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

Rajkot Gears Ltd purchased raw material from a US supplier on 10 March 2025 for USD 20,000 when the rate was Rs 82 per USD. The purchase is recorded in the books at the transaction-date rate. The financial year ends on 31 March 2025 and the closing rate is Rs 84 per USD. The amount is still unpaid at year end. As per AS 11, what is the exchange loss to be recognised in the profit and loss for the year ended 31 March 2025?

The exchange loss is Rs 40,000. The USD payable is a monetary item, so it is restated at the closing rate of Rs 84, giving Rs 16,80,000 against the original Rs 16,40,000. The increase is recognised in profit or loss of the year even though unsettled.

  1. ARs 40,000Correct
  2. BRs 20,000
  3. CRs 1,64,000
  4. DNil, as the loss is unrealised

Explanation

The payable is a monetary item and is reported at the closing rate: 20,000 x 84 = Rs 16,80,000. It was recorded at 20,000 x 82 = Rs 16,40,000. The difference of Rs 40,000 is an exchange loss recognised in profit or loss. Treating it as unrealised and ignoring it is wrong, as AS 11 requires recognition in the period.

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