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

Indo Textiles Ltd holds a non-integral foreign operation. Opening net investment was USD 1,00,000 when the rate was ₹80. The operation earned a profit of USD 10,000 during the year, with no dividends paid. The average rate for the year was ₹81 and the closing rate was ₹83. Translating the opening net assets and the profit as per AS 11 for non-integral operations, what is the exchange difference to be accumulated in the foreign currency translation reserve?

The exchange difference is ₹3,20,000 credit to the foreign currency translation reserve. Closing net assets at ₹83 are ₹91,30,000. Deducting opening net assets at ₹80 (₹80,00,000) and the profit at the average rate ₹81 (₹8,10,000) leaves ₹3,20,000.

  1. A₹3,20,000 creditCorrect
  2. B₹3,00,000 credit
  3. C₹11,30,000 credit
  4. D₹2,80,000 credit

Explanation

Closing net assets = USD 1,10,000 × ₹83 = ₹91,30,000. Less opening ₹80,00,000 and profit at average rate ₹8,10,000 gives ₹3,20,000. Check: 1,00,000 × (83−80) = ₹3,00,000 plus 10,000 × (83−81) = ₹20,000. Ignoring the profit component gives ₹3,00,000, and subtracting it gives ₹2,80,000, which is wrong.

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