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CA Final · Financial Reporting · Ind AS 21 The Effects of Changes in Foreign Exchange Rates

Arjun Engineering Ltd has the rupee as its functional currency. On 1 January it received an advance of USD 4,000 (rate ₹80) against a USD 10,000 supply contract; the advance is non-refundable and is recognised as a contract liability. On 1 March it delivered all the goods and control passed. The spot rate on 1 March was ₹83, and the balance USD 6,000 was receivable. The average rate for the period was ₹81.50. What revenue should be recognised on 1 March?

Revenue is ₹8,18,000. The USD 4,000 advance is translated at the rate on the date it was received, ₹80, giving ₹3,20,000. The remaining USD 6,000 is translated at the ₹83 spot rate on delivery, giving ₹4,98,000. The two parts are added.

  1. A₹8,30,000
  2. B₹8,00,000
  3. C₹8,15,000
  4. D₹8,18,000Correct

Explanation

The advance is a non-monetary contract liability, so the date of transaction for that part is the date the advance was received: 4,000 × 80 = ₹3,20,000. The balance of USD 6,000 is translated at the delivery date spot rate: 6,000 × 83 = ₹4,98,000. Total revenue is ₹8,18,000. Using ₹83 for the whole amount gives ₹8,30,000, which ignores the advance rate.

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