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CA Final · Financial Reporting · Ind AS 21 The Effects of Changes in Foreign Exchange Rates

Tara Exports Ltd (functional currency INR, year ending 31 March) took an unhedged USD 100,000 loan on 1 January at ₹80, not used for acquiring a qualifying asset. The closing rate on 31 March was ₹83, and the loan was repaid on 30 June at ₹82. Assume the exemption for long-term foreign currency monetary items does not apply. What exchange difference is recognised in profit or loss for the year ending 31 March of the following year?

A gain of ₹1,00,000 is recognised in the following year. The loan was carried at ₹83 after the first year, with a ₹3,00,000 loss already charged then. Settlement at ₹82 reduces the payment by ₹1 per dollar on USD 100,000, which is recognised in profit or loss.

  1. ALoss of ₹2,00,000
  2. BGain of ₹1,00,000Correct
  3. CGain of ₹2,00,000
  4. DGain of ₹3,00,000

Explanation

At 31 March the loan was retranslated at ₹83, giving a loss of 100,000 × 3 = ₹3,00,000 in the first year. On settlement at ₹82, the difference from the carrying amount is 100,000 × (83 − 82) = ₹1,00,000, a gain in the following year. Showing a loss of ₹2,00,000 wrongly recognises the cumulative effect in the second year.

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