Skip to content

CMA Intermediate · Financial Accounting · The Effects of Changes in Foreign Exchange Rates (AS 11)

Mehta Exports records all its USD sales during a month at the average rate for that month. Which statement is consistent with AS 11 on this practice?

Using a weekly or monthly average rate is allowed for practical reasons when it approximates the actual transaction-date rates. If exchange rates fluctuate significantly, the average rate for the period is unreliable and should not be used.

  1. AIt is permitted when the average approximates actual rates, but is unreliable if exchange rates fluctuate significantlyCorrect
  2. BIt is never permitted because only the exact daily rate may be used
  3. CIt is always permitted irrespective of how much rates fluctuate
  4. DIt is permitted only for yearly averages, not for weekly or monthly ones

Explanation

AS 11 allows, for practical reasons, a rate approximating the actual rate at the transaction date, such as a weekly or monthly average. However, if rates fluctuate significantly, the average for a period is unreliable. Hence the practice is acceptable only when it approximates the actual rates. The other options contradict this.

Did you get it right without looking?

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

Practise The Effects of Changes in Foreign Exchange Rates (AS 11)Free diagnostic mock

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