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CA Intermediate · Advanced Accounting · Accounting for Branches including Foreign Branches

Mumbai-based Sagar Ltd. has a non-integral foreign branch in the USA. Opening net assets were USD 50,000 (translated at ₹80). The branch earned a profit of USD 10,000 during the year, translated at the average rate of ₹82. There were no remittances. The closing rate is ₹84. Under AS 11, what is the exchange difference to be accumulated in the Foreign Currency Translation Reserve?

The exchange gain is ₹2,20,000, credited to the Foreign Currency Translation Reserve. Closing net assets at ₹84 are ₹50,40,000, against opening net assets of ₹40,00,000 plus profit of ₹8,20,000 at the average rate. The balancing difference is ₹2,20,000.

  1. A₹2,20,000 gainCorrect
  2. B₹2,00,000 gain
  3. C₹8,20,000 gain
  4. D₹20,000 gain

Explanation

Closing net assets = USD 60,000 × 84 = ₹50,40,000. Opening ₹40,00,000 plus profit ₹8,20,000 = ₹48,20,000. Difference = ₹2,20,000 (check: 50,000 × 4 + 10,000 × 2). ₹2,00,000 forgets the exchange gain on the year's profit.

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