Skip to content

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

Kaveri Textiles Ltd has a foreign branch that is an integral foreign operation. At the year-end the branch holds inventory bought for USD 4,000 when the rate was Rs 80 per USD. The net realisable value of this inventory, determined at the balance sheet date, is USD 3,800. The closing rate is Rs 84 per USD. At what amount should the inventory be carried in the Indian rupee books of the company?

The inventory is carried at Rs 3,19,200. For an integral foreign operation, cost is translated at the historical rate, giving Rs 3,20,000, while net realisable value is translated at the closing rate on the date it was determined, giving Rs 3,19,200. The lower figure is used.

  1. ARs 3,20,000
  2. BRs 3,19,200Correct
  3. CRs 3,36,000
  4. DRs 3,04,000

Explanation

Cost in rupees = 4,000 x 80 = Rs 3,20,000 (historical rate). NRV in rupees = 3,800 x 84 = Rs 3,19,200 (rate on the date NRV was determined). Inventory is carried at the lower of the two, so Rs 3,19,200. Translating NRV at the historical rate gives Rs 3,04,000, which is wrong, and translating cost at the closing rate gives Rs 3,36,000, which is also wrong.

Did you get it right without looking?

One question tells you little. A timed set on AS 11 The Effects of Changes in Foreign Exchange Rates shows your real accuracy, how long you take and where you lose marks.

Practise AS 11 The Effects of Changes in Foreign Exchange RatesFree diagnostic mock

More AS 11 The Effects of Changes in Foreign Exchange Rates questions