Question

A company purchases raw material from a US-based supplier for USD 10,000 on January 1, 20X1, when the exchange rate is ₹87/USD. The payment remains outstanding on the balance sheet date of March 31, 20X1, when the exchange rate has shifted to ₹90/USD. Pursuant to AS-11, how should the resulting exchange difference be recognised in the financial statements?

Q: Answer-A company purchases raw material from a US-based supplier for USD 10,000 on January 1, 20X1, when th...

Under AS-11, trade payables sundry creditors are classified as Monetary Items because they represent money to be paid in a fixed or determinable amount. Monetary items denominated in a foreign currency must be reported using the closing rate the exchange rate at the balance sheet date. As per the General Principle of AS-11, exchange differences arising on the settlement of monetary items or on reporting monetary items at rates different from those at which they were initially recorded during the period shall be recognised as income or as expenses in the period in which they arise. Calculation of Difference Initial Value Jan 1 10,000 878,70,000 Closing Value Mar 31 10,000 909,00,000 Exchange Difference 30,000 Loss

A The exchange loss of ₹30,000 should be capitalised and added to the cost of the closing stock.

B The exchange loss of ₹30,000 should be recognised as an expense in the Statement of Profit and Loss for the period.

C The difference should be accumulated in a Foreign Currency Translation Reserve (FCTR) until the actual payment is made.

D The difference should be deferred in the Balance Sheet and amortised over the remaining credit period of the supplier.

E No exchange difference is recognised until the transaction is settled (Realisation Principle).

Practice Next

Detailed Solution

More Financial System Questions

Hey! Ask a query

Please Register/Login

RBI Grade B 2026 Phase 1 Memory Based Paper