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CA Intermediate · Advanced Accounting · Accounting for Branches including Foreign Branches

Bharat Exports Ltd has a foreign branch in the USA that is a non-integral foreign operation under AS 11. Opening net assets were USD 50,000 (rate ₹80). The branch earned a profit of USD 10,000 during the year, translated at the average rate of ₹82. There were no remittances. The closing rate is ₹83. What is the exchange difference on translation, and how is it treated?

The exchange difference is a ₹1,60,000 gain, accumulated in the Foreign Currency Translation Reserve. Closing net assets at ₹83 are ₹49,80,000, against opening ₹40,00,000 plus translated profit ₹8,20,000. For a non-integral operation, AS 11 takes this difference to the translation reserve until disposal.

  1. A₹1,60,000 gain, accumulated in Foreign Currency Translation ReserveCorrect
  2. B₹1,50,000 gain, accumulated in Foreign Currency Translation Reserve
  3. C₹1,80,000 gain, accumulated in Foreign Currency Translation Reserve
  4. D₹1,60,000 gain, credited to Profit and Loss account

Explanation

Closing net assets = 60,000 × 83 = ₹49,80,000. Opening 50,000 × 80 = ₹40,00,000 and profit 10,000 × 82 = ₹8,20,000. Difference = 49,80,000 − 48,20,000 = ₹1,60,000 (check: 50,000 × 3 + 10,000 × 1). For a non-integral operation it goes to FCTR, not to profit or loss.

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