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

Under AS 11, how should the effect of a change in exchange rates that occurs after the balance sheet date on foreign currency monetary items be dealt with?

The effect of an exchange rate change after the balance sheet date on foreign currency monetary items is disclosed in line with AS 4 on contingencies and events occurring after the balance sheet date. It is not adjusted in the accounts of the year just ended.

  1. AIt is adjusted in the profit or loss of the year just ended
  2. BIt is disclosed in accordance with AS 4, Contingencies and Events Occurring After the Balance Sheet DateCorrect
  3. CIt is ignored because it relates to a later period
  4. DIt is credited directly to reserves of the year just ended

Explanation

AS 11 provides that the effect of an exchange rate change occurring after the balance sheet date, on foreign currency monetary items or on a foreign operation's financial statements, is disclosed as per AS 4. Adjusting the year just ended would be wrong because the rate change is a post-balance-sheet event, not a condition existing at the balance sheet date.

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