Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Financial Reporting

Other Ind AS and Foreign Currency: Ind AS 21, 23, 113, 101 and 29

Updated 5 October 2026 · Fact-checked

These five standards cover foreign currency (Ind AS 21), borrowing costs (Ind AS 23), fair value (Ind AS 113), first-time adoption (Ind AS 101) and hyperinflation (Ind AS 29). To solve a question, identify the standard, apply its recognition rule, measure using the prescribed rate, rate, hierarchy or period, and state the accounting entry and disclosure.

Understand Other Ind AS and Foreign Currency

Each of these standards answers one narrow question. Learn the question first, then the rule.

Ind AS 21 asks: how do you record foreign currency transactions and translate foreign operations? You first fix the functional currency, the currency of the primary economic environment. A foreign currency transaction is recorded at the spot rate on the transaction date. At each reporting date, monetary items are restated at the closing rate. Non-monetary items at historical cost stay at the transaction-date rate. Non-monetary items at fair value use the rate on the date fair value was measured. Exchange differences on monetary items go to profit or loss, except for specific cases. One is a monetary item that forms part of the net investment in a foreign operation. In the separate financial statements of the reporting entity or the foreign operation (as appropriate), the exchange differences on such an item go to profit or loss. In the financial statements that include both the foreign operation and the reporting entity (for example, consolidated financial statements), they are initially recognised in OCI and reclassified from equity to profit or loss on disposal of the net investment. Also, when you translate a foreign operation into the presentation currency, the resulting exchange differences are recognised in OCI and accumulated in a foreign currency translation reserve.

Ind AS 23 asks: when can interest be added to the cost of an asset? Borrowing costs directly attributable to acquiring, constructing or producing a qualifying asset must be capitalised. A qualifying asset is one that necessarily takes a substantial period to get ready for use or sale. For general borrowings, you apply a capitalisation rate to the expenditure on the asset. The rate is the borrowing costs incurred on those general borrowings during the period divided by the weighted average amount of those borrowings outstanding. Capitalisation starts when expenditure is incurred, borrowing costs are incurred and activities are under way. It is suspended during extended periods when active development is interrupted. It stops when substantially all activities are complete. All other borrowing costs are expensed.

Ind AS 113 asks: how do you measure fair value? Fair value is the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is an exit price. Inputs are ranked in a three-level hierarchy. Level 1 is quoted prices in active markets for identical items. Level 2 is other observable inputs. Level 3 is unobservable inputs. Use the highest level of inputs available.

Ind AS 101 asks: how does an entity move to Ind AS for the first time? It prepares an opening Ind AS balance sheet at the date of transition. It applies Ind AS in force at the first reporting date retrospectively, subject to mandatory exceptions and optional exemptions. Differences are adjusted in retained earnings or another category of equity.

Ind AS 29 asks: what if the functional currency is hyperinflationary? Financial statements are restated in the measuring unit current at the end of the reporting period, using a general price index. Monetary items are not restated. Non-monetary items carried at cost are restated. The gain or loss on the net monetary position goes to profit or loss.

Key rules to remember

Foreign currency transaction initial recording: Amount in ₹ = Foreign currency amount × Spot rate on transaction date; An average rate may be used for a period only if rates do not fluctuate significantly.
Exchange difference on monetary item: Difference = FC amount × (Closing rate − Rate at which previously recorded); Normally recognised in profit or loss. Check the direction for asset versus liability.
Non-monetary items translation: Historical cost items: transaction-date rate. Fair value items: rate on fair value measurement date; Do not restate at the closing rate unless carried at fair value measured at that date.
Capitalisation on specific borrowings: Eligible cost = Actual borrowing cost incurred − Investment income on temporary investment of unspent funds; Applies to funds borrowed specifically for the qualifying asset.
Capitalisation on general borrowings: Eligible cost = Capitalisation rate × Expenditure on the asset; Capitalisation rate = Borrowing costs incurred on general borrowings during the period ÷ Weighted average amount of those general borrowings outstanding; The amount capitalised cannot exceed the borrowing costs actually incurred in the period.
Fair value hierarchy: Priority of inputs: Level 1 (quoted, identical, active market) highest; Level 2 (observable) next; Level 3 (unobservable) lowest; Level 1 inputs have the highest priority and Level 3 the lowest. The whole measurement is categorised at the level of the lowest-level input that is significant to it.
Ind AS 101 transition: Date of transition: the beginning of the earliest period for which full comparative information under Ind AS is presented in the first Ind AS financial statements; The opening Ind AS balance sheet is prepared at this date. Use Ind AS in force at the first Ind AS reporting date. Adjust differences in retained earnings or other equity.
Hyperinflation restatement: Restated amount = Historical amount × (Index at reporting date ÷ Index at date item was recorded); Apply to non-monetary items at cost. Monetary items are already in current units.

How to solve Other Ind AS and Foreign Currency questions

Use this sequence for any question in this topic. It works whether the case is a single transaction or a mixed scenario in the IBS paper.

1Identify the standard from the trigger words: functional currency or closing rate (Ind AS 21), qualifying asset or interest (Ind AS 23), exit price or inputs (Ind AS 113), transition date or opening balance sheet (Ind AS 101), price index or monetary position (Ind AS 29).
2State the definition that decides the issue, such as monetary or non-monetary, qualifying asset, Level 1 to 3 input, or hyperinflationary economy.
3Fix the dates: transaction date, reporting date, settlement date, commencement, suspension and cessation of capitalisation, or date of transition.
4Pick the correct rate or measure: spot, closing, historical, capitalisation rate, observable input or price index.
5Compute step by step and show each working note, so partial marks are secured.
6Pass the accounting entry and decide where the difference goes: profit or loss, OCI, cost of asset or retained earnings.
7Write the conclusion in one line and add the key disclosure or reasoning, linking the answer to the case facts.

Quickest way: Classify, date, rate, post

When to use it: Use when you have under 10 minutes for a case-scenario question or MCQ on these standards.

Underline the one fact that decides the standard, such as the type of asset, the currency or the transition date.
Write the classification in the margin: monetary, non-monetary, qualifying, Level 1/2/3.
Mark the key dates on a small timeline.
Compute only the figure asked. Do not rebuild full statements.
Write the entry or conclusion in the form: rule, application, result.

Common mistakes in Other Ind AS and Foreign Currency

Restating non-monetary items at the closing rate under Ind AS 21.
Students apply the closing rate to every balance sheet item.
Fix: Restate only monetary items at the closing rate. Keep historical cost non-monetary items at the transaction-date rate.
Capitalising borrowing costs on every asset that is financed by a loan.
Students forget to test whether the asset is a qualifying asset.
Fix: Ask whether the asset needs a substantial period to get ready. If not, charge the interest to profit or loss.
Not deducting investment income from specific borrowing costs.
Students take the full interest as the capitalisable amount.
Fix: For specific borrowings, deduct income earned on temporary investment of unspent borrowed funds.
Treating the fair value hierarchy as a ranking of the asset rather than of the inputs.
The words Level 1, 2 and 3 sound like asset classes.
Fix: Classify the inputs used. Place the entire measurement at the level of the lowest significant input.
Applying the old Indian GAAP or AS rules in Ind AS 101 questions.
Students carry over habits from previous accounting standards.
Fix: Use Ind AS in force at the first reporting date retrospectively, then apply the mandatory exceptions and optional exemptions given in the question.
Restating monetary items under Ind AS 29.
Students assume all balance sheet items need an index factor.
Fix: Monetary items are already stated in current purchasing power. Restate only non-monetary items and equity, and report the net monetary gain or loss.

Worked examples

Example 1

Alpha Ltd, whose functional currency is INR, purchased machinery on 1 January 2027 from a US supplier for USD 50,000 on credit. The spot rate on that date was ₹83 per USD. On 31 March 2027, the closing rate was ₹84 per USD. The liability was settled on 30 April 2027 at ₹85 per USD. The year ends on 31 March 2027. Compute the exchange differences and state the entries.

Show the solution

The machinery is a non-monetary item at historical cost. The payable is a monetary item.
On 1 January 2027, recognise the machinery at 50,000 × 83 = ₹41,50,000. Dr Machinery ₹41,50,000; Cr Trade payable ₹41,50,000.
At 31 March 2027, restate the payable at 50,000 × 84 = ₹42,00,000. The increase is ₹50,000.
Recognise the loss of ₹50,000 in profit or loss: Dr Exchange loss ₹50,000; Cr Payable ₹50,000. Do not change the machinery cost.
On 30 April 2027, the payable is settled at 50,000 × 85 = ₹42,50,000. The further loss is ₹42,50,000 − ₹42,00,000 = ₹50,000.
Entry on settlement: Dr Payable ₹42,00,000; Dr Exchange loss ₹50,000; Cr Bank ₹42,50,000.

Answer: Machinery stays at ₹41,50,000. Exchange loss of ₹50,000 falls in FY 2026-27 and a further ₹50,000 in FY 2027-28, both through profit or loss.

Example 2

Beta Ltd began constructing a plant (a qualifying asset) on 1 April 2026. It took a specific loan of ₹10,00,000 at 10% p.a. on that date. Of this, ₹4,00,000 was unspent for the first 6 months and was temporarily invested at 6% p.a. The loan was fully used from 1 October 2026. Construction continued to 31 March 2027. Compute borrowing cost to be capitalised for the year ended 31 March 2027.

Show the solution

Interest incurred on the specific loan for the full year = 10,00,000 × 10% = ₹1,00,000.
Investment income on unspent funds = 4,00,000 × 6% × 6/12 = ₹12,000.
Under Ind AS 23, capitalise actual borrowing cost less investment income on temporary investment.
Eligible amount = 1,00,000 − 12,000 = ₹88,000.
Entries: Dr Capital work in progress ₹1,00,000; Cr Bank/Interest payable ₹1,00,000 (interest incurred). Dr Bank ₹12,000; Cr Capital work in progress ₹12,000 (investment income received, set against the capitalised cost). Net amount added to capital work in progress = ₹1,00,000 − ₹12,000 = ₹88,000. The investment income of ₹12,000 is not recognised in profit or loss.

Answer: Borrowing cost capitalised is ₹88,000. The cost of the plant is increased by this amount.

Exam tips

In case-scenario MCQs, the trap is usually a definition: monetary versus non-monetary, qualifying asset, or the level of an input. Read the asset carefully.
Always show the timeline for borrowing costs. The start, suspension and cessation dates earn most of the marks.
For Ind AS 101, write the rule, the exemption or exception used, and the effect on retained earnings. Use the facts given.
For Ind AS 113 theory, write the definition, the three levels with an example each, and the principle of using the highest level of inputs available.
In the integrated Paper 6 case, link Ind AS 21 to treasury risk and Ind AS 113 to valuation in other parts of the case, then state the accounting treatment clearly.

Practice questions from Financial Reporting

Other Ind AS and Foreign Currency in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Other Ind AS and Foreign Currency: frequently asked questions

Where do exchange differences go under Ind AS 21?

For monetary items, exchange differences normally go to profit or loss in the period they arise. Differences on a net investment in a foreign operation go to OCI in the consolidated financial statements, and they are reclassified on disposal.

What is a qualifying asset under Ind AS 23?

It is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Examples include a plant under construction or inventory that takes a long time to mature. Assets that are ready when acquired do not qualify.

What are the three levels of the Ind AS 113 hierarchy?

Level 1 is quoted prices in active markets for identical items. Level 2 is inputs other than Level 1 that are observable, directly or indirectly. Level 3 is unobservable inputs, used only when observable inputs are not available.

What is the date of transition in Ind AS 101?

It is the beginning of the earliest period for which the entity presents full comparative information under Ind AS in its first Ind AS financial statements. The opening Ind AS balance sheet is prepared at that date.