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CA Final · Financial Reporting · Ind AS 21 The Effects of Changes in Foreign Exchange Rates

Kaveri Power Ltd first adopted Ind AS this year. Under the exemption in paragraph D13AA of Appendix D to Ind AS 101, it has opted to continue its previous GAAP policy for exchange differences on long-term foreign currency monetary items recognised before the first Ind AS reporting period. How does Ind AS 21 treat such items?

Such items are scoped out of Ind AS 21 by paragraph 7AA, so the entity continues its previous GAAP accounting for exchange differences on them. The scope-out exists because Ind AS 101 paragraph D13AA permits that exemption on first-time adoption.

  1. AThey are within the scope of Ind AS 21 and must be restated at the closing rate with differences in profit or loss
  2. BThey are scoped out of Ind AS 21 by paragraph 7AA, and the previous GAAP policy continuesCorrect
  3. CThey must be translated at historical rates and never remeasured
  4. DThey are treated as a net investment in a foreign operation

Explanation

The appendix notes that paragraph 7AA was inserted to scope out long-term foreign currency monetary items for which the entity opted for the D13AA exemption of Ind AS 101. The entity therefore continues its previous GAAP policy for exchange differences on them. Option A is wrong because the items are not within Ind AS 21 scope.

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