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

Kaveri Exports Ltd. had a trade receivable of USD 50,000 on 31 March 2026, recorded at the transaction date rate of ₹82 per USD. The closing rate on 31 March 2026 was ₹84 per USD. The amount was received on 20 May 2026 at ₹85 per USD. What exchange difference should be recognised in the year ended 31 March 2026 and in the following year respectively?

The company recognises a gain of ₹1,00,000 in the year ended 31 March 2026 and a further gain of ₹50,000 in the following year. Monetary items are restated at the closing rate of ₹84, and the settlement difference is measured from that restated carrying amount, not the original rate.

  1. AGain ₹1,00,000 in the year ended 31 March 2026 and gain ₹50,000 in the following yearCorrect
  2. BGain ₹1,50,000 in the year ended 31 March 2026 and nil in the following year
  3. CNil in the year ended 31 March 2026 and gain ₹1,50,000 in the following year
  4. DGain ₹1,00,000 in the year ended 31 March 2026 and gain ₹1,50,000 in the following year

Explanation

At the balance sheet date, the monetary item is restated at the closing rate: 50,000 x (84 - 82) = ₹1,00,000 gain. On settlement, the difference from the closing rate is 50,000 x (85 - 84) = ₹50,000 gain in the next year. The option showing ₹1,50,000 in one period ignores that the restatement is recognised at the reporting date.

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