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CMA Intermediate · Financial Accounting · The Effects of Changes in Foreign Exchange Rates (AS 11)

Under AS 11, a foreign currency transaction is recorded on initial recognition in the reporting currency by applying to the foreign currency amount which exchange rate?

The transaction is recorded at the exchange rate prevailing on the date of the transaction. AS 11 requires this for initial recognition. Closing rates apply only to later restatement of monetary items, and settlement rates only give rise to exchange differences when the item is settled.

  1. AThe exchange rate at the date of the transactionCorrect
  2. BThe closing rate at the end of the financial year
  3. CThe average rate for the whole financial year
  4. DThe rate at which the transaction is finally settled

Explanation

AS 11 requires the foreign currency amount to be converted at the exchange rate between the reporting currency and the foreign currency at the date of the transaction. The closing rate is used later for restating monetary items at the balance sheet date, not for initial recording. The settlement rate only determines the exchange difference on settlement.

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