An analytical study of foreign currencies conversion

as per AS- 11

Chapter
no
1

2
3

4
5

Sub chap

Titles

1.1
1.2
1.3

Introduction
History
Steps Involved In The Conversion Translation Process

1.4
1.5
1.6
2.1
2.2
2.3
3.1
3.2
3.3

Conversion Of Foreign Branch Trial Balance

Techniques Of Foreign Conversion
Foreign Operation Provision
Literature Review
Research Methodology
Objective Of Study
Company Profile
History Of Company
Annual Report
Balancesheet
Profit And Loss
Data Analysis
Conclusion
Bibliography

4.1
5.1
5.2

Page no

CHAPTER NO:-1

1.1
FOREIGN CURRENCY CONVERSION
INDROUCATION AND DEFINITION OF FOREIGN CURRENCY
CONVERSION:
Foreign Currency conversion is about converting the figure related to accounting stated as
per one particular currency to another currency to meet the finance reporting related
requirements. As per the United States Generally Accepted Accounting Principles
regulations, the items in the balance sheet are converted in accordance with the rate of
exchange as on the date of balance sheet, whereas items in the income statements are
converted in accordance with the weighted-average rate of exchange for that particular year.
The losses and profits that are derived as a result of the converting are showcased in the
equity category of the owner in the form of separate item.
1

An analytical study of foreign currencies conversion

as per AS- 11

The International Accounting standard 21 The Effects of Changes in Foreign Exchange

Rates lays down the manner in which foreign currency transactions as well as operations
should be accounted in the finance related statements. It also suggests that the manner in
which statements should be translated into a presentation related currency. A company needs
to find out a currency that is functional on the basis of the economic environment in which it
is operating and usually records currency related transactions utilizing the spot rate of
conversion on the date when the transaction is conducted.

DIFINATION OF FORIGN CURRENCY :Foreign currency operations is a subsidiary, associates, joint venture or branch of the
reporting enterprises, the activities of which are based or conducted in a country other than
the country of reporting enterprises.

1.2
HISTORY OF THE FOREIGN EXCHANGE
Gold Standard System, the creation of the gold standard monetary system in 1875 is one
of the most important events in the history of the forex / foreign market. Before the gold
standard was created, countries would commonly use gold and silver as method of
international payment. The main issue with using gold and silver for payment is that the
value of these metals is greatly affected by global supply and demand. For example, the
discovery of a new gold mine would drive gold prices down.
The basic idea behind the gold standard was that governments guaranteed the conversion of
currency into a specific amount of gold, and vice versa. In other words, a currency was
backed by gold. Obliviously, governments needed a fairly substantial gold reserve in order to
meet the demand for currency exchanges. During the late nineteenth century, all of the major
economic countries had pegged an amount of currency to an ounce of gold. Over time, the
difference in price of an ounce of gold between two currencies became the exchange rate for
those two currencies. This represent the first official means of currency exchange in history.
The gold standard eventually broke down during the beginning of World War I. Due to
political tension with Germany, the major European powers felt a need to complete large
2

An analytical study of foreign currencies conversion

as per AS- 11
military projects, so they began printing more money to help pay for these projects. The
financial burden of these projects was so substantial that there was not enough gold at the
time to exchange for all the extra currency that the governments were printing off.
The history of currency exchange and how it works is a long tangle and is bound up in
why money is worth anything in the first place. Even ancient coins, made out of gold and
silver, could make exchange a thorny issue because those coins could be debased, carrying
less precious metal content than their makers claimed it did. In the long run, money based on
precious metals proved excruciatingly difficult for a government to maintain when it was
placed under financial pressure and was abandoned in favour of the modern system of flat
currency and its market-driven exchange rates.

1.3
STEPS INVOLVED IN THE CONVERSION /TRANSLATION PROCESS
The process of foreign currency conversion involves the following steps :
The first step involves matching the financial statements of the foreign country to US
GAAP.
The next step is determining the functional currency of the foreign entity.
Re-assess the financial statements in the functional currency, if required. Profits and
losses arising from the re-assessment are countable in re-assessed current income.
Thereafter, the foreign currency is converted into the required currency, like US
dollars.
A transaction that involves foreign currency must be registered initially as per the
exchange rate applicable on the transaction date. Thereafter, at every balance sheet date that
arises subsequently the amounts pertaining to foreign currency must be reports utilizing the
rate of closing . The differences arising in exchange at the time at which the items were
converted at the time of being recognized initially, or in the previous statements are record in
loss or gain in the cycle, with just one single exception .
IMPORTANT CONSIDARATIONS ABOUT FOREIGN CURRENCY
CONVERSION / TRANSLATION
There are certain points that demand consideration during the process of foreign
currency conversion. These are:
If the functional currency of a company is a foreign currency, the translation adjustments
3

An analytical study of foreign currencies conversion

as per AS- 11
come up by translating the financial statements of the company into the reporting
currency.
Translation adjustments should not be included in the income statement for being
unrealized but should be presented in balance sheet and profit and loss account.

1.4
CONVERSION OF FOREIGN BRANCH TRIAL BALANCE
1) Foreign Branches :
Foreign Branches generally maintain independent and complete record of business
transacted by them in currency of the country in which they operate. Thus problems of
conversion of trial balance of foreign branches relate mainly to translation of foreign
currency into Indian Rupees. For the purpose of accounting, AS 11 classifies the foreign
branches into two types :
(a) Integral Foreign Operation i.e. A dependent branch, or
(b) Non-Integral Foreign Operation i.e. An independent branch

2) Dependent Branch [Integral Foreign Operation(IFO)] :

Dependent Branch is a foreign branch/operations of activities of
which are an integral part of those of the reporting enterprise. The business of IFO is carried
on as if it were an extension of reporting enterprises operations. Generally, IFO carries on
business in a single foreign currency i.e. Of the country where it is located. Thus, it makes
sale of goods imported from the H.O. And remits the proceeds to the HO in the same
currency.

3) Independent Branch [Non-Integral Operation (NFO)] :

Integral Branch is a foreign branch / operations that is not an
Integral Foreign Operation. The business of a NFO is carried on in a substantially
independent way by accumulating cash and other monetary items, incurring expenses,
generating income and arranging borrowing in its local currency. An NFO may also enter
4

An analytical study of foreign currencies conversion

as per AS- 11
into transactions in foreign currencies, including transactions in the reporting currency. An
example of NFO may be production in foreign currency out of the resources available in
such country independent of the H.O.

1.5
TECHNIQUES FOR CONVERSION OF FOREIGN CURRENCY
ITEMS
1. Dependent Branch [Integral Foreign Operations IFO] :
Following are the steps for currency translation:

1) Translation of Transactions during the year :

All transactions of IFO be translated at the rate prevailing on the date
of transaction. This will require date-wise details of the transaction entered by that branch
together with the rates. Weekly or monthly average rate is permitted if there are no
significant variations in the rate.

2) Translation of the Balance-Sheet Date :

Monetary Items are converted at closing rate. Monetary items are money held and
asset and liabilities to be received or paid in fixed or determinable amount of money.
Cash, receivables and payables are example of the monetary items.
Non Monetary Items are assets and liabilities other than monetary items. Fixed
assets, investments in equity shares, inventories are the example of non monetary
assets. The cost and depreciation of tangible fixed assets is translated using the
exchange rate at the date of purchase of the asset is carried at cost.

The cost of inventories is translated at the exchange rates that exited when the cost
of inventory was incurred and realizable value is translated applying exchange rate
when realizable value is determined which is generally the closing rate.
Exchange difference (which is a balancing figure in the converted trial balance)
arising on the translation of the financial statement of integral foreign operation
5

An analytical study of foreign currencies conversion

as per AS- 11
should be changed to profit and loss account.
2) Independent Branch [Non-Integral Foreign Operation] :
Trial Balance of Independent Branch (non-integral foreign operation) is converted using
the following principles :
a)

Balance-Sheet Items i.e. Assets and Liabilities both monetary and non-monetary are
converted at the closing exchange rate.

b) Items of Income and Expenses are converted at the actual exchange on the date of
transaction. However, accounting standard allows average rate subject to materiality.
c)

Resulting Exchange Rate difference should be accumulated in a foreign currency

translation reserve until the disposal of net investment in non-integral foreign
operations.

1.6
FOREIGN OPERATIONS : PROVISIONS OF AS 11 [REVISED 2003]
A) DEFINITION :
Foreign operation is subsidiary, associate, joint venture or branch of the reporting
enterprise, the activities of which are based or conducted in a country other than the country
of the reporting enterprise.

An analytical study of foreign currencies conversion

as per AS- 11

B) CLASIFICATION OF FOREIGN OPERATIONS :

1) Integral and Non-Integral :
The method used to translate the financial statement of foreign operations
depends on the way in which it is financed and operates in relation to the reporting
enterprise. For this purpose foreign operations are classified as either Integral Foreign
Operation or Non-Integral Foreign Operations.

2) Integral Foreign Operations :

A foreign operations that is integral to the operations of the reporting
enterprise carries on its business as if it is were an extension of the reporting enterprises
operations. For example, such a foreign operation might only sale goods imported from the
reporting enterprise and remit the proceeds to the reporting enterprise. Therefore the change
in the exchange rate affects the individual monetary items held by the foreign operations
rather than reporting enterprise net investment in the operation.
3) Non-Integral Foreign Operation :
In contrast, a non-integral foreign operation accumulates cash and other
monetary items, incurs expenses, generates income and perhaps arranges borrowings, all
substantially in its local currency. It may also enter into Transactions in Foreign currencies,
including transactions in the reporting currencies. The change in the exchange rates affects
the reporting enterprise net investment in the non-integral foreign operations rather than the
individual monetary and non-monetary items held by non-integral foreign operations.

C)

FINANCIAL

STATEMENTS

OF

INTEGRAL

FOREIGN

OPERATIONS:
1.

Principles of Translation :
The financial statements of an integral foreign operation should be

translated using the principles and procedures in the transaction of the foreign operation had
been those of the reporting enterprises itself.

An analytical study of foreign currencies conversion

as per AS- 11
2.

Items- wise Rules of Translation / conversion :

The individual items in the financial statements of the foreign

operations are translated as if all its transactions had been entered into by reporting enterprise
itself. The cost and depreciation of tangible fixed assets is translated using the exchange rate
at the date of purchase of the assets or, if the asset is carried at fair value or other similar
valuation, using the rate that existed on the date of the valuation. The cost of inventories is
translated at the exchange at the exchange rates that existed when those costs were incurred.

3.

Rate of Translation :
For practical reasons, a rate that approximates the actual rate at the date of the

transaction is often used for example, an average rate for a week or a month might be used
for all transactions in each foreign currency occurring during that period. However, if
exchange rates fluctuate significantly, the use of the average rate for a period is unreliable.

D) FINANCIAL STATEMENTS OF NON-INTEGRAL FOREIGN

OPERATIONS
Procedures:
In translating the financial statements of non integral foreign operation for
incorporation in its financial statements, the reporting enterprise should use the following
procedures:
(a) The assets and liabilities, both monetary and non-monetary, of the non-integral
foreign operations should be translated at the closing rate ;
(b) Income and expenses items of the non-integral foreign operations should be translated
at exchange rates at the dates of the transactions; and

Rate:
For practical reasons, a rate that approximates the actual exchange rates, for example an
average rate for the period, is often used to translate income and expense items of a foreign
operation.

Exchange Differences:
8

An analytical study of foreign currencies conversion

as per AS- 11
The translation of the financial statements of a non-integral foreign operation
results in the recognition of exchange differences arising from:
(a) Translating income and expense items at the exchange rates at the dates of
transactions and assets and liabilities at the closing rate;
(b) Translating the opening net investment in the non-integral foreign operation at an
exchange rate different from that at which it was previously reported ;
(c) Other changes to equity in the non-integral foreign operation.

Contingent Liability
A contingent liability disclosed in the financial statements of non-integral foreign operation
is translated at the closing rate for its disclosure in the financial statements of the reporting
enterprise.

CHAPTER NO 2
2.1
REVIEW OF LITERATURE
The analysis reveals that over 50 per cent of industries have statistically significant currency
exposure over the entire sample period, when bilateral New Taiwan Dollar (NTD)Nnited
States Dollar (USD) exchange rates were used as currency risk factors. The author concludes
by pointing out that exchange rate risk is less for larger firms than for smaller firms. Chen
and So (2002) examined the effect of Asian financial crisis on the sensitivity of United States
multinational fmsto United States stock market. The companies have been divided into
sample group and control group. The sample group was comprised of multinational firms
with sales in Asia - Pacific region and control group was comprised of multinational firms
with overseas sales outside Asia-Pacific region.
The study period was from January 1996 to December 1998. This was again divided into the
sub period of 1% years before and afire crisis. Weekly data on exchange rate between the
United States dollar and foreign currencies have been collected from the DATASTREAM.
The annual measures of foreign sales and foreign assets for each sampled company were
collected from the COMPUSTAT data base.
Weekly return on individual stocks of the firm in the sample group and the market portfolio
9

An analytical study of foreign currencies conversion

as per AS- 11
were also obtained from the DATASTREAM. Finns in the control group also came from the
COMPUSTAT data base. A continuous weekly stock return index of control FM were also
collected from the DATASTREM. The authors tested the difference in stock return variance
between the two sub-periods, by employing the X2 statistic. They also performed a non
parametric Wilcoxon Signed - rank test and compared the median of stock return variance
across the two sub-periods.
The model employed for the analysis was based on the Capital Asset Pricing Model
(CAPM). The study found that the variance of stock returns for the sample firms increased
dramatically during the second sub period when the exchange rates of Asian currencies were
unusually volatile. The variance of the control firms was not dramatic as that of the sample
firms. It again reveals that United States multinational firms with sales in Asia - Pacific
region showed a significant increase in market risk corresponding to the increase in exchange
rate variability across the two sub-periods before and after the Asian financial crisis. Iorio
and Faff (2002) examined the pricing of foreign exchange risk in the Australian equities
market. The period of study was from 1 January 1988 to 30 September 1998. The authors
have employed both daily and monthly returns data. For the daily analysis 2723 observations
were used. whereas 128 observations were analysed for the monthly returns. All data were
obtained from DATASTREAM.
To test the stationarity of the data employed, Augmented Dickey Fuller (ADF) testing
procedure was applied. Phillips - Perron (PP) test was also used to test the robustness of the
results. In addition to this a basis two factor 'market and exchange rate' asset pricing model, a
'zero-beta' version of the two-factor model and an orthogonalised two-factor model were also
employed to examine the objective. The analysis shows that foreign exchange risk is priced
for the full sample period 1988-1998.
It is also revealed that foreign exchange risk is more prominent in the two sub periods visa;
1990-19 93 and 1997-19 98. In these two periods both the Australian economy and the
Australian dollar were relatively weak and uncertain. Patrol et a1 (2002) studied the
significance as well as the determinants of foreign exchange risk exposure for equity index
returns of 16 Organisation for Economic Co-operation and Development (OECD) countries.
Weekly observations of equity index prices were obtained from Morgan Stanley Capital
International (MSCI) for 16 Economic Co-operation and Development (OECD) countries.
Sample on returns starts in January 1980 and covers up to December 1997 for a period of 18
years. Weekly dollar exchange rates for these countries were obtained from the Federal
10

An analytical study of foreign currencies conversion

as per AS- 11
Reserve

Board

for

the

same

period. A generalised

autoregressive

conditional

heteroscedasticity (GARCH) specification was used to find the significant time - varying
foreign exchange risk exposure. A generalised least square (GLS) regression has been
employed to examine the impact of exchange rate betas on specific macroeconomicvariables.
To improve estimation efficiency, data for all 16 countries were pooled and ran a panel
regression. The analysis reveals a significant time-varying currency betas for country equity
index returns. It has also been found that the exchange rate risk exposures are related to a
country's macroeconomic aggregates. Wongbanpo and Sharma (2002) investigated the
interdependence between stock market, and fundamental macroeconomic factors including
the exchange rate, in Association of South East Asian Nations-5 (ASEAN-5) countries i.e.
Indonesia, Malaysia, Philippines, Singapore and Thailand. The authors have collected
monthly data from 1985 to 1996 from the World Stock Exchange Fact Book, DataStream,
and the June 1999 volume of International Financial Statistics. All series were transformed
into natural logs prior to the empirical analysis. To test the stationarity of each of the series
Dickey - Fuller, Augmented Dickey - Fuller (ADF) and Philips and Pewon tests were
employed. Besides, they also employed the maximum likelihood based hoaxand trace
statistics introduced by Johansen (1988, 1991) and Johansen and Julius (1990) to test the
number of significant integrating vectors. The likelihood tests were done to determine the lag
length of the vector auto regressive system. The study found that the effect of exchange rate
is positive in Indonesia, Malaysia and Philippines, and it is negative in Singapore and
Thailand. Abidet a1 (2003) tested for evidence of contagion between the stock markets of
eleven Asian countries as an important cause for the spread of the Asian crisis
They also examined cross - country co-movement among the rates of returns of commence
markets and stock markets. Weekly data on stakereturns of United States and eleven Asian
stock markets were drawn kom the ~international Financial Corporation (IFC) database
published in the 'Financial Times' for the period from 1 September 1989 to 29 October 1999.
Data on weekly foreign exchange rate of returns for Asian currencies against the United
States dollar were available on the OANDA database, published on internet, for the period
from January 1, 1990 to October 29, 1999.
An empirical analysis has been carried for the entire period and for the two sub- periods i.e.
the sub-period before the Asian crisis and the sub-period during and after the Asian crisis, by
using the univariate Generalised Autoregressive Conditional Heteroscedasticity (1, 1) model
11

An analytical study of foreign currencies conversion

as per AS- 11
to study the conditional volatility time varying in financial and foreign exchange market.

2.2
RESEARCH METHODOLOGY
Introduction
This chapter basically aims to analyze the strategies adopted by KFC in India to get better
results and to understand the possible reasons that could affect it.Hussey (1997) explains us
that the type of methodologies would reflect the suppositions of the research paradigm.First
of all the Philosophy and general perspective will be discussed.Then it will be followed on
by the data collection methods and also some samples will be provided.
Philosophy
he basic purpose of this research is to find out the business strategies used by KFC in India
for their success.The research philosphy basically relies on the the way which considering
about the progress of knowledge, so that it is significant to make maximum use of some
theories in research for the dissertation.
According to Saunders , M et al. (2007) there are three basic principles throughout the
research process : Systematic Collection of Data
One clear purpose that is finding things out
Understanding and analyse the data systematically
Well he also says that there are large scale of social and psychologiacal factors and processes
that influence ppeople without their awareness , people dont realize the existing influence on
12

An analytical study of foreign currencies conversion

as per AS- 11
their interpretaeions and behaviours.

2.3
OBJECTIVES OF STUDY

The objective of the study intends to address the following objective :

1) Study types of currencies traded to address and how they are traded.
2) Study of foreign currency conversion and how they worked ?
3) Study of FOREX trading strategies and techniques.
4) Study of foreign currency conversion of KFC Ltd.
5) Study of profit and loss account and Balance sheet how to convert in foreign currencies.
6) Study of how to convert trail balance into foreign currency.

OBJECTIVE OF STUDFY IN COMAPNY

The first and foremost objective of this research is to find out the strategies adopted by KFC
in India and what were the various reasons that influcedthem.It can also be related to their
failure during the entrance .
KFC's survival in a huge multi-cultural market will also be discussed when other fast food
giants such as McDonalds , Pizza Hut and Nirulas were dominant in the Indian market.After
finding out the reaons and analysing the data related to the reaons for success in the Indian
13

An analytical study of foreign currencies conversion

as per AS- 11
fast food market for KFC.

CHAPTER NO:-3
3.1
COMPANY PROFIL
KFC (Kentucky fried chicken)
KFC, founded and also known as Kentucky Fried Chicken, is a chain of fast food restaurants
based in Louisville, Kentucky, in the United States. KFC has been a brand and operating
segment, termed a concept of Yum! Brands since 1997 .KFC primarily sells chicken pieces,
wraps, salads and sandwiches. While its primary focus is fried chicken, KFC also offers a
line of grilled and roasted chicken products, side dishes and desserts.
The company was founded as Kentucky Fried Chicken by Colonel Harland Sanders in 1952,
though the idea of KFC's fried chicken actually goes back to 1930. Although Sanders died in
1980, he remains an important part of the company's branding and advertisements, and
"Colonel Sanders" or "The Colonel" is a metonym for the company itself. The company
adopted KFC, an abbreviated form of its name, in 1991.
Starting in April 2007, the company began using its original name, Kentucky Fried Chicken,
for its signage, packaging and advertisements in the U.S. as part of a new corporate rebranding program; newer and remodelled restaurants will have the new logo and name while
older stores will continue to use the 1980s signage. Additionally, Yum! Continues to use the
abbreviated name freely in its advertising.
KFC Holdings (Malaysia) Bud is a Malaysia-based investment holding company. Through its
subsidiaries, the Company operates in three segments, namely restaurants, integrated poultry
and ancillary. Restaurants operates KFC restaurants. Its integrated poultry operations include
breeder farms, hatchery, feed mills, poultry farms, contract broiler farming, and processing
and further processing plants. Its ancillary support system encompasses sauce manufacturing,
as well as bakery and commissary operations.
As of December 31, 2010, the Company operated 515 KFC Restaurants across Malaysia, 77
14

An analytical study of foreign currencies conversion

as per AS- 11
stores in Singapore, nine in Brunei and seven in India. In 2010, the Company had a total of
39 RasaMas restaurants in Malaysia and three in Brunei and 49 KedaiAyamas Restaurants
across Malaysia. Among its subsidiaries there are: Ayamas Food Corporation SdnBhd,
Ayamas Integrated Poultry Industry SdnBhd, CilikBistariSdnBhd, KFC India Holdings
SdnBhd and Paramount Management Sdn Bhd.
International sales, particularly in Asia, continued to bolster company profits. In 1993, sales
and profits of KFC outlets in Asia were growing at 30 percent a year. Average per store sales
in Asia were $1.2 million, significantly higher than in the United States, where per store sales
stood at $750,000. In addition, profit margins in Asia were double those in the United States.
KFC enjoyed many advantages in Asia: fast food's association with the West made it a status
symbol; the restaurants were generally more hygienic than vendor stalls; and chicken was a
familiar taste to Asian palates. The company saw great potential in the region and stepped up
construction of new outlets there. It planned to open 1,000 restaurants between 1993 and
1998.
Non-traditional service, often stemming from successful innovations instituted in the
company's international operations, was seen as a way for KFC to enter new markets.
Delivery, drive-thru, carry-out, and supermarket kiosks were up and running. Other outlets in
testing were mall and office-building snack shops, mobile trailer units, satellite units, and
self-contained kiosks designed for universities, stadiums, airports, and amusement parks. To
move toward the twenty-first century, executives believed KFC had to change its image. "We
want to be the chicken store," cranor stressed in a 1991 Nation's Restaurant News. Cranor's
goal was total concept transformation, moving KFC to a more contemporary role.

HISTORY OF COMPANY
15

An analytical study of foreign currencies conversion

as per AS- 11
KFC (short for Kentucky Fried Chicken) is a fast food restaurant chain that specializes in
fried chicken and is headquartered in Louisville, Kentucky, in the United States. It is the
world's second largest restaurant chain (as measured by sales) after McDonald's, with 18,875
outlets in 118 countries and territories as of December 2013. The company is a subsidiary of
Yum! Brands, a restaurant company that also owns the Pizza Hut and Taco Bell chains.
KFC was founded by Harland Sanders, an entrepreneur who began selling fried chicken from
his roadside restaurant in Corbin, Kentucky, during the Great Depression. Sanders identified
the potential of the restaurant franchising concept, and the first "Kentucky Fried Chicken"
franchise opened in Utah in 1952. KFC popularized chicken in the fast food industry,
diversifying the market by challenging the established dominance of the hamburger. By
branding himself as "Colonel Sanders," Harland became a prominent figure of American
cultural history, and his image remains widely used inKFC advertising. However, the
company's rapid expansion saw it overwhelm the ageing Sanders, and in 1964 he sold the
company to a group of investors led by John Y. Brown, Jr. and Jack C. Massey.
KFC was one of the first fast food chains to expand internationally, opening outlets in
Canada, the United Kingdom, Mexico, and Jamaica by the mid-1960s. Throughout the 1970s
and 1980s, KFC experienced mixed fortunes domestically, as it went through a series of
changes in corporate ownership with little or no experience in the restaurant business. In the
early 1970s, KFC was sold to the spirits distributor Heublein, who were taken over by the
R.J. Reynolds food and tobacco conglomerate, who sold the chain to PepsiCo. The chain
continued to expand overseas however, and in 1987 KFC became the first Western restaurant
chain to open in China. The chain has since expanded rapidly in China, which is now the
company's single largest market. PepsiCo spun off its restaurants division as Tricon Global
Restaurants, which later changed its name to Yum! Brands.
KFC's original product is pressure fried chicken pieces, seasoned with Sanders' recipe of 11
herbs and spices. The constituents of the recipe represent a notable trade secret. Larger
portions of fried chicken are served in a cardboard "bucket", which has become a wellknown feature of the chain since it was first introduced by franchisee Pete Harman in 1957.
Since the early 1990s, KFC has expanded its menu to offer other chicken products such as
chicken fillet burgers and wraps, as well as salads and side dishes, such as French fries and
coleslaw, desserts, and soft drinks, the latter often supplied by PepsiCo.

Income statement
16

An analytical study of foreign currencies conversion

as per AS- 11
Annual Financials for KFC Ltd.
View Ratios
Fiscal year is April-March. All values JPY millions.
Sales/Revenue
Sales Growth
Cost of Goods Sold (COGS) incl. D&A
COGS excluding D&A
Depreciation & Amortization Expense
Depreciation
Amortization of Intangibles
COGS Growth
Gross Income
Gross Income Growth
Gross Profit Margin
SG&A Expense
Research & Development
Other SG&A
SGA Growth

2013
2014
2015
23.29B
22.05B
17.04B
-5.34%
-22.70%
18.06B
17.47B
13.4B
17.89B
17.25B
13.17B
172.41M
218.68M
227.81M
-3.26%
-23.31%
5.23B
4.58B
3.64B
-12.49%
-20.38%
2013
2014
2015
4.1B
3.97B
3.79B
110.36M
102.22M
74.35M
3.99B
-

3.87B
-3.06%

3.71B
-4.72%

0
(32.62M)
32.62M
33.44M
2.66M
0
84.78M
84.78M
0
1.12B

0
(13.01M)
13.01M
(4.98M)
1.18M
0
63.47M
-25.13%
63.47M
0
549.6M

-50.75%

Pre-tax Margin
Income Tax
Income Tax - Current Domestic
Income Tax - Current Foreign
Income Tax - Deferred Domestic
Income Tax - Deferred Foreign
Income Tax Credits
Equity in Affiliates
Other After Tax Income (Expense)
Consolidated Net Income

580.16M
461.14M
0
119.02M
0
0
0
535.81M

284.03M
305.06M
0
(21.02M)
0
0
0
0
265.57M

Minority Interest Expense

Net Income

0
535.81M

0
265.57M

0
5.45M
(5.45M)
33.12M
1.02M
0
62.23M
-1.96%
62.23M
0
(175.31
M)
131.90%
(16M)
5.21M
0
(21.21M)
0
0
0
0
(159.31
M)
0
(159.31

Other Operating Expense

Unusual Expense
EBIT after Unusual Expense
Non Operating Income/Expense
Non-Operating Interest Income
Equity in Affiliates (Pre-tax)
Interest Expense
Interest Expense Growth
Gross Interest Expense
Interest Capitalized
Pre-tax Income
Pre-tax Income Growth

17

An analytical study of foreign currencies conversion

as per AS- 11
Net Income Growth

-50.44%

Net Margin Growth

Extraordinaries& Discontinued Operations
Extra Items & Gain/Loss Sale Of Assets
Cumulative Effect - Accounting Chg
Discontinued Operations
Net Income After Extraordinaries

0
0
0
0
535.81M

0
0
0
0
265.57M

Preferred Dividends
Net Income Available to Common

0
535.81M

0
265.57M

EPS (Basic)
Basic Shares Outstanding
EPS (Diluted)
Diluted Shares Outstanding
EBITDA

72.68
7.37M
1.3B

36.03
7.37M
822.54
M
-

EBITDA Margin

Annual Financials for KFC Ltd.

18

M)
159.99%
0
0
0
0
(159.31
M)
0
(159.31
M)
(21.61)
7.37M
(21.61)
7.37M
86.05M
-

An analytical study of foreign currencies conversion

as per AS- 11
View Ratios
Assets
Fiscal year is April-March. All values JPY millions.
Cash & Short Term Investments
Cash Only
Short-Term Investments
Total Accounts Receivable
Accounts Receivables, Net
Accounts Receivables, Gross

2013
2014
2.09B
2.09B
1.4B 2.5B
0
- 7.05B
8.78B 5.51B
7.05B
8.78B 5.51B
7.08B
8.78B 5.51B

Bad Debt/Doubtful Accounts

(21.56M
)
0

(7.65M) (1.24M)

1.27B
968.86
M
304.72
M
0
655.4M
655.4M

980.2M 1.16B
822.16M 924.94M

Other Receivables
Inventories
Finished Goods
Work in Progress
Raw Materials
Progress Payments & Other
Other Current Assets
Miscellaneous Current Assets
Total Current Assets

11.07B
2013
6.03B
8.23B
2.87B
4.09B
2.2B
1.12B
1.12B
107.78
M
135.31
M
120.31
M
18.51B

Net Property, Plant & Equipment

Property, Plant & Equipment - Gross
Buildings
Land & Improvements
Computer Software and Equipment
Other Property, Plant & Equipment
Accumulated Depreciation
Total Investments and Advances
Other Long-Term Investments
Long-Term Note Receivable
Intangible Assets
Net Goodwill
Net Other Intangibles
Other Assets
Tangible Other Assets
Total Assets

19

1.4B

0 0

158.05M 230.85M
701.04M 534.01M
701.04M 534.01M
11.85B 9.69B
2014
2015
5.94B 6.06B
8.24B
8.29B
2.89B 2.91B
4.09B 4.23B
- - 2.3B 2.47B
919.09M 966.57M
919.09M 921.57M
- 129.32M 99.28M
- 0
- 99.28M
149.2M 190.15M
115.42M 146.29M
19.04B 17.01B

An analytical study of foreign currencies conversion

as per AS- 11

Liabilities & Shareholders' Equity

ST Debt & Current Portion LT Debt
Short Term Debt
Current Portion of Long Term Debt
Accounts Payable
Income Tax Payable
Other Current Liabilities
Dividends Payable

2013
2.09B
350M
1.74B
6.51B
31.5M
606M
-

2014
2.15B
600M
1.55B
6.44B
284.47M
642.1M
-

2015
1.87B
200M
1.67B
4.96B
10.47M
516.93M
-

Accrued Payroll

95.91M

60.35M

Miscellaneous Current Liabilities

606M

546.19M

456.59M

Total Current Liabilities

9.25B

9.51B

7.36B

Long-Term Debt

2.36B

2.51B

2.9B

Long-Term Debt excl. Capitalized Leases

2.26B

2.39B

2.76B

Non-Convertible Debt

2.26B

2.39B

2.76B

Convertible Debt

Capitalized Lease Obligations

97.3M

117.72M

146.61M

Provision for Risks & Charges

91.45M

105.81M

119.71M

Deferred Taxes

(45.45M)

(49.74M)

9.67M

Deferred Taxes Credit

9.67M

Deferred Taxes Debit

45.45M

49.74M

Other Liabilities

165.37M

130.62M

43.64M

Other Liabilities (excl. Deferred Income)

165.37M

130.62M

43.64M

Deferred Income

Total Liabilities

11.86B

12.25B

10.43B

Non-Equity Reserves

20

An analytical study of foreign currencies conversion

as per AS- 11
Preferred Stock (Carrying Value)

Redeemable Preferred Stock

Non-Redeemable Preferred Stock

Common Equity (Total)

6.65B

6.78B

6.58B

Common Stock Par/Carry Value

565.3M

565.3M

565.3M

Retained Earnings

5.65B

5.8B

5.53B

ESOP Debt Guarantee

Cumulative Translation Adjustment/Unrealized For.

Exch. Gain
Unrealized Gain/Loss Marketable Securities
Revaluation Reserves
Treasury Stock
Total Shareholders' Equity
Accumulated Minority Interest
Total Equity
Liabilities & Shareholders' Equity

(686,000)

1.14M

67.47M
0
(3.93M)
6.65B
6.65B
18.51B

40.74M
0
(3.93M)
6.78B
0
6.78B
19.04B

106.91M
0
(4.23M)
6.58B
0
6.58B
17.01B

Data analysis
Balance sheet
Assets

21

An analytical study of foreign currencies conversion

as per AS- 11

finish goods
2013

2014

34%

2015

36%

30%

finish goods

PERCENTAGE

2013

968.86

36

2014

822.16

30

2015

924.94

34

Interpretation:There is an increase finish goods from 30 to 34% because of increase in closing stock.

other current assets

2013

2014

33%

2015

44%

23%

other current
PERCENTAGE
assets
2013
304.72
44
22

An analytical study of foreign currencies conversion

as per AS- 11
2014

158.05

23

2015

230.85

33

Interpretation:- there is an increase in current asset intwo year from 23% to 33%.

total current assets

2013

2014

30%

2015

34%

36%

total current
PERCENTAGE
assets
2013
11.07
34
2014

11.85

36

2015

9.69

30

Interpretation:- there is an decrease total current asset from 36% to 30%.

23

An analytical study of foreign currencies conversion

as per AS- 11

buliding
2013

2014

2015

2015; 34% 2013; 33%

2014; 33%

building

PERCENTAGE

2013

2.87

33

2014

2.89

33

2015

2.91

34

Interpretation :- there is an increase building from 33% to 34%.

m iscellaneous current assets

2013

2014

2015

28%
35%

37%

miscellaneous current
assets
24

PERCENATGE

An analytical study of foreign currencies conversion

as per AS- 11
2013

655.4

35

2014

701.04

37

2015

534.01

28

Interpretation:- there is an decrease miscellaneous current asset from 37% to 28%.

Liabilities
accounts payable
2013

2014

2015

28%
36%

36%

accounts payable

PERCENTAGE

2013

6.51

36

2014

6.44

36

2015

4.96

28

Interpretation:- there is an decrease account payable asset from 36% to 28%.

25

An analytical study of foreign currencies conversion

as per AS- 11

Interpretation:-

incom e tax payable

2013

2014

2015

4%

96%

income tax
payable
2013 31.5m

PERCENTAGE
0

2014

284.47

96

2015

10.47

Interpretation:- there is an decrease income tax payable asset from 96% to 4%.

26

An analytical study of foreign currencies conversion

as per AS- 11

total current liabilites

2013

2014

2015

28%
35%

36%

total current
liabilites

PERCENTAGE

2013

9.25

36

2014

9.51

36

2015

7.36

28

Interpretation:- there is an decrease total current liabilities asset from 36% to 28%.

long term debt

2013

2014

2015

30%
37%

32%

long term debt

2013

PERCENTAGE

2.26

31
27

An analytical study of foreign currencies conversion

as per AS- 11
2014

2.39

32

2015

2.76

37

Interpretation:- there is an increase long term debt asset from 32% to 37%.

Interpretation:-

Miscellaneous current liabilities:2013

2014

2015

28%
38%

34%

Miscellaneous current
liabilities:-

PERCENATGE

2013

606

38

2014

546.1

34

2015

456.59

28

Interpretation:-

28

An analytical study of foreign currencies conversion

as per AS- 11

Profit and loss account:-

sales and revenue

2013

2014

2015

27%
37%

35%

sales and
revenue

PERCENATGE

2013

23.29

37

2014

22.05

36

2015

17.04

27

Interpretation:-

29

An analytical study of foreign currencies conversion

as per AS- 11

gross incom e
2013

2014

2015

27%
39%

34%

gross income

PERCENTAGE

2013

5.23

39

2014

4.58

34

2015

3.64

27

Interpretation:-

interest expenses
2013

2014

2015

30%
40%

30%

interest
expenses

PERCENTAGE

30

An analytical study of foreign currencies conversion

as per AS- 11
2013

84.78

40

2014

63.47

30

2015

62.23

30

Interpretation:-

net incom e
2013

2014

2015

17%

56%

28%

net income

PERCENTAGE

2013

535.81

56

2014

265.57

28

2015

159.31

16

Interpretation :-

31

An analytical study of foreign currencies conversion

as per AS- 11

Chapter 5
5.1 Conclusion
It thus emerges from the literature reviewed that currency exposure management is
too important to be ignored by businesses across the world, including emerging
world. Businesses which did not take cognizance of this ground reality have paid the
penalty. It is easier to point out that some businesses have thrived and perhaps still
thrive without actively managing foreign exchange risk, but such businesses are too
few in number to be taken seriously. In view of the nature of activity they are into,
business enterprises are bound to follow various methods to measure currency
exposure. More or less, a similar line of argument can be applied to businesses that
hedge partly. If from experience, business enterprises are convinced that only a part
of their inflows or outflows is to be hedged, so be it. As long as such decisions
emerge from sound rationale, it cannot be questioned. A similar argument can be
extended in respect of the type of currency exposure that businesses manage. Most
businesses tend to manage transaction exposure. This amounts to taking a risk
although a calculated one. Even this calculated risk is not advisable because things
can go wrong in spite of taking all the precautions. The hedging instrument used
could be business-specific since the nature of the business and the ambience the
said business operates in by and large has a role to play in deciding upon the
instrument to be used for hedging. Therefore, there can be no two views on it.
However, in this area, there is immense scope to innovate and that could prove a
blessing to businesses which are always proactive in foreign exchange risk
management. Such innovation can lead them to hedge the risk optimally.

5.2BIBLIOGRAPHY
32

An analytical study of foreign currencies conversion

as per AS- 11
INTERNET
WWW.GOOGLE.COM
WWW.INVESTOPEDIA .COM
BOOKS
ADVANCE FINANCIAL ACCOUNTING- MCOM PART 1 - MANAN PRAKASHAN
ADVANCE FINANCIAL ACCOUNTING- MCOM PART 1 - SHETH PRAKASHAN

33