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

Arjun Ltd. holds a non-monetary item, imported inventory carried at historical cost of USD 20,000 bought at Rs 80 per USD. At the balance sheet date the rate is Rs 85 per USD and the net realisable value of the inventory is USD 22,000. Under AS 11 read with AS 2, at what value is the inventory carried at the balance sheet date?

The inventory is carried at Rs 16,00,000. Non-monetary items measured at historical cost stay at the exchange rate on the transaction date, 20,000 x 80. Its NRV at the closing rate is Rs 18,70,000, higher than cost, so no write-down is needed.

  1. ARs 16,00,000Correct
  2. BRs 17,00,000
  3. CRs 18,70,000
  4. DRs 17,60,000

Explanation

Non-monetary items at historical cost are reported at the rate on the transaction date: 20,000 x 80 = Rs 16,00,000. NRV is translated at the closing rate: 22,000 x 85 = Rs 18,70,000, which is higher than cost, so cost applies. Using the closing rate for cost (Rs 17,00,000) is the key error.

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