GENERAL KNOWLEDGE

Detailed explanation-1: -Cash flows denominated in foreign currency are reported in a manner consistent with Accounting Standard (AS) 11, The Effects of Changes in Foreign Exchange Rates. This permits the use of an exchange rate that approximates the actual rate.

Detailed explanation-2: -AS 11 applies to exchange differences on forward exchange contracts. The forward contracts include the ones entered into by the entity to cover the foreign currency risk. These, however, do not include the forward contracts which are undertaken for future foreign currency transactions.

Detailed explanation-3: -The standard deals with the principal issue with respect to accounting for foreign operations and foreign currency transactions in deciding which exchange rate to be used and a guidance on recognizing the financial effect of changes in exchange rates in the financial statements.

Detailed explanation-4: -Accounting Standard (AS) 11, ‘The Effects of Changes in Foreign Exchange Rates’ (revised 2003) issued by the Institute of Chartered Accountants of India (ICAI), has come into effect in respect of accounting periods commencing on or after April 1, 2004 and is mandatory in nature from that date.

Detailed explanation-5: -Specific requirements for the presentation of foreign currency activities on the statement of cash flows are as follows: Foreign currency transaction gains and losses reported on the income statement should be reflected as a reconciling item from net income to cash flows from operating activities.