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

Kaveri Engineering Ltd imported a machine on 1 December for USD 50,000 when the rate was Rs 80 per USD, and paid the supplier in full on the same day. At the balance sheet date, 31 March, the closing rate was Rs 84 per USD. The machine is carried at historical cost. What amount should be shown for the machine (before depreciation) in the balance sheet at 31 March under AS 11?

The machine stays at Rs 40,00,000 before depreciation. It is a non-monetary item carried at historical cost, so AS 11 requires reporting it at the exchange rate on the transaction date, Rs 80, and not at the closing rate. No exchange difference arises on it.

  1. ARs 42,00,000
  2. BRs 41,00,000
  3. CRs 40,00,000Correct
  4. DRs 38,00,000

Explanation

The machine is a non-monetary item carried at historical cost, so it is reported using the exchange rate on the date of the transaction. Amount = USD 50,000 x Rs 80 = Rs 40,00,000. Rs 42,00,000 wrongly applies the closing rate, which is for monetary items. Rs 41,00,000 wrongly applies an average of the opening and closing rates.

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