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

Kaveri Traders Ltd. imported goods worth USD 10,000 on 1 March 2026 at ₹82.00 per USD and recorded the purchase and the creditor. The closing rate on 31 March 2026 was ₹83.20 per USD. On 15 April 2026 the creditor was paid when the rate was ₹82.70 per USD. What is the exchange difference to be recognised in the accounts for the year ended 31 March 2026 and in the following year respectively?

A loss of ₹12,000 arises in 2025-26 when the creditor is restated at ₹83.20, and a gain of ₹5,000 arises in 2026-27 on settlement at ₹82.70. AS 11 requires differences to be recognised in the period they arise, not netted across years.

  1. ALoss ₹12,000 in 2025-26; gain ₹5,000 in 2026-27Correct
  2. BLoss ₹7,000 in 2025-26; no difference in 2026-27
  3. CLoss ₹12,000 in 2025-26; loss ₹5,000 in 2026-27
  4. DNo difference in 2025-26; loss ₹7,000 in 2026-27

Explanation

At 31 March, creditor restated: 10,000 × (83.20 − 82.00) = ₹12,000 loss in 2025-26. At settlement the rate fell to 82.70, so liability reduces by 10,000 × (83.20 − 82.70) = ₹5,000, a gain in 2026-27. Net loss over both years is ₹7,000, but AS 11 recognises it period by period, so option 2 is wrong.

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