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

Kaveri Textiles Ltd sold goods to a US customer on 1 February 2026 for USD 10,000 when the rate was Rs 83 per USD. On 31 March 2026 (year end) the rate was Rs 84.50. The customer paid in full on 20 April 2026 when the rate was Rs 85. What exchange difference should Kaveri recognise in the statement of profit and loss for the year ended 31 March 2026, as per AS 11?

The gain for the year ended 31 March 2026 is Rs 15,000, being USD 10,000 multiplied by the rate change from Rs 83 to the closing Rs 84.50. The later rise to Rs 85 on settlement belongs to the following year's profit and loss.

  1. AGain of Rs 20,000
  2. BGain of Rs 15,000Correct
  3. CGain of Rs 5,000
  4. DGain of Rs 10,000

Explanation

The receivable is a monetary item restated at the closing rate: 10,000 x (84.50 - 83) = Rs 15,000 gain in the year ended 31 March 2026. The further movement to Rs 85 occurs in the next year, giving Rs 5,000 gain then. Rs 20,000 wrongly uses the settlement rate in the current year.

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