How do we account for foreign exchange gains/losses?

Monetary items denominated in foreign currencies at year-end are restated at year-end rates. In case of monetary items that are covered by forward exchange contracts, the difference between the year-end rate and rate on the date of the contract is recognized as exchange difference and the premium paid on forward contracts is recognized over the life of the contract.

Any income or expense on account of exchange difference either on settlement or on translation is recognized in the Profit and Loss Account except in cases where they relate to acquisition of fixed assets in which case, they are adjusted to the carrying cost of such assets.