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

Sundaram Engineering Ltd. (Coimbatore) imported a machine from a German supplier on 1 December for EUR 5,000 and paid the full amount immediately, when the rate was ₹90 per EUR. The reporting date is 31 March, when the rate is ₹93 per EUR. Ignoring depreciation, what is the carrying amount of the machine in the balance sheet at 31 March under AS 11?

The machine is shown at ₹4,50,000. It is a non-monetary item carried at historical cost, so it is translated at the exchange rate on the date of the transaction (5,000 × ₹90). The closing rate is not used and no exchange difference arises.

  1. A₹4,65,000
  2. B₹4,50,000Correct
  3. C₹4,50,000 plus an exchange gain of ₹15,000 in the statement of profit and loss
  4. D₹4,35,000

Explanation

The machine is a non-monetary item carried at historical cost, so it is reported at the rate on the transaction date: 5,000 × 90 = ₹4,50,000. Translating at the closing rate (5,000 × 93 = ₹4,65,000) would be wrong because closing-rate translation applies only to monetary items. No exchange difference arises because the payment was made on the transaction date.

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