C2 9 Sales prices for the foreign operation's products are not primarily responsive on a short- term basis to changes in exchange rates but are determined more by local competition or local government regulation. h There is an active local sales market for the foreign operation's products, although there also might be significant amounts of exports. Change in the Classification of a Foreign Operation When a foreign operation that is integral to the operations of the reporting enterprise is reclassified as a non-integral foreign operation, exchange differences arising on the translation of non-monetary assets at the date of the reclassification are accumulated in a foreign currency translation reserve. When a non-integral foreign operation is reclassified as an integral foreign operation, the translated amounts for non-monetary items at the date of the change are treated as the historical cost for those items in the period of change and subsequent periods. Exchange differences which have been deferred are not recognised as income or expenses until the disposal of the operation. Example A business having the Head Office in Kolkata has a branch in UK. The following is the trail balance of Head Office and Branch as at 31.03.2006: Cr. 20,000 Account Name Amount in Dr. Fixed Assets (Purchased on 01.04.2003) 5,000 Debtors 1,600 Opening Stock 400 Goods received from Head Office Account 6,100 (Recorded in HO books as Rs. 4,02,000) Sales Purchases 10,000 Wages 1,000 Salaries 1,200 Cash 3,200 Remittances to Head Office 2,900 (Recorded in HO books as Rs. 1,91,000) Head Office Account (Recorded in H0 books as Rs. 4,90,000) Creditors Closing stock at branch is 700 on 31.03.2006. Depreciation @ 10% p.a. is to be charged on fixed assets. Prepare the trail balance after been converted in Indian Rupees. Exchange rates of Pounds on different dates are as follow 01.04.2003- Rs. 61; 01.04.2005- Rs. 63 & 31.03.2006 - Rs. 67 7,400 4,000