AS-11

Dear Niki,

Good start, Check this -

What does this amendment to AS-11 seek to do?

Under the amended version, if a foreign currency borrowing relates to
a depreciable capital asset, then translation differences from the
loan may be capitalized to the asset, instead of charging to the
profit and loss account. This means that forex gains or losses on
these borrowings will bypass the P&L account to be directly added to
or deducted from the cost of an asset as carried in the balance sheet.

In the case of JSW Steel, if the company’s foreign borrowings
were against specific assets, the forex loss of Rs 177 crore incurred
in the December quarter would not be charged to profits under the
amended AS-11. It would, instead, be added to the value of its fixed
assets and depreciated over its life. In other words, the profits
would be higher by this amount as a result of not charging the loss to
revenues. Note that it would be the exact reverse if the company had
recorded forex-related gains, instead of losses.

When a company has other foreign currency borrowings, that cannot be directly attributed to an asset (say, for general expenses or working capital requirements),  or has other foreign currency outstanding, which is over 12 months old (from its date of origination), then the translation difference shall be charged to a special translation difference reserve that will be created.

This amount shall be spread out and amortized before March 31, 2011 or
the period of the borrowing, whichever is earlier. For JSW Steel, had
the borrowing been for other than capital asset related
purposes, then if the company follows this amendment, it need not
fully charge the losses to its profit and loss account. It can,
instead, create a separate translation reserve and spread out
(amortize) the same over the loan period or before March 31, 2011,
whichever is earlier.

Impact: In a nutshell, the assets/liabilities and the net worth of the
company would absorb the effect of the currency volatility. Per
share earnings would be free of any immediate impact from the same.
Large forex differences on borrowings would not make an appearance in
the quarterly numbers.

Thanx for sharing your Knowledge Amir.  I request to all others pls share their knowledge on AS-11.