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

Rohini Exports, Delhi, has a branch in the USA that is an integral foreign operation under AS 11. Branch debtors at the start of the year were USD 4,000 (rate ₹80). Credit sales during the year were USD 20,000, translated at ₹82. Cash collected from debtors was USD 18,000 at ₹83. The closing rate is ₹84. How should the exchange difference on branch debtors be treated and what is its amount?

A gain of ₹38,000 is recognised in the Statement of Profit and Loss. Closing debtors of USD 6,000 at ₹84 are ₹5,04,000, while opening balance plus sales less receipts at transaction rates is ₹4,66,000. For an integral operation, exchange differences on monetary items are taken to profit and loss.

  1. AGain of ₹38,000 recognised in the Statement of Profit and LossCorrect
  2. BGain of ₹38,000 credited to foreign currency translation reserve
  3. CGain of ₹12,000 recognised in the Statement of Profit and Loss
  4. DGain of ₹24,000 recognised in the Statement of Profit and Loss

Explanation

Closing debtors = 4,000 + 20,000 − 18,000 = USD 6,000 × 84 = 5,04,000. Rupee balance before exchange difference = 3,20,000 + 16,40,000 − 14,94,000 = 4,66,000. Difference = 38,000 gain. For an integral operation, the difference on monetary items goes to profit and loss, not to a translation reserve (which applies to non-integral operations).

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