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Financial Accounting · The Effects of Changes in Foreign Exchange Rates (AS 11)

AS 11 Reporting at Subsequent Balance Sheet Dates

Updated 10 October 2026 · Fact-checked

At each balance sheet date, AS 11 requires foreign currency monetary items to be reported at the closing rate. Non-monetary items at historical cost stay at the transaction-date rate. Non-monetary items at fair value use the rate when the value was determined. Exchange differences on monetary items go to profit and loss.

Understand Reporting at Subsequent Balance Sheet Dates

A foreign currency transaction is first recorded in rupees at the rate on the transaction date. By the balance sheet date the rate has usually moved. AS 11 tells you which rate to use for each item when you report it.

The first step is to classify the item. Monetary items are cash, receivables and payables. Non-monetary items are assets and liabilities other than monetary items, such as fixed assets, inventories and investments in equity shares.

Monetary items are reported at the closing rate, which is the exchange rate at the balance sheet date. This is because they will be settled in foreign currency, so their rupee value changes with the rate. Para 11(a) allows one exception: if the closing rate does not reflect the amount likely to be realised or paid (for example, remittance restrictions or an unrealistic rate where currencies cannot be exchanged), report the amount likely to be realised or disbursed.

Non-monetary items are different. If carried at historical cost in foreign currency, report them at the rate on the transaction date. If carried at fair value or similar valuation, report them at the rate that existed when the values were determined. The carrying amount is first fixed under the relevant standard, then converted as per AS 11.

An exchange difference arises when the rate changes between the transaction date and settlement date of a monetary item. If settled in the same accounting period, the whole difference is recognised in that period. If settled in a later period, the difference recognised in each period is based on the change in rates during that period. Contingent liabilities in foreign currency are disclosed at the closing rate.

Key rules to remember

Monetary items at balance sheet date
Rupee value = Foreign currency amount × Closing rate
Applies to cash, receivables and payables (para 11(a)). Exception: use amount likely to be realised or paid if closing rate is not reliable.
Non-monetary items at historical cost
Rupee value = Foreign currency cost × Rate on transaction date
Para 11(b). No restatement at closing rate.
Non-monetary items at fair value
Rupee value = Foreign currency fair value × Rate when fair value was determined
Para 11(c).
Exchange difference on a monetary item
Exchange difference = Foreign currency amount × (Closing rate − Opening rate for the period)
Opening rate is the transaction-date rate in the first period, and the previous closing rate in later periods. For a receivable, a higher rate is a gain; for a payable, a higher rate is a loss.
Exchange difference on settlement
Exchange difference = Foreign currency amount × (Settlement rate − Last reported rate)
Last reported rate is the transaction-date rate if there was no earlier balance sheet date, otherwise the previous closing rate.

How to solve Reporting at Subsequent Balance Sheet Dates questions

Use this order for any question on reporting foreign currency items at a balance sheet date.

  1. 1List every foreign currency item and write its foreign currency amount and the rates given.
  2. 2Classify each item as monetary (cash, receivables, payables) or non-monetary (fixed assets, inventories, equity investments).
  3. 3For monetary items, convert at the closing rate. Check whether the question says the closing rate is unrealistic.
  4. 4For non-monetary items at historical cost, keep the transaction-date rate. For those at fair value, use the rate on the date of the valuation.
  5. 5For each monetary item, compute the exchange difference as foreign amount × change in rate during the period.
  6. 6Decide gain or loss: a receivable gains when the rate rises, a payable loses when the rate rises.
  7. 7Show the journal entry or the profit and loss effect, and state the balance sheet figure.

Quickest way: Classify, pick the rate, multiply

When to use it: Use in numerical questions with several items and little time.

  1. Draw three columns: item, type, rate to use.
  2. Write M or NM next to each item. Only M items are restated at closing rate.
  3. Compute rupee value for each item and the difference from the book value.
  4. Tag each difference G or L, add the gains and losses, and show the net in profit and loss.

Common mistakes in Reporting at Subsequent Balance Sheet Dates

  • Restating fixed assets or inventory at the closing rate

    Students apply the closing rate to everything in foreign currency.

    Fix: Closing rate is only for monetary items. Historical cost items stay at the transaction-date rate.

  • Using the transaction-date rate for a payable at year end

    Students forget that unsettled payables are restated.

    Fix: Restate all receivables, payables and cash balances in foreign currency at the closing rate.

  • Mixing up gain and loss direction

    The effect depends on whether the item is an asset or a liability.

    Fix: Rate up: receivable gains, payable loses. Rate down: receivable loses, payable gains.

  • Taking the whole difference in the settlement year when the item was open at an earlier balance sheet date

    Students compare transaction rate with settlement rate directly.

    Fix: In the settlement period, compare the settlement rate with the previous closing rate. Earlier differences were already recognised.

  • Restating fair-valued non-monetary items at the closing rate

    Students assume fair value means current rate.

    Fix: Use the rate that existed when the fair value was determined, as para 11(c) says.

Worked examples

Example 1

Gupta Traders (year end 31 March) bought goods worth US$ 10,000 on credit on 1 March at ₹82 per US$. The payable was unpaid at 31 March, when the closing rate was ₹84. It was paid on 15 April at ₹83. Show the amounts in the books for both years.

Show the solution
  1. Payable is a monetary item, so restate at the closing rate at 31 March.
  2. Initial amount = 10,000 × 82 = ₹8,20,000.
  3. Closing amount = 10,000 × 84 = ₹8,40,000.
  4. Exchange loss for the year to 31 March = 8,40,000 − 8,20,000 = ₹20,000, charged to profit and loss.
  5. On 15 April, settlement is in the next period. Compare with the last reported rate of ₹84: 10,000 × 83 = ₹8,30,000.
  6. Exchange gain in the next year = 8,40,000 − 8,30,000 = ₹10,000, credited to profit and loss.

Answer: Payable reported at ₹8,40,000 on 31 March; exchange loss ₹20,000 in the first year; exchange gain ₹10,000 in the next year when ₹8,30,000 is paid.

Example 2

Mehta Ltd (year end 31 March) has: (a) a debtor of US$ 5,000 booked at ₹80 and closing rate ₹83; (b) machinery imported for US$ 20,000 at ₹80 on the purchase date; (c) an equity investment carried at fair value US$ 4,000, determined on 20 March when the rate was ₹82. Closing rate is ₹83. Give the reporting amounts and exchange difference.

Show the solution
  1. Debtor is monetary: 5,000 × 83 = ₹4,15,000. Book value was 5,000 × 80 = ₹4,00,000.
  2. Exchange gain on debtor = ₹15,000, taken to profit and loss.
  3. Machinery is non-monetary at historical cost: 20,000 × 80 = ₹16,00,000. No restatement and no exchange difference.
  4. Investment is non-monetary at fair value: use the rate when the value was determined, 4,000 × 82 = ₹3,28,000.
  5. No restatement at the closing rate of ₹83 is made for the investment.

Answer: Debtor ₹4,15,000 with gain ₹15,000; machinery ₹16,00,000; investment ₹3,28,000. Only the debtor produces an exchange difference.

Exam tips

  • Start every answer by classifying each item as monetary or non-monetary. Examiners give marks for this.
  • Write the rate used beside each figure so step marks are easy to award.
  • Watch for the words 'closing rate is unrealistic' or 'remittance restrictions'. They signal the para 11(a) exception.
  • For items open over more than one year, show each period's difference separately.
  • In MCQs, check the item type first. Fixed assets and inventories at historical cost never use the closing rate.

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

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 under AS 11?

The closing rate, which is the exchange rate at the balance sheet date. The only exception is when that rate does not reflect the amount likely to be realised or paid. Then you report that likely amount.

How are non-monetary items reported at the balance sheet date?

If carried at historical cost, use the exchange rate at the transaction date. If carried at fair value or similar valuation, use the rate that existed when the values were determined.

How is the exchange difference on settlement calculated?

It is the difference between the settlement rate and the rate last used to report the item, multiplied by the foreign currency amount. If the item was open at an earlier balance sheet date, that last rate is the previous closing rate.

How is a foreign currency contingent liability reported?

It is disclosed using the closing rate at the balance sheet date.