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

Which statement about the scope of AS 11 regarding forward exchange contracts is correct?

AS 11 covers exchange differences on all forward exchange contracts, including those entered into to hedge risk on existing assets and liabilities. It does not cover contracts hedging future transactions that are firm commitments or highly probable forecast transactions, so the first statement is the accurate one.

  1. AIt applies to exchange differences on all forward exchange contracts, including those hedging existing assets and liabilities, but not those hedging firm commitments or highly probable forecast transactionsCorrect
  2. BIt applies only to forward contracts that hedge existing assets and liabilities, and not to any other forward contract
  3. CIt does not apply to any forward exchange contract
  4. DIt applies to all forward contracts including those hedging firm commitments and forecast transactions

Explanation

The footnote to the scope paragraph says the Standard applies to exchange differences on all forward exchange contracts, including those hedging existing assets and liabilities. It excludes those hedging foreign currency risks of future transactions with firm commitments or highly probable forecasts. The other options misstate this boundary.

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