Advanced Accounting · AS 11 The Effects of Changes in Foreign Exchange Rates

AS 11: Reporting Foreign Currency Items at Subsequent Balance Sheet Dates

Updated 4 October 2026 · Fact-checked

At each balance sheet date, AS 11 requires you to translate foreign currency monetary items at the closing rate, non-monetary items carried at historical cost at the rate on the transaction date, and non-monetary items at fair value at the rate when fair value was determined. Exchange differences on monetary items are generally taken to profit or loss, with limited exceptions.

Understand Reporting at Subsequent Balance Sheet Dates

A foreign currency transaction is first recorded in the reporting currency (₹) at the rate on the date of the transaction. The balance sheet date comes later. By then the exchange rate has usually moved. AS 11 tells you which items to update and which to leave alone.

The test is whether an item is monetary or non-monetary. Monetary items are money held, and assets and liabilities to be received or paid in a fixed or determinable amount of money. Examples: cash, debtors, creditors, loans, and receivables or payables in foreign currency. Non-monetary items are the rest, such as fixed assets, inventories and investments in equity shares. Their value is not fixed in currency units.

Monetary items are reported at the closing rate, which is the exchange rate at the balance sheet date. The difference between the closing rate amount and the amount first recorded (or the amount at the previous balance sheet date) is an exchange difference. It is generally recognised as income or expense in the period in which it arises. This applies to unsettled items at the year end. When an item is settled during the year, the difference between the settlement rate and the earlier rate is also recognised in profit or loss.

There are two exceptions to the general rule. First, exchange differences on a monetary item that in substance forms part of the net investment in a non-integral foreign operation are accumulated in the Foreign Currency Translation Reserve (FCTR) until the net investment is disposed of. Second, for long-term foreign currency monetary items, AS 11 (paras 46 and 46A) gives an option: differences on items used to acquire depreciable assets may be added to or deducted from the asset's cost, and differences on other long-term items may be accumulated in the Foreign Currency Monetary Item Translation Difference Account (FCMITDA) and amortised. These options are covered separately. Unless a question points to one of them, take the difference to profit or loss.

Non-monetary items are not simply restated at closing rate. If carried at historical cost, they stay at the rate on the date of the transaction. If carried at fair value or another similar valuation (for example net realisable value), they are reported at the rate that existed when that value was determined. So an inventory in foreign currency at NRV is translated at the rate on the date the NRV was determined, which is usually the balance sheet date.

A practical point: where the carrying amount is the lower of cost and NRV, or the lower of cost and recoverable amount, you compare the two amounts in the reporting currency. Translate cost at the transaction-date rate and NRV at the rate of the date it was determined, then pick the lower figure.

Key rules to remember

Monetary items: Reporting currency amount = Foreign currency amount × Closing rate; Closing rate is the rate at the balance sheet date. Applies to cash, debtors, creditors, loans.
Non-monetary items at historical cost: Amount = Foreign currency cost × Rate on date of transaction; Never restate at closing rate. No exchange difference arises.
Non-monetary items at fair value: Amount = Foreign currency fair value × Rate on date fair value was determined; Used for items carried at fair value, NRV or similar valuation.
Exchange difference on a monetary item: Difference = Foreign currency amount × (Closing rate − Rate at initial recognition or previous balance sheet date); For an asset, a positive result is a gain. For a liability, a positive result is a loss. Generally recognised in profit or loss, except net investment and para 46/46A cases.
Lower of cost and NRV: Carrying amount = Lower of (Cost at transaction-date rate) and (NRV at rate when NRV determined); Compare both in ₹ after translating each at its own rate.

How to solve Reporting at Subsequent Balance Sheet Dates questions

Use the same sequence for every question on reporting at the balance sheet date.

1List every foreign currency item and note its foreign currency amount and the rate when it was first recorded.
2Classify each item as monetary or non-monetary. Cash, debtors, creditors, loans are monetary. Fixed assets, inventory and equity investments are non-monetary.
3For monetary items, translate at the closing rate.
4For non-monetary items, check the basis. Historical cost uses the transaction-date rate. Fair value or NRV uses the rate on the date that value was determined.
5Compute exchange difference on each monetary item as closing amount minus earlier amount, and decide gain or loss from the side (asset or liability).
6Separate items settled during the year from items unsettled at the year end. Settled items use the settlement-date rate.
7Check whether the question says the item is part of the net investment in a non-integral foreign operation or invokes the para 46/46A option. If not, take the net exchange difference to the statement of profit and loss and show gains and losses clearly.
8State the final carrying amounts for the balance sheet.

Quickest way: Monetary vs non-monetary in 60 seconds

When to use it: Use this for MCQs and for short numerical questions where time is tight.

Ask: will this item be settled in a fixed amount of foreign money? If yes, it is monetary and uses the closing rate.
If it is a fixed asset or inventory at cost, keep the old rate and stop. No exchange difference.
If it is at fair value or NRV, use the rate on the date of that valuation.
For MCQs, find the gain or loss sign quickly. Rate rises: foreign asset gains, foreign liability loses. Rate falls: the reverse.
In written answers, write the rate used against each line, then the difference, then 'recognised in profit or loss' (unless the question points to net investment or para 46/46A). This earns step marks.

Common mistakes in Reporting at Subsequent Balance Sheet Dates

Restating fixed assets or inventory at the closing rate.
Students assume every foreign currency item is updated at year end.
Fix: Ask first if the item is monetary. Non-monetary items at historical cost stay at the transaction-date rate.
Taking exchange differences on monetary items to profit or loss without checking for the exceptions.
Students learn the general rule and forget that net investment items and long-term monetary items under paras 46/46A are treated differently.
Fix: Apart from the para 46/46A options and net investment cases, exchange differences on monetary items go to profit or loss in the period they arise. Net investment differences go to FCTR until disposal. Para 46/46A allows capitalisation to the asset or accumulation in FCMITDA for long-term monetary items. Use these only when the question gives such facts.
Getting the gain or loss direction wrong for liabilities.
Students apply the asset logic to a payable.
Fix: If the rate rises, you owe more ₹, so it is a loss on a liability and a gain on a receivable.
Measuring the change from the original rate every year.
The previous balance sheet date rate is forgotten for items outstanding for more than one year.
Fix: Use the rate at the previous balance sheet date as the starting point for the current year's difference.
Translating NRV of inventory at the transaction-date rate.
Students use one rate for both cost and NRV.
Fix: Translate cost at the transaction-date rate and NRV at the rate when NRV was determined, then take the lower.

Worked examples

Example 1

A company bought goods on credit from a US supplier on 1 February for USD 10,000 when the rate was ₹82 per USD. On 31 March (balance sheet date) the creditor was unpaid and the closing rate was ₹84 per USD. Compute the amount at which the creditor is reported and the exchange difference.

Show the solution

The creditor is a monetary item, so translate at the closing rate.
Initial amount = 10,000 × 82 = ₹8,20,000.
Closing amount = 10,000 × 84 = ₹8,40,000.
Difference = 8,40,000 − 8,20,000 = ₹20,000.
The liability has increased because the rupee weakened, so this is an exchange loss.

Answer: Creditor is reported at ₹8,40,000. Exchange loss of ₹20,000 is recognised in the statement of profit and loss.

Example 2

On 1 January a company bought machinery for USD 5,000 at ₹80 per USD and inventory for USD 2,000 at ₹80 per USD. On 31 March the rate is ₹83 per USD. The NRV of the inventory, determined on 31 March, is USD 1,900. The machinery is carried at historical cost. Find the amounts to be reported for the machinery and the inventory.

Show the solution

Machinery is non-monetary at historical cost, so use the transaction-date rate: 5,000 × 80 = ₹4,00,000.
Inventory cost = 2,000 × 80 = ₹1,60,000.
Inventory NRV in ₹ = 1,900 × 83 = ₹1,57,700, because NRV was determined on 31 March.
Compare: lower of ₹1,60,000 and ₹1,57,700 is ₹1,57,700.
Write-down of inventory = 1,60,000 − 1,57,700 = ₹2,300.

Answer: Machinery is reported at ₹4,00,000. Inventory is reported at ₹1,57,700, with a write-down of ₹2,300 charged to profit or loss.

Exam tips

Begin every answer with a one-line classification of each item as monetary or non-monetary. Examiners give marks for this.
Always write the rate you used next to each figure. A wrong rate with clear workings still earns partial marks.
For MCQs, memorise the direction: rate rises means gain on foreign assets and loss on foreign liabilities.
Watch for items settled during the year. Their difference uses the settlement rate, not the closing rate.
In inventory questions, translate cost and NRV at different rates before comparing them.

Practice questions from AS 11 The Effects of Changes in Foreign Exchange Rates

Reporting at Subsequent Balance Sheet Dates in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Reporting at Subsequent Balance Sheet Dates: frequently asked questions

Which rate is used for monetary items at the balance sheet date?

The closing rate, which is the exchange rate at the balance sheet date. This applies to items such as cash, debtors, creditors and foreign currency loans that are unsettled at the year end.

Where is the exchange difference on monetary items shown?

Generally it is recognised as income or expense in the statement of profit and loss in the period in which it arises. The exceptions are differences on a net investment in a non-integral foreign operation (taken to FCTR until disposal) and the para 46/46A option for long-term monetary items. Show gains and losses clearly in your answer.

How do I translate a non-monetary item carried at fair value?

Use the exchange rate on the date the fair value was determined. If the fair value was determined at the balance sheet date, that is the closing rate.

Do fixed assets bought in foreign currency get restated at year end?

No, if they are carried at historical cost. They stay at the rate on the transaction date, so no exchange difference arises on them.