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The Companies (Accounting Standards) Amendment Rules, 2011

The Ministry of Corporate Affairs (MCA as it is called generally) has given the accounting fraternity 2 notifications just before the new year's eve as a welcome gift. The notifications deal with AS - 11 relating to "The Effects of Changes in Foreign Exchange rates".

In the first notification (link above), two changes are introduced:

1. The Companies (Accounting Standards) Rules 2006 will be rechristened as the "Companies (Accounting Standards) Amendment Rules, 2011" and;

2. The foreign exchange gains/ losses can now be capitalised till 2020 (31-3-2020). Earlier the capitalisation was allowed till 31-3-2012.

The notification now called "The Companies (Accounting Standards) (Second Amendment) Rules, 2011 inserted a new paragraph in AS 11. The paragraph 46A is reproduced as under:


” 46A. (1) In respect of accounting periods commencing on or after the 1st April, 2011, for an enterprise which had earlier exercised the option under paragraph 46 and at the option of any other enterprise (such option to be irrevocable and to be applied to all such foreign currency monetary items), the exchange differences arising on reporting of long-term foreign currency monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements , in so far as they relate to the acquisition of a depreciable capital asset, can be added to or deducted from the cost of the asset and shall be depreciated over the balance life of the asset, and in other cases, can be accumulated in a “Foreign Currency Monetary Item Translation Difference Account” in the enterprise’s financial statements and amortized over the balance period of such long term asset or liability, by recognition as income or expense in each of such periods, with the exception of exchange differences dealt with in accordance with the provisions of paragraph 15 of the said rules.


(2) To exercise the option referred to in sub-paragraph (1), an asset or liability shall be designated as a long term foreign currency monetary item, if the asset or liability is expressed in a foreign currency and has a term of twelve months or more at the date of origination of the asset or the liability:


Provided that the option exercised by the enterprise shall disclose the fact of such option and of the amount remaining to be amortized in the financial statements of the period in which such option is exercised and in every subsequent period so long as any exchange difference remains unamortized.”








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Comments

  1. Adv (CA) Pooja Ashok GuptaJan 20, 2012, 5:58:00 PM

    Thank ya very much!!

    ReplyDelete
  2. HBApr 26, 2012, 6:02:00 PM

    Thanks,

    if my comapy has not opted earlier option,
    now my company can avail the forex capitalisation option...

    ReplyDelete
  3. Adv (CA) Pooja Ashok GuptaApr 27, 2012, 2:48:00 PM

    The answer to your query:
    Now for your company to opt for capitalisation of forex differences on monetary items will not be possible as the extension of date is only for those companies who had opted earlier!

    ReplyDelete

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