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

Kaveri Exports Ltd. sold goods to a US customer on 1 March 2025 for USD 20,000 when the exchange rate was Rs 83 per USD. The amount was still outstanding on 31 March 2025, the balance sheet date, when the closing rate was Rs 85 per USD. Under AS 11, what exchange difference should be recognised in the statement of profit and loss for the year ended 31 March 2025?

The exchange gain is Rs 40,000. A foreign currency debtor is a monetary item restated at the closing rate: 20,000 x 85 = Rs 17,00,000 against the booked Rs 16,60,000. The increase is recognised in the profit and loss statement for the year, not deferred until the customer pays.

  1. AGain of Rs 40,000Correct
  2. BLoss of Rs 40,000
  3. CGain of Rs 16,60,000
  4. DNo difference, as the debtor is not yet settled

Explanation

The debtor is a monetary item and must be reported at the closing rate. Closing value = 20,000 x 85 = Rs 17,00,000; original value = 20,000 x 83 = Rs 16,60,000. The increase of Rs 40,000 is an exchange gain recognised in profit and loss. Deferring recognition until settlement is wrong because AS 11 requires restatement at the balance sheet date.

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