## AS 11: The Effects of Changes in Foreign Exchange Rates

### Scope

AS 11 covers three areas:

1. Accounting for foreign currency transactions

2. Translating financial statements of foreign operations (covered under Branch Accounts)

3. Accounting for forward exchange contracts

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### Reporting Currency

The currency in which financial statements are prepared.

> Example: An Indian company's reporting currency is ₹ (INR).

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### Foreign Currency

Any currency other than the reporting currency.

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### Monetary Items

Assets and liabilities that are to be received or paid in fixed or determinable amounts of money.

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### Non-Monetary Items

All assets and liabilities other than monetary items.

Examples
Property, Plant & Equipment (PPE)
Inventories
Share Capital
Investments in equity shares

> Important: The monetary / non-monetary distinction applies only to Balance Sheet items (assets and liabilities).

⚠️ Common exam mistakes

Confusing reporting currency with functional currency – reporting currency is simply the currency used in the financial statements.
Classifying Share Capital or Investments in equity shares as monetary items – they are non-monetary because the settlement amount is not fixed in money terms.
Applying the monetary/non-monetary classification to P&L items – this distinction is only relevant for Balance Sheet items.

Reference: Definitions (Para 2) — AS 11 – The Effects of Changes in Foreign Exchange Rates

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AS 11 – Scope and Key Definitions

⚠️ Common exam mistakes