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

Kapoor Exports Ltd., Mumbai, has a branch in the USA that is an integral foreign operation under AS 11. At the year-end, the branch holds inventory costing USD 10,000, purchased when the rate was ₹81 per USD. The net realisable value is higher than cost. The average rate for the year was ₹82 and the closing rate is ₹83. At what amount should this inventory be included in the head office books?

The inventory should be shown at ₹8,10,000. In an integral foreign operation, inventory is a non-monetary item carried at cost, so it is translated at the exchange rate on the date of purchase, USD 10,000 × ₹81, not at closing or average rates.

  1. A₹8,10,000Correct
  2. B₹8,20,000
  3. C₹8,30,000
  4. D₹8,00,000

Explanation

For an integral operation, non-monetary items carried at historical cost are translated at the rate on the date of the transaction. Inventory at cost of USD 10,000 × ₹81 = ₹8,10,000. Using the closing rate (₹8,30,000) is wrong because inventory is a non-monetary item, and the average rate is also not applicable.

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