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

Which of the following is NOT a source of exchange difference arising on translating the financial statements of a non-integral foreign operation under AS 11?

Settlement of a rupee trade payable to a domestic supplier is not a source. AS 11 recognises three sources: using different rates for income and expenses versus assets and liabilities, retranslating the opening net investment, and other changes to equity of the foreign operation.

  1. ATranslating income and expense items at transaction-date rates and assets and liabilities at the closing rate
  2. BTranslating the opening net investment at a rate different from the one previously used
  3. COther changes to equity in the non-integral foreign operation
  4. DSettlement of a trade payable of the reporting enterprise to a domestic supplier in rupeesCorrect

Explanation

AS 11 lists three sources: translating income, expenses, assets and liabilities at different rates; translating the opening net investment at a different rate; and other changes to equity of the foreign operation. Settling a rupee payable to a domestic supplier involves no foreign currency translation of the foreign operation, so it is not a source.

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