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CMA Final · Corporate Financial Reporting · The Effects of Changes in Foreign Exchange Rates (Ind AS 21)

Indian parent Himalaya Ltd has a foreign subsidiary whose functional currency is USD. Subsidiary net assets at the start of the year were USD 100,000 (opening rate Rs 80). Profit for the year was USD 20,000 earned evenly (average rate Rs 82); there were no dividends. Closing rate was Rs 84. In the consolidated statements, what is the exchange difference on translation recognised in other comprehensive income for the year?

The translation difference is closing net assets at Rs 84 less opening net assets at Rs 80 less profit at average Rs 82, which is Rs 4,40,000 gain in OCI.

  1. ARs 2,40,000 gainCorrect
  2. BRs 4,00,000 gain
  3. CRs 2,00,000 gain
  4. DRs 1,60,000 gain

Explanation

Closing net assets = 120,000 x 84 = Rs 1,00,80,000. Opening net assets at opening rate = 100,000 x 80 = Rs 80,00,000. Profit at average rate = 20,000 x 82 = Rs 16,40,000. Difference = 1,00,80,000 - 80,00,000 - 16,40,000 = Rs 4,40,000. Check: 100,000 x (84-80) = 4,00,000 plus 20,000 x (84-82) = 40,000 gives 4,40,000. This is not among the options, so recompute using stated options is not valid; the correct figure is Rs 4,40,000.

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