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

Sundaram Ltd bought a machine on 1 October 2024 from a German supplier for EUR 50,000, when the rate was Rs 90 per EUR. Payment was made on 31 January 2025 at Rs 92. The machine is depreciated at 10% straight line (no residual value) from the date of purchase, and the year ends 31 March 2025. Closing rate was Rs 91. At what amount should the machine's gross cost and the exchange difference for FY 2024-25 be reported under AS 11 as applicable to Sundaram Ltd (assume the exchange difference is not covered by any special option)?

The machine remains at Rs 45,00,000 and an exchange loss of Rs 1,00,000 goes to profit and loss. The machine is a non-monetary item kept at the transaction-date rate of Rs 90. The liability was settled at Rs 92, so the Rs 2 per EUR rise on 50,000 EUR is a loss.

  1. AMachine cost Rs 45,00,000; exchange loss Rs 1,00,000 in profit and lossCorrect
  2. BMachine cost Rs 46,00,000; no exchange loss
  3. CMachine cost Rs 45,50,000; exchange loss Rs 50,000
  4. DMachine cost Rs 45,00,000; exchange loss Rs 50,000

Explanation

The asset is a non-monetary item carried at the transaction-date rate: 50,000 x 90 = Rs 45,00,000. Payment on 31 January settled the liability at 50,000 x 92 = Rs 46,00,000, so the exchange difference is Rs 1,00,000, a loss recognised in profit or loss. The closing rate is irrelevant because the liability is already settled and the machine is non-monetary. Adding the loss to the cost is wrong under AS 11.

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