Ind AS: Functional Currency and Consequential Impact on Deferred Tax

http://www.bcasonline.org/articles/artin.asp?1059

My article was published in Bombay Chartered Accountants Journal - August 2012 issue

Executive Summary

This article covers the ‘Functional Currency’ aspect differentiating with ‘Presentation Currency’ as laid in Ind AS 21, which will be a new concept when India converges to IFRS.

It also highlights the consequential impact of having two sets of functional currencies (one for GAAP reporting and other Tax submissions) on deferred tax computation under Ind AS 12, which again is based on a new approach i.e. ‘Temporary difference’ as against ‘Timing difference’ under existing AS 22.

Temporary difference is essentially arrived at by comparing the balance sheet under tax books with financial books. This approach is also known as ‘Balance Sheet approach’ and the approach in AS 22 is termed as “P&L approach” .

Introduction

India has laid down the convergence plan of ‘Indian Accounting Standards’ (AS) with ‘International Financial Reporting Standards’ i.e. IFRS in a phased manner. The first phase implementation was expected to begin from April 1, 2011 but due to practical challenges, the implementation is delayed.  ICAI, as part of convergence approach, has come out with 35 Ind AS which are same as IFRS except for the carve outs. Ministry of Corporate Affairs (MCA) has notified 35 Ind ASs on February 25, 2011.

Amongst these standards, there is one standard that has the potential to entirely turn the Indian financial statements topsy turvy and that is IAS 21 i.e. Ind AS 21.The consequential impact of this standard on Deferred taxes, is not part of the carve outs and hence would need due care while the standard is implemented in India.

Currency for accounting and presentation

While all Indian entities prepare our books of accounts in Indian Rupees, we have never thought of preparing our books in any other currency. There may be some who did wish of using currency other than Indian Rupee (INR) on account of huge foreign exchange exposures but they did not have any guidance or literature to support them.  The spot will now be addressed in “Ind AS 21 - The Effects of Changes in Foreign Exchange Rates”

Once India starts converging to Ind AS, we will have this standard on effects of exchange fluctuations, which has considered the aspect of huge volatility and exposures to operations due foreign currency (i.e. other than INR). It requires the managements of companies to adopt a suitable currency for maintaining their accounts. Since the entities may vary their exposures to currency in different years, the standard has mandated the assessment of such book keeping currency every year.

If any other currency, say USD is considered as the currency that influences the primary economic environment, managements will have to prepare themselves to consider INR as foreign currency exposure and mark to market all INR monetary assets and liability at each balance sheet date.

Ind AS 21 – ‘The Effects of Changes in Foreign Exchange Rates’ is a standard that brings a new dimension to the financial statements prepared in India. Now, the book keeping currency i.e. Functional currency will no more be optional or default INR, it will be governed by specific principles laid down under the standard and functional currency can be different than the presentation currency.

Functional Currency:

Let us appreciate the governing principles of functional currency under Ind AS 21:

“Functional currency is the currency of the primary economic environment in which the entity operates.” (para 7)

“The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. An entity considers the following factors in determining its functional currency:

(a)   the currency:

(i) that mainly influences sales prices for goods and services (this will often be the currency in which sales prices for its goods and services are denominated and settled); and

(ii) of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services.

(b)   the currency that mainly influences labour, material and other costs of providing goods or
 services (this will often be the currency in which such costs are denominated and settled).” (para 8)

Ind AS 21 defines the Functional Currency and differentiates it from the Presentation Currency. The primary factor that drives the choice of currency is influenced by stream of revenue and operating costs. Additional factors that the standard requires to examine are the currency of loan obligations.

“Many reporting entities comprise a number of individual entities (e.g. A group is made up of a parent and one or more subsidiaries). Various types of entities, whether members of a group or otherwise, may have investments in associates or joint ventures. They may also have branches. It is necessary for the results and financial position of each individual entity included in the reporting entity to be translated into the currency in which the reporting entity presents its financial statements. This Standard permits the presentation currency of a reporting entity to be any currency (or currencies). The results and financial position of any individual entity within the reporting entity whose functional currency differs from the presentation currency are translated in accordance with paragraphs 38–50.” (para 10)

Under existing AS 11 definitions, foreign currency is a currency other than the reporting currency, and reporting currency is the currency used for reporting financial statements. The rules of translating the subsidiary accounts into reporting currency are similar to those under Ind AS 21, which prescribes using closing rate for Balance sheet items and transaction rate or average rate for income statement items (para 38-50).

Point of difference:
 Under Indian GAAP, a currency used for  preparing as well as reporting  .i.e. presenting financial statements to regulatory authorities, lenders, investors, etc is foreign currency is no other than INR. There is no concept ofhaving the currency to report financial statements (presentation currency) different from the currency in which books of accounts are to be maintained (functional currency).

Functional Currency: Industry perspective

Under Indian GAAP there is no concept of functional currency identification. It however has reference to ‘Reporting Currency’, which is expected to be the same currency of the country in which it is domiciled.

The definition of functional currency in Ind AS will encompass all the companies whose primary economic environment is not the Indian economy.

The impact of this standard will be more evident on commodity market linked companies engaged in mining, refining, and trading products, whose primary revenue is governed by international commodity prices prevailing on London Metal Exchange in US Dollars. Another industry that may be impacted by the implementation of Ind AS will be Business Process Outsourcing Companies and Software Companies whose primary revenue is again governed in terms of Dollars and Euros. Oil and Gas companies are also prone to get functional currency assessment and application in India since the oil prices are quoted in USD per barrel globally.

It will also be impacting the bullion companies that are listed on Indian stock exchanges and others that are planning to list soon on Indian and international bourses. The revenues of these companies are always traded in USD in India and internationally.

Domestic prices for sales within India, of these companies though in INR, are arrived at by first considering the respective International prices in USD and then making certain adjustments such as duty differentials, domestic market premium, freight differentials, competitive discounts, etc which in industry terms is called as ‘Shadow Gap’ pricing.

Each company will have to apply its own judgment and access all the criteria of primary environment and other additional factors that influence the choice of its functional currency.

 Challenges on adoption of functional currency other than INR in India:

1.       If the accounting records of these Indian Companies are to be prepared under Ind AS then the financial statements will altogether give a different picture. Since currency fluctuation on say USD may now sit in transaction amounts and change company’s profitability.

2.       Change in mindset and budgets required.

3.       Will lead to difficulty in decision making processes by Indian Managements specifically in assessing its foreign exchange exposure which so far was on currencies other than INR.

4.       Continuing a parallel accounting system for Income Tax submission since Direct tax Code does not provide for similar changes.

5.       Updation / modification to ERP solutions. It is also worth noting that accounting softwares such as SAP have a functionality to address the dual currency accounting which can take care of both Tax reporting using INR as functional currency and IFRS reporting using any other currency.

6.       Accounting for Deferred tax and unwanted volatility in income statement.

Indian Industry including Managements, Lenders, Investors, Analysts of financial statements will have to prepare for seeing a currency different than INR as accounting currency in annual financial statements. Many companies internationally have adopted this standard which aligned their accounting currency i.e. functional currency in line with their respective primary economic environments.

In the international markets most of the transactions happen in US dollars and India is now a part of a global economic platform and thus is very much influenced by USD in its financial statements. The impact is more evident in industries that are primarily dependent on USD and whose profitability is affected by any change in USD: INR exchange rate such as Mining & Metals, Oil & Gas, Software exports and Business Processing Operations among others.

Let us now appreciate the challenge in point 6 above, on how deferred tax is impacted by change in functional currency from INR
Ind AS 12: Income Taxes

A deferred tax asset or liability shall be recognised for all taxable temporary differences.

‘Temporary differences’ are differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The ‘tax base’ of an asset or liability is the amount attributed to that asset or liability for tax purposes.

The primary approach of accounting of deferred tax under Ind AS is using the balance sheet approach. For example, revaluation of fixed assets under Indian the GAAP with no corresponding revaluation in Tax books i.e. Tax base has no impact on deferred tax computation under AS 22 since the revaluation impact is only a balance sheet adjustment with corresponding impact directly in reserves.

Under Ind AS 12, even though the revaluation does not impact the income statement, there is a need to adjust the deferred tax and post the net impact in revaluation reserve. This is because this originates a temporary difference on comparison between the balance sheet value of asset and tax base for that particular asset. This is true for all such differences between the balance sheet value and tax base, that have a potential of reversal either in Tax books such as 43B items or financial books itself such as Revaluation adjustments.

While comparing the balance sheet values and tax base, the following paragraph of Ind AS 12 brings out the impact of functional currency on deferred tax computation.

“The non-monetary assets and liabilities of an entity are measured in its functional currency (see Ind AS 21 The Effects of Changes in Foreign Exchange Rates). If the entity’s taxable profit or tax loss (and, hence, the tax base of its non-monetary assets and liabilities) is determined in a different currency, changes in the exchange rate give rise to temporary differences that result in a recognized deferred tax liability or (subject to paragraph 24) asset. The resulting deferred tax is charged or credited to profit or loss.” (Para 41)

The application of this paragraph will not trigger if the currency in which the company maintains its books of accounts i.e. functional currency and the ones used for calculating taxable profit under tax laws is the same i.e. INR for India. It is pertinent to note that choosing a different currency for presentation of financial statements to stock market, lender, investors, etc, will not attract application of paragraph 41 of Ind AS 12.

However, with the change in accounting standard wherein the accounting records may have to be made under say USD (considering primary economic environment criteria under Ind AS 21) and taxable profit or loss is to be calculated under INR, this may cause the temporary difference if the USD: INR exchange rates changes at every balance sheet date.

We will take an example to understand the implications of functional currency on deferred tax.

1. Entity A has INR as Tax Currency and USD as functional Currency

2. The value of non monetary assets as maintained for tax books in INR is Rs 3,150 and as maintained with USD as functional currency stood at $77.73.

The transactions under both sets of books were accounted at respective historical exchange rates and thus the INR numbers of tax books when divided by USD numbers of Financial books, will give historical transaction rates, thus different from the Closing rate.

3. The original and subsequent cost under tax base for the assets are the same as that in financials books, with the exception to the difference that originates due to application of para 41 of Ind AS 12.

4. Example considers only non monetary assets assuming monetary assets are valued at closing rate and thus would not lead to any difference while comparing the tax base using translation rate.  5. The exchange rate at March 31 is 1 USD = Rs 50 and tax rate is 33.99%

Closing deferred tax status of deferred tax liability as on March 31, XXXX of Entity A is as shown in Table 1:

Table 1

	Particulars	March 31 – XXXX		Equivalent	Diff	Tax	Def tax
	Non monetary assets	INR - Tax	USD - A/c	USD - Tax	INR	Rate	USD
		A	B	C=A/50	D=B-C	E	F=D*E
	Property, plant and equipment	2,500.00	62.50	50.00	12.50	33.99%	4.25
	Intangible assets	200.00	5.00	4.00	1.00	33.99%	0.34
	Other assets	150.00	3.41	3.00	0.41	33.99%	0.14
	Inventories	300.00	6.82	6.00	0.82	33.99%	0.28
	Total	3,150.00	77.73	63.00	14.73		5.01
Deferred Taxe under Ind AS will be calculated as follows:
Under Ind AS, the deferred taxes are measured in the functional currency
Carrying value in the functional currency: $77.73
Tax base translated in functional currency i.e. USD at the rate on closing date is USD = Rs 3,150 / 50 = $ 63.
Temporary difference: $14.73 ($77.73-$63.00)
Tax Rate        33.99%
Deferred tax expense $ 5.01
As can be seen from the above calculation, the translation of tax base using closing rate has lead to a difference of $14.73. It is pertinent to note that this difference is only for deferred tax computation and not for accounting in the financial books. The notional comparison has reduced the tax base in USD by 14.73 and this leads to creation of a deferred tax liability with a corresponding deferred tax expense in the income statement. The impact of $ 5.01 over net assets of $ 63 will be a material impact on the profits of the company. It will vary depending upon the value of non monetary assets as on the reporting date and movement of exchange rates during the period. There would not have been any temporary difference in the above example if the functional   currency was INR since tax base and book base would have been same.

Impact of accounting of Deferred Tax such functional currency difference

1.       The accounting for deferred tax on account of such notional differences creates high volatility in the income statement.

2.       The gain/loss on account of such treatment has no corresponding charge/income in the income statement. It is accounted based on pure out of books comparison of exchange rates on non monetary items.  ($14.05 is notional only for comparison but tax of $ 5.01 is real for accounting)

3.       This item has no bearing to operations or profit; instead it pulls down/up financial results from operations due to tax provision and thus calls for suitable disclosures in financial statements to explain the earnings per share to investors, analysts, etc .

It is pertinent to note that i.e. US GAAP, Financial Accounting Standard (FAS) 109 prohibits recognition of a deferred tax liability or asset for differences related to assets and liabilities that, under FASB Statement No. 52, Foreign Currency Translation, are re-measured from the local currency into the functional currency using historical exchange rates and that result from (a) changes in exchange rates or (b) indexing for tax purposes.

On one hand Ind AS 21 aims to reduce the volatility in results on account of currency exposure and on the other hand Ind AS 12 brings in volatility in income taxes on account of notional difference created on account of comparing the balance sheet value and tax base in functional currency at the closing date.

 Thus, choice of functional currency other than that used for Tax reporting will lead to such temporary differences and will continue to exist until book currency and tax currency are aligned.

Change in Functional Currency

“When there is a change in an entity’s functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change”

The entity will have to assess the criteria for deciding the functional currency year and apply the accounting impacts for change prospectively. Here the country’s policies also would influence the decision such as restrictions on holding foreign currency and INR being the only legal tender in India.

The entity will also have to explain in notes to financial statement as to why it considers such change in its functional currency.

Presentation currency

Ind AS 21 allows the entity to present its financial statements in any currency and does not restrict any one currency. However, considering the Indian requirements for ROC filing, tax submission, Stock exchange filings, etc the presentation currency will be preferred to be INR.

INR as the presentation currency in Indian market will also be preferred currency for reporting to facilitate easy comparability with its peer group.  This can be achieved by either following the rules of translation (using average rate for income statement and closing rate of balance sheet) which will give rise to translation reserve or convenient translation using a single rate for all the items in the balance sheet and income statement. 

International Precedence

In order to relate to the new concept, financial statements of some international companies who have gone through the change in functional currency may be referred. Following relevant excerpts are for reference:

“StatoilHydro (OSE:STL; NYSE:STO) changed the company structure as per 1 January 2009. The parent company, StatoilHydro ASA, and two subsidiaries, consequently changed their functional currencies to USD from the same date.

The accounts for these companies are therefore now recorded in USD, while the presentation currency for the Group remains NOK. The changes in functional currencies have no cash impact.

The companies changing functional currency will no longer have currency exchange effects, deriving from USD denominated monetary assets and liabilities, related to the “Net financial items”. Conversely, monetary assets and liabilities, denominated in other currencies than USD, may now generate such currency effects.” 

Radiance Electronics Limited, Singapore

“Certain subsidiaries of the Group have changed their functional currency from SGD and RMB to USD in FY2008A. Revenue for these subsidiaries is mainly denominated in USD while purchases are mostly made in USD. Administrative expenses are denominated based on their country of domicile and are mainly in SGD and RMB.

While the factors used to determine its functional currencies are mixed, the Company is of the opinion that USD best reflects the economic substance of the underlying transactions and circumstances relevant to the foregoing subsidiaries. Accordingly, the subsidiaries adopt USD as its functional currency with effect from the current financial year ended 31 December 2008. This change shall be applied retrospectively to the prior years.

The Company and the Group continues to present its financial statements in SGD consistent with prior years.”

For deferred tax implications under IFRS Tenaris S.A.’s annual financial statements may be referred. It carries a note in its financial statements under ‘Tax reconciliation note’ to explain the investors and readers on the volatility caused due to tax accounting.

Tax note from Tenaris S.A 2008 financial statements–

“Tenaris applies the liability method to recognize deferred income tax expense on temporary differences between the tax bases of assets and their carrying amounts in the financial statements. By application of this method, Tenaris recognizes gains and losses on deferred income tax due to the effect of the change in the value of the Argentine peso on the tax bases of the fixed assets of its Argentine subsidiaries, which have the U.S. dollar as their functional currency. These gains and losses are required by IFRS even though the devalued tax basis of the relevant assets will result in a reduced dollar value of amortization deductions for tax purposes in future periods throughout the useful life of those assets. As a result, the resulting deferred income tax charge does not represent a separate obligation of Tenaris that is due and payable in any of the relevant periods.”

Internationally it was easier for companies to adopt a change in currency of accounting since these are fully convertible economies i.e. they can operate bank accounts in foreign currency. Thus the change in mindset was comparatively easier, however the common challenge was again ERP which had to be equipped with dual currency reporting for tax purposes.

With respect to deferred taxes, we can see that note in financial statements was given to explain notional volatility to guide the analysts and readers of financial statements.

Forward Path

It will be a challenging journey for Indian corporates who will adopt Converged IFRS i.e. “Ind AS” and will have to consider the implications of these standards on its accounting and reporting requirements.

From stability of profitability and ultimately EPS perspective, the companies may avoid the volatility of currency exposure but may not escape the volatility created by foreign exchange rates in computing deferred taxes. In order to explain the volatility on deferred tax front, companies may prefer to give note disclosures as given by international peers.

Alternative approach: Ind AS 12 ‘Income Taxes’

Considering the amount of volatility of foreign exchange rates with INR and its notional impact on financial statements, Institute of Chartered Accounts of India can consider  a “Carve-out” while converging to IAS 12 or represent to International Accounting Standards Board for granting an exemption under IAS 12 which will flow in Ind AS 12. This is keeping in mind the deferment of Ind AS implementation in India and practical hardships that will be faced by Indian Multinational Congloromates. 

 CA. Sanjay Chauhan

Currency Translation Reserve (CTR) - IGAAP & IFRS

A. Objective:

 

This topic covers accounting for non integral operations under AS 11 in specific and its comparison with IAS 21.

B. Back Ground:

With the intent to Go Global, Indian entrepreneurs are now expanding their business focus in various geographies outside India. Indian Multinational Corporations such has Tata Steel, Tata Motors, Hindalco, Sterlite, etc have retained their flagship operations in India and acquired subsidiaries in foreign jurisdictions.

 

With this globalisation, comes the need to report the operations of the entire Group in one currency. Though under Indian GAAP, entities having subsidiaries are not required to present Consolidated Financial Statement under AS 21, listing requirements on Stock exchange make it necessary for entities to follow AS 21- Consolidated Financial Statements. It is to be notes that the leeway existing in Indian Accounting Standards will go away once Ind ASs are made effective. This is because IFRS i.e. Ind AS makes it compulsory for entities to Consolidate financial statements even if it is not listed, with certain exemptions as prescribed under IAS 27 i.e. Ind AS 27 – Consolidated financial Statements.

The requirements of reporting foreign non integral operations in CFS of holding company are same under existing AS 11 when compared to IAS 21. Though there is no difference between functional currency and reporting currency under AS 11. It is considered that INR is the currency of accounting in books and also to report the consolidated results of the Company on stock exchanges. Till date no entity has reported its financial statements in any currency other than INR unlike IFRS where there is choice to report in any currency irrespective of currency used for accounting purposes.

C. Procedure:

An entity has to submit its Consolidated Financial Statements of the entire Group following the principle of a single economic entity and same to be presented in one reporting currency ie INR.

In preparing consolidated financial statements, an entity combines the financial statements of the parent and its subsidiaries line by line by adding together like items of assets, liabilities, income and expenses. If the reporting currency and the currency in which the books are maintained is same, then there is no translation difference at consolidation. Translation difference originates because the currency in which the books are maintained is different than the currency in which the Group reports its financials. In this case of Consolidation, balance sheet items of each entity are translated at closing rates and income statement items are translated at period average rates for presenting its Consolidated Financials in Group’s Reporting currency.

As the exchange rate is not constant between the two balance sheet dates, there arises a difference on account of considering a different exchange rate for translating the subsidiary’s results at every balance sheet date.

D. Translation process defined in AS 11, extracts are as follows:

“Non-integral Foreign Operations

24. In translating the financial statements of a 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 operation should be translated at the closing rate;

(b) income and expense items of the non-integral foreign operation should be translated at exchange rates at the dates of the transactions; and

(c) all resulting exchange differences should be accumulated in a foreign currency translation reserve until the disposal of the net investment.

25. 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.

Tax Effects of Exchange Differences

35. Gains and losses on foreign currency transactions and exchange differences arising on the translation of the financial statements of foreign operations may have associated tax effects which are accounted for in accordance with AS 22, Accounting for Taxes on Income.

E. Understanding drawn

1. Translation reserve arises at Consolidation when a particular subsidiary maintains it books of accounts other than INR. (India Specific)

2. Opening and closing exchange rate for the particular subsidiary for translation are different.

3. Parent share of Translation reserve is presented separately in reserves and minority share is grouped under Minority interest.

4. These are though subject to deferred taxes but under Indian GAAP where deferred taxes are based on Income approach, these balance sheet movements are in any case not covered. These are similar to revaluation reserve, which are not subjected to deferred tax unlike IFRS which follows balance sheet approach.

5. Moreover, under IFRS also, such exchange differences do not give rise to any temporary differences associated with the foreign operation's assets and liabilities. This is because both the carrying amounts of the assets and liabilities and their respective tax bases will be measured in the foreign entity's accounting currency at the balance sheet date and, therefore, any timing differences arising would have been recognised by the foreign entity as part of its deferred tax balances in its own financial statements. These deferred tax balances translated at the year-end exchange rate will simply flow through on consolidation and no further adjustment would be necessary.

6. As a point of reference, SIC 26 also concludes as: “While preparing consolidated financial statements, the tax expense to be shown in the consolidated financial statements should be the aggregate of the amounts of tax expense appearing in the separate financial statements of the parent and its subsidiaries.”

CA Sanjay Chauhan

Whats in a Name ?

Information about Mumbai....

Ever wondered why there is no church at Churchgate? Why Dhobi Talao has no water? Why we can find no lady's fingers at Bhendi Bazaar?

Many other stations too have logical roots in history - named either after legendary people, age-old traditions or businesses carried on in the area or for unknown reasons.

The Western Railway's suburban section in Mumbai stretches from Churchgate, the city's business centre, to Virar covering a span of 60km and 28 stations. The section was further extended upto Dahanu Road adding 10 more stations and another 60km. What began as a steam traction way back in April 1867, with one train each way between Grant Road and Bassien Road, was extended upto Churchgate in 1870,and by 1900, 44 trains on each way were carrying over one million passengers annually. Today more than 6 million people travel per day on the Mumbai suburban section alone, of which, Western Railway carries approximately 3 million passengers per day.

CHURCHGATE STATION
Churchgate was named after the old Church Gate demolished in the mid-1860s which was one of the three main gates to the Fort - the gate that afforded entry to St. Thomas' Church. When the station was built in close proximity to the position of the demolished outer gate, it was considered logical to name it after this antique urban object d'art. The ancient gate stood as an entrance to the church on the spot that flora fountain stands today. It formed the boundary of south Mumbai in the 16th centuries. One of the busiest stations today, the first train here is timed at 4 am and the last one leaves the station at 1 am.

CHARNI ROAD
The name is derived from the fact that Charne in Marathi applies to grazing and in the earlier days grazing lands for horses and cattle were located nearby. The main significance of Charni Road station is that it is very near to the Girgaum Chowpatti, a major destination for tourists and south Mumbai residents looking for a peaceful walk on the beach. According to another theory, the name Charni or Chendni was brought to this area from Thane. A locality near Thane Railway station is called Chendni and many of its inhabitants settled in Girgaum and so renamed the settlement after their old home.

GRANT ROAD
This station is named after Sir Robert Grant, who was the Governor of Bombay between 1835 and 1839, who was responsible for the construction of the Thane and Colaba causeways. Grant Road station is the most centrally located arterial station in South Mumbai and easily connects to all prominent place such as Gaumdevi,Girgaum Chowpatty, Babulnath, Malabar Hill, Peddar Road, Nepean Sea Rd via Nana Chowk on the West, to Duncan Rd, Dongri, Byculla(Central Railway)via Maulana Shaukatali Road and to Khetwadi, C P Tank, Mumbadevi, Mandvi, Bhuleshwar, via Sardar Vallabhai Patel Road. The road after which this station is named (now Maulana Shaukat Ali Road) was built around 1839 when its surroundings were virtually open country.

MAHALAKSHMI
The Mahalakshmi station is named after the Mahalakshmi temple.

LOWER PAREL
The area of Parel is named after the paral or padal, the trumpet-flower tree which once grew profusely in the area. According to another scholarly theory, Parel is a shortened form of Parali, a name given by the Panchkalshi community to commemorate the shrine of Vaijnath Mahadeo (Shiva) at Parali in the Deccan. Parel was one of the original seven islands that formed Mumbai. It belonged to the 13th century kingdom of Raja Bhimdev. When the Portuguese conquered Bombay, they gave the authority of this area to the Jesuit priests, who replaced the Parali Mahadev temple with a church and a convent. They remained with the Jesuits until they were confiscated by the British, when the priests sided with the Sidis during their battle with the British in 1689 and spelt the area as Parell.

ELPHINSTONE
Elphinstone Road, named after Lord Elphinstone, the Governor of Bombay from 1853 to 1860, is a railway station on the Western line of the Mumbai suburban railway. The road after which this station gets its name is now called Bhatankar Marg. It was formerly named after John, Lord Elphinstone the Governor of Bombay from 1853 to 1860. The city's progress in the 1850s and 1860s was due to the insight of this Governor and his successor, Sir Bartley Freer.

MATUNGA
According to one belief the word Matunga originates from the Marathi word, matang or elephant, owing to the belief that tuskers from Raja Bhimdev's army were stationed in the area around the 12th century. During the British Raj, Matunga served as an artillery station but was abandoned by 1835 except for a couple of small hamlets housing the descendants of former menials at the military camp.

MAHIM
Mahim was one of the seven islands that originally made up Mumbai. Mahim, or Mahikawati as it was known, was the capital of Raja Bhimdev in the 13th century. He built a palace and a court of justice in Prabhadevi, as well as the first Babulnath temple. The original Mahim town is located near Palghar about 60 miles north of Bombay. The ancient temple of Mahim or Mahikawati still exists there. The epic Ramayana mentions that when Ram and Laxman were captured by Ahiravan and Mahiravan, they were imprisoned in this temple. They were rescued by Hanuman from here. As it is known to the people who live in this beautiful village of Mahim; that after Raja Bhimdev lost his capital, i.e. Mahim, to another king, he established his new capital in the present Bombay region giving it the same name Mahim. This fact is not known to most people. Mahim is also the name of a prominent Iranian family, whose members reside in both Iran and Canada.

BANDRA
Bandra is a possibly an altered pronunciation of 'Vandre', a Marathi name. There are other views on the origin of the name: like its relation to some Portuguese princess and it being derived from "Bandar-gah" in Hindi, which means port. Vandre in Marathi and Bandar in Hindi both mean port and come from the same Sanskrit root word. It is referred to as "Bandora" in the writings of Mount Stuart Elphinstone of the English East India Company which describes the acquirement of the island of Salsette. Bandra remained a sylvan village dotted with thatched cottages. Known as the Queen of the suburbs, Bandra has much to offer in terms of sightseeing, shopping and gourmet dining.

KHAR
KHAR ROAD. The area is often called Khar-Danda - khar in Marathi means salt, danda is a thick, short stick while dandi is a strip of land running out to sea.

SANTACRUZ
It is derived from the Latin word Santa Cruz meaning Holy Cross. It was formerly called by local villagers as Khulbawdi - wherein khul implies a mortar and also a yard, and bawdi or bowri meaning a well. Santa Cruz (Holy Cross) was so named by its large population of Salsette East Indian Christians after a crude wooden cross that they erected on a hilltop. One fine day, the wooden stump of this cross is believed to have begun sprouting leaves miraculously enough.

VILE PARLE
The name 'Vile Parle' is derived from the names of small villages that included Idlai - Padlai.
The original name of the village was Veleh Padle, possibly originating from a combination of the Portuguese word, velha and the Marathi word pada, a cluster of villages.

ANDHERI
Several trains begin and end at this station (left), whose strange name means vertigo or dark in Marathi. Andheri is one of the fastest growing suburbs in the north-west.

JOGESHWARI
The name is derived from the Jogeshwari caves that are located in the eastern part of this suburb. They are some of the earliest Hindu caves in the region and are dedicated to the Hindu god Shiva. There is an old belief that the temple of Jogeshwari was named after the donor of the temple, Jog.

GOREGAON
While few believe that this station and suburb is named after the politically active Gore (spelled Go-ray) family, who lived on the Western side of the suburb, others are of the opinion that the area got its name from gore-gaon - the white village since it was a large milk-producing centre since earlier times. Going by the former belief, the name literally means "Gore's village" in Marathi. What is now known as Goregaon Suburb is a conglomeration of Four Villages Pahadi, Goregaon, Aarey and Eksar. Goregaon got the Railway Station as early as 1862. The suburb was one of the Four Railway Stations between Borivali and Grant Road. However, it was known as Pahadi.

MALAD
The origin of this name appears to be untraceable. In Marathi mala can imply either a garland or row, or a whitish, unctuous earth. In the 1920s and 1930s, several public and private buildings in the city were constructed with facings of the attractive beige Malad stone from the quarries located in the area.

KANDIVALI
The Kandivali or Khandolee station as it was once called was opened in 1907. The name is possibly derived from 'Khand', a sharp projection of rock, perhaps part of the stone quarries situated here.

VASAI
The original name of Vasai was Vesalé in Sanskrit. Under the Muslim sovereigns it was renamed to Baxay; the Portuguese christened it Bancaim, and the Marathas called it Bajipura. Later on under the British rule, it was named Bassein. Finally, after Indian independence it was renamed 'Vasai'. The origin of Vasai is traced to the Sanskrit word vas, which means to dwell, or residence.

NALASOPARA
It is the site of the ancient port of Shurparaka or Sopara, now silted up. Sopara is one of the oldest port towns in India dating back to more than 1000 years. It is believed to be Solomon's Ophir by some scholars, and also said to be Shurparaka, the place where the Pandavas rested during their exile mentioned in the epic Mahabharata.

VIRAR
An outpost of Mumbai, Virar was named after Indian philosopher Jeevan Virar and was connected with the mainland with electric train way back in 1925.

"What's in a name?" asked Shakespeare. But having read all the above information, it is certain that there indeed is a great deal behind every name!