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

Bharat Machines Ltd. imported a machine from a US supplier on 1 December for USD 50,000 when the rate was Rs 80 per USD. The machine is classified as property, plant and equipment and carried at historical cost. The supplier was paid in full on 20 December at Rs 81 per USD. On 31 March the closing rate is Rs 83 per USD. At what amount will the machine be shown in the balance sheet at 31 March, ignoring depreciation?

The machine is shown at Rs 40,00,000. Under AS 11, a non-monetary item carried at historical cost is reported at the exchange rate on the date of the transaction, so USD 50,000 at Rs 80 applies. The closing rate is not used to restate it.

  1. ARs 40,00,000Correct
  2. BRs 41,50,000
  3. CRs 40,50,000
  4. DRs 41,00,000

Explanation

The machine is a non-monetary item carried at historical cost, so it is reported at the rate on the transaction date: 50,000 x 80 = Rs 40,00,000. Later rate movements do not change it. Rs 41,50,000 wrongly applies the closing rate. The payment on 20 December settled the liability, and the rate difference of Rs 50,000 goes to profit and loss, not to the asset.

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