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

Anand Industries Ltd bought inventory from a Singapore supplier for USD 5,000 on 15 January 2026 at Rs 82 per USD. On 31 March 2026 the closing rate was Rs 85 per USD. The inventory, unsold at year end, has a net realisable value of Rs 4,30,000 in Indian rupees (determined at the date of the balance sheet), and the supplier has not yet been paid. What is the carrying amount of inventory and the exchange difference to be recognised for the year as per AS 11 and AS 2?

Inventory stays at Rs 4,10,000 and an exchange loss of Rs 15,000 is recognised. Inventory is a non-monetary item carried at historical cost, which is lower than net realisable value. Only the unpaid USD 5,000 payable is restated, from Rs 4,10,000 to Rs 4,25,000 at the closing rate.

  1. AInventory Rs 4,10,000; exchange loss Rs 15,000Correct
  2. BInventory Rs 4,25,000; exchange loss Rs 15,000
  3. CInventory Rs 4,10,000; exchange loss Rs 20,000
  4. DInventory Rs 4,30,000; exchange gain Rs 20,000

Explanation

Inventory is a non-monetary item carried at historical cost: 5,000 x 82 = Rs 4,10,000, which is below NRV Rs 4,30,000, so cost applies. The payable is monetary: 5,000 x 85 = Rs 4,25,000 against Rs 4,10,000, so loss is Rs 15,000. Restating inventory at 85 (Rs 4,25,000) is the key error, and the loss is not Rs 20,000.

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