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

Under AS 11, the exchange differences arising on translation of the financial statements of a non-integral foreign operation are not recognised as income or expense for the period because:

Such exchange differences are kept out of profit or loss because rate changes have little or no direct effect on present and future cash flows from operations of either the non-integral foreign operation or the reporting enterprise. The standard gives no reason based on immateriality or tax offset.

  1. Achanges in exchange rates have little or no direct effect on present and future cash flows from operations of the non-integral foreign operation or the reporting enterpriseCorrect
  2. Bthey are always immaterial in amount
  3. Cthey are always offset by tax effects under AS 22
  4. Dthey relate only to the opening inventory of the operation

Explanation

Paragraph 26 states these differences are not recognised in income or expense because exchange rate changes have little or no direct effect on present and future cash flows of the operation or the reporting enterprise. Materiality, tax offset and inventory are not the stated reasons.

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