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

Meenakshi Textiles Ltd. sold goods to a UK customer for GBP 5,000 on 1 March 2026 at Rs 105 per GBP. On 31 March 2026 the rate was Rs 107, and the customer paid on 15 April 2026 when the rate was Rs 106. What exchange difference does the company recognise in the year ended 31 March 2026 and in the following year respectively?

A gain of Rs 10,000 arises in the first year and a loss of Rs 5,000 in the next year. The receivable is restated at Rs 107 at year end, a gain of 5,000 x 2. On settlement at Rs 106, the fall of Rs 1 per GBP gives a loss of Rs 5,000.

  1. AGain Rs 10,000 in the first year; loss Rs 5,000 in the next yearCorrect
  2. BGain Rs 5,000 in the first year; loss Rs 10,000 in the next year
  3. CGain Rs 10,000 in the first year; gain Rs 5,000 in the next year
  4. DNo gain in the first year; gain Rs 5,000 in the next year

Explanation

At 31 March the receivable is restated: 5,000 x (107 - 105) = Rs 10,000 gain. On settlement at Rs 106 the amount realised is 5,000 x 106, which is Rs 5,000 less than the 107 carrying value, giving a loss of Rs 5,000 in the next year. Net gain of Rs 5,000 equals total (106-105) x 5,000.

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