Financial Accounting · The Effects of Changes in Foreign Exchange Rates (AS 11)

AS 11 Disclosure and Other Provisions Explained

Updated 10 October 2026 · Fact-checked

AS 11 lets an enterprise, under para 46A, add exchange differences on long-term foreign currency monetary items to the cost of a depreciable asset, or park them in the Foreign Currency Monetary Item Translation Difference Account and amortise them. It also covers reclassifying a foreign operation (paras 33-34) and post-balance-sheet rate changes (para 43).

Understand Disclosure and Other Provisions of AS 11

AS 11 normally takes exchange differences on monetary items to profit or loss. The transitional provisions give an option to treat long-term foreign currency monetary items differently. This spreads the effect over the life of the asset or liability, instead of hitting one year.

Para 46A applies to accounting periods commencing on or after 1 April 2011. It is available to an enterprise that earlier exercised the option under para 46, and, at the option of any other enterprise. The option is irrevocable and must be applied to all such foreign currency monetary items.

An item qualifies as a long-term foreign currency monetary item only if it is expressed in a foreign currency and has a term of twelve months or more at the date of origination. A monetary item is money held and assets and liabilities to be received or paid in fixed or determinable amounts of money (para 7.11). Term is tested at origination, not at the balance sheet date.

Two treatments follow. If the difference relates to acquiring a depreciable capital asset, it is added to or deducted from the asset's cost and depreciated over the balance life of the asset. In other cases, it is accumulated in the Foreign Currency Monetary Item Translation Difference Account and amortised to income or expense over the balance period of the asset or liability. Differences dealt with under para 15 are excluded.

The other provisions are about classification. A foreign operation is integral if it works as an extension of the reporting enterprise (para 18). It is non-integral if it accumulates cash, incurs expenses, earns income and perhaps borrows substantially in local currency (para 19). Para 20 lists indicators, and judgement is needed where the classification is unclear. Once classified, the classification is kept for consistency, unless the way the operation is financed and operates changes (para 34).

Key rules to remember

Para 46A eligibility: Foreign currency item + monetary + term ≥ 12 months at origination = long-term foreign currency monetary item; Option is irrevocable and applies to all such items. Disclose the fact of the option and the amount remaining to be amortised, in the period of exercise and every later period while any difference remains unamortised.
Exchange difference on depreciable capital asset: Add to or deduct from asset cost; depreciate over balance life of the asset; Applies only where the difference relates to acquisition of a depreciable capital asset.
Other long-term items: Accumulate in FCMITDA; amortise over balance period of the asset or liability to profit or loss; FCMITDA means Foreign Currency Monetary Item Translation Difference Account.
Change in classification (para 33): Apply translation procedures of the revised classification from the date of change; No restatement of earlier periods.
Integral to non-integral (para 34): Exchange differences on translation of non-monetary assets at date of reclassification go to Foreign Currency Translation Reserve; Deferred exchange differences are not recognised in income or expense until disposal of the operation.
Non-integral to integral (para 34): Translated amounts of non-monetary items at date of change = historical cost from then on; Applies in the period of change and later periods.
Post balance sheet rate change (para 43): Disclose as per AS 4; Applies to the effect on monetary items or on a foreign operation's statements of rate changes after the balance sheet date.

How to solve Disclosure and Other Provisions of AS 11 questions

Most theory questions here ask you to state a rule or its conditions. Numerical questions test the para 46A treatment. Use this order.

1Identify the item: is it a monetary item expressed in a foreign currency, and what was its term at origination?
2If the term is under twelve months at origination, stop. Para 46A does not apply and normal AS 11 treatment follows.
3If the term is twelve months or more, check whether the option under para 46A is exercised. State that it is irrevocable and applies to all such items.
4Decide whether the difference relates to acquiring a depreciable capital asset. If yes, adjust the asset cost and depreciate over its balance life.
5If not, debit or credit the Foreign Currency Monetary Item Translation Difference Account and amortise it over the balance period of the asset or liability.
6For classification questions, state the old and new classification and apply the para 34 rule for that direction of change.
7Close with the disclosure: the fact of the option and the unamortised balance, or AS 4 for post balance sheet rate changes.

Quickest way: Four-question check for para 46A

When to use it: Use for short theory questions and for MCQs asking which treatment applies.

Foreign currency and monetary? If not, it is outside this option.
Twelve months or more at origination? If not, the option is not available.
Related to a depreciable capital asset? Yes: change the asset cost. No: use FCMITDA.
Always add: irrevocable, applies to all such items, disclose unamortised amount.

Common mistakes in Disclosure and Other Provisions of AS 11

Testing the twelve-month term at the balance sheet date.
Students think of current and non-current classification.
Fix: The text tests the term at the date of origination of the asset or liability.
Treating the para 46A option as revocable or as selective item by item.
The word option suggests free choice each year.
Fix: State that it is irrevocable and applied to all such foreign currency monetary items.
Putting every long-term difference into FCMITDA.
Students remember only the account name.
Fix: Differences relating to a depreciable capital asset go to the asset cost. FCMITDA is for other cases.
Mixing up the two reclassification rules in para 34.
Both involve non-monetary items at the date of change.
Fix: Integral to non-integral: differences go to a translation reserve. Non-integral to integral: translated amounts become historical cost.
Recognising deferred exchange differences in profit or loss when classification changes.
Students assume reclassification triggers a release.
Fix: Para 34 says such differences are not recognised as income or expense until the operation is disposed of.
Applying the new classification to earlier periods.
Students think consistency means restating.
Fix: Para 33 applies the new translation procedures from the date of the change.

Worked examples

Example 1

Explain the conditions under which an enterprise can use the para 46A option for exchange differences on long-term foreign currency monetary items, and the accounting treatment.

Show the solution

Eligibility: periods commencing on or after 1 April 2011, for an enterprise that earlier exercised para 46, or any other enterprise at its option.
Condition on the item: expressed in a foreign currency, with a term of twelve months or more at the date of origination.
Option features: irrevocable and applied to all such items.
Treatment 1: differences relating to acquiring a depreciable capital asset are added to or deducted from the asset cost and depreciated over the balance life of the asset.
Treatment 2: in other cases, accumulate in the Foreign Currency Monetary Item Translation Difference Account and amortise over the balance period of the asset or liability, as income or expense.
Exception: differences dealt with under para 15 of the rules are outside this treatment.
Disclosure: the fact of the option and the amount remaining to be amortised, in the period of exercise and every later period while any difference remains unamortised.

Answer: The option is irrevocable and covers items with a term of twelve months or more at origination. Differences on depreciable capital assets adjust asset cost. Others go to FCMITDA and are amortised. Disclose the option and the unamortised amount.

Example 2

A foreign operation of an Indian company was integral. Its financing and operations have changed and it is now non-integral. How is the change accounted for? What if the reverse happens?

Show the solution

State consistency: a classification continues unless the way the operation is financed and operates changes.
Para 33: apply the translation procedures of the revised classification from the date of the change.
Integral to non-integral: exchange differences on translating non-monetary assets at the date of reclassification are accumulated in a foreign currency translation reserve.
Non-integral to integral: the translated amounts of non-monetary items at the date of change are treated as historical cost in the period of change and later periods.
Deferred exchange differences are not recognised as income or expense until the operation is disposed of.

Answer: The new procedures apply from the date of change. Integral to non-integral: differences on non-monetary assets go to a foreign currency translation reserve. Non-integral to integral: translated amounts become historical cost. Deferred differences stay deferred until disposal.

Exam tips

Learn para 46A as a checklist: date, eligibility, twelve-month origination test, irrevocability, two treatments, disclosure.
For MCQs, watch the words at origination and depreciable capital asset. Wrong options usually change them.
In classification answers, name the direction of change first, then give the matching para 34 rule.
Write the para 20 indicators briefly if asked how to classify an operation. Add that judgement is needed when the classification is unclear.
Use the account name in full once, then FCMITDA. Examiners look for the correct title.

Practice questions from The Effects of Changes in Foreign Exchange Rates (AS 11)

Disclosure and Other Provisions of AS 11 in other exams

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

Disclosure and Other Provisions of AS 11: frequently asked questions

What is a long-term foreign currency monetary item under AS 11?

It is an asset or liability expressed in a foreign currency that has a term of twelve months or more at the date of origination. Only such items can use the para 46A option.

Can a company withdraw the para 46A option later?

No. The text says the option is irrevocable and must be applied to all such foreign currency monetary items.

What must be disclosed under para 46A?

Disclose the fact that the option was exercised and the amount remaining to be amortised. This is required in the period of exercise and in every later period while any exchange difference remains unamortised.

How are rate changes after the balance sheet date treated?

Para 43 says their effect on foreign currency monetary items, or on a foreign operation's financial statements, is disclosed under AS 4, Contingencies and Events Occurring After the Balance Sheet Date.