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

On 1 January 2025, Kaveri Traders imported goods worth USD 50,000 when the spot rate was ₹83. On the same day it entered into a forward contract, for the purpose of hedging this payable, to buy USD 50,000 at ₹84.50 on 30 June 2025. The closing spot rate on 31 March 2025 is ₹83.80. The premium is amortised over the life of the contract. What premium amount is recognised as an expense for the year ended 31 March 2025?

₹37,500 is recognised. The total premium is (84.50 − 83.00) × USD 50,000 = ₹75,000, and AS 11 spreads it over the contract life. Three of the six months fall in the year ended 31 March 2025, so half the premium is expensed.

  1. A₹37,500Correct
  2. B₹75,000
  3. C₹40,000
  4. D₹25,000

Explanation

Premium = (84.50 − 83.00) × 50,000 = ₹75,000. The contract runs 6 months (1 Jan to 30 Jun), of which 3 months fall in the year ended 31 March 2025, so 75,000 × 3/6 = ₹37,500. Charging the whole premium ignores the amortisation over the contract life.

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