What is AS-11 in foreign currency accounting?

AS-11 (Accounting Standard 11) prescribes rules for recording foreign currency transactions, translating financial statements of foreign operations, and recognizing exchange differences in the P&L account.

How do you calculate realized vs. unrealized forex gains/losses?

Realized gain/loss is calculated when a transaction is settled (e.g. payment is made at a different rate than booked). Unrealized gain/loss is computed at the end of the financial year for outstanding monetary items based on the closing exchange rate.

What is an EEFC account?

An Exchange Earners' Foreign Currency (EEFC) account is a current account maintained in foreign currency with an authorized dealer bank in India, allowing exporters to retain foreign earnings without immediate conversion.

What is the tax treatment of forex gains/losses u/s 43A?

Section 43A of the Income Tax Act states that exchange differences arising on foreign currency loans acquired for purchasing capital assets from outside India must be adjusted against the cost of the asset.

How do you configure multi-currency in Tally Prime?

Go to **Gateway of Tally > Create > Currency**. Create the foreign currency symbol (e.g. $). Set daily exchange rates, and assign the currency to specific bank or vendor ledgers.

Foreign Currency Bank Reconciliation: AS-11 & Tax Guide

For Indian businesses engaged in import and export operations, managing foreign currency bank accounts—such as Exchange Earners' Foreign Currency (EEFC) accounts—adds complexity to bookkeeping. Exchange rates fluctuate daily, meaning transactions must be translated at appropriate statutory rates.

Complying with **Accounting Standard (AS) 11** requires tracking these fluctuations and recording realized and unrealized exchange differences.

1. The AS-11 Accounting Framework

AS-11 classifies balance sheet items into monetary and non-monetary categories to determine translation rules:

Balance Sheet Classification	Examples	Year-End Translation Exchange Rate	Forex Diff Treatment
Monetary Items	Cash, Bank balances, Debtors, Creditors	Closing Rate (as on March 31)	Recognized in Profit & Loss Account
Non-Monetary Items	Fixed Assets, Inventory, Share Capital	Historical Rate (date of purchase)	No adjustment (remains at cost)

2. FEMA Regulations for EEFC Accounts

Under Foreign Exchange Management Act (FEMA) guidelines, Indian exporters can retain up to 100% of their foreign exchange earnings in their EEFC accounts. However, FEMA imposes a key conversion rule:

The foreign currency funds accrued in an EEFC account during a calendar month must be converted to Indian Rupees (INR) on or before the last day of the succeeding calendar month, excluding funds committed for imports or foreign payments. This mandatory conversion triggers realized exchange gains or losses that must be updated in your FAR/BRS.

3. Tax Audits & Income Computation Standard (ICDS) VI

While AS-11 governs corporate accounting, **ICDS VI** (relating to the effects of changes in foreign exchange rates) governs tax computations in India. Under ICDS VI, unrealized foreign exchange gains or losses on revenue monetary items are recognized in taxable income.

However, exchange differences on capital monetary items acquired for domestic purchases are not adjusted against the asset cost (unlike u/s 43A for foreign assets) and must be treated u/s standard tax audit guidelines, requiring meticulous ledger reconciliation.

4. Case Study: Reconciling an Import Purchase

Let's analyze the journal entries required to process an import invoice with exchange rate fluctuations:

March 1, 2026: Business imports raw materials worth **$10,000** when exchange rate is $1 = ₹83.00.
April 15, 2026: Payment is settled via EEFC account when exchange rate is $1 = ₹84.50.
Forex Loss: ($10,000 × ₹84.50) - ($10,000 × ₹83.00) = **₹15,000**.

The corresponding double-entry journal vouchers in Tally Prime:

Entry 1: Record Purchase (March 1, 2026)
Debit:  Purchase Ledger                ₹8,30,000
Credit: Foreign Vendor Ledger                     ₹8,30,000

Entry 2: Record Payment Settlement (April 15, 2026)
Debit:  Foreign Vendor Ledger          ₹8,30,000
Debit:  Foreign Exchange Loss Ledger   ₹15,000
Credit: EEFC Bank Account ($10,000)                ₹8,45,000

5. Year-End Unrealized Forex Valuation

If a foreign vendor invoice remains unpaid on March 31, the liabilities ledger must be revalued. For example, if an outstanding creditor balance is $10,000 booked at ₹83.00, and the RBI reference rate on March 31 is ₹84.00, an unrealized loss of **₹10,000** must be booked.

This adjustment requires debiting the *Foreign Exchange Loss* account and crediting the *Foreign Vendor* ledger. This ensures the balance sheet reflects year-end exchange rates.

6. Managing Multi-Currency in Tally Prime

To configure multi-currency tracking in Tally:

Tally Multi-Currency Setup:

Enable **Multi-Currency** u/s Gateway of Tally > Create > Currency. Create foreign currency ledgers and define standard exchange rates.

When booking transactions in foreign currency, Tally will prompt you for the current exchange rate and compute base currency values automatically. At month-end, run the **Unrealised Gain/Loss** auto-voucher to update asset and liability valuations.

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