The document summarizes Accounting Standard 11 which provides guidance on accounting for changes in foreign exchange rates. Some key points covered include: - Foreign currency transactions and foreign operations are classified as integral or non-integral. Exchange differences for non-integral operations are accumulated in a foreign currency translation reserve. - Monetary items denominated in foreign currency are translated at closing rates. Non-monetary items are recorded based on historical rates. - Forward exchange contracts are marked to market on the balance sheet date and exchange gains or losses are recognized in profit and loss. - Disclosure requirements include exchange differences, foreign currency translation reserve, and changes in classifications of foreign operations.

1. Accounting Standard (AS) 11 (Revised 2003) THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES Mandatory for Accounting Periods commencing on or after 1st April, 2004 Galaxy Surfactants Ltd., Navi Mumbai Presented by Sumit on 30/9/04

2. Contents Galaxy Surfactants Ltd., Navi Mumbai AS 11 & International AS 21 9 AS 11 & Schedule VI 8 Accounting of Forward Exchange Contracts 6 Accounting of Foreign Operations 5 Disclosure 7 Coverage At A Glance 3 Accounting of FC Transactions 4 Need & Objective 2 Glossary 1 Particulars Sr. No.

3. Glossary Galaxy Surfactants Ltd., Navi Mumbai Accounting Standard AS Account A/c United States Dollar US $ Reporting Currency (Rs.) RC Rupees Rs. Difference Diff. Foreign Currency (US $ etc) FC Exchange Ex. Financial Statements (BS, P & L etc) FSs Reporting Enterprise (GSL) RE

4. Need & Objective Galaxy Surfactants Ltd., Navi Mumbai Galaxy Export Sales Domestic Sales Foreign Purchases Indian Purchases Rs. Borrowings US $ Borrowings Expenses in FC Expenses in Rs. Galaxy’s financial reports are in Rs. All financial transactions are to be recorded in Rs. How to treat Ex. Diff. in A/cs Which Ex. Rate ?

8. Recognition of Ex. Diff. - FCT Galaxy Surfactants Ltd., Navi Mumbai Purchase Agreement @ TDR / AR Reported in BS @ Closing Rate Settled @ TDR / AR Settled after the BS Date Back to Glance The same should be recognized in P & L A/c for the period Ex. Diff. arises EITHER on Settlement OR on Reporting in BS

9. Eg. : Ex. Diff. on FC Transaction Galaxy Surfactants Ltd., Navi Mumbai Accounting of asset purchase as per revised AS 11 (2003) 2005-06 2004-05 Accounting Year 52.00 2.00 50.00 52/- Payment 31.01.05 5.00 50.00 Vendor A/c CR 47.00 3.00 Vendor A/c DR 1.00 3.00 Ex. Gain A/c CR 46.00 Rs. Current A/c CR 5.00 Ex. Loss A/c DR 50.00 Current Asset A/c DR 52/- BS Dt 31.03.06 46/- Payment 30.04.05 47/- 50/- Spot Rates (Rs./$) BS Dt 31.03.05 Purchase 01.12.04 Current Asset purchase worth US $ 1/= Back to Glance

10. Classification of FO Galaxy Surfactants Ltd., Navi Mumbai Negatively defined – FO which is not an IFO FO whose activities are an integral part of the activities of RE Definition View Indicators of NFO >>>> Particulars Classified : Way in which financed & operates w.r.t. RE Do not have direct impact on RE’s Cash Flows from Operations Has immediate effect on RE’s Cash Flows from Operations Effect of Rate Fluctuation Independent Branch Generates Income, Incurs Expenses, Accumulates Monetary Items, Borrows locally etc. etc. Selling Agent may just sell goods received from RE and remit proceeds back to RE Example Separate Entity Extended arm of RE Operates as Non Integral FO (NFO) Integral FO (IFO) Foreign Operation (FO) is defined as a subsidiary, associate, joint venture or branch based in a foreign country.

12. Conversion of FSs of FO & Recognition of Ex. Diff. thereof Galaxy Surfactants Ltd., Navi Mumbai For Conversion IFO is treated as FC Transaction TDR / AR TDR / AR P & L Items Closing Rate Closing Rate Monetary Items Closing Rate TDR / AR Non Monetary carried @ Historical Cost Closing Rate Valuation Date Rate Non Monetary carried @ Fair Value Particulars Accumulated in FOREX Reserve A/c (Accumulation will continue until disposal of NFO) Recognized in P & L A/c as & when arise Recognition of Ex. Diff. Non Integral FO Integral FO = FC Transaction Eg. >>

13. Eg. : Conversion of NFO FS Galaxy Surfactants Ltd., Navi Mumbai Cr. Rs. Cr $ Dr. Rs. Dr $ Rate Particulars 40/- 40/- 40/- Acquisition of Galaxy Chemicals Inc., USA on 31.03.04 (Spot = 40/-) 200 2000 50 8000 Assets / Liabilities 2000 50 Reserves 4000 100 Share Capital 1600 FOREX Reserve (Balancing Figure) On next BS Dt 31.03.05 (Spot = Rs. 50/-, AR = Rs. 45/-) 400 400 CR = 50/- AR = 45/- Original Original 11500 230 20000 Assets / Liabilities 20000 400 20000 Total 900 20 Current Profit 2000 50 Opening Reserves 4000 100 Share Capital Back to Glance

14. Disposal of NFO Galaxy Surfactants Ltd., Navi Mumbai Back to Glance Nature of Disposal Part amount transfer to P & L A/c on pro-rata basis 100% transfer to P & L A/c Accumulated amt in FOREX Reserve A/c Particulars Period in which gain or loss on disposal is recognized in P & L A/c When to trf FOREX Reserve to P & L Recognize in P & L A/c Recognize in P & L A/c Gain or Loss on Disposal Part Disposal 100% Disposal

16. Eg. : Reclassification IFO to NFO Galaxy Surfactants Ltd., Navi Mumbai NFO IFO US $ 50/- 50/- 50/- Original 40/- 40/- Rate 500 FOREX Reserve 1100 Ex. Gain Loss 15000 15000 50/- 300 Monetary Assets 20000 19500 400 Total 4500 100 400 Non Monetary @ Historical Cost 230 20 50 100 Rs. Rs. Rate Particulars 5000 45/- BS Dt 31.03.05 (Original = 40/-, Closing = Rs. 50/-, AR = Rs. 45/-) 19500 11500 900 2000 4000 50/- 45/- 40/- 40/- 11500 Monetary Liabilities 20000 Total 2000 Current Profit 2000 Op. Reserves 4000 Share Capital << Back

17. Eg. : Reclassification NFO to IFO Galaxy Surfactants Ltd., Navi Mumbai Continued until disposal of FO 1600 1600 FOREX Reserve 15000 15000 50/- 300 Monetary Assets 20000 20000 400 Total 5000 100 400 Non Monetary @ Historical Cost 230 20 50 100 $ Remarks IFO Rs. NFO Rs. Rate Particulars Treated as Historical Cost from date of reclassification 5000 50/- BS Dt 31.03.05 (Original = 40/-, Closing = Rs. 50/-, AR = Rs. 45/-) 20000 11500 900 2000 4000 50/- 45/- 40/- 40/- 11500 Liabilities 20000 Total 900 Current Profit 2000 Op. Reserves 4000 Share Capital Back to Glance

19. Eg. : Hedging FEC Galaxy Surfactants Ltd., Navi Mumbai Spot = 47.50 Settlement Dt 30.04.05 1/= Accounts Receivable US $ FR = 48/- FEC Dt 01.12.04 Spot = 45/- Spot = 43/- BS Dt 31.03.05 Sale Dt 01.12.04 0.50 (1.50) 2/- Net Gain/ (Loss) 4.50 5/- Total Ex. Loss Rs. Ex. Loss Calculation Ex. Gain Rs. Premium (5/-) Amortization Accounting Year (2.50) 45 - 47.50 1/- 5 * (1/5) 2005-06 (2/-) 43 – 45 4/- 5 * (4/5) 2004-05 Accounting as per Revised AS 11 (2003) << Back

20. Eg. : Speculative FEC Galaxy Surfactants Ltd., Navi Mumbai 30 th June, 2005 Maturity Date Rs. 48/- per $ Forward Rate available on BS date (31.03.05) for remaining maturity of the contract Rs. 50/- per $ Forward Rate USD 1/- Forward Purchase of Rs. 2/- Ex. Loss in 2004-05 1 st March, 2005 FEC Date Back to Glance

24. AS 11 (2003) & Schedule VI Galaxy Surfactants Ltd., Navi Mumbai Implication Relation to old AS 11 (1994) Ex. Diff. on a/c of FC Liability linked to Fixed Asset Particulars Recognize in P & L A/c Capitalize i.e. adjust in carrying cost of Fixed Asset 1 Until the revision of Schedule VI capitalization treatment will continue & it will still be considered to be complying with New AS 11 (2003) ICAI will be approaching Govt. for revision of Schedule VI 3 As per the announcement of ICAI Capitalization provision discontinued on revision in 2003 In line with Schedule VI provision 2 Revised AS 11 (2003) Schedule VI #

25. AS 11 (2003) & IAS Galaxy Surfactants Ltd., Navi Mumbai FO’s are classified as “ FO’s that are integral to the operations of RE” & “ Foreign Entity” FO’s are classified as Integral & Non Integral Terminology w.r.t. FO Permits alternative : Ex. Diff. on severe devaluation of currency can be included in carrying amt of asset s.t. conditions Preferring elimination of alternatives, IAS’s alternative treatment is not recognized Alternative A/cing in case of Severe Currency Devaluation Major aspects of FEC’s are covered under IAS 39 (Financial Instruments : Recognition & Measurement) Covers accounting of FEC’s Scope International AS 21 Indian AS 11 Particulars

26. Thank You Galaxy Surfactants Ltd., Navi Mumbai