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      Question

      A company imports machinery payable in USD after 6

      months. If the liability remains unpaid at year-end and the exchange rate has increased, how should the difference be accounted for?
      A Ignore till settlement. Correct Answer Incorrect Answer
      B Recognise as exchange loss in P&L. Correct Answer Incorrect Answer
      C Capitalize into cost of machinery mandatorily. Correct Answer Incorrect Answer
      D Recognise as OCI item. Correct Answer Incorrect Answer
      E Transfer to reserves. Correct Answer Incorrect Answer

      Solution

      Foreign currency monetary items (like creditors) are restated at closing rate, and the exchange difference goes to P&L, unless it relates to qualifying assets (then eligible for capitalization under Ind AS 23).

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