matters contained in other Indian Accounting Standards This Appendix is an integral part of the Ind AS. This appendix lists the appendix which is a part of another Indian Accounting Standard and makes reference to Ind AS 21, The Effects of Changes in Foreign Exchange Rates. 1. Appendix C, Hedges of a Net Investment in a Foreign Operation, contained in Ind AS 109, Financial instruments makes reference to this Standard also.]
Amendment a. Inserted by the Companies (Indian Accounting Standards) Amendment Rules, 2018 b. Substituted by the Companies (Indian Accounting Standards) Amendment Rules, 2019 dated 30.03.2019 Amendment Effective From 1st April 2019 For paragraph 16, 16 The essential feature of a monetary item is a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: pensions and other employee benefits to be paid in cash; provisions that are to be settled in cash; and cash dividends that are recognised as a liability. Similarly, a contract to receive (or deliver) a variable number of the entity’s own equity instruments or a variable amount of assets in which the fair value to be received (or delivered) equals a fixed or determinable number of units of currency is a monetary item. Conversely, the essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: amounts prepaid for goods and services (eg prepaid rent); goodwill; intangible assets; inventories; property, plant and equipment; and provisions that are to be settled by the delivery of a non- monetary asset. the following paragraph shall be substituted, namely:- “16 The essential feature of a monetary item is a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: pensions and other employee benefits to be paid in cash; provisions that are to be settled in cash; lease liabilities; and cash dividends that are recognised as a liability. Similarly, a contract to receive (or deliver) a variable number of the entity’s own equity instruments or a variable amount of assets in which the fair value to be received (or delivered) equals a fixed or determinable number of units of currency is a monetary item. Conversely, the essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: amounts prepaid for goods and services; goodwill; intangible assets; inventories; property, plant and equipment; right-of-use assets and provisions that are to be settled by the delivery of a nonmonetary asset.”; c. Inserted by the Companies (Indian Accounting Standards) Amendment Rules, 2019 dated 30.03.2019 Amendment Effective From 1st April 2019 d. Inserted by the Companies (Indian Accounting Standards) Amendment Rules, 2019 dated 30.03.2019 Amendment Effective From 1st April 2019 e.Inserted by the Companies (Indian Accounting Standards) Amendment Rules, 2025 dated 07.05.2025
f. Substituted by the Companies (Indian Accounting Standards) Amendment Rules, 2025 dated 07.05.2025 For paragraph 26
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26 When several exchange rates are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date. If exchangeability between two currencies is temporarily lacking, the rate used is the first subsequent rate at which exchanges could be made.
the following paragraph shall be substituted, namely
26 When several exchange rates are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date.”
g. Substituted by the Companies (Indian Accounting Standards) Amendment Rules, 2025 dated 07.05.2025
for Appendix ‘A’
Appendix A
References to matters contained in other Indian Accounting Standards
This Appendix is an integral part of the Ind AS.
This appendix lists the appendix which is a part of another Indian Accounting Standard and makes reference to Ind AS 21, The Effects of Changes in Foreign Exchange Rates.
1. Appendix C, Hedges of a Net Investment in a Foreign Operation, contained in Ind AS 109, Financial instruments makes reference to this Standard also.
shall be substituted namely
Appendix A
Application guidance
This appendix is an integral part of the Standard.
Exchangeability
A1 The purpose of the following diagram is to help entities assess whether a currency is exchangeable and estimate the spot exchange rate when a currency is not exchangeable
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At the measurement date, estimate the spot exchange rate that meets the objective in paragraph 19A by using either: (a) an observable exchange rate without adjustment (see paragraphs A11–A16); or (b) another estimation technique (see paragraph A17). |
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Step I: Assessing whether a currency is exchangeable
(paragraphs 8 and 8A–8B)
A2 Paragraphs A3–A10 set out application guidance to help an entity assess whether a currency is exchangeable into another currency. An entity might determine that a currency is not exchangeable into another currency, even though that other currency might be exchangeable in the other direction. For example, an entity might determine that currency PC is not exchangeable into currency LC, even though currency LC is exchangeable into currency PC.
Time frame
A3 Paragraph 8 defines a spot exchange rate as the exchange rate for immediate delivery. However, an exchange transaction might not always complete instantaneously because of legal or regulatory requirements, or for practical reasons such as public holidays. A normal administrative delay in obtaining the other currency does not preclude a currency from being exchangeable into that other currency. What constitutes a normal administrative delay depends on facts and circumstances.
Ability to obtain the other currency
A4 In assessing whether a currency is exchangeable into another currency, an entity shall consider its ability to obtain the other currency, rather than its intention or decision to do so. Subject to the other requirements in paragraphs A2–A10, a currency is exchangeable into another currency if an entity is able to obtain the other currency—either directly or indirectly—even if it intends or decides not to do so. For example, subject to the other requirements in paragraphs A2–A10, regardless of whether the entity intends or decides to obtain PC, currency LC is exchangeable into currency PC if an entity is able to either exchange LC for PC, or exchange LC for another currency (FC) and then exchange FC for PC.
Markets or exchange mechanisms
A5 In assessing whether a currency is exchangeable into another currency, an entity shall consider only markets or exchange mechanisms in which a transaction to exchange the currency for the other currency would create enforceable rights and obligations. Enforceability is a matter of law. Whether an exchange transaction in a market or exchange mechanism would create enforceable rights and obligations depends on facts and Purpose of obtaining the other currency
A6 Different exchange rates might be available for different uses of a currency. For example, a jurisdiction facingpressure on its balance of payments might wish to deter capital remittances (such as dividend payments) to other jurisdictions but encourage imports of specific goods from those jurisdictions. In such circumstances, the relevant authorities might:
(a) set a preferential exchange rate for imports of those goods and a ‘penalty’ exchange rate for capital remittances to other jurisdictions, thus resulting in different exchange rates applying to different exchange transactions; or
(b) make the other currency available only to pay for imports of those goods and not for capital remittances to other jurisdictions.
A7 Accordingly, whether a currency is exchangeable into another currency could depend on the purpose for which the entity obtains (or hypothetically might need to obtain) the other currency. In assessing exchangeability:
(a) when an entity reports foreign currency transactions in its functional currency (see paragraphs 20– 37), the entity shall assume its purpose in obtaining the other currency is to realise or settle individual foreign currency transactions, assets or liabilities.
(b) when an entity uses a presentation currency other than its functional currency (see paragraphs 38– 43), the entity shall assume its purpose in obtaining the other currency is to realise or settle its net assets or net liabilities.
(c) when an entity translates the results and financial position of a foreign operation into the presentation currency (see paragraphs 44–47), the entity shall assume its purpose in obtaining the other currency is to realise or settle its net investment in the foreign operation.
A8 An entity’s net assets or net investment in a foreign operation might be realised by, for example:
(a) the distribution of a financial return to the entity’s owners;
(b) the receipt of a financial return from the entity’s foreign operation; or
(c) the recovery of the investment by the entity or the entity’s owners, such as through disposal of the investment.
A9 An entity shall assess whether a currency is exchangeable into another currency separately for each purpose specified in paragraph A7. For example, an entity shall assess exchangeability for the purpose of reporting foreign currency transactions in its functional currency (see paragraph A7(a)) separately from exchangeability for the purpose of translating the results and financial position of a foreign operation (see paragraph A7(c)).
Ability to obtain only limited amounts of the other currency
A10 A currency is not exchangeable into another currency if, for a purpose specified in paragraph A7, an entity is able to obtain no more than an insignificant amount of the other currency. An entity shall assess the significance of the amount of the other currency it is able to obtain for a specified purpose by comparing that amount with the total amount of the other currency required for that purpose. For example, an entity with a functional currency of LC has liabilities denominated in currency FC. The entity assesses whether the total amount of FC it can obtain for the purpose of settling those liabilities is no more than an insignificant amount compared with the aggregated amount (the sum) of its liability balances denominated in FC.
Step II: Estimating the spot exchange rate when a currency is not exchangeable (paragraph 19A)
A11 This Standard does not specify how an entity estimates the spot exchange rate to meet the objective in paragraph 19A. An entity can use an observable exchange rate without adjustment (see paragraphs A12–A16) or another estimation technique (see paragraph A17).
Using an observable exchange rate without adjustment
A12 In estimating the spot exchange rate as required by paragraph 19A, an entity may use an observable exchange rate without adjustment if that observable exchange rate meets the objective in paragraph 19A. Examples of an observable exchange rate include:
(a) a spot exchange rate for a purpose other than that for which an entity assesses exchangeability (see paragraphs A13–A14); and
(b) the first exchange rate at which an entity is able to obtain the other currency for the specified purpose after exchangeability of the currency is restored (first subsequent exchange rate) (see paragraphs A15–A16).
Using an observable exchange rate for another purpose
A13 A currency that is not exchangeable into another currency for one purpose might be exchangeable into that currency for another purpose. For example, an entity might be able to obtain a currency to import specific goods but not to pay dividends. In such situations, the entity might conclude that an observable exchange rate for another purpose meets the objective in paragraph 19A. If the rate meets the objective in paragraph 19A, an entity may use that rate as the estimated spot exchange rate.
A14 In assessing whether such an observable exchange rate meets the objective in paragraph 19A, an entity shall consider, among other factors:
(a) whether several observable exchange rates exist—the existence of more than one observable exchange rate might indicate that exchange rates are set to encourage, or deter, entities from obtaining the other currency for particular purposes. These observable exchange rates might include an ‘incentive’ or ‘penalty’ and therefore might not reflect the prevailing economic conditions.
(b) the purpose for which the currency is exchangeable—if an entity is able to obtain the other currency only for limited purposes (such as to import emergency supplies), the observable exchange rate might not reflect the prevailing economic conditions.
(c) the nature of the exchange rate—a free-floating observable exchange rate is more likely to reflect the prevailing economic conditions than an exchange rate set through regular interventions by the relevant authorities.
(d) the frequency with which exchange rates are updated—an observable exchange rate unchanged over time is less likely to reflect the prevailing economic conditions than an observable exchange rate that is updated on a daily basis (or even more frequently).
Using the first subsequent exchange rate
A15 A currency that is not exchangeable into another currency at the measurement date for a specified purpose might subsequently become exchangeable into that currency for that purpose. In such situations, an entity might conclude that the first subsequent exchange rate meets the objective in paragraph 19A. If the rate meets the objective in paragraph 19A, an entity may use that rate as the estimated spot exchange rate.
A16 In assessing whether the first subsequent exchange rate meets the objective in paragraph 19A, an entity shall consider, among other factors:
(a) the time between the measurement date and the date at which exchangeability is restored—the shorter this period, the more likely the first subsequent exchange rate will reflect the prevailing economic conditions.
(b) inflation rates—when an economy is subject to high inflation, including when an economy is hyperinflationary (as specified in Ind AS 29, Financial Reporting in Hyperinflationary Economies), prices often change quickly, perhaps several times a day. Accordingly, the first subsequent exchange rate for a currency of such an economy might not reflect the prevailing economic conditions.
Using another estimation technique
A17 An entity using another estimation technique may use any observable exchange rate— including rates from exchange transactions in markets or exchange mechanisms that do not create enforceable rights and obligations—and adjust that rate, as necessary, to meet the objective in paragraph 19A.
Disclosure when a currency is not exchangeable
A18 An entity shall consider how much detail is necessary to satisfy the disclosure objective in paragraph 57A. An entity shall disclose the information specified in paragraphs A19–A20 and any additional information necessary to meet the disclosure objective in paragraph 57A.
A19 In applying paragraph 57A, an entity shall disclose:
(a) the currency and a description of the restrictions that result in that currency not being exchangeable into the other currency;
(b) a description of affected transactions;
(c) the carrying amount of affected assets and liabilities;
(d) the spot exchange rates used and whether those rates are:
i. observable exchange rates without adjustment (see paragraphs A12–A16); or
ii. spot exchange rates estimated using another estimation technique (see paragraph A17);
(e) a description of any estimation technique the entity has used, and qualitative and quantitative information about the inputs and assumptions used in that estimation technique; and
(f) qualitative information about each type of risk to which the entity is exposed because the currency is not exchangeable into the other currency, and the nature and carrying amount of assets and liabilities exposed to each type of risk.
A20 When a foreign operation’s functional currency is not exchangeable into the presentation currency or, if applicable, the presentation currency is not exchangeable into a foreign operation’s functional currency, an entity shall also disclose:
(a) the name of the foreign operation; whether the foreign operation is a subsidiary, joint operation, joint venture, associate or branch; and its principal place of business;
(b) summarised financial information about the foreign operation; and
(c) the nature and terms of any contractual arrangements that could require the entity to provide financial support to the foreign operation, including events or circumstances that could expose the entity to a loss