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

Veda Exports Ltd purchased a machine on credit from a German supplier on 10 January 2026 for EUR 20,000 when the rate was Rs 90 per EUR. The machine is an item of property, plant and equipment. At the balance sheet date, 31 March 2026, the rate was Rs 92 per EUR and the amount remained unpaid. As per AS 11, what is the amount at which the liability will be reported in the balance sheet?

The liability is reported at Rs 18,40,000 because an unpaid foreign currency payable is a monetary item translated at the closing rate on the balance sheet date, EUR 20,000 multiplied by Rs 92. The Rs 40,000 increase is an exchange loss in profit and loss.

  1. ARs 18,00,000
  2. BRs 18,40,000Correct
  3. CRs 18,20,000
  4. DRs 40,000

Explanation

The payable is a monetary item and is reported at the closing rate: EUR 20,000 x Rs 92 = Rs 18,40,000. The difference of Rs 40,000 (20,000 x 2) is an exchange loss recognised in the statement of profit and loss, not added to the machine cost. Rs 18,00,000 is the historical transaction-date value, which is wrong for a monetary item.

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