Skip to content

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

Ganga Ltd's US branch is a non-integral foreign operation. Opening net assets were USD 40,000 (rate ₹80). The branch's profit for the year was USD 10,000, translated at the average rate of ₹82. No dividends or other capital movements occurred. The closing rate is ₹84. What is the exchange difference to be accumulated in the foreign currency translation reserve?

The exchange difference is a credit of ₹1,80,000 to the foreign currency translation reserve. Closing net assets of USD 50,000 at ₹84 equal ₹42,00,000. Opening net assets at ₹80 (₹32,00,000) plus profit at the average rate (₹8,20,000) total ₹40,20,000, leaving ₹1,80,000.

  1. A₹1,80,000 creditCorrect
  2. B₹1,80,000 debit
  3. C₹4,00,000 credit
  4. D₹2,60,000 credit

Explanation

Closing net assets are translated at the closing rate: 50,000 × 84 = ₹42,00,000. Opening net investment is 40,000 × 80 = ₹32,00,000 and profit at average rate is 10,000 × 82 = ₹8,20,000. Exchange difference = 42,00,000 − 32,00,000 − 8,20,000 = ₹1,80,000, a credit because the net investment gained in rupee terms.

Did you get it right without looking?

One question tells you little. A timed set on Accounting for Branches including Foreign Branches shows your real accuracy, how long you take and where you lose marks.

Practise Accounting for Branches including Foreign BranchesFree diagnostic mock

More Accounting for Branches including Foreign Branches questions