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

Kaveri Exports Ltd. purchased raw materials worth USD 10,000 from a US supplier on 10 February 2026 when the rate was Rs 83 per USD. The amount was unpaid on 31 March 2026, when the closing rate was Rs 84 per USD. Under AS 11, what is the exchange difference to be recognised in the profit and loss for the year ended 31 March 2026?

The exchange loss is Rs 10,000. The USD payable is a monetary item restated at the closing rate of Rs 84, giving Rs 8,40,000 against the original Rs 8,30,000. The increase in liability is recognised as an exchange loss in the profit and loss statement.

  1. ALoss of Rs 10,000Correct
  2. BGain of Rs 10,000
  3. CLoss of Rs 8,40,000
  4. DNo difference; it is adjusted against the cost of raw materials

Explanation

The payable is a monetary item reported at the closing rate. Rs 84 x 10,000 = Rs 8,40,000 against the original Rs 8,30,000, so liability rises by Rs 10,000. This increase is an exchange loss recognised in profit and loss. Adjusting the cost of materials is wrong because AS 11 does not capitalise it for such items.

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