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

Under paragraph 46A of AS 11, which of the following is true of the option to accumulate exchange differences on long-term foreign currency monetary items?

An asset or liability qualifies as a long-term foreign currency monetary item if it is expressed in a foreign currency and has a term of twelve months or more at origination. The option is irrevocable, covers all such items, and requires disclosure of unamortised amounts.

  1. AThe option is revocable each year at the choice of the enterprise
  2. BAn item qualifies if expressed in foreign currency with a term of twelve months or more at the date of originationCorrect
  3. CThe option applies only to items relating to depreciable assets
  4. DNo disclosure is needed once the option is exercised

Explanation

Paragraph 46A(2) designates an item as long-term if it is in a foreign currency and has a term of twelve months or more at origination. The option is irrevocable and applies to all such items. It is not limited to depreciable assets because other cases use the translation difference account. The fact of the option and the amount remaining to be amortised must be disclosed.

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