As 11 Essay

2033 WordsJan 30, 20139 Pages
ACCOUNTING STANDARDS Accounting for Forward Exchange Contracts under Accounting Standard (AS) 11 (revised 2003), The Effects of Changes in Foreign Exchange Rates* The following is a write-up explaining the accounting for forward exchange contracts under AS 11 (revised 2003), The Effects of Changes in Foreign Exchange Rates. The views expressed in this write-up are those of the Technical Directorate of the ICAI and do not necessarily represent the views of the Council or any Board/Committees of the Institute of the Chartered Accountants of India. AS 11, The Effects of Changes in Foreign Exchange Rates (revised 2003), deals, inter alia, with forward exchange contracts and defines a forward exchange contract as an agreement to exchange different currencies at a forward rate. It is a contract to deliver or receive certain quantity of foreign currency at a specified rate (forward rate) and on a stipulated date. A forward exchange contract may be entered into for hedging purposes or for trading/speculation purposes. Forward Exchange Contract Entered into for Hedging Purposes If a forward exchange contract is entered into to mitigate the foreign exchange fluctuation risk on an item (called as underlying), it is a forward exchange contract entered into for hedging purposes. AS 11 (revised 2003) is applicable to forward exchange contracts entered into to hedge the foreign exchange fluctuation risk in respect of an existing asset/liability. AS 11 (revised 2003) is not applicable to forward exchange contracts entered into in respect of firm 1. 2. (i) (ii) commitments or highly probable forecast transactions. Paragraphs 36 and 37 of AS 11 (revised 2003) deal with accounting for a forward exchange contract or any other financial instrument that is in substance a forward exchange contract, which is not intended for trading or speculation

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