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

Arjun Ltd. bought inventory from a German supplier for EUR 10,000 on 10 March when the rate was ₹90 per EUR. At 31 March the payable was unpaid and the closing rate was ₹92 per EUR. The inventory was unsold at year end and its net realisable value was ₹9,10,000. Under AS 11 and AS 2, what are the amounts at which the payable and the inventory should be reported at 31 March?

The payable is reported at ₹9,20,000 and inventory at ₹9,00,000. The payable is monetary and is translated at the closing rate of ₹92. Inventory is non-monetary, carried at historical cost of ₹9,00,000, which is below net realisable value of ₹9,10,000, so no change arises.

  1. APayable ₹9,20,000 and inventory ₹9,00,000Correct
  2. BPayable ₹9,00,000 and inventory ₹9,00,000
  3. CPayable ₹9,20,000 and inventory ₹9,10,000
  4. DPayable ₹9,20,000 and inventory ₹9,20,000

Explanation

The payable is a monetary item restated at closing rate: 10,000 x 92 = ₹9,20,000, with the ₹20,000 difference charged to profit or loss. Inventory is a non-monetary item carried at historical cost 10,000 x 90 = ₹9,00,000, which is lower than NRV of ₹9,10,000, so it stays at ₹9,00,000. Restating inventory at ₹9,20,000 wrongly applies the closing rate to a non-monetary item.

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