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CMA Final · Corporate Financial Reporting · The Effects of Changes in Foreign Exchange Rates (Ind AS 21)

Kaveri Textiles Ltd (functional currency INR) bought inventory on 10 January for EUR 20,000 at Rs 90 per EUR and paid on 20 January. On 31 March, the inventory (still unsold) had a net realisable value of EUR 21,000, and the closing rate was Rs 95 per EUR. Cost is lower than NRV in EUR terms. At what amount is the inventory carried on 31 March?

Inventory is a non-monetary item carried at historical cost, so it stays at the rate on the transaction date: EUR 20,000 x Rs 90 = Rs 18,00,000. Since NRV translated at closing rate is higher, no write-down is needed and closing-rate restatement is not applied.

  1. ARs 18,00,000Correct
  2. BRs 18,90,000
  3. CRs 19,95,000
  4. DRs 19,00,000

Explanation

Inventory is a non-monetary item measured at historical cost, translated at the transaction-date rate: 20,000 x 90 = Rs 18,00,000. Cost is below NRV (compare in the same currency basis: NRV 21,000 x 95 = Rs 19,95,000 exceeds Rs 18,00,000), so no write-down. Using the closing rate on cost (Rs 19,00,000) is the key mistake.

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